A.O. Smith's Q3 Earnings Top Views, Ups Outlook


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With the recovery in the housing market picking up steam, homebuilding stocks are not the only way to participate.

Investors can look at other housing-related names such as A.O. Smith ( AOS ), which makes commercial and residential water heaters under a variety of labels.

Earlier this week, the company reported Q3 earnings that beat expectations and raised its full-year profit outlook.

The company said it earned 79 cents a share in the latest reported quarter. But excluding a one-time gain, earnings amounted to 71 cents a share, or up 22% from a year ago. It beat views by 3 cents.

Helped by a buyout and strong Chinese demand, sales grew 12% to $462.2 million. Last year's acquisition of Lochinvar, a maker of water heaters and solar systems, added $63 million to its quarterly sales. Still, revenue came in below views of $472.06 million.

Sales in China jumped 22%. A.O. Smith attributed some of its strong Chinese performance to its growing distribution channel.

"Q3 is historically the slowest quarter for AOS, especially true this year following the strong Q212 sales ahead of the June 2012 price increase," wrote Maxim Group analyst William Bremer.

"However, new housing starts have picked up significantly over the past few months and we expect this to translate into increasing new orders for the residential business over the next two to three months," he added.

A.O. Smith hiked its own full-year profit forecast to $2.85 to $2.95 a share, up from $2.80 to $2.90 a share. The new outlook represents growth of 25% to 29%.

The Milwaukee-based firm has a long history of paying shareholders cash dividends. It has paid them each quarter since 1940.

In July, A.O. Smith increased its quarterly payout by 25% to 20 cents a share, its biggest increase in 25 years. On an annualized basis, the company pays 80 cents a share for a yield of about 1.4%.

Despite recent market volatility, A.O. Smith is holding near an all-time high after finding support at its 10-week moving average.

The stock broke out from a flat base in June.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Personal Finance , Investing Ideas

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