A. O. Smith Corporation (NYSE: AOS) manufactures water heating equipment and electric motors. The Water Products segment makes a line of gas and electric water heaters, commercial water heating equipment, copper-tube boilers, and water systems tanks. The Electrical Products segment produces hermetic and fractional horsepower motors. The company sells its water heater products to plumbing wholesalers and retail outlets. Its motors go to original equipment manufacturers and distributors. The firm operates primarily in the U.S., Canada, Mexico and China. Sears Holdings (NASDAQ: SHLD) is a major retail client.

The company pleased investors last week, when it reported Q2 EPS of $1.03 and revenues of $622.2 million. Analysts had been looking for 78 cents and $606.3 million. The CEO attributed success to "our ability to operate our plants efficiently, focus on cost containment, and recover increased raw material costs from our customers." Management also guided FY08 EPS to $2.95-$3.10, versus consensus of $2.89.

MOST NOTEWORTHY: The process control sector, R.H. Donnelley, Vonage, Coca-Cola Enterprises and Transocean were today's noteworthy downgrades:

• Baird reduced estimates across the board in the process control sector due to lower expectations for North American industrial and residential construction. The firm downgraded Roper Industries (NYSE: ROP), Regal-Beloit Corp (NYSE: RBC) and Baldor Electric (NYSE: BEZ) to Neutral from Outperform and AO Smith Corporation (NYSE: AOS) to Underperform from Neutral.
• Goldman downgraded shares of R.H. Donnelley Corporation (NYSE: RHD) to Neutral from Buy after the company updated its 2007 guidance to reflect deteriorating trends in local advertising.
  
• Vonage Holdings Corp (NYSE: VG) was downgraded to Sell from Hold at Soleil due to liquidity concerns.
  
• Coca-Cola Enterprises (NYSE: CCE) was downgraded to Hold from Buy at Deutsche Bank on valuation and mixed near-term trends.
  
• Transocean Inc (NYSE: RIG) was downgraded to Hold from Buy at Gabelli. Even though the deepwater market continues to be strong, the firm is concerned regarding the continuing weakness in the jackup market as well as the limited upside potential due to the company's ships being in use through 2009.

OTHER DOWNGRADES:

• XM Satellite Radio Holdings (NASDAQ: XMSR) and Sirius Satellite Radio Inc (NASDAQ: SIRI) were downgraded to Neutral from Buy at UBS.
  
• Blue Nile Inc (NASDAQ: NILE) was downgraded to Neutral from Buy at Suntrust.
  
• Citigroup downgraded shares of CheckFree Corporation (NASDAQ: CKFR) to Hold from Buy.
  
• Morgan Stanley downgraded McAfee Inc (NYSE: MFE) to Underweight from Equal Weight.

When you make products for builders, it's best if those products are as useful to the commercial side as the residential. There is a Milwaukee firm in that game that is doing well, despite the U.S. housing slowdown. Management attributes success to the firm's commercial exposure ... and its presence in international markets.

A.O. Smith Corporation (NYSE: AOS) manufactures and sells water heating equipment and electric motors. The Water Products segment makes a line of gas and electric water heaters, commercial water heating equipment, copper-tube boilers, and water systems tanks. The Electrical Products segment produces hermetic and fractional horsepower motors. The company sells its water heater products to plumbing wholesalers and retail outlets. Its motors go to original equipment manufacturers and distributors. The firm operates primarily in the U.S., Canada, Mexico and China. Sears Holdings (NASDAQ: SHLD) is a major retail client.

The company pleased investors last week, when it reported Q2 EPS of 81 cents and revenues of $611.5 million. Analysts had been looking for 73 cents and $606.8 million. Management also guided FY07 EPS to $2.85-$3.00, versus consensus of $2.86. The CEO cited continued strength in China and improved sales in global commercial markets for the solid results and favorable outlook.