HVAC and Water Systems Stocks Q2 Recap: Benchmarking Advanced Drainage (NYSE:WMS)

Earnings results often indicate what direction a company will take in the months ahead. With Q2 behind us, let’s have a look at Advanced Drainage 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 Q2. As a group, revenues beat analysts’ consensus estimates by 1.4% while next quarter’s revenue guidance was 14.3% below.

In light of this news, share prices of the companies have held steady as they are up 3.9% on average since the latest earnings results.

Advanced Drainage

Originally started as a farm water drainage company, Advanced Drainage Systems provides clean water management solutions to communities across America.

Advanced Drainage reported revenues of $829.9 million, up 1.8% year on year. This print exceeded analysts’ expectations by 3.7%. Overall, it was a very strong quarter for the company with a solid beat of analysts’ EBITDA estimates and an impressive beat of analysts’ adjusted operating income estimates.

Scott Barbour, President and Chief Executive Officer of ADS commented, "We delivered strong results in the fiscal first quarter, with Adjusted EBITDA margin of 33.5%. Wet weather in May and June continued to delay project installations, and elevated interest rates remain a headwind. However, the ADS and Infiltrator teams executed well and remain focused on driving profitable growth and operational performance in a challenging macroeconomic environment."

Interestingly, the stock is up 24.1% since reporting and currently trades at $141.20.

Is now the time to buy Advanced Drainage? Access our full analysis of the earnings results here, it’s free.

Best Q2: 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 $133.2 million, up 2.8% year on year, outperforming analysts’ expectations by 10.1%. 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 19.6% since reporting. It currently trades at $51.17.

Is now the time to buy Northwest Pipe? Access our full analysis of the earnings results here, it’s free.

Slowest Q2: 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 $311.6 million, flat year on year, falling short of analysts’ expectations by 4.1%. It was a disappointing quarter as it posted revenue guidance for next quarter missing analysts’ expectations significantly and a significant miss of analysts’ EBITDA estimates.

Interestingly, the stock is up 1.6% since the results and currently trades at $81.83.

Read our full analysis of AAON’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 $1.01 billion, down 1.3% year on year. This number topped analysts’ expectations by 1.2%. It was a strong quarter as it also put up an impressive beat of analysts’ adjusted operating income estimates and a solid beat of analysts’ organic revenue estimates.

A. O. Smith scored the highest full-year guidance raise but had the slowest revenue growth among its peers. The stock is up 1.2% since reporting and currently trades at $72.15.

Read our full, actionable report on A. O. Smith 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 $263.6 million, up 16.6% year on year. This print came in 5.2% below analysts' expectations. Overall, it was a disappointing quarter as it also logged a significant miss of analysts’ EBITDA estimates and a significant miss of analysts’ EPS estimates.

CSW pulled off the fastest revenue growth but had the weakest performance against analyst estimates among its peers. The stock is flat since reporting and currently trades at $305.10.

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

Market Update

In response to the Fed’s rate hikes in 2022 and 2023, inflation has been gradually trending down from its post-pandemic peak, trending closer to the Fed’s 2% target. Despite higher borrowing costs, the economy has avoided flashing recessionary signals. This is the much-desired soft landing that many investors hoped for. The recent rate cuts (0.5% in September and 0.25% in November 2024) have bolstered the stock market, making 2024 a strong year for equities. Donald Trump’s presidential win in November sparked additional market gains, sending indices to record highs in the days following his victory. However, debates continue over possible tariffs and corporate tax adjustments, raising questions about economic stability in 2025.