American Standard Companies Inc., a global manufacturer of commercial and residential air-conditioning systems and services, bath and kitchen products, and vehicle control systems, announced record second-quarter earnings of U.S. $1.83 per diluted share, up 7 percent from second quarter last year. These earnings are consistent with the company's April estimate for the quarter of $1.78 to $1.88. Sales were a record $2.265 billion, up 9 percent from a year ago. Net income rose to $133.9 million, up 6 percent.
"We once again delivered solid results despite a tough economy," said Fred Poses, chairman and CEO. "All three business segments continued to outperform their markets, even as they faced challenging conditions, including the third year of declines in the North American commercial air conditioning equipment market, unseasonably cool weather in certain parts of the U.S., lower truck and bus production in Europe and North America, and the temporary impact of SARS.
"Our investments in new products and marketing programs are strengthening our competitive positions, while our productivity programs and additional cost-reduction actions continue to produce significant savings needed in the current price-sensitive commercial and consumer markets. All our marketing and productivity efforts have built a strong foundation for continued short-term performance and long-term growth.
"With today's lack of economic vitality, we are narrowing our earnings range for the year to $5.40-$5.50 per diluted share, an increase of 7-9 percent over 2002. With an improvement in the economy, we'd exceed the new range. Last quarter, we said we needed an improvement in economic conditions to reach the high end of our 2003 earnings estimate of $5.40-$5.80 per diluted share. For the third quarter, we anticipate earnings in the range of $1.60-$1.68," said Poses.
"We're well on our way to achieving our cash flow targets, which are net cash provided by operating activities of $650-$690 million and free cash flow of $410-$450 million. In addition, we expect to reduce debt to our previously announced target of $1.7 billion by year-end," Mr. Poses added.
In the second quarter, net cash provided by operating activities was $205.3 million. Free cash flow was $164.9 million, $14.6 million better than a year ago. Segment income was $263.6 million, flat with the prior year. Total operating margin for the quarter was 11.6 percent, down 1.1 percentage points. The company reduced interest expense by $2.5 million because of lower average debt. Debt now stands at $2 billion, down from $2.6 billion at the end of 1999. The tax rate was 31 percent, down from 33.3 percent a year ago.
The company’s appliance-related segment, Air Conditioning Systems and Services, reported that sales were $1.356 billion, up 3 percent over second quarter last year, driven by strong growth in U.S. residential and international commercial air-conditioning equipment sales as well as commercial parts, service, and solutions, the company said. The North American market for commercial equipment declined for the third year. Segment income was $179.9 million, down 1 percent. Productivity initiatives and residential volume growth overcame the impact of volume and price weakness in the commercial equipment part of the air conditioning business as well as cost escalations. Continued spending on marketing, advertising and new product programs decreased operating margin by 0.6 percentage points to 13.3 percent.
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