MILWAUKEE, July 30, 2019 /PRNewswire/ -- Global water
technology company A. O. Smith Corporation (NYSE: AOS) today
announced second quarter net earnings of $102.1 million or $0.61 per share on second quarter sales of
$765.4 million. Earnings per share
declined eight percent compared with second quarter 2018 earnings
of $0.66 per share. Sales in the
quarter ended June 30 were eight
percent lower compared with sales of $833.3
million during the same period in 2018.
"The second quarter proved to be challenging, largely due to
difficult revenue growth comparisons and the overall macroeconomic
environment in China," said
Kevin Wheeler, president and chief
executive officer. "Performance in North
America remained steady despite expected lower water heater
volumes in the second quarter."
"We believe our stable North
America replacement business, the growth drivers in water
treatment solutions and boilers across North America and favorable long-term
demographics in China and
India, coupled with our strong
balance sheet, well position A. O. Smith to enhance shareholder
value. Despite the continued challenging consumer demand
environment and previously disclosed elevated channel inventory
levels in China, we remain
confident in our long-term business model and our ongoing
investment in innovation in that region," commented Wheeler.
North America
segment
Second quarter sales for the North America segment were $524.0 million, a two percent decrease from
$534.2 million recorded in the same
period in 2018. Lower residential water heater volumes during the
quarter were due to a second quarter 2018 pre-buy in advance of a
price increase, and were partially offset by the impact of mid-2018
pricing actions. In addition, the recently acquired Water-Right
business added approximately $14
million to sales in the quarter.
Segment earnings of $122.9 million
were down two percent from 2018 second quarter earnings of
$124.9 million. The favorable impact
from mid-2018 pricing actions was more than offset by the
unfavorable impact from lower water heater volumes and higher steel
and other costs. As a result, second quarter 2019 segment margin of
23.5 percent was essentially the same as last year.
Rest of World segment
Second quarter sales for the
Rest of World segment declined 19 percent to $249.1 million compared with sales of
$308.1 million in the 2018 second
quarter. China sales declined 16
percent in local currency, primarily related to previously
disclosed channel inventory build which occurred in the first half
of 2018 and did not repeat in 2019. The weaker Chinese currency
unfavorably impacted sales by approximately $16 million. India sales grew approximately 30 percent in
constant currency compared with the same period in 2018.
Segment earnings of $22.4 million
declined 35 percent compared with second quarter 2018 earnings of
$34.7 million. The impact to profits
from lower China sales more than
offset the benefits to profits from lower selling, general and
administrative expenses. Weaker China currency translation
negatively impacted earnings by approximately $2 million. As a result of these factors, segment
margin declined to 9.0 percent from 11.3 percent in the same
quarter in 2018.
Share repurchases and other items
During the first
half of 2019, the Company repurchased approximately 2.8 million
shares of common stock at a cost of $132.6
million. Approximately 6.3 million shares remained on the
Company's existing repurchase authority at the end of June.
Interest costs were higher in the second quarter than a year ago
due to the acquisition of Water-Right in early April. For the year,
the Company expects interest expense to be approximately
$11 million.
Cash provided by operations was $143.7
million in the first half of 2019 compared with $173.2 million in the same period of 2018. Lower
earnings and higher working capital investment resulted in lower
cash flow from operations.
At the end of June, the Company had cash balances totaling
$577.8 million located primarily
offshore. The Company's leverage ratio, as measured by total debt
to capital, was 17.2 percent at the end of the second quarter.
2019 outlook
"We continue to see prolonged headwinds
in the appliance market in China. As a result of weakness in
consumer demand and recent communications with key customers in
China indicating that they will
scale back their purchases in the third quarter due to continued
elevated channel inventory levels, our outlook for the back half of
the year includes a year-over-year decline in China sales," noted Wheeler. "We project
full year China sales to be down
between 16 and 17 percent year-over-year in local currency terms
and 19 and 20 percent after a three percentage point currency
headwind. As a result, we have revised our full year guidance
to $2.35 to $2.41 earnings per share."
A. O. Smith will broadcast a live conference call at
10 a.m. Eastern Daylight time today.
The call can be heard on the company's web site, www.aosmith.com.
An audio reply of the call will be available on the company's web
site after the live event.
Forward-looking statements
This release contains
statements that the company believes are "forward-looking
statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. Forward-looking statements generally can
be identified by the use of words such as "may," "will," "expect,"
"intend," "estimate," "anticipate," "believe," "forecast,"
"continue," "guidance" or words of similar meaning. All
forward-looking statements are subject to risks and uncertainties
that could cause actual results to differ materially from those
anticipated as of the date of this release. Important factors
that could cause actual results to differ materially from these
expectations include, among other things, the following: a further
weakening of the Chinese economy and/or a further decline in the
growth rate of consumer spending or housing sales in China; negative impact to the company's
businesses from international tariffs and trade disputes; potential
weakening in the high efficiency boiler segment in the U.S.;
significant volatility in raw material prices; inability of the
company to implement or maintain pricing actions; potential
weakening in U.S. residential or commercial construction or
instability in the company's replacement markets; foreign currency
fluctuations; the company's inability to successfully integrate or
achieve its strategic objectives resulting from acquisitions;
competitive pressures on the company's businesses; the impact of
potential information technology or data security breaches; changes
in government regulations or regulatory requirements; and adverse
developments in general economic, political and business conditions
in key regions of the world. Forward-looking statements included in
this press release are made only as of the date of this release,
and the company is under no obligation to update these statements
to reflect subsequent events or circumstances. All subsequent
written and oral forward-looking statements attributed to the
company, or persons acting on its behalf, are qualified entirely by
these cautionary statements.
About A. O. Smith
A. O. Smith Corporation, with
headquarters in Milwaukee, Wis.,
is a global leader applying innovative technology and
energy-efficient solutions to products manufactured and marketed
worldwide. Listed on the New York Stock Exchange (NYSE), the
company is one of the world's leading manufacturers of residential
and commercial water heating equipment and boilers, as well as a
manufacturer of water treatment and air purification products. For
more information, visit www.aosmith.com.
A. O. SMITH
CORPORATION
|
Statement of
Earnings
|
(condensed
consolidated financial statements -
|
dollars in millions,
except share data)
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
|
Six Months
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
765.4
|
|
$
|
833.3
|
|
$
|
1,513.6
|
|
$
|
1,621.3
|
Cost of products
sold
|
|
456.7
|
|
|
492.3
|
|
|
912.1
|
|
|
958.8
|
Gross
profit
|
|
308.7
|
|
|
341.0
|
|
|
601.5
|
|
|
662.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and
administrative expenses
|
|
178.7
|
|
|
197.2
|
|
|
363.4
|
|
|
390.1
|
Restructuring and
impairment expenses
|
|
-
|
|
|
-
|
|
|
-
|
|
|
6.7
|
Interest
expense
|
|
3.4
|
|
|
2.3
|
|
|
5.4
|
|
|
4.6
|
Other
income
|
|
(5.6)
|
|
|
(4.6)
|
|
|
(11.1)
|
|
|
(10.4)
|
Earnings before
provision for income taxes
|
|
132.2
|
|
|
146.1
|
|
|
243.8
|
|
|
271.5
|
Provision for income
taxes
|
|
30.1
|
|
|
31.6
|
|
|
52.4
|
|
|
58.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
$
|
102.1
|
|
$
|
114.5
|
|
$
|
191.4
|
|
$
|
213.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings
per share of common stock
|
$
|
0.61
|
|
$
|
0.66
|
|
$
|
1.14
|
|
$
|
1.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares
outstanding (000's omitted)
|
|
168,086
|
|
|
172,730
|
|
|
168,588
|
|
|
173,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A. O. SMITH
CORPORATION
|
Balance
Sheet
|
(dollars in
millions)
|
|
|
|
(unaudited)
|
|
|
|
|
|
June 30,
|
|
December
31,
|
|
|
2019
|
|
2018
|
ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
$
|
281.6
|
|
$
|
259.7
|
|
Marketable
securities
|
|
296.2
|
|
|
385.3
|
|
Receivables
|
|
634.8
|
|
|
647.3
|
|
Inventories
|
|
323.1
|
|
|
304.7
|
|
Other current
assets
|
|
60.9
|
|
|
41.5
|
|
|
|
|
|
|
|
|
Total
Current Assets
|
|
1,596.6
|
|
|
1,638.5
|
|
|
|
|
|
|
|
|
Net property, plant
and equipment
|
|
553.9
|
|
|
540.0
|
|
Goodwill and other
intangibles
|
|
891.6
|
|
|
806.1
|
|
Operating lease
assets
|
|
48.4
|
|
|
-
|
|
Other
assets
|
|
85.1
|
|
|
86.9
|
|
|
|
|
|
|
|
|
Total
Assets
|
$
|
3,175.6
|
|
$
|
3,071.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS' EQUITY:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade
payables
|
$
|
488.4
|
|
$
|
543.8
|
|
Accrued payroll and
benefits
|
|
55.6
|
|
|
79.4
|
|
Accrued
liabilities
|
|
137.0
|
|
|
120.4
|
|
Product
warranties
|
|
42.8
|
|
|
41.7
|
|
Debt due within one
year
|
|
6.8
|
|
|
-
|
|
|
|
|
|
|
|
|
Total
Current Liabilities
|
|
730.6
|
|
|
785.3
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
351.8
|
|
|
221.4
|
|
Pension
liabilities
|
|
37.0
|
|
|
49.4
|
|
Operating lease
liabilities
|
|
39.9
|
|
|
-
|
|
Other
liabilities
|
|
291.2
|
|
|
298.4
|
|
Stockholders'
equity
|
|
1,725.1
|
|
|
1,717.0
|
|
|
|
|
|
|
|
|
Total Liabilities
and Stockholders' Equity
|
$
|
3,175.6
|
|
$
|
3,071.5
|
|
|
|
|
|
|
|
A. O. SMITH
CORPORATION
|
Statement of Cash
Flows
|
(dollars in
millions)
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
Ended
|
|
|
|
|
June 30,
|
|
|
|
|
2019
|
|
|
2018
|
Operating
Activities
|
|
|
|
|
|
|
Net
earnings
|
$
|
191.4
|
|
$
|
213.3
|
|
Adjustments to
reconcile net earnings to net cash provided by (used in) operating
activities:
|
|
|
|
|
|
|
|
Depreciation &
amortization
|
|
38.4
|
|
|
35.4
|
|
|
Stock based
compensation expense
|
|
10.8
|
|
|
7.9
|
|
|
Net changes in
operating assets and liabilities:
|
|
|
|
|
|
|
|
Current assets and liabilities
|
|
(75.9)
|
|
|
(62.6)
|
|
|
Noncurrent assets and liabilities
|
|
(21.0)
|
|
|
(20.8)
|
Cash Provided by
Operating Activities
|
|
143.7
|
|
|
173.2
|
|
|
|
|
|
|
|
|
Investing
Activities
|
|
|
|
|
|
|
Capital
expenditures
|
|
(36.5)
|
|
|
(39.5)
|
|
Acquistion
|
|
(107.0)
|
|
|
-
|
|
Investment in
marketable securities
|
|
(202.3)
|
|
|
(248.5)
|
|
Net proceeds from
sale of marketable securities
|
|
293.8
|
|
|
322.1
|
Cash (Used in)
Provided by Investing Activities
|
|
(52.0)
|
|
|
34.1
|
|
|
|
|
|
|
|
|
Financing
Activities
|
|
|
|
|
|
|
Long-term debt
incurred (repaid)
|
|
137.3
|
|
|
(162.3)
|
|
Common stock
repurchases
|
|
(132.6)
|
|
|
(69.7)
|
|
Net payments from
stock option activity
|
|
(0.5)
|
|
|
(0.1)
|
|
Dividends
paid
|
|
(74.0)
|
|
|
(61.8)
|
Cash Used In
Financing Activities
|
|
(69.8)
|
|
|
(293.9)
|
|
|
|
|
|
|
|
|
Net increase
(decrease) in cash and cash equivalents
|
|
21.9
|
|
|
(86.6)
|
|
Cash and cash
equivalents - beginning of period
|
|
259.7
|
|
|
346.6
|
|
|
|
|
|
|
|
Cash and Cash
Equivalents - End of Period
|
$
|
281.6
|
|
$
|
260.0
|
|
|
|
|
|
|
|
|
A. O. SMITH
CORPORATION
|
Business
Segments
|
(dollars in
millions)
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
|
Six Months
Ended
|
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
|
|
|
2019
|
|
2018
|
|
|
2019
|
|
2018
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
North
America
|
$
|
524.0
|
$
|
534.2
|
|
$
|
1,045.8
|
$
|
1,035.9
|
|
Rest of
World
|
|
249.1
|
|
308.1
|
|
|
481.2
|
|
601.9
|
|
Inter-segment
sales
|
|
(7.7)
|
|
(9.0)
|
|
|
(13.4)
|
|
(16.5)
|
|
|
|
|
|
$
|
765.4
|
$
|
833.3
|
|
$
|
1,513.6
|
$
|
1,621.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
|
|
|
|
|
|
|
|
|
|
|
North America
(1)
|
$
|
122.9
|
$
|
124.9
|
|
$
|
238.9
|
$
|
230.9
|
|
Rest of
World
|
|
22.4
|
|
34.7
|
|
|
34.7
|
|
70.7
|
|
Inter-segment
earnings elimination
|
|
(0.1)
|
|
-
|
|
|
(0.1)
|
|
-
|
|
|
|
|
|
|
145.2
|
|
159.6
|
|
|
273.5
|
|
301.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
expense
|
|
(9.6)
|
|
(11.2)
|
|
|
(24.3)
|
|
(25.5)
|
Interest
expense
|
|
(3.4)
|
|
(2.3)
|
|
|
(5.4)
|
|
(4.6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before
income taxes
|
|
132.2
|
|
146.1
|
|
|
243.8
|
|
271.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax
provision
|
|
30.1
|
|
31.6
|
|
|
52.4
|
|
58.2
|
Net
earnings
|
$
|
102.1
|
$
|
114.5
|
|
$
|
191.4
|
$
|
213.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
includes
restructuring and impairment expenses of:
|
$
|
-
|
$
|
-
|
|
$
|
-
|
$
|
6.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A. O. SMITH
CORPORATION
|
Adjusted Earnings
and Adjusted EPS
|
(dollars in millions,
except per share data)
|
(unaudited)
|
|
The following is a
reconciliation of net earnings and diluted EPS to adjusted earnings
(non-GAAP) and adjusted EPS (non-GAAP):
|
|
Three Months
Ended
|
|
Six Months
Ended
|
|
June 30,
|
|
June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
Net Earnings
(GAAP)
|
$102.1
|
|
$114.5
|
|
$191.4
|
|
$213.3
|
Restructuring
and impairment expenses, before tax
|
-
|
|
-
|
|
-
|
|
6.7
|
Tax effect of
restructuring and impairment expenses
|
-
|
|
-
|
|
-
|
|
(1.7)
|
Adjusted
Earnings
|
$102.1
|
|
$114.5
|
|
$191.4
|
|
$218.3
|
|
|
|
|
|
|
|
|
Diluted EPS
(GAAP)
|
$
0.61
|
|
$
0.66
|
|
$
1.14
|
|
$
1.23
|
Restructuring
and impairment expenses per diluted share, before tax
|
-
|
|
-
|
|
-
|
|
0.04
|
Tax effect of
restructuring and impairment expenses per diluted share
|
-
|
|
-
|
|
-
|
|
(0.01)
|
Adjusted
EPS
|
$
0.61
|
|
$
0.66
|
|
$
1.14
|
|
$
1.26
|
|
|
|
|
|
|
|
|
A. O. SMITH
CORPORATION
|
Adjusted
Segment Earnings
|
(dollars in
millions)
|
(unaudited)
|
|
|
|
|
|
|
|
|
The following is a
reconciliation of reported segment earnings to adjusted segment
earnings (non-GAAP):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
Six Months
Ended,
|
|
June
30,
|
|
June
30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Segment
Earnings (GAAP)
|
|
|
|
|
|
|
|
North America
|
$122.9
|
|
$124.9
|
|
$238.9
|
|
$230.9
|
Rest of World
|
22.4
|
|
34.7
|
|
34.7
|
|
70.7
|
Inter-segment earnings elimination
|
(0.1)
|
|
-
|
|
(0.1)
|
|
-
|
Total Segment
Earnings (GAAP)
|
$145.2
|
|
$159.6
|
|
$273.5
|
|
$301.6
|
|
|
|
|
|
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
North America restructuring and impairment
expenses
|
$
-
|
|
$
-
|
|
$
-
|
|
$
6.7
|
Rest of World
|
-
|
|
-
|
|
-
|
|
-
|
Inter-segment earnings elimination
|
-
|
|
-
|
|
-
|
|
-
|
Total
Adjustments
|
$
-
|
|
$
-
|
|
$
-
|
|
$
6.7
|
|
|
|
|
|
|
|
|
Adjusted
Segment Earnings
|
|
|
|
|
|
|
|
North America
|
$122.9
|
|
$124.9
|
|
$238.9
|
|
$237.6
|
Rest of World
|
22.4
|
|
34.7
|
|
34.7
|
|
70.7
|
Inter-segment earnings elimination
|
(0.1)
|
|
-
|
|
(0.1)
|
|
-
|
Total
Adjusted Segment Earnings
|
$145.2
|
|
$159.6
|
|
$273.5
|
|
$308.3
|
|
|
|
|
|
|
|
|
A. O. SMITH
CORPORATION
|
2019 EPS Guidance
and Adjusted 2018 EPS
|
(unaudited)
|
|
|
|
|
|
The following is a
reconciliation of diluted EPS to adjusted EPS (non-GAAP) (all items
are net of tax):
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
|
Guidance
|
|
2018
|
|
|
|
|
|
Diluted EPS
(GAAP)
|
$ 2.35 -
2.41
|
|
$2.58
|
|
Restructuring and
impairment expenses per diluted share
|
-
|
|
0.03
|
Adjusted
EPS
|
$ 2.35 -
2.41
|
|
$2.61
|
|
|
|
|
|
View original content to download
multimedia:http://www.prnewswire.com/news-releases/a-o-smith-reports-second-quarter-earnings-of-0-61-per-share-300892752.html
SOURCE A. O. Smith Corporation