Resideo Technologies (REZI 0.40%) has been a tough stock to love since its split from Honeywell International in 2018, losing to the market by about 110 percentage points during that time. But fourth-quarter results provided hints that the company has finally turned a corner.
Investors are cheering the results, sending shares of Resideo up 16% as of 10:30 Eastern on Wednesday.
Resideo earnings finally hit home for investors
Resideo is a home automation company that was created out of Honeywell's thermostat and security camera business. The company has been plagued by supply chain and inventory management issues and macro volatility in construction and renovation markets, making it a chronic underperformer.
Things were looking up in the final three months of 2023. Resideo reported fourth-quarter earnings of $0.48 per share on revenue of $1.54 billion, surpassing Wall Street expectations for $0.44 per share in earnings on sales of $1.52 billion. Revenue was down year over year, but income from operations grew to $147 million from $98 million, including $35 million of restructuring charges in the fourth quarter of 2022.
"We finished 2023 on a strong note with results exceeding the midpoint of our fourth quarter outlook driven by continued improvement in order activity and gross margin in our products and solutions business," CEO Jay Geldmacher said in a statement.
Operating cash flow for the quarter was $440 million, compared with $152 million in the prior year, a reflection of the company's focus on bringing down costs and improving operations.
Is Resideo a buy after its strong earnings report?
The company is putting some of that cash to work for investors, spending $41 million of a $150 million buyback authorization. Resideo expects at least $320 million in additional cash from operations in 2024, providing plenty of fuel for further repurchases.
But there are limits to what Resideo can do to drive growth, especially in a period of high interest rates and softening new-home and remodeling activity. The company forecasted net revenue of between $6.08 billion and $6.28 billion in 2024, essentially flat from the $6.24 billion it generated in 2023. That number, in turn, was down 2% from $6.37 billion in 2022.
It's good to see Resideo turning the corner, but this isn't a classic income stock and there isn't a lot of growth on the horizon. Those interested in following this story should do so from the sidelines for now.
