HVAC and Water Systems Stocks Q3 Recap: Benchmarking Advanced Drainage (NYSE:WMS)

Let’s dig into the relative performance of Advanced Drainage (NYSE:WMS) and its peers as we unravel the now-completed Q3 hvac and water systems earnings season.

Many HVAC and water systems companies sell essential, non-discretionary infrastructure for buildings. Since the useful lives of these water heaters and vents are fairly standard, these companies have a portion of predictable replacement revenue. In the last decade, trends in energy efficiency and clean water are driving innovation that is leading to incremental demand. On the other hand, new installations for these companies are at the whim of residential and commercial construction volumes, which tend to be cyclical and can be impacted heavily by economic factors such as interest rates.

The 9 hvac and water systems stocks we track reported a strong Q3. As a group, revenues beat analysts’ consensus estimates by 3.6% while next quarter’s revenue guidance was 0.8% below.

In light of this news, share prices of the companies have held steady as they are up 1.2% on average since the latest earnings results.

Advanced Drainage (NYSE:WMS)

Originally started as a farm water drainage company, Advanced Drainage Systems (NYSE:WMS) provides clean water management solutions to communities across America.

Advanced Drainage reported revenues of $850.4 million, up 8.7% year on year. This print exceeded analysts’ expectations by 6.6%. Overall, it was an exceptional quarter for the company with a solid beat of analysts’ EBITDA estimates and an impressive beat of analysts’ adjusted operating income estimates.

Scott Barbour, President and Chief Executive Officer of ADS commented, "We delivered strong results in the second quarter, a testament to the key sales strategies we have executed to drive growth in core markets. Revenue from both Infiltrator and Allied products increased double digits compared to the prior year. This growth, in conjunction with favorable price/cost, end market and product mix resulted in a highly-resilient Adjusted EBITDA margin of 33.8%."

Advanced Drainage delivered the weakest full-year guidance update of the whole group. Interestingly, the stock is up 10.4% since reporting and currently trades at $148.71.

Is now the time to buy Advanced Drainage? Access our full analysis of the earnings results here, it’s free for active Edge members.

Best Q3: Northwest Pipe (NASDAQ:NWPX)

Playing a large role in the Integrated Pipeline (IPL) project in Texas to deliver ~350 million gallons of water per day, Northwest Pipe (NASDAQ:NWPX) is a manufacturer of pipeline systems for water infrastructure.

Northwest Pipe reported revenues of $151.1 million, up 16% year on year, outperforming analysts’ expectations by 14.4%. The business had an incredible quarter with a beat of analysts’ EPS and EBITDA estimates.

Northwest Pipe pulled off the biggest analyst estimates beat among its peers. The market seems happy with the results as the stock is up 13.4% since reporting. It currently trades at $63.16.

Is now the time to buy Northwest Pipe? Access our full analysis of the earnings results here, it’s free for active Edge members.

Weakest Q3: Lennox (NYSE:LII)

Based in Texas and founded over a century ago, Lennox (NYSE:LII) is a climate control solutions company offering heating, ventilation, air conditioning, and refrigeration (HVACR) goods.

Lennox reported revenues of $1.43 billion, down 4.8% year on year, falling short of analysts’ expectations by 3.9%. It was a slower quarter as it posted a significant miss of analysts’ revenue estimates.

Lennox delivered the weakest performance against analyst estimates in the group. As expected, the stock is down 9.5% since the results and currently trades at $496.58.

Read our full analysis of Lennox’s results here.

A. O. Smith (NYSE:AOS)

Credited with the invention of the glass-lined water heater, A.O. Smith (NYSE:AOS) manufactures water heating and treatment products for various industries.

A. O. Smith reported revenues of $942.5 million, up 4.4% year on year. This number was in line with analysts’ expectations. Taking a step back, it was a slower quarter as it logged full-year revenue guidance missing analysts’ expectations and full-year EPS guidance missing analysts’ expectations.

The stock is flat since reporting and currently trades at $68.07.

Read our full, actionable report on A. O. Smith here, it’s free for active Edge members.

Carrier Global (NYSE:CARR)

Founded by the inventor of air conditioning, Carrier Global (NYSE:CARR) manufactures heating, ventilation, air conditioning, and refrigeration products.

Carrier Global reported revenues of $5.58 billion, down 6.8% year on year. This result met analysts’ expectations. Overall, it was a very strong quarter as it also produced a solid beat of analysts’ EBITDA estimates and an impressive beat of analysts’ adjusted operating income estimates.

Carrier Global achieved the highest full-year guidance raise but had the slowest revenue growth among its peers. The stock is down 8% since reporting and currently trades at $53.64.

Read our full, actionable report on Carrier Global here, it’s free for active Edge members.

Market Update

As a result of the Fed’s rate hikes in 2022 and 2023, inflation has come down from frothy levels post-pandemic. The general rise in the price of goods and services is trending towards the Fed’s 2% goal as of late, which is good news. The higher rates that fought inflation also didn't slow economic activity enough to catalyze a recession. So far, soft landing. This, combined with recent rate cuts (half a percent in September 2024 and a quarter percent in November 2024) have led to strong stock market performance in 2024. The icing on the cake for 2024 returns was Donald Trump’s victory in the U.S. Presidential Election in early November, sending major indices to all-time highs in the week following the election. Still, debates around the health of the economy and the impact of potential tariffs and corporate tax cuts remain, leaving much uncertainty around 2025.

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