A. O. Smith Corporation : A. O. Smith first quarter sales and earnings increase due to contributions from acquired business and growth in China
04/20/2012| 08:52am US/Eastern
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Milwaukee, Wis.- April 20, 2012 - A. O. Smith Corporation
(NYSE:AOS) today announced first quarter net earnings of
$47.5 million or $1.02 per share on a 12 percent increase in
revenue.
The net earnings were $23.3 million higher than the $24.2
million or $.52 per share earned from continuing operations
in the first quarter of 2011. First quarter 2012 net earnings
included an after-tax gain of $16.7 million, or $.36 per
share related to the sale of shares of Regal Beloit
Corporation (NYSE:RBC) which were received from the 2011
divestiture of the electric motor business.
First quarter sales were $468.6 million compared with sales
of $417.4 million for the same period last year. The higher
sales were the result of first quarter contributions from
Lochinvar which was acquired in August 2011 and an 18 percent
increase in sales of A. O. Smith branded product in China.
"Two highlights in the quarter came from our higher
growth businesses," Paul W. Jones, chairman and chief
executive officer, said. "Lochinvar grew over 10
percent, and our sales of A. O. Smith branded products in
China continued to grow at a double digit rate."
North America
Sales of the North America segment, which includes the U.S.
and Canada water heater and boiler businesses, increased 10
percent to $353.3 million from first quarter 2011 sales of
$321.7 million. Sales of $49.3 million from Lochinvar were
partially offset by lower sales of U. S. residential and
commercial water heaters compared with the first quarter last
year due to the pre-buy in advance of an April 2011 price
increase. Commercial gas water heater sales for Southern
California were also lower following a pre-buy in the fourth
quarter 2011 driven by a change in air quality standards in
that region at the beginning of this year.
Operating earnings in the first quarter were $42.2 million,
an 11 percent increase over earnings of $38.1 million in last
year's first quarter. The higher earnings were the result
of contributions from Lochinvar, which were partially offset
by the effect of lower U.S. water heater volumes and higher
steel costs. First quarter operating margin was 11.9 percent,
slightly improved from the 11.8 percent operating margin
experienced last year.
Rest of World
This segment, which consists of the China, India, and Europe
water heating businesses and the water treatment business in
Asia, reported first quarter sales of $124.2 million, $19
million higher than first quarter 2011 sales of $105.2
million. Higher sales of A. O. Smith branded products in
China, driven in part by a pre-buy ahead of an April 2012
price increase, were the primary reason for the sales
increase.
Operating earnings of $14.2 million were 31 percent higher
than the $10.8 million earned in the first quarter of 2011
primarily due to the higher volumes in China. First quarter
operating margin of 11.4 percent improved from 2011 first
quarter operating margin of 10.3 percent.
During the first quarter, the company broke ground for a new
457,000 square foot water heater plant in Nanjing, China. The
new plant, which is scheduled to go into production during
mid-2013, will accommodate increased water heater demand as
well as growth for new products recently introduced in the
China market such as heat pump, solar, and combi boiler.
Regal Beloit share activity and leverage
During the first quarter, the company sold all of the shares
of Regal Beloit stock for $187.6 million or an average price
of $66.19 per share. The majority of the proceeds was
received before March 31 and used to pay down revolving
credit debt during the first quarter. The proceeds received
after March 31, or $64.7 million, were used to pay down
revolving credit debt during the first week of April. The
company had cash and marketable securities of $428.1 million
and debt of $319.2 million at the end of March 2012.
Outlook for 2012
"Although the U. S. economy is showing some positive
signs of recovery including some positive data in the new
construction sector, we still have a long way to go to fully
recover from the recession," Jones said. "As
we've stated before, we expect little to no benefit from
new construction this year as our water heater business tends
to lag behind new construction by six to nine months.
However, our North American replacement water heater business
remains on solid ground. Sales at Lochinvar continue to grow
as expected. We project growth in 2012 to be in excess of 10
percent over their historical performance, and we look
forward to a full year's contributions from this newest
member of our team."
"Based on what we have seen so far this year, we have
increased our estimate for 2012 earnings to a range of $2.75
to $2.90 per share," Jones continued. "This range
does not include the potential impact from any future
acquisitions or the first quarter gain related to the RBC
shares. Our previously announced disciplined acquisition
strategy continues to progress. We have the human capital,
well-established processes, and the financial resources to
manage additional acquisitions that will create value for our
shareholders. We continue to seek water heating, boiler and
water treatment companies in fast-growing geographies, as
well as companies with new technologies or adjacencies to our
core business."
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. These 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: difficulties in
integrating the Lochinvar acquisition or achieving the
disclosed accretion, cost synergies and/or global expansion
opportunities related to the acquisition; weakening in the
high efficiency boiler market or slowdown in the transition
from non-condensing to condensing boilers in the United
States ; the ability to execute our acquisition strategy;
significant volatility in raw material prices; competitive
pressures on the company's businesses; inability to
implement pricing actions; instability in the company's
water products markets; further weakening in housing
construction; further weakening in commercial construction;
timing of any recoveries in housing or commercial
construction; a slowdown in the Chinese economy; 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 is one of the world's leading
manufacturers of residential and commercial water heating
equipment and boilers, offering a comprehensive line
featuring the best-known brands in North America and China,
as well as water purification products for residential and
light commercial applications. A. O. Smith, headquartered in
Milwaukee, Wis., employs approximately 10,500 people at
operations in the U. S., Canada, Mexico, India, China, and
the Netherlands.
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