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A.O. Smith (AOS) Q3 Earnings Beat Estimates, View Upbeat
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A.O. Smith Corp.AOS maintained its earnings streak in third-quarter 2016, with earnings per share of 47 cents, surpassing the Zacks Consensus Estimate by two cents.
The earnings figure also improved 14.6% from the year-ago tally of 41 cents. The bottom-line improvement mainly came on the back of robust sales growth.
Inside the Headlines
Net sales in the quarter were up 9.4% year over year to $683.9 million, however failed to beat the Zacks Consensus Estimate of $685 million.
Increased volumes of residential and commercial water heaters in the U.S. and stellar demand of water heating and water treatment products in China supported the impressive top-line growth during the quarter.
Talking about segments, A.O. Smith’s sales in the North America segment (comprises U.S. and Canadian water heaters and boilers) grew 8% year over year to $450.8 million. Higher volumes of residential and commercial water heaters in the United States proved conducive to the sales performance of the region. Also, acquisition of residential water treatment company – Aquasana – contributed $6.2 million to revenues, thus supplementing the segment’s growth.
Segmental operating earnings rose 11% year over year to $100.5 million. Improvement in operating earnings came on the back of higher volumes in the U.S. Consequently, operating margin at the segment expanded 60 basis points (bps) to 22.3%.
Quarterly sales at the Rest of the World segment (China, India & Europe) rose 10.7% year over year to $240.3 million. This improvement came largely on the back of consistent solid customer demand for A.O. Smith’s premium water heating and water treatment products, particularly in China (up 11% in terms of U.S. dollar).
Operating earnings at the segment improved 14% year over year to $31.1 million in the quarter. While higher sales in China drove operating income,it was offset to some degree by a host of factors, including higher selling expenses to support expansion in the tier two and tier three cities, higher advertising costs to promote the products in China during the Summer Olympic Games and currency fluctuation. Operating margin improved 30 bps to 12.9% on a year-over-year basis.
Share Repurchases
Through the first nine months of 2016, A.O. Smith bought back around 1.3 million common shares for $100 million. The company completed a two-for-one stock split in early October. As of Sep 30, approximately 2.6 million shares remained on the existing discretionary repurchase authority. Going forward, A.O. Smith expects to spend approximately $135 million on share repurchases for the rest of 2016.
Liquidity & Cash Flow
Exiting the quarter on Sep 30, 2016, A.O. Smith’s cash and cash equivalents were $269.3 million compared with $323.6 million at the end of Dec 31, 2015.
At the end of Sep 30, 2016, long-term debt was $328.9 million, compared with $236.1 million at the end of Dec 31, 2015.
Guidance
Accounting for the stock split, the company has offered an optimistic guidance for full-year 2016. It now expects 2016 earnings per share between $1.81 and $1.83.
A.O. Smith’s long-term growth potential and strong position in the defensive replacement market sets it apart from its peers. The company accounts for approximately 85% of North American water heater and boiler volumes, which are on the uptrend, adding to its strength.
Positive industry trends like price rise of wholesale U.S. water heaters and thriving commercial markets signal brighter days ahead for the company. In addition, the company has been witnessing robust performance in China and the present market conditions indicate the growth momentum is unlikely to fizzle out anytime soon.
Moreover, A.O. Smith has been leveraging to capitalize on the long-term investment opportunity in India, one of the thriving economies of the world. The company is mainly targeting upper-middle class demographic and is undertaking extensive marketing initiatives as part of its expansion strategy. Such lucrative investment opportunities will pave the way for higher brand recognition and top-line growth.
Stocks to Consider
A.O. Smith currently holds a Zacks Rank #2 (Buy). Other favorably placed stocks in the industry include Allegion Plc (ALLE - Free Report) , Packaging Corporation of America (PKG - Free Report) and Harsco Corp. . While Allegion and Packaging Corp. carry a Zacks Rank #2, Harsco sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Allegion plc is a leading global provider of security products and solutions for business and domestic purposes. The company has a decent earnings history, beating estimates three times in the trailing four quarters with an average positive surprise of 11.6%.
Headquartered in Lake Forest, IL, Packaging Corporation of America is the country’s fourth largest producer of containerboard and packaging products. The company has an average positive surprise of 5.0% over the trailing four quarters.
Harsco Corporation is a services and engineered products company. It has managed to beat estimates all through over the trailing four quarters, resulting in an average positive surprise of 89.8%.
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A.O. Smith (AOS) Q3 Earnings Beat Estimates, View Upbeat
A.O. Smith Corp. AOS maintained its earnings streak in third-quarter 2016, with earnings per share of 47 cents, surpassing the Zacks Consensus Estimate by two cents.
The earnings figure also improved 14.6% from the year-ago tally of 41 cents. The bottom-line improvement mainly came on the back of robust sales growth.
Inside the Headlines
Net sales in the quarter were up 9.4% year over year to $683.9 million, however failed to beat the Zacks Consensus Estimate of $685 million.
Increased volumes of residential and commercial water heaters in the U.S. and stellar demand of water heating and water treatment products in China supported the impressive top-line growth during the quarter.
Talking about segments, A.O. Smith’s sales in the North America segment (comprises U.S. and Canadian water heaters and boilers) grew 8% year over year to $450.8 million. Higher volumes of residential and commercial water heaters in the United States proved conducive to the sales performance of the region. Also, acquisition of residential water treatment company – Aquasana – contributed $6.2 million to revenues, thus supplementing the segment’s growth.
Segmental operating earnings rose 11% year over year to $100.5 million. Improvement in operating earnings came on the back of higher volumes in the U.S. Consequently, operating margin at the segment expanded 60 basis points (bps) to 22.3%.
Quarterly sales at the Rest of the World segment (China, India & Europe) rose 10.7% year over year to $240.3 million. This improvement came largely on the back of consistent solid customer demand for A.O. Smith’s premium water heating and water treatment products, particularly in China (up 11% in terms of U.S. dollar).
Operating earnings at the segment improved 14% year over year to $31.1 million in the quarter. While higher sales in China drove operating income,it was offset to some degree by a host of factors, including higher selling expenses to support expansion in the tier two and tier three cities, higher advertising costs to promote the products in China during the Summer Olympic Games and currency fluctuation. Operating margin improved 30 bps to 12.9% on a year-over-year basis.
Share Repurchases
Through the first nine months of 2016, A.O. Smith bought back around 1.3 million common shares for $100 million. The company completed a two-for-one stock split in early October. As of Sep 30, approximately 2.6 million shares remained on the existing discretionary repurchase authority. Going forward, A.O. Smith expects to spend approximately $135 million on share repurchases for the rest of 2016.
Liquidity & Cash Flow
Exiting the quarter on Sep 30, 2016, A.O. Smith’s cash and cash equivalents were $269.3 million compared with $323.6 million at the end of Dec 31, 2015.
At the end of Sep 30, 2016, long-term debt was $328.9 million, compared with $236.1 million at the end of Dec 31, 2015.
Guidance
Accounting for the stock split, the company has offered an optimistic guidance for full-year 2016. It now expects 2016 earnings per share between $1.81 and $1.83.
SMITH (AO) CORP Price, Consensus and EPS Surprise
SMITH (AO) CORP Price, Consensus and EPS Surprise | SMITH (AO) CORP Quote
Our Take
A.O. Smith’s long-term growth potential and strong position in the defensive replacement market sets it apart from its peers. The company accounts for approximately 85% of North American water heater and boiler volumes, which are on the uptrend, adding to its strength.
Positive industry trends like price rise of wholesale U.S. water heaters and thriving commercial markets signal brighter days ahead for the company. In addition, the company has been witnessing robust performance in China and the present market conditions indicate the growth momentum is unlikely to fizzle out anytime soon.
Moreover, A.O. Smith has been leveraging to capitalize on the long-term investment opportunity in India, one of the thriving economies of the world. The company is mainly targeting upper-middle class demographic and is undertaking extensive marketing initiatives as part of its expansion strategy. Such lucrative investment opportunities will pave the way for higher brand recognition and top-line growth.
Stocks to Consider
A.O. Smith currently holds a Zacks Rank #2 (Buy). Other favorably placed stocks in the industry include Allegion Plc (ALLE - Free Report) , Packaging Corporation of America (PKG - Free Report) and Harsco Corp. . While Allegion and Packaging Corp. carry a Zacks Rank #2, Harsco sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Allegion plc is a leading global provider of security products and solutions for business and domestic purposes. The company has a decent earnings history, beating estimates three times in the trailing four quarters with an average positive surprise of 11.6%.
Headquartered in Lake Forest, IL, Packaging Corporation of America is the country’s fourth largest producer of containerboard and packaging products. The company has an average positive surprise of 5.0% over the trailing four quarters.
Harsco Corporation is a services and engineered products company. It has managed to beat estimates all through over the trailing four quarters, resulting in an average positive surprise of 89.8%.
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>