A. O. Smith sees record sales for 2017, tops earnings estimate in fourth quarter
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A. O. Smith sees record sales for 2017, tops earnings estimate in fourth quarter

A. O. Smith Corporation, North America’s largest manufacturer and supplier of residential and commercial water heaters, posted record results at the end of January. The company reported earnings per share of 60¢ for the fourth quarter of 2017, beating out estimates of 56¢ per share. That makes 24 straight quarters of beating the street on earnings (if you ignore last quarter – when it matched analysts’ expectations).

A. O. Smith’s share price has appreciated by 29% in the last 12 months 

graph 0207 AO Smith

SOURCE: Yahoo Finance

Earnings were up 27.7% form the year-ago quarter, largely as a result of “robust” sales growth. Net sales in the fourth quarter beat analysts’ expectations by a slim margin ($768.6 million against $767.1 million) – but analysts’ expectations were high. This figure represents a 10.1% increase from the fourth quarter of 2016, which was a strong comparable. For the full year, the figure is even more impressive: $3 billion, a new record and a 12% increase from 2016.

Speaking on the company’s earning call, the company’s CEO Ajita Rajendra, praised its performance in the Chinese market: “Our China sales grew 18% in local currency in 2017, easily exceeding $1 billion and surpassing our 15% expected growth rate. China sales in the fourth quarter exceeded our projections by about $20 million.

He also sees a stronger future in India, where the company’s nascent business has thus far made an annual loss: “Improvements for water heaters and water treatment will continue in 2019 and our total India business will be slightly profitable in 2020. The overall loss in India is expected to be $5 million this year.

Overall, he expects the company to grow “approximately 10% in 2018.”

Disclosure

Dominion holds A. O. Smith in its Global Trends Managed Fund.


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