Actuant and A.O. Smith to cut back on production
The recession is taking a significant toll on two more venerable southeastern Wisconsin manufacturers who announced last week that they will cut back on production because of a slowdown in demand for their products.
Actuant Corp., a Butler-based manufacturer of highly engineered position and motion control systems and branded hydraulic and electrical tools and supplies, announced it will close some of its plants and eliminate an unspecified amount of jobs.
A.O. Smith Corp., a Milwaukee-based manufacturer of water heaters and electric motors, announced it will "aggressively" slow down production to address a significant slowdown in orders.
Actuant announced it expects first quarter diluted earnings per share to be in the range of 44 to 45 cents, exclusive of an asset impairment charge, on revenues of approximately $375 to $380 million. For the full year, the company is now forecasting diluted earnings per share to be in the range of $1.60 to $1.80, exclusive of the impairment charge, on revenues of $1.50 to $1.55 billion.
Actuant chairman and chief executive officer Robert Arzbaecher said, "Over the past several months and particularly in November and December, we have seen business conditions worsen, driven by the global credit crisis and plunging consumer confidence. While we expected continued weakness in consumer facing businesses serving the DIY electrical, marine and recreational vehicle (RV) markets, we did not anticipate the magnitude and speed of the decline in these markets. We’re also experiencing substantially weaker demand in the truck, automotive and off-road equipment markets, including Europe. In addition, our previous fiscal 2009 guidance was based on a U.S. dollar/euro exchange rate of $1.45. With almost half of Actuant’s revenue generated in Europe, the translation impact alone of the strengthening U.S. dollar, versus our prior guidance assumption, caused an approximate $80 million reduction in forecasted fiscal 2009 sales. In response to these new developments, we have accelerated actions to reduce our cost structure, including additional facility consolidations and certain workforce reductions. These actions will result in severance and other restructuring costs of $10 million to $15 million during the balance of the year that were not previously included in our forecasted results."
Actuant also announced that it will record a $25 million non-cash asset impairment charge in the first quarter in its RV product line.
Karen Bauer, Actuant’s director of investor relations, said additional details about the plant closures and job eliminations will be discussed in the company’s first quarter earnings release conference call on Thursday. The company employs a workforce of more than 7,000 worldwide.
A. O. Smith said it expects fourth quarter results will be weaker than expected due to sluggish demand for water heaters and electric motors. As a result, the company’s previously communicated 2008 forecast of $2.80 to $2.90 per share will likely not be achieved. The company now expects fourth quarter earnings to be between 15 and 25 cents per share. For the year, it expects earnings per share to be between $2.63 and $2.73.
A decline in global construction and consumer spending, intensified by inventory reductions by the company’s customers, has resulted in a significant drop in order volumes during the fourth quarter.
The company responded with a decision to mitigate its inventory build throughout the quarter and aggressively curtailed production.
"The speed with which the market downturn confronted us is unprecedented. However, with current orders less than historical replacement demand levels, we expect inventories will likely be replenished in early 2009," said Paul Jones, chairman and chief executive officer of A.O. Smith. "We are taking actions to further reduce costs and conserve cash in response to the market challenges. We are scrutinizing capital expenditures, maximizing working capital and reducing production schedules. We believe our financial strength gives us an advantage to navigate these challenging times."
Earlier this year, A.O. Smith announced it will close plants in Kentucky, North Carolina and Hungary.
In a separate announcement, A.O. Smith and its largest stockholder, Smith Investment Company, announced that they have signed a definitive merger agreement providing for Smith Investment to become a wholly-owned subsidiary of A.O. Smith in a tax-free exchange. The merger is intended to allow the Smith Investment stockholders to realize the underlying value of the A. O. Smith shares held by Smith Investment, and provide enhanced liquidity for Smith Investment stockholders.
A majority of Smith Investment’s outstanding stock is owned by members of the Smith family, which is the founding family of A.O. Smith.