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A.O. Smith (AOS) Up 4.3% Since Last Earnings Report: Can It Continue?

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Zacks Equity Research
·4 min read
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A month has gone by since the last earnings report for A.O. Smith (AOS). Shares have added about 4.3% 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 the most recent earnings report in order to get a better handle on the important catalysts.

A. O. Smith Q4 Earnings & Revenues Surpass Estimates

A. O. Smith has reported better-than-expected fourth-quarter 2020 results, wherein both earnings and revenues beat estimates.

The company’s adjusted earnings were 74 cents per share, beating the Zacks Consensus Estimate of 59 cents. Also, the bottom line increased 32.1% from the year-ago figure of 56 cents.

In 2020, the company’s adjusted earnings came in at $2.16, down 5% year over year.

Top-Line Details

The company’s fourth-quarter net sales increased 11.1% year over year to $834.5 million. The increase was driven by higher sales in North America and China. Notably, the top line beat the Zacks Consensus Estimate of $763 million.

In 2020, the company’s net sales were $2,895.3 million, down 3.3% on a year-over-year basis.

A.O. Smith’s quarterly sales in North America (comprising the U.S. and Canada water heaters and boilers) moved up 7.2% year over year to $560.9 million. The segment’s results were driven by higher sales of residential water heaters.

Segmental operating earnings were up about 7% to $137.9 million on a year-over-year basis. The increase was on account of higher sales volume of residential water heaters and lower steel costs, partially offset by higher logistics costs.

Quarterly sales in Rest of World (including China, India and Europe) grew 19.1% year over year to $279 million. The increase was primarily backed by higher consumer demand for water treatment products and a favourable mix between product categories.

Operating earnings at the segment was $31.3 million compared with $1.5 million recorded in the year-ago quarter. Higher sales volume and lower operating costs were beneficial to the segment’s income.

Liquidity & Cash Flow

On Dec 31, 2020, A.O. Smith’s cash and cash equivalents totaled $573.1 million compared with $374 million as of Dec 31, 2019.

At the end of the reported quarter, long-term debt was $106.4 million compared with $277.2 million as of Dec 31, 2019.

In 2020, cash provided by the operating activities totaled $562.1 million compared with $456.2 million in the year-ago.

Share Repurchases

In 2020, the company repurchased shares worth $56.7 million, compared with $287.7 million worth of shares repurchased in 2019. It paid dividends worth $158.7 million compared with $149.2 million in the previous year.

Guidance

The company provided earnings guidance for 2021. It expects adjusted earnings of $2.40-$2.50. The mid-point reflects a year-over-year increase of 13.4%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 7.78% due to these changes.

VGM Scores

At this time, A.O. Smith has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. 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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