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A. O. Smith Corp. Reports Operating Results (10-Q)

May 10, 2011 | About:
10qk

10qk

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A. O. Smith Corp. (AOS) filed Quarterly Report for the period ended 2011-03-31.

Ao. Smith Corp. has a market cap of $1.96 billion; its shares were traded at around $42.8 with a P/E ratio of 17.3 and P/S ratio of 1.3. The dividend yield of Ao. Smith Corp. stocks is 1.3%. Ao. Smith Corp. had an annual average earning growth of 7.1% over the past 10 years.

Highlight of Business Operations:

A. O. Smith Corporation is a leading manufacturer of water heating equipment and electric motors, serving a diverse mix of residential, commercial and industrial end markets principally in North America and China. Our company has been comprised of two reporting segments: Water Products and Electrical Products. On December 12, 2010, we entered into a definitive agreement to sell our Electrical Products Company to Regal Beloit Corporation for $700 million in cash and approximately 2.83 million shares of Regal Beloit common stock. The transaction is expected to close mid-year, subject to regulatory approvals and customary closing conditions. Due to the pending sale, our Electrical Products segment has been reflected as discontinued operations in the accompanying financial statements for all periods presented. Our Water Products business manufactures and markets a comprehensive line of residential gas and electric water heaters, standard and specialty commercial water heating equipment, high efficiency copper tube boilers, water treatment products and water system tanks. In 2010, sales for our Water Products segment were $1,489.3 million and discontinued operations sales for our Electrical Products segment were $701.8 million.

The RBC shares have appreciated since the definitive agreement was signed. During the first quarter, we purchased an equity collar contract for fifty percent of the expected shares to protect a portion of the appreciation. The put strike price of the equity collar is $63.29 and the call strike price of the collar is $77.32. At the end of the quarter, the contract was marked to market under accounting rules, resulting in a $1.6 million charge which is included in other expense for continuing operations. The mark to market accounting will continue until the contract expires in March 2012.

First quarter sales for our Electrical Products segment were $200.4 million or $43.7 million higher than sales of $156.7 million in the same period last year. After-tax earnings for Electrical Products were $16.8 million or $0.36 per diluted share compared with $9.5 million or $0.21 per share in the first quarter of 2010. The increase in earnings was driven by higher sales.

Cash used by operating activities for continuing operations during the first three months of 2011 was $52.3 million compared with $5.9 million used during the same period last year. A pension contribution in the amount of $45 million made in the first quarter and higher working capital balances to support our sales growth were the primary reasons for the larger use of cash in 2011 as compared with 2010. For the total year 2011, we expect our total contribution to the pension plan to be $175 million and cash provided by operating activities to be approximately $10 to $20 million.

Our capital expenditures for continuing operations totaled $12.4 million during the first three months of 2011, compared with $7.7 million spent one year ago. We are projecting 2011 capital expenditures to be between $60 and $70 million, including approximately $20 million to support capacity expansion in China. We expect full year depreciation and amortization to be approximately $45 million.

Our total debt increased $78.8 million from $261.0 million at December 31, 2010 to $339.8 million at March 31, 2011. Our leverage, as measured by the ratio of total debt to total capitalization, was 27 percent at the end of the quarter, compared with 23 percent at the end of last year. We expect to use a portion of the net proceeds from the expected sale of our Electrical Products business to pay down existing floating rate debt, which was approximately $220 million as of March 31, 2011. The sale is expected to close mid-year, subject to regulatory approvals and customary closing conditions.

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