It has been about a month since the last earnings report for A.O. Smith (
AOS Quick Quote AOS - Free Report) . Shares have lost about 4.6% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is A.O. Smith due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
A. O. Smith Q4 Earnings Beat, Revenues Decline Y/Y A. O. Smith fourth-quarter 2022 adjusted earnings (excluding $1.64 from non-recurring items) of 86 cents per share surpassed the Zacks Consensus Estimate of 79 cents. Net sales of $936.1 million outperformed the Zacks Consensus Estimate of $912.3 million. The top line declined 6% year over year due to U.S. residential water heater de-stocking activity. Segmental Details
A. O. Smith’s quarterly sales in North America (comprising the United States and Canada water heaters and boilers) dipped 3% year over year to $692 million due to weak residential water heater demand. Pricing actions and higher boiler volumes partly offset the adversity.
Adjusted segment earnings decreased 2% year over year to $161.2 million. The downside was due to lower residential water heater volumes. Quarterly sales in the Rest of the World (including China, India and Europe) decreased 13% year over year to $249.7 million. The decline in sales was primarily due to lower consumer demand in China, thanks to COVID-19-related lockdowns. However, sales in India increased 16% due to strong demand for water heaters and water treatment products. The segment’s earnings were $31.6 million, up 4% year over year. Despite lower volumes in China, the performance was driven by reduced incentive and selling costs in the region. Margin Details
In the reported quarter, A.O. Smith’s cost of sales was $587.5 million, down 7.5% year over year. Selling, general & administrative expenses were $168.9 million, down 8.3%.
Gross profit decreased 3.3% year over year to $348.6 million. Gross margin was 37.2%, up 1 percentage point year over year. Interest expenses surged more than 100% to $3.4 million. Liquidity & Cash Flow
As of Dec 31, 2022, A.O. Smith’s cash and cash equivalents totaled $391.2 million compared with $443.3 million at the end of December 2021.
At the end of the reported quarter, long-term debt was $334.5 million compared with $189.9 million at December 2021-end. In 2022, cash provided by operating activities totaled $391.4 million compared with $641.1 million in the year-ago period. Share Repurchases
In 2022, A.O. Smith repurchased 6.6 million shares for $403.5 million. Approximately 0.4 million shares are yet to be repurchased under the existing share repurchase authorization. In January, AOS’ board boosted the existing share buyback program by authorizing to repurchase of an additional 7.5 million shares. The company expects to buyback $200 million worth of shares in 2023. In 2022, the company paid dividends of $177.2 million, up 4.2%.
A.O. Smith expects net sales of $3,640-3,865 million in 2023. The mid-point of the guided range — $3,752.5 million — lies above the Zacks Consensus Estimate of $3.69 billion. The company expects adjusted earnings per share of $3.15-$3.45 for the year. The mid-point of the guided range — $3.3 — lies above the Zacks Consensus Estimate of $3.19.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
At this time, A.O. Smith has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, A.O. Smith has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.