Trane Technologies and Garrett Motion Collaborate to Advance Ultra High Efficiency Commercial HVAC Solutions

As the Q3 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 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 Q3. As a group, revenues beat analysts’ consensus estimates by 3.6% while next quarter’s revenue guidance was 0.7% below.

Thankfully, share prices of the companies have been resilient as they are up 8% on average since the latest earnings results.

A. O. Smith

Credited with the invention of the glass-lined water heater, A.O. Smith manufactures water heating and treatment products for various industries.

A. O. Smith reported revenues of $942.5 million, up 4.4% year on year. This print was in line with analysts’ expectations, but overall, it was a slower quarter for the company with full-year revenue guidance missing analysts’ expectations and full-year EPS guidance missing analysts’ expectations.

Steve Shafer, chief executive officer, stated, "In the third quarter, the A. O. Smith team achieved sales growth of 4%. The North America segment delivered 6% growth driven by the benefits of pricing actions implemented earlier this year to address increased costs in North America and continued demand resiliency for our commercial water heaters and boilers. This performance was partially offset by continued economic challenges in China, which experienced a 12% local currency sales decline in the quarter."

Interestingly, the stock is up 6.5% since reporting and currently trades at $73.10.

Read our full report on A. O. Smith here, it’s free.

Best Q3: Northwest Pipe

Playing a large role in the Integrated Pipeline (IPL) project in Texas to deliver ~350 million gallons of water per day, Northwest Pipe is a manufacturer of pipeline systems for water infrastructure.

Northwest Pipe reported revenues of $151.1 million, up 16% year on year, outperforming analysts’ expectations by 14.4%. The business had an incredible quarter with a beat of analysts’ EPS estimates and an impressive beat of analysts’ EBITDA estimates.

Northwest Pipe achieved the biggest analyst estimates beat among its peers. The market seems happy with the results as the stock is up 25.1% since reporting. It currently trades at $69.66.

Weakest Q3: Lennox

Based in Texas and founded over a century ago, Lennox is a climate control solutions company offering heating, ventilation, air conditioning, and refrigeration (HVACR) goods.

Lennox reported revenues of $1.43 billion, down 4.8% year on year, falling short of analysts’ expectations by 3.9%. It was a slower quarter as it posted a significant miss of analysts’ revenue estimates and a significant miss of analysts’ organic revenue estimates.

Lennox delivered the weakest performance against analyst estimates in the group. As expected, the stock is down 7.2% since the results and currently trades at $509.69.

Read our full analysis of Lennox’s results here.

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 $277 million, up 21.5% year on year. This number came in 0.5% below analysts' expectations. More broadly, it was a mixed quarter as it also recorded a beat of analysts’ EPS estimates but a slight miss of analysts’ revenue estimates.

CSW achieved the fastest revenue growth among its peers. The stock is up 35.4% since reporting and currently trades at $330.31.

Read our full, actionable report on CSW here, it’s free.

Trane Technologies

With low-pressure heating systems as its first product, Trane designs, manufactures, and sells HVAC and refrigeration systems, the former to commercial and residential building customers and the latter to commercial truck manufacturers.

Trane Technologies reported revenues of $5.74 billion, up 5.5% year on year. This result lagged analysts' expectations by 0.9%. Zooming out, it was a satisfactory quarter as it also logged an impressive beat of analysts’ adjusted operating income estimates but a slight miss of analysts’ revenue estimates.

The stock is down 8.8% since reporting and currently trades at $389.85.

Read our full, actionable report on Trane Technologies here, it’s free.

Looking back on hvac and water systems stocks’ Q3 earnings, we examine this quarter’s best and worst performers, including Zurn Elkay 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 Q3. As a group, revenues beat analysts’ consensus estimates by 3.6% while next quarter’s revenue guidance was 0.7% below.

Thankfully, share prices of the companies have been resilient as they are up 8% on average since the latest earnings results.

Zurn Elkay

Claiming to have saved more than 30 billion gallons of water, Zurn Elkay provides water management solutions to various industries.

Zurn Elkay reported revenues of $455.4 million, up 11.1% year on year. This print exceeded analysts’ expectations by 3%. Overall, it was a very strong quarter for the company with an impressive beat of analysts’ adjusted operating income estimates and a solid beat of analysts’ revenue estimates.

Todd A. Adams, Chairman and Chief Executive Officer, commented, “We delivered a solid quarter as our sales and adjusted EBITDA(1) both exceeded the guidance we provided 90 days ago and will again raise our expectations for the full year. Third quarter core sales(1) growth was 11% compared to the prior year and adjusted EBITDA margin(1) was 26.8%, an increase of 120 basis points over the prior year third quarter. Free cash flow(1) in the quarter was $94 million which reduced our leverage to a record low of 0.6x. Our exceptional cash generation and strong balance sheet have us well positioned and provides optionality to execute our balanced capital allocation approach including cultivating the right M&A opportunities and continued return of capital to shareholders. We have increased our annual dividend 22% to $0.44 per share and also increased the share repurchase authorization to $500 million.”

Interestingly, the stock is up 2.6% since reporting and currently trades at $47.27.

Best Q3: Northwest Pipe

Playing a large role in the Integrated Pipeline (IPL) project in Texas to deliver ~350 million gallons of water per day, Northwest Pipe is a manufacturer of pipeline systems for water infrastructure.

Northwest Pipe reported revenues of $151.1 million, up 16% year on year, outperforming analysts’ expectations by 14.4%. The business had an incredible quarter with a beat of analysts’ EPS estimates and an impressive beat of analysts’ EBITDA estimates.

Northwest Pipe scored the biggest analyst estimates beat among its peers. The market seems happy with the results as the stock is up 24.6% since reporting. It currently trades at $69.37.

Weakest Q3: Lennox

Based in Texas and founded over a century ago, Lennox is a climate control solutions company offering heating, ventilation, air conditioning, and refrigeration (HVACR) goods.

Lennox reported revenues of $1.43 billion, down 4.8% year on year, falling short of analysts’ expectations by 3.9%. It was a slower quarter as it posted a significant miss of analysts’ revenue estimates and a significant miss of analysts’ organic revenue estimates.

Lennox delivered the weakest performance against analyst estimates in the group. As expected, the stock is down 4.2% since the results and currently trades at $525.87.

Read our full analysis of Lennox’s results here.

A. O. Smith

Credited with the invention of the glass-lined water heater, A.O. Smith manufactures water heating and treatment products for various industries.

A. O. Smith reported revenues of $942.5 million, up 4.4% year on year. This number was in line with analysts’ expectations. Taking a step back, it was a slower quarter as it produced full-year revenue guidance missing analysts’ expectations and full-year EPS guidance missing analysts’ expectations.

The stock is up 5.3% since reporting and currently trades at $72.25.

Read our full, actionable report on A. O. Smith here, it’s free.

Trane Technologies

With low-pressure heating systems as its first product, Trane designs, manufactures, and sells HVAC and refrigeration systems, the former to commercial and residential building customers and the latter to commercial truck manufacturers.

Trane Technologies reported revenues of $5.74 billion, up 5.5% year on year. This print missed analysts’ expectations by 0.9%. Taking a step back, it was a satisfactory quarter as it also logged an impressive beat of analysts’ adjusted operating income estimates but a slight miss of analysts’ revenue estimates.

The stock is down 8.9% since reporting and currently trades at $389.40.

Read our full, actionable report on Trane Technologies here, it’s free.

Wrapping up Q3 earnings, we look at the numbers and key takeaways for the electrical systems stocks, including Garrett Motion and its peers.

Like many equipment and component manufacturers, electrical systems companies are buoyed by secular trends such as connectivity and industrial automation. More specific pockets of strong demand include Internet of Things (IoT) connectivity and the 5G telecom upgrade cycle, which can benefit companies whose cables and conduits fit those needs. But like the broader industrials sector, these companies are also at the whim of economic cycles. Interest rates, for example, can greatly impact projects that drive demand for these products.

The 15 electrical systems stocks we track reported a very strong Q3. As a group, revenues beat analysts’ consensus estimates by 4.3% while next quarter’s revenue guidance was 1.3% below.

Luckily, electrical systems stocks have performed well with share prices up 10.3% on average since the latest earnings results.

Garrett Motion

A key player in the transition to cleaner vehicles, Garrett Motion (NYSE:GTX) designs and manufactures turbochargers, air compressors, and electric motor technologies for vehicle manufacturers and industrial applications.

Garrett Motion reported revenues of $902 million, up 9.2% year on year. This print exceeded analysts’ expectations by 4.1%. Overall, it was an exceptional quarter for the company with a solid beat of analysts’ EBITDA estimates and an impressive beat of analysts’ revenue estimates.

The stock is up 48.4% since reporting and currently trades at $18.57.

Best Q3: Thermon

Creating the first packaged tracing systems, Thermon is a leading provider of engineered industrial process heating solutions for process industries.

Thermon reported revenues of $131.7 million, up 14.9% year on year, outperforming analysts’ expectations by 10.3%. The business had a stunning quarter with a beat of analysts’ EPS estimates and a solid beat of analysts’ EBITDA estimates.

Thermon delivered the biggest analyst estimates beat among its peers. The market seems happy with the results as the stock is up 40.4% since reporting. It currently trades at $41.30.

Weakest Q3: Atkore

Protecting the things that power our world, Atkore designs and manufactures electrical safety products.

Atkore reported revenues of $752 million, down 4.6% year on year, exceeding analysts’ expectations by 2.5%. Still, it was a slower quarter as it posted a significant miss of analysts’ adjusted operating income estimates.

Interestingly, the stock is up 8.2% since the results and currently trades at $72.00.

Read our full analysis of Atkore’s results here.

Vertiv

Formerly part of Emerson Electric, Vertiv manufactures and services infrastructure technology products for data centers and communication networks.

Vertiv reported revenues of $2.68 billion, up 29% year on year. This number surpassed analysts’ expectations by 3.4%. Overall, it was an exceptional quarter as it also produced a solid beat of analysts’ organic revenue estimates and a beat of analysts’ EPS estimates.

Vertiv pulled off the fastest revenue growth among its peers. The stock is up 1.7% since reporting and currently trades at $177.83.

Read our full, actionable report on Vertiv here, it’s free.

LSI

Enhancing commercial environments, LSI provides lighting and display solutions for businesses and retailers.

LSI reported revenues of $157.2 million, up 13.9% year on year. This result topped analysts’ expectations by 5.2%. It was an exceptional quarter as it also put up an impressive beat of analysts’ revenue estimates and a solid beat of analysts’ EBITDA estimates.

The stock is down 13.7% since reporting and currently trades at $19.84.

Read our full, actionable report on LSI here, it’s free.

As the Q3 earnings season wraps, let’s dig into this quarter’s best and worst performers in the hvac and water systems industry, including Trane Technologies 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 Q3. As a group, revenues beat analysts’ consensus estimates by 3.6% while next quarter’s revenue guidance was 0.8% below.

Thankfully, share prices of the companies have been resilient as they are up 5.6% on average since the latest earnings results.

Trane Technologies

With low-pressure heating systems as its first product, Trane designs, manufactures, and sells HVAC and refrigeration systems, the former to commercial and residential building customers and the latter to commercial truck manufacturers.

Trane Technologies reported revenues of $5.74 billion, up 5.5% year on year. This print fell short of analysts’ expectations by 0.9%, but it was still a satisfactory quarter for the company with an impressive beat of analysts’ adjusted operating income estimates but a slight miss of analysts’ revenue estimates.

Unsurprisingly, the stock is down 9.7% since reporting and currently trades at $385.86.

Best Q3: Northwest Pipe

Playing a large role in the Integrated Pipeline (IPL) project in Texas to deliver ~350 million gallons of water per day, Northwest Pipe is a manufacturer of pipeline systems for water infrastructure.

Northwest Pipe reported revenues of $151.1 million, up 16% year on year, outperforming analysts’ expectations by 14.4%. The business had an incredible quarter with a beat of analysts’ EPS estimates and a solid beat of analysts’ 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 25.3% since reporting. It currently trades at $69.75.

Weakest Q3: Lennox

Based in Texas and founded over a century ago, Lennox is a climate control solutions company offering heating, ventilation, air conditioning, and refrigeration (HVACR) goods.

Lennox reported revenues of $1.43 billion, down 4.8% year on year, falling short of analysts’ expectations by 3.9%. It was a slower quarter as it posted a significant miss of analysts’ revenue estimates and a significant miss of analysts’ organic revenue estimates.

Lennox delivered the weakest performance against analyst estimates in the group. As expected, the stock is down 3% since the results and currently trades at $532.75.

Read our full analysis of Lennox’s results here.

AAON

Backed by two million square feet of lab testing space, AAON makes heating, ventilation, and air conditioning equipment for different types of buildings.

AAON reported revenues of $384.2 million, up 17.4% year on year. This result topped analysts’ expectations by 13.8%. It was an exceptional quarter as it also produced a solid beat of analysts’ revenue estimates and a beat of analysts’ EPS estimates.

The stock is down 9.4% since reporting and currently trades at $84.71.

Read our full, actionable report on AAON here, it’s free.

Carrier Global

Founded by the inventor of air conditioning, Carrier Global manufactures heating, ventilation, air conditioning, and refrigeration products.

Carrier Global reported revenues of $5.58 billion, down 6.8% year on year. This print met analysts’ expectations. Overall, it was a very strong quarter as it also put up an impressive beat of analysts’ EBITDA estimates and a solid beat of analysts’ adjusted operating income estimates.

Carrier Global achieved the highest full-year guidance raise but had the slowest revenue growth among its peers. The stock is down 4.8% since reporting and currently trades at $55.50.

Read our full, actionable report on Carrier Global here, it’s free.