About STATE INDUSTRIES, INC.

A.O. Smith gets its customers in hot water. The water-heating company makes 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, Turkey, and the Netherlands. About 60% of its sales are in the US, while 30% are in China. The company is controlled by the founding Smith family.

Operations

The company operates two segments, based on geography. The North America segment (66% of 2015 revenue) makes and sells specialty commercial water heating equipment, condensing and non-condensing boilers, and water system tanks. The Rest of World segment (34% of revenue), which consists of China, India, and Europe, also makes and markets water treatment products, primarily in Asia. The company also sells in-home air purification products in China.

Of A.O. Smith's 18 manufacturing plants, a dozen are located in North America (in five US states, Canada, and Mexico) and six are in four other countries outside the US.

Geographic Reach

A.O. Smith is a global company, with manufacturing operations in the US, Canada, Mexico, China, India, the UK, Turkey, and the Netherlands. It boasts sales and distribution offices in more than 60 countries. More than 60% of its revenue was generated in the US during 2015, while China contributed over 30%. Canada generated another 5% of sales. Other large markets include Europe and India.

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. In China alone, A.O. Smith sells water heaters through more than 8,000 retail outlets, of which 2,000 exclusively sell the company's products.

A.O. Smith's client base is fairly concentrated, as its top five customers made up 38% of its total sales in 2015. The company, which has been ramping up its advertising spend in recent years, spent $102.2 million on advertising in 2015, up from $94 million and $78 million in 2014 and 2013, respectively.

Financial Performance

A.O. Smith has enjoyed rising revenue and profits for the past few years thanks to new home building in the US and the continued market acceptance of its products overseas

The company's revenue climbed 9% to a record $2.54 billion during 2015 mostly thanks to a combination of 14% growth in China from higher demand for water heaters, water treatment products, and its newly-launched air purification products; and 5% growth in North America with higher prices in the US and Canada and higher volumes of commercial water heaters and condensing commercial boilers in the US. 

Revenue growth in 2015 drove A.O. Smith's net income up 36% to $282.9 million. The company's operating cash levels jumped 31% to $344.4 million for the year thanks to the rise in cash earnings and lower outlays for working capital driven by increases in accounts payable balances in China.

Strategy

While the US still represents 61% of sales (down from 64% in 2012), A.O. Smith has been seeking growth abroad -- especially in China and India -- in recent years. In 2015, A.O. Smith introduced its line of air purification products in fast-growing its China market just three years after opening its second water heater manufacturing plant in Nanjing to add 50% more capacity to its China water heater operations. With its sales in China jumping 14% and 18% in 2015 and 2014, respectively, and double-digits in prior years, the company hopes new product introductions in China will continue to provide growth over the long term.

It's been investing in other markets abroad as well. In 2014, the company began marketing its reverse osmosis water purification products in Vietnam, including under-the-sink water purifiers, counter top water dispensers, and tankless RO products that produce large volumes of purified water. In 2013, it acquired Turkish water treatment company MiM to expand its reach into the Eastern European and Black Sea water treatment markets.

A.O. Smith has also been innovating with new product lines, with high-efficiency and sustainability in mind to target frugal and environmentally-conscious consumers. In 2014, it introduced both its Master-Fit Ultra-Low NOx commercial gas water heater for the California market, along with its high-efficiency commercial gas water heater Cyclone Mxi product with an efficiency-boosting adjustable burn rate feature that will save energy and lower customer operating costs.

Mergers and Acquisitions

In 2013, A.O. Smith purchased privately-held Turkish water treatment company MiM Isitma Sogutma Havalandirma ve Aritma Sistemleri San. Tic. A.S. (MiM) for $4 million, expanding the company's product offerings and expanding its reach to Eastern Europe and the Black Sea region water treatment markets.

Company Background

Working to expand its US business, A.O. Smith in 2011 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.

The Smith Family Voting Trust controls about 87% of the company.

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STATE INDUSTRIES, INC.

500 Tennessee Waltz Pkwy
Ashland City, TN 37015-1299
Phone: 1 (615) 792-4371
Fax: 1 (615) 792-1521

Stats

  • Employer Type: Public
  • Vice President Of Operations: Steve Anderson
  • Information Technology Manager: Keith Auville
  • Vice President, Sales Executive: Jim Margoni

Major Office Locations

  • Ashland City, TN

Other Locations

  • Charlotte, NC
  • Cookeville, TN