A. O. Smith claims that water heater and water treatment product sales in India increased approximately $8 million, or over 30 per cent, in 2018 compared with 2017
Water technology company A. O. Smith Corporation has announced sales of $3.2 billion and net earnings of $444.2 million in 2018. The global brand claims that its sales for 2018 grew over six per cent from $3.0 billion in 2017.
A.O. Smith has said that the revenues were driven by demand for boilers and residential water heaters in the U.S. and water treatment products in China. Water heater and water treatment product sales in India increased approximately $8 million, or over 30 per cent, in 2018 compared with 2017.
Kevin Wheeler, president and CEO, A.O.Smith said, “2018 marked another year of growth for A. O. Smith. We saw strong water heater and boiler sales in North America, and we’re pleased with the trajectory that we’re on with global water treatment. He added, “In seven years we have been able to grow our global water treatment sales from approximately $35 million to $400 million.”
A.O Smith’s outlook for 2019
“North America boilers and residential water heaters performed well in 2018, and we expect this trend will continue in 2019. We believe our business model in China is solid, although we have some near-term challenges to navigate through as the China economy remains weak,” noted Wheeler.
He added, “Assuming relatively flat consumer demand in 2019 and without the impact of the previously-disclosed channel inventory build we experienced in 2018, which we estimate was at least five per cent of 2018 China sales, we project China sales will decline by three to six per cent in 2019 in local currency terms and seven to ten per cent in U.S. dollar terms. Since the inventory build primarily occurred in the first quarter of 2018, we anticipate the majority of the related China sales decline will occur in the first quarter of 2019.”
Sales from North America segment
Sales for the North America segment in 2018 were $2.0 billion, a seven per cent increase over 2017 sales of $1.9 billion. The increase in sales was primarily due to higher volumes of boilers and residential water heaters in the U.S. and pricing actions related to steel cost increases. North America water treatment sales, including the newly launched Lowe’s business in the third quarter, incrementally added approximately $29 million to the company’s North America segment sales.
Segment earnings increased approximately eight per cent in 2018 to $464.1 million compared with $428.6 million in 2017. Segment earnings in 2018 included $6.7 million in pre-tax restructuring and impairment charges related to a plant closing. The favorable impact from higher sales of boilers and residential water heaters in the U.S. and pricing actions was partially offset by higher steel and other product-related costs and one-time costs associated with the launch of water treatment products at Lowe’s. As a result of these factors, 2018 segment margin of 22.7 per cent and adjusted segment margin of 23.0 per cent were higher than the 2017 segment margin of 22.5 per cent.
Fourth quarter 2018 sales for the segment of $521.9 million increased 13 per cent compared with the prior year’s fourth quarter sales. The increase in sales was primarily due to higher volumes of boilers and residential water heaters in the U.S. and pricing actions related to steel cost increases.
Fourth quarter segment earnings of $127.6 million were 22 per cent higher than segment earnings of $104.9 million in the fourth quarter of the prior year. The favorable impact from higher sales of boilers and residential water heaters in the U.S. and pricing actions were partially offset by higher steel and other product-related costs. These factors drove the fourth quarter segment margin higher to 24.4 per cent compared with fourth quarter segment margin of 22.8 per cent in 2017.
Earnings from India and rest of the world
Sales of this segment increased five per cent in 2018 to $1.2 billion compared with 2017 sales. China sales increased nearly two per cent on a local currency basis. The Chinese currency favorably impacted the translation of China sales by approximately $23 million. In China, higher water treatment product sales were partially offset by lower sales of electric water heaters and air purification products. Water heater and water treatment product sales in India increased approximately $8 million, or over 30 per cent, in 2018 compared with 2017.
Earnings for this segment of $149.3 million were flat in 2018 compared with the prior year. The favorable impact to profits from higher water treatment product sales and improved performance in India were offset by the impact to profits from lower sales of electric water heaters and air purification products, as well as higher sales, general and administration expenses in China. Higher advertising costs related to brand building and higher product development engineering costs were the primary drivers of higher SG&A in China. Segment margin in 2018 declined to 12.7 per cent as a result of these factors.
Segment sales for the fourth quarter 2018 of $297.6 million declined five per cent compared with the same quarter in 2017. China sales declined three per cent in local currency, as the China economy continued to weaken. Higher sales of water treatment products were more than offset by lower sales of water heaters and air purifiers. Compared with the prior year, the Chinese currency depreciated in the quarter, which unfavorably impacted translated sales by approximately $12 million. India sales grew over 25 per cent compared with the same period in 2017.
Segment earnings of $39.5 million declined 22 per cent compared with the fourth quarter of 2017. The impact to profits from lower China sales and higher advertising costs, primarily related to on-line selling holidays in China, more than offset improved performance in India. As a result of these factors, segment margin of 13.3 per cent declined from the 16.2 per cent segment margin in the same period in 2017. The depreciating Chinese currency negatively impacted segment earnings by approximately $2 million.