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Will Low Water Heater Demand Mar A. O. Smith (AOS) Q3 Earnings?

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A. O. Smith Corporation (AOS - Free Report) is scheduled to report third-quarter results on Oct 27, before market open.

The Zacks Consensus Estimate for the company’s third-quarter earnings has been revised downward by 23.3% in the past 60 days. However, the company has a stellar earnings surprise history, having outperformed the Zacks Consensus Estimate in each of the trailing four quarters, the average beat being 9.8%.

Let’s see how things are shaping up for A.O. Smith this earnings season.

A. O. Smith Corporation Price and EPS Surprise

A. O. Smith Corporation Price and EPS Surprise

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

Factors to Note

Higher volumes of water treatment products, boilers and commercial water heaters are likely to have boosted the North America segment’s performance in the third quarter. Strong demand in the wholesale channel is also expected to have driven performance. The Zacks Consensus Estimate for North America sales indicate a 7.1% rise from the year-ago reported number.

The top line is expected to reflect benefits from the acquisitions of Master Water Conditioning Corporation (July 2021) and Giant Factories, Inc. (October 2021). The Master Water Conditioning acquisition has boosted AOS’ water treatment business in North America, while the Giant Factories buyout has broadened its commercial and water heater offerings. For the third quarter, the company expects the Giant Factories acquisition to contribute approximately $100 million to the top line.
 
However, lower consumer demand in China due to coronavirus-related lockdowns is likely to have impacted the Rest of the World segment’s performance in the to-be-reported quarter. The Zacks Consensus Estimate for Rest of the World segment revenues shows a 4.2% decrease from the year-ago reported number.

Weakness in North American residential water heater demand is expected to have dented performance in the third quarter. For the third quarter, AOS expects sales to decrease 4% year over year, while adjusted earnings are predicted to decline 15%. The Zacks Consensus Estimate for third-quarter revenues suggests a decline of 4.4% from the year-ago period. The same for earnings hints at an approximate 16% fall from the year-ago reported number.

High raw material and transportation costs are likely to have hurt A. O. Smith’s bottom line in the to-be-reported quarter. Adverse foreign currency movements are expected to have impacted overseas business revenues.

What Does the Zacks Model Say?

Our proven model does not conclusively predict an earnings beat for A. O. Smith this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of beating estimates, which is not the case here, as elaborated below. You can see the complete list of today’s Zacks #1 Rank stocks here.

Earnings ESP: A. O. Smith has an Earnings ESP of 0.00% as both the Most Accurate Estimate and the Zacks Consensus Estimate are pegged at 69 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: A. O. Smith currently carries a Zacks Rank #4 (Sell).

Highlights of Q2 Earnings

A. O. Smith’s second-quarter 2022 adjusted earnings 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.

Stocks to Consider

Here are some companies within the broader Industrial Products sector that you may want to consider, as according to our model, these have the right combination of elements to beat on earnings this reporting cycle.

Illinois Tool Works (ITW - Free Report) has an Earnings ESP of +0.38% and a Zacks Rank #3. The company is slated to release third-quarter 2022 results on Oct 25.

Illinois Tool’s earnings have surpassed the Zacks Consensus Estimate in three of the preceding four quarters, while missing in one. The average beat was 2.8%.

Emerson Electric Co. (EMR - Free Report) has an Earnings ESP of +0.81% and a Zacks Rank #3. The company is scheduled to release fourth-quarter fiscal 2022 (ended Sep 30, 2022) results on Nov 2.

Emerson’s earnings have surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average beat being 6%.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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