Citing a substantial decline in its end market demand, A. O. Smith Corp. (Milwaukee, WI, U.S.) said first quarter earnings were $8.7 million or $.29 per share, compared with $21.9 million or $.72 per share last year.
A. O. Smith is both an appliance industry OEM and supplier. Its Electrical Products business is a major supplier of motors to the global appliance industry. Its Water products business produces residential and commercial water heaters.
Total sales for the three-month period ended March 31 were $481.6 million, approximately 16% lower than first quarter 2008 sales of $571.4 million.
Water Products' Q1 sales of $339.0 million were approximately 4% lower than Q1 2008's $352.1 million. Sales were lower in North America and in China and more than offset price increases related to higher steel costs.
Electrical Products' Q1 sales decreased approximately 35% to $143.6 million, as the weak residential and commercial construction markets and customer inventory reduction actions adversely impacted electric motor sales.
"The market trends we experienced in the fourth quarter carried over into the first quarter of this year," Chairman and CEO Paul W. Jones said. "The latest data indicate the housing contraction will be deeper and longer than last year, affecting a number of important electric motor market segments as well as our residential water heater market. In addition, the weakness in commercial construction that we saw materializing in the fourth quarter has continued into this year."
"Our operating units have aggressively reduced costs in response to the global recession and have programs to decrease inventories worldwide, postpone or reduce capital expenditures, and reduce overall expenses," Jones continued. "I am confident the company will manage its way through these economic challenges, by maintaining substantial profitability and continuing to expand our new product development."
"OEM motor customers are forecasting anywhere from 20 to 30 percent year over year volume declines in 2009, and we are aligning our cost structure with this lower level of market demand," Jones said. "Since the beginning of the year, we have significantly reduced our hourly and salaried workforce around the world. And we have and will continue to implement significant cost reduction programs."
"As a result of weak demand and the prolonged and severe housing slump, we are reducing our annual guidance to between $1.80 and $2.10 per share," Jones said. "But, we are optimistic that we will still generate $140 to $150 million in operating cash flow this year, despite our lower earnings outlook and higher pension plan payments."
Jones noted that replacement demand for residential and commercial water heaters is holding up at expected levels. He added that the company will continue making needed investments to maintain its competitive position. This includes moving forward with a water heater venture and facility in India."
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