AO Smith 3Q net income falls, revenue rises

MILWAUKEE -- Water-heater maker A.O. Smith's net income dropped 80 percent from last year's third quarter, when it gained from an asset sale.

However, the company's revenue improved, and its earnings beat Wall Street expectations. A.O. Smith raised its full-year earnings forecast, saying it expects its business to continue to perform well through the end of the year.

The company's stock added $2.54, or 4.5 percent, to $58.54 in morning trading on Wednesday.

A.O. Smith said Wednesday that it earned $37 million, or 79 cents per share, for the three months ended Sept. 30. That's down from $182.3 million, or $3.91 per share, a year earlier.

Analysts polled by FactSet expected 68 cents per share.

The year-ago period included a 19 cents per share gain related to selling shares of Regal Beloit Corp. and other items. The current quarter included an 8 cents per share gain related to an adjustment to A.O. Smith's estimate on a potential payment related to its Lochinvar transaction.

A.O. Smith Corp. acquired water heater and boiler maker Lochinvar Corp. in August 2011 for about $418 million. Lochinvar shareholders could earn up to an additional $35 million if certain revenue targets are met between Dec. 1, 2011 and Nov. 30, 2012. The company initially predicted an earn-out of $16.8 million but has since lowered that estimate based on the likelihood of a smaller sales increase than initially expected.

Revenue rose 12 percent to $462.2 million from $412 million, bolstered by contributions from Lochinvar and growth in China.

Wall Street forecast $472.1 million.

Sales for the North America unit, which includes U.S. and Canadian water heaters and boilers, increased to $335.7 million from $310.2 million. Sales for the rest of the world segment, which includes China, India and Europe, climbed to $133.8 million from $110.5 million.

Looking ahead, A.O. Smith now anticipates 2012 earnings of $2.85 to $2.95 per share. Its prior guidance was for $2.80 to $2.90 per share.

Analysts foresee $2.90 per share.

Last week A.O. Smith appointed Chief Operating Officer Ajita Rajendra as its new CEO. Current chairman and CEO Paul Jones will become executive chairman.