American Standard Companies Inc. announced record first-quarter sales, net income, and diluted earnings per share. Earnings were U.S. $1.14 per diluted share, up 31 percent from the first quarter of last year. In March, the company had raised its first-quarter earnings range to $1.09 to $1.15 per diluted share, up from the $1.02 to $1.12 range announced in January. Sales were $2.185 billion, up 12 percent from a year ago, and net income rose to $84.6 million, up 33 percent.
"We started 2004 with a strong quarter and are well-positioned to deliver solid growth in sales, earnings, margins and cash flow for the entire year," said Fred Poses, chairman and CEO. "All three business segments contributed to our first-quarter results. Our earnings benefited from productivity initiatives, along with volume growth and improved mix, which were driven by better markets and new product introductions, as well as from favorable foreign exchange.
"We're seeing some improvement in economic conditions, but certain important markets are still lagging," Mr. Poses added. "In North America, the equipment market for small- and mid-sized buildings, a short-cycle business, has shown another quarter of growth, while the market for large commercial air-conditioning equipment remains weak. European markets are still soft, affecting air-conditioning, bath and kitchen, and after-market sales in vehicle controls. U.S. consumer spending continues to support our growth in residential air-conditioning and bath and kitchen products. North American and European truck builds are up strongly, and Asian markets remain healthy."
For the second quarter, the company expects sales to be up about 8 to 10 percent and earnings in the range of $2.02-$2.16 per diluted share, Mr. Poses said, up 10-18 percent from second quarter last year.
"Based on what we achieved in the first quarter and what we see for the second quarter, we're raising the low end of our earnings estimate for the year to $6.25 per diluted share, up from the $6.10 we announced in January," he said. "We're maintaining the high end of our estimate at $6.60, for an earnings range that's 14 to 20 percent higher than 2003."
In the first quarter, segment income was a record $202.2 million, up 23 percent from first quarter last year. Total operating margin for the quarter was 9.3 percent, up 0.9 percentage points. Net cash provided by operating activities was $38.8 million, $0.6 million below last year. Free cash flow was $0.7 million, up $1.5 million from a year ago. During the quarter, the company said it reduced interest expense by $0.9 million to $29 million because of a lower debt level. The effective tax rate for the quarter was 31 percent, which is the same as last year and this year's expected annual rate. Corporate and other expenses increased by $10.2 million primarily because of the impact of foreign exchange and increased post-retirement and self-insurance costs.
"We're on track with our 2004 goals to generate more than $720 million in net cash provided by operating activities and more than $500 million in free cash flow, up from our record 2003 results," Mr. Poses reported. "We'll use our cash to reduce our debt to less than $1.5 billion and buy back our stock."
The company's Air Conditioning Systems and Services sales were $1.16 billion, up 7 percent over first quarter last year. Growth in U.S. residential systems, global commercial unitary equipment and global commercial parts, services and solutions drove the sales increase. Segment income was $93 million, up 12 percent. Improved volume and mix outpaced unfavorable pricing and continued investments in the business, while productivity gains surpassed cost escalations. Operating margin was 8 percent, up 0.3 percentage points, the company said.
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