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A.O. Smith (AOS) Down 21.5% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for A.O. Smith (AOS - Free Report) . Shares have lost about 21.5% 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 Q1 Earnings & Revenues Miss Estimates

A. O. Smith reported disappointing first-quarter 2019 results wherein earnings and revenues lagged estimates.

The company’s adjusted earnings were 53 cents per share, missing the Zacks Consensus Estimate of 59 cents. Also, the bottom line recorded a decline from the year-ago figure of 60 cents.

Inside the Headlines

The company’s sales decreased 5.1% year over year to $748.2 million. The decline was primarily attributable to fall of sales in China. Also, the figure missed the Zacks Consensus Estimate of $765 million.

A.O. Smith’s sales in the North America segment (comprising U.S. and Canadian water heaters and boilers) increased 4% year over year to $521.8 million. Increased sales volumes of boilers and water treatment products proved beneficial for the segment.

Segmental operating earnings rose 9.4% year over year to $116 million. The growth was primarily attributable to higher sales, partially offset by rise in steel and other input costs.

Quarterly sales at the Rest of the World segment (including China, India and Europe) were down 21% year over year to $232.1 million. The decline was primarily attributable to fall in sales of water heaters and air purifiers, particularly in China.

Operating earnings at the segment plunged 65.9% year over year to $12.3 million in the quarter. Lower sales in China and increase in currency translation proved detrimental to the segment’s income.

Share Repurchases

In first quarter of 2019, A.O. Smith repurchased around 0.9 million shares for $45.6 million. At the end of the quarter, the company had approximately 5.2 million shares remaining under the existing discretionary repurchase authority.

Liquidity & Cash Flow

On Mar 31, 2019, A.O. Smith’s cash and cash equivalents totaled $337.8 million compared with $259.7 million as of Dec 31, 2018.

At the end of the reported quarter, long-term debt was $277.6 million compared with $221.8 million as of Dec 31, 2018.

Guidance

Concurrent with first-quarter results, the company revised guidance for 2019. It expects adjusted earnings to lie in the range of $2.69-$2.75 per share compared with the previous estimation of $2.67-$2.77.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -10.06% due to these changes.

VGM Scores

Currently, A.O. Smith has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. 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.

Outlook

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 #3 (Hold). We expect an in-line return from the stock in the next few months.


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