MILWAUKEE, Wis. (October 29, 2020) — Global water technology company A. O. Smith Corporation (the “Company”) (NYSE-AOS)
today announced third quarter net earnings of $105.4 million or $0.65 per share,
on third quarter sales of $760.0 million. Sales were four
percent higher than sales of $728.2 million reported in the same quarter of
2019. Net earnings in 2019 were $87.3 million or $0.53 per share.
Adjusted earnings
of $106.7 million, or $0.66 per share, were approximately 22 percent higher
than the third quarter of 2019 and excluded $1.3 million, or $0.01 per share,
of after-tax severance and restructuring charges in the current quarter related
to aligning the business to current market conditions.
The Company is
providing non-GAAP measures (adjusted earnings, adjusted earnings per share and
adjusted segment earnings) for 2020 that exclude severance and restructuring
charges related to its business alignment actions. Reconciliations to measures
on a GAAP basis are provided in the financial information included with this news
release.
“Protecting our
employees, while satisfying our customers’ demand for products that heat and
treat water, continued to be job one during the quarter,” said Kevin J.
Wheeler, chairman and chief executive officer. “Our businesses performed well
during the quarter, with double-digit growth in sales of North America water
treatment products, higher residential water heater volumes in North America and
profitable results in China. It is good to see the leverage from our China cost
structure alignment activities materialize with higher volumes.”
North America
segment
Sales of the North America segment were $544.0
million in the third quarter, an increase of approximately six percent compared
with the same period in 2019. Higher residential water heater volumes and approximately
19 percent growth in water treatment products’ sales more than offset lower
commercial water heater volumes and lower boiler sales.
Segment earnings of $133.1 million were approximately
nine percent higher than segment earnings of $121.6 million in the same quarter
of 2019 driven by higher residential water heater volumes, higher water
treatment product sales and lower material costs. Lower volumes of commercial water
heaters and lower boiler sales partially offset these factors. As a result of
these factors, segment margin of 24.5 percent increased compared with 23.6
percent achieved in the same period last year.
Adjusted segment earnings of $133.6 million in
the current year quarter excluded $0.5 million in pre-tax severance costs resulting
in third quarter adjusted segment margin
of 24.6 percent.
Rest of World
segment
Third quarter
sales of $221.4 million for the Rest of World segment were essentially flat
compared with segment sales of $220.3 million in the same quarter in 2019. China
sales were flat compared with the same
period in the prior year as higher consumer demand was offset by a higher mix
of mid-price products. China currency translation favorably impacted sales by
approximately $4 million.
The Rest of World segment earnings
were $16.7 million in the third quarter compared with $4.1 million in segment earnings
in the same quarter last year. In China, higher volumes, reductions in selling,
advertising and administrative costs and temporary social insurance exemptions were
partially offset by a higher mix of mid-price products, which have lower
margins. Third quarter segment margin was 7.5 percent compared with 1.9 percent
in the same quarter of 2019, as a result of the factors identified above.
Adjusted segment earnings of $17.8
million in the current year quarter excluded $1.1 million in pre-tax severance
and restructuring costs, resulting in adjusted segment margin of 8.0 percent.
Balance sheet,
liquidity and dividends
As of September
30, 2020, the Company had cash and marketable securities balances totaling $509.0
million and undrawn borrowing capacity on its credit facility totaled $500.0
million. The Company’s total debt was $113.9 million at the end of September,
and its leverage ratio was 6.1 percent as measured by total debt to total
capitalization.
Cash provided by operations of $330.4 million during
the first nine months of 2020 increased from $280.0 million in the same period
of 2019, primarily as a result of lower investments in working capital, which
were partially offset by lower earnings compared with the year-ago period.
On October 12,
the Board of Directors of the Company increased its regular quarterly cash
dividend rate by eight percent to $0.26 per share on the Company's Common Stock
and Class A Common Stock.
Operations and
supply chain
The Company
remained operational throughout the quarter with no significant disruptions
within its plants or supply chain. The Company noted improvement in its North
America water heater manufacturing lead times as a result of adding
manufacturing shifts, hiring temporary workers and shifting some production. Lead
times were extended in the second and third quarters due to self-quarantine
absenteeism mandated by the Company’s COVID-19 prevention measures.
The Company
has undertaken numerous and meaningful steps to protect its employees,
suppliers, and customers during the pandemic. These important steps, which in certain
cases reduce efficiency, include continuous communication and training to
employees on living and working safely during a pandemic, plant accommodations
and reconfigurations to maintain social distancing, providing masks for all
employees, implementation of sanitizing stations, employee temperature-taking and
regular, proactive deep cleaning and sanitization of all facilities among
others.
Outlook
“We
are encouraged by the resiliency of our North America residential water heater
demand and the year-over-year growth in consumer demand for our products in
China. We continue to expect tailwinds behind our North America water treatment
product sales driven by drinking water health and safety concerns,” noted Wheeler. “However, much
uncertainty remains about the duration and long-term implications of the
pandemic, particularly its impact on U.S. commercial markets.
“Under the assumption that the conditions
of our business environment and that of our suppliers is similar for the
remainder of the year to what we are currently experiencing and that they do
not deteriorate as a result of further restrictions or shutdowns, we are increasing
our full year 2020 earnings guidance to a range between $1.91 and $1.94 per
share and adjusted earnings guidance to a range between $1.95 and $1.98 per
share. The mid-point of the guidance range represents an increase of ten
percent over our prior 2020 earnings guidance.
“We continue to believe that we have
ample liquidity and flexibility to meet the needs of our business, return cash
to shareholders and take advantage of organic and inorganic growth
opportunities. We remain focused on keeping our employees safe, while serving
our customers and continue to deliver our mission to provide hot and clean
water necessary to keep communities and households safe during the pandemic.”
A. O. Smith
will broadcast a live conference call at 10 a.m. Eastern Daylight Time today.
The call can be heard on the Company’s website, www.aosmith.com. An audio replay of
the call will be available on the Company’s website after the live event.
Forward-looking
statements
This release
contains statements that the Company believes 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,”
“forecast,” “continue,” “guidance” or words of similar meaning. All
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. Important factors that could cause actual results to differ
materially from these expectations include, among other things, the following: negative
impacts to the Company’s businesses, including demand for its products, particularly
commercial products, operations and work-force dislocation and disruption,
supply chain disruption and liquidity as a result of the severity and duration
of the COVID-19 pandemic; a failure to recover or a further weakening of the
Chinese economy and/or a failure to recover or a further decline in the growth
rate of consumer spending or housing sales in China; negative impact to the Company’s
businesses from international tariffs and trade disputes; potential further weakening
in the high efficiency boiler segment in the U.S.; significant volatility in
raw material availability and prices; inability of the Company to implement or
maintain pricing actions; a failure to recover or further weakening in U.S.
residential or commercial construction or instability in the Company’s
replacement markets; foreign currency fluctuations; the Company’s inability to
successfully integrate or achieve its strategic objectives resulting from
acquisitions; competitive pressures on the Company’s businesses; the impact of
potential information technology or data security breaches; changes in
government regulations or regulatory requirements; and adverse developments in
general economic, political and business conditions in key regions of the
world. Forward-looking statements included in this news 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.
About A. O. Smith
A. O. Smith Corporation, with
headquarters in Milwaukee, Wis., is a global leader applying innovative
technology and energy-efficient solutions to products manufactured and marketed
worldwide. Listed on the New York Stock Exchange (NYSE), the Company is one of
the world's leading manufacturers of residential and commercial water heating
equipment and boilers, as well as a manufacturer of water treatment and air
purification products. For more information, visit www.aosmith.com.
SOURCE: A. O. Smith Corporation
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