A O Smith : announces record 2015 earnings on nearly eight percent increase in sales

, /PRNewswire/ -- A. (: AOS) today announced record sales of and record net earnings of , or per share, for 2015 compared with net earnings of , or per share, the previous year. Net earnings in 2014 included after-tax non-operating pension costs of or per share.

Sales for 2015 grew nearly eight percent from the achieved in 2014 and over nine percent when adjusted for the stronger dollar against the Canadian and Chinese currencies. The increase in sales was due to higher prices in , higher sales of -branded products and commercial water heaters in the , as well as continued demand for the company's water heating and water treatment products in . Sales in grew nearly 14 percent during 2015. Excluding the impact from the stronger dollar, sales increased 16 percent. Residential water heater volumes declined in the in 2015 as compared with 2014, which is consistent with the industry.

In the fourth quarter, the company earned or per share on sales of compared with net earnings of or per share in the fourth quarter 2014 on sales of . Fourth quarter 2014 net earnings included after-tax non-operating pension costs of , or per share.

'Our strong organic sales growth continues to differentiate us from other industrial companies,' , chairman and chief executive officer, observed. 'Our China sales in 2015 exceeded our growth expectations of 15 percent in local currency, thanks to healthy consumer spending and increased demand for our water heaters, our fast-growing water treatment products and the successful introduction of a line of air purification products.'

'We achieved record sales, operating profits and margins in in 2015. Our commercial water heater and boiler volumes continued to grow in the as a result of continued strong end markets,' Rajendra noted.

North American segment

Sales for the North American segment in 2015 were a record , a five percent increase over 2014 sales of . The segment benefited from pricing actions in the and and higher volumes of U. S. commercial water heaters and boilers. residential water heater volumes were lower than the prior year.

Segment operating earnings increased over 42 percent in 2015 to compared with in 2014. Segment operating earnings in 2014 included pre-tax non-operating pension costs of . The earnings increase was primarily due to pricing actions in the and earlier in 2015, higher sales of -branded products, higher commercial water heater volumes, and lower steel costs. The impact on earnings from lower residential water heater volumes partially offset these favorable factors. As a result, 2015 operating margin of 20.0 percent was significantly higher than 2014 operating margin of 14.7 percent.

Fourth quarter sales for the segment of were lower than the prior year's fourth quarter sales of . Growth in commercial water heater volumes was more than offset by lower residential volumes. Sales of -branded products in the fourth quarter of 2015 were flat compared with the fourth quarter of 2014. Industry volumes of residential and commercial boilers declined in the fourth quarter of 2015 compared with the same period in 2014. The company believes warmer weather at the beginning of the heating season and longer lead times for commercial projects may have negatively impacted the boiler industry.

Fourth quarter segment operating earnings were compared with earned in the fourth quarter of the prior year. Fourth quarter segment operating earnings in 2014 included pre-tax non-operating pension costs of . Pricing actions in the and earlier in 2015, higher commercial water heater volumes and lower steel costs were partially offset by the impact on earnings from lower residential volumes. As a result, fourth quarter segment operating margin of 22.3 percent was significantly higher than the fourth quarter operating margin in 2014 of 15.6 percent.

Rest of World segment

Sales of this segment increased 13 percent in 2015 to compared with 2014 sales of . sales increased 14 percent in dollars, while currency translation reduced sales by approximately two percentage points. Increased demand for water heaters and solid -branded water treatment product sales, which grew over 45 percent above the prior year, contributed to the strong growth.

Operating earnings for this segment increased six percent in 2015 to compared with earned in 2014. Higher sales and lower steel costs were partially offset by lower sales of highly profitable commercial water heaters in and increased selling, general and administrative (SG&A) expenses. earnings were reduced by approximately due to currency translation. Higher selling and promotion costs in as well as higher development and advertising costs associated with the 2015 launch of air purification products in were the primary drivers of the higher SG&A spending. As a result of those factors, segment operating margin decreased to 13.0 percent in 2015 compared with 2014 segment operating margin of 13.9 percent.

Segment sales for the fourth quarter 2015 of were 14 percent higher than the same period in the previous year driven by a 15 percent increase in sales. Excluding the impact from the strengthening dollar, sales in increased 19 percent in the quarter. Demand for water heaters, healthy demand for water treatment products and seasonal demand for the new air purification products drove the strong growth.

Segment operating earnings of were 27 percent higher in the fourth quarter of 2015 than in the same three-month period in 2014, driven by the impact from higher sales, lower steel and advertising costs and smaller losses in . These favorable factors were partially offset by higher selling costs in . earnings were reduced by over due to currency translation. Segment operating margin for the period at 12.3 percent was higher than the fourth quarter of 2014 at 11.0 percent.

Share Repurchase and Other Items

During the fourth quarter of 2015, the company repurchased 329,000 shares of common stock at a total cost of . For 2015, repurchases totaled approximately 1.9 million shares at a cost of . At its meeting, the company's board of directors increased the authorized shares available for repurchase by two million shares. Including this increase, approximately 2.59 million shares remained in the repurchase authority at the end of 2015.

Total debt was as of , resulting in leverage of 14.7 percent as measured by the ratio of total debt to total capital. Cash and investments, located outside the , totaled at the end of the year. Cash flow provided by operations of was solidly higher than the provided the previous year primarily due to higher earnings and smaller outlays for working capital during 2015.

'Earlier this week, we announced a 26 percent increase in our quarterly dividend rate,' Rajendra continued. 'With almost in cash and a meaningful amount of incremental borrowing capacity, we are confident we have the resources available to take advantage of global opportunities that would add long-term value as well as return cash to shareholders.'

Corporate expenses in 2015 of were almost lower than in 2014, as a result of lower pension expense and higher interest income.

The effective tax rate associated with 2015 net earnings was 29.7 percent, which was higher than the 27.5 percent recorded the previous year due to a change in the company's geographic earnings mix. Fourth quarter results include approximately , or per share, of income tax benefits primarily associated with the recently approved extension of the research and development (R&D) tax credit in the and additional research and development tax benefits in China.

Outlook for 2016

'Despite volatile economic conditions in , we continue to expect strong, profitable sales growth in this year at a rate of approximately 15 percent in local currency,' Rajendra observed. 'We continue to experience strong consumer demand for our water heating and water purification products, and our new air purification products have been well-received by consumers.'

'We expect the transition to higher efficiency boilers in the will continue in 2016, which, combined with new products, should allow sales growth of -branded products of 10 percent. We expect moderate growth in commercial and residential water heater volumes in driven by modest assumptions for new construction and steady replacement demand.'

'Our businesses continued to perform well in the fourth quarter, which leads us to expect 2016 earnings to be between and per share. The midpoint of our 2016 earnings guidance represents a 10 percent increase over 2015,' Rajendra concluded.

will broadcast a live conference call at today. The call can be heard on the company's web site, www.aosmith.com. An audio replay of the call will be available on the company's web site after the live event.

Forward-looking statements

This release contains statements that the company believes are 'forward-looking statements' within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally can be identified by the use of words such as 'may,' 'will,' 'expect,' 'intend,' 'estimate,' 'anticipate,' 'believe,' 'forecast,' 'guidance' or words of similar meaning. All forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those anticipated as of the date of this release. Important factors that could cause actual results to differ materially from these expectations include, among other things, the following: a further slowdown in the growth rate of the Chinese economy; potential weakening in the high efficiency boiler segment in the U. S.; significant volatility in raw material prices; inability to implement or maintain pricing actions; potential weakening in U. S. residential or commercial construction or instability in the company's replacement markets; uncertain costs, savings and timeframes associated with the implementation of the new enterprise resource planning system; foreign currency fluctuations; the ability to execute our acquisition strategy; competitive pressures on the company's businesses; and adverse general economic conditions and capital market deterioration. Forward-looking statements included in this press release are made only as of the date of this release, and the company is under no obligation to update these statements to reflect subsequent events or circumstances. All subsequent written and oral forward-looking statements attributed to the company, or persons acting on its behalf, are qualified entirely by these cautionary statements.

, with headquarters in , is a global leader applying innovative technology and energy-efficient solutions to products manufactured and marketed worldwide. The company is one of the world's leading manufacturers of residential and commercial water heating equipment, as well as a manufacturer of water treatment products.

A. O. SMITH CORPORATION
Statement of Earnings
(condensed consolidated financial statements -
dollars in millions, except share data)
			Three Months Ended						Twelve Months Ended
			,						,
			(unaudited)						(unaudited)
			2015			2014			2015			2014
Net sales		$	639.4		$	626.8		$	2,536.5		$	2,356.0
Cost of products sold			376.8			394.9			1,526.7			1,496.7
Gross profit			262.6			231.9			1,009.8			859.3
Selling, general and administrative expenses			155.1			158.3			610.7			572.1
Interest expense			1.4			1.4			7.4			5.7
Other income			(3.2)			(1.7)			(10.8)			(5.2)
Earnings before provision for income taxes			109.3			73.9			402.5			286.7
Provision for income taxes			29.5			20.7			119.6			78.9
Net earnings		$	79.8		$	53.2		$	282.9		$	207.8
Diluted earnings per share of common stock		$	0.90		$	0.59		$	3.16		$	2.28
	Average common shares outstanding (000's omitted)		88,674			90,209			89,505			90,987

Balance Sheet
(dollars in millions)
		(unaudited)
		,			,
		2015			2014
ASSETS:
	Cash and cash equivalents	$	323.6		$	319.4
	Marketable securities		321.6			222.5
	Receivables		501.4			475.4
	Inventories		222.9			208.3
	Deferred income taxes		39.9			40.5
	Other current assets		45.9			52.9
	Total Current Assets		1,455.3			1,319.0
	Net property, plant and equipment		442.7			427.7
	and other intangibles		711.9			737.3
	Other assets		36.6			31.3
	Total Assets	$	2,646.5		$	2,515.3
LIABILITIES AND STOCKHOLDERS' EQUITY:
	Trade payables	$	424.9		$	393.8
	Accrued payroll and benefits		81.5			70.3
	Accrued liabilities		90.2			85.1
	Product warranties		43.7			42.3
	Debt due within one year		12.9			13.7
	Total Current Liabilities		653.2			605.2
	Long-term debt		236.1			210.1
	Pension liabilities		134.2			133.1
	Other liabilities		180.7			185.6
	Stockholders' equity		1,442.3			1,381.3
	Total Liabilities and Stockholders' Equity	$	2,646.5		$	2,515.3

A. O. SMITH CORPORATION
Statement of Cash Flows
(dollars in millions)
				Twelve Months Ended
				,
				(unaudited)
				2015			2014
Operating Activities
	Net earnings		$	282.9		$	207.8
	Adjustments to reconcile net earnings
	to net cash provided by (used in) operating activities:
		Depreciation & amortization		63.0			59.8
		Pension expense		0.1			28.6
		Loss on disposal of assets		0.6			0.1
		Net changes in operating assets and liabilities:
		Current assets and liabilities		10.1			(38.1)
		Noncurrent assets and liabilities		(11.1)			7.5
Cash Provided by Operating Activities - continuing operations				345.6			265.7
Cash Used in Operating Activities - discontinued operations				(1.2)			(1.8)
Cash Provided by Operating Activities				344.4			263.9
Investing Activities
	Capital expenditures			(72.7)			(86.1)
	Investment in marketable securities			(428.8)			(321.9)
	Net proceeds from sale of marketable securities			315.4			202.0
Cash Used in Investing Activities				(186.1)			(206.0)
Financing Activities
	Debt incurred			28.1			34.2
	Common stock repurchases			(128.1)			(103.8)
	Net proceeds from stock option activity			13.7			4.8
	Dividends paid			(67.8)			(54.4)
Cash Used In Financing Activities				(154.1)			(119.2)
	Net increase (decrease) in cash and cash equivalents			4.2			(61.3)
	Cash and cash equivalents - beginning of period			319.4			380.7
Cash and Cash Equivalents - End of Period			$	323.6		$	319.4

A. O. SMITH CORPORATION
Business Segments
(dollars in millions)
(unaudited)
			Three Months Ended					Twelve Months Ended
			,					,
			(unaudited)					(unaudited)
			2015		2014			2015		2014
Net sales
		$	413.7	$	430.7		$	1,703.0	$	1,621.7
	Rest of World		231.8		203.4			866.1		768.3
	Inter-segment sales		(6.1)		(7.3)			(32.6)		(34.0)
		$	639.4	$	626.8		$	2,536.5	$	2,356.0
Earnings
		$	92.2	$	67.2		$	339.9	$	238.7
	Rest of World		28.5		22.4			113.0		106.7
	Inter-segment earnings elimination		-		(0.1)			-		(0.1)
			120.7		89.5			452.9		345.3
Corporate expense			(10.0)		(14.2)			(43.0)		(52.9)
Interest expense			(1.4)		(1.4)			(7.4)		(5.7)
Earnings before income taxes			109.3		73.9			402.5		286.7
Tax provision			29.5		20.7			119.6		78.9
Net earnings		$	79.8	$	53.2		$	282.9	$	207.8

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