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A.O. Smith Slashes Outlook
Sep 25, 2003
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A.O. Smith Corp. slashed its third-quarter earnings outlook by more than half, citing lower-than-expected sales and profits in its residential water heater business. A.O. Smith said it expects to earn U.S. $0.18 to $0.20 a share, down from its previous guidance of $0.42 to $0.46 a share.

The company also put full-year earnings at $1.75 to $1.80 a share, down from its previous estimate of $2.10 to $2.25.

A.O. Smith said customers bought significant quantities of its residential gas water heaters in the second quarter, ahead of the launch of its new flammable vapor resistant product.

The resulting drop in third-quarter sales, combined with the launch of the new water heaters, hurt third-quarter results, A.O. Smith said.

While the company expects its water-heater business to be back on track during the fourth quarter, it said it will have to cut electric-motor production during the period.

A.O. Smith said it needs to reduce inventories built as it moved production to lower-cost Mexican facilities from the U.S. About one-half of its manufacturing operation is now located in Mexico and China.

"While we are pleased in achieving a major milestone in our motors repositioning strategy, we are disappointed in our margin performance and inventory levels during the second half of this year," said Robert O'Toole, chairman and chief executive officer, in a release. "We are committed to addressing both issues and establishing a strong base for improved operating performance."

He estimated fiscal 2004 earnings of $2.40 to $2.60 a share, in line with the company's strategic plans. (Reuters)

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