July 15, 2005
Milwaukee, Wis.-- A. O. Smith Corporation (AOS-NYSE) today announced second quarter earnings of $6.5 million or $.22 per share. The reported earnings include the impact of an after-tax charge of $7.9 million or $.26 per share primarily related to a previously announced restructuring program.
Excluding the charge, second quarter earnings were $14.4 million or $.48 per share compared with $17.3 million or $.58 per share in 2004. Sales for the three-month period ending June 30 were $438 million, unchanged from the same period last year.
For the first six months of 2005, A. O. Smith earned $20.8 million or $.69 per share compared with six-month 2004 earnings of $28.0 million or $.94 per share. Excluding the after-tax charges of $8.5 million or $.28 per share, six month earnings were $29.3 million or $.97 per share.
Six month sales were $847 million, slightly lower than sales of $854 million for the same period in 2004.
"On June 24th we reduced our forecast for 2005 to a range of between $1.60 and $1.80 per share, from $1.80 to $2.00 per share, excluding the impact of the $.35 restructuring program announced with our first quarter results," Chairman and Chief Executive Officer Robert J. O'Toole commented.
"This change in forecast is primarily the result of an inventory buildup in the wholesale water heater distribution channel, which has adversely affected demand for both commercial and residential product during the first half of 2005. We expect the channel to clear as we progress through the balance of the year."
Although the company saw a favorable impact from improved pricing and a thirty percent sales increase in the China Water Heater business, second quarter sales declined approximately $6 million to $204 million because of softer customer demand in the North American market.
Operating earnings of $18.8 million were similar to the second quarter of 2004 as significantly improved operating efficiency and improved pricing to cover higher material costs offset the impact of lower North American unit volumes. Last year's second quarter results included a non-recurring pretax gain of approximately $3.3 million from the favorable resolution of litigation related to pre-acquisition State Industries' Duron product.
Second quarter sales of $235 million in the company's electric motor operation were modestly higher than 2004 as improved pricing more than offset weaker demand primarily in markets adversely affected by cooler weather.
Operating earnings were $6.0 million, or $13.4 million excluding a $7.4 million pretax restructuring charge, compared with $17.4 million last year. Though improved pricing offset higher material costs, reduced contribution on lower volume and reduced operating efficiencies resulted in a decline in operating profit. Plant efficiency was adversely affected by inventory reduction initiatives.
Restructuring & Other Costs
In the second quarter the company recorded a pre-tax charge of $8.6 million for restructuring and other costs. In addition to the $7.4 million charge at Electrical Products, primarily related to the closure of its Bray, Ireland facility, there was also a $1.2 million expense related to a contingent leasing liability at its discontinued Automotive Products operation which was recorded as a corporate expense.
During the quarter the company received a $28 million payment against its dip tube receivable leaving a balance of approximately $6 million that will be collected in the second half of this year. This will result in the complete recovery of receivables associated with this dispute. All litigation associated with this issue has been concluded. Concurrent with this receipt, the company elected to make a voluntary contribution of $30 million to its pension plan.
The company has signed a letter of intent to acquire GSW of Canada, a manufacturer and marketer of consumer durable products, including water heaters and building products. GSW had 2004 sales of approximately $US 470 million. The company has initiated the customary regulatory review process in both the United States and Canada.
Company discusses outlook
"Last month we issued guidance for 2005 of earnings ranging between $1.25 and $1.45 per share, or $1.60 to $1.80 before restructuring and other charges," O'Toole said.
A.O. Smith will broadcast a live conference call at 10:00 a.m. (Eastern Daylight Time) today. 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.
This release contains statements that we believe 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," "continue," or words of similar meaning. These 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. Factors that could cause such a variance include the following: significant increases in raw material prices; competitive pressures on the company's businesses; instability in the company's electric motor and water products markets; adverse changes in general economic conditions; and the potential that assumptions on which the company based its expectations are inaccurate or will prove to be incorrect.
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.
A. O. Smith Corporation, with headquarters in Milwaukee, Wis., is one of North America's largest manufacturers of electric motors, with a comprehensive line of hermetic motors, fractional horsepower alternating current (AC) and direct current (DC) motors, and integral horsepower motors, as well as one of North America's largest manufacturers of residential and commercial water heating equipment. The company employs approximately 16,500 people worldwide.