A.O. Smith reports strong profit ahead of efficiency mandate

Milwaukee-based A.O. Smith Corp. today announced first quarter net income of $58.4 million, or 65 cents per share, up from $46.7 million, or 51 cents per share, in the first quarter of 2014.

The water heater manufacturer recorded revenue of $618.5 million, up from $552.2 million in the first quarter of 2014.

The company pointed to a new government mandate to increase its water heater efficiency, the National Appliance Energy Conservation Act, as a challenge and a benefit in the quarter.

“NAECA III has been a significant challenge for the water heater industry in the U. S., as we were required to redesign nearly 80 percent of our residential product offering. Our team has done a tremendous job of maintaining its focus on our customers during this project,” said Ajita Rajendra, chairman and chief executive officer. “Thanks to all of our employees, we are on track to complete this complex transition.”

But North America segment sales increased 10 percent in the quarter, which the company believes was driven by customer pre-buy ahead of the price increases that came along with the redesigned water heaters. Sales were up 13 percent in the Rest of the World segment, driven by continued high demand for the company’s products in developing areas.

“Our North American results in the first quarter were quite strong. We expect water heater volumes in the second quarter will be negatively impacted by the customer pre-buy we experienced in the first quarter,” Rajendra said. “Lower volumes and approximately $4 million of incremental ERP costs contribute to our expectation that 2015 second quarter earnings per share will be about flat with 2014 second quarter earnings per share, after adding back 3 cents per share of non-operating pension costs to the 2014 earnings per share.”

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