A.O. Smith cuts 3Q, full year estimates

Unprecedented increases in steel costs, coupled with cost increases in other materials and freight, are the principal drivers of the shortfall...

MILWAUKEE, WI, Sept. 13, 2004 (PRNewswire-FirstCall) -- A.O. Smith Corp. lowered its third quarter earnings estimate to break-even compared to its previous estimate of $.42 to $.46 per share. Full year earnings -- previously estimated at $1.90 to $2.00 per share -- are now estimated to range between $.95 and $1.05 per share. The revised estimates assume no further escalation in steel costs.

Unprecedented increases in steel costs, coupled with cost increases in other materials and freight, are the principal drivers of the shortfall. Also contributing to the estimated earnings decline are reduced sales volumes for the Water Systems business and lower production volumes at the company's Ashland City, Tenn., plant.

In July, the company noted that both of its businesses continued to face cost pressures brought on by increases in the price of steel and higher freight costs. At that time, it was noted that several price increases had been implemented in the first half of the year in an effort to offset the cost increases. Since that time, the company's steel costs have again increased significantly. Other material and freight costs have also increased.

"The magnitude of the current steel cost increases, with the potential for further increases, has far outstripped the price increases we have accomplished to date. We are in the process of evaluating and implementing significant price increases in both businesses. Going into next year, we intend to have these new pricing structures in place in order to restore our operating margins to more normal levels," commented Robert J. O'Toole, chairman and chief executive officer.

Also contributing to the decline in the earnings estimate is softness in the residential water heater market and in the company's sales to this market. In addition, while productivity levels at Ashland City are beginning to make significant improvement, the lower sales and production levels are masking much of the productivity improvement.

A. O. Smith Corporation, with headquarters in Milwaukee, Wis., is one of North America's largest manufacturers of electric motors, with a comprehensive line of hermetic motors, fractional horsepower AC and DC motors, and integral horsepower motors, as well as one of North America's largest manufacturers of residential and commercial water heating equipment. The company employs approximately 17,000 people worldwide.

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