A month has gone by since the last earnings report for A.O. Smith (AOS Quick QuoteAOS - Free Report) . Shares have lost about 7.2% 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 its most recent earnings report in order to get a better handle on the important drivers.

A. O. Smith Q3 Earnings Match Estimates, Sales Decline Y/Y

A. O. Smith’s third-quarter 2024 adjusted earnings of 82 cents per share matched the Zacks Consensus Estimate. The bottom line decreased 8.9% on a year-over-year basis.

Net sales of $902.6 million missed the consensus estimate of $913 million. The top line decreased 4% year over year due to lower sales in China and decreased volumes of water heaters in North America.

Segmental Details

A. O. Smith’s quarterly sales in North America (comprising the United States and Canada operations) decreased 1% year over year to $703.3 million. This downtick was caused by lower water heater volumes.

Segmental earnings inched down 4.4% year over year to $162.5 million, primarily due to lower water heater volumes.

Quarterly sales in the Rest of the World (including China, India and Europe) segment declined 10% year over year at $210.3 million. Sales declined due to lower volumes of core water heater and water treatment products. Sales in India increased 12% in local currency.

The segment’s earnings were $13.6 million, down 41.4% year over year due to lower volumes.

Margin Details

A.O. Smith’s cost of sales was $565.3 million, down 2.8% year over year. Selling, general & administrative expenses were $176.6 million, up 1%.

Gross profit decreased 5.3% year over year to $337.3 million. The gross margin was 37.4% compared with 38% in the year-ago period. Interest expenses were $1.5 million, down from $2.4 million from the year-ago quarter.

Liquidity & Cash Flow

As of Sept. 30, 2024, AOS’ cash and cash equivalents totaled $219.3 million compared with $339.9 million at the end of December 2023.

At the end of the quarter, long-term debt was $109.7 million compared with $117.3 million at the end of December 2023.

In the first nine months of 2024, cash provided by operating activities totaled $359.9 million compared with $439.0 million in the year-ago period.

Share Repurchases

In the first nine months of 2024, A.O. Smith repurchased 2.9 million shares for $237.1 million. Exiting September 2024, 2.7 million shares were left to be repurchased under the existing share repurchase authorization. In January 2024, AOS’ board boosted the existing share buyback program by authorizing the repurchase of an additional 2 million shares.

2024 Outlook

A.O. Smith has lowered its sales outlook. The company expects net sales to be in the range of $3.8-$3.9 billion. It reported sales of $3.85 billion in 2023.

Management currently projects adjusted earnings per share to be in the band of $3.70-$3.85 compared with $3.90-$4.15 projected earlier. The company reported earnings of $3.81 per share in 2023.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

VGM Scores

Currently, A.O. Smith has an average Growth Score of C, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise A.O. Smith has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.