A.O. Smith reports record 2Q earnings on strong global sales growth

A. O. Smith Corporation announced record second quarter net earnings of $71.1 million or $.79 per share on record second quarter sales of $653.5 million.  Net earnings in the quarter ended June 30, 2014, were $57.3 million or $.63 per share, which included after-tax non-operating pension costs of $3.0 million or $.03 per share.

Second quarter sales grew 10 percent compared with $595.4 million of sales during the same period in 2014 due to higher prices in North America, higher boiler sales in the U. S. and continued demand for the company's water heating and water treatment products in China.

"We have successfully navigated through the NAECA III regulatory transition. Our team is continuing to provide our customers with the support they need as the market acclimates to the NAECA III compliant water heaters," Ajita G. Rajendra, chairman and chief executive officer, observed. "Our 15 percent growth in China continues to be resilient and outperform China's overall GDP growth," Rajendra continued.                  

North America segment

Second quarter sales for the North America segment, which includes U.S. and Canadian water heaters and boilers, increased eight percent to $442.7 million compared with second quarter 2014 sales of $410.1 million driven by price increases effective in April for both residential and commercial water heaters. Higher sales of boilers in the U.S. also contributed to the increase.

Segment operating earnings of $86.0 million were 36 percent higher than the $63.2 million earned in the second quarter last year. The favorable impact from higher prices in the U.S. and Canada, higher boiler sales and lower steel costs was partially offset by $4.0 million of expected incremental enterprise resource planning (ERP) costs.  As a result, second quarter 2015 operating margin of 19.4 percent was higher than the second quarter 2014 operating margin of 15.4 percent.  Second quarter 2014 segment operating earnings included pre-tax non-operating pension costs of $3.9 million.

Rest of World segment

Sales of this segment, which is primarily comprised of China, Europe and India, increased 14 percent in the second quarter of 2015 to $221.3 million.  Continued strong customer demand for the company's premium water heating and water treatment products drove China sales 15 percent higher.

Operating earnings for this segment were $30.9 million compared with $29.3 million earned in the 2014 second quarter due to higher profits in China.  Second quarter 2015 operating margin of 14.0 percent was lower than the 15.1 percent operating margin in 2014.  The reduction in margin was due to higher selling and advertising costs as a percentage of sales in China, including promotion related to the company's new air purifier products, and larger expenditures in India to support the launch of water treatment products. 

2015 Outlook

"We had a very strong first half of the year, primarily driven by continued success in our U. S. business," commented Rajendra.  "We expect an improvement in full year residential and commercial water heater demand in the U. S. compared with last year, as well as continued lower material costs."

"We believe sales of Lochinvar branded products are on track to grow 10 percent, again this year.  We expect sales in China to grow twice the rate of China's GDP growth in 2015.  We estimate our organic worldwide revenue growth will be over 11 percent in 2015."

"Based on these factors, we are increasing our EPS guidance for 2015. We believe A. O. Smith Corporation will achieve full-year earnings of between $3.04 and $3.09 per share, which excludes the potential impact from future acquisitions."

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