A.O. Smith has water on the brain. Controlled by the founding Smith family, the company makes water heating equipment for residential and commercial users. Its products include home gas and electric water heaters and large-scale commercial water heating systems. Its Lochinvar subsidiary specializes in high efficiency water heaters, boilers, pool heaters, and storage tanks. A.O. Smith sells its products in North America and China through a network of more than 1,000 wholesale distributors, as well as retailers such as Lowe's and Sears. A.O. Smith has operations in the U.S., Canada, Mexico, China, India, the UK, and the Netherlands.
A.O. Smith is a global company, with manufacturing operations in the US, Canada, Mexico, China, India, and the Netherlands. It boasts sales and distribution offices in more than 60 countries.
The company operates through two reporting segments: North America (73% of revenue) and Rest of World (27%).
Both segments make and market residential gas, gas tankless, and electric water heaters, as well as commercial water heating equipment.
The North America segment is responsible for manufacturing and selling specialty commercial water heating equipment, condensing and non-condensing boilers, and water system tanks.
The Rest of World segment, which consists of China, India, and Europe, also makes and markets water treatment products, primarily in Asia.
Sales and Marketing
A.O. Smith sells its products in North America and China through a network of wholesale distributors, including more than 1,200 independent wholesale plumbing distributors with 4,400-plus locations that serve both residential and commercial customers. It also sells its residential water heaters through retailers, such as Lowe's and Sears.
The company's advertising costs reached $69.2 million in 2012, up from $58.9 million in 2011 and $47.9 million in 2010.
While weak demand for residential and commercial water heaters in the US spurred sales declines for A.O. Smith during the economic recession, since 2011 the company has seen a rebound in its revenue. Indeed, A.O. Smith is benefiting from a return to new home building in the US and the continued market acceptance of its high-efficiency condensing boilers.
In fiscal 2012 A.O. Smith logged record sales of $1.9 billion, exceeding 2011's $1.7 billion in revenue by 13%. The company attributes the gains to its new Lochinvar-branded products. Having acquired Lochinvar in 2011, sales of Lochinvar rang up $75.9 million in 2011 and totaled $225.7 million (for its first full year in 2012 under A.O. Smith's umbrella). A.O. Smith also logged 20% higher sales volumes among its branded products in China. The company was able to grow its business across all geographic markets except Canada, which saw revenue declines of 6%.
The US represents more than 64% of sales, but foreign markets have become increasingly important for A.O. Smith. To this end, it has been investing in growth markets, such as China and India, that have been more insulated from the global economic recession. Looking to serve this growing urban nation, A.O. Smith has boosted its presence in China, where 2012 sales rose 21%. Sales in India weren't far behind, logging an 11% increase in 2012. A new (second) water heater manufacturing plant in Nanjing, China, went online in mid-2013 to add 50% more capacity to its China water heater operations. It's expanding in India, as well, to accommodate more water heater models, in-source some component manufacturing, and meet local demand. A.O. Smith is spending some $40 million to continue the construction of the new manufacturing plant in China and complete the plant expansion in India.
Mergers, Acquisitions & Divestitures
A.O. Smith has worked to expand its US business. In 2011 it bought Tennessee-based boiler manufacturer Lochinvar for some $418 million. The addition of Lochinvar gave A.O. Smith entry into the growing residential and commercial condensing boiler markets. Strong client demand to improve efficiency of hot water delivery and hydronic heating systems is expected to help increase sales in that segment.
Also in 2011 the company sold its electric motors segment, Electric Products Company, to Regal Beloit. The deal included $700 million in cash in addition to stock in Regal Beloit. A. O. Smith plans to use proceeds from the sale to continue to grow in emerging markets.
The Smith Family Voting Trust controls about 87% of the company.