A. O. Smith Announces Second Quarter Earnings
MILWAUKEE, July 15 -- A. O. Smith Corporation today announced second quarter earnings of $6.5 million or $.22 per share. The reported earnings include the impact of an after-tax charge of $7.9 million or $.26 per share primarily related to a previously announced restructuring program.
Excluding the charge, second quarter earnings were $14.4 million or $.48 per share compared with $17.3 million or $.58 per share in 2004. Sales for the three-month period ending June 30 were $438 million, unchanged from the same period last year.
For the first six months of 2005, A. O. Smith earned $20.8 million or $.69 per share compared with six-month 2004 earnings of $28.0 million or $.94 per share. Excluding the after-tax charges of $8.5 million or $.28 per share, six month earnings were $29.3 million or $.97 per share.
Six month sales were $847 million, slightly lower than sales of $854 million for the same period in 2004.
"On June 24th we reduced our forecast for 2005 to a range of between $1.60 and $1.80 per share, from $1.80 to $2.00 per share, excluding the impact of the $.35 restructuring program announced with our first quarter results," Chairman and Chief Executive Officer Robert J. O'Toole commented.
"This change in forecast is primarily the result of an inventory buildup in the wholesale water heater distribution channel, which has adversely affected demand for both commercial and residential product during the first half of 2005. We expect the channel to clear as we progress through the balance of the year."
Water Systems
Although the company saw a favorable impact from improved pricing and a thirty percent sales increase in the China Water Heater business, second quarter sales declined approximately $6 million to $204 million because of softer customer demand in the North American market.
Operating earnings of $18.8 million were similar to the second quarter of 2004 as significantly improved operating efficiency and improved pricing to cover higher material costs offset the impact of lower North American unit volumes. Last year's second quarter results included a non-recurring pretax gain of approximately $3.3 million from the favorable resolution of litigation related to pre-acquisition State Industries' Duron product.
Electrical Products
Second quarter sales of $235 million in the company's electric motor operation were modestly higher than 2004 as improved pricing more than offset weaker demand primarily in markets adversely affected by cooler weather.
Operating earnings were $6.0 million, or $13.4 million excluding a $7.4 million pretax restructuring charge, compared with $17.4 million last year. Though improved pricing offset higher material costs, reduced contribution on lower volume and reduced operating efficiencies resulted in a decline in operating profit. Plant efficiency was adversely affected by inventory reduction initiatives.
Restructuring & Other Costs
In the second quarter the company recorded a pre-tax charge of $8.6 million for restructuring and other costs. In addition to the $7.4 million charge at Electrical Products, primarily related to the closure of its Bray, Ireland facility, there was also a $1.2 million expense related to a contingent leasing liability at its discontinued Automotive Products operation which was recorded as a corporate expense.
Other Matters
During the quarter the company received a $28 million payment against its dip tube receivable leaving a balance of approximately $6 million that will be collected in the second half of this year. This will result in the complete recovery of receivables associated with this dispute. All litigation associated with this issue has been concluded.
Concurrent with this receipt, the company elected to make a voluntary contribution of $30 million to its pension plan.
GSW Acquisition
The company has signed a letter of intent to acquire GSW of Canada, a manufacturer and marketer of consumer durable products, including water heaters and building products. GSW had 2004 sales of approximately $US 470 million. The company has initiated the customary regulatory review process in both the United States and Canada.
Company discusses outlook
"Last month we issued guidance for 2005 of earnings ranging between $1.25 and $1.45 per share, or $1.60 to $1.80 before restructuring and other charges," O'Toole said.
A. O. Smith Corporation, with headquarters in Milwaukee, Wis., is one of North America's largest manufacturers of electric motors, with a comprehensive line of hermetic motors, fractional horsepower alternating current (AC) and direct current (DC) motors, and integral horsepower motors, as well as one of North America's largest manufacturers of residential and commercial water heating equipment. The company employs approximately 16,500 people worldwide.
A. O. SMITH CORPORATION AND SUBSIDIARIES
(condensed consolidated financial statements -
dollars in millions, except per share data)
Statement of Earnings
(unaudited)
Three Months ended Six Months ended
June 30 June 30
2005 2004 2005 2004
Net sales $437.7 $437.3 $846.9 $853.8
Cost of products sold 353.5 348.9 674.6 687.2
Gross profit 84.2 88.4 172.3 166.6
Selling, general and administrative 60.4 58.9 122.8 117.6
Restructuring and other charges 8.6 - 9.5 -
Interest expense 3.5 3.2 6.9 6.4
Other expense 0.7 0.3 0.8 0.5
11.0 26.0 32.3 42.1
Tax provision 4.5 8.7 11.5 14.1
Net Earnings $6.5 $17.3 $20.8 $28.0
Net Earnings Per Share of Common
Stock (Diluted) $0.22 $0.58 $0.69 $0.94
Average Common Shares Outstanding
(000's omitted) 30,131 29,913 30,068 29,913
A. O. SMITH CORPORATION
Balance Sheet
(dollars in millions)
(unaudited)
June 30 December 31
2005 2004
ASSETS:
Cash and cash equivalents $11.9 $25.1
Receivables 308.8 281.6
Inventories 226.9 233.5
Deferred income taxes 11.0 10.9
Other current assets 29.7 33.9
Total Current Assets 588.3 585.0
Net property, plant and equipment 348.6 358.8
Goodwill and other intangibles 313.5 313.2
Other assets 22.8 55.8
Total Assets $1,273.2 $1,312.8
LIABILITIES AND STOCKHOLDERS' EQUITY:
Trade payables $170.3 $158.8
Accrued payroll and benefits 31.4 28.3
Product warranty 16.6 17.5
Long-term debt due within one year 10.9 8.6
Other current liabilities 38.2 32.0
Total Current Liabilities 267.4 245.2
Long-term debt 226.1 272.5
Other liabilities 96.4 102.8
Pension liability 60.2 87.9
Deferred income taxes 16.3 13.8
Stockholders' equity 606.8 590.6
Total Liabilities and
Stockholders' Equity $1,273.2 $1,312.8
A. O. SMITH CORPORATION
STATEMENT OF CASH FLOWS
(dollars in millions)
(unaudited)
Six Months ended
June 30
2005 2004
Operating Activities
Continuing
Net earnings $20.8 $28.0
Adjustments to reconcile net
earnings to net cash provided by
operating activities:
Depreciation & amortization 26.0 26.8
Net change in current
assets and liabilities 0.7 (43.8)
Net change in noncurrent
assets and liabilities 2.8 (1.3)
Other 0.9 2.2
Cash Provided by Operating Activities 51.2 11.9
Investing Activities
Acquisition of business - (2.3)
Capital expenditures (16.4) (19.8)
Cash Used in Investing Activities (16.4) (22.1)
Financing Activities
Long-term debt incurred - 16.0
Long-term debt retired (44.2) (2.1)
Other stock transactions 6.1 3.0
Dividends paid (9.4) (8.8)
Cash Provided by (Used in) Financing
Activities (47.5) 8.1
Discontinued
Cash Used in Discontinued Operations (0.5) (0.4)
Net decrease in cash and cash
equivalents (13.2) (2.5)
Cash and cash equivalents -
beginning of period 25.1 18.7
Cash and Cash Equivalents - End of
Period $11.9 $16.2
A. O. SMITH CORPORATION AND SUBSIDIARIES
Business Segments
(dollars in millions)
(unaudited)
Three Months ended Six Months ended
June 30 June 30
2005 2004 2005 2004
Net sales
Electrical Products $234.5 $227.7 $441.6 $451.3
Water Systems 204.0 209.6 406.5 402.5
Inter-Segment Sales (0.8) - (1.2) -
$437.7 $437.3 $846.9 $853.8
Operating earnings
Electrical Products (1) $6.0 $17.4 $18.5 $34.5
Water Systems 18.8 18.7 39.7 27.5
24.8 36.1 58.2 62.0
Corporate expenses (2) (10.3) (6.9) (19.0) (13.5)
Interest expense (3.5) (3.2) (6.9) (6.4)
Earnings before income taxes 11.0 26.0 32.3 42.1
Tax provision 4.5 8.7 11.5 14.1
Net earnings $6.5 $17.3 $20.8 $28.0
(1) includes pretax restructuring
and other charges of: $7.4 $8.3
(2) includes pretax restructuring
and other charges of: $1.2 $1.2