Will North America Weakness Mar A. O. Smith's (AOS) Q4 Earnings?
A. O. Smith Corporation AOS is scheduled to report fourth-quarter results on Jan 31, before market open.
The Zacks Consensus Estimate for the company’s fourth-quarter earnings has been revised downward by 0.3% in the past 60 days. However, the company has a stellar earnings surprise history, having outperformed the Zacks Consensus Estimate in three of the trailing four quarters and matching once, the average beat being 4.2%.
Let’s see how A.O. Smith has shaped up this earnings season.
A. O. Smith Corporation Price and EPS Surprise
A. O. Smith Corporation price-eps-surprise | A. O. Smith Corporation Quote
Factors to Note
A. O. Smith is expected to have gained from its June 2022 acquisition of Atlantic Filter, which boosted its position in the water treatment industry, and strengthened its customer base in Florida and the adjacent regions. Also, the top-line results are expected to reflect the benefits of the acquisitions of Master Water Conditioning Corporation (July 2021) and Giant Factories, Inc. (October 2021). The Master Water Conditioning acquisition has boosted AOS’ water treatment business in North America, while the Giant Factories buyout has broadened its commercial and water heater offerings.
However, lower residential water heater volumes are likely to have impacted the North America segment’s performance in the fourth quarter. The Zacks Consensus Estimate for North American segment revenues suggests a 6.7% decrease from the year-ago reported number. For the fourth quarter, we expect the same to decrease 7.1% year over year.
Lower consumer demand in China due to coronavirus-related lockdowns is expected to have dented the Rest of the World segment’s performance in the fourth quarter. The Zacks Consensus Estimate for fourth-quarter revenues suggests a decline of 9.7% from the year-ago period. We expect the same to decline 10% from the year-ago reported number.
High raw material and transportation costs, and cost increases from production inefficiencies are likely to have affected AOS’ margin performance in the fourth quarter. Given the company’s substantial international presence, foreign currency headwinds are expected to have impacted the top line in the to-be-reported quarter.
What Does the Zacks Model Say?
Our proven model does not conclusively predict an earnings beat for A. O. Smith this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of beating estimates, which is not the case here, as elaborated below.
Earnings ESP: A. O. Smith has an Earnings ESP of - 2.78%. You can uncover the best stocks before they’re reported with our Earnings ESP Filter.
Zacks Rank: A. O. Smith currently carries a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Highlights of Q3 Earnings
A. O. Smith’s third-quarter 2022 adjusted earnings (excluding 2 cents from non-recurring items) of 69 cents per share were in line with the Zacks Consensus Estimate. The bottom line declined year over year in double digits. Net sales of $874.2 million marginally outperformed the Zacks Consensus Estimate of $874.1 million. The top line dipped 4.4% year over year due to residential water heater de-stocking activity.
Stocks to Consider
Here are some companies, which, according to our model, have the right combination of elements to beat on earnings in this reporting cycle.
IDEX Corporation IEX has an Earnings ESP of +2.96% and a Zacks Rank of 2 at present. The company is slated to release fourth-quarter 2022 results on Jan 31.
IDEX’s earnings have surpassed the Zacks Consensus Estimate in each of the preceding four quarters, the average beat being 5.7%.
Xylem Inc. XYL currently has an Earnings ESP of +2.1% and a Zacks Rank of 3. The company is scheduled to release fourth-quarter 2022 results on Feb 2.
Xylem’s earnings have surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average beat being 13.3%.
Illinois Tool Works ITW has an Earnings ESP of +1.92% and a Zacks Rank of 3. The company is slated to release fourth-quarter 2022 results on Feb 2.
Illinois Tool’s earnings have surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average beat being 4.2%.
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