MILWAUKEE, Jan. 28, 2020 /PRNewswire/ -- Global water
technology company A. O. Smith Corporation (NYSE-AOS) today
announced sales of $3.0 billion and
net earnings of $370.0 million, or
$2.22 per share, in 2019.
Sales in 2019 declined six percent from $3.2 billion in 2018 driven by a 23 percent
decline in China sales. Excluding
the unfavorable impact from currency translation, China sales declined 19 percent. The
decline in China sales was
primarily a result of weaker end-market demand in the region,
year-over-year channel inventory shifts and a higher mix of
mid-price products than the prior year. China channel inventory build occurred in the
first half of 2018 and declined to levels which are within the
normal range by the end of 2019, primarily in the fourth
quarter.
Net earnings in 2019 of $370.0
million, or $2.22 per share,
were lower than 2018 net earnings of $444.2
million, or $2.58 per share.
Adjusted earnings of $449.2 million
or $2.61 per share in 2018 excluded
$5.0 million of after-tax
restructuring and impairment costs related to the company's plant
closing in Renton, WA.
In the fourth quarter 2019, the Company achieved net earnings of
$91.3 million or $.56 per share on sales of $750.9 million. Fourth quarter 2018 net earnings
were $126.3 million or $0.74 per share on sales of $812.5 million.
A. O. Smith is providing non-GAAP measures (adjusted net
earnings, adjusted earnings per share and adjusted segment
earnings) for 2018 that exclude the restructuring and impairment
costs associated with the plant closure. Reconciliations to
measures on a GAAP basis are provided in the financial information
included with this press release.
"2019 proved to be a year of bright spots and challenges for A.
O. Smith. I'm pleased to report that our North America water heater operations
continued to perform well, despite a one percent decline in
residential industry volumes. As expected, sales in China decreased from previous years as
elevated channel inventory levels compounded the effects of weaker
consumer demand for our products," said Kevin Wheeler, president and chief executive
officer. "We're confident that we're on the right track with our
North America Water Treatment portfolio, and we're pleased with the
performance of our most recent acquisition – Water-Right, as it is
squarely on track and meeting expectations. "
North America
segment
Sales of the North America
segment were $2.1 billion in 2019, a
two percent increase over 2018 sales of $2.0
billion. The acquisition of Water-Right in April 2019 added $44
million to sales. The increase in segment sales was
primarily due to the incremental Water-Right sales, water heater
pricing actions related to steel and freight cost increases, and
higher sales of water treatment products, which were partially
offset by lower residential water heater volumes.
North American segment earnings of $488.9
million in 2019 were five percent higher than the
$464.1 million in 2018. Segment
earnings in 2018 included $6.7
million in pre-tax restructuring and impairment charges
related to the plant closure. The favorable impact to profits from
pricing actions, lower steel costs and higher sales of water
treatment products including the acquisition, were partially offset
by the unfavorable impact from lower residential water heater
volumes. As a result, segment margin of 23.5 percent increased
compared with 22.7 percent in 2018.
Fourth quarter 2019 sales for the segment of $523.1 million were essentially flat with the
fourth quarter of 2018. Incremental sales of approximately
$14 million from the Water-Right
acquisition and growth in water treatment sales were offset by
lower boiler volumes and lower contractual formula pricing
associated with a portion of water heater sales based on lower
steel costs.
Fourth quarter 2019 segment earnings of $128.4 million were essentially flat with segment
earnings in the same quarter in 2018. The net favorable impact to
profits from lower steel costs was offset by the unfavorable impact
from the lower boiler volumes. As a result, fourth quarter 2019
segment margin of 24.5 percent was essentially the same as fourth
quarter 2018.
Rest of World segment
Sales of this segment of $935.8
million in 2019 declined 20 percent compared with segment
sales of $1.2 billion in 2018.
China sales declined 19 percent in
local currency, primarily related to weaker end-market demand,
elevated channel inventory levels, as well as a higher mix of
mid-price products. The weaker Chinese currency unfavorably
impacted translated sales by approximately $39 million. India sales grew approximately 13 percent in
constant currency compared with 2018.
Rest of World earnings of $40.2
million in 2019 declined from $149.3
million in 2018. The impact to profits from lower
China sales and a higher mix of
mid-price products, which have lower margins, more than offset the
benefits to profits from lower SG&A expenses and material costs
in that region. Weaker China currency translation negatively
impacted earnings by approximately $3
million. As a result of these factors, segment margin of 4.3
percent declined significantly from segment margin of 12.7 percent
in 2018.
Fourth quarter 2019 Rest of World segment sales of $234.3 million declined 21 percent compared with
the same quarter in 2018. China
sales declined 23 percent in local currency, primarily related to
weak consumer demand, elevated channel inventory levels, as well as
a higher mix of mid-price products. The weaker Chinese currency
unfavorably impacted translated sales by approximately $4 million.
Fourth quarter 2019 Rest of World earnings of $1.5 million declined from $39.5 million in the fourth quarter of 2018.
Earnings were lower primarily due to the unfavorable impact to
profits from lower China sales, a
higher mix of lower margin products, and charges in China associated with customer programs to
reduce channel inventory levels and head count reduction. These
unfavorable impacts to profits more than offset the benefits to
profits from lower SG&A expenses and material costs in that
region. As a result of these factors, segment margin of 0.6 percent
declined significantly from 13.3 percent the same quarter of
2018.
Share repurchase and other items
In 2019, the Company repurchased approximately 6.1 million
shares of common stock for a total of $287.7
million. Approximately 3 million shares remained on the
company's existing repurchase authority at the end of 2019.
The company increased its dividend by nine percent in the fourth
quarter of 2019. The five-year compound annual growth rate of
its dividend stands at 24 percent.
Total debt was $284.0 million as
of Dec. 31, 2019, resulting in
leverage of 14.6 percent as measured by the ratio of total debt to
total capital. Cash and marketable securities totaled $551.4, primarily located outside of the U.S. at
the end of 2019. Cash provided by operations of $456.2 million during 2019 increased slightly
compared with $448.9 million in 2018
primarily as a result of lower investment in working capital, which
was offset by lower earnings compared with the 2018 period. The
company repatriated approximately $150
million in overseas cash to the U.S. in 2019.
2020 outlook
"In 2019, we laid the groundwork for future success with several
activities: an acquisition was added to our North America water treatment portfolio,
China channel inventory levels
declined to be within the normal range of two to three months, we
substantially completed our re-entry into the high-end of mid-price
range products in China with new
products specifically designed to target this demographic and full
implementation of our enterprise resource planning environment in
North America is nearly complete.
In 2020, we look forward to building from these actions."
"To that end, we expect total company full year sales in 2020
will grow between 4.5 and 5.5 percent. We forecast 2020 earnings
will be between $2.40 and
$2.50 per share. The midpoint of our
2020 earnings guidance represents a ten percent increase over 2019
earnings per share," Wheeler concluded. The company's 2020 earnings
per share guidance excludes the potential impact to its businesses
from the developing coronavirus originating in China.
A. O. Smith will broadcast a live conference call at
10 a.m. Eastern Standard 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," "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 as a result of the coronavirus
originating 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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
|
Twelve Months
Ended
|
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
750.9
|
|
$
|
812.5
|
|
$
|
2,992.7
|
|
$
|
3,187.9
|
Cost of products
sold
|
|
455.9
|
|
|
475.5
|
|
|
1,812.0
|
|
|
1,882.4
|
Gross
profit
|
|
295.0
|
|
|
337.0
|
|
|
1,180.7
|
|
|
1,305.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and
administrative expenses
|
|
179.9
|
|
|
186.1
|
|
|
715.6
|
|
|
753.8
|
Restructuring and
impairment expenses
|
|
-
|
|
|
-
|
|
|
-
|
|
|
6.7
|
Interest
expense
|
|
2.5
|
|
|
1.8
|
|
|
11.0
|
|
|
8.4
|
Other
income
|
|
(2.9)
|
|
|
(5.7)
|
|
|
(18.0)
|
|
|
(21.2)
|
Earnings before
provision for income taxes
|
|
115.5
|
|
|
154.8
|
|
|
472.1
|
|
|
557.8
|
Provision for income
taxes
|
|
24.2
|
|
|
28.5
|
|
|
102.1
|
|
|
113.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
$
|
91.3
|
|
$
|
126.3
|
|
$
|
370.0
|
|
$
|
444.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings
per share of common stock
|
$
|
0.56
|
|
$
|
0.74
|
|
$
|
2.22
|
|
$
|
2.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares
outstanding (000's omitted)
|
|
164,185
|
|
|
170,640
|
|
|
166,711
|
|
|
172,194
|
A. O. SMITH
CORPORATION
|
Balance
Sheet
|
(dollars in
millions)
|
|
|
|
(unaudited)
|
|
|
|
|
|
December
31,
|
|
December
31,
|
|
|
2019
|
|
2018
|
ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
$
|
374.0
|
|
$
|
259.7
|
|
Marketable
securities
|
|
177.4
|
|
|
385.3
|
|
Receivables
|
|
589.5
|
|
|
647.3
|
|
Inventories
|
|
303.0
|
|
|
304.7
|
|
Other current
assets
|
|
56.5
|
|
|
41.5
|
|
|
|
|
|
|
|
|
Total
Current Assets
|
|
1,500.4
|
|
|
1,638.5
|
|
|
|
|
|
|
|
|
Net property, plant
and equipment
|
|
545.4
|
|
|
540.0
|
|
Goodwill and other
intangibles
|
|
884.4
|
|
|
806.1
|
|
Operating lease
assets
|
|
46.9
|
|
|
-
|
|
Other
assets
|
|
80.9
|
|
|
86.9
|
|
|
|
|
|
|
|
|
Total
Assets
|
$
|
3,058.0
|
|
$
|
3,071.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS' EQUITY:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade
payables
|
$
|
509.6
|
|
$
|
543.8
|
|
Accrued payroll and
benefits
|
|
64.6
|
|
|
79.4
|
|
Accrued
liabilities
|
|
143.7
|
|
|
120.4
|
|
Product
warranties
|
|
41.8
|
|
|
41.7
|
|
Debt due within one
year
|
|
6.8
|
|
|
-
|
|
|
|
|
|
|
|
|
Total
Current Liabilities
|
|
766.5
|
|
|
785.3
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
277.2
|
|
|
221.4
|
|
Pension
liabilities
|
|
27.8
|
|
|
49.4
|
|
Operating lease
liabilities
|
|
38.7
|
|
|
-
|
|
Other
liabilities
|
|
281.0
|
|
|
298.4
|
|
Stockholders'
equity
|
|
1,666.8
|
|
|
1,717.0
|
|
|
|
|
|
|
|
|
Total Liabilities
and Stockholders' Equity
|
$
|
3,058.0
|
|
$
|
3,071.5
|
A. O. SMITH
CORPORATION
|
Statement of Cash
Flows
|
(dollars in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months
Ended
|
|
|
|
|
December
31,
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
2019
|
|
|
2018
|
Operating
Activities
|
|
|
|
|
|
|
Net
earnings
|
$
|
370.0
|
|
$
|
444.2
|
|
Adjustments to
reconcile net earnings to net cash provided by (used in) operating
activities:
|
|
|
|
|
|
|
|
Depreciation &
amortization
|
|
78.3
|
|
|
71.9
|
|
|
Stock based
compensation expense
|
|
13.3
|
|
|
10.1
|
|
|
Net changes in
operating assets and liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
Current assets and liabilities
|
|
32.6
|
|
|
(40.0)
|
|
|
Noncurrent assets and liabilities
|
|
(38.0)
|
|
|
(37.3)
|
Cash Provided by
Operating Activities
|
|
456.2
|
|
|
448.9
|
|
|
|
|
|
|
|
|
Investing
Activities
|
|
|
|
|
|
|
Capital
expenditures
|
|
(64.4)
|
|
|
(85.2)
|
|
Acquisition
|
|
(107.0)
|
|
|
-
|
|
Investment in
marketable securities
|
|
(272.7)
|
|
|
(523.4)
|
|
Net proceeds from
sale of marketable securities
|
|
478.0
|
|
|
595.9
|
Cash Provided By
(Used In) Investing Activities
|
|
33.9
|
|
|
(12.7)
|
|
|
|
|
|
|
|
|
Financing
Activities
|
|
|
|
|
|
|
Long-term debt
incurred (repaid)
|
|
62.6
|
|
|
(189.0)
|
|
Common stock
repurchases
|
|
(287.7)
|
|
|
(202.6)
|
|
Payment of contingent
consideration
|
|
(1.0)
|
|
|
(2.3)
|
|
Net (payments)
proceeds from stock option activity
|
|
(0.5)
|
|
|
0.9
|
|
Dividends
paid
|
|
(149.2)
|
|
|
(130.1)
|
Cash Used In
Financing Activities
|
|
(375.8)
|
|
|
(523.1)
|
|
|
|
|
|
|
|
|
|
Net increase
(decrease) in cash and cash equivalents
|
|
114.3
|
|
|
(86.9)
|
|
Cash and cash
equivalents - beginning of period
|
|
259.7
|
|
|
346.6
|
|
|
|
|
|
|
|
|
Cash and Cash
Equivalents - End of Period
|
$
|
374.0
|
|
$
|
259.7
|
A. O. SMITH
CORPORATION
|
Business
Segments
|
(dollars in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
|
Twelve Months
Ended
|
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
2019
|
|
2018
|
|
|
2019
|
|
2018
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
North
America
|
$
|
523.1
|
$
|
521.9
|
|
$
|
2,083.5
|
$
|
2,044.7
|
|
Rest of
World
|
|
234.3
|
|
297.6
|
|
|
935.8
|
|
1,173.6
|
|
Inter-segment
sales
|
|
(6.5)
|
|
(7.0)
|
|
|
(26.6)
|
|
(30.4)
|
|
|
$
|
750.9
|
$
|
812.5
|
|
$
|
2,992.7
|
$
|
3,187.9
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
|
|
|
|
|
|
|
|
|
|
|
North America
(1)
|
$
|
128.4
|
$
|
127.6
|
|
$
|
488.9
|
$
|
464.1
|
|
Rest of
World
|
|
1.5
|
|
39.5
|
|
|
40.2
|
|
149.3
|
|
|
|
129.9
|
|
167.1
|
|
|
529.1
|
|
613.4
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
expense
|
|
(11.9)
|
|
(10.5)
|
|
|
(46.0)
|
|
(47.2)
|
Interest
expense
|
|
(2.5)
|
|
(1.8)
|
|
|
(11.0)
|
|
(8.4)
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before
income taxes
|
|
115.5
|
|
154.8
|
|
|
472.1
|
|
557.8
|
|
|
|
|
|
|
|
|
|
|
|
Tax
provision
|
|
24.2
|
|
28.5
|
|
|
102.1
|
|
113.6
|
Net
earnings
|
$
|
91.3
|
$
|
126.3
|
|
$
|
370.0
|
$
|
444.2
|
|
|
|
|
|
|
|
|
|
|
|
(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
|
|
Twelve Months
Ended
|
|
December
31,
|
|
December
31,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
Net Earnings
(GAAP)
|
$91.3
|
|
$126.3
|
|
$370.0
|
|
$444.2
|
Restructuring
and impairment expenses, before tax
|
-
|
|
-
|
|
-
|
|
6.7
|
Tax effect of
restructuring and impairment expenses
|
-
|
|
-
|
|
-
|
|
(1.7)
|
Adjusted
Earnings
|
$91.3
|
|
$126.3
|
|
$370.0
|
|
$449.2
|
|
|
|
|
|
|
|
|
Diluted EPS
(GAAP)
|
$0.56
|
|
$
0.74
|
|
$
2.22
|
|
$
2.58
|
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
|
$0.56
|
|
$
0.74
|
|
$
2.22
|
|
$
2.61
|
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
|
|
Twelve Months
Ended
|
|
December
31,
|
|
December
31,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Segment
Earnings (GAAP)
|
|
|
|
|
|
|
|
North America
|
$128.4
|
|
$127.6
|
|
$488.9
|
|
$464.1
|
Rest of World
|
1.5
|
|
39.5
|
|
40.2
|
|
149.3
|
Total Segment
Earnings (GAAP)
|
$129.9
|
|
$167.1
|
|
$529.1
|
|
$613.4
|
|
|
|
|
|
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
North America restructuring and impairment
expenses
|
$
-
|
|
$
-
|
|
$
-
|
|
$
6.7
|
Rest of World
|
-
|
|
-
|
|
-
|
|
-
|
Total
Adjustments
|
$
-
|
|
$
-
|
|
$
-
|
|
$
6.7
|
|
|
|
|
|
|
|
|
Adjusted
Segment Earnings
|
|
|
|
|
|
|
|
North America
|
$128.4
|
|
$127.6
|
|
$488.9
|
|
$470.8
|
Rest of World
|
1.5
|
|
39.5
|
|
40.2
|
|
149.3
|
Total
Adjusted Segment Earnings
|
$129.9
|
|
$167.1
|
|
$529.1
|
|
$620.1
|
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SOURCE A. O. Smith Corporation