Second Quarter 2021 Highlights
- Total sales of $859.8 million, an increase of 30 percent compared with Q2 2020
- Net earnings of $118.2 million, an increase of 74 percent compared with Q2 2020
- Record second quarter EPS of $0.73, an increase of 74 percent compared with Q2 2020
2021 Guidance
- Sales growth between 17 and 18 percent, upgraded from midpoint of 14.5 percent announced in April
- EPS between $2.70 to $2.76, upgraded five percent from the midpoint announced in April
Global water
technology company A. O. Smith Corporation (the “Company”) (NYSE: AOS) today announced
its second quarter 2021 results.
“Our global A. O.
Smith team delivered record second quarter earnings per share on a 30 percent
increase in sales compared with the second quarter of 2020, which was
negatively impacted by the pandemic. Our teams demonstrated solid execution and
operational agility despite supply chain and logistics challenges along with
rapidly-rising material costs,” noted Kevin J. Wheeler, chairman and chief
executive officer. “Our employees excelled in finding creative and collaborative
solutions to keep our customers supplied with the water heating and water
treatment products they needed to meet demand.”
North America
Sales in the North America
segment of $603.6 million increased 26 percent compared with the second quarter
of 2020 driven by higher volumes of water heaters, boilers and water treatment products
and price increases implemented in response to rapidly rising material costs as
well as increased transportation costs.
North America segment
earnings of $141.7 million increased 34 percent compared with the second
quarter of 2020. The impact to earnings from higher volumes and inflation-related
price increases was partially offset by higher material and freight costs. As a
result of these factors, segment operating margin of 23.5 percent improved
compared with 21.9 percent in the second quarter of 2020.
Rest of World
Rest of World segment
sales of $263.2 million increased 39 percent from the second quarter of 2020,
driven by local currency sales growth of 26 percent in China. Sales growth in
each of the Company’s major product categories in China contributed to higher
sales. Currency translation of China sales favorably impacted sales by
approximately $20 million.
Rest of World segment earnings
of $22.3 million increased significantly compared with the loss of $5.8 million
in the second quarter of 2020, which was negatively impacted by shutdowns and
reduced consumer spending resulting from the pandemic. In China, higher volumes
and lower selling and administrative costs were partially offset by the absence
of social insurance waivers in 2021, which had been granted in 2020. As a
result, segment operating margin of 8.5 percent improved from a negative 3.1
percent in the second quarter of 2020.
Balance Sheet,
Liquidity and Share Repurchases
As of June 30,
2021, the Company had cash and marketable securities balances totaling $581.9
million. The Company’s total debt was $106.4 million at the end of June, and
its leverage ratio was 5.5 percent as measured by total debt-to-total
capitalization.
Cash provided by operations of $196.0 million during the
first half of 2021 increased from $179.3 million during the same period in 2020.
Higher earnings in 2021 compared with the prior year were partially offset by a
larger investment in working capital during the first half of 2021 compared
with the same period in 2020.
During the first half of 2021,
the Company repurchased 2,978,657 shares at a cost of approximately $198.1
million. There was available authority to repurchase approximately 5.6 million
shares at the end of June.
Operations and
Supply Chain
Global supply
chain disruptions moderated in the second quarter but remained a challenge. The
Company continues to closely monitor component, material and transportation availability.
Outlook
“We have seen solid demand for our products
continue in July,” commented Wheeler. “We are upgrading our full-year 2021
earnings guidance to a range of between $2.70 and $2.76 per share, an increase
of five percent from our previous guidance.
“Supply chain constraints and component
shortages continue, and we expect to see these headwinds throughout the
remainder of the year. We remain in close contact with our suppliers, as the
environment can change quickly and frequently. I am grateful for our
procurement and operations teams, as they strengthen our supply chain
resiliency and manage through this challenging period. I have confidence in our
teams’ ability to continue to navigate through this environment.”
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 workforce dislocation and disruption,
supply chain disruption and liquidity as a result of the severity and duration
of the COVID-19 pandemic; lengthening or deepening of supply chain bottlenecks;
an uneven recovery of the Chinese economy or decline in the growth rate of
consumer spending or housing sales in China; negative impact to the Company’s
businesses from international tariffs, trade disputes and geopolitical
differences; potential weakening in the high-efficiency boiler segment in the
U.S.; significant volatility in 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.
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