MILWAUKEE, May 5, 2020 /PRNewswire/ -- Global water
technology company A. O. Smith Corporation (the "Company")
(NYSE-AOS) today announced first quarter net earnings of
$51.7 million or $0.32 per share on first quarter sales of
$636.9 million. Earnings per share
declined approximately 40 percent compared with first quarter 2019
earnings per share of $0.53. Sales in
the quarter ended March 31 were
approximately 15 percent lower compared with sales of $748.2 million during the same period in
2019.
"We have been weathering the storm brought about by COVID-19
since the very start of 2020 – first in China, then followed by pressure in other end
markets globally during March and April," said Kevin J. Wheeler, chairman and chief executive
officer. "With the safety and well-being of our employees as the
highest priority, I'm extremely proud of our entire team supporting
our customers with essential water heating and water treatment
products to combat this pandemic. Our strong balance sheet and
stability afforded by replacement business in the U.S., which we
estimate at approximately 85 percent of water heater and boiler
units sold, put us in a solid position to successfully navigate
through the impact of the pandemic."
North America
segment
Sales of the North
America segment were $532.9
million in the first quarter, an increase of approximately
two percent compared with the same period in 2019. Incremental
sales of $16 million from the
Water-Right acquisition completed in April
2019 North America, water treatment products' organic growth
of approximately 17 percent and higher water heater volumes drove
sales higher. These drivers were partially offset by a water
heater sales mix composed of more electric models which have a
lower selling price and lower contractual formula pricing
associated with a portion of water heater sales based on lower
steel costs.
Segment earnings of $127.1 million
were approximately 10 percent higher than segment earnings of
$116.0 million in the same quarter of
2019 driven by lower steel costs, incremental profit from
Water-Right and improvement in the profitability of organic water
treatment sales. These favorable impacts were partially offset by
the mix shift to electric water heaters and lower contractual
formula pricing. As a result, the first quarter 2020 segment margin
of 23.9 percent was an improvement from the 22.2 percent achieved
in the same period last year.
Rest of World segment
First quarter sales of
$110.2 million for the Rest of the
World segment declined approximately 53 percent compared with the
same quarter in 2019. In China,
sales declined 56 percent in local currency compared with the same
period in the prior year. The vast majority of the decline in sales
was due to weak consumer demand driven by the COVID-19 pandemic as
the China economy was essentially
shutdown and mobility was restricted for a majority of the quarter.
China channel inventory levels
declined slightly from the levels at the end of 2019.
The Rest of the World segment lost $42.2
million in the first quarter compared with $12.3 million in earnings in the same quarter
last year. The unfavorable impact to profits from lower
China sales and a higher mix of
mid-price products, which have lower margins, more than offset the
benefits to profits from lower SG&A expenses in that region. As
a result of these factors, segment margin was negative compared
with 5.3 percent in the same quarter of 2019.
Operations and Supply Chain
In April, the Company's
global manufacturing operations of essential water heating and
water treating products continued with minimal operating
disruption. The Company shifted water heater production from
Mexico to the U.S. in the
short-term to minimize disruption due to the temporary closure of
its Juarez, Mexico plant. As a
result of the COVID-19 pandemic and in support of continuing its
manufacturing efforts, the Company has undertaken numerous and
meaningful steps to protect its employees, suppliers, and
customers. These important steps, in certain cases reducing
efficiency, include making plant accommodations and
reconfigurations to maintain social distancing, making masks
available to all employees, doing deep cleanings of our facilities
and encouraging employees to work remotely where possible, among
others.
The Company's global supply chain management team continues to
monitor and manage the ability to operate effectively in response
to various and differing shelter-in-place orders by countries and
states where it and its suppliers operate. To date, the Company has
not seen any meaningful disruptions to its supply chain. Ongoing
communications continue with suppliers to identify and mitigate
risk and to manage inventory levels.
Balance sheet and liquidity
A. O. Smith believes it is
in a solid financial position with sufficient liquidity to navigate
through today's challenging business environment. As of
April 30, 2020, the Company had
liquidity of approximately $850
million consisting of cash, cash equivalents, marketable
securities and undrawn borrowing capacity on its credit facility.
The Company's leverage ratio was 17.5 percent as measured by total
debt to total capitalization at the end of March.
Cash provided by operations of $54
million during the first quarter of 2020 was higher than
$22 million in the same period of
2019, as a result of lower investment in working capital, including
timing of certain volume incentive payments, which was partially
offset by lower earnings compared with the year ago period. The
Company continues to monitor developments and has taken proactive
measures to focus on cash, manage working capital and reduce costs,
including further cost reductions in China.
In April 2020, the Company
repatriated $125 million in cash from
China to the United
States.
Share repurchases suspended and capital
prioritization
While the Company believes it has a strong
balance sheet and capital position, proactive management of
discretionary spend and cost structure will continue.
Board members and the chief executive officer of the Company
have voluntarily reduced their cash component of board compensation
and his base salary, respectively, by 25 percent. In addition, the
Company's other named executive officers and the entire CEO staff
have volunteered a 15 percent reduction in base salary.
Given the uncertain business environment, the Company suspended
its share repurchase program in mid-March. During the first
quarter of 2020, the Company repurchased approximately 1.3 million
shares of common stock for a total of $57
million.
At the same time, the Company will continue to strategically
invest in its business for the long-term. It forecasts
capital expenditures between $60 and
70 million in 2020, below the approximately $80 million average annual spending in the last
three years.
On April 14, the Board of
Directors of the Company declared a regular quarterly cash dividend
of $0.24 per share on the Company's Common Stock and Class A
Common Stock. The dividend rates remained unchanged from the
previous quarterly dividend.
2020 outlook suspended
A. O. Smith believes the
current environment does not allow it to forecast performance with
reasonable precision, and as a result, the Company suspended its
2020 full year outlook. As the severity and duration of the
disruption and pace of recovery in its end markets become clearer,
the Company will look to return to its practice of providing a
current year outlook.
"We have taken a number of actions to increase and further
fortify our liquidity," said Wheeler. "The combination of cash and
liquidity, replacement demand for our global premium products, high
functioning employees passionate about providing our essential
products and services to our customers and strong
long-standing channel partners and suppliers, gives us confidence
to successfully navigate the uncertain business environment."
During its live conference call at 10
a.m. Eastern Daylight time today, A. O. Smith will provide
an update on April 2020
business conditions. The call can be heard on the company's
web site, www.aosmith.com. An audio replay 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: negative
impacts to the company's business, including demand for its
products, operations and work-force dislocation and disruption,
supply chain disruption and liquidity as a result of the severity
and duration of the COVID-19 pandemic; a failure to recover or a
further weakening of the Chinese economy and/or a failure to
recover 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 availability and prices;
inability of the company to implement or maintain pricing actions;
a failure to recover or further 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
|
|
|
|
|
March 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
636.9
|
|
$
|
748.2
|
|
Cost of products
sold
|
|
397.4
|
|
|
455.4
|
|
Gross
profit
|
|
239.5
|
|
|
292.8
|
|
|
|
|
|
|
|
|
|
Selling, general and
administrative expenses
|
|
173.8
|
|
|
184.7
|
|
Interest
expense
|
|
2.2
|
|
|
2.0
|
|
Other
income
|
|
(4.2)
|
|
|
(5.5)
|
|
Earnings before
provision for income taxes
|
|
67.7
|
|
|
111.6
|
|
Provision for income
taxes
|
|
16.0
|
|
|
22.3
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
$
|
51.7
|
|
$
|
89.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings
per share of common stock
|
$
|
0.32
|
|
$
|
0.53
|
|
|
|
|
|
|
|
|
|
|
Average common shares
outstanding (000's omitted)
|
|
162,898
|
|
|
169,096
|
|
A. O. SMITH
CORPORATION
|
Balance
Sheet
|
(dollars in
millions)
|
|
|
|
(unaudited)
|
|
|
|
|
|
March 31,
|
|
December
31,
|
|
|
2020
|
|
2019
|
ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
$
|
416.1
|
|
$
|
374.0
|
|
Marketable
securities
|
|
135.6
|
|
|
177.4
|
|
Receivables
|
|
524.0
|
|
|
589.5
|
|
Inventories
|
|
312.3
|
|
|
303.0
|
|
Other current
assets
|
|
54.5
|
|
|
56.5
|
|
|
|
|
|
|
|
|
Total
Current Assets
|
|
1,442.5
|
|
|
1,500.4
|
|
|
|
|
|
|
|
|
Net property, plant
and equipment
|
|
537.3
|
|
|
545.4
|
|
Goodwill and other
intangibles
|
|
875.7
|
|
|
884.4
|
|
Operating lease
assets
|
|
44.9
|
|
|
46.9
|
|
Other
assets
|
|
82.6
|
|
|
80.9
|
|
|
|
|
|
|
|
|
Total
Assets
|
$
|
2,983.0
|
|
$
|
3,058.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS' EQUITY:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade
payables
|
$
|
442.0
|
|
$
|
509.6
|
|
Accrued payroll and
benefits
|
|
47.7
|
|
|
64.6
|
|
Accrued
liabilities
|
|
159.7
|
|
|
143.7
|
|
Product
warranties
|
|
42.9
|
|
|
41.8
|
|
Debt due within one
year
|
|
6.8
|
|
|
6.8
|
|
|
|
|
|
|
|
|
Total
Current Liabilities
|
|
699.1
|
|
|
766.5
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
335.6
|
|
|
277.2
|
|
Pension
liabilities
|
|
20.8
|
|
|
27.8
|
|
Operating lease
liabilities
|
|
37.3
|
|
|
38.7
|
|
Other
liabilities
|
|
273.9
|
|
|
281.0
|
|
Stockholders'
equity
|
|
1,616.3
|
|
|
1,666.8
|
|
|
|
|
|
|
|
|
Total Liabilities
and Stockholders' Equity
|
$
|
2,983.0
|
|
$
|
3,058.0
|
A. O. SMITH
CORPORATION
|
Statement of Cash
Flows
|
(dollars in
millions)
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
|
|
|
March 31,
|
|
|
|
|
2020
|
|
|
2019
|
Operating
Activities
|
|
|
|
|
|
|
Net
earnings
|
$
|
51.7
|
|
$
|
89.3
|
|
Adjustments to
reconcile net earnings to net cash provided by (used in) operating
activities:
|
|
|
|
|
|
|
|
Depreciation &
amortization
|
|
20.1
|
|
|
20.2
|
|
|
Stock based
compensation expense
|
|
9.0
|
|
|
8.7
|
|
|
Net changes in
operating assets and liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
Current assets and liabilities
|
|
(15.1)
|
|
|
(86.3)
|
|
|
Noncurrent assets and liabilities
|
|
(11.6)
|
|
|
(10.3)
|
Cash Provided by
Operating Activities
|
|
54.1
|
|
|
21.6
|
|
|
|
|
|
|
|
|
Investing
Activities
|
|
|
|
|
|
|
Capital
expenditures
|
|
(12.8)
|
|
|
(20.9)
|
|
Investment in
marketable securities
|
|
(38.8)
|
|
|
(48.5)
|
|
Net proceeds from
sale of marketable securities
|
|
78.0
|
|
|
147.2
|
Cash Provided By
Investing Activities
|
|
26.4
|
|
|
77.8
|
|
|
|
|
|
|
|
|
Financing
Activities
|
|
|
|
|
|
|
Long-term debt
incurred
|
|
58.5
|
|
|
63.0
|
|
Common stock
repurchases
|
|
(56.7)
|
|
|
(45.6)
|
|
Net payments from
stock option activity
|
|
(1.2)
|
|
|
(1.6)
|
|
Dividends
paid
|
|
(39.0)
|
|
|
(37.1)
|
Cash Used In
Financing Activities
|
|
(38.4)
|
|
|
(21.3)
|
|
|
|
|
|
|
|
|
|
Net increase in cash
and cash equivalents
|
|
42.1
|
|
|
78.1
|
|
Cash and cash
equivalents - beginning of period
|
|
374.0
|
|
|
259.7
|
|
|
|
|
|
|
|
|
Cash and Cash
Equivalents - End of Period
|
$
|
416.1
|
|
$
|
337.8
|
A. O. SMITH
CORPORATION
|
Business
Segments
|
(dollars in
millions)
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
|
|
|
March 31,
|
|
|
|
|
2020
|
|
2019
|
|
Net sales
|
|
|
|
|
|
|
North
America
|
$
|
532.9
|
$
|
521.8
|
|
|
Rest of
World
|
|
110.2
|
|
232.1
|
|
|
Inter-segment
sales
|
|
(6.2)
|
|
(5.7)
|
|
|
|
$
|
636.9
|
$
|
748.2
|
|
|
|
|
|
|
|
|
Earnings
(losses)
|
|
|
|
|
|
|
North
America
|
$
|
127.1
|
$
|
116.0
|
|
|
Rest of
World
|
|
(42.2)
|
|
12.3
|
|
|
|
|
84.9
|
|
128.3
|
|
|
|
|
|
|
|
|
Corporate
expense
|
|
(15.0)
|
|
(14.7)
|
|
Interest
expense
|
|
(2.2)
|
|
(2.0)
|
|
|
|
|
|
|
|
|
Earnings before
income taxes
|
|
67.7
|
|
111.6
|
|
|
|
|
|
|
|
|
Tax
provision
|
|
16.0
|
|
22.3
|
|
Net
earnings
|
$
|
51.7
|
$
|
89.3
|
|
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SOURCE A. O. Smith Corporation