Wrapping up Q2 earnings, we look at the numbers and key takeaways for the hvac and water systems stocks, including A. O. Smith (NYSE:AOS) and its peers.
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 Q2. As a group, revenues beat analysts’ consensus estimates by 1.4% while next quarter’s revenue guidance was 14.3% below.
In light of this news, share prices of the companies have held steady as they are up 1.3% on average since the latest earnings results.
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 $1.01 billion, down 1.3% year on year. This print exceeded analysts’ expectations by 1.2%. Overall, it was a strong quarter for the company with an impressive beat of analysts’ adjusted operating income and organic revenue estimates.
A. O. Smith achieved the highest full-year guidance raise but had the slowest revenue growth of the whole group. Unsurprisingly, the stock is up 2.5% since reporting and currently trades at $73.12.
Is now the time to buy A. O. Smith? Access our full analysis of the earnings results here, it’s free.
Best Q2: 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 $133.2 million, up 2.8% year on year, outperforming analysts’ expectations by 10.1%. 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 21.1% since reporting. It currently trades at $51.82.
Is now the time to buy Northwest Pipe? Access our full analysis of the earnings results here, it’s free.
Weakest Q2: CSW (NASDAQ:CSW)
With over two centuries of combined operations manufacturing and supplying, CSW (NASDAQ:CSW) offers special chemicals, coatings, sealants, and lubricants for various industries.
CSW reported revenues of $263.6 million, up 16.6% year on year, falling short of analysts’ expectations by 5.2%. It was a disappointing quarter as it posted a significant miss of analysts’ EBITDA and EPS estimates.
CSW delivered the fastest revenue growth but had the weakest performance against analyst estimates in the group. As expected, the stock is down 8.4% since the results and currently trades at $246.15.
Read our full analysis of CSW’s results here.
Zurn Elkay (NYSE:ZWS)
Claiming to have saved more than 30 billion gallons of water, Zurn Elkay (NYSE:ZWS) provides water management solutions to various industries.
Zurn Elkay reported revenues of $444.5 million, up 7.9% year on year. This result surpassed analysts’ expectations by 4.5%. Overall, it was a stunning quarter as it also produced a solid beat of analysts’ adjusted operating income estimates.
The stock is up 23.2% since reporting and currently trades at $47.21.
Read our full, actionable report on Zurn Elkay here, it’s free.
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 $1.50 billion, up 3.4% year on year. This number beat analysts’ expectations by 2.5%. It was a stunning quarter as it also recorded a solid beat of analysts’ EBITDA estimates.
The stock is down 11.9% since reporting and currently trades at $545.93.
Read our full, actionable report on Lennox here, it’s free.
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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