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A. O. Smith's (AOS) Q2 Earnings Beat, Revenues Miss Mark

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A. O. Smith Corporation’s (AOS - Free Report) second-quarter 2022 adjusted earnings (excluding a penny from non-recurring items) of 82 cents per share outperformed the Zacks Consensus Estimate of 81 cents. The bottom line improved in double digits year over year.

Net sales of $965.9 million fell short of the Zacks Consensus Estimate of $970.2 million. The top line increased 12% year over year, driven by higher sales in North America and India, supported by its pricing actions.

Segmental Details

A. O. Smith’s quarterly sales in North America (comprising the United States and Canada water heaters and boilers) increased 23% year over year to $744.1 million. The upside was due to pricing actions undertaken to counter higher steel, transportation and other input costs. Segmental performance also benefited from higher volumes of water treatment products, boilers and commercial water heaters. The Giant Factories acquisition in October 2021 contributed $31 million to sales in the quarter.

A. O. Smith Corporation Price, Consensus and EPS Surprise

A. O. Smith Corporation Price, Consensus and EPS Surprise

A. O. Smith Corporation price-consensus-eps-surprise-chart | A. O. Smith Corporation Quote


Adjusted segment earnings increased 17% year over year to $162.5 million. The jump was on account of inflation-related price increases.

Quarterly sales in the Rest of the World (including China, India and Europe) decreased 13% year over year to $229.9 million. The decline in sales was primarily due to lower consumer demand in China, thanks to COVID-19-related lockdowns. However, strong demand boosted India sales by 79%.

The segment’s earnings were $18.1 million, down 19% year over year. The downside was due to lower volumes in China as a result of lockdowns.

Margin Details

In the reported quarter, A.O. Smith’s cost of sales was $631.5 million, up 17.3% on a year-over-year basis. Selling, general & administrative expenses were $166.7 million, down 3.7%.

Gross profit increased 4% year over year to $334.4 million with a margin of 34.6%, down 2.8 percentage points. Interest expenses surged more than 100% to $2.1 million.

Liquidity & Cash Flow

As of Jun 30, 2022, A.O. Smith’s cash and cash equivalents totaled $359.4 million compared with $443.3 million at the end of December 2021.

At the end of the reported quarter, long-term debt was $291.6 million compared with $189.9 million at December 2021-end.

In the first half of 2022, cash provided by the operating activities totaled $54.4 million, compared with $196 million in the year-ago period.

Share Repurchases

In the first half of 2022, A.O. Smith repurchased shares worth $190.4 million, down 3.9% year over year. In 2022, the company expects to repurchase shares worth $400 million. In the first six months of 2022, AOS paid dividends worth $87.9 million, up 4.8% year over year.

2022 Outlook Revised

A.O. Smith continues to expect earnings of $1.56-$1.76 per share for 2022. In 2021, the company reported earnings of $3.02. Adjusted earnings per share are still estimated in the band of $3.35-$3.55. This compares with $2.96 reported in 2021. The mid-point of the guided range — $3.45 — lies below the Zacks Consensus Estimate for the same stands at $3.51.

Due to lower volumes in the water heating business, AOS reduced its net sales guidance. The company now expects net sales of $3,960-$4,035 million for 2022, compared with $4,030-$4,105 million expected earlier. However, the guided range reflects a year-over-year increase of 12-14%. In 2021, the company reported net sales of $3,539 million.

Zacks Rank & Key Picks

A.O. Smith carries a Zacks Rank #3 (Hold).

Some better-ranked stocks worth considering are as follows:

Griffon Corporation (GFF - Free Report) sports a Zacks Rank #1 (Strong Buy). The company has an impressive earnings surprise history having outperformed the Zacks Consensus Estimate in three of the preceding four quarters, while missing in one. The average beat was 97%.  You can see the complete list of today’s Zacks #1 Rank stocks.

Griffon has an estimated earnings growth rate of 117.6% for the current year. The stock gained 9.7% in a year’s time.

Greif (GEF - Free Report) carries a Zacks Rank #1. The company’s earnings have surpassed the Zacks Consensus Estimate in each of the preceding four quarters, the average beat being 22.9%.

Greif has an estimated earnings growth rate of 36.8% for the current year. Shares of the company have rallied 13.4% in a year.

Titan International (TWI - Free Report) flaunts a Zacks Rank #1. The company’s earnings have outperformed the Zacks Consensus Estimate in each of the trailing four quarters, the average beat being 56.4%.

Titan International has an estimated earnings growth rate of 164.7%. Shares of the company have surged 93.9% in a year.

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