A. O. Smith Reports Higher Earnings
Oct 26, 2011
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A. O. Smith Corp. reported third quarter earnings from continuing operations of $26.9 million on sales of $412.0 million.

Sales of the A. O. Smith Water Products Company, which makes water heaters, for the three-month period ending Sept. 30, 2011, were $412.0 million compared to $377.4 million in 3Q 2010. Third quarter 2011 results include sales of $20.8 million from the Lochinvar business acquired on Aug. 26, 2011, and an increase in China water heater sales of 1%. Higher sales in India and of gas instantaneous water heaters in North America as well as global pricing actions related to higher steel costs helped to offset volume declines of residential and commercial water heaters in the U. S.

"We believe many of our customers took a very conservative approach to replenishing inventories during the quarter," Chairman and CEO Paul W. Jones said. "Fears of a double-dip recession throughout the summer along with the ongoing softness in the new housing and commercial construction markets had an adverse effect on our U.S. water heater business."

3Q operating profit was $39.9 million, up 6% than the $37.6 million n 3Q 2010. The Lochinvar boiler operations contributed $3.0 million to 2011 3Q operating profit. Contributions from higher sales in Asia and of gas instantaneous water heaters in North America were more than offset by lower residential and commercial water heater volumes in the U.S.

A. O. Smith closed the sale of its Electrical Products business on Aug. 19, 2011, and received approximately $730 million in cash, including working capital adjustments, and 2.83 million Regal Beloit Corp. shares. Earnings from discontinued operations during the third quarter were $155.4 million, which included an after-tax gain on the sale of the business of $150.3 million.

"We continue to pursue water heating and water treating investments all over the world, and we are committed to investments that increase shareholder value. Evaluating a stock buyback is part of our overall investment strategy," Jones said. "We have substantial amounts of cash from the sale of Electrical Products Company and debt capacity to make investments as well as buy back our shares."

Outlook for 2011. "We expect U. S. volumes will recover and a pre-buy of commercial water heaters by our Southern California customers will occur in the fourth quarter as a result of an air quality regulatory standard scheduled to take effect on Jan. 1, 2012," Jones said. "We have increased our full year 2011 guidance and now expect earnings to be between $2.00 and $2.10 per share, which incorporates a net benefit from Lochinvar of $.04 per share."

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