A.O. Smith looks to build its retail brand

Company waiting for final federal tax plan before making cash decisions

When Jimmie Johnson pulled into victory lane at Bristol Motor Speedway on Monday, the NASCAR driver’s car featured a large A.O. Smith logo to go along with his traditional Lowe’s sponsor.

Just a few days earlier Lowe’s and A.O. Smith announced the home improvement retailer would begin carrying A.O. Smith Signature Series water heaters at its stores and online.

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Those two events are part of an effort by the Milwaukee-based company to raise the profile of the A.O. Smith brand, which has largely been limited to wholesale markets to this point. The company’s retail sales have previously been under other brand names.

“As we see the traditional channel boundaries blurring, the decision is being made more and more by consumer because of online searches,” said Ajita Rajendra, A.O. Smith chairman, president and chief executive officer. “We feel that having the A.O. Smith brand at both wholesale and retail is just going to make it a stronger brand and help our growth.”

Ranjendra said having the brand at Lowe’s presents an opportunity for 13 million viewings by consumers every week.

“Long-term we think this is a great growth opportunity for the company,” he said, adding the company had met face-to-face with most major customers to explain the goal of the efforts. “They understand what we’re trying to do with the brand.”

The push into retail environments with the A.O. Smith brand follows the acquisition of water treatment firm Aquasana last year. The move was intended to give the company better access to the residential water treatment market.

Rajendra said A.O. Smith continues to evaluate other acquisition options, but prices remain high and the company needs to be able to see a value proposition in the deal.

A.O. Smith has the resources to fund acquisitions with roughly $720 million in cash overseas. Chief financial officer John Kita said what the company does with the money would depend on the final product of any U.S. tax reform efforts.

“The cash overseas, depending on how it all falls out, we may not bring it back immediately, because we’re looking, from an acquisition point, globally,” Kita said. “We’re not going to pre-decide what we do until we see the ultimate.”

A.O. Smith’s business continued to grow during the first quarter of the year, setting company records for revenue and net income. The company reported earnings of 50 cents per diluted share, up from 41 cents the previous year. Net income increased by 19.3 percent to $87.7 million and revenue was up 16 percent to $740 million.

“The strength of both the U.S. water heater industry and our consumer product demand in China is encouraging,”Rajendra said. “With double digit sales growth in both operating segments in the quarter, A. O. Smith is starting the year on solid footing.”

The company increased its full-year earnings guidance by 3 cents per share and Rajendra said the company will look to grow revenues between nine and 10 percent.

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Arthur Thomas
Arthur covers banking and finance and the economy at BizTimes while also leading special projects as an associate editor. He spent also 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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