The end of the earnings season is always a good time to take a step back and see who shined (and who not so much). Let’s take a look at how hvac and water systems stocks fared in Q2, starting with Zurn Elkay (NYSE:ZWS).

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 8 hvac and water systems stocks we track reported a strong Q2. As a group, revenues beat analysts’ consensus estimates by 2.3%.

Inflation progressed towards the Fed's 2% goal recently, leading the Fed to reduce its policy rate by 50bps (half a percent or 0.5%) in September 2024. This is the first cut in four years. While CPI (inflation) readings have been supportive lately, employment measures have bordered on worrisome. The markets will be debating whether this rate cut's timing (and more potential ones in 2024 and 2025) is ideal for supporting the economy or a bit too late for a macro that has already cooled too much.

Luckily, hvac and water systems stocks have performed well with share prices up 12.8% on average since the latest earnings results.

Zurn Elkay (NYSE:ZWS)

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

Zurn Elkay reported revenues of $412 million, up 2.2% year on year. This print was in line with analysts’ expectations, but overall, it was a slower quarter for the company with a miss of analysts’ organic revenue estimates.

Todd A. Adams, Chairman and Chief Executive Officer, commented, “Both sales and margins exceeded our guidance for the second quarter, as we leveraged 3% pro forma core sales(1) growth into adjusted EBITDA(1) growth of 20% over the prior year, as margins improved 370 basis points to 25.3%. We delivered strong second quarter free cash flow(1) of $80 million while net debt leverage(1) continues at an all-time low of 0.9x. We also repurchased nearly 2 million shares in the quarter for a total of $61 million, bringing our year to date repurchases to $80 million."

Zurn Elkay delivered the slowest revenue growth of the whole group. Interestingly, the stock is up 11.1% since reporting and currently trades at $35.79.

Read our full report on Zurn Elkay here, it’s free.

Best Q2: 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 $129.5 million, up 11.3% year on year, outperforming analysts’ expectations by 8.7%. The business had an incredible quarter with an impressive beat of analysts’ earnings estimates.

The market seems happy with the results as the stock is up 17.4% since reporting. It currently trades at $44.79.

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

Weakest Q2: 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 $815.3 million, up 4.8% year on year, falling short of analysts’ expectations by 2%. It was a slower quarter with full-year revenue guidance missing analysts’ expectations.

Advanced Drainage delivered the weakest full-year guidance update in the group. Interestingly, the stock is up 4.5% since the results and currently trades at $156.

Read our full analysis of Advanced Drainage’s results here.

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 $226.2 million, up 11.2% year on year. This print beat analysts’ expectations by 4.9%. It was an exceptional quarter as it also put up a solid beat of analysts’ earnings estimates.

The stock is up 21.7% since reporting and currently trades at $364.56.

Read our full, actionable report on CSW 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 $1.02 billion, up 6.6% year on year. This print topped analysts’ expectations by 2.5%. It was a strong quarter as it also logged an impressive beat of analysts’ organic revenue estimates and full-year revenue guidance slightly topping analysts’ expectations.

A. O. Smith achieved the highest full-year guidance raise among its peers. The stock is flat since reporting and currently trades at $88.94.

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

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