Oct. 16, 2009 (PR Newswire) -- In the news release, A. O. Smith Reports Record Third Quarter Earnings of $1.14 per Share; Exceeding Analysts' Estimates, issued 16-Oct-2009 by A. O. Smith Corporation over PR Newswire, we are advised by the company that the release was originally issued inadvertently without the final table, 'Reconciliation of Non-GAAP Data.' The complete, corrected release follows:
A. O. Smith Reports Record Third Quarter Earnings of $1.14 per Share; Exceeding Analysts' Estimates
MILWAUKEE, Oct. 16 /PRNewswire-FirstCall/ -- A. O. Smith Corporation (NYSE: AOS) today announced third quarter net earnings of $34.6 million or $1.14 per share, exceeding analysts' estimates. Included in earnings was a $3.0 million non-taxable net gain associated with the sale of a motor manufacturing plant in Shenzhen, China, and a $1.5 million tax benefit resulting from the closure of the 2005 and 2006 federal income tax returns. Collectively, these adjustments added $0.15 cents per share to third quarter results.
Strong growth in China, aggressive cost reduction throughout the organization, and a temporary decline in raw material costs contributed to the improved earnings. Sales in the third quarter of $501.5 million were approximately 17 percent lower than sales in the same period last year.
"Our expense reduction programs are having the desired impact on our financial performance," Paul Jones, chairman and chief executive officer, said. "Our company has performed well despite tough economic conditions, and I am pleased to report we expect to generate between $190 and $200 million in operating cash flow this year compared to $107 million last year."
Water Products
Third quarter sales of $336.7 million were approximately 10 percent lower than the same period in 2008, as Water Products continued to experience the effect of the U.S. housing market slow-down and reduced commercial construction activity. Third quarter water heater sales in China increased over 35 percent as a result of improved consumer confidence, success with new residential and commercial products, and expansion into new geographic markets.
Operating profit of $38.7 million was approximately 18 percent higher than 2008 third quarter operating profit of $32.8 million. Water Products Company benefited from higher-margin China volumes, its continued cost reduction activities, and lower steel costs. Operating margin improved to 11.5 percent compared with 8.8 percent for the third quarter of 2008.
Electrical Products
Electrical Products third quarter sales declined approximately 29 percent to $165.9 million compared with the same period one year ago. Sales of electric motors continue to be adversely affected by the slow-down in residential housing construction in the U.S. and global commercial construction markets.
Operating profit in the third quarter was $22.8 million, significantly higher than the $10.6 million earned in the 2008 third quarter, which included $2.1 million in pre-tax restructuring charges. The company continued to benefit from the restructuring initiatives completed in 2008 as well as ongoing expense reduction actions and lower raw material costs. A $3.0 million net gain associated with the sale of a plant in China and a $2.2 million LIFO benefit from reduced inventory levels also contributed to Electrical Products' profit improvement. Third quarter operating margin was 13.7 percent compared with 4.6 percent for the same period last year.
Water treatment venture
On Sept. 17, A. O. Smith announced it had signed an agreement to purchase a majority interest in the water treatment business of Tianlong Holding Co. Ltd. of Hong Kong. A newly formed company, A. O. Smith (Shanghai) Water Treatment Products Co. Ltd., will hold the assets of the business and supply reverse osmosis water filtration products to the China residential and commercial markets as well as export markets throughout the world. The two companies anticipate closing the transaction in the fourth quarter.
"Entering the global water treatment industry is an important strategic initiative for A. O. Smith, and, in Tianlong, we are acquiring the market leader in China reverse osmosis residential water purification," Jones said. Within 12 months of the close of the transaction, A. O. Smith plans to introduce a line of water treatment products in China to be sold under the A. O. Smith brand name. "The high quality products made by Tianlong are a perfect match for our well-known A. O. Smith branded products, which are currently sold in over 2,000 retail stores in China," Jones pointed out. "We expect the new venture will earn in excess of its cost of capital in its first full year of operation under A. O. Smith ownership."
Smith Investment transaction impact to reported results
The 2008 and 2009 nine-month and third quarter 2008 results were impacted by required GAAP accounting related to the company's previously announced transaction with Smith Investment Company (SICO), which closed April 22, 2009. The third quarter 2009 results were not impacted by the transaction. The company believes that providing non-GAAP information is beneficial to investors in understanding the current and historical operations of the company. A reconciliation of GAAP to non-GAAP earnings and earnings per share calculations is shown as part of the financial statements that accompany this release. Future quarterly financial statements will not be affected by the transaction, however, the company will provide non-GAAP financial information for historical comparison purposes.
