Milwaukee, Wis.—Continued strong performance by its Water Systems business and cost reductions at its Electrical Products unit enabled A. O. Smith Corporation (AOS-NYSE, SMCA-AMEX) to earn $12.1 million or $.50 per share in the first quarter of 2002.
Sales in the first quarter, ended March 31, were $371.9 million, an increase of $53.7 million or 16.9 percent over sales of $318.2 million in the first quarter of 2001. An $83.7 million increase in year-over-year sales for the company's Water Systems segment more than offset a $30.0 million decline in sales for the Electrical Products segment.
The significant increase in first-quarter sales for Water Systems was attributed to the $84.1 million of sales associated with State Industries, which was acquired on Dec. 28, 2001. The decline in Electrical Products sales reflected the continued softness in the electric motor market.
First quarter 2002 net earnings were $12.1 million or $3.6 million higher than net earnings of $8.5 million in the first quarter of 2001. On a per-share basis, net earnings were $.50, compared with $.36 in the first quarter of 2001. The company attributed the increased earnings to improved operating earnings in its Water Systems segment, the elimination of goodwill amortization of $1.6 million, and a decrease in interest expense of $0.6 million. The increased operating earnings for Water Systems were due to additional volume from State Industries and benefits of the State integration.
"We significantly improved our earnings as a result of the acquisition of State Industries and cost reduction initiatives, despite an absence of growth in our served markets," Robert J. O'Toole, chairman and chief executive officer, observed. "We made very good progress during the quarter integrating the State operations into our existing water heater business, and this also contributed to our improved earnings performance."
"Electrical Products, although still experiencing weak demand in its major motor markets, began to see the positive impact of our cost reduction programs, as reflected by our improved operating margins," O'Toole continued. "We are confident the improving cost trend will continue as 2002 progresses."
First quarter sales for the Water Systems segment were $175.7 million, an increase of $83.7 million over first quarter 2001 sales of $92.0 million. First-quarter 2002 sales included $84.1 million of sales associated with State Industries, which was acquired on Dec. 28, 2001.
First quarter operating earnings for Water Systems were $13.6 million, including $3.8 million of earnings associated with the State Industries acquisition. The net $9.8 million of operating earnings for the base water systems business compared with first-quarter 2001 operating earnings for the segment of $9.9 million and included a $1.7 million non-recurring charge associated with the consolidation of Water Systems' management staff.
First quarter 2002 sales for Electrical Products were $196.2 million, a decrease of $30.0 million or 13.2 percent from first-quarter 2001 sales of $226.2 million.
First-quarter operating earnings for the Electrical Products segment were $15.1 million or $0.5 million less than the $15.6 million of operating earnings for the segment in the first quarter of 2001 as adjusted to exclude $1.6 million of goodwill amortization. Notwithstanding this decrease in operating earnings, operating margins improved from 6.9 percent to 7.7 percent. The favorable trend in year-over-year operating margin for Electrical Products was the result of cost reduction activities, including those announced in the fourth quarter of 2001.
"Our previously issued forecast for 2002 called for earnings in the range of $1.40 to $1.60," O'Toole commented. "Although we continue to be cautious about the timing and magnitude of the market recovery in 2002, we have improved our earnings projection to a range of $1.60 to $1.70 per share. This is based on the early and projected continued success of our cost-reduction programs and the integration of State Industries and is based on share levels currently outstanding. On the same bases, we expect second quarter earnings per share to be similar to first quarter levels."
The company's earnings expectations for 2002 also are based on a number of other assumptions, including: no declines in consumer spending or weakening of the economy compared with current levels; normal U. S. weather conditions during the spring and summer of 2002; and no material price changes for raw materials, including steel, aluminum, and copper.
A. O. Smith will broadcast a live conference call beginning at 10:00 a.m. (eastern 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. All statements, other than statements of historical facts, including statements made in the "Outlook" section of this press release, statements regarding our future financial position, business strategy, budgets, projected sales, costs and earnings, and plans and objectives for future operations, are forward-looking statements. Forward-looking statements generally can be identified by the use of forward-looking 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: instability in our electric motor and water products markets; our inability to timely and properly integrate our acquisition of State Industries; our inability to implement cost-reduction programs; adverse changes in general economic conditions; competitive pressures on our businesses; and the potential that assumptions on which we based our expectations are inaccurate or will prove to be incorrect.
The forward-looking statements included in this press release are made only as of the date of this release, and we undertake no obligation to update publicly these statements to reflect subsequent events or circumstances. All subsequent written and oral forward-looking statements attributable to the company, or persons acting on its behalf, are expressly qualified in their entirety 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. A. O. Smith Corporation has facilities in the United States, Mexico, Canada, England, Ireland, Hungary, the Netherlands, and China and employs approximately 15,000 people.