A. O. Smith (AOS) Q4 Earnings Top Estimates, Revenues Miss

A. O. Smith Corporation (NYSE:AOS) reported mixed fourth-quarter 2018 results wherein earnings beat estimates but revenues lagged the same.

The company’s adjusted earnings in the reported quarter were 74 cents per share, surpassing the Zacks Consensus Estimate of 71 cents. Also, the bottom line recorded an increase of 23.3% from the year-ago figure of 60 cents.

For full-year 2018, the company’s adjusted earnings came in at $2.61 per share, up 20.3% on a year-over-year basis.

Inside the Headlines

The company’s sales in the reported quarter increased 5.7% year over year to $812.5 million. Top-line growth was primarily attributable to solid water heater and boiler sales in North America. However, the figure missed the Zacks Consensus Estimate of $826 million.

For 2018, A. O. Smith reported net sales of $3,187.9 million, up 6.4% on a year-over-year basis.

A.O. Smith’s sales in the North America segment (comprising U.S. and Canadian water heaters and boilers) increased 13.3% year over year to $521.9 million. The company’s pricing actions related to rise in steel cost and increased volumes of boilers and residential water heaters in the U.S. proved beneficial for the segment.

Segmental operating earnings rose 22% year over year to $127.6 million. The growth was primarily attributable to higher sales, partially offset by rise in steel and other product-related costs. Consequently, adjusted operating margin improved 160 basis points (bps) to 24.4%.

Quarterly sales at the Rest of the World segment (including China, India and Europe) were down 5.2% year over year to $297.6 million. The decline was primarily attributable to fall in sales of water heaters and air purifiers, particularly in China.

Operating earnings at the segment dropped 22% year over year to $39.5 million in the quarter. Lower sales in China and increase in advertising costs proved detrimental to the segment’s income. Notably, operating margin contracted 290 bps to 13.3%.

Share Repurchases

In 2018, A.O. Smith repurchased around 3.8 million shares for $202.6 million. At the end of the year, the company had approximately 6.1 million shares remaining under the existing discretionary repurchase authority.

Liquidity & Cash Flow

As of Dec 31, 2018, A.O. Smith’s cash and cash equivalents totaled $259.7 million compared with $346.6 million as of Dec 31, 2017.

At the end of the reported quarter, long-term debt was $221.4 million compared with $402.9 million as of Dec 31, 2017.

Guidance

Concurrent with fourth-quarter results, the company released guidance for 2019. It expects adjusted earnings to lie in the range of $2.67-2.77 per share. The mid-point of the range reflects impressive year-over-year growth of 4%. In addition, the company expects to register revenue growth in the range of 1-2.5% in 2019.

Zacks Rank & Key Picks

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

Some better-ranked stocks in the same space are DXP Enterprises, Inc. (NASDAQ:DXPE) , Enersys (NYSE:ENS) and Cintas Corporation (NASDAQ:CTAS) . While DXP Enterprises sports a Zacks Rank #1 (Strong Buy), Enersys and Cintas carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

DXP Enterprises surpassed estimates thrice in the trailing four quarters, the average beat being 112.62%.

Enersys exceeded estimates thrice in the trailing four quarters, the average beat being 2.83%.

Cintas surpassed estimates in each of the trailing four quarters, the average beat being 6.81%.

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