A. O. Smith 1Q Earning Up 14%
Apr 21, 2011
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A. O. Smith Corp. first quarter 2011 earning were $24.2 million, up $2.9 million from 1Q 2010.

Sales from residential and commercial water heaters increased $50.7 million to $417.4 million in the quarter ended March 31, 2011, compared to $366.7 million for the first quarter of 2011. Sales were up 51% in China as a result of continued geographic expansion and an increased number of retail and specialty stores selling the premium A. O. Smith brand. Sales in the U.S. increased as a result of new energy efficient products launched in 2010.

The company said sales in both China and the U.S. increased in Q1 from customer demand in advance of an announced April 1 price increase, which is primarily related to higher steel costs.

Earnings from continuing operations increased 14% to $24.2 million compared to 1Q 2010 earnings of $21.3 million. First quarter 2011 operating margins of 11.7% were down slightly from 12.0% in Q1 2010, principally due to higher selling costs supporting the North American Takagi tankless water heater acquisition and the company's renewable product introductions.

Sales in the first quarter by the Electrical Products Company, no considered Discontinued Operations, increased approximately 28% to $201.5 million, $43.7 million higher than 1Q 2010. Electrical Products manufacturers motors for the appliance and other industries.

Chairman and CEO Paul Jones said he believes the first quarter gives a good indication of how 2011 overall will unfold. "We are continuing to benefit from market growth and consumer demand in China. In North America, our new high-efficiency water heating products introduced last year will continue to benefit sales."

Jones said that, during the ongoing economic recovery in the U.S. the company is staying mindful of the two major "headwinds" it faces: a weak new housing market and increasing commodity costs.

"We plan to take advantage of our leadership in water heating and our developing expertise in water treatment technology," Jones said. Once the sale of Electrical Products goes through, A. O. Smith plans to use the proceeds "to focus on a number of water-related strategic initiatives. We will look to grow our core residential and commercial water heating and water treatment businesses into fast-growing geographic markets."

He said the company will look for ways to grow further in China and India, where it already has a foothold, as well as in new markets like Africa, Southeast Asia, and South America. The company may expand its core product line with acquisitions or ventures in boilers, heat pumps, and other high-efficiency products.

A. O. Smith agreed in December 2010 to sell its Electrical Products business to Regal Beloit Corp. for $875 million. On Feb. 4, 2011, both companies received requests for additional information and documents from the U.S. Department of Justice regarding the sale. Subject to regulatory approval, the two companies expect a mid-year closing.

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