A.O. Smith triples Q2 profits, but lowers full year forecast

A.O. Smith (NYSE:AOS) on Tuesday posted strong earnings in the second quarter, beating analyst forecasts, as its water business in China continued to expand, but residential water heater sales in North America lagged.

A.O. Smiths shares climbed $3.89, or 9.64% to $44.26 on the New York Stock Exchange, in morning trade.

For the three months ending June 30, the company reported net income of $50.3 million, or $1.08 per share, compared to $16.6 million, or 36 cents per share, a year earlier associated with the May 2010 flood at the company's Ashland City, Tennessee facility.

Earnings from continuing operations were $28 million, or 62 cents a share, compared to a loss of $0.9 million, or two cents a share, a year earlier. The company said the latest quarter's results included one-time items, with a net favourable impact of 11 cents per share during the period.

Sales from the company's continuing water products unit rose 8% to $405.3 million. Analysts predicted earnings of 50 cents on revenue of $397 million, according to Thomson Reuters.

A.O. Smith said a 20% rise in water heater sales in China, together with higher sales of commercial water heating products in North America, as well as higher prices related to increased commodity costs, were responsible for the growth, offseting a decline in residential water heater volumes in North America.

Revenues were also higher due to the Takagi North America acquisition last year, which expanded the company’s U.S. tankless market, it said in a statement.

"Sales of higher-efficiency products in North America are not as strong as we expected without the tax incentives which were reduced at the beginning of this year," said chairman and CEO, Paul W. Jones.

"Sales of our A. O. Smith branded water treatment products sold at our retail outlets in China are right on track, but sales of water treatment products sold through our wholesale channel are lagging.

"As a result, we expect sales of water treatment products in China, as well as sales of higher efficiency products in North America, for the full year to be lower than our original plan."

Going forward, the company narrowed its forecast for earnings from continuing operations to between $1.95 and $2.05 per share for the year, excluding one-time items and any future acquisitions. Its April outlook was in the range of $1.90 to $2.10 per share.

Second quarter sales of the discontinued electrical products company were $221.9 million, A.O said, compared with sales of $197.6 million in the same period last year.

Milwaukee, Wisconsin-based A.O. Smith sold its smaller electrical products unit to Regal Beloit Corp. (RBC), late last year. It plans to use profits from the $814.2 million deal to grow its water-heating and water-treatment businesses in growing markets like China and India.