UPDATE 2-AO Smith Q2 results beat Street; sees weaker Q3

(Adds conference call details, analyst comments, share movement)

By Bhaswati Mukhopadhyay

BANGALORE, July 17 (Reuters) - A.O. Smith Corp (AOS.N), which makes water heaters and storage tanks, posted better-than-expected quarterly results, helped mainly by sales growth in China, but warned of a significant drop in its third-quarter earnings.

Shares of the company rose more than 7 percent as investors cheered the company's performance in the current quarter, given the gloomy macroeconomic environment.

"The Street was pleased with the company, since it could have been a 'messy' quarter with the macroeconomic picture being what it is," analyst John Collopy of Briggs-Ficks Securities said.

For the third-quarter, the company said its earnings may be "significantly" lower than the 79 cents a share it earned in the year-ago period due to higher raw material costs. The Street is looking for earnings of 60 cents a share for the quarter.

"We expect to experience the full impact of sharply elevated steel costs during the second half of the year," Chief Executive Paul Jones said in a statement.

Steel and copper are the two key raw materials used by A.O. Smith, whose product line includes electric motors, commercial and residential water heating equipment, and copper-tube boilers.

While global steel prices have hit record highs this year, steel scrap prices have almost doubled since the beginning of January.