Milwaukee-based water heater manufacturer
A.O. Smith is re-examining its business in China, citing the desire to optimize its operational structure in the country.
During the company’s second quarter earnings call held this week, A.O. Smith reported that second quarter sales in China have decreased 11% in local currency due to “ongoing economic challenges.”
“The market dynamics are more challenging,” said
Steve Shafer, CEO of A.O. Smith. “Consumer confidence remains very low in China, and that is also highly connected to property values in China.”
A.O. Smith has officially initiated a process aimed at “further assessing” its business in China.
The company plans to evaluate a “broad range of options” including strategic partnerships and other alternatives, said Shafer. The company is not currently committing to a divestiture of the business, he added.
“We would like to understand and be well informed around what the full potential options are for the business going forward to make sure we actually do what we can to position the business and this great asset that we have in China for success and to be able to compete and win in the future,” said Shafer.
Despite the current macroeconomic challenges, A.O. Smith continues to believe the Chinese market has “substantial” long term potential. Shafer cited the company’s “premium brand position” and well-established distribution network as strengths.
However, A.O. Smith predicts that sales in China will decrease between 5% and 8% for the remainder of the year.
Sales in A.O. Smith’s India business grew 19% in local currency in the quarter. The company's recent acquisition of the Indian company Pureit contributed $16 million in sales.
In North America, second quarter sales decreased by $779 million, or 1%.
