AOS - Earnings call transcript Q4 2018 | A. O. Smith Corporation

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Operator

Good day, ladies and gentlemen, and welcome to the A. O. Smith Corporation Fourth Quarter 2018 Earnings Conference Call. At this time all participants are in a listen only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. reminder, is a recorded. As Instructions] this being conference [Operator for introduce Patricia Investor I'd to host Relations. today of now like President your conference, Vice Ackerman, Senior Please begin.

Patricia Ackerman

gentlemen, joining Thank John thank me Kita, Officer; Chairman; participating are Officer. results ladies Kevin Good call you, With and Chief the Rajendra, Norma. conference call. Financial you on us and Ajita for in our Wheeler, XXXX morning, Executive and Executive Chief

the remind begin that have with I you provide risks constitute this will order Kevin's made adjusted forward-looking that and to business, net this different. will income release. comments actual In earnings transparency to press improved are we could described These statements adjusted during answers share in of results materially we include, be provided results that Before risks Those to including of to would morning's some earnings, per the forward-looking among tax into operating remarks, call, to others, cause statements. measures, that subject like be our rates. questions, effective conference non-GAAP we adjusted your matters

to XXXX XXXX a website. please Tax our as the turn. one the queue, of end to For the our related and of Also, -- and to the at Reform. exclude on provided appendix follow-up measures question to in measures Renton, costs our closure exclude plant in GAAP the restructuring per expense yourself are non-GAAP this presentation others tax And limit some estimate also that for and one question courtesy in the that total with exclude total impairment that U.S. associated Reconciliation Washington.

over turn who the will now please to prepared slide begin four. have queue. our you the multiple questions, on remarks rejoin Kevin, If will I call

Kevin Wheeler

and Thank gentlemen. you, and morning, ladies good Pat,

sales products residential continued our Our the positive water in growth demand for treatment markets heaters driven by water was and in boilers, end China. digit XXXX in mid-single for U.S.

Record earnings at over XX%. sales X%. highlights. a are X.X Record grew adjusted grew share per few Here billion

we We have with are proud treatment platform seven last the approximately about treatment XXXX. Beginning grew sales XXXX of in significantly over years. built in million million $XXX water $XX of the global China, we to water in

organic experienced bolt-on we the launched supplier water status water China, global treatment engineers added to and rapid products water and treatment added our achieved We growth business several in engineering we U.S. acquisitions in Vietnam water Lowe’s treatment in treatment the in in technologists India and As centers. and Europe, for exclusive U.S.

repurchased to and in continue increases our is to the dedicated flexibility U.S., to We shareholders. return compound will allocation announced our We sheet. cash In XX%. year five the for and annual XXXX John our overseas portion detail with growth balance $XXX dividend XXXX, million review rate our increasing shares dividend over We to of two slide beginning capital approximately in results we the nearly million. cash five. million describe now our $XXX of more repatriated of X in

John Kita

partially XX% from billion of net with due in of XXXX. with increased local North treatment higher earnings offset basis. sales. higher impacted on the sales Lowe's nearly compared XXXX. increased sales per of America related associated X% added launched including of In compared volumes to America was with approximately segment China the increased in sales $X costs to billion steel over X% XX% and sales Adjusted our America of were over slide translation currency XXXX residential The newly XXXX. sales business of impact the increases. eight, boilers and quarter steel higher and heaters China approximately heaters XX% North water sales XXXX. U.S. increased boilers water XXXX. treatment onetime of of partially of million. prior the adjusted $X.X $X China products actions compared year with The The increased water of year. $XX our the compared electric $XXX segment and heater On water in $XXX higher or pricing segment Rest increased incrementally at were Lowe's. the in million third the India purifiers. $XX than a X% consumables sales including treatment with segment billion cost water water treatment favorable America XXXX. sales nearly currency and earnings $X.XX Chinese lower to currency World Adjusted heaters for offset million air segment approximately were North in in and residential by higher $X.X by primarily pricing launch the and Sales compared increase costs in actions earnings earnings XX% of million North Water favorably grew terms the from share in million by water Sales X% with local sales

earnings engineering these SG&A The brand performance factors water result a profits a these product India. from sales of building lower as and Rest sale than million was advertising profits in related air Segment impact were products As the well XXXX of of margin XXXX of in higher $XXX XXXX. as or margin of of were higher primary to segment expenses of heaters from World the treatment to offset by SG&A improved generated compared and flat XX% result XX.X% development drivers costs China. and higher of in electric as purifiers, in with higher factors. water the declined favorable impact higher Higher XXXX.

flat expenses XXXX. compared essentially corporate with were Our

and and approximately U.S. were XX% factors million residential XX.X%. in more by income the increases. of X% segment the our in North weaker declined partially October water than quarter sales $XXX than sales fourth last boilers in offset higher earnings million impact XXXX compared XXXX. drove treatment purifiers more steel pricing rate margin Reform of earnings X% of down than the sales compared selling XXXX. of in steel in of The primarily costs actions experienced Chinese compared holidays XX% with impacted Tax in exchange local the -- effective residential higher $XXX adjusted higher share primarily the in These same cost from of online continued in higher guidance. was sales in with related to offset quarter rate $XX due results our Chinese World sales by consumables fourth from air by was XX% sales heaters heaters China quarter segment performance fourth compared $X.XX products, of with same for of America of improved favorable by XX% quarter actions compared higher in U.S. China from per tax the XX% were foreign in year. was million XX.X% purifiers. profits segment and fourth unfavorably XXXX, Rest increased offset XX, lower The other due quarter quarter in quarter impact the sales compared of treatment per and benefited water North Sales million. sales heaters million India. earnings currency currency compared XX.X% water XXXX. economy air to the World $XXX to with XX.X% and the declined in of same products sales XX% of XXXX grew lower higher from translated to in quarter water same were fourth same The China Adjusted The XXXX. million $XXX with XXXX, in were including to and to Rest were the X% $XXX Fourth boilers weaken. by sales of of of foreign segment costs. increased XXXX. quarter negatively input higher water advertising U.S. the On Higher increased XXXX and over India adjusted fourth XXXX. the slide in quarter water profits earnings quarter as share than Our the $XX lower and million with earnings period than impacted the million. XXXX. in $X.XX with segment and increase and $X the of heaters to higher Sales to benefits volumes the America related approximately pricing earnings currency of

a result factors, the declined these from of margin As same segment significantly XXXX. quarter in

fourth working fourth provided adjusted capital rate compared provided of the XX.X% XXXX primarily during items during Our the in with was improved earnings corporate Higher the were XXXX. lower to the rate outlays several in in of period and The miscellaneous lower quarter flow. same quarter for was million XXXX. reasons expenses effective Cash tax operations primary compared year's cash reform. than by lower quarter the due $XXX last for and were fourth with in million the to XXXX, due $XXX tax

Our position balance and at ratio of our sheet remains debt-to-capital XXXX. was strong, end XX% the liquidity

balances million end $XXX cash at cash the XXXX. have located approximately million totaling and We was offshore our position $XXX net of

X million we common of stock XXXX, $XXX a of total shares million. During repurchased approximately for

our The midpoint its X% Our Board guidance between the Over increase shares the assumptions. XXXX EPS increased morning, with XXXX per EPS the compared of with Please end several guidance December. at authority X December repurchase in a slide to remained our adjusted This XXXX for million turn we X results. XX eligible $X.XX range EPS meeting. our share. on announced the million $X.XX repurchase and of represents by existing our for of shares at number of

million million, in which flow cash $XXX than We in million expect be our $XXX $XXX XXXX between is and XXXX. to from higher operations generated the

capital lower higher expect outlays and earnings working year. this for We

is spending estimated $XX and XXXX and in XXXX. plans our depreciation approximately approximately million, be Our amortization are capital to $XX million expense

other XXXX, primarily to the XXXX, inflation. $XX in expenses to expected due million and corporate are $XX in be higher approximately million Our than

Our to rate approximately XX.X% in XXXX. be effective income is tax expected

the shares our million approximately XXXX. repurchase to expect amount $XXX in of in We

shares on summarize XX. XXXX outstanding who the our guidance diluted and average will be in to our beginning assumptions million. will expect back I We $XXX.X for now Kevin, turn approximately call business will slide XXXX

Kevin Wheeler

John. you, Thank

for expansion driven XXXX We volumes well for residential Our continued demand XXX,XXX replacement includes continued between to of new XXXX share following due product to industry market boilers condensing gains. revenues U.S. and construction as XXXX, X% XXX,XXX assumptions. increase project in units in new grew demand, solid water Boiler related by outlook and will units. growth heater as tankless the in

boiler is profitability We water due grow loss India under from XXXX. in in XXXX losing in be India $X in in water improved XX% million approximately expected to treatment. XXXX. over And businesses be water EBIT for to our will million project total in million XXXX. XXXX. our expect We in India to India $X water treatment profitable loss to positive The in our overall million continue in and scale will and $X improvements We sales $X be XXXX heater in to to XXXX heater business

currency XXXX XXXX. of and Our weaker year. today is forecast the the than half Almost it impact FX is is of Chinese slightly than weaker for first all in over last expected in X% the

we in half discussed, to quarter believe first and We built. in the decline least in of sales inventory growth first due majority the half after the estimate fourth previously the inventory last X% of customer year in XXXX As at was quarter. customer the increased with XXXX, grew of China the occurring a the the flat relatively

XXXX build, weakness local economy sales X% X% the is inventory unfavorable full China year occur projection currency translation XXXX. Without be relatively flat continued of a assuming with are will We for X% the impact to all Combined currency, consumer China full Chinese or year of our of to down channel half to projecting the expected an the demand we're in in XXXX sales and the of in year. XX%. first X% decline which approximately the in

our quarter of the project The China The a XXXX, first inventory of comp. the for in estimates headwinds. faces be sales significant creating earnings in of will majority XXXX. or first the the local first currency the sales XXXX million impact approximately the decline. quarter XX%, occurred in build some quarter of approximately We quarter $XX of difficult China will China to decline in Due first XX% approximately that

headcount unfold will As as and savings year the progresses. SG&A

year addition, currency in In the China at level quarter the of XXXX. was its first for strongest

by estimate will quarter X%. As a sales result, first unfairly we currency translation impact approximately

be significantly steel the Please compared quarter XX. slide costs XXXX with XXXX. addition, in to will advance higher In of first

to Continued heaters, grow momentum water collectively to in XXXX. water North expected X% and in boilers American treatment up

Our solid achieve China and to continues business is model margins. low-teen in

and X.X% We for is be between have local X.X% the navigate near-term $X.XX. U.S. to as and $X.XX currency. week. challenges revenue remains Chinese to the and to We in through X% economy dollars EPS X% year growth between project projected be will in

of America our to differentiates approximately XX.X% North segment water uncertain believe we heater margins these economic defense and be A. World XX% boiler replacement of and stable between Especially and XX% we Smith times, from which We markets, other XX% Rest America segment industrial O. margin in to companies. to XX.X%. between be expect believe positively represent volumes North

to have return as as add cash we well We of That available take strong us advantage shareholder are a questions. sheet balance value, to now poised acquisition remarks to concludes our prepared and that allow for your shareholders. strategic

Operator

Instructions] comes Scott from BMO Graham Thank first Capital question [Operator Markets. you. Our of

Your line is open.

Scott Graham

morning. Yes. good Hi,

Kevin Wheeler

morning. Scott. Hey, Good

Scott Graham

guidance losing but you're year-end. retail of secondly, build, quarter also deteriorating the half that thought is throughout in you sales if been in you understand losing we've it have, be the the some pretty been view think XXXX as XXXX still is guess, as So because that decent. now? [ph] an China China, of XX,XXX China chasing does for with -- what I by or do your you the housings I question number declines weak, time. away kind situation have are; the And simple inventory gives difficult. I China first the share but A, do now important were which you're that a first looks the come eliminate year. able confidence the has think I sales in from And you there sales inventory you mostly what you'd I -- channel you guess, the in very Do that the that we can to the that the appear in from is guess, questions weaker,

John Kita

there, questions Scott. of lot A

if probably one, what start a in heater at any standpoint from was seeing with X% to look was XXXX. down data share market, last it for we're lost X% So minimal. we when And the I'll share the it we water

we be not and as Number thought. sales the second treatment, very the we now variety that lost that we question I real thought what up we a quarter as So the it's we and that say up talked every were year as year. fourth much at the the by it's on good had and year mean, factors. we late I the of few half housing in also we'd Water the consumables, anticipated a that's water but take be really holiday I fact there didn't inventory especially points we is of driven products in in heater originally and said. in weak because had gotten what we what you China. an was call those the your had now and we online were share and look we that about and that two, metric it's One we we earlier said those would -- have for just a October down year on housing of we market we'd mid-price down didn't is, thought and as think weak we're was have is the better weaker. mean good

that you level are are kind weak. now. level if now at sell is on of of a This that We the with economy XXXX. when we based next Then will assumptions out not stays year kind the forecasting is our look

a water some last to up the of cetera. we build not… pickup. first new treatment the quarter. that’s much is occurred have we our see to going right, say et because year not inventory the in But recovery products, difficult quarter air picked we're first And you're purifier So We're of going because in

Scott Graham

in can quarter there's out, to this you actually first -- not it’s inventory you an had. this channel what that opportunity flush we for suggest essentially here now So I

John Kita

let's No, saying repeat to Scott, we're I inventory itself. in last to that. wouldn't build $XX is really of necessarily year's agree first going it had with we're that's saying What probably $XX not million quarter million say and

the to not quarter. out up. first flushes saying that's in I'll and year the just because think take a we're because don't down it comp having inventory going build a quarter. we very the we're difficult hope some it we're to say up I We no, last So It's inventory weak built

also can X%. mind. spending every up include good whether sales the number X% the I negative. we All that And you We et water retail -- decline you to will heaters consumer said, that'll one actually tell question market Now spending, sales some look a our happen capital But same housing X%. is was my know advisors about commercial retail so depend. it's is I ask will you cetera tell not at not in metric in but they're of well

So XX%, was up and XX%. treatment water down it weak, was very air was purifier

we a have we So continue increase. of we quarter that get million went products treatment $XX a year, adding. the to and some to from think very first we to after Again new place stable we to starts expect $XX in of kind the Water million point. had good consumables

the So first just getting quarter. through it's

So I I know, your questions, if don't Scott. all answered

Scott Graham

part most If gas X% was estimate to the on appreciate your side you're the just this sneak here very it the electric the within I was For would could it answers. broadness than that much the weaker John X% of side China market one on you would I down say? suggesting in and

John Kita

year mean, electric I numbers Surprisingly the the X%. asked down was was saw that was about you X% down gas the electric I me been have gas the thought would would if was weaker. down we have would have for

Scott Graham

Thanks.

Operator

Thank you.

of Our next question D.A. Davidson. comes from Summerville Matt

open. line Your is

Matt Summerville

Thanks.

of excess sort channel are on $XX about John And inventory. is Smith inventory? A.O. Can excess the amount clarify, talking then to of… just million you you of Just some has sitting itself

John Kita

-- clarify that. me let I'll No,

exactly exact, my we've that's customer can't lot good with talking at year-over-year. have I sell about and only we’ve of out looked X%. pretty what's know inventory I done we what is think a be don't we've why in inventory done analysis, levels. to we right. some that's this why them, come we've discussions we're So channel And indication,

all, Our not they than Smith what up inventory at really A.O. are no were. are different levels at they

So we're that's only talking information. because channel exact and don't we about inventories estimating we're have why

Matt Summerville

Got China for water clarify reduction air just XX.X% you then a baked grow you how to savings margin? is to doing with that is treatment well as as you. costs XXXX, sticking for And purification? Smith can standpoint what it. to China, much in XX% in expect much segment then And from -- A.O. and Thank how also

John Kita

Well.

we're one is it’s So expect we air And -- product year. we be was be down to play. also led have the well. advertising again consumable very decent take that low-double million, tell because can and million, take it labor is kind throughout will which you obviously, it We to doing out will purifier, I XX%. Whereas and is up XX%. occur reduction the portion low-XXs. of up the SG&A of to that about that into headcount expecting of a we're ultimate factors about we're $XX XX% the amortization. in think these the $XX treatment expenses by of set that's think water we fixed face will our headcount, of doing base We bringing and will it And piece, digits, certainly store be new which some numbers

certainly we SG&A can. every that opportunity are looking on we So at

Kevin Wheeler

areas go and But talked those end, efficiencies to to as we've the to evaluate so business just and right that that about, headcount the and stores our with cuts over those make the implemented last SG&A, productivity continue unproductive that, couple going list cost we'll that remain constantly we business. that continue for regularly over In where like of the eventually forward. are continue SG&A is we've we've to to we them we the outlined and have overtime. I ways improve are the on reviewed point of the going market. come so but amount take add store calls. get of to Yes, the I Certainly business to last three the is get looking progress months action that all reductions the six And in size or all make would the the that to high the the be business so we'll to they're for sales appropriate those into on time. them, sized right in mean,

priority increasing driving ongoing for and along with sell an businesses our that's new So out product our sales.

Operator

Thank you.

next comes question of Hammond KeyBanc. from Our Jeffrey

line is Your open.

Jeffrey Hammond

Hey, good morning guys.

Kevin Wheeler

Good morning.

Jeffrey Hammond

margin any down the incorporate or kind you think just kind So so is of of there back flat in down in on then, of million XX% the just World? restructuring big decremental? you get $XX on and struggling a is that, with onetime in margins sales that decremental kind that charges I back in China, that I'm of how dip And true guess, on Rest I to near said

John Kita

of the no China so if past, in in that's Lochinvar our Well, it Lochinvar we higher publicly boilers. XX% -- of that, gross kind more than kind than in really that's our said boiler and at margin commercial look at you

So that of margin bit a contribution would looking -- higher. sort be little then and at

Now that significant in you you’re benefit the But compare have from and taking headcount also plant obviously -- year. when to prior some when going some out in we're efficiencies to reduction have SG&A. you reduction

then specifically a low of quarter. about down And continue you And to the is there advertising significant end and are hopefully of year, we first that is volume decline our And of assumptions and again how continues. you'll comes the the over benefit. reductions play our and so have headcount low-end we to getting the point. this improve, some SG&A on expect So get India estimate start margin the X taking throughout we then

there. get we So that's how

Jeffrey Hammond

helpful. Okay,

any America? do price America, in any contemplated additional on North Just you or North announced

Kevin Wheeler

position dealing A. time. pricing on addressing tell our what go the I position you as that We will we and And that with is a over Smith and would said to comes be always we that what those is up forward. subject our And past history calls. costs the continue of -- these that's in and O. has

Jeffrey Hammond

of been deflation Okay. on -- some from roll? just timing see lower has some there on the where then steel, to what's kind of these start cold benefits inputs the And in you’d some of

Kevin Wheeler

their starts little it their the our to and is we’re you stays in the last if necessarily monitor the now, we bit and kind is the that here, second that quarter. of consultants the of will expectation is increase a that, it feeling to steel getting cetera. But assuming, think feeling we'll hit and certainly but I talked bottom I et the continue we’ve It can't year their and from is half quarter, where second costs you we've tell in -- starting start why, really benefit get

Operator

Thank you.

comes Our Stephens. question Robert of from next McCarthy

line open. Your is

Robert McCarthy

Good everyone. are you today? morning, How

Kevin Wheeler

morning. Good

John Kita

morning. Good

Robert McCarthy

how on of versus the guess, numbers take skeptical outcomes of comment you you right, you've bears thinking about the for year? All affect down could XQ predicated think some expect any just to visibility? for because of What that terms will guidance to in do we maybe sense I maybe going hinge? the full what and full during when to XQ for in out, better you the looking China be all going really to is year. compare, for When will great. sense view sense a out and of shaking incremental us given how on and the are China highly the do things gives plays fact just the you mean, going greater obviously, have an cast XQ obviously, allow update, have of I near-term, question, in terms And you're a and to better China first various it's of sometime give a because, what about think that you you're somewhat October. talk is trajectory So had kind you'll the your you're the this visibility?

John Kita

Well, I'm Obviously, closely. an along, goes monitoring Kevin we're not to continue it very as can have incremental we'll sure going the quarter I'll add, start, update.

I come think play. of as to of statistics out kind have to we some the see what

something there's with would trade about we China to from standpoint no to doubt positive continued the consumer think respect has negative that. housing again resolved it issues. U.S., if So a Certainly, be confidence be got

positive. that think be a would certainly we So

those So we're the monitoring. things are kind of

Kevin Wheeler

Okay.

QX to is quarters. on that, one add to normally Just our of lower

really sellout product festival spring we're the it'll and as And by point busier going quarter this, so get through products at coming March to continue which look is as that by then a of get incremental we category, second be expect we'll is read in making better channel at mid-price for lot And quarter, us. we to So business. a as our and obviously to again, up into sales those and then lot different closely we also our looking organization. add a to introduce channels of sure and a

year, into on So second as the a of get get part we economy. of the the half we'll latter read the China

As John said, we'll get a read on tariffs, going. so where they're

to than that give today. work through themselves better answer we you things of have there's a few kind a for us So to are

Robert McCarthy

product switching and a America, term area a But of there seems anecdotally seems in And be I North have mentioned gas share. products in you longer tankless solid Okay. be and that's that in think over gaining and you do tankless then. suite particular category overall gears an the strength Obviously just to to then some reasonable tank that particularly it be the sounds of that and strength there? manage of to term attractive category like the kind replacement be, could going And the forward, and kind that cost that the context of that it eat would the longer what seems down. coming could of in because cycle. Are your response product a we be traditional a category concerned how over installs into you

Kevin Wheeler

or? American North talking you are And Okay.

Robert McCarthy

gas. America Talking North tankless

Kevin Wheeler

Yes.

Tankless, -- come this units we We decline we’ll at to we go that increase from a low-double digits tank, in XXXX really as forward, hot expect bit in but a you consumers bring year we’ll changed. year, probably year. to the if hasn't view tankless, business. XXX,XXX in to recently, Our be we strong very were we And up tank the XXX,XXX whether various expect be growth. water be just that still solutions look strong

decline, we various consumer. would solution every installation and the I the because commercial product probably organization, become not But both the is as it affordable. again, every line our agree provides those would more broad cost for solutions. back think we step And breadth an solutions would I the right provide residential overall, So, as of solution of

as forward, where market the go moving. comfortable So is we we're

in think that. we're with on to I position products capitalize

our our at distribution, in look organization. You strength sales brand, our

whole, in and player itself it's continue a leader major believe we were a those where Smith comfortable will be going as So market the and to categories. A.O. industry a

John Kita

but X% It market. still is close, of obviously about very is still it’s the it we are total monitoring

So, is total small a I it of the mean, part market.

Operator

you. Thank

Our of next & from Scattergood. Ryan comes Connors Boenning question

line Your open. is

Ryan Connors

you. thank Great,

to continue topic mentioned some want some apples you issue these a the on of the the talked all past way and of of the the trade consumer I you've to seen calls up guess that of On down minute. got growth world. down impacted that China about the Just the any end. limited end we've and for as John share lack player high the that's thereof high talk from on but or loss, a how on market the if the just about can you've you you strata in presumably of various And

John Kita

been think good has data. this Well, we you there's tell the and marketplace. no But growing end I don't in I would tell would you high

there's we everything's still good that that’s says the heater, very going that. well. of I water the place look not we kind this different is seeing have share kind again a well don't to an where at my But that's stable China fact that of think on in But estimate, not environment lost do guess the that the strata. on group you the that of just is have But when data really so in still that you're haven’t You doing up people lot trading economy is buying. that

Kevin Wheeler

that's that And has from distributors in of kind that lot I organization, a slowed stable past. echo get the the down. market is our our is relatively and would that been just trade back not of not it promoters has or But premium up feedback the the sales trade we store and where

Ryan Connors

of just the on When you Got an growth I in And can question kind organic potential just discuss the the trade issues. and China mentioned versus my basis Kevin but relative catalyst, then trade it, from the happening interplay okay. to stock between probably I a certainly is price what, resolution up in guess you issues. some terms being in you deceleration in impact discussing of long China people But a before way. -- you'd in were think you slowdown other how divvy that right be trade would China -- trade what's the do these

So trade really deceleration related this catalyst? versus much natural therefore market a potentially a just to in being how that is and the of

Kevin Wheeler

exactly and their described view in know simply is China, the from consumer Yes, of way out. just tell point slowed market than certainly there is slow perspective to simply a job just of been back. or back when it and a consumer I from any various it in down we've that in would that they've has parts the you the would or when seen down some macro industry in friends pull down, slowing we their tariffs Chinese Wonder layoffs a U.S don't other no they different parcel just maybe consumer but has starts a how you if take your

we And And take the so, fact get that on believe information but the more get comment if there's we tariff of is on will where the that to and we what just and resolved more they that some those of settled time, will the confidence my free go, some that's economy impact once the confidence and patterns their consumer down consumer in had in tariffs that the resources up. and some are here spending saving remove normally U.S. the for it Chinese and an should the has up. indication uncertainty that tariffs that uncertainty would for is their do one We going that believe is when and feel things will again more know is today back and consumer funds based free on we

but the what's we're confidence certainly So we in on really on the a other side, housing been from side, slowdown that's has has tariffs the by months. a where at. Certainly impacted and going been been believe recent consumer there the bit

Operator

Thank you.

Mike Our question next comes of Baird. Halloran from

is line Your open.

Mike Halloran

morning good everyone. Hey,

Kevin Wheeler

Good morning.

Mike Halloran

versus for now China on for what's your oriented splits first, the splits water replacement the on exiting newbuild estimate business? best that XXXX heaters core So

John Kita

I a that’s none data we have you're any about seen -- haven't data, mean, I China of don't say, think I I don't to the it’s XX%. hard except different talking think, business.

Kevin Wheeler

XX% in bit less. little a tier X and

John Kita

any is that nothing And haven't data. necessarily gotten I updated increasing.

Mike Halloran

replacement And on is what What point? percentage your side water at this treatment consumables? part is

John Kita

million I year. million, year this it so about from last went all $XX of consumable part was -- the $XX was up

that to when consumable look at we tracking would nicely, be $XX the XXXX. very again million are expect we over So

the and progressing way just thought. have would tracking that's we So

Mike Halloran

level. the suppose for saying And I cadence North as cadence other It underlying side. us here? on America, U.S. market well as you're adjust deterioration here, if Maybe China viewing year. words, on through give the just no then inventory the in like trends just how well. in current China a seems on can from In of you're thoughts you from cadence stable some from improvement, no from the

Kevin Wheeler

and I'll commercial. of side break residential U.S. the guidance XXX,XXX remember we about pretty year units. off talked the over coming you that about believe strong $XXX,XXX that's got business, residential We type from and Well $XXX,XXX. of out a to Again our residential

modest that's to about modest talk some housing XX% growth is going some there replacement. course still but and of of be So slowdown, growth,

to just growth is from industry expo On back the front, large from X% X% sales talked consensus commercial that we earlier there. from the organization there a about is we customers, and our as AHR came out a our

Our is solid. order still pretty book

the both rapidly, we're bit both channel growing, first the extending in so, conservative in more But comments not in half. we're year, sides a And of half the but sections. the residential and commercial of optimistic growth their overall solid and second in

Operator

Longbow comes from next Thank you. David question our MacGregor And of Research.

is line Your open.

David MacGregor

to call John, everyone. about and back just talked to you morning earlier good the points. China in in Yes, want price middle go representation building

just a some are bit points? better. you're the consequence just share you in So about up in to with stable a that's a going that market, that margin the growth clarification, provide stability. come seeing are in of as but talk pick you still And I XXXX talking doing participating what presumes your going all some to segment when in expecting weakness incremental premium first little maybe China, price guess you that about in just of all the of you would from your Or to middle

John Kita

that's inventories sell and for little be is bit pick what either the we expect hope the three And that a hope of from year. relatively would to year or the little a we do that quarters down bit we if down that I X% we things, last have move out two to can be able the to Well stable. we year one said whatever will what take the we'll or up X% for would

change share premium we we'll we midpoint expect are And we and basically to maintain we have much, in is some that. there don't area for is that hope So market the that where going the new there. products growth

David MacGregor

Can you how give point a commercial in mid-price the sense opportunity kind franchise us standpoint, legacy much any premiums? is in sizing the of bigger from versus your

John Kita

and of back of XXXX XXXX, price increases that I bigger, moved won't it's we significantly into it's necessarily going kind had when had we out say market. just

increases to And price out. we’ll been have get we what were trying in do that so, the market, so we

to X,XXX call mid-price we as So RMB X,XXX. RMB

help that, growing. on this we putting And us so, specifically back will into online, is products is think we're now what which which the

Operator

you. Thank

Andrew Our from comes next Northcoast of question Cohen Research.

open. is line Your

Andrew Cohen

I understand differently been expanding with at out roll guys roll out all, has guess you how that you many impacted? the approaching the I or locations Tier how you how has or X China footprint Thanks. and Tier the are X change places city

Kevin Wheeler

we’re much in at not more we've selective certainly Well, that had in the rate growing the past. same

stores same as a we're opening candid, to also points, bit continuing So in we're yes, be but distribution at it slowed new again, the time making adjustment.

the fairly was over increase is net So marginal year. the --

We Tier X Tier X strategic look appropriate. continue X, we're X Tier have as right cities from to and So believe that's and particularly heading X we’ll and standpoint. partners where those for opportunity expand still and a

John Kita

that's And X and to years think then sum last Tier of I of with of XXX stores. XXX it's we've adding a XXX couple closing and X, the combination in been have the consistent what nonproductive been net, that X, but to the some

So we think pattern continue. that will

Andrew Cohen

fully you consider color then Lowe’s XXXX? do into you. on if And think and on tracking to be rolled how it give out going any it's could Okay, thank you you

Kevin Wheeler

customer and some it's Yes, making always color, -- Lowe’s with anything's because a with I -- on and if terrific is XXXX sales. But, a to your displays your tweaks we're don't improving just know ever improve ruled overall you're business out to rolled We been look always certainly working quick the it's yes, tell track. out you I partner. would forward and as

Operator

you. Thank

Charley of Brady comes Our next from question SunTrust.

open. line Your is

Charley Brady

morning, Hi, thanks. Good guys. Good morning, Pat.

Kevin Wheeler

Good morning.

Charley Brady

Rest China the I little World So with want of here longer. I horse beating to I'm of understand to a continue China. QX the going dead just commentary make sure for around in

year-on-year You're saying China down XX% sales a local in currency XX%... with

Kevin Wheeler

XX% XX% said No, $XX million, equates is and million. in $XX that's I think, to we local about which currency,

Charley Brady

for that to visibility Thanks. the market question and you're in given question, maybe maybe a that a guess continuation gives flat you going China, not I Rest back my down mean, -- what to bigger the the you confidence as you've got, the market see That's gives China? what a you half of look Connect just Okay, helpful. I of year great. though the out of with World and

John Kita

decline. But in was have of The little as really we it's and we offset improve, bit we're items a again the mean, further commercial is midpoint assuming product or the that that are down what will say, hard purification offset will market it improve ancillary have will Well, water we to air I market. to commercial some for stable products will bit. weakness treatment the a be like new will to lines calling our any some little that improve, the where

Operator

And you. a Graham Scott Capital follow-up Thank BMO from Markets. of

open. Your line is

Scott Graham

is to the number what left in the couple that Hi. to Lowe’s go and was field questions mind ago of us was on XXXX? the telling specifically much for a Would you how quarter referred

Kevin Wheeler

tell companies. past. you the there's Yes, other talked about that customers, into certain would And in particularly about the that not that hit we Lowe’s get and numbers public again I specifics we probably we

had be to always to and launched going that, our would adjustments XXXX. additional fil track and overall on look you with So inventory. in product continue we is product again areas outlook that is to the And what Lowe’s there's forward I the displays that in, of we tell we is

Scott Graham

me. for one last this just then And Understand.

Day, So respect your about I And penetration a them Specifically tankless, to update at couple hoping Investor XXXX? going can desire on you your you guys different to talked are with pursue. digital. plans to kind for increase also us there in that and was of initiatives the you're the what of

Kevin Wheeler

not specifically exactly offering talked I'll both Tankless, features with of the doing over the we're we in a an about the it's are bringing decade. benefits in look side, business those. as as premier the and side our market companies, think to I competitive. to where heater be to to digital, understand new for half expand where going to Well, and of more far We've product of continue of I'm be on water products ongoing water one take for we the particularly but going, tankless treatment been that second digital year. the has And us that, program the

and to I any activities. think that's more to by organization we are heating, forward where was e-commerce quite in through be our generic water both answer, demand frankly marketing going or treatment. about to And boilers continue with move we're to in websites, our enhance that digital very whether specifics. that's with water at That ability of continue going but various create our parts our media business, a We to

Operator

Thank you.

We line up follow KeyBanc, a Hammond of have open. from is Your Jeffrey

Jeffrey Hammond

Yes.

kind growth it? that the Is Just of you're X% to XX% that year. on think North mean to America, it for wanted like to just the unpack. seems I right way about implying of business on kind

John Kita

to it's think and between X% -- like low X%. I Yes, close

Jeffrey Hammond

water what for treatment growth kind all-in? expecting then you're so of Okay. just And rate

John Kita

of looking other Well, businesses. full are the year at of obviously increase get we of And the we benefit probably looking well an at we're the increase Lowe’s.

it So from XX% be prior so will year. up or the

continue the great in quarter. mean haven’t the Lochinvar year had market again boilers XX%. XX% obviously about talking nicely. at up the quarter we And And I obviously. to expecting was we're a for they're the fourth then mentioned of grow that with growing Lochinvar us. the other to that full boiler So businesses the -- we Lowe’s of be are benefit we And

quarter. So it was very good very,

year good So the I the going as cetera. et we is in half their first forward backlog of to position think look

So…

Jeffrey Hammond

thanks. Okay,

Operator

you. Thank

from Our McCarthy is Robert up Stephens. next follow of

Your line open. is

Robert McCarthy

Got a few follow ups.

If you hear right? me can

Kevin Wheeler

we Yes, can.

Robert McCarthy

Yes.

be talk quarter China, impact, you the the pricing should how about thinking the and So first quarter. terms kind about and we can of Any rate of portfolio? in growth product of just fourth for the of it for view organic kind across directional your

John Kita

I people, at I the Kevin mean, talking I don't by significant don't China our heard know, there adjustments price I any adjustments And price But has significant all. means. not if been have to think of you have.

Robert McCarthy

a at that So low-double And I right is or point take you have but brand. versus technology adjacency Would think products a whether you this as the side, market your growth gas that now on in category then you'd high-single acquisition digits use to guess decision there you I within questions, two tankless do there assembled digit terms and within okay. more some of buy variance -- the area obviously, is, potential make and kind U.S. mean question is some -- good share your could in it of price is the organic again for I think of you? be see do you particular wouldn't a negative

Kevin Wheeler

with going looking to business, out back the think adds again, do our bring products we’re I Well, of for we have products. partners. the part potential value. terrific new tankless And acquisition always to We're that continuing

gain to this at move is sure solutions, we products. share stay. one not forward we're And of continue the the it's day our it's that's the want but our to not end we low-double yes, where expand at going emphasize solution. to again, And I make so of And and digits, and

to business our tankless manufacturing, -- overall So improve we're with customers. ways whether be it working products, our for always logistics is looking

we we'll continue the strategy in I So our past. have space in as it and execute think to is

Robert McCarthy

be play because areas where the lot mean you that’s highly mean do it kind you deployment U.S. total to do unconsolidated, of and a filtration in there about market deployment longer you want term? around question there your for to is America see there, ready market The just little a capital or difficult and a continue investable be I residential and of a will talk you future I future TAM business very or substitutes. I last for to seems a a -- one filtration been see is mean, can products. of North of has there, capital the potential

Kevin Wheeler

us possibilities at some be water when America I it Certainly, the to see we have and continue it’d in bringing forth somebody in said capabilities, significant opened go we’re We in business. many the a North and our an to path long-term very it’s distribution products, look that treatment our times that whether able as and acquisitions fragmented areas. be a work right somewhere opportunity like maybe acquisition pipeline down that we dealers to consolidations so in lens has certainly this active do it of space.

and believe that for is and of there we Smith water yes, our opportunities in America market and A.O sure a viable So, for going treatment XXX% believe lot brand. there’s we North

Robert McCarthy

Okay, thanks.

Operator

for concludes remarks. Patricia closing portion, the back this Ackerman, the to I like over you, Q&A Thank call turn

Patricia Ackerman

for you call on Thank today. joining our

Conference Scattergood great XX. We March conference London a have Have Boenning day. the one & we’ll the first quarter, in on in in participate

Operator

you for Ladies conference. thank today’s gentlemen, in participation and your

day. wonderful a have disconnect, may You

A. O. Smith (AOS) 29 Jan 192018 Q4 Earnings call transcript