Why Are A. O. Smith (AOS) Shares Soaring Today

What Happened?

Shares of water heating and treatment solutions company A.O. Smith (NYSE:AOS) jumped 5.5% in the afternoon session after the company reported second-quarter earnings that surpassed analyst expectations and raised its full-year guidance. The water heater manufacturer posted earnings per share (EPS) of $1.07, which was above the consensus estimate of $0.99. While revenue of $1.01 billion marked a slight 1% year-over-year decline, it also came in ahead of forecasts. 

The positive performance was driven by what the company's CEO described as 'continued steady growth in commercial boilers and another sequential quarter of North America water heater volume growth.' As a result of the strong quarter, A. O. Smith lifted its full-year sales growth outlook to between 1% and 3% and increased its EPS guidance. However, the company did note it faced challenges in its China business and initiated an assessment of strategic opportunities for that unit.

After the initial pop the shares cooled down to $74.35, up 4.2% from previous close.

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What Is The Market Telling Us

A. O. Smith’s shares are not very volatile and have only had 2 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful, although it might not be something that would fundamentally change its perception of the business.

The biggest move we wrote about over the last year was 10 months ago when the stock dropped 10.4% on the news that the company reported underwhelming preliminary third-quarter results, which reflected lower sales in China and North American water heating segments. 

Third-quarter net sales are expected to clock in at $902.6m, down 4% year on year and below consensus estimates. Similarly, the company expects to report earnings of 82 cents, falling below expectations. In addition, full-year adjusted EPS guidance was lowered. Management added, "As discussed on our second-quarter earnings call, we saw increasing consumer demand headwinds in July, which led us to be cautious about the back half of the year in China. Those headwinds were more challenging than we expected through the third quarter and, as a result, our constant currency sales to third parties declined 17% compared to last year. In North America, residential and commercial water heater orders were lower than expected in the third quarter and while we anticipated a quarter-over-quarter decline, order demand was weaker than expected in both the wholesale and retail channels.".

A. O. Smith is up 10.4% since the beginning of the year, but at $74.35 per share, it is still trading 17.9% below its 52-week high of $90.59 from September 2024. Investors who bought $1,000 worth of A. O. Smith’s shares 5 years ago would now be looking at an investment worth $1,449.

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