A.O. Smith delivers higher earnings on consumer pre-buy

Milwaukee-based water heater and boiler manufacturer A.O. Smith Corp. reported fourth quarter net income of $53.2 million, or 59 cents per share, up from $42.4 million, or 46 cents per share, in the fourth quarter of 2013.

Revenue was $626.8 million, up from $558.9 million in the same period a year ago.

Operating income was $263.9 million, down from $279.6 million in the fourth quarter of 2013. Cash used in investing activities totaled $206 million, up from $8.2 million a year ago.

For the full year, A.O. Smith reported net earnings of $207.8 million, or $2.28 per share, up from $169.7 million, or $1.83 per share, in 2013.

The company reported record sales of $2.4 billion for the year, up nine percent from $2.2 billion in 2013. The increase was driven mostly by an 18 percent increase in sales in China.

“Our 140th anniversary year was another record-setting year for A. O. Smith,” said Ajita Rajendra, chairman and chief executive officer. “Our U. S. water heater and boiler results benefited from the strengthening U. S. economy. Our sales in China continued to grow faster than two times that country’s GDP thanks to an improved water heater product mix and an increase in water heater and water treatment volumes, including growth of our online sales, which surpassed $50 million in 2014.”

Rajendra indicated on a conference call with analysts this morning that an upcoming U.S. residential water heater efficiency regulation resulted in a surge in water heater “pre-buy” in the fourth quarter ahead of the change.

“Water heaters that do not meet the new efficiency standards cannot be manufactured after April 15, 2015,” he said. “The new compliant products are more expensive to manufacture,” and the costs will be passed on to consumers through a 20 percent price increase.

“We expect some operating inefficiencies and one-time costs in the first half of 2015 as we implement the changeover to the new compliant residential water heater line,” Rajendra said.

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