A.O. Smith is now forecasting its 2024 sales to be flat after weaker-than-expected sales in China and North America during the third quarter prompted the Milwaukee-based water heater maker to cut its guidance.
When A.O. Smith reported its second quarter results in July, the company forecasted net sales for the year would increase between 3% and 5% compared to $3.85 billion in 2023.
On Friday, the company released preliminary third quarter results that showed a 4% year-over-year decrease in sales and earnings that were down 9%.
As a result, the company issued new guidance for the year forecasting sales would end the year between $3.8 billion and $3.9 billion. At the midpoint, the guidance calls for sales to be essentially flat with the low-end representing a decrease of 1.4% and the high-end representing a 1.2% increase from the prior fiscal year.
During the second quarter earnings call, executives had discussed increasing consumer headwinds that prompted a cautious outlook for the second half of the year in China.
“Those headwinds were more challenging than we expected through the third quarter and, as a result, our constant currency sales to third parties declined 17% compared to last year,”
Kevin Wheeler, chairman and chief executive officer of A.O. Smith, said in a release announcing the third quarter results.
Wheeler also noted that residential and commercial water heater orders in North America were lower than expected, even though a decrease was anticipated.
“We believe our order demand was impacted by a larger than expected price increase-related pre-buy in the first half of the year and was also negatively influenced by our improved lead times,” Wheeler said.
He added the company expects North America water heater volumes to improve in the fourth quarter, but “we project the softness in China will persist through the remainder of 2024.”
"While we view recently announced China stimulus measures as positive, we believe it will take time before any impacts on consumer demand are seen,” Wheeler said. “In North America, we expect improved volumes through the rest of the year. However, we remain cautious about residential and commercial water heater end market demand.”
The guidance released Friday suggests A.O. Smith’s fourth quarter could range from down 9.5% to up 0.6% with the midpoint landing at a 4.5% decline.
Even with the decline, the company’s guidance calls for earnings of $3.70 to $3.85 per diluted share for the year, up from $3.69 in 2023.
The prior guidance called for earnings of $3.95 to $4.10.
Still, the company’s board did approve a 6% increase in its dividend rate on Oct. 7
