It has been about a month since the last earnings report for A.O. Smith (AOS). Shares have added about 14.2% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is A.O. Smith due for a pullback? 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 catalysts.
A. O. Smith Earnings and Sales Miss Estimates in Q1
A. O. Smith has reported disappointing first-quarter 2020 results, wherein both earnings and sales missed estimates.
The company’s adjusted earnings were 32 cents per share, missing the Zacks Consensus Estimate of 34 cents. Also, the bottom line declined from the year-ago figure of 53 cents.
The company’s first-quarter net sales decreased 14.9% year over year to $636.9 million. The decline was primarily attributable to lower sales in China and weakness in other global end markets amid the coronavirus pandemic. Also, the figure missed the Zacks Consensus Estimate of $655 million.
A.O. Smith’s sales in North America (comprising the U.S. and Canadian water heaters and boilers) moved up 2% year over year to $532.9 million. The segment’s results benefited from higher sales volume of water treatment and water heater products, and contribution from its Water-Right acquisition.
Segmental operating earnings were up about 10% to $127.1 million on a year over year basis. The improvement was driven by benefits of higher sales volume of water treatment products and lower steel costs.
Quarterly sales in Rest of World (including China, India and Europe) fell about 53% year over year to $110.2 million. The decline was primarily attributable to a significant decline in consumer demand, owing to the coronavirus-led market downturn.
Operating loss at the segment came in at $42.2 million against operating earnings of $12.3 million recorded in the year-ago quarter. Lower sales in China proved detrimental to the segment’s income.
Liquidity & Cash Flow
On Mar 31, 2020, A.O. Smith’s cash and cash equivalents totaled $416.1 million compared with $374 million as of Dec 31, 2019.
At the end of the reported quarter, long-term debt was $335.6 million compared with $277.2 million as of Dec 31, 2019.
In the first three months of 2020, cash provided by the operating activities totaled $54.1 million compared with $21.6 million in the year-ago comparable period.
In the first quarter of 2020, A.O. Smith repurchased 1.3 million shares for $57 million.
On uncertainties, regarding the impacts of the coronavirus outbreak on financial and operating results, the company has suspended its guidance for 2020.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
Currently, A.O. Smith has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions has been net zero. 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.
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