As the Q1 earnings season comes to a close, it’s time to take stock of this quarter’s best and worst performers in the hvac and water systems industry, 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 satisfactory Q1. As a group, revenues beat analysts’ consensus estimates by 2.1% while next quarter’s revenue guidance was 0.7% below.
Thankfully, share prices of the companies have been resilient as they are up 6.5% 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 $963.9 million, down 1.5% year on year. This print exceeded analysts’ expectations by 1.1%. Overall, it was a strong quarter for the company with a solid beat of analysts’ EBITDA estimates and an impressive beat of analysts’ organic revenue estimates.
"We maintain our full-year sales and EPS guidance. Given the uncertainty of the tariff environment, our guidance does not include our announced pricing, which we project will offset, along with other actions, the current announced tariffs. In addition to pricing, our other actions include footprint optimization, strategic sourcing actions and other cost containment initiatives. In North America, we expect water heater industry unit volumes to be flat year-over-year with less first half versus second half volatility compared to 2024, as we focus on plant operating efficiency and order management related to our announced price increases. In our Rest of World segment, we continue to expect a single-digit sales decline in China as consumer demand remains low," stated Steve Shafer, president and chief operating officer.
Interestingly, the stock is up 8.5% since reporting and currently trades at $70.30.
Is now the time to buy A. O. Smith? Access our full analysis of the earnings results here, it’s free.
Best Q1: AAON (NASDAQ: AAON)
Backed by two million square feet of lab testing space, AAON (NASDAQ: AAON) makes heating, ventilation, and air conditioning equipment for different types of buildings.
AAON reported revenues of $322.1 million, up 22.9% year on year, outperforming analysts’ expectations by 10.9%. The business had an incredible quarter with a solid beat of analysts’ EPS estimates and an impressive beat of analysts’ EBITDA estimates.
AAON pulled off the biggest analyst estimates beat and fastest revenue growth among its peers. Although it had a fine quarter compared its peers, the market seems unhappy with the results as the stock is down 13.9% since reporting. It currently trades at $78.50.
Is now the time to buy AAON? Access our full analysis of the earnings results here, it’s free.
Weakest Q1: 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 $615.8 million, down 5.8% year on year, falling short of analysts’ expectations by 6.8%. It was a disappointing quarter as it posted a miss of analysts’ Infiltrators revenue estimates and full-year revenue guidance missing analysts’ expectations significantly.
Advanced Drainage delivered the weakest performance against analyst estimates, slowest revenue growth, and weakest full-year guidance update in the group. As expected, the stock is down 8.2% since the results and currently trades at $111.75.
Read our full analysis of Advanced Drainage’s results here.
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 $5.22 billion, down 3.7% year on year. This print was in line with analysts’ expectations. It was a very strong quarter as it also recorded a solid beat of analysts’ EBITDA estimates.
Carrier Global scored the highest full-year guidance raise among its peers. The stock is up 22.6% since reporting and currently trades at $76.63.
Read our full, actionable report on Carrier Global here, it’s free.
CSW (NASDAQ: CSWI)
With over two centuries of combined operations manufacturing and supplying, CSW (NASDAQ: CSWI) offers special chemicals, coatings, sealants, and lubricants for various industries.
CSW reported revenues of $230.5 million, up 9.3% year on year. This number came in 1% below analysts' expectations. It was a slower quarter as it also logged a slight miss of analysts’ EBITDA estimates.
The stock is down 3% since reporting and currently trades at $305.10.
Read our full, actionable report on CSW here, it’s free.
Market Update
The Fed’s interest rate hikes throughout 2022 and 2023 have successfully cooled post-pandemic inflation, bringing it closer to the 2% target. Inflationary pressures have eased without tipping the economy into a recession, suggesting a soft landing. This stability, paired with recent rate cuts (0.5% in September 2024 and 0.25% in November 2024), fueled a strong year for the stock market in 2024. The markets surged further after Donald Trump’s presidential victory in November, with major indices reaching record highs in the days following the election. Still, questions remain about the direction of economic policy, as potential tariffs and corporate tax changes add uncertainty for 2025.
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