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Industrial Stocks' Earnings Due This Week: AOS, XYL, MHVYF

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Avisekh Bhattacharjee
·6 min read
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Per the latest Earnings Trends article, July-September quarter earnings for the Zacks Industrial Products sector are likely to decline 23% on a year-over-year basis, while revenues and margins are estimated to fall 6.6% and 2.1%, respectively. Weakness in industrial production, particularly in August and September, coupled with soft demand environment owing to the coronavirus outbreak-led issues, might have hurt the sector’s performance. Notably, the bottom-line fall is likely to be witnessed by other sectors as well, with 14 of the 16 Zacks sectors expected to record declines this earnings season.

Major Factors at Play for Industrial Stocks

Per the latest Federal Reserve report published on Oct 16, the U.S. industrial production declined 0.6% (on a month-over-month basis) in September, after registering growth of 4.2% and 0.4% in July and August, respectively. Total industrial production in September fell 7.3% from the year-ago level.

Notably, manufacturing output registered a decline of 0.3% in September (on a month-over-month basis), after witnessing growth of 4.2% and 1.2% in July and August, respectively. Also, the utilities output declined 5.6% in September, following 4.9% growth and 1% decline in July and August, respectively. However, outputs in mining sector recorded growth of 1.7% in September compared with an increase of 3.7% and a decline of 2.4% in July and August, respectively.

A persistent low demand environment across end markets caused by the pandemic, production in suboptimal scale as well as supply-chain disruptions are expected to have affected the industrial companies in the July-September quarter. Also, highly leveraged balance sheets, along with uncertain demand environment caused by difficult Sino-U.S. trade relations might have hurt the competencies of several companies during the quarter.

On the flip side, the industrial sector is expected to have benefited from improvement in domestic and international orders for products, helped by the gradual reopening of major global economies. Also, a surge in the e-commerce business might have proved beneficial for several companies.

In addition, producers of robotic cleaners along with other companies from the sector, which are engaged in packaging for medicine and producing materials for personal protective equipment, are expected to have benefited from increased demand. This apart, several cost-control actions along with commercial and operational excellence initiatives adopted by many sector participants are anticipated to have helped in maintaining a healthy margin performance.

It will be interesting to see the quarterly results of some of the industrial companies on Oct 29 and Oct 30.

A. O. Smith Corporation AOS will release third-quarter 2020 results on Oct 29, before market open. In the past four quarters, the company recorded better-than-expected results once and missed thrice. Earnings surprise was a negative 3.03%, on average.

Our proven model provides some idea about stocks that are about to release earnings results. Per the model, a stock needs a combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for increasing the odds of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Presently, A. O. Smith has an Earnings ESP of +5.71%, as the Most Accurate Estimate is pegged at 56 cents, higher than the Zacks Consensus Estimate of 53 cents. Also, it has a Zacks Rank #3, which when combined with a positive ESP, makes us confident of an earnings beat.  

A. O. Smith Corporation Price and EPS Surprise

A. O. Smith Corporation Price and EPS Surprise
A. O. Smith Corporation Price and EPS Surprise

A. O. Smith Corporation price-eps-surprise | A. O. Smith Corporation Quote

The company is likely to have benefited from its strong position in the replacement market. Robust demand for water treatment products in the United States is expected to have augmented its top-line performance in the third quarter. Also, improvement in the effectiveness of A. O. Smith’s direct-to-consumer channel is likely to have supported its top line. (Read more: A. O. Smith to Post Q3 Earnings: Beat in the Cards?)

Over the past 30 days, the Zacks Consensus Estimate for its third-quarter earnings has been raised from 50 cents to 53 cents.

Xylem Inc. XYL will report results for the third quarter on Oct 29, before market open. The company delivered better-than-expected results in one of the trailing four quarters, while recording in-line results in two and lagging estimates once. Earnings surprise was a negative 8.82%, on average.

Currently, the company has an Earnings ESP of +3.42%, as the Most Accurate Estimate is pegged at 53 cents, higher than the Zacks Consensus Estimate of 52 cents. It has a Zacks Rank #3.

Xylem Inc. Price and EPS Surprise

Xylem Inc. Price and EPS Surprise
Xylem Inc. Price and EPS Surprise

Xylem Inc. price-eps-surprise | Xylem Inc. Quote

The company is likely to have benefited from healthy backlog and impressive contract wins as well as solid product offerings and focus on innovation. However, its performance is expected to have been affected by the coronavirus outbreak-led market downturn. (Read More: Xylem to Report Q3 Earnings: What's in the Offing?)

Over the past 30 days, the Zacks Consensus Estimate for third-quarter earnings has been raised from 51 cents to 52 cents.

Mitsubishi Heavy Industries, Ltd. MHVYF is expected to release second-quarter fiscal 2020 (ended September 2020) results on Oct 30. The company has a Zacks Rank #3 and an Earnings ESP of 0.00%, as both the Most Accurate Estimate and the Zacks Consensus Estimate is pegged at a loss of 53 cents.

Mitsubishi Heavy Industries, Ltd. Price and EPS Surprise

Mitsubishi Heavy Industries, Ltd. Price and EPS Surprise
Mitsubishi Heavy Industries, Ltd. Price and EPS Surprise

Mitsubishi Heavy Industries, Ltd. price-eps-surprise | Mitsubishi Heavy Industries, Ltd. Quote

The company is likely to have benefited from its strong position in the manufacturing of heavy machinery worldwide and its strong presence across diversified end markets with solid product offerings. However, its performance is expected to have been affected by softness in end markets on account of low order intakes mostly due to the coronavirus outbreak-related issues.

Over the past 30 days, the Zacks Consensus Estimate for fiscal second-quarter earnings has been stable at a loss of 53 cents.

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A. O. Smith Corporation (AOS) : Free Stock Analysis Report
 
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Mitsubishi Heavy Industries, Ltd. (MHVYF) : Free Stock Analysis Report
 
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