A. O. Smith (AOS) to Report Q4 Earnings: What's in the Cards?

A. O. Smith Corporation AOS is scheduled to report fourth-quarter 2021 results on Jan 27, before market open.

The company delivered an earnings surprise of 16.82%, on average, in the trailing four quarters, beating estimates all through. In the last reported quarter, A. O. Smith posted earnings of 82 cents, which beat the Zacks Consensus Estimate of 67 cents by 22.39%.

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In the past three months, the company’s shares have gained 20.2% against the industry’s decline of 0.7%.

Factors at Play

A. O. Smith is anticipated to have benefited from robust demand for its water heaters, boilers and water treatment products in North America in the fourth quarter. For 2021, it anticipates sales growth of 12% on a year-over-year basis from its water treatment business in North America. Also, for the year, it expects sales from its U.S. residential water heater and commercial water heater businesses to grow about 6% and 10%, respectively. Sales from the boiler business in North America are expected to increase 13% year over year. Also, healthy product demand in China and India, along with its focus on production efficiency and strong price management capabilities, is likely to have supported its performance.

The company’s Water-Right business, which enhanced growth opportunities in the water treatment industry, especially in the wholesale and independent dealer array, is anticipated to have augmented its fourth-quarter revenues. The company’s Master Water Conditioning Corporation buyout (July 2021) is likely to have boosted the performance of its water treatment business in North America. Also, its acquisition of Giant Factories (October 2021), which has been strengthening its foothold in the Canada water heater market, is likely to have supported its performance in the fourth quarter.

Despite robust demand for its products across the end markets, supply chain challenges are expected to have adversely impacted A. O. Smith’s performance. Also, raw-material inflation, high logistics costs and shortage of skilled labor might have affected its margins and profitability in the to-be-reported quarter. It’s worth noting that its gross profit margin declined 190 basis points year over year in the third quarter, owing to high steel and other material costs.

The Zacks Consensus Estimate for revenues from A. O. Smith's North America segment is currently pegged at $688 million, indicating growth of 4.6% and 22.6% on a sequential and year-over-year basis, respectively. The consensus estimate for revenues from the Rest of the World stands at $284 million, indicating an 8% increase sequentially and a 1.8% improvement from the year-ago reported figure.

The consensus estimate for the company’s fourth-quarter total revenues is currently pegged at $966 million, suggesting an increase of 5.6% from the quarter-ago reported number and 15.7% growth year over year. The consensus estimate for earnings of 77 cents suggests a decline of 6.1% sequentially but an improvement of 4.1% on a year-over-year basis.

Earnings Whispers

According to our quantitative model, a stock needs to have the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) to increase 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.

But that is not the case here as we will see below.

Earnings ESP: A. O. Smith has an Earnings ESP of 0.00% as both the Most Accurate Estimate and the Zacks Consensus Estimate is pegged at 77 cents.

Zacks Rank: The company carries a Zacks Rank #3.

Key Picks

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

Illinois Tool Works Inc (NYSE:ITW). ITW has an Earnings ESP of +1.68% and a Zacks Rank #3 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Illinois Tool’s earnings is pegged at $1.89 per share for the fourth quarter of 2021. ITW’s shares have gained 6.3% in the past three months.

Dover Corporation (NYSE:DOV) DOV has an Earnings ESP of +0.33% and a Zacks Rank of 3, currently.

The Zacks Consensus Estimate for Dover’s earnings is pegged at $1.66 per share for the fourth quarter of 2021. DOV’s shares have gained 3.8% in the past three months.

Flowserve Corporation (NYSE:FLS) FLS has an Earnings ESP of +2.08% and a Zacks Rank of 3 at present.

The Zacks Consensus Estimate for Flowserve’s earnings is pegged at 48 cents per share for the fourth quarter of 2021. FLS’ shares have lost 11.3% in the past three months.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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