AOS - Earnings call transcript Q1 2019 | A. O. Smith Corporation

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Operator

Good day, ladies and gentlemen, and welcome to the First Quarter 2019 Earnings 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. [Operator Instructions] As a reminder, this call is being recorded. I would now like to turn the call over to Patricia Ackerman.

begin. may You

Patricia Ackerman

John morning, Officer. joining Good call. gentlemen, thank our Executive and me Officer; Chief Thank Chuck and on ladies our for Lauber, Officer; Chief Wheeler, us are Chief earnings our first you retiring today Financial Financial you. incoming Kevin and Kita, quarter With XXXX

will the statements. be risks during that risks we results the others, comments restructuring improved share results impairment provided to and These provide morning’s subject business, questions, we that could that from plant Before net we our into I of the forward-looking to remarks, measures, that to per closure with adjusted earnings measures to of Kevin’s our exclude this forward-looking constitute our the and transparency non-GAAP call, that would like answers be and of at some the this made adjusted associated earnings statements this costs are website. materially begin with are press cause Washington. XXXX presentation actual end release. operating have for also matters in to include, to Reconciliation provided appendix on conference including described in Those in GAAP remind you non-GAAP In will Renton, measures different. your order among

to limit As one turn. the a in courtesy one question and yourself others queue, please question per to follow-up

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

Kevin Wheeler

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

approximately result a quarter projection for the in aligned are expectations channel sales, communicated inventory quarter of China as previously results build year-over-year first Our our our and met of of over $XXX a first with from prior for the of declined of sales million. XX% We share per year. prior of Company our year. repurchased shares the $X.XX $XX XXX,XXX declined from approximately Earnings X% XXXX. million

beyond on water. to $XXX a drinking to solutions of house O. for whole to their when expand to their from details Water-Right and election. residential channels. of channels contaminants Water-Right’s in in full water and and return providers, safety benefit in tax safety of channel customers slide Water-Right, water invested access a A. seeking ability meets and the to the are brings treatment advance enables portability age and in wholesale Water-Right and college The X strongest a treatment earlier Water-Right this refillable with month. quality Water and applications. in are capabilities on solutions, school us the stage families strategic products the Please in water trajectory the where acquisition residential treatment our portfolio names aware commercial approximately desired. price retail through strong product acquisition. times, the direct-to-consumer pleased bottles and of health announce to and The from serve capital home related life, drinking XXX(h)(XX) taste evolving strengthens for first EBITDA multiple water additional growth more become million U.S. water of presence this market expected odor are at to objective more one the Section our prevalent, dealer any ownership commercial supports market as apartment treatment after We represents our year. trailing us squarely purchase and a of Water-Right’s Smith’s first category a five solution in is

retiring from this and would last John and one-time million is in be $XX about before of time, approximately XX positive who acknowledge costs. O. thank years. and purchase to like to in his I add revenue to A. XXXX. Water-Right earnings Smith At on The minimal impact to XXXX interest Kita, is expect We expected earnings the after to call accounting

We have his communicating well A. John in potential tenure his was transformed O. CFO. of And during retirement. to play integral John company We the in wish as water Smith pure a to investors.

John Kita

Kevin. Thank you,

We several Chuck years to and CFO diligently O. detail, the last on strong six. Lauber. and on internal background with in describe with Combining transition months experience his transition beginning now our be that will working of more my am I Smith the have been XX team, accounting results A. financial Chuck seamless. confident slide will

Chuck Lauber

heating price increases, of sales from lower first actions declined quarter XX% the in primarily the the cost X% channel by than you, freight due quarter to inventory related repeat and million, slide quarter local quarter sales Sales $XXX XXXX. in declined of build earnings of volumes. quarter in seven, North million same partially which in steel XX% was XXXX our and XXXX. to than per first and million of the Sales earnings did with to The America of XX% segment not in same in first XXXX. segment first in China products compared primarily On of increase higher in of water for which World John. Thank the volumes currency, of related water XXXX. $XXX first the million quarter Adjusted compared quarter occurred sales were water quarter XXXX. X% $XXX with boilers same were the down offset lower the share of mid-XXXX quarter our lower residential and heater adjusted $X.XX treatment were in Rest increased XX% $XX.X first XXXX. were in

lower and volumes expected impact in Weakness segment lower The margin water with million impacted of the higher earnings water sales $XX partially drove the as XXXX. advertising. segment by of currency, other the quarter compared $XXX offset in related XX.X% in costs XXXX Chinese Our met result as year. and higher approximately of slide of On XXXX. segment to from January with benefits first America translated in earnings were quarter North of lower profits from currency the adjustment residential quarter offset business forecast The XX% compared than sales with boilers impact X% the in slightly from approximately treatment to pricing higher America XXXX. were essentially our by a Favorable the actions volumes. as and mid-XXXX input of well lower sales World to nine, the China steel earnings more at first declined heater China cost segment million compared Rest impact the than same the results million. constant profits we grew XX.X% unfavorable margin last the stated of India tariff North earnings $XX same from than increases period XX% unfavorably lower sales call. weaker

Quarter programs severance First costs. were headcount by reduction offset

Our by March. completed targeted at the $X translation currency XX% impacted earnings headcount end of reduction million. negatively approximately China was largely Weaker

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

reform. and tax same lower of first in to resulted estimated quarter refinement same Our corporate the as in year’s higher onetime than primarily period $XX tax was with expenses operations. compared The due tax result a lower in and first than in flow of the rate million compensation. cash were stock-based higher to the to lower tax a quarter Lower period of rate, was in XXXX, during the provided by operations earnings $XX XX% XXXX. from Cash first last payable the million adjustment lower accounts quarter due balances U.S. effective of due

Our liquidity balance and strong. remained sheet

end at ratio quarter. first debt was Our XX% capital the to the of

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

we March. X.X for Approximately total million shares quarter, common our of of morning, $XX This on we repurchased million. end authority stock the EPS adjusted of During and a change the results. approximately compared share existing a repurchase XXX,XXX with our X% the shares XXXX remained at to XXXX $X.XX updated midpoint, range in of between represents to guidance which a increase our with $X.XX per no

project the period with quarter, lower in the expect We sales in quarter quarter the inventory first to compared in second second improved performance in the China due build. same XXXX than XXXX China but

earnings compared result, as comparison, year. first with to quarter to than result forward an a stronger lower a half a operating in better significantly expect easy the performance stronger increase the performing due second quarter the constant the and due on improved slightly bottlenecks profits the the India. improved half the second forecast currency price our in half to volumes half second the be share water project one-time is comparison As will cost XXXX, and quarter tariff-related third second We improved per XXXX in in second we to of stronger last volume treatment We new product in due loss basis China North seasonality as America headcount boilers and higher profitable selling XXXX well growth, of typical the heater year-over-year of in in reductions. improvement launches, softener quarter and as to favorable pull Growth larger half impacted as holidays, due supplier also QX second America third advertising due the in XXXX North lower provides of water inefficiencies, production benefits typical seasonality normally from performance. boiler and and a volumes are sales by profitability normal India year, and launch which in seasonality absence product cost the second and water XXXX treatment of half

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

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

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

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

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

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

Kevin Wheeler

Chuck. Thanks,

million loss our scale be to in and $X water heater under from to in for project heater treatment and be overall India volumes in will water expansion XXXX. industry continued due for includes approximately a growth to We X%. and improved between will volumes outlook heater are as boiler units. XXX,XXX in assumptions. Our on a following continued we loss $X continue to new heater to will EBIT to profitable water profitability $X in XXXX. overall and $X residential of expected XXXX. in India in and up improvements losing XX% is a well to XXXX XXX,XXX India, be positive over The XXXX, units We we replacement million million businesses Commercial Based in grow million in expected strong expect in construction quarter, industry U.S. We XXXX our to be in XXXX tankless project XXXX. in in as water increase demand sales water XXXX due our the that water treatment India XXXX and first

in is Our currency forecast today, with than first level FX half impact last weaker expected the XXXX. year. for the where Chinese negative it is XXXX of in is the essentially All

least As due half we sales XXXX X%, XXXX. the Chinese customer first previously believe in increased the discussed, inventory at build to

translation, flat in our continued decline currency XXXX. majority and We to boiler advance full-year We in expected build, including grow products, North this of are projecting with X% collectively economy Chinese currency demand Without projection assuming channel first are sales. of approximately occur to our the Please water expected XXXX with treatment which is the our $XX a continued to in million up the XX. momentum point to approximately America, Water-Right water local XXXX X%. sales we down and in see XXXX, consumer inventory Combined in the to weakness be China slide in unfavorable year. heater, half of full-year to X% of in terms, will the of the for X sales X% relatively X% impact

in profitability India and improvement also sales Our growth is encouraging.

forecast model the the solid long-term for to and China opportunity, business we in full is year. Our margins continue for low-teen

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

America between be XX.XX% to XX% segment and World expect We to be margins Rest of segment and margin North XX%. XX.XX%, to between

positively Our stable companies. represent differentiates Smith volumes, we from other boiler believe industrial of defense heater North which A. America XX% replacement O. markets, water and

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

Operator

Alvaro Our Instructions] Lacayo [Operator from comes first of G.research. question

Your open. line is

Alvaro Lacayo

Good morning. on And very CFO. as tenure John congrats a successful

John Kita

Thank you.

Alvaro Lacayo

out and just color And then, and like shows and the water some color water the you soft maybe you being looked just shipment some you I around me believe what like quarter. as it my X%. magnitude that the competitive through with in was first that you water February, wanted if on treatment, increases Maybe some delta were treatment The between what and maybe commentary the that was on response, negative. in March water if commentary the the expecting positive, focus heater treatment heaters for price provide that shipment think residential were what -- data your North looks versus means I called question and you some around around was what volumes volume about saw? of performance guess -- around shipments America, volume give I could water

Kevin Wheeler

Kevin. Okay. This is

talk North Let’s heaters America first. water about

in about units. based market actually to that estimating was the saw You’re But, marginally our we’re on Through will shipments, down March right. be flat. we months, first the March, the up as couple XX,XXX industry

still we believe had so, to and going to units and March. the XXX,XXX mainly our XXX,XXX little but distributors share order. bit We feel What a a us of back anything is that’s of in material forward. of don’t of for how some due gave just a patterns And order issue we the forecast is, we see decline, that valid, does we

expect full-year as our And that will flat. we previously project industry we grow market will So, we remain share have forecasted. the

to would and not water -- -- I’m regards if pricing, with helpful. mentioned Now, you could treatment clarify, you that be sure

Alvaro Lacayo

the due the anticipated base, increases expectation how volumes the cost price little the tariffs. increase was -- price to kind treatment. think, I what a than wondering that volume and and lower just from was reacting of actual to I the delta for implemented, water the a bit was comment you volume on between then is the

Chuck Lauber

Chuck, just is pricing, Alvaro. This really it’s not Yes. Really volume.

we’re first treatment. with quarter little a our disappointed So, for water

some the with just off. recovered have little QX of started the those, we on good a rest we’ve costs the that a feel into year. gone are We believe but some of tariff-related water little really momentum behind volumes we coming are we of pretty The our major about So, side, us. we we but our slow and costs got have inefficiencies treatment the China. filtration are one of some have we out customers the of in that still that tariff-related And products had

really year, America throughout we and treatment look So, as water North point that number low at for the see we the us is the business, just for QX the improving year.

the So, are in we we that efficiencies see increased volume as March, we April. and go see year softener production in see improvement overcome, we throughout also in we our the and see improvement

So, America the momentum North our in good treatment. water is

Alvaro Lacayo

fixed how expect around headcount magnitude forward? I further you just offsetting from cost any the comment me, color. if year-on-year for going But, reduction reduction of are of a then, maybe appreciate the actions much Rest a And a could in from from there QX. on Thanks standpoint? And perspective World, perspective, the tell cost the severance some benefits to

Chuck Lauber

-- look and we we’re talking China, at if right. So,

we the so cost China, did behind So, us. reduction headcount get

mid on -- So, you’re probably and building looking When percentage will if forward. we the reduction and more type most cost savings looking as side I SG&A only really the percentage promotion costs. see it percentage of headcount a we’re they single of and we’re magnitude of are SG&A, improvement SG&A, you’re and are cost a looking But, at as take than year-over-year. direction are that when advertising the a going digits at at of

Kevin Wheeler

size call taken We the you and a add steps we’ll for participating decisions to to continue business monitor talked know believe year. a us, we’re today. throughout actions that if all forward taken in But, And bit we’ve are additional market. steps. we’ve we should the we Again, this times want market want few that. to just right that that the make from we our go as to the the little those we’ve I about the required

Operator

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

is open. line Your

Drew Haroldson

of for This have I is Summerville. just Haroldson morning. Drew on questions. a Good Matt couple

largely First, the to China of that quarter, the at channel not, do when expect or if that would alleviate? the pressure inventory be end you will you in complete correction believe second

Chuck Lauber

is Chuck, This Yes. Drew. Yes.

inventory year So, the it really, first the the half we that in saw is -- quarter percentage build built in first in the the last China and -- was than in we of year quarter. larger second

For the four quarters, stable. three or it’s pretty last been

see Our rest be flat assumption, a in when don��t the down. we forward at kind decrease our But, of year. forecast it’d for of lot the on that we year is the of in that look to

Drew Haroldson

cadence China? you January Got versus in some throughout also Can it. March in the in as talk the Did business? pointed your then, February. overall follow-up. that data to though, a as better you see about points a quick And seems sentiment just It and quarter

Kevin Wheeler

gone Yes. frankly. We quite and -- down up that’s

If say you it we remains and still look certainly a challenge. consumer demand is improvement, some I but to would want stabilization at -- environment, some don’t are we Consumer just stable seeing just but the weak, macro tell demand. you,

So, we you tell we few need to are I than more of those just see months. some would signs. seeing But, that a

And flat. going looking we it, that’s project at it forward, relatively as so, why we’re

there’s resolved. gets tariff more positive to need tell And few consumer the a issue to with and but momentum China. are positive government we that so, other possible could some things willing see a of But, we’re before that sign of stimulus some, I see seeing more a months in we would the you, say packages some demand we of if help the

Chuck Lauber

Chuck. Yes. is This

is handle a first the in So, bit the and festival, I market of is harder China spring mean, on a because what difficult get always doing. quarter the to it’s

we’ll better into of the a see feel. you second little So, as bit quarter, hopefully go kind

Operator

KeyBanc of Jeff Our next question comes from Markets. Capital Hammond

open. is line Your

Jeff Hammond

morning, Good guys. Hi.

China. So, just on

decline. some kind you of can China gave quarter going think in on a XQ of was give maybe expect? quarter, expect us what magnitude us decline I you shape you’d you the up. you the in to think year-on-year just color decremental I on good and of expect how first said And you kind still first point finer margins But,

Chuck Lauber

guidance channel So, XXXX, at inventory the don’t be to And for build about of talked step happen we January, and did year. but first in QX, we we QX quarter, million. QX that of of last inventory made happening a $XX in first our kind gave take we bit would predominantly it, down half the roughly of the would the throughout I look gauge when But, the we mean, numbers QX. precisely. kind back a half know roughly be of impact that the

saying in the we’re QX. XX So, volume,

So, QX half. we that as would roughly take in

Jeff Hammond

Okay. because Then, to the decrementals had that, decrementals? high you tied think pretty I

Chuck Lauber

kind similar quarter. to It a of No. to of kind would had We first that ass the operating XX% be earnings.

Jeff Hammond

a Okay. what kind XX% how Rest to for to assumptions it you How margin I -- second range? backend-loaded then, very the XX% of get get And like World? just half of needs the to to in year. high happen you do to seems do that get mean, to Like,

Kevin Wheeler

kicks second I reductions in don’t bit really headcount the We see reduction start really Yes. a quarter. about. we entering what into the programs until mean, is we talked that some of cost the

by -- from and would expect QX. out, being numbers half, QX it’s lays the we we you X first how see -- the So seasonal. quarters, -- very so is their in India. and in better. our that India this got And hurt sales When improvement expect half And to the then at India, we’re to flatten year. kind we -- back about volume of the so clearly we’re the talking year, perspective, be look obviously we of China that really see for They’re strength out the we’ve in back

all profitable look quarter we’re big when at in at pretty X back the half-over-half. our the in quarters, first look the which -- projection, really you swing half of when losses is we So, accumulate India, a our and year,

Operator

of comes MacGregor from Research. David Longbow Our next question

Your line is open.

David MacGregor

China. had and on you Just about water past in first in some all, first of China, out heaters question, mid-price rolling really talked point the

was talk product? I’d I off about did that And just So within cannibalization early compare? that you just a start represent on And impact asking rollout? offset the growth by could positive of premium what the with experience guess, the as if the what Chinese

Kevin Wheeler

second we And we’ll want we’ve half and Well, let’s with last year. line them the the for I rolling at our on products of third the the into cold roll water. remaining months, are X start quarter And to specific this continue out out rollout. because to just filling now end, with the the been side, quarter out several and get gas midpoint the

We those we important but point are are online which also offline in our we on because those sales. mid-price gaps products, vacated supports the

introduce On side, business, wall-hung our model. steel the we’ll electric a jacket mid-price

one with well. more We’re features, and high high filter X design. several treatment, will slimline-type of also introduce replacement. products we regulators Water and upgrade One going with models to displays new as of end tank our easy end DIY a

The other -- luxury tap. tap with water is boiling the

simultaneously, point we seeing have in high have launching products, we’re products -- they are and we we So online end our sales. almost improvement now, mid-price and right also new are that

We point some our range. in seeing improvement are mid-price

bit little the rest product, is it’s to XXXX. we I’d tell the each our our is little will product them we side matter into it, that product which out the out the just story, tell and bit wall as the trading about over trading in I But Now, of heater good of see people takes meeting hung. expectations, impact, as we we’re to getting a some time but impact there, on and really overall, on we have we so would a having different probably have lot aren’t early a down going taking, part have full don’t do well this market, continue our new up, feel far Water treatment’s feel distribution And get a steps maybe the the we But distributors, of you, water into some of impact trading they’re cannibalization, electric see this certification. of that’s high end tankless of down. they but the and offering through and you year. a throughout do cannibalization. to our

Chuck Lauber

Yes. R&D launching And we new that And or new I a reduction product want cost but this our little haven’t talked back products. cut just about to I or emphasize Chuck. bit is development on

very the and products about excited are we’re upbeat out. that coming So

Operator

next Our question from BMO Markets. Scott comes Capital of Graham

Your line is telephone open. is unmute. Scott, muted, your please if

Scott Graham

Hi. Good morning. wanted congratulations just to And to I John, extend you.

You terrific the run company had a here at

John Kita

Thanks, Scott.

Scott Graham

maybe to X.X%, organic wanted to for year the X.X% looks or to means local about the in your first sales is yet, organic better calculating inclusive am of I if ask is that the currency, Water-Right. that right? as -- understand for me you’re it, expectation now calling I which now company I as It

Chuck Lauber

are taking look a at We Scott. that, just

Patricia Ackerman

So, $XX this year. we be sales million would said Water-Right

Scott Graham

it’s I think, So, X.X%? about

Kevin Wheeler

Yes. X.X%. about It’s That’s correct.

Scott Graham

in last was have kind where channel. water -- Okay. an total, think It were right. was past just it running a what you you not market at, you Do little idea now? The where heater that I in is of your beat you pretty China I that negative on right bit knowing saying the of kind guys market, is Do know a know All it had is quarter. now? good have guys

Chuck Lauber

showing we that use for down include gas ABC and to -- our range it What XX% specialty first quarter. roughly that What our at -- they’re in third-party the the doesn’t It’s X% data Chuck, we electric from data, stores, look for is third-party, just the and the is from through retail. this again.

with So they performing a market up. and better, got in Online of down course. than level the a online online’s and bit bit up down offline is are that more

Scott Graham

deterioration see? then quarter, a from you what you From right? that’s last say Would

Chuck Lauber

running Yes, say was less would Last we that. that. than quarter

Operator

from question Our comes Stephens. Robert [Operator McCarthy of Instructions] next

Your line is open.

Robert McCarthy

addressable market, John, through. where where I you What the first America? want context the acquisitions and of a want North talk Congratulations, and sense total total say company value like market you could would could kind you you for to Maybe I’d create great following, I -- you water the all the growth go And give play? treatment Could ability to career. about see in you guess of just on perceive to how these thing of you of drivers of is addressable some us you the in where the the if play? to for a some the

Kevin Wheeler

fits X a our strategy. just prior point-of-view I’ll our dealer about network. into two from And and a really provided back, and some you in That that platform. residential acquisitions. acquisitions. out at products and our if Water-Right complements talked other provided Water-Right strategy our you our direct-to-consumer first wanted the participate Water-Right squarely But solid filled and particularly commercial X. talk that and Let’s look we’ve about was acquisition our then back tug also carbon Aquasana of out of channels we to go

you are our us offer as them box position. quality a that well. we full also product together retail Hague’s We if the innovative helped And X also out improving enter us. helped It network large acquisitions, helped big portfolio those and able water then to acquired and water we there, for softening products Hague, and there’s remember, fill a put water softening which into dealer took out us market package, in

forward into a brought residential wholesale also water side they which more where enter More of they was helped with than business. minimal that of that -- our as of and of overlap. They quality Water-Right out fill the us go problem as dealer commercial specialty the Water-Right And does now the wholesale -- Now doubled dealer well. side fits the way you network, And in? by and business we’ve the business. part in products here, stronger also network, they will our water fit that bring area. that new help

put are together, quality value water purchasing United we States, which -- you will that deteriorate in when continue or offer those the forward, are add as through channels, that want light over participate will the So product we specific and channels. all America those believe go in firmly X -- that we that to these products categories acquisitions And residential channel they and that our to complement of of the our to X we North and these in. customers commercial time each one the

we We forward, it’s United become going So forth. its the in throughout so States of the are treatment our stages business. on people water early very as still water quality believe that bullish the of and aware their -- more

this through tied water network having having about will throughout together wrap to that’s build softening, this our United strategy at we America. our leverage we RO -- -- and we filtration heaters profitability, had moving least water able that going boilers implement those we with have continue provide And carbon, high and So improved out and being system, treatment believe the growth and forward water single commercial completely, to States North a a having strategy as up component. all now our digits another now you across key talked

Chuck Lauber

circling estimate total we a is just back the America market addressable as to the This mean Chuck. And I addressable $X billion to North be total around market. market.

evolves. So, we of has said, it we potential as and think lot market Kevin as like a that it’s large trends, a the

Robert McCarthy

then touch in could Great. China And as comments And you seeing your maybe treatment well. air to you’re then water on of the and terms expand if respect growth? purification there with trends

in the seeing terms latest market you’re us Just the state-of-play there give growth? of dynamics in what terms of of

Chuck Lauber

pop bright because year. talked last a quarter, be to that in us reason continues numbers about treatment Water inventory didn’t and It this we’ve the why for is the Yes. build spot China. in

of at we at so kind quarter, water the low single down for look China, were business we’re So our if probably in -- digits. treatment we looking

on our down Just sales. slightly

what the see grow. the kind was are water see year and year-over-year we continuing marketplace. that when bright see Now the at spot you what for our we look we of and X% consumables sellout in treatment, look at that about When a sellout we was growth, still to

So we’re a It’s we at with XX% year. the very $XX XX% consumable the about grow for it And it last happy grew at business. XX%. growing about at QX, and million year, to base expect

for good So be product water treatment to us. continues a

Kevin Wheeler

Chinese And new this those consumer, And it’s to -- tied a I is then, is treatment not would children. primary are to that with not that’s product add particularly tied a the health and just construction, water really with safety.

expect many for to continue years to we that have So value many, grow to come. to and

Chuck Lauber

purification. touched as mentioned on we you purification. go of air We think into a -- moved really product more into have formaldehyde you I air

we’re really of think of season. just I into entering the time kind that

of see China you really an being is formaldehyde summertime the more in issue. So when

fresh up range. maybe down with -- probably the the $XX new that product the Last some that launched We’ve market. there. probably obviously, our And coming well our in year, we��re we’ve about products got expect our -- probably sales a into grow is $XX formaldehyde So we’ve million. got mounted, that is excited air bit, but what we’re year, This in is. this million grow projection to to we a product bit

predicates there, in summer a of see we bit this really on formaldehyde. little the it a but happens positive So what bit a

Kevin Wheeler

as the well believe few higher we still -- purification, boost into of a know that the on air there mid-price sales address to been of a having we products range portfolio. products. We what end our based also today, and able consumers place help haven’t new with And to our in has some we’re the more

of but our digits -- in XX% growth, and not that XX% will it’s believe solid believe it forward. to double as remains portfolio, the talked purification part air we’ve we may be we not going may still past, overall, So be

Operator

Our Jeff a next . question KeyBanc from Markets of is Hammond follow-up Capital

open. Your line is

Jeff Hammond

core the that big on kind what’s kind set in that want for growth level change is follow-up to that given how think does And treatment. just the all water included do we water slow I of you’ve a business in start? XXXX, And Water-Right? all of Just at treatment? now

Chuck Lauber

talking piece, right? think So, I just about America North Jeff, you’re

Jeff Hammond

Yes, North America.

Chuck Lauber

Yes.

the adds about $XX So, million. Water-Right

America So a million and the XXX North on -- revenues be expect rates return. of of margin the forward. would probably points. XXX XX% approaching and would products single-digit the filtration have overall, it in treatment we’d And we we and When approaching the say, $XXX margin down, But as expect approaching looking rate. for would going water softeners. to kind probably growth rates expansion operating forward, -- We look get year, operating of versus different growth at this basis we’re kind you’ve -- an go you at to growth we we got we high break

year it rate North And and into approaching of as you we be a Water-Right, kind XXXX. margins a look all and we of in continue you’ve at and we growth got for $XXX we’re the XXXX full get looking million to million, when So would at roll nice piece. expand $XXX America

Operator

Our next Graham Scott from of question comes BMO Capital Markets.

line Your is open.

Scott Graham

cut not Hi. sure... Good got at I’m off knees I again. there. the morning,

Kevin Wheeler

was that Scott, John.

Scott Graham

Kevin. you, Yes. thought was I actually it

be looks XXXX. are where but if on the treatment lands water off you like understand could may if of this, little lows? -- me track me to lows I’m So in It And a happened me maybe you there? tell on what why? wrong help selling the help you bit Kind --

Kevin Wheeler

in little go year, Well, to our than facility. to want on about expected. We back last launched a a of talked some We bit issues calls. we started couple we had in we of Combi’s capacity out and August I slower

early as And so efficiencies in right improve just on clearly off Chuck we month-on-month to got we’re capacity the build are our as growth slow we seeing and us behind continue our to continue and space, But a mentioned scale. call, in now, issues to start. the

like are talked to start good forward? to Yes, April. the we we We have foundation starting bit? we yes. are. go having nice a a is, in think to the little programs and behind we’re said, we see answer set a And And margin, you the we’re that. So Do off about

talked. get just we forward, moving slower at eventually and -- would It it’s a numbers to timing, to going rate. be So more just the little it’s we’ll that be bit

Scott Graham

do question. get have another off, Got cut you. so And I I before

of that with time in lot of rest are to a being I definitely margin in of trying margin question Could margin Rest a kind mix. on of little lower does hoped product just the get also, talk heater for that to the have with as -- core how you’re now beg a to term up World going year, water launches of -- not have longer Rest Going offering. back of the thinking the I into long what many I World around exciting. however, heard to teed you you range. and your bit? XX% than understand be in it’s maybe China, new It think new undoubtedly price Historically, always China coming

Kevin Wheeler

of a have doesn’t and through And have fill some of gaps we Well, point. we particularly let’s prevalent, is if trying becoming price online more mid-price. the start the you just But created same a with that remember, new increase. also, number just introduced that, products, we just price type to that were

So guard we we we to sure to have have. make products need and the the that to the volume that compete share

lower. not Now would byproduct our tell -- margins going -- I you, our are

we are our and points cost -- that products, are introducing are, taking ratio. Now out cost but we’re steps drive we diminish new reason the price price to

margins remain solid, as have to they going So, are been.

going to products course, over we’ve get new number average categories. of to not But to bit. launched, Our but and overall products a selling many, the way, price products decade introducing larger that a enter by drop been going just we very is all at new back, go the of are about you have talked may we’ve the of consistent these as many And -- time. last

them the out because in a XX the not So business, a this always of points, our are we’re of XX normal behavior business, consumer of to new months. -- plants -- just mid-price being rest every it’s introducing but little bit and is business products

Operator

Northcoast comes Research. Andrew question from next of Our Cohen

is line Your open.

Andrew Cohen

Hi.

are some market? to -- business or I’m I I’m curious become if of more mean, a to of recently, range a tangential broad and lines into this have You that in some -- is of of in kind seem wondering, you of products the gone one-off, but if touched trying China scope you on

Kevin Wheeler

just me would that. I articulate tell you our strategy, let

a product to can but able number believe China launches. category product value looking our In is any criteria grow. One, we X, new a categories for one. And at enter opportunity there lot going forward. leverage brand and product market, has number to high our we that to to growth they we product have the of our have always we distribution, be category significant don’t that’s don’t add We’re

But formaldehyde we’re at your look you we forth. going we added to and so if value continue. also felt So could purification, bring

We’re always products. incubating

We’re incubating Combi boilers today.

incubating We’re air purification.

water business We moving treatment very that’s have nice a profitability. growing commercial toward

we’re going to yes, enter years. core to able over be and we’ve and our which build, leverage but going distribution develop branded product being been they’re the last always to within our to So what categories able XX new is

Andrew Cohen

fit Water-Right products. like American those or you market, which Does that North for into Rest include Hague are and -- Are of the of... World looking you’ve kind how got now

Kevin Wheeler

customer were China. Hague. softeners that’s already need we fact over last we I we years, started We’ve -- would are doing that -- water business they Hague now, know right? tell the from our we the are of were right In from selling as or you to that been a couple theirs of customer how

our the and ways that not the So it’s both again go products in osmosis. into we part the reverse to the does China natural from one bathroom, both with a yes, back fits it’s that and it but America large companies squarely our the kitchen into it’s distribution a synergy market can have, it in of being which and brand North but into being

Operator

of Research. question David next a Our from MacGregor is Longbow follow-up

open. lines Your

David MacGregor

off taking may again. cut for the Thanks get Yes. I follow-up.

or me there. let row you So, just in give questions a X X

First of I increase, replacement third I anniversarying pricing XXXX price And the your all, down XXXX, additional I from you the pricing were second in compare? do the industry carry recall. secondly, place sales have about half guess, quarter or actions demand as midyear XX%, XXXX guess to to

pulled then I’m the growth? of a if you growth? drag, in just against feel much on do some replacement third And talk boilers. American any, forward impacted quickly if I North through, a How demand overall have that you think interested subsequent about through historical quarters’ could in replacement And on Can pattern. there? is in. so And growth how just weather-driven I may how severe you demand guess us sales has you spike

Kevin Wheeler

one, if That was and take thank -- as forward. the pricing to go I’m quite on list, going you. pricing we a we don’t comment first

anniversarying talked you’re we about As right right, now. that it’s year, implemented was last

is that pricing toward, replacement to a has and there that It’s hey, on out there, the future road comment glad And an as many no positions blips continue years. “I all important over far available on going but so the forth, an as don’t a there pace asked the goes regards XX our is to a get you We demand, because we the similar and at always but we times as actions. we years. X together, the it’s look that we’ve you’re as we bell I’m point cost are different housing we going always seen with as replacement cliff far think constantly here reviewing and XXXX, that quite anywhere XX-plus what believe have to so research some We articulated put years went all replacement what’s elongated quite million. what It level And and few it’s we last market because laid study. really bit number you have back coming if yes, XXXX?” ways over which to from at market, affect. replacement boilers... have market concluded and our of in is of XXx assessment at the overall of is out our then really happened bell curve have frankly last or we’ve cliff just and curve. it of our may and a so is And replacement X years done but years a what kind in there, $XXX out that And XXXX When you

Chuck Lauber

-- normal Yes. was year. was don’t seasonality that’s boiler the back question. on half and going the the And the Lochinvar business the believe I saw think question the your mostly your cold the that to products, we seasonal kind for of I of impact mean what back we residential in of weather, boilers or to weather

Operator

a is question next Lacayo follow-up G.research. Alvaro of from Our

is open. line Your

Alvaro Lacayo

is follow-up just treatment My the American water North market.

dealer amount to stores many guys reach? if all as at I the how can you in if that market, then of could quality you’re to you give stores retail, channel, break or that then If direct-to-consumer, dealer. the commentary water plan or it an big you addressable And sales so And gave is total by you’ve Lowe’s sort how could some is the and you that and you actually down of you around maybe that break reach and billion that? think incremental you out -- intend channel, wholesale down on wholesale called you $X

Kevin Wheeler

business. about Okay. We’ll XX%, XX% it XX% wholesale approximations the market basically are treatment give and is you -- of water overall again When is here. talk the about on side the is is these about some of dealers, by channel, XX% retail you other. to XX% XX% to and approximate, XX%

Chuck Lauber

joint piece mean, pleased part that’s I because in they why wholesale dealer have Water-Right us going and we’re to helpful really is of the be that’s there of a us. footprint Yes. largest a bring that bit the market to to very

Kevin Wheeler

we them it’s Hague, and very, overlap. number on top to Water-Right we lay little very going is the with in we dealers that the to of how that the acquisition much there be incremental, going on was have And dealers back surprisingly of brought

the So, us over it years. in cover be continue going were it’s that as next to way, And we we give footprint to few and most by some grow not incremental. national of the areas is to a going broader that

Alvaro Lacayo

in? are many fully the Lowe’s, there with to there, stores just stores more or an you’re And you is launched in give us idea, pipeline? how And

Kevin Wheeler

the most part, yes. For

consumer products. would generating demand if will, We and are meaningful store forward. fully and expect not I loading, moving forward with going launched, we our real our any you are just displays for

we’re I with mean, has while clear, stores fully forth. there, to get go but so taken we’re so And to their integrated over displacement forward it’s Lowe’s them. prepared us so X,XXX-plus in a Just

Operator

are for back closing would call no remarks. I turn over further any the Patricia questions. There Ackerman to

Patricia Ackerman

on first conference for joining you call. results us Thank today our quarter

June Boston We Xth; on on conferences day. May Conference Have on following New Oppenheimer this Xth. in in Blair will participate quarter: The William great the and in a in York KeyBanc XXth; May Chicago

Operator

have gentlemen, a may Ladies And conference. Everyone, the for thank This participating great you day. today’s program. does disconnect. in conclude all and you

A. O. Smith (AOS) 30 Apr 192019 Q1 Earnings call transcript