A. O. Smith Corp. (AOS) recently posted first quarter net income of $30.9 million, or $1.01 per share, compared to $2.7 million, or 28 cents per share in the year-ago quarter. The quarterly result also topped the Zacks Consensus Estimate by 3 cents. The better-than-expected performance was primarily driven by robust sales growth in China. 

During the reported quarter, A. O. Smith’s sales witnessed a growth of 8.7% to $523.4 million, from $481.6 million in the year-ago period. The growth was mainly attributable to strong water heater sales in China coupled with higher electric motor volumes. 

Segment Details 

Water Products 

Sales from Water Products grew 8.2% year-over-year to $366.7 million. Operating profit during the quarter surged by 50.9% year-over-year to $43.9 million, while operating margin expanded by 340 basis points (bps) to 12%. The growth was primarily driven by higher sales in China and Canada, lower raw material costs and reduced operating expenses.
 
Electrical Products 

Sales from Electrical Products rose 9.9% to $157.8 million from $143.6 million in the prior year quarter. The company also swung to an operating profit of $14.3 million, compared to an operating loss of $3.1 million mainly due to increased sales and management initiatives to control expenses. 

Balance sheet & Cash flow 

A. O. Smith ended the quarter with cash and cash equivalents of $79.8 million and long-term debt of $116.4 million, compared to $44.7 million of cash and $334.1 million of long-term debt in the year-ago quarter. During the quarter, the company raised $29.7 million in short-term debt and deployed $10.3 million towards capital expenditure and $5.9 million towards dividends.
 
Outlook and Zacks Consensus 

Moving forward, A. O. Smith continues to expect earnings for 2010 to range between $3.20 and $3.40 per share. However, the guidance is below the Zacks Consensus Estimate of $3.51 per share, which moved up by 3 cents over the past month as 2 of 3 covering analysts raised expectations. 

A. O. Smith is a manufacturer of water heating equipment and electric motors, serving a diverse mix of residential, commercial and industrial end markets principally in the U.S.
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