MILWAUKEE, April 30, 2019 /PRNewswire/ -- Global water
technology company A. O. Smith Corporation (NYSE-AOS) today
announced first quarter net earnings of $89.3 million or $0.53 per share on first quarter sales of
$748.2 million. Earnings per share
declined approximately seven percent compared with first quarter
2018 earnings per share of $0.57 and
nearly 12 percent compared with 2018 adjusted net earnings per
share of $0.60 per share, which
excludes $0.03 per share of
restructuring and impairment costs. Sales in the quarter ended
March 31 were approximately five
percent lower compared with sales of $788.0
million during the same period in 2018.
A. O. Smith is providing non-GAAP measures (adjusted net
earnings per share and adjusted segment earnings) for 2018 that
exclude the restructuring and impairment costs associated with the
company's plant closure in Renton,
Wash.
"First quarter results met our expectations," noted Kevin Wheeler, president and chief executive
officer. "We experienced double digit boiler sales growth
benefitting from the severe weather in the Northeast and
Midwest. Our sales in China
declined as we expected due to channel inventory build in the first
quarter of 2018."
Earlier this month, A. O. Smith announced it had acquired
Water-Right, Inc., a leading solutions provider to treat and clean
problem water in the home. The company expects the
transaction will contribute approximately $45 million to sales in 2019 and the impact to
earnings will be minimal in 2019 due to interest expense, purchase
accounting and one-time costs.
"Our recent acquisition of Water-Right, Inc. helps to bolster
our multi-channel strategy in the North
America water treatment category and supplements our
residential water treatment product line giving us robust solutions
for problem water and commercial applications," Wheeler noted.
North America
segment
Sales of the North America
segment were $521.8 million in the
first quarter, a four percent increase over the same period in
2018. Sales increased due primarily to higher volumes of boilers
and water treatment products and mid-2018 water heater pricing
actions related to steel and freight cost increases, which were
partially offset by lower residential water heater volumes.
Segment earnings of $116.0 million
were nine percent higher than segment earnings of $106.0 million in the same quarter of 2018 and
three percent higher than adjusted segment earnings in 2018 of
$112.7 million, which excluded
$6.7 million of pre-tax charges
associated with the Renton plant closing. The favorable impacts
from higher sales of boilers and the mid-2018 pricing actions were
partially offset by higher steel and other input costs as well as,
the unfavorable impact from lower residential water heater volumes.
Weakness in the North American water treatment business as a result
of tariff-related cost increases and lower than expected volumes
drove first quarter 2019 segment margin lower to 22.2 percent
compared with the adjusted segment margin of 22.5 percent last
year.
Rest of World segment
First quarter sales of $232.1
million for the Rest of World segment declined approximately
21 percent compared with the same quarter in 2018. In China, sales were down 18 percent in local
currency compared with the same period in the prior year, in line
with the company's previously-stated expectations. The decline in
sales was related to channel inventory build which primarily
occurred in the first quarter of 2018 and did not repeat in 2019.
The weaker Chinese currency unfavorably impacted translated sales
by approximately $13 million.
India sales grew approximately 30
percent in constant currency compared with the same period in
2018.
First quarter segment earnings of $12.3
million were significantly lower than the $36.1 million earned in last year's first
quarter. The impact to profits from lower China sales more than offset the benefits to
profits from lower advertising expenses in that country. Weaker
China currency translation negatively impacted earnings by
approximately $1 million. As a result
of these factors, segment margin of 5.3 percent declined
significantly from the same quarter in 2018.
Share repurchase and other items
During the first quarter, the company repurchased approximately
900,000 shares of common stock at a total cost of $45.6 million. Approximately 5.2 million shares
remained on the company's existing repurchase authority at the end
of the quarter.
Cash and investments, primarily located outside the U.S.,
totaled $633.3 million at
March 31, 2019. Cash provided by
operations during the first quarter of 2019 was $21.6 million compared with $43.2 million in the same period of 2018. Lower
earnings and lower accounts payable balances resulted in lower cash
flow from operations in 2019.
2019 outlook
"We have updated our 2019 earnings per share guidance to a range
of $2.69 and $2.75 per share, with no change to the midpoint,
which represents a four percent increase compared with our 2018
adjusted earnings per share.
"We expect both operating segments to improve significantly in
the second half of the year compared with the first half of
2019. We project significantly improved second half
year-over-year performance, primarily in our North America segment as a result of weakness
experienced in the third quarter of 2018," Wheeler concluded.
A. O. Smith will broadcast a live conference call at
10 a.m. Eastern Daylight time today.
The call can be heard on the company's web site, www.aosmith.com.
An audio reply 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," "continue," "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 weakening of the Chinese economy
and/or a further decline in the growth rate of consumer spending or
housing sales in China; negative
impact to the company's businesses from international tariffs and
trade disputes; potential weakening in the high efficiency boiler
segment in the U.S.; significant volatility in raw material prices;
inability of 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; foreign
currency fluctuations; the company's inability to successfully
integrate or achieve its strategic objectives resulting from
acquisitions; competitive pressures on the company's businesses;
the impact of potential information technology or data security
breaches; changes in government regulations or regulatory
requirements; and adverse developments in general economic,
political and business conditions in key regions of the world.
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.
About A. O. Smith
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. Listed on the New York Stock
Exchange (NYSE), the company is one of the world's leading
manufacturers of residential and commercial water heating equipment
and boilers, as well as a manufacturer of water treatment and air
purification 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
|
|
|
|
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
Net sales
|
$
|
748.2
|
|
$
|
788.0
|
Cost of products
sold
|
|
455.4
|
|
|
466.5
|
Gross
profit
|
|
292.8
|
|
|
321.5
|
|
|
|
|
|
|
|
Selling, general and
administrative expenses
|
|
184.7
|
|
|
192.9
|
Restructuring and
impairment expenses
|
|
-
|
|
|
6.7
|
Interest
expense
|
|
2.0
|
|
|
2.3
|
Other
income
|
|
(5.5)
|
|
|
(5.8)
|
Earnings before
provision for income taxes
|
|
111.6
|
|
|
125.4
|
Provision for income
taxes
|
|
22.3
|
|
|
26.6
|
|
|
|
|
|
|
|
Net
earnings
|
$
|
89.3
|
|
$
|
98.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings
per share of common stock
|
$
|
0.53
|
|
$
|
0.57
|
|
|
|
|
|
|
|
|
Average common shares
outstanding (000's omitted)
|
|
169,096
|
|
|
173,351
|
A. O. SMITH
CORPORATION
|
Balance
Sheet
|
(dollars in
millions)
|
|
|
|
(unaudited)
|
|
|
|
|
|
March 31,
|
|
December
31,
|
|
|
2019
|
|
2018
|
ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
$
|
337.8
|
|
$
|
259.7
|
|
Marketable
securities
|
|
295.5
|
|
|
385.3
|
|
Receivables
|
|
658.8
|
|
|
647.3
|
|
Inventories
|
|
319.7
|
|
|
304.7
|
|
Other current
assets
|
|
46.3
|
|
|
41.5
|
|
|
|
|
|
|
|
|
Total
Current Assets
|
|
1,658.1
|
|
|
1,638.5
|
|
|
|
|
|
|
|
|
Net property, plant
and equipment
|
|
549.9
|
|
|
540.0
|
|
Goodwill and other
intangibles
|
|
803.8
|
|
|
806.1
|
|
Operating lease
assets
|
|
49.7
|
|
|
-
|
|
Other
assets
|
|
82.0
|
|
|
86.9
|
|
|
|
|
|
|
|
|
Total
Assets
|
$
|
3,143.5
|
|
$
|
3,071.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS' EQUITY:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade
payables
|
$
|
492.4
|
|
$
|
543.8
|
|
Accrued payroll and
benefits
|
|
47.6
|
|
|
79.4
|
|
Accrued
liabilities
|
|
148.4
|
|
|
120.4
|
|
Product
warranties
|
|
42.0
|
|
|
41.7
|
|
Debt due within one
year
|
|
6.8
|
|
|
-
|
|
|
|
|
|
|
|
|
Total
Current Liabilities
|
|
737.2
|
|
|
785.3
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
277.6
|
|
|
221.4
|
|
Pension
liabilities
|
|
43.3
|
|
|
49.4
|
|
Operating lease
liabilities
|
|
41.1
|
|
|
-
|
|
Other
liabilities
|
|
295.1
|
|
|
298.4
|
|
Stockholders'
equity
|
|
1,749.2
|
|
|
1,717.0
|
|
|
|
|
|
|
|
|
Total Liabilities
and Stockholders' Equity
|
$
|
3,143.5
|
|
$
|
3,071.5
|
A. O. SMITH
CORPORATION
|
Statement of Cash
Flows
|
(dollars in
millions)
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
|
|
|
March 31,
|
|
|
|
|
2019
|
|
|
2018
|
Operating
Activities
|
|
|
|
|
|
|
Net
earnings
|
$
|
89.3
|
|
$
|
98.8
|
|
Adjustments to
reconcile net earnings
|
|
|
|
|
|
|
to net cash
provided by (used in) operating activities:
|
|
|
|
|
|
|
|
Depreciation &
amortization
|
|
20.2
|
|
|
17.9
|
|
|
Stock based
compensation expense
|
|
8.7
|
|
|
6.5
|
|
|
Net changes in
operating assets and liabilities:
|
|
|
|
|
|
|
|
Current assets and liabilities
|
|
(86.3)
|
|
|
(70.4)
|
|
|
Noncurrent assets and liabilities
|
|
(10.3)
|
|
|
(9.6)
|
Cash Provided by
Operating Activities
|
|
21.6
|
|
|
43.2
|
|
|
|
|
|
|
|
|
Investing
Activities
|
|
|
|
|
|
|
Capital
expenditures
|
|
(20.9)
|
|
|
(17.3)
|
|
Investment in
marketable securities
|
|
(48.5)
|
|
|
(84.7)
|
|
Net proceeds from
sale of marketable securities
|
|
147.2
|
|
|
136.9
|
Cash Provided by
Investing Activities
|
|
77.8
|
|
|
34.9
|
|
|
|
|
|
|
|
|
Financing
Activities
|
|
|
|
|
|
|
Long-term debt
incurred (repaid)
|
|
63.0
|
|
|
(117.3)
|
|
Common stock
repurchases
|
|
(45.6)
|
|
|
(33.1)
|
|
Net payments from
stock option activity
|
|
(1.6)
|
|
|
(1.4)
|
|
Dividends
paid
|
|
(37.1)
|
|
|
(31.0)
|
Cash Used In
Financing Activities
|
|
(21.3)
|
|
|
(182.8)
|
|
|
|
|
|
|
|
|
|
Net increase
(decrease) in cash and cash equivalents
|
|
78.1
|
|
|
(104.7)
|
|
Cash and cash
equivalents - beginning of period
|
|
259.7
|
|
|
346.6
|
|
|
|
|
|
|
|
|
Cash and Cash
Equivalents - End of Period
|
$
|
337.8
|
|
$
|
241.9
|
A. O. SMITH
CORPORATION
|
Business
Segments
|
(dollars in
millions)
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
|
|
March 31,
|
|
|
|
2019
|
|
2018
|
Net sales
|
|
|
|
|
|
North
America
|
$
|
521.8
|
$
|
501.7
|
|
Rest of
World
|
|
232.1
|
|
293.8
|
|
Inter-segment
sales
|
|
(5.7)
|
|
(7.5)
|
|
|
$
|
748.2
|
$
|
788.0
|
|
|
|
|
|
|
Earnings
|
|
|
|
|
|
North America
(1)
|
$
|
116.0
|
$
|
106.0
|
|
Rest of
World
|
|
12.3
|
|
36.1
|
|
Inter-segment
earnings elimination
|
|
-
|
|
(0.1)
|
|
|
|
128.3
|
|
142.0
|
|
|
|
|
|
|
Corporate
expense
|
|
(14.7)
|
|
(14.3)
|
Interest
expense
|
|
(2.0)
|
|
(2.3)
|
|
|
|
|
|
|
Earnings before
income taxes
|
|
111.6
|
|
125.4
|
|
|
|
|
|
|
Tax
provision
|
|
22.3
|
|
26.6
|
Net
earnings
|
$
|
89.3
|
$
|
98.8
|
|
|
|
|
|
|
(1)
|
includes
restructuring and impairment expenses of:
|
$
|
-
|
$
|
6.7
|
A. O. SMITH
CORPORATION
|
Adjusted Earnings
and Adjusted EPS
|
(dollars in millions,
except per share data)
|
(unaudited)
|
|
The following is a
reconciliation of net earnings and diluted EPS to adjusted earnings
(non-GAAP) and adjusted EPS
(non-GAAP):
|
|
|
Three Months
Ended
|
|
March 31,
|
|
2019
|
|
2018
|
|
|
|
|
Net Earnings
(GAAP)
|
$89.3
|
|
$
98.8
|
Restructuring
and impairment expenses, before tax
|
-
|
|
6.7
|
Tax effect of
restructuring and impairment expenses
|
-
|
|
(1.7)
|
Adjusted
Earnings
|
$89.3
|
|
$103.8
|
|
|
|
|
Diluted EPS
(GAAP)
|
$0.53
|
|
$
0.57
|
Restructuring
and impairment expenses per diluted share, before tax
|
-
|
|
0.04
|
Tax effect of
restructuring and impairment expenses per diluted share
|
-
|
|
(0.01)
|
Adjusted
EPS
|
$0.53
|
|
$
0.60
|
A. O. SMITH
CORPORATION
|
Adjusted
Segment Earnings
|
(dollars in
millions)
|
(unaudited)
|
|
|
|
|
The following is a
reconciliation of reported segment earnings to adjusted segment
earnings (non-GAAP):
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
March
31,
|
|
2019
|
|
2018
|
Segment
Earnings (GAAP)
|
|
|
|
North America
|
$116.0
|
|
$106.0
|
Rest of World
|
12.3
|
|
36.1
|
Inter-segment earnings elimination
|
-
|
|
(0.1)
|
Total Segment
Earnings (GAAP)
|
$128.3
|
|
$142.0
|
|
|
|
|
Adjustments:
|
|
|
|
North America restructuring and impairment
expenses
|
$
-
|
|
$
6.7
|
Rest of World
|
-
|
|
-
|
Inter-segment earnings elimination
|
-
|
|
-
|
Total
Adjustments
|
$
-
|
|
$
6.7
|
|
|
|
|
Adjusted
Segment Earnings
|
|
|
|
North America
|
$116.0
|
|
$112.7
|
Rest of World
|
12.3
|
|
36.1
|
Inter-segment earnings elimination
|
-
|
|
(0.1)
|
Total
Adjusted Segment Earnings
|
$128.3
|
|
$148.7
|
A. O. SMITH
CORPORATION
|
2019 EPS Guidance
and Adjusted 2018 EPS
|
(unaudited)
|
|
|
|
|
|
|
The following is a
reconciliation of diluted EPS to adjusted EPS (non-GAAP) (all items
are net of tax):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
|
|
Guidance
|
|
2018
|
|
|
|
|
|
|
Diluted EPS
(GAAP)
|
|
$ 2.69 -
2.75
|
|
$2.58
|
|
Restructuring and
impairment expenses per diluted share
|
|
-
|
|
0.03
|
Adjusted
EPS
|
|
$ 2.69 -
2.75
|
|
$2.61
|
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SOURCE A. O. Smith Corporation