MILWAUKEE, Oct. 26, 2016 /PRNewswire/ -- Water technology company A. O. Smith Corporation (NYSE: AOS) today announced third quarter net earnings of $83.2 million or $0.47 per share on record third quarter sales of $683.9 million. Third quarter 2016 net earnings improved 13 percent from the $73.6 million earned the previous year.

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Increased volumes of residential and commercial water heaters in the U.S. and continued strong demand for the company's water heating and water treatment products in China drove sales in the third quarter nine percent higher compared with sales of $625.1 million during the same period in 2015. Sales increased 11 percent when adjusted for the impact from the stronger U.S. dollar against the Chinese and Canadian currencies.

"A. O. Smith delivered record sales and strong earnings increases thanks to our global growth strategy," commented Ajita Rajendra, chairman and chief executive officer.

"Our acquisition of Aquasana, a residential water treatment company based in the U.S., in August added $6.2 million to third quarter revenues," Rajendra continued. "We are enthusiastic about the opportunities Aquasana brings us in the U.S. and China residential water treatment markets."

North America segment
Third quarter sales for the North America segment, which includes U.S. and Canadian water heaters, boilers and water treatment products, increased eight percent to $450.8 million compared with third quarter 2015 sales of $417.4 million. The increase in sales was primarily due to higher volumes of residential and commercial water heaters in the United States. The acquisition of Aquasana on Aug. 8 added $6.2 million of water treatment sales to the company's North America segment.

Segment operating earnings of $100.5 million were 11 percent higher than the $90.5 million segment operating earnings in the third quarter of the previous year, primarily due to higher volumes in the U.S. As a result of higher volumes, third quarter 2016 operating margin of 22.3 percent was higher than the third quarter 2015 operating margin of 21.7 percent.

Rest of World segment
Rest of World sales, which is primarily comprised of China, Europe and India, improved 11 percent in the third quarter of 2016 to $240.3 million. Sales of A. O. Smith branded water heaters and water treatment products in China increased 11 percent in U.S. dollars and 17 percent in local currency.

Operating earnings increased 14 percent to $31.1 million compared with the third quarter of the previous year. The impact to profits from higher sales was partially offset by increased selling, general and administrative (SG&A) expenses in China. Higher selling costs in China to support expansion in tier two and tier three cities and higher advertising costs to promote the company's products in China during the Summer Olympic Games and European football championship were the primary drivers of higher segment SG&A expenses. Segment operating earnings were negatively impacted by approximately $2 million due to China currency translation. Third quarter operating margin of 12.9 percent was slightly higher than 12.6 percent experienced one year ago.

Share Repurchase and Other Items
Through the first nine months of 2016, the company repurchased approximately 1.3 million shares of common stock at a total cost of $100 million. The company completed a two-for-one stock split in early October. Adjusting for the split, approximately 2.6 million shares remained on the existing discretionary repurchase authority as of Sept. 30. The company expects to spend approximately $135 million in 2016 on share repurchases.

Total debt as of Sept. 30 was $336.2 million, resulting in leverage of 18.1 percent as measured by the ratio of total debt to total capital. Cash and investments, located outside the U. S., totaled $678.8 million at the end of the quarter. Cash provided by operations during the first nine months of 2016 was $263.6 million.

Primarily as a result of strong cash flow generation and escalating Pension Benefit Guaranty Corporation (PBCG) premiums, the company made a $30.0 million voluntary contribution to its pension plan during the third quarter.

The effective tax rate in the third quarter was 29.7 percent, lower than the 31.3 percent rate experienced in the year ago period and was consistent with company projections.

2016 Outlook
"We continue to have confidence in our growth strategy. As a result of continued strong performance in China and in North America, we are increasing the company's guidance for 2016," Rajendra noted. "We believe A. O. Smith Corporation will achieve full-year earnings of between $1.81 and $1.83 per share."

A. O. Smith will broadcast a live conference call at 10:00 a.m. (Eastern Daylight Time) today. The call can be heard on the company's web site, www.aosmith.com. An audio replay of the call will be available on the company's web site after the live event.

Forward-looking statements
This release contains statements that the company believes are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally can be identified by the use of words such as "may," "will," "expect," "intend," "estimate," "anticipate," "believe," "forecast," "guidance" or words of similar meaning. All forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those anticipated as of the date of this release. Important factors that could cause actual results to differ materially from these expectations include, among other things, the following: a further slowdown in the growth rate of the Chinese economy and/or a decline in the growth rate of consumer spending in China; potential weakening in the high efficiency boiler segment in the U.S.; significant volatility in raw material prices; inability for the company to implement or maintain pricing actions; potential weakening in U.S. residential or commercial construction or instability in the company's replacement markets; uncertain costs, savings and timeframes associated with the company's implementation of the new enterprise resource planning system; foreign currency fluctuations; the company's ability to execute its acquisition strategy; competitive pressures on the company's businesses; and adverse general economic conditions and capital market deterioration. Forward-looking statements included in this press release are made only as of the date of this release, and the company is under no obligation to update these statements to reflect subsequent events or circumstances. All subsequent written and oral forward-looking statements attributed to the company, or persons acting on its behalf, are qualified entirely by these cautionary statements.

A. O. Smith Corporation, with headquarters in Milwaukee, Wis., is a global leader applying innovative technology and energy-efficient solutions to products manufactured and marketed worldwide. The company is one of the world's leading manufacturers of residential and commercial water heating equipment, as well as a manufacturer of water treatment products. For more information visit www.aosmith.com.



                                             A. O.  SMITH CORPORATION

                                              Statement of Earnings

                                  (condensed consolidated financial statements -

                                     dollars in millions, except share data)

                                                   (unaudited)



                                                                                                              Three Months Ended                Nine Months Ended

                                                                                                                 September 30,                    September 30,
                                                                                                                 -------------                    -------------

                                                                                                                            2016                              2015                     2016                     2015
                                                                                                                            ----                              ----                     ----                     ----


    Net sales                                                                                                             $683.9                            $625.1                 $1,987.8                 $1,897.1

    Cost of products sold                                                                               400.6                             369.5                            1,158.1                  1,149.9
                                                                                                        -----                             -----                            -------                  -------

    Gross profit                                                                                        283.3                             255.6                              829.7                    747.2


    Selling, general and
     administrative expenses                                                                            164.7                             149.0                              484.1                    455.6

    Interest expense                                                                                      2.1                               1.6                                5.7                      6.0

    Other income                                                                                        (1.9)                            (2.2)                              (6.2)                   (7.6)
                                                                                                         ----                              ----                               ----                     ----

    Earnings before provision for
     income taxes                                                                                       118.4                             107.2                              346.1                    293.2

    Provision for income taxes                                                                           35.2                              33.6                              102.3                     90.1
                                                                                                         ----                              ----                              -----                     ----


    Net earnings                                                                                                           $83.2                             $73.6                   $243.8                   $203.1




    Diluted earnings per
     share of common stock                                                                                                 $0.47                             $0.41                    $1.38                    $1.13



                                                                                 Average common shares
                                                                                 outstanding  (000's omitted)                    176,548                           178,739                  177,117                  179,569



                                                     A. O. SMITH CORPORATION

                                                          Balance Sheet

                                                      (dollars in millions)


                                                                                (unaudited)

                                                                               September 30,          December 31,

                                                                                        2016                   2015
                                                                                        ----                   ----

    ASSETS:


                                          Cash and cash equivalents                            $269.3                 $323.6

                                          Marketable securities                                 409.5                  321.6

                                          Receivables                                           517.3                  501.4

                                          Inventories                                           258.6                  222.9

                                          Other current assets                                   52.9                   45.9



                                             Total Current Assets                             1,507.6                1,415.4


                                          Net property, plant and equipment                     458.4                  442.7

                                          Goodwill and other intangibles                        803.6                  711.9

                                          Other assets                                           54.8                   59.2



                                          Total Assets                                       $2,824.4               $2,629.2




    LIABILITIES AND STOCKHOLDERS' EQUITY:


                                          Trade payables                                       $455.8                 $424.9

                                          Accrued payroll and benefits                           76.8                   81.6

                                          Accrued liabilities                                    97.6                   90.1

                                          Product warranties                                     44.6                   43.7

                                          Debt due within one year                                7.3                   12.9



                                             Total Current Liabilities                          682.1                  653.2


                                          Long-term debt                                        328.9                  236.1

                                          Pension liabilities                                    95.2                  134.2

                                          Other liabilities                                     192.6                  163.4

                                          Stockholders' equity                                1,525.6                1,442.3



                                           Total Liabilities and Stockholders'
                                           Equity                                            $2,824.4               $2,629.2



                                                          A. O.  SMITH CORPORATION

                                                           Statement of Cash Flows

                                                            (dollars in millions)

                                                                 (unaudited)


                                                                                   Nine Months Ended

                                                                                     September 30,
                                                                                     -------------

                                                                                                  2016        2015
                                                                                                  ----        ----

    Operating Activities

                       Net earnings                                                             $243.8      $203.1

                        Adjustments to
                        reconcile net
                        earnings

                        to net cash
                          provided by
                          (used in)
                          operating
                          activities:

                       Depreciation & amortization                                                48.7        47.3

                       Pension (income) expense                                                  (4.8)        0.1

                       Stock based compensation expense                                            8.1         7.8

                        Net changes in operating assets
                        and liabilities,

                            net of acquisitions:

                                 Current assets and liabilities                                 (23.5)      (6.4)

                                 Noncurrent assets and liabilities                               (7.8)     (13.8)
                                                                                                  ----       -----

    Cash Provided by Operating Activities -
     continuing operations                                                                    264.5       238.1

    Cash Used in Operating Activities -
     discontinued operations                                                                  (0.9)      (1.0)
                                                                                               ----        ----

    Cash Provided by Operating Activities                                                     263.6       237.1


    Investing Activities

                        Capital
                        expenditures                                                            (58.7)     (53.1)

                       Acquisitions                                                             (90.5)          -

                        Investment in
                        marketable
                        securities                                                             (415.5)    (322.2)

                        Net proceeds from
                        sale of
                        marketable
                        securities                                                               318.2       213.8


    Cash Used in Investing Activities                                                       (246.5)    (161.5)


    Financing Activities

                        Term debt
                        (repaid)
                        incurred                                                                (13.2)       61.7

                        Debt incurred
                        (repaid)                                                                  99.7      (22.4)

                        Common stock
                        repurchases                                                            (100.2)    (104.3)

                        Net proceeds from
                        stock option
                        activity                                                                   5.5         3.8

                       Dividends paid                                                           (63.2)     (50.9)


    Cash Used In Financing Activities                                                        (71.4)    (112.1)
                                                                                              -----      ------


                        Net decrease in
                        cash and cash
                        equivalents                                                             (54.3)     (36.5)

                        Cash and cash
                        equivalents -
                        beginning of
                        period                                                                   323.6       319.4


    Cash and Cash Equivalents -End of
     Period                                                                                   $269.3      $282.9



                                          A. O.  SMITH CORPORATION

                                              Business Segments

                                            (dollars in millions)

                                                 (unaudited)



                                                           Three Months Ended                   Nine Months Ended

                                                             September 30,                        September 30,
                                                             -------------                        -------------

                                     2016                2015                            2016                2015
                                     ----                ----                            ----                ----

    Net sales

                                 North
                                 America              $450.8                  $417.4                    $1,307.5           $1,289.3

                                 Rest of
                                 World                 240.3                   217.1                       697.6              634.3

                                 Inter-
                                 segment
                                 sales                 (7.2)                  (9.4)                     (17.3)            (26.5)


                                                    $683.9                  $625.1                    $1,987.8           $1,897.1
                                                    ======                  ======                    ========           ========


    Earnings

                                 North
                                 America              $100.5                   $90.5                      $296.5             $247.7

                                 Rest of
                                 World                  31.1                    27.4                        90.9               84.5

                                                     131.6                   117.9                       387.4              332.2


    Corporate expense              (11.1)              (9.1)                         (35.6)             (33.0)

    Interest expense                (2.1)              (1.6)                          (5.7)              (6.0)
                                     ----                ----                            ----                ----


    Earnings before income taxes    118.4               107.2                           346.1               293.2


    Tax provision                    35.2                33.6                           102.3                90.1

    Net earnings                             $83.2                   $73.6                    $243.8              $203.1

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SOURCE A. O. Smith Corporation