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A. O. Smith (AOS) to Report Q4 Earnings: Beat in Store?

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Zacks Equity Research
·4 min read
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A. O. Smith Corporation AOS is scheduled to report fourth-quarter 2020 results on Jan 28, before market open.

The company delivered a positive earnings surprise of 3.56%, on average, in the trailing four quarters, beating and missing estimates twice each. In the last reported quarter, A. O. Smith posted earnings of 66 cents, which beat the Zacks Consensus Estimate of 53 cents by 24.53%.

In the past three months, the company’s shares have gained 7.1% compared with the industry’s growth of 32.4%.

Factors to Influence Q4 Results

A. O. Smith is anticipated to have gained from its solid position in the replacement market. Robust demand for water treatment products and residential water heater products in the United States is expected to have supported the company’s top line in the fourth quarter. For 2020, it anticipates sales growth of 22-24% on a year-over-year basis from its water treatment business in North America. Also, for the year, it expects residential water heater sales volumes to grow 4% in the United States. Moreover, growth in demand in China, along with the company’s strong direct-to-consumer channel, is likely to have supported its top line.

Also, the company’s Water-Right business, which enhanced growth opportunities in the water treatment industry especially in the wholesale and independent dealer array, is likely to have augmented fourth-quarter revenues. In addition, its focus on investments in product developments, production efficiency and automation is likely to have positively impacted fourth-quarter earnings.

In addition, some of A. O. Smith’s actions, including cost-reduction and restructuring activities, are expected to have helped it maintain a healthy margin performance. Notably, the company expects to achieve $7 million of savings from its cost-reduction and restructuring activities in the fourth quarter.

However, persistent low demand for commercial water heater and boilers in North America is likely to have marred its top-line performance. Notably, A. O. Smith expects its commercial water heater sales volume to decline about 10% on a year-over-year basis in 2020. Also, for the year, sales from boiler business in North America are projected to have declined in mid-single digit range. Further, soft end-market demand in India amid the coronavirus pandemic might have hurt its top-line performance.

Notably, the Zacks Consensus Estimate for revenues from A. O. Smith's North America segment is currently pegged at $516 million, indicating a 5.1% decrease from the quarter-ago reported number and a 1.3% decline from the year-ago reported figure. The consensus estimate for revenues from Rest of the World stands at $243 million, indicating 10% growth sequentially, and 3.8% increase year over year.

Earnings Whispers

Our proven model suggests 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 odds of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: The company has an Earnings ESP of +5.29% as the Most Accurate Estimate is pegged at 62 cents, higher than the Zacks Consensus Estimate of 59 cents.

A. O. Smith Corporation Price and EPS Surprise

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

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

Zacks Rank: A. O. Smith carries a Zacks Rank #3.

Other Key Picks

Here are some other companies you may want to consider, as our model shows that these too have the right combination of elements to post an earnings beat this season:

Franklin Electric Co., Inc. FELE has an Earnings ESP of +2.91% and a Zacks Rank of 2, at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Eaton Corporation, plc ETN has an Earnings ESP of +2.33% and a Zacks Rank #3.

Rexnord Corporation RXN has an Earnings ESP of +5.05% and a Zacks Rank of 3.

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A. O. Smith Corporation (AOS) : Free Stock Analysis Report
 
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