A. O. Smith Announces First Quarter 2007 Earnings
MILWAUKEE, April 18 -- A. O. Smith Corporation today announced first quarter earnings of $19.5 million or $.63 per share on record sales of $577.2 million.
Net earnings for the quarter ended March 31 increased $4.0 million or $.13 per share compared with $15.5 million or $.50 per share in the first quarter of 2006. First quarter 2006 net earnings included an after-tax loss of approximately $3.1 million or $.10 per share from foreign currency contracts related to the GSW acquisition in April 2006. First quarter 2006 sales were $459.2 million.
"The improvement in first quarter performance resulted from the addition of GSW and a lower tax rate, which more than offset weak customer demand, primarily in the domestic residential HVAC and water heating markets," Paul W. Jones, chairman and chief executive officer, commented.
The decline in the company's effective tax rate resulted from the inclusion of proportionately higher income from lower taxed operations in China and Mexico.
Water Products
First quarter sales of $355.4 million reflected a $128.2 million contribution from the GSW water heater business acquired in April 2006 as well as a 36 percent or $8.7 million increase in sales in China. The company's legacy water heater business declined slightly due to a sluggish performance in the residential market segment related to the slowdown in new housing construction.
Operating profit of $34.2 million was $8.3 million higher than the same period last year. The contribution from the GSW acquisition more than offset the modest decline in the legacy business resulting from the softer residential marketplace. Operating profit margin was 9.6 percent compared with 11.2 percent last year. The lower operating margin was due to an increase in SG&A and the additional sales of GSW, which are primarily to the lower-margin residential market.
Since 2002, the company's water heater operation in Nanjing, China, will see its sales multiply fivefold from approximately $30 million to an expected $150 million this year. The company expects to complete the second phase of its current capacity expansion by the end of May, bringing annual capacity to 1.1 million units, more than double the capacity at the inception of the project in 2005. The company recently initiated another expansion project to double its productive capacity again by the end of 2008.
Electrical Products
Sales in the electric motor business declined approximately three percent in the first quarter to $223.0 million compared with last year, primarily the result of a more than 10 percent decline in the HVAC market segment.
Asian motor sales increased more than 20 percent during the first quarter and, in connection with that growth, the company initiated plans to expand its commercial hermetic motor operation in Yueyang, acquired in November 2005.
First quarter operating profit declined to $10.2 million from $13.6 million last year. Improved pricing and repositioning savings were more than offset by the lower volume and higher costs for raw materials. First quarter operating profit margin was 4.6 percent compared with 5.9 percent last year.
2007 Outlook
"We continued to experience reduced demand in a number of housing-related market segments," Jones said. "And the soft markets and continued high raw material costs have overshadowed ongoing productivity improvements and cost reduction actions."
"Though we are concerned that the weak housing market may linger into the second half of the year, we remain confident we will achieve our previously announced earnings forecast for 2007 of between $2.75 and $2.95 per share," he added.
A. O. Smith Corporation, with headquarters in Milwaukee, Wis., is a diversified manufacturer serving customers worldwide. The company is one of the world's leading manufacturers and marketers of residential and commercial water heating equipment, offering a comprehensive line featuring the best-known brands in the industry. It is also one of North America's largest manufacturers of electric motors, with an extensive line of hermetic, fractional horsepower, and integral horsepower motors for residential, commercial, and industrial applications. A. O. Smith employs approximately 19,500 people at facilities in the United States, Mexico, China, Canada, and Europe.
A. O. SMITH CORPORATION
(condensed consolidated financial statements -
dollars in millions, except per share data)
Statement of Earnings
(unaudited)
Three Months ended
March 31
2007 2006
Net sales $577.2 $459.2
Cost of products sold 454.4 360.3
Gross profit 122.8 98.9
Selling, general and administrative 88.3 68.5
Restructuring and other charges 1.2 1.5
Interest expense 6.8 3.0
Other expense 0.2 4.4
26.3 21.5
Tax provision 6.8 6.0
Net Earnings $19.5 $15.5
Diluted Net Earnings Per Share of
Common Stock 0.63 0.50
Average Common Shares Outstanding
(000's omitted) 31,005 30,924
A. O. SMITH CORPORATION
Balance Sheet
(dollars in millions)
(unaudited)
March 31 December 31
2007 2006
ASSETS:
Cash and cash equivalents $21.1 $25.8
Receivables 425.2 378.7
Inventories 298.1 297.3
Deferred income taxes 22.4 22.3
Other current assets 39.1 35.9
Total Current Assets 805.9 760.0
Net property, plant and equipment 423.4 427.2
Goodwill and other intangibles 587.1 587.5
Other assets 65.1 65.2
Total Assets $1,881.5 $1,839.9
LIABILITIES AND STOCKHOLDERS' EQUITY:
Trade payables $286.7 $286.6
Accrued payroll and benefits 35.8 43.5
Product warranties 33.4 32.0
Long-term debt due within one
year 6.9 6.9
Other current liabilities 66.3 68.3
Total Current Liabilities 429.1 437.3
Long-term debt 459.5 432.1
Other liabilities 172.5 166.8
Pension liabilities 101.3 98.5
Deferred income taxes 13.5 20.6
Stockholders' equity 705.6 684.6
Total Liabilities and
Stockholders' Equity $1,881.5 $1,839.9
A. O. SMITH CORPORATION
STATEMENT OF CASH FLOWS
(dollars in millions)
(unaudited)
Three Months ended
March 31
2007 2006
Operating Activities
Net earnings $19.5 $15.5
Adjustments to reconcile net
earnings to net cash provided
by (used in) operating activities:
Depreciation & amortization 16.1 12.4
Net changes in operating
assets and liabilities,
net of acquisitions:
Current assets and
liabilities (59.0) (32.5)
Noncurrent assets and
liabilities 5.5 (0.8)
Other 0.9 0.7
Cash Used in Operating Activities (17.0) (4.7)
Investing Activities
Acquisition of business --- (1.4)
Capital expenditures (11.0) (8.9)
Cash Used in Investing Activities (11.0) (10.3)
Financing Activities
Long-term debt incurred 27.9 31.2
Long-term debt retired (2.1) (2.1)
Other stock transactions 2.7 4.1
Dividends paid (5.2) (4.9)
Cash Provided by Financing Activities 23.3 28.3
Net increase / (decrease) in
cash and cash equivalents (4.7) 13.3
Cash and cash equivalents --
beginning of period 25.8 24.0
Cash and Cash Equivalents -- End of
Period $21.1 $37.3
A. O. SMITH CORPORATION
Business Segments
(dollars in millions)
(unaudited)
Three Months ended
March 31
2007 2006
Net sales
Water Products $355.4 $231.3
Electrical Products 223.0 229.2
Inter-Segment Sales (1.2) (1.3)
$577.2 $459.2
Operating earnings
Water Products $34.2 $25.9
Electrical Products (1) 10.2 13.6
Inter-Segment earnings (0.1) (0.1)
44.3 39.4
Corporate expenses (2) (11.2) (14.9)
Interest expense (6.8) (3.0)
Earnings before income taxes 26.3 21.5
Tax provision 6.8 6.0
Net earnings $19.5 $15.5
(1) includes pretax restructuring
and other charges of: $1.2 $1.2
(2) includes pretax restructuring
and other charges of: $--- $0.3