A.O.Smith (AOS) Beats On Q1 Earnings, Raises '18 Guidance
Zacks Investment Research | Apr 24, 2018 09:59PM ET
A. O. Smith Corporation (NYSE:AOS) reported first-quarter 2018 earnings per share of 60 cents, ahead of the Zacks Consensus Estimate of 58 cents. The company continues its earnings beat streak of 25 straight quarters, which it broke once when it reported in-line earnings in second-quarter 2017.
The figure improved 18% from the year-ago quarter’s tally. The upside mainly came on the back of robust sales growth. However, higher steel prices and inflationary pressure on freight and other costs dampened earnings growth to some extent.
Inside the Headlines
The company generated record sales in the quarter which rose 6.5% year over year to $788 million. However, the figure missed the Zacks Consensus Estimate of $793 million by a whisker. A thriving water heater industry in the United States, strong demand for Lochinvar branded boilers and robust consumer product demand in China fueled the top-line growth.
A.O. Smith’s sales in the North America segment (comprising U.S. and Canadian water heaters and boilers) grew 3% year over year to $501.7 million. Higher volumes of commercial water heaters, strong sales of boilers and pricing actions related to elevated steel costs proved conducive to the sales performance of this region. Water treatment products contributed about $8 million to revenues and boosted the segment’s growth.
Segmental operating earnings inched up 2% year over year to $106 million. The segment’s profit was favorably influenced by higher sales of commercial water heaters and boilers and pricing actions. However, the benefit was partially offset by flared up steel and other costs. Consequently, adjusted operating margin expanded 110 basis points (bps) to 22.5% on a year-over-year basis.
Quarterly sales at the Rest of the World segment (including China, India and Europe) were up 13% year over year to $293.8 million. The improvement came on the back of consistent solid customer demand for A.O. Smith’s gas tankless water-heating and water-treatment products. Also, favorable pricing actions added to the top line. However, a significant decline in air purification product sales in China dampened growth to some extent.
Operating earnings at the segment climbed 11% year over year to $36.1 million in the quarter. The favorable impact of excellent sales in China, along with favorable pricing actions, was partially offset by escalating steel costs and selling and engineering expenses. Operating margin contracted 20 bps to 12.3% year over year.
A. O. Smith Corporation Price, Consensus and EPS Surprise
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