A.O. Smith Announces Third Quarter Earnings of $.20 Per Share
MILWAUKEE, Oct. 14, 2003 -- A.O. Smith Corporation today announced third quarter net earnings of $6.0 million or $.20 per share, in line with the estimate announced in September but lower than third quarter 2002 net earnings of $10.0 million or $.34 per share.
Sales for the quarter ended Sept. 30 were $356.4 million, $4 million higher than sales for the same period last year.
For the first nine months of 2003, net earnings for the Milwaukee-based manufacturer of electric motors and water heaters were $39.6 million, compared with $40.1 million earned during the same period of 2002. Revenues for the nine-month period were $1.16 billion compared with 2002 nine-month revenues of $1.11 billion.
As indicated in its Sept. 24 press release, the company incurred costs in the third quarter due to timing delays and disruptions, as both of its businesses undertook significant transitions. These transitions included the transfer of electric motor production to lower-cost facilities in Mexico and China, as well as the introduction of flammable vapor resistant water heaters.
According to Robert J. O'Toole, chairman and chief executive officer, "While we are disappointed in our financial performance in the third quarter, we are pleased in achieving major milestones in both businesses. We expect to begin receiving the benefits of these efforts in the fourth quarter and to be fully on track with our long-term strategic direction by year-end."
The company also announced that it has entered into a letter of intent to acquire the assets of Taicang Special Motor Co., Ltd., near Shanghai. Taicang will serve to expand the company's China manufacturing capability to include hermetic motors. The transaction is expected to be completed in the fourth quarter.
Electrical Products
Third quarter sales of $201.2 million were modestly higher than third- quarter 2002 sales of $197.5 million. Operating earnings of $9.6 million were $700,000 lower than the same period in 2002, due to expenses in relocating production to lower-cost facilities, which adversely impacted manufacturing costs and finished goods inventories.
Water Systems
Water Systems' sales of $155.2 million were flat compared with the third quarter of 2002. Higher sales in China, coupled with price increases related to steel costs and newly launched products, were offset by lower unit sales of residential and commercial water heaters. Operating profit of $7.9 million was approximately $5.5 million lower than the third quarter of 2002 as a result of one-time manufacturing and freight costs due to the flammable vapor resistant product launch.
Outlook
"As we indicated in our Sept. 24 press release, we expect earnings for 2003 to range between $1.75 and $1.80 per share. This reduction from our previous forecast was due to the disruptions in the third quarter and efforts to reduce electric motor inventory in the fourth quarter," O'Toole commented. "We expect these implementation difficulties to be behind us as we enter 2004. Accordingly, we expect earnings per share to be in line with our strategic plan, in a range of $2.40 to $2.60 per share."
A.O. Smith Corporation will broadcast a live conference call beginning at 9:30 a.m. (Eastern 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 included in this press release are made only as of the date of this release, and the company is under no obligation to upgrade 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, headquartered in Milwaukee, Wis., is one of North America's largest manufacturers of electric motors and a leading marketer and manufacturer of commercial and residential water heating equipment. The company employs approximately 17,000 people at facilities in the United States, Canada, China, England, Hungary, Ireland, Mexico, and the Netherlands.
A.O. SMITH CORPORATION AND SUBSIDIARIES
(condensed consolidated financial statements -
dollars in millions, except per share data)
Statement of Earnings
Three Months ended Nine Months ended
September 30 September 30
2003 2002 2003 2002
Electrical Products $201.2 $197.5 $641.9 $612.9
Water Systems 155.2 154.9 520.0 497.7
Net sales 356.4 352.4 1,161.9 1,110.6
Cost of products sold 294.9 286.1 938.4 885.9
Gross profit 61.5 66.3 223.5 224.7
Selling, general and administrative 48.8 48.3 154.5 151.7
Interest expense 3.1 3.2 9.0 11.1
Other (income) / expense 0.3 (0.1) 0.6 0.6
9.3 14.9 59.4 61.3
Tax provision 3.3 4.9 19.8 21.2
Net Earnings $6.0 $10.0 $39.6 $40.1
Net Earnings Per Share of Common
Stock (Diluted) $0.20 $0.34 $1.33 $1.49
Average Common Shares Outstanding
(000's omitted) 29,780 29,451 29,653 27,018
A.O. SMITH CORPORATION
Balance Sheet
(dollars in millions)
September 30 December 31
2003 2002
ASSETS:
Cash and cash equivalents $35.4 $32.8
Receivables 225.7 215.5
Inventories 248.7 200.4
Deferred income taxes 21.9 26.7
Other current assets 14.0 12.9
Total Current Assets 545.7 488.3
Net property, plant and equipment 352.2 362.7
Goodwill and other intangibles 309.0 309.2
Other assets 67.2 64.7
Total Assets $1,274.1 $1,224.9
LIABILITIES AND STOCKHOLDERS' EQUITY:
Trade payables $148.1 $131.4
Accrued payroll and benefits 35.3 38.7
Product warranty 19.3 19.5
Long-term debt due within one year 8.6 11.7
Other current liabilities 45.7 60.4
Total Current Liabilities 257.0 261.7
Long-term debt 259.8 239.1
Other liabilities 110.1 114.7
Pension liability 82.0 90.8
Deferred income taxes 17.0 7.5
Stockholders' equity 548.2 511.1
Total Liabilities and Stockholders' Equity $1,274.1 $1,224.9
A.O. SMITH CORPORATION
STATEMENT OF CASH FLOWS
(dollars in millions)
Nine Months ended
September 30
2003 2002
Operating Activities
Continuing
Net earnings $39.6 $40.1
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation & amortization 38.7 37.7
Net change in current assets and liabilities (49.0) 22.1
Net change in noncurrent assets and liabilities (2.5) (0.8)
Other (0.7) (0.7)
Cash Provided by Operating Activities 26.1 98.4
Investing Activities
Capital expenditures (28.1) (25.8)
Acquisitions (3.1) (11.8)
Cash Used in Investing Activities (31.2) (37.6)
Financing Activities
Debt incurred 50.0 -
Debt retired (32.3) (174.9)
Proceeds from common stock offering - 127.5
Other stock transactions 2.6 5.3
Dividends paid (12.5) (10.2)
Cash Provided by (Used in) Financing Activities 7.8 (52.3)
Discontinued
Cash Provided by (Used in) Discontinued Operations (0.1) 3.7
Net increase in cash and cash equivalents 2.6 12.2
Cash and cash equivalents - beginning of period 32.8 20.7
Cash and Cash Equivalents - End of Period $35.4 $32.9
A.O. SMITH CORPORATION AND SUBSIDIARIES
Business Segments
(dollars in millions)
Three Months ended Nine Months ended
September 30 September 30
2003 2002 2003 2002
Net sales
Electrical Products $201.2 $197.5 $641.9 $612.9
Water Systems 155.2 154.9 520.0 497.7
$356.4 $352.4 $1,161.9 $1,110.6
Earnings before interest and taxes
Electrical Products $9.6 $10.3 $45.9 $46.0
Water Systems 7.9 13.4 37.7 43.6
Business Segment Earnings 17.5 23.7 83.6 89.6
Corporate expenses (5.1) (5.6) (15.2) (17.2)
Interest expense (3.1) (3.2) (9.0) (11.1)
Earnings before income taxes 9.3 14.9 59.4 61.3
Provision for income taxes (3.3) (4.9) (19.8) (21.2)
Net earnings $6.0 $10.0 $39.6 $40.1