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Smith (A.O.): Rest Of World Segment

The following excerpt is from the company's SEC filing.

Sales of this segment, which is primarily comprised of China, Europe and India, increased approximately 11 percent in the first quarter of 2016 to $217.4 million from $195.9 million in the year ago quarter. Continued strong customer demand for the companys premium water heating and water treatment products, and seasonal demand for air purifier products, drove China sales 17 percent higher as measured in local currency and over 12 percent higher as measured in U.S. dollars.

Operating earnings for this segment were $26.9 million compared with $26.2 million earned in the 2015 first quarter. The impact to profi ts from higher China sales was partially offset by higher selling, general and administrative (SG&A) expenses in China, as well as a larger loss in India. Segment operating earnings were reduced by approximately $1.5 million due to China currency translation. Higher selling costs to support expansion in tier 2 and 3 cities and the e-commerce platform in China, as well as higher development costs associated with new products including expansion of the companys air purification product portfolio in China, were the primary drivers of higher segment SG&A expenses. As a result of these factors, first quarter 2016 operating margin of 12.4 percent was lower than the 13.4 percent operating margin in 2015.

Share Repurchase and Other Items

During the first quarter of 2016, the company repurchased approximately 430,000 shares of common stock at a total cost of $30.5 million. Approximately 2.15 million shares remained on the existing discretionary authority at the end of the quarter. Due to lower than originally forecasted capital spending in 2016, the company increased its aggregate expected 2016 share repurchase spending from $150 million to $175 million.

Total debt as of March 31, 2016, was $287.3 million, resulting in leverage of 16.3 percent as measured by the ratio of total debt to total capital. Cash and investments, located outside the U.S., totaled $640.8 million at the end of the quarter.

The companys effective income tax rate in the first quarter of 2016 was 29.0 percent. The rate was similar to the prior year quarter and lower than the companys previously disclosed effective tax rate guidance for the full year 2016 of 30.5 to 31.0 percent, due to the early adoption of a new accounting standard for share-based compensation. The lower effective tax rate compared with previous guidance benefitted first quarter 2016 results by $0.02 per share. The company expects its full year effective tax rate will be approximately 30.5 percent.

2016 Outlook

Our outlook for 2016 remains optimistic, and we expect to achieve strong annual sales growth, commented Rajendra. In the U.S., we believe our Lochinvar branded product portfolio will continue to grow at 10 percent annually in 2016. We anticipate our China sales will increase 15 percent in local currency in 2016.

With solid performance in the first quarter, we upgraded the midpoint of our 2016 guidance range and now expect full-year 2016 earnings per share to be between $3.47 and $3.55. We will continue to live our values, focus on the customer, hire and retain the best people, and continue to innovate to achieve profitable growth, concluded Rajendra.

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 companys web site,

. An audio replay of the call will be available on the companys web site 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, 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: a further slowdown in the growth rate of the Chinese economy; potential weakening in the high efficiency boiler segment in the U.S.; significant volatility in raw material prices; inability to implement or maintain pricing actions; potential weakening in U.S. residential or commercial construction or instability in the companys replacement markets; uncertain costs, savings and timeframes associated with the implementation of the new enterprise resource planning system; foreign currency fluctuations; the ability to execute the companys acquisition strategy; competitive pressures on the companys businesses; and adverse general economic conditions and capital market deterioration. 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 a global leader applying innovative technology and energy-efficient solutions to products manufactured and marketed worldwide. The company is one of the worlds leading manufacturers of residential and commercial water heating equipment, as well as a manufacturer of water treatment products. For more information visit


Statement of Earnings

(condensed consolidated financial statements -

dollars in millions, except share data)


Three Months Ended

Net sales

Cost of products sold

Gross profit

Selling, general and administrative expenses

Interest expense

Other income

Earnings before provision for income taxes

Provision for income taxes

Net earnings

Diluted earnings per share of common stock

Average common shares outstanding (000s omitted)




Balance Sheet

(dollars in millions)

December 31,


Cash and cash equivalents

Marketable securities



Other current assets

Total Current Assets



Net property, plant and equipment

Goodwill and other intangibles

Other assets

Total Assets




Trade payables

Accrued payroll and benefits

Accrued liabilities

Product warranties

Debt due within one year

Total Current Liabilities

Long-term debt

Pension liabilities

Other liabilities

Stockholders equity



Total Liabilities and Stockholders Equity

Statement of Cash Flows

(dollars in millions)


Three Months Ended

Operating Activities

Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:

Depreciation & amortization

Pension income

Stock based compensation expense

Loss on disposal of assets

Net changes in operating assets and liabilities:

Current assets and liabilities

Noncurrent assets and liabilities

Cash Provided by (Used in) Operating Activities - continuing operations

Cash Used in Operating Activities - discontinued operations

Investing Activities

Capital expenditures

Investment in marketable securities



Net proceeds from sale of marketable securities

Cash Used in Investing Activities

Financing Activities

Term debt incurred

Debt incurred

Common stock repurchases

Net proceeds from stock option activity

Dividends paid

Cash (Used In) Provided by Financing Activities

Net decrease in cash and cash equivalents

Cash and cash equivalents - beginning of period

Cash and Cash Equivalents - End of Period

Business Segments

(dollars in millions)

North America

Rest of World

Inter-segment sales

Inter-segment earnings elimination

Corporate expense

Earnings before income taxes

Tax provision

The above information was disclosed in a filing to the SEC. To see the filing, click here.

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Other recent filings from the company include the following:

Submission of Matters to a Vote of Security - April 15, 2016
Smith (A.O.) Corporation director just picked up 1,561 shares - April 12, 2016

Smith (A.O.) Corporation director just picked up 1,561 shares - April 12, 2016