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A. O. Smith (AOS) Shares Down 29% YTD: What's Ailing It?

A. O. Smith Corporation AOS has been grappling with high raw material costs and supply-chain constraints. Coronavirus-induced lockdowns in China are also hurting its business. Due to these headwinds, shares of the company have lost 28.8% in the year-to-date period, compared with the industry’s decrease of 16.2%.

Zacks Investment Research
Zacks Investment Research


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In the first half of 2022, A. O. Smith’s cost of sales increased 24.4% year over year due to high raw material and transportation costs. Selling, general and administrative expenses rose 2% year over year in the first half of 2022. Escalating costs are hurting the company’s bottom line. Supply-chain constraints and labor shortages are other headwinds for the company.

Lower consumer demand in China due to coronavirus-related lockdowns is impacting revenues from Rest of the World, which declined 13% year over year in the second quarter. Persistent softness in U.S. residential water heater volumes also weighed on shares of AOS.  For 2022, the company anticipates U.S. residential water heater volumes to decline approximately 4-6% from the last year. The company lowered its projection for 2022 revenue growth to 12-14% year over year compared with 14-16% anticipated earlier due to softening demand in residential and commercial water heating.

Given A. O. Smith’s presence in Asian countries like China and India, a strong U.S. dollar relative to the local currencies of overseas markets is denting its top line. Adverse foreign currency movements impacted China’s sales by approximately $5 million in the second quarter. Foreign currency headwinds are another cause of the stock’s decline.

Zacks Rank & Key Picks

A. O. Smith carries a Zacks Rank #3 (Hold).

Some better-ranked stocks within the broader Industrial Products sector are as follows:

Lindsay Corporation LNN sports a Zacks Rank #1 (Strong Buy). LNN pulled a trailing four-quarter earnings surprise of 25.6%, on average. You can see the complete list of today’s Zacks #1 Rank stocks.

Lindsay Corporation has an estimated earnings growth rate of 44.1% for the current year. Shares of the company have rallied 29% in the past six months.

Greif, Inc. GEF presently carries a Zacks Rank #2 (Buy). GEF delivered a trailing four-quarter earnings surprise of 22.9%, on average.

Greif has an estimated earnings growth rate of 36.8% for the current year. Shares of the company have gained 23% in the past six months.


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