Yahoo Finance A. O. Smith (AOS) to Benefit From Business Strength Amid Risks
A. O. Smith Corporation AOS has been benefiting from strong demand for water heater products and higher shipments in North America. The company expects sales from both the North America boiler and water treatment businesses to grow approximately 8-10% in 2024. Also, healthy demand for tankless water heaters and kitchen appliance products in China has been boosting performance of the Rest of the World business. For 2024, A. O. Smith expects overall sales to increase approximately 3-5% from the year-ago levels.
The company remains focused on acquiring businesses to gain access to new customers, regions and product lines. In the first quarter of 2024, AOS acquired a California-based water treatment company, Impact Water Products. The buyout is expected to expand its water treatment business in the West Coast region. Also, the acquisition of Atlantic Filter in June 2022, enhanced its position in the water treatment industry, and strengthened its customer base in Florida and the adjacent regions. The company spent $21.1 million on acquisitions in the first three months of 2024.
Management is committed to rewarding shareholders through dividend payouts and share repurchases. In the first three months of 2024, it paid dividends worth $47.3 million and repurchased shares worth $74.5 million. In October 2023, it hiked its dividend by 7% to 32 cents per share.
Also, AOS’ sound liquidity position adds to its strength. Exiting the first quarter of 2024, it had cash and cash equivalents of $251.6 million, higher than the total debt of $119.7 million.
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Over the past year, the Zacks Rank #3 (Hold) company has gained 18.2% compared with the industry’s 33.8% growth.
However, weakened consumer confidence and a challenged real estate market in China may prove detrimental for A. O. Smith in the quarters ahead. The company lowered its 2024 third-party sales growth outlook for China. It currently expects the metric to be flat to up 3% in local currency.
The escalating cost of sales poses a threat to A. O. Smith’s bottom line. In the first quarter of 2024, the company’s selling, general and administrative expenses increased 8.4% year over year. The metric, as a percentage of sales, increased 80 basis points in the quarter. In the second quarter, commodity cost, specifically of steel, is expected to increase 20% sequentially, which might affect its margins and profitability.
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A. O. Smith Corporation (AOS) : Free Stock Analysis Report
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