A.O. Smith estimates $40 million benefit from tax reform

Company would also likely bring back millions in offshore cash

Milwaukee-based A.O. Smith Corp. executives estimate the company could see a $40 million annual benefit from the tax reform proposal outlined by the Trump administration.

“We believe A.O. Smith could benefit significantly,” said John Kita, A.O. Smith chief financial officer, during the company’s earnings call.

Kita said A.O. Smith makes 60 to 65 percent of its profits in the United States. The proposed lower corporate rate would be offset by the elimination of tax credits for manufacturing and smaller deductions for state taxes, but the company estimates it would see a benefit of 20 cents per share based on its current earnings.

The company could also see one-time costs related to the repatriation of cash and remeasurement of taxes. A.O. Smith ended the third quarter with $768 million in cash located offshore.

Kita and A.O. Smith chairman and chief executive officer Ajita Rajendra did not discuss potential uses for the tax benefit or the cash if it is brought back to the U.S.

The company reported a strong quarter driven by strength in its water treatment and air purification products in China and increased sales of boilers and residential water heaters in North America.

Net income for the quarter was $93.7 million, a 12.6 percent increase from the previous year. Earnings improved from 47 to 54 cents per diluted share.

Revenue for the quarter was up 9.7 percent to $749.9 million. The company’s North America segment increased 8 percent to $486 million while the rest of world segment was up 12 percent to $270.1 million.

“With record results in the first nine months of the year, we upgraded the midpoint of our 2017 guidance range and now expect full-year 2017 earnings per share to be between $2.12 and $2.14,” Rajendra said.

The updated guidance represents a 15 percent increase over earnings in 2016.

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Arthur covers banking and finance and the economy at BizTimes while also leading special projects as an associate editor. He also spent five years covering manufacturing at BizTimes. He previously was managing editor at The Waukesha Freeman. He is a graduate of Carroll University and did graduate coursework at Marquette. A native of southeastern Wisconsin, he is also a nationally certified gymnastics judge and enjoys golf on the weekends.

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