Milwaukee-based A.O. Smith Corp. plans to bring $200 million back to the U.S. from overseas following federal tax reform and plans to use the money to pay down debt.
The maker of water heating and treatment products reported net income of $22.7 million in the fourth quarter of 2017, down from $82.7 million in 2016 because of a nearly $82 million charge related to tax reform. The company ended 2017 with around $410 million in debt.
John Kita, A.O. Smith chief financial officer, said the company would be paying on the charge over an eight year period, but would likely generate an additional $30 million to $35 million in cash annually because of tax reform.
“It’s going to take two to three years to pay (the charge) off, but we certainly, in the long-term, benefit from it,” Kita said of tax reform. “And it gives us more fire.”
Despite having the additional cash, Kita said the company’s capital allocation strategy would continue to focus on internal investments, strategic acquisitions and returning cash to shareholders.
Ajita Rajendra, A.O. Smith chairman and chief executive officer, pledged the company would continue to be disciplined in making acquisitions and seek the right fit and return on investment.
“The acquisitions will be very strategic,” he said, indicating the company would look at opportunities in heating and treating water around the world and expand to include opportunities to leverage the A.O. Smith brand in China.
Rajendra rejected the idea from an analyst that A.O. Smith might need to become part of an even larger company to continue to grow around the world.
“From a strategic perspective, in terms of us being an independent company, we’ll always be an independent company,” he said. “We’re not looking at something in terms of combinations and things like that.”
A.O. Smith has steadily grown its revenue in recent years, from $1.94 billion in 2012 to $2.69 billion in 2016. Revenue jumped by another 11.6 percent last year to almost $3 billion.
