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A.O. Smith (AOS) Tops Q2 Earnings, Lags Revenues; View Up
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A.O. Smith Corp. (AOS - Free Report) maintained its earnings streak in second-quarter 2016, with earnings per share of 98 cents surpassing the Zacks Consensus Estimate of 91 cents by 7.7%.
The earnings figure also improved 24% from the year-ago tally of 79 cents. Solid execution by the company’s businesses in North America and China drove the upside. Also, a fall in cost of goods sold proved conducive to the quarterly earnings performance.
Inside the Headlines
Net sales in the quarter were up 2.1% year over year to $667 million but failed to beat the Zacks Consensus Estimate of $692 million.
Higher sales at the company’s “Rest of the World” segment offset some of the revenue decline recorded in North America, thereby driving overall top-line growth. However, strengthening of the U.S. dollar continued to impact sales.
Talking about segments, A.O. Smith’s sales in the North America segment (comprises U.S. and Canadian water heaters and boilers) declined 2.2% year over year to $432.8 million. Lower volumes of residential water heaters in the U.S. more than offset the gains from price increases as well as higher volumes of boilers and commercial water heaters in the country.
Despite the tepid top-line performance, segmental operating earnings rose 21% year over year to $104.2 million. Improvement in operating earnings came on the back of higher prices in the U.S. and Canada and lower material costs. Consequently, operating margin at the segment improved 470 basis points (bps) to 24.1%.
Quarterly sales at the Rest of the World segment (China, India & Europe) rose 8.4% year over year to $239.8 million. This improvement came largely on the back of continued strong customer demand for A.O. Smith’s premium water heating and water treatment products, particularly in China (up 16% in terms of U.S. dollar).
Operating earnings at the segment improved 6.8% year over year to $33 million in the quarter. While higher sales in China drove operating income, it was offset to some degree by a host of factors including adverse currency translation, higher selling, general and administrative expenses in tier 2 and tier 3 Chinese cities and wider losses in India. On account of these factors, operating margin declined 20 bps to 13.8% on a year-over-year basis.
Share Repurchases
During the first half of 2016, A.O. Smith bought back around 1.1 million common shares for $82.2 million. Exiting the second quarter, the company had roughly 1.5 million shares remaining under its discretionary authorization program. A.O. Smith plans to spend $175 million on share repurchases in 2016.
Liquidity & Cash Flow
Exiting the quarter on Jun 30, 2016, A.O. Smith’s cash and cash equivalents were $287.4 million compared with $305.5 million at the end of Mar 31, 2016.
At the end of Jun 30, 2016, long-term debt stood at $274.6 million, relatively flat compared with tally at the end of Mar 31, 2016.
Guidance Hiked
Concurrent with the earnings release, A.O. Smith raised the midpoint of its 2016 guidance, banking on the robust prospects of its consumer product business in China and its thriving North American business. The company now projects full-year 2016 earnings per share between $3.58 and $3.64 (up from the previously guided range of $3.47 and $3.55).
A.O. Smith delivered another quarter of solid earnings growth, mainly attributable to its massive growth in key end markets including China and the U.S. With the construction sector picking up steam, the company is expecting solid volume growth of residential water heaters. Similarly, surge in the commercial water heater industry is boosting U.S. commercial water heater volumes. Also, the company’s solid traction of water heater sales in China is expected to act as a major catalyst in the forthcoming quarters. Growth in China is expected to be fuelled by factors like improvement in households, thriving replacement markets, geographic expansion, growth in water treatment and air purification products and improved product mix.
A.O. Smith currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the sector include EnerSys (ENS - Free Report) , Franklin Electric Co., Inc. (FELE - Free Report) and Schneider Electric SE (SBGSY - Free Report) . All the three stocks carry a Zacks Rank #2 (Buy).
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A.O. Smith (AOS) Tops Q2 Earnings, Lags Revenues; View Up
A.O. Smith Corp. (AOS - Free Report) maintained its earnings streak in second-quarter 2016, with earnings per share of 98 cents surpassing the Zacks Consensus Estimate of 91 cents by 7.7%.
The earnings figure also improved 24% from the year-ago tally of 79 cents. Solid execution by the company’s businesses in North America and China drove the upside. Also, a fall in cost of goods sold proved conducive to the quarterly earnings performance.
Inside the Headlines
Net sales in the quarter were up 2.1% year over year to $667 million but failed to beat the Zacks Consensus Estimate of $692 million.
Higher sales at the company’s “Rest of the World” segment offset some of the revenue decline recorded in North America, thereby driving overall top-line growth. However, strengthening of the U.S. dollar continued to impact sales.
Talking about segments, A.O. Smith’s sales in the North America segment (comprises U.S. and Canadian water heaters and boilers) declined 2.2% year over year to $432.8 million. Lower volumes of residential water heaters in the U.S. more than offset the gains from price increases as well as higher volumes of boilers and commercial water heaters in the country.
Despite the tepid top-line performance, segmental operating earnings rose 21% year over year to $104.2 million. Improvement in operating earnings came on the back of higher prices in the U.S. and Canada and lower material costs. Consequently, operating margin at the segment improved 470 basis points (bps) to 24.1%.
Quarterly sales at the Rest of the World segment (China, India & Europe) rose 8.4% year over year to $239.8 million. This improvement came largely on the back of continued strong customer demand for A.O. Smith’s premium water heating and water treatment products, particularly in China (up 16% in terms of U.S. dollar).
Operating earnings at the segment improved 6.8% year over year to $33 million in the quarter. While higher sales in China drove operating income, it was offset to some degree by a host of factors including adverse currency translation, higher selling, general and administrative expenses in tier 2 and tier 3 Chinese cities and wider losses in India. On account of these factors, operating margin declined 20 bps to 13.8% on a year-over-year basis.
Share Repurchases
During the first half of 2016, A.O. Smith bought back around 1.1 million common shares for $82.2 million. Exiting the second quarter, the company had roughly 1.5 million shares remaining under its discretionary authorization program. A.O. Smith plans to spend $175 million on share repurchases in 2016.
Liquidity & Cash Flow
Exiting the quarter on Jun 30, 2016, A.O. Smith’s cash and cash equivalents were $287.4 million compared with $305.5 million at the end of Mar 31, 2016.
At the end of Jun 30, 2016, long-term debt stood at $274.6 million, relatively flat compared with tally at the end of Mar 31, 2016.
Guidance Hiked
Concurrent with the earnings release, A.O. Smith raised the midpoint of its 2016 guidance, banking on the robust prospects of its consumer product business in China and its thriving North American business. The company now projects full-year 2016 earnings per share between $3.58 and $3.64 (up from the previously guided range of $3.47 and $3.55).
SMITH (AO) CORP Price, Consensus and EPS Surprise
SMITH (AO) CORP Price, Consensus and EPS Surprise | SMITH (AO) CORP Quote
Going Forward
A.O. Smith delivered another quarter of solid earnings growth, mainly attributable to its massive growth in key end markets including China and the U.S. With the construction sector picking up steam, the company is expecting solid volume growth of residential water heaters. Similarly, surge in the commercial water heater industry is boosting U.S. commercial water heater volumes. Also, the company’s solid traction of water heater sales in China is expected to act as a major catalyst in the forthcoming quarters. Growth in China is expected to be fuelled by factors like improvement in households, thriving replacement markets, geographic expansion, growth in water treatment and air purification products and improved product mix.
A.O. Smith currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the sector include EnerSys (ENS - Free Report) , Franklin Electric Co., Inc. (FELE - Free Report) and Schneider Electric SE (SBGSY - Free Report) . All the three stocks carry a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>