A. O. Smith Corporation (A. O. Smith), a US-based manufacturer of water heating equipment and electric motors, has reported net sales of $481.6 million for first quarter of 2009, down 16%, compared with the net sales of $571.4 million in the year-ago quarter. It also reported net earnings of $8.7 million, or $0.29 per diluted share of common stock, for the first quarter of 2009, compared with the net earnings of $21.9 million, or $0.72 per diluted share of common stock, in the year-ago quarter.

The market trends we experienced in the fourth quarter carried over into the first quarter of this year,” chairman and chief executive officer Paul W. Jones said. “The latest data indicate the housing contraction will be deeper and longer than last year, affecting a number of important electric motor market segments as well as our residential water heater market. In addition, the weakness in commercial construction that we saw materializing in the fourth quarter has continued into this year.”

“Faced with inventory destocking during the prolonged recession and no sign of the normal seasonal inventory build in our selling channels, we are adjusting the company’s earnings outlook for the year to $1.80 to $2.10 per share,” Jones said.

“Despite the weak market conditions, the company’s balance sheet remains strong, and our cash conservation programs are bearing results. In the first quarter, our cash flow from operations was $6.0 million, a $20.9 million swing from the $14.9 million cash used in last year’s first quarter. We were able to accomplish this despite the fact that earnings were $13.2 million lower than a year ago.”

“Our operating units have aggressively reduced costs in response to the global recession and have programs to decrease inventories worldwide, postpone or reduce capital expenditures, and reduce overall expenses,” Jones continued. “I am confident the company will manage its way through these economic challenges, by maintaining substantial profitability and continuing to expand our new product development.”

Water Products:

Water Products’ first quarter sales of $339.0 million were about 4% lower than first quarter 2008 sales of $352.1 million. Lower sales of residential and commercial water heaters in North America, combined with lower sales in China, more than offset price increases related to higher steel costs.

Operating profit decreased 19% to $29.1 million due to the lower volumes. Operating margin decreased to 8.6% compared with 10.2% in last year’s first quarter.

Electrical Products:

Electrical Products’ first quarter sales decreased about 35% to $143.6 million, as the weak residential and commercial construction markets and customer inventory reduction actions adversely impacted electric motor sales.

In the first quarter of 2009, Electrical Products lost $3.1 million compared with first quarter 2008 earnings of $11.1 million, as the company faced significant volume declines in its end markets. The impact of the volume declines more than offset the $5 million in cost savings achieved from product repositioning activities during the quarter.

Outlook:

“OEM motor customers are forecasting anywhere from 20 to 30% year over year volume declines in 2009, and we are aligning our cost structure with this lower level of market demand,” Jones commented. “Since the beginning of the year, we have significantly reduced our hourly and salaried workforce around the world. And we have and will continue to implement significant cost reduction programs.”

“As a result of weak demand and the prolonged and severe housing slump, we are reducing our annual guidance to between $1.80 and $2.10 per share,” Jones said. “But, we are optimistic that we will still generate $140 to $150 million in operating cash flow this year, despite our lower earnings outlook and higher pension plan payments.”

“And, we see some optimistic signs in our major markets. Replacement demand for residential and commercial water heaters is holding up at expected levels, and we still expect to see the $15.0 million in incremental cost savings from Electrical Products’ restructuring initiatives. Our priorities in 2009 will be to conserve cash while making the necessary investments to maintain our competitive position and high level of service to our customers. This will include moving forward with our water heater venture and facility in India, developing the high efficiency products the market will need, and focusing on renewable technologies.”