Wrapping up Q1 earnings, we look at the numbers and key takeaways for the hvac and water systems stocks, including Advanced Drainage (NYSE: WMS) 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 0.6% below.
Thankfully, share prices of the companies have been resilient as they are up 7.3% on average since the latest earnings results.
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. This print fell short of analysts’ expectations by 6.8%. Overall, it was a disappointing quarter for the company with a miss of analysts’ Infiltrators revenue estimates and full-year revenue guidance missing analysts’ expectations significantly.
Scott Barbour, President and Chief Executive Officer of ADS, commented, "In Fiscal 2025, domestic construction market sales increased 3% as we continued to drive above market performance through our material conversion strategy in the stormwater and onsite wastewater markets. Importantly, organic sales in our most profitable segments, Infiltrator and Allied Products, increased 4.6% and 2.5%, respectively, and the onsite wastewater and Allied products now represent a collective 44% of revenue. The resiliency demonstrated by this year's 30.6% Adjusted EBITDA margin is due in part to our strategy to grow these more profitable products to be a higher mix of the overall sales."
Advanced Drainage delivered the weakest performance against analyst estimates, slowest revenue growth, and weakest full-year guidance update of the whole group. Unsurprisingly, the stock is down 1.2% since reporting and currently trades at $120.23.
Read our full report on Advanced Drainage 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 achieved 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 14.5% since reporting. It currently trades at $77.88.
Is now the time to buy AAON? Access our full analysis of the earnings results here, it’s free.
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 $116.1 million, up 2.6% year on year, exceeding analysts’ expectations by 3.7%. Still, it was a slower quarter as it posted a significant miss of analysts’ EBITDA and EPS estimates.
The stock is flat since the results and currently trades at $42.12.
Read our full analysis of Northwest Pipe’s results here.
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 $1.07 billion, up 2.4% year on year. This print surpassed analysts’ expectations by 4.6%. It was a very strong quarter as it also put up an impressive beat of analysts’ organic revenue estimates and a decent beat of analysts’ EPS estimates.
The stock is up 10.4% since reporting and currently trades at $616.85.
Read our full, actionable report on Lennox here, it’s free.
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 result topped analysts’ expectations by 1.1%. Overall, it was a strong quarter as it also produced a solid beat of analysts’ EBITDA estimates and an impressive beat of analysts’ organic revenue estimates.
The stock is up 6.6% since reporting and currently trades at $69.08.
Read our full, actionable report on A. O. Smith 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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