MILWAUKEE - A.O. Smith Corporation (NYSE: AOS), a global water technology firm, reported a 7% increase in second-quarter sales to a record $1 billion, attributed to higher water heater volumes.
The company's adjusted earnings per share (EPS) for the quarter reached $1.06, a 2% improvement YoY and a 5% increase over the previous year's adjusted figures. Despite the strong sales, the company's guidance for the full year 2024 fell short of analyst expectations, which led to a 1.25% decline in the stock following the announcement.
The company's second-quarter revenue of $1 billion slightly surpassed the consensus estimate of $998.98 million. A.O. Smith's EPS of $1.06 was in line with analyst projections. However, the company's forecast for full-year 2024 EPS of $3.95 to $4.10 was below the consensus estimate of $4.08.
Chairman and CEO Kevin J. Wheeler attributed the robust sales to increased demand for residential and commercial water heaters in North America, including newly launched gas-tankless products. "I continue to be impressed by our global team's commitment to execution and meeting our customers' needs to generate record topline performance," Wheeler stated.
Segment-wise, North America saw a 9% increase in sales to $790.7 million, primarily driven by higher water heater and commercial boilers volumes. However, the segment's earnings marginally declined due to higher material costs and selling expenses. The Rest of World segment maintained flat sales, with a slight increase in local currency sales in China and a significant 16% increase in India.
Despite the positive sales growth, the company's stock experienced a slight decline, likely influenced by the lower-than-expected earnings guidance for the upcoming year. A.O. Smith has reaffirmed its 2024 sales outlook, projecting a 3% to 5% increase.
The company also announced its intention to acquire Pureit, a leading water purification business in South Asia, for $120 million, which is expected to close by the end of 2024. This acquisition is anticipated to double the company's market penetration in South Asia.
In line with its shareholder capital return policy, A.O. Smith repurchased 1.8 million shares for $153.2 million in the first half of 2024 and expects to spend $300 million on share repurchases throughout the year. Additionally, a dividend of $0.32 per share was declared, payable in August.
A.O. Smith's balance sheet remains strong, with cash and marketable securities totaling $233.3 million and a low leverage ratio of 6.8%. The company generated $164.0 million in cash from operations and $119.1 million in free cash flow in the first half of 2024, despite a year-over-year decrease due to higher inventory and accounts receivable balances.
Looking ahead, Wheeler reaffirmed the company's sales projection and narrowed the full-year EPS guidance, stating, "We are pleased with our performance in China in the quarter; however, we see continued economic headwinds and remain cautious about the second half of the year." The company's guidance excludes the potential impacts from future acquisitions.
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