A. O. Smith Corporation (NYSE:AOS) -- Crushes Wall Street Estimates

A. O. Smith Corporation (NYSE:AOS), the Milwaukee-based manufacturer of water heating equipment and electric motors, blew Wall Street’s earnings expectations for this past quarter out of the water. Chris Mayer, editor of Agora Financial’s Capital & Crisis newsletter, explains how the company made it happen and what now lies ahead.

From Mayer’s recent reader update:

“A.O. Smith (NYSE:AOS), manufacturer of water heaters and filters, crushed Wall Street’s estimates for the quarter. It reported $1.04 in earnings per share while the Street expected only 60 cents — that’s 73% better than expected. AOS also raised its guidance for the year. The key driver was, as we expected, the water business and its sales to China — up 30% from a year ago.

“The key risks, also as we expected, continue to be the rising costs of steel and copper. So far, AOS has been able to pass on most of the price increases to customers. Profit margins have slipped a bit, though.

“AOS also revised its date for the 3-for-2 stock split. The shares will split on Nov. 15. For every two shares you own, you’ll get another. To figure out your new cost basis, take the price you paid for the stock, multiply by 2 and divide by 3.

“The fact that industrials like AOS are doing well is no surprise. I laid out the theory early that companies with businesses overseas would do better comparatively. Mainly, that means sales to the growing markets of Asia, South America and the Middle East. And that’s what we’ve seen all year. AOS’ earnings continue to confirm that theory.”

Right now, the long-term outlook for A.O. Smith’s business, especially based on its raised guidance, looks quite good. Mayer is following the water market closely and strategically planning a number of sound investments like AOS. He reports in far more detail – and with many additional opportunities – in his publication, Capital & Crisis. You can learn more about it and sign up by visiting the Agora Financial research page, available here.


Rocky Vega,
The Daily Reckoning

[Nothing in this post should be considered personalized investment advice. Agora Financial employees do not receive any type of compensation from companies covered. Investment decisions should be made in consultation with a financial advisor and only after reviewing relevant financial statements.]

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