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A.O. Smith Q1 sales and earnings increase, raises FY 2012 guidance

Published: 23:53 20 Apr 2012 AEST

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A.O. Smith Corp. (NYSE:AOS) Friday reported that its first quarter sales and earnings increased on contributions from acquired
business and growth in China.

Smith’s shares rose 5.62 percent on the back of Friday’s news to $46.99.

For the three months ended March 31, the company posted net earnings of $47.5 million or $1.02 per share, compared to $24.2 million or 52 cents per share in the first quarter of 2011.

Smith noted that first quarter earnings included an after-tax gain of $16.7 million, or 36 cents per share, related to the sale of shares of Regal Beloit Corporation, an electric motor business.

Excluding one-time items, Smith earned 66 cents per share, beating analysts’ estimates of 61 cents per share, according to Thomson Reuters.

First quarter sales were $468.6 million, compared with sales of $417.4 million for the same period last year.

The company said the higher sales were the result of first quarter contributions from Lochinvar which was acquired in August 2011, and an 18 percent increase in sales of A. O. Smith branded product in China.

"Two highlights in the quarter came from our higher growth businesses," said chairman and CEO Paul W. Jones.

"Lochinvar grew over 10 percent, and our sales of A. O. Smith branded products in China continued to grow at a double digit rate."

Sales in heater maker Smith’s North America segment, which includes the U.S. and Canada water heater and boiler businesses, increased 10 percent to $353.3 million from first quarter 2011 sales of $321.7 million. 

Sales of $49.3 million from Lochinvar were partially offset by lower sales of U.S. residential and commercial water heaters compared with the first quarter last year, due to the pre-buy in advance of an April 2011 price increase, said the company.

Smith noted that commercial gas water heater sales for southern California were also lower following a pre-buy in the fourth quarter 2011 driven by a change in air quality standards in that region at the beginning of this year.   

In the company’s other business segment, which consists of the China, India and Europe water heating businesses and the water treatment business in Asia, first quarter sales rose to $124.2 million, versus first quarter 2011 sales of $105.2 million. 

Smith said that higher sales of its branded products in China, driven in part by a pre-buy ahead of an April 2012 price increase,
were the primary reason for the sales increase.

During the first quarter, the company broke ground for a new 457,000 square foot water heater plant in Nanjing, China.

The new plant, which is scheduled to go into production during mid-2013, will accommodate increased water heater demand as well as growth for new products recently introduced in the China market such as heat pump, solar, and combi boiler.

Looking ahead, the company said that it still has a long way to go to fully recover from the recession.

"As we've stated before, we expect little to no benefit from new construction this year as our water heater business tends to lag behind new construction by six to nine months," said Jones.

"However, our North American replacement water heater business remains on solid ground. 

"Sales at Lochinvar continue to grow as expected. We project growth in 2012 to be in excess of 10 percent over their historical performance, and we look forward to a full year's contributions from this newest member of our team."

Smith said it is raising its estimate for 2012 earnings to a range of $2.75 to $2.90 per share.

"This range does not include the potential impact from any future acquisitions or the first quarter gain related to the RBC shares, said Jones.

"Our previously announced disciplined acquisition strategy continues to progress.

"We have the human capital, well-established processes, and the financial resources to manage additional acquisitions that will
create value for our shareholders. 

"We continue to seek water heating, boiler and water treatment companies in fast-growing geographies, as well as companies with new technologies or adjacencies to our core business."

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