MILWAUKEE, Oct. 29, 2020 /PRNewswire/ -- Global water
technology company A. O. Smith Corporation (the "Company")
(NYSE-AOS) today announced third quarter net earnings of
$105.4 million or $0.65 per share, on third quarter sales of
$760.0 million. Sales were four
percent higher than sales of $728.2
million reported in the same quarter of 2019. Net earnings
in 2019 were $87.3 million or
$0.53 per share.
Adjusted earnings of $106.7
million, or $0.66 per share,
were approximately 22 percent higher than the third quarter of 2019
and excluded $1.3 million, or
$0.01 per share, of after-tax
severance and restructuring charges in the current quarter related
to aligning the business to current market conditions.
The Company is providing non-GAAP measures (adjusted earnings,
adjusted earnings per share and adjusted segment earnings) for 2020
that exclude severance and restructuring charges related to its
business alignment actions. Reconciliations to measures on a GAAP
basis are provided in the financial information included with this
news release.
"Protecting our employees, while satisfying our customers'
demand for products that heat and treat water, continued to be job
one during the quarter," said Kevin J.
Wheeler, chairman and chief executive officer. "Our
businesses performed well during the quarter, with double-digit
growth in sales of North America
water treatment products, higher residential water heater volumes
in North America and profitable
results in China. It is good to
see the leverage from our China
cost structure alignment activities materialize with higher
volumes."
North America
segment
Sales of the North America
segment were $544.0 million in the
third quarter, an increase of approximately six percent compared
with the same period in 2019. Higher residential water heater
volumes and approximately 19 percent growth in water treatment
products' sales more than offset lower commercial water heater
volumes and lower boiler sales.
Segment earnings of $133.1 million
were approximately nine percent higher than segment earnings of
$121.6 million in the same quarter of
2019 driven by higher residential water heater volumes, higher
water treatment product sales and lower material costs. Lower
volumes of commercial water heaters and lower boiler sales
partially offset these factors. As a result of these factors,
segment margin of 24.5 percent increased compared with 23.6 percent
achieved in the same period last year.
Adjusted segment earnings of $133.6
million in the current year quarter excluded $0.5 million in pre-tax severance costs resulting
in third quarter adjusted segment margin of 24.6
percent.
Rest of World segment
Third quarter sales of $221.4
million for the Rest of the World segment were essentially
flat compared with segment sales of $220.3
million in the same quarter in 2019. China sales were flat compared with the same
period in the prior year as higher consumer demand was offset by a
higher mix of mid-price products. China currency translation favorably impacted
sales by approximately $4
million.
The Rest of the World segment earnings were $16.7 million in the third quarter compared with
$4.1 million in segment earnings in
the same quarter last year. In China, higher volumes, reductions in selling,
advertising and administrative costs and temporary social insurance
exemptions were partially offset by a higher mix of mid-price
products, which have lower margins. Third quarter segment margin
was 7.5 percent compared with 1.9 percent in the same quarter of
2019, as a result of the factors identified above.
Adjusted segment earnings of $17.8
million in the current year quarter excluded $1.1 million in pre-tax severance and
restructuring costs, resulting in adjusted segment margin of 8.0
percent.
Balance sheet, liquidity and dividends
As of September 30, 2020, the
Company had cash and marketable securities balances totaling
$509.0 million and undrawn borrowing
capacity on its credit facility totaled $500.0 million. The Company's total debt was
$113.9 million at the end of
September, and its leverage ratio was 6.1 percent as measured by
total debt to total capitalization.
Cash provided by operations of $330.4
million during the first nine months of 2020 increased from
$280.0 million in the same period of
2019, primarily as a result of lower investments in working
capital, which were partially offset by lower earnings compared
with the year-ago period.
On October 12, the Board of
Directors of the Company increased its regular quarterly cash
dividend rate by eight percent to $0.26 per share on the Company's Common Stock and
Class A Common Stock.
Operations and supply chain
The Company remained operational throughout the quarter with no
significant disruptions within its plants or supply chain. The
Company noted improvement in its North
America water heater manufacturing lead times as a result of
adding manufacturing shifts, hiring temporary workers and shifting
some production. Lead times were extended in the second and third
quarters due to self-quarantine absenteeism mandated by the
Company's COVID-19 prevention measures.
The Company has undertaken numerous and meaningful steps to
protect its employees, suppliers, and customers during the
pandemic. These important steps, which in certain cases reduce
efficiency, include continuous communication and training to
employees on living and working safely during a pandemic, plant
accommodations and reconfigurations to maintain social distancing,
providing masks for all employees, implementation of sanitizing
stations, employee temperature-taking and regular, proactive deep
cleaning and sanitization of all facilities among others.
Outlook
"We are encouraged by the resiliency of our North America residential water heater demand
and the year-over-year growth in consumer demand for our products
in China. We continue to expect
tailwinds behind our North America
water treatment product sales driven by drinking water health and
safety concerns," noted Wheeler. "However, much uncertainty remains
about the duration and long-term implications of the pandemic,
particularly its impact on U.S. commercial markets."
"Under the assumption that the conditions of our business
environment and that of our suppliers is similar for the remainder
of the year to what we are currently experiencing and that they do
not deteriorate as a result of further restrictions or shutdowns,
we are increasing our full year 2020 earnings guidance to a range
between $1.91 and $1.94 per share and adjusted earnings guidance to
a range between $1.95 and
$1.98 per share. The mid-point of the
guidance range represents an increase of ten percent over our prior
2020 earnings guidance."
"We continue to believe that we have ample liquidity and
flexibility to meet the needs of our business, return cash to
shareholders and take advantage of organic and inorganic growth
opportunities. We remain focused on keeping our employees safe,
while serving our customers and continue to deliver our mission to
provide hot and clean water necessary to keep communities and
households safe during the pandemic."
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 website,
www.aosmith.com. An audio replay of the call will be available
on the Company's website 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: negative impacts to the Company's businesses, including
demand for its products, particularly commercial products,
operations and work-force dislocation and disruption, supply chain
disruption and liquidity as a result of the severity and duration
of the COVID-19 pandemic; a failure to recover or a further
weakening of the Chinese economy and/or a failure to recover 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 further weakening in the high efficiency boiler
segment in the U.S.; significant volatility in raw material
availability and prices; inability of the Company to implement or
maintain pricing actions; a failure to recover or further 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 news 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
|
|
|
Nine Months
Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
760.0
|
|
$
|
728.2
|
|
$
|
2,060.8
|
|
$
|
2,241.8
|
Cost of products
sold
|
|
462.9
|
|
|
444.0
|
|
|
1,276.7
|
|
|
1,356.1
|
Gross
profit
|
|
297.1
|
|
|
284.2
|
|
|
784.1
|
|
|
885.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and
administrative expenses
|
|
159.4
|
|
|
172.3
|
|
|
489.1
|
|
|
535.7
|
Severance and
restructuring expenses
|
|
1.6
|
|
|
-
|
|
|
7.7
|
|
|
-
|
Interest
expense
|
|
1.6
|
|
|
3.1
|
|
|
6.3
|
|
|
8.5
|
Other
income
|
|
(2.8)
|
|
|
(4.0)
|
|
|
(11.0)
|
|
|
(15.1)
|
Earnings before
provision for income taxes
|
|
137.3
|
|
|
112.8
|
|
|
292.0
|
|
|
356.6
|
Provision for income
taxes
|
|
31.9
|
|
|
25.5
|
|
|
67.1
|
|
|
77.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
$
|
105.4
|
|
$
|
87.3
|
|
$
|
224.9
|
|
$
|
278.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings
per share of common stock
|
$
|
0.65
|
|
$
|
0.53
|
|
$
|
1.38
|
|
$
|
1.66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares
outstanding (000's omitted)
|
|
162,480
|
|
|
165,543
|
|
|
162,517
|
|
|
167,562
|
A. O. SMITH
CORPORATION
|
Balance
Sheet
|
(dollars in
millions)
|
|
|
|
(unaudited)
|
|
|
|
|
|
September
30,
|
|
December
31,
|
|
|
2020
|
|
2019
|
ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
$
|
377.9
|
|
$
|
374.0
|
|
Marketable
securities
|
|
131.1
|
|
|
177.4
|
|
Receivables
|
|
572.9
|
|
|
589.5
|
|
Inventories
|
|
302.6
|
|
|
303.0
|
|
Other current
assets
|
|
45.8
|
|
|
56.5
|
|
|
|
|
|
|
|
|
Total
Current Assets
|
|
1,430.3
|
|
|
1,500.4
|
|
|
|
|
|
|
|
|
Net property, plant
and equipment
|
|
537.1
|
|
|
545.4
|
|
Goodwill and other
intangibles
|
|
870.6
|
|
|
884.4
|
|
Operating lease
assets
|
|
42.2
|
|
|
46.9
|
|
Other
assets
|
|
90.9
|
|
|
80.9
|
|
|
|
|
|
|
|
|
Total
Assets
|
$
|
2,971.1
|
|
$
|
3,058.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS' EQUITY:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade
payables
|
$
|
516.9
|
|
$
|
509.6
|
|
Accrued payroll and
benefits
|
|
70.8
|
|
|
64.6
|
|
Accrued
liabilities
|
|
166.1
|
|
|
143.7
|
|
Product
warranties
|
|
45.3
|
|
|
41.8
|
|
Debt due within one
year
|
|
6.8
|
|
|
6.8
|
|
|
|
|
|
|
|
|
Total
Current Liabilities
|
|
805.9
|
|
|
766.5
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
107.1
|
|
|
277.2
|
|
Pension
liabilities
|
|
10.1
|
|
|
27.8
|
|
Operating lease
liabilities
|
|
34.9
|
|
|
38.7
|
|
Other
liabilities
|
|
266.0
|
|
|
281.0
|
|
Stockholders'
equity
|
|
1,747.1
|
|
|
1,666.8
|
|
|
|
|
|
|
|
|
Total Liabilities
and Stockholders' Equity
|
$
|
2,971.1
|
|
$
|
3,058.0
|
A. O. SMITH
CORPORATION
|
Statement of Cash
Flows
|
(dollars in
millions)
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
Ended
|
|
|
|
|
September
30,
|
|
|
|
|
2020
|
|
|
2019
|
Operating
Activities
|
|
|
|
|
|
|
Net
earnings
|
$
|
224.9
|
|
$
|
278.7
|
|
Adjustments to
reconcile net earnings
|
|
|
|
|
|
|
to net cash
provided by (used in) operating activities:
|
|
|
|
|
|
|
|
Depreciation &
amortization
|
|
60.7
|
|
|
58.1
|
|
|
Stock based
compensation expense
|
|
11.5
|
|
|
12.3
|
|
|
Net changes in
operating assets and liabilities:
|
|
|
|
|
|
|
|
Current assets and liabilities
|
|
60.8
|
|
|
(43.8)
|
|
|
Noncurrent assets and liabilities
|
|
(27.5)
|
|
|
(25.3)
|
Cash Provided by
Operating Activities
|
|
330.4
|
|
|
280.0
|
|
|
|
|
|
|
|
|
Investing
Activities
|
|
|
|
|
|
|
Capital
expenditures
|
|
(36.7)
|
|
|
(50.3)
|
|
Acquisition
|
|
-
|
|
|
(107.0)
|
|
Investment in
marketable securities
|
|
(119.9)
|
|
|
(237.3)
|
|
Net proceeds from
sale of marketable securities
|
|
169.0
|
|
|
318.8
|
Cash Provided by
(Used in) Investing Activities
|
|
12.4
|
|
|
(75.8)
|
|
|
|
|
|
|
|
|
Financing
Activities
|
|
|
|
|
|
|
Long-term debt
(repaid) incurred
|
|
(170.1)
|
|
|
97.9
|
|
Common stock
repurchases
|
|
(56.7)
|
|
|
(230.0)
|
|
Payment of contigent
consideration
|
|
-
|
|
|
(1.0)
|
|
Net proceeds
(payments) from stock option activity
|
|
4.4
|
|
|
(1.4)
|
|
Dividends
paid
|
|
(116.5)
|
|
|
(110.0)
|
Cash Used In
Financing Activities
|
|
(338.9)
|
|
|
(244.5)
|
|
|
|
|
|
|
|
|
|
Net increase
(decrease) in cash and cash equivalents
|
|
3.9
|
|
|
(40.3)
|
|
Cash and cash
equivalents - beginning of period
|
|
374.0
|
|
|
259.7
|
|
|
|
|
|
|
|
|
Cash and Cash
Equivalents - End of Period
|
$
|
377.9
|
|
$
|
219.4
|
A. O. SMITH
CORPORATION
|
Business
Segments
|
(dollars in
millions)
|
(unaudited)
|
|
|
|
|
Three Months
Ended
|
|
|
Nine Months
Ended
|
|
|
September
30,
|
|
|
September
30,
|
|
|
2020
|
|
2019
|
|
|
2020
|
|
2019
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
North
America
|
$
|
544.0
|
$
|
514.6
|
|
$
|
1,557.4
|
$
|
1,560.4
|
|
Rest of
World
|
|
221.4
|
|
220.3
|
|
|
521.3
|
|
701.5
|
|
Inter-segment
sales
|
|
(5.4)
|
|
(6.7)
|
|
|
(17.9)
|
|
(20.1)
|
|
|
$
|
760.0
|
$
|
728.2
|
|
$
|
2,060.8
|
$
|
2,241.8
|
|
|
|
|
|
|
|
|
|
|
Earnings
(losses)
|
|
|
|
|
|
|
|
|
|
|
North
America(1)
|
$
|
133.1
|
$
|
121.6
|
|
$
|
365.6
|
$
|
360.5
|
|
Rest of
World(2)
|
|
16.7
|
|
4.1
|
|
|
(31.3)
|
|
38.8
|
|
Inter-segment
earnings elimination
|
|
-
|
|
-
|
|
|
(0.3)
|
|
(0.1)
|
|
|
149.8
|
|
125.7
|
|
|
334.0
|
|
399.2
|
|
|
|
|
|
|
|
|
|
|
Corporate
expense
|
|
(10.9)
|
|
(9.8)
|
|
|
(35.7)
|
|
(34.1)
|
Interest
expense
|
|
(1.6)
|
|
(3.1)
|
|
|
(6.3)
|
|
(8.5)
|
|
|
|
|
|
|
|
|
|
|
Earnings before
income taxes
|
|
137.3
|
|
112.8
|
|
|
292.0
|
|
356.6
|
|
|
|
|
|
|
|
|
|
|
Tax
provision
|
|
31.9
|
|
25.5
|
|
|
67.1
|
|
77.9
|
Net
earnings
|
$
|
105.4
|
$
|
87.3
|
|
$
|
224.9
|
$
|
278.7
|
|
|
|
|
|
|
|
|
|
|
(1)
|
includes severance
and restructuring expenses of:
|
$
|
0.5
|
$
|
-
|
|
$
|
2.7
|
$
|
-
|
(2)
|
includes severance
and restructuring expenses of:
|
$
|
1.1
|
$
|
-
|
|
$
|
5.0
|
$
|
-
|
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
|
|
Nine Months
Ended
|
|
|
September
30,
|
|
September
30,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
Net Earnings
(GAAP)
|
$
105.4
|
|
$
87.3
|
|
$
224.9
|
|
$
278.7
|
Severance and
restructuring expenses, before tax
|
1.6
|
|
-
|
|
7.7
|
|
-
|
Tax effect of
severance and restructuring expenses
|
(0.3)
|
|
-
|
|
(1.4)
|
|
-
|
Adjusted
Earnings
|
$
106.7
|
|
$
87.3
|
|
$
231.2
|
|
$
278.7
|
|
|
|
|
|
|
|
|
|
Diluted EPS
(GAAP)
|
$
0.65
|
|
$
0.53
|
|
$
1.38
|
|
$
1.66
|
Severance and
restructuring expenses per diluted share, before tax
|
0.01
|
|
-
|
|
0.05
|
|
-
|
Tax effect of
severance and restructuring expenses per diluted share
|
-
|
|
-
|
|
(0.01)
|
|
-
|
Adjusted
EPS
|
$
0.66
|
|
$
0.53
|
|
$
1.42
|
|
$
1.66
|
A. O. SMITH
CORPORATION
|
Adjusted
Segment Earnings
|
(dollars in
millions)
|
(unaudited)
|
|
The following is a
reconciliation of reported segment earnings (losses) to adjusted
segment earnings (non-GAAP):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
Nine Months
Ended,
|
|
|
September
30,
|
|
September
30,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Segment
Earnings (Losses) (GAAP)
|
|
|
|
|
North America
|
$
133.1
|
|
$
121.6
|
|
$
365.6
|
|
$
360.5
|
Rest of World
|
16.7
|
|
4.1
|
|
(31.3)
|
|
38.8
|
Inter-segment earnings elimination
|
-
|
|
-
|
|
(0.3)
|
|
(0.1)
|
Total Segment
Earnings (GAAP)
|
$
149.8
|
|
$
125.7
|
|
$
334.0
|
|
$
399.2
|
|
|
|
|
|
|
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
North America severance and restructuring expenses
|
$
0.5
|
|
$
-
|
|
$
2.7
|
|
$
-
|
Rest of World severance and restructuring expenses
|
1.1
|
|
-
|
|
5.0
|
|
-
|
Inter-segment earnings elimination
|
-
|
|
-
|
|
-
|
|
-
|
Total
Adjustments
|
$
1.6
|
|
$
-
|
|
$
7.7
|
|
$
-
|
|
|
|
|
|
|
|
|
|
Adjusted
Segment Earnings (Losses)
|
|
|
|
|
North America
|
$
133.6
|
|
$
121.6
|
|
$
368.3
|
|
$
360.5
|
Rest of World
|
17.8
|
|
4.1
|
|
(26.3)
|
|
38.8
|
Inter-segment earnings elimination
|
-
|
|
-
|
|
(0.3)
|
|
(0.1)
|
Total
Adjusted Segment Earnings
|
$
151.4
|
|
$
125.7
|
|
$
341.7
|
|
$
399.2
|
A. O. SMITH
CORPORATION
|
2020 Adjusted EPS
Guidance and 2019 EPS
|
(unaudited)
|
|
|
|
|
|
|
The following is a
reconciliation of diluted EPS to adjusted EPS (non-GAAP) (all items
are net of tax):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
|
|
|
Guidance
|
|
2019
|
|
|
|
|
|
|
Diluted EPS
(GAAP)
|
|
$ 1.91 -
1.94
|
|
$
2.22
|
|
Severance and
restructuring expenses, per diluted share
|
|
0.04
|
|
-
|
Adjusted
EPS
|
|
$ 1.95 -
1.98
|
|
$
2.22
|
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SOURCE A. O. Smith Corporation