A. O. Smith (AOS) Beats on Q3 Earnings, Revises 2023 View
A. O. Smith Corporation’s AOS third-quarter 2023 adjusted earnings of 90 cents per share surpassed the Zacks Consensus Estimate of adjusted earnings of 79 cents per share. The bottom line jumped 30.4% year over year due to the continued strength in residential water heater demand and lower year-over-year material costs in North America.
Net sales of $937.5 million outperformed the consensus estimate of $907 million. The top line increased 7.2% year over year.
Segmental Details
A. O. Smith’s quarterly sales in North America (comprising the United States and Canada water heaters and boilers) increased 8.7% year over year to $709.9 million due to higher water heater volumes. Our estimate for North American sales in the segment was $670.3 million.
Segment earnings increased 20% year over year to $170.0 million. The upside was due to higher residential water heater volumes and lower material costs.
Quarterly sales in the Rest of the World (including China, India and Europe) segment increased 1.4% year over year to $233.4 million. Our estimate for sales in the segment was $224.6 million. The increase in sales was primarily due to the introduction of kitchen appliance products in China. Sales in India increased 13% in local currency.
The segment’s earnings were $23.2 million, up 6% year over year. The upside was due to higher volumes and the favorable mix in China.
A. O. Smith Corporation Price, Consensus and EPS Surprise
A. O. Smith Corporation price-consensus-eps-surprise-chart | A. O. Smith Corporation Quote
Margin Details
In the reported quarter, A.O. Smith’s cost of sales was $581.3 million, up 2.1% year over year. Selling, general & administrative expenses were $174.9 million, up 12.5%.
Gross profit increased 16.8% year over year to $356.2 million. The gross margin was 38% compared with 34.9% in the year-ago period. Interest expenses were $2.4 million, in line with the year-ago quarter.
Liquidity & Cash Flow
As of Sep 30, 2023, A.O. Smith’s cash and cash equivalents totaled $281.0 million compared with $391.2 million at the end of December 2022.
At the end of the reported quarter, long-term debt was $119.6 million compared with $334.5 million in December 2022 end.
In the first nine months of 2023, cash provided by operating activities totaled $439.0 million compared with $214.7 million in the year-ago period.
Share Repurchases
In the first nine months of 2023, A.O. Smith repurchased approximately 2.4 million shares for $161.4 million. Approximately 5.5 million shares are yet to be repurchased under the existing share repurchase authorization. In January, AOS’ board boosted the existing share buyback program by authorizing the repurchase of an additional 7.5 million shares. The company expects to repurchase $300 million worth of shares in 2023. In the first nine months, the company paid dividends of $135.7 million, up 3.5% year over year.
2023 Outlook Revised
A.O. Smith expects net sales to be $3,800-$3,850 million in 2023 compared with $3,750-$3,830 million anticipated earlier. The Zacks Consensus Estimate for the same stands at $3.79 billion.
The company expects adjusted earnings per share to be $3.70-$3.80 for the year compared with $3.45-$3.60 estimated earlier. The consensus estimate for the same is $3.61 per share. AOS’ adjusted earnings guidance reflects a 19.4% year-over-year increase at the midpoint. For 2023, AOS expects earnings to be $3.63-$3.73 per share.
Zacks Rank & Stocks to Consider
A.O. Smith currently carries a Zacks Rank #3 (Hold). Some better-ranked companies from the Industrial Products sector are discussed below:
Applied Industrial Technologies, Inc. AIT presently sports a Zacks Rank #1 (Strong Buy) and a trailing four-quarter earnings surprise of 15%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
AIT’s earnings estimates have increased 1.3% for fiscal 2024 (ending June 2024) in the past 60 days. Shares of Applied Industrial have risen 30.4% in the past year.
Axon Enterprise, Inc. AXON currently carries a Zacks Rank #2 (Buy). The company delivered a trailing four-quarter earnings surprise of approximately 60.2%, on average.
In the past 60 days, estimates for Axon’s earnings have remained steady for 2023. The stock has soared 51.7% in the past year.
Caterpillar Inc. CAT presently carries a Zacks Rank of 2. CAT’s earnings surprise in the last four quarters was 18.5%, on average.
In the past 60 days, estimates for Caterpillar’s 2023 earnings have increased 1.5%. The stock has gained 24.4% in the past year.
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