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A. O. Smith (AOS) Q4 Earnings and Revenues Miss, Down Y/Y

Zacks Equity Research

A. O. Smith Corporation AOS reported disappointing fourth-quarter 2019 results wherein both earnings and revenues missed estimates.

The company’s adjusted earnings were 56 cents per share, missing the Zacks Consensus Estimate of 60 cents. Also, the bottom line declined from the year-ago figure of 74 cents.

The company reported 2019 adjusted earnings of $2.22, a decrease of about 14% from the prior year.

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

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

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

Inside the Headlines

The company’s fourth-quarter net sales decreased 7.6% year over year to $750.9 million. The decline was primarily attributable to lower sales in China. Also, the figure missed the Zacks Consensus Estimate of $777 million.

In 2019, the company reported net sales of $2,992.7 million, down 6.1% from the year-ago number.

A.O. Smith’s sales in North America (comprising U.S. and Canadian water heaters and boilers) inched up 0.2% year over year to $523.1 million. The segment’s results benefited from higher sales volumes of water treatment products and contribution from its Water-Right acquisition, partially offset by lower sales volume of boiler products.

Segmental operating earnings were relatively flat year over year at $128.4 million. Benefits of lower steel costs were offset by lower boiler volumes.

Quarterly sales in Rest of World (including China, India and Europe) fell 21.3% year over year to $234.3 million. The decline was primarily attributable to soft consumer demand and above normal channel inventory levels, as well as a higher mix of mid-price products.

Operating earnings at the segment significantly declined to $1.5 million from $39.5 million in the year-ago quarter. Lower sales in China proved detrimental to the segment’s income.

Share Repurchases

In 2019, A.O. Smith repurchased around 6.1 million shares for $287.7 million. At the end of the quarter, the company had approximately 3 million shares remaining under the existing discretionary repurchase authority.

Liquidity & Cash Flow

On Dec 31, 2019, A.O. Smith’s cash and cash equivalents totaled $374 million compared with $259.7 million as of Dec 31, 2018.

At the end of the reported quarter, long-term debt was $277.2 million compared with $221.4 million as of Dec 31, 2018.

Guidance

Concurrent with fourth-quarter results, the company issued guidance for 2020. It expects adjusted earnings to lie in the range of $2.40-2.50 per share. The mid-point reflects impressive year-over-year growth of 10%. In addition, the company expects to register revenue growth in the band of 4.5-5.5% for 2020.

Zacks Rank & Key Picks

A.O. Smith currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks are Cintas Corporation CTAS, Emerson Electric Co. EMR and Crane Company CR. All these companies carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Cintas delivered positive earnings surprise of 8.50%, on average, in the trailing four quarters.

Emerson delivered positive earnings surprise of 3.03%, on average, in the trailing four quarters.

Crane’s positive earnings surprise in the last reported quarter was 0.64%.

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