A. O. Smith Reaches Record Third Quarter Earnings

Water technology company A. O. Smith Corporation (NYSE-AOS) today announced record third quarter net earnings of $73.6 million or $0.82 per share compared with $50.6 million or $0.56 per share last year

Third quarter 2014 earnings included after-tax non-operating pension costs of $2.9 million or $.03 per share.

Third quarter sales of $625.1 million grew 7.5 percent compared with sales of $581.6 million during the same period in 2014 due to higher prices in North America, higher sales of Lochinvar-branded products and commercial water heaters in the U.S., and continued demand for the company's water heating and water treatment products in China. Sales in China increased nearly 11 percent. Excluding the impact from the strengthening U.S. dollar, China sales increased over 13 percent. Residential water heater volumes in the U.S. declined in the current third quarter as compared with last year.

"Our organic growth continued to outshine the industrial landscape," noted Ajita Rajendra, chairman and chief executive officer. "China year-to-date sales are up 15 percent in local currency, demonstrating the confidence of the Chinese consumer."

"Our North American business continued to perform at a high level, and we have completed the conversion to NAECA III-compliant residential products. Our commercial water heater and boiler volumes continued to grow as a result of continued new construction activities in our commercial end markets," Rajendra continued.

North America segment Third quarter sales for the North America segment, which includes U.S. and Canadian water heaters and boilers, increased six percent to $417.4 million compared with third quarter 2014 sales of $392.4 million. The growth in sales was driven by price increases in the U.S. and Canada for residential and commercial water heaters and higher volumes of commercial water heaters and commercial boilers. These factors were partially offset by lower residential water heater volumes.

Segment operating earnings of $90.5 million were over 70 percent higher than the $53.0 million earned in the third quarter last year. The strong earnings increase was primarily due to pricing actions in both the U.S. and Canada earlier in 2015, higher sales of Lochinvar-branded products, higher commercial water heater volumes, and lower steel and enterprise resource planning (ERP) implementation costs. The impact to profits from lower U.S. residential water heater volumes partially offset these favorable factors. As a result, third quarter 2015 operating margin of 21.7 percent was significantly higher than the third quarter 2014 operating margin of 13.5 percent. Third quarter 2014 segment operating earnings included pre-tax non-operating pension costs of $3.3 million.

Rest of World segment Sales of this segment, which is primarily comprised of China, Europe and India, increased over nine percent in the third quarter of 2015 to $217.1 million. China sales in the third quarter increased nearly 11 percent, while currency translation reduced sales by over two percentage points.

Operating earnings for this segment were $27.4 million compared with $30.0 million earned in the 2014 third quarter. The impact from higher sales in China and lower steel costs were more than offset by lower sales of highly profitable commercial water heaters in China and increased selling, general and administrative (SG&A) costs. Higher promotion costs in advance of China's one-week holiday in October, as well as higher development and advertising costs associated with the March 2015 launch of air purification in China and water treatment products in India contributed to higher segment SG&A costs. Earnings were reduced by almost $1 million due to currency translation. As a result of those factors, third quarter 2015 operating margin of 12.6 percent was lower than the 15.1 percent operating margin in 2014.

Source: MarketWatch

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