A.O. Smith Reports Third Quarter Earnings and Outlook MILWAUKEE, Oct. 19 /PRNewswire/ -- A.O. Smith Corporation (NYSE: AOS - news; Amex: SMCA - news) today announced third quarter earnings from continuing operations of $7.3 million or $.31 per share. The earnings were in line with current estimates.

Influenced by lower demand in a number of key domestic markets, earnings were approximately 42 percent lower than the $12.5 million or $.52 per share earned in the third quarter of 1999. Sales for the quarter ended September 30 were $282 million, $5 million lower than the $287 million of sales in the third quarter of 1999.

For the first nine months of 2000, A.O. Smith sales from continuing operations were $948 million compared with sales of $753 million for the same period of 1999. Nine-month earnings from continuing operations were $39.1 million or $1.65 per share compared with nine-month 1999 earnings of $38.6 million or $1.63 per share.

"Customers in the heating and air conditioning industry are reducing or postponing motor orders as they confront near-record inventory levels of finished product," Robert J. O'Toole, chairman and chief executive officer, observed. "Consequently, sales of motors to this market segment were 14 percent lower than last year's third quarter. We believe the inventory problem has the potential to persist into the fourth quarter and could have an adverse impact on motor sales for the remainder of 2000 and into early 2001."

"Some of the demand weakness has spilled over into other motor market segments, most notably ventilation/refrigeration and after-market sales," O'Toole noted. "Those markets appear to be most affected by softening in the housing industry. Reductions in new housing starts have also negatively impacted the residential water heater market."

Reflecting the overall weakness in its major markets, third quarter sales for Electric Motor Technologies, A.O. Smith's largest platform, were $207 million, $5 million lower than third quarter 1999 sales of $212 million. Excluding the Magnetek motor acquisition, sales were 13 percent lower than in the third quarter of 1999. Operating profits declined approximately 23 percent compared with last year's third quarter due to the lower sales and resulting excess manufacturing costs.

The company is undertaking actions to reduce cost throughout the organization. During the third quarter, the company announced it would be closing assembly plants in Paoli, Ind.; Gordonsville, Tenn.; and Altavista, Va. With all three closings, production will be consolidated in existing A.O. Smith motor plants that assemble the same product lines.

Third quarter sales of $75 million for the Water Systems Technologies platform were slightly lower than last year's third quarter. Weakness in the domestic residential water heating market overshadowed continued sales growth in China. Operating profits for the quarter declined three percent compared with the third quarter of 1999, as lower residential volumes more than offset the improved performance in China.

The company also indicated it was making progress in divesting the Storage & Fluid Handling Technologies platform. "The divestiture process is taking longer than we anticipated," O'Toole said, "but we are continuing to hold discussions with parties that are interested in A.O. Smith Engineered Storage Products Company and Smith Fiberglass Products Company. We remain confident that we can conclude these transactions before the end of the year."

Company discusses outlook

"We expect the fourth quarter to be extremely difficult, as customers significantly reduce production levels to lower their inventories," O'Toole indicated. "As a result, A.O. Smith will experience weak sales and excess manufacturing costs. Fourth quarter earnings are expected to range between $.05 and $.15 per share.

"Given current market conditions, we expect sales and earnings during the first and second quarters of 2001 to fall short of the record results generated during the first two quarters of this year. Once surplus inventories have been eliminated, sales and earnings comparisons should improve as the year progresses. For the full year, we expect 2001 earnings to exceed 2000 results."

The company will broadcast a live conference call today to discuss these results. The call can be heard on the company's website, www.aosmith.com, beginning at 10:00 a.m. (eastern time).

A.O. Smith Corporation, with headquarters in Milwaukee, Wis., is a leading marketer and manufacturer of electric motors and water heaters, serving customers world wide. It is one of North America's largest manufacturers of electric motors, with a comprehensive line of fractional horsepower, integral horsepower, and hermetic motors. The company also is North America's largest manufacturer of commercial water heating equipment and a leading supplier of residential water heaters and hydronic boilers. The company has facilities in the United States, Mexico, Canada, England, Ireland, Hungary, the Netherlands, and China and employs more than 15,000 people.

Forward-Looking Statements

Certain statements in this report are "forward-looking statements." These forward-looking statements can generally be identified as such because the context of the statement will include words such as the company "believes," "anticipates," "estimates," "expects," "projects," or words of similar import. Although the company believes that its expectations are based upon reasonable assumptions within the bounds of its knowledge of its business, there can be no assurance that the results expressed in forward-looking statements will be realized. Although a significant portion of the company's sales are derived from the replacement of previously installed product, and such sales are therefore less volatile, numerous factors may affect actual results and cause results to differ materially from those expressed in forward-looking statements made by, or on behalf of, the company. The company considers most important among such factors, the stability in its electric motor and water products markets, the timely and proper integration of the MagneTek motors acquisition, and the implementation of associated cost reduction programs.

All subsequent written and oral forward-looking statements attributable to the company, or persons acting on its behalf, are expressly qualified in their entirety by these cautionary statements.