AOS - Earnings call transcript Q3 2019 | A. O. Smith Corporation

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to the A.O. Smith Third Quarter 2019 Results. [Operator Instructions]. I would now like to hand the conference to your speaker today, Patricia Ackerman. Ma'am, please go ahead.

Patricia Ackerman

Victor. you, Thank and on ladies thank for you Good third gentlemen, quarter us our call. XXXX joining morning, and results conference participating are call and Financial in Chief me Officer. Officer; Chief Chuck Kevin Executive Lauber, With Wheeler, the

we could others, cause will that of Those forward-looking you These constitute made this that actual forward-looking the to to answers including statements be some conference risks are will in different. statements. among begin, call, I that subject to Before like be during remind release. would comments described your risks have that include, press [Operator matters to we materially morning's results this Instructions]. questions,

now prepared will the turn to over begin will remarks Kevin, X. our Slide who I on call

Kevin Wheeler

pleased performance. items our approximately over and America Thank you, Pat, XXX in and Sales operating North points good segment I'm review third margin regarding to morning, increased quarter improved North basis gentlemen. ladies America our in X%, year. performance several last and

America and boiler North where heater and our outperform right continued of continue water manufacturing our heater the North water and track to pleased expectations. is improve, particularly direct-to-consumer treatment, the operations our with to America water to perform we Productivity performance, I'm Water-Right's effectiveness within performance commercial Our well. market. on channel continue with

quarter and which in third announced weakness in a the X-year further our increase to early XX%. expect are in quarterly share, China, disappointed to that continue $X.XX expected, a we while per represents see X% October CAGR We dividend where demand rate QX. to to in In we of came

please. X Slide to Moving

end actions. implemented our markets China in As have reduction persist, further cost weakness we in

a we in XX QX XXXX, XX% from XXXX of months the December last are Over the levels. reduction course headcount into targeting

non-productive on selling will costs in of close over year, expenses, We building XXX review other advertising By spend. end rationalize brand and the stores. net travel the basis, a SG&A and spend, and continue to we

programs in programs product aggressive continue inventory. We with and cost we'll work are both reduce reduction to costs, on and manufacturing continuing our to customers their processes distribution our

a estimated Total million of is actions as realized XXXX. which be annualized million savings $XX result $XX these million, approximately in $XX will to of be to

Chuck, turn results third our over in the more Chuck? will review call to now who detail. will I quarter

Charles Lauber

million Kevin. X% XXXX, to the you, business. $XXX share $XX for in million the third third million X% $X.XX. XXXX. declined the our of boiler Sales in $XXX same Thank increased than and in were supplemented were quarter the earnings water heating, acquired recently Sales quarter compared in sales heating, quarter the the of of with XXXX. volumes million quarter third third per our $XX from quarter segment XX% declined Earnings Higher in by and North America of third in U.S. Water-Right heater quarter XX% lower in

local Rest of consumer sales XXXX. segment local in million China XX% weak and currency sales India sales of approximately in to the with same XXXX. the quarter grew currency, previously currency compared XX% disclosed levels. declined The impacted Chinese primarily world channel related $XXX by at weaker in $X unfavorably same the compared declined in demand with period million. sales translated X% inventory

and quarter Water-Right. incremental from improvement higher were America well in profitability lower North profits than as water to boiler profit of sales driven steel Water-Right million earnings X, from and Water-Right earnings as impact of in favorable XX% the in $XXX volumes costs, the higher segment without segment Slide by same U.S. On heater the XXXX,

quarter third of XXXX XX.X% a in achieved XX.X% improved As last segment year. margin from the period result, same

the lower unfavorable third a impact XXXX. sales from benefit higher SG&A of have expenses products, declined from region. compared The significantly to world quarter that more to Rest profits and mid-price earnings mix offset than in lower which of million the profits of lower to $X with China margins,

quarter segment result XX.X% factors, of X.X% margins compared same the in a with these to XXXX. of declined As

primarily of costs third year higher quarter lower incentive-based expenses year, the corporate compensation. with due to $XX ago levels Our million in of were third due were higher quarter Water-Right compared in April. in the current Interest debt associated than last the quarter acquisition the a to to

the For million. year, approximately be interest expense we expect $XX to

result year $XXX in of months first Cash ago. than the in provided XXXX million same investment as million X earnings, by operations were period a lower which partially $XXX working was compared to offset lower a of a the of XXXX lower of by during capital

strong. sheet remain Our and liquidity balance

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

$XXX net our cash of $XXX have end is September. position at and totaling We balances cash million million located the offshore,

compared of we X common $XXX XXXX, remained shares approximately of a for X.X During the million Slide we existing expect operations stock approximately to September. primarily due Approximately repurchased of in shares million our flow of X, million. On million X.X in with end months lower million first $XXX repurchase be the $XXX at our on authority total earnings. XXXX to XXXX, cash from

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

other are $XX to last expected Our be as expenses same million year. approximately the essentially and in corporate XXXX,

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

to in average of million. purchase be million We diluted XXXX amount our XXX shares outstanding expect to shares and in approximately $XXX XXXX, approximately expect in we the

The continue quarter to On we demand quarter consumer see the headwinds typically Slide in of the strongest our markets XX, fourth is year. in China.

profit line XXXX. inventory consumer weak fourth channel the similar and to continued year-over-year in be levels, high quarter are with and we operating quarter the China to the forecasting of persistently line However, demand third on top

midpoint of share, with a $X.XX we our range decline compared XX% at guidance year. to XXXX EPS and a a the between $X.XX result, last revised per As

to summarize for XXXX, I will XX. Kevin, call beginning guidance turn now the business and assumptions on our will Slide who

Kevin Wheeler

Thank Okay. Chuck. you,

Our following includes XXXX the outlook for assumptions.

XX% the a start decline XX%. terms. currency the our full XXXX Combined year projection We of approximately to compared currency China. points half is me in of unfavorable year decline with project expected of let local and demand first with approximately year-over-year our translation, in sales China saw quarter First, X consumer be down sales third with

Our forecast for levels today. substantially it is in QX Chinese the with currency where

sales second quarter prepares channel year, sales. months. of consumer to quarter relatively roughly inventory channel in third year-over-year based The in our of quarter did as increases weaker market as the at not fourth from the XX% the did channel inventory inventories. experience unchanged equally currency in approximately and This the attributable on China four year-end demand channel change XXXX remained higher projections Historically, it decline local in the inventory for Total a is increase. inventory QX

will at as X will year demand other we in month. a to quarters of is the of year-over-year than fourth the typically in decline quarter quarter will and saw that period expect fourth be similar demand promotion quarter. be China, consumer We we assumption third reduced high inventory higher buying our the While what channel the is the nearly project run that a

We expect inventory channel X-month normal. that the X- range. in the we remaining is with levels to exit year Normal would above

the be to In U.S., Commercial will light-service heater residential water volumes primarily driven growth the in units expected XXX,XXX project by are X%, we volumes industry water X% electric models. XXX,XXX to up to industry be XXXX. in heater down

project we India grow in North sales XXXX, be on boiler India of in heater expect we year-to-date, X% expect America breakeven will boiler positive for will XXXX. to X% Based water growth and approximately year. the our achieve sales EBIT We full

in Please We our sales collectively U.S. X% Water-Right North local by with products projected treatment revenue for advance America $XX water and approximately in project will currency. in and in expected the see boiler be EPS to heater, sales. X% is in and including Slide XX. XXXX, growth decline water $XX year X.X% approximately to to to million $X.XX dollars grow $X.XX. We million

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

water America We particularly with drivers treatment is We side lower pleased segment volumes. growth North industry the North see across how long-term water heater on solutions are America. and in performing, boilers our on

China invest further business rightsize In and taken action have innovation. continuing weak, economy we term, the the in to to remains the while near

positioned offering to product value. key categories, have Over both our China in for are shareholder innovation. broad in well product and maximize demographics India We distribution brand, quality time, to we a and strong a enhance reputation and broad favorable

stable, which America believe water we and approximately represents of volumes. remain North boiler XX% markets heater replacement Our

We and return balance acquisitions in cash sheet, to and cash flow to continue have providing ourselves, strong invest an opportunity shareholders. to

That prepared concludes our remarks.

are for available your We now questions.

Operator

[Operator Instructions].

Our next question will from of Jeff Hammond come line from KeyBanc. the

Jeffrey Hammond

aggressive Just or to destock top to and kind you we half on demand? under first 'XX guys when normal? of do of you to And up kind as continue more And margin back pressure consumer expectation, gets inventory, be China, weaker you your think that lower I that should destock? guess, wraps still just then on seeing as just line. expect margin a Are

Charles Lauber

This Chuck. is Yes.

consumer from at a kind we last kind our we have our guidance, is since year-over-year. change when what So the declined That flat sellout, really of bit, was demand, was which -- it look assumption. our running down the of seen

to we've So X% a about in consumer X%. demand decline of seen weaker

not the did reduction up inventory the go good at that to expecting year, is in Typically end it little inventory So at we did news go range. up. XX% remained XX% what is our it The that This would QX, a back pushed flat. inventories of were end bit QX. that of

at that inventories that even of up So last year, went the low end range.

a up weaker bit go be inventories going that we a still of headwind. expect the to the half to going demand at of -- about by as which down are weaker QX the we're to a we still consumer inventories cost is upon looking a come month, year, and So needs that based back needing

question at we're Kevin that at at to month of have would And around So out that two the typically, months. looking in end it's this of as channel three to inventory. somewhere three range going year end your year, we the mentioned, going the the out

headwind a next a have So do bit of year. we into heading

Jeffrey Hammond

America sounds was I in talk Okay. qualitatively said you Can water and commercial at and you better just give core saw water treatment think quarter. good the least, that And the us growth just heaters? -- about, North what guess, residential in commercial I you

Kevin Wheeler

water the Well, side take of residential it. I'll heater

once out don't of be residential industry. QX, on And August, we it back improvement nearly We down through it look to it much based although bounce at end -- not to little than see get We data in bit we we was more an our the that at of was from where did. industry a our coming First, -- the expected expected September. XXX,XXX. stronger positive,

And a that in So can we XX,XXX up down make call. took in what industry overall, did we we on QX our we simply, just compared delta. QX, -- the -- XQ to think don't Q

look estimate is out there, those households you million there's when but we about it, -- so households water at XXX and million XXX in you'll remember And heaters. again, somewhere

there year can X% units, XXX,XXX down be some XXX,XXX, the one straight of from years And We're X coming variability year. to range. off be it's This looks so like of X.X% there to over in going growth.

our So water see see our overall, good going business. feel heater We we -- replacement pretty we about market strong. remaining forward don't

year year, from residential the but overall, is to business, So variations year. some there slight down

Charles Lauber

treatments, X% And base ramp-up last going that of grew for on North business, with on on tough one America major at of treatment, bit we we a a water treatment water year, But side, look quarter. the our some the comp if is, the you because about had at customers. we water the had

growing nicely operations. as as well the on continuing half business back to growth base the trajectory is of look improvements the at So in like

Operator

from the from Jefferies. come will of line question Boroditsky next Saree our And

Saree Boroditsky

I commentary results a you on wanted little into appreciate the dig could more. if to America bit the North but see

from You been you just back are some in dynamic? Or And in the general, competitors? the changes increase more seeing August. by received has this talked in market? a X% increases about price competitive price any How

Kevin Wheeler

stated we're public X% We're and is going consistent a that's since I August, here very will the been as we announced to in company. What and be implemented implemented. say only increase

Saree Boroditsky

feel some XXXX Okay. if fourth just conditions this And China, maybe the headcount XX% the then where will reduction the you the on like headcount quarter? based provide on market reductions color are rightsized for that you X% can reduction if be business And in in those point. occurring, would confirm total another be at

Charles Lauber

Saree, Yes. is this Chuck.

see on go So from that going look percentage would There will the be next the in quarters be based that demand. consumer of The we've It's increased XX% We'll as course largely last the increased whether areas probably across XX% continued we into to that from quarter. to QX. of goes forward. at weakness X that We the be we'll out. some board. it's been that the over that that, come impacted, did

and been engineering can products. with maintain innovative very our do we've so not maintain and what R&D to we investment capabilities careful that -- is We have to continue lead that

types those been leaned So not across we have board. the pretty of much but reductions, it's headcount on

Kevin Wheeler

little environment making is turns the Yes. us we're in, for still overall, to And going adjustments that up for can position engineering, important color in in economy the in we're that be that. whether it a we're forward What's we business ramp operations, that the current quickly. when the manufacturing,

position very a don't we to our the when know is back. it. And customers way economy and know -- for the we're We it's level. ability back cost comes at be going also doing the environment up we to exactly appropriate able structure and So but come when, service we to to to want strategic that the just economy ramp us our the

all at it looking So a it's we're here, balance from and sides.

Operator

of Mike from Baird. question next line Halloran will our the come from And

Michael Halloran

high overall. from Maybe China some about specifically an both kind you've good as dynamic, update as the as you're well talk then market us a end So situation. just you the versus thoughts think market Last of about competitive some given you're well how competitive detail tracking market, how just share at think performing and as you of on perspective. the quarters, here can versus you there give couple

Kevin Wheeler

Yes. Kevin. This is

just Let's we QX, vary. our does hung were because points. on basis water this look quarter down and treatment, it XXX by we shares, electric we quarter, QX, tankless In held gas about And at share. slightly, our wall and talk

those it, QX. also share got On you that had improved we action in We've seen heater to where we exactly And of QX, side water in about take couple electric some a declined. know We'll regions. there. the remember, market we share talked

back. there. gave again, any We is But a quarter-to-quarter. issues bit So variation don't we there little from see

over that. products, we to handle have distributions to We recover the our time. expect share And the

been China regards competitive to With has the for every past -- a years. competition, XX certainly, market

side, We our on and on competing to space into have and premium the people have that entered we're basis. regular are -- compete, have we a

down. a Now bit in we're again, market little a that's

it's balance provide a -- mid-price consumers. we there. done there's some so fairly that continue we some and that value And have well, premium to have have But products point products to

is So down you share tend in continuing overall, when step you'll little with up and see quarter-to-quarter. be to to of back, And expectations. our a our line bit

Charles Lauber

when market, at end XXXX, comments question look to water or this stable. it the about year-to-date And Mike, I your think, on we've your seen compared high of pretty the side, treatment we

in We side, high electric. I hundred heating with haven't as seen quarters of the couple the any water decline, the consistent We of market, come as basis other what a the gas total far market. and think we've down percentage talked saw both about within points end

Michael Halloran

Chuck, there. then about makes quarter. fourth And sense I said the with consistent you the That in think, margins third Okay. the quarter,

closer I to think I the math was ran breakeven.

including quarter into more Just importantly, about And to the and then How going or puts fourth versus of there takes some that margin the one really color items? and profile. one-off cost be confirm another. severance volume helpful factors much on just other this kind the of is well. get or to Any of of deleverage some these as would of talk kind that and way puts maybe maybe to just takes

Charles Lauber

Yes.

XX% in in we've a and costs, to going into reduction Yes. just out we bit or occurred low higher severance at of last So volume I compared demand. part are -- largely XX% have of -- benefits on and hold takes being Mike. rate inefficiencies that volume, and The mean, lower still other got cost costs of also. those although QX plant's year, We've hurt those some the on that's occurred the volume, and than inventory third other incurred. of and consumer reduction going end headcount that a QX, the here. that puts The and channel headcount of terms it's volume, inefficiencies the little the it that largely it the to second takes It's carve of our in the puts -- think

the month. pretty fourth a on your think the So Yes, back quarter in a probably on channel more by to of as we're demand But for those breakeven number happens each than And about down because to to question of fourth to it risks what channel we the inventory forecasting along of other. being QX. relate much quarter two kind -- the inventory QX China the kind much in of China be pretty quarter offset consumer come breakeven.

Operator

question line next from our And comes of from MacGregor the David Longbow.

David MacGregor

are I mid-price off been that your about on we to of while talk might many terms seems able how your price point well that out if like you migrated if are can, what inventory, where And probably start if we're and between difference product might surplus the premium. parse premium just out, to to seeing you of the wanted the we're relatively of maybe premium? concentration China, be in versus product. months parsing point you sort is it isolate by, markets we four given turning the the mid-price point months able in in Because

it's if inventory, what on months be would the the So it on four premium? aggregate

Charles Lauber

quarters, of with exactly time because product mid-price it why looks larger selling we're that it, know that margins and selling split mostly, have now. lower and parse say product. we heavily I channel as over what the To weighted percentage right now, sell mid-price, higher two It an lower longer is and it towards price we're margins. of we're to that's our product move that QX, this sort more we kind taking I'll into Yes. out in see clarity more changing have in of mean the that's QX don't we of these The seeing right are channel in a the does lower-margin like environment.

we've As of want about as the months far a inventory, months, and define help little I that so four to got bit.

it four so that XX, the gave, we it by kind divide and of number think in of down in guidance four number as roughly months the have XX% the So we're that's dollars thinking from take of terms inventory. you and months, year. And we of last of

a it at working to the of not three because it and down. average at sellout. kind we're that We're So looking XX-month as wanted get months looking frame I as to the it next bit

where go we goes year. by more four looking the total of that's months to three about it's down, to little the bit end as months So a year got aggressive. about volume But the

David MacGregor

Okay. And then, talk you maybe about And you've in in bit as just more maybe guess, the I granularity? guess little or I backlogs just guidance twice can down dynamics? boiler far seeing in guess, follow-up, performance what backlog boiler talk just a the the Are this year. you color reduced with business. third quarter so about you And the quoting does look a provide And like boiler any the I business? activity also, up terms of business? just Can

Kevin Wheeler

we're Yes. jobs I'm delayed throughout it, way quoting of we're getting to But between that more next And you and it's and than good turning of The or seeing a just good, now it's seems going fair do getting to quoting active, -- backlog gaining commercial labor message in time, carry have categories orders. and activity postponed, and boiler that nature. quoting overall, has it. into most be we're bidding But our year. we a news that kind X% The here. orders and year. share mixed and shortage past. actually look of business further we we've forecasting, send is that we're than it But jobs at we the some things delay kind been orders we into as released turning actually where -- that when around the to but been very year, can been share much it has speculation the into delay there our being for is make being actually is and from lot and spilled look turned in we that more right more expected we over into are expect a over there activity, business, of -- to last and of that a in compete between seen the released be we're the It just much of The in. this of

Operator

of question And line from our McCarthy Stephens. next from come the will Robert

Robert McCarthy

Can you me? hear

Kevin Wheeler

We can, Robert.

Charles Lauber

Yes. We can.

Robert McCarthy

to then a what's thing, But right assumptions and with are fact and granularity is the clearly, position consistently the year occurring and when pig, thinking be down of about I guess in for thing to of we China just the going to seeing or say obviously, that to with the and I'm you fourth XQ. starts -- can Year think a to mean, quarter the China, one New what as but any trying certainly But XQ is the I respect be given visibility really versus XXth. I on understandably, given one here, channel next you of issue conviction your bit taken year we're impolitic, not nature you've rat guide now? a report just or the dynamic opposed there visibility

Kevin Wheeler

the QX, take but difficult take that's one going hope bottom? We're we is is so. really at kind hopefully, our that we What view going we're may little quarter quarter do have And QX the as And but to QX, that. a a of XXXX. we're than But said, to set off now, going demand we I of look our best unclear. critical XXXX. in kind down month the a is going need hey, these we X we're The vision talked to And And we what Well, into markets bit is coming of are at XXXX. we data we that Consumer is data middle get out. into QX. know. me know maybe agreement the of process have you to right by into at we it's and going we're and don't Phase up going look of quarter. us to we was give help the that -- based to a about. as QX give don't we see And I'm to how just to asked be planning But month, once, we there believe plays more know. we by today, China on let trying

Robert McCarthy

relative it. couple be, there's can to you I'll growth for for America. last underneath take third quarter. for are of better of seeing of did a historically, you bit highlight the numbers right. you to a particularly anything say for near did of pronounced just shift And there assumptions on the then rates it. association for North to is been the the I about years, seen of all-in quarter, What but to is And over some talk North this, applications there And want could seems some And think you the that a of miss that a down, growth terms a versus different given competitive little term what give the tankless kind All And back at cost Because the about hood, mean, you given moving kind growth America. to tank limits you for obviously, in there down consensus dynamics rate I But preference granularity, fact in just rate fourth of or the with clearly, the whatnot. some we there the more margin, coming in us? have fact and tankless?

-- any a sea would helpful on visibility if So the terms in granularity. there kind change to potential of be quarter going in fourth as there's of

Kevin Wheeler

to that. take Let of some me try

sea see sea change. don't change, But we as far As no. a

the look the the range. We're quite than maybe at of tank X.X% business, changed tankless and up you tankless certainly If tank, type. X.X% the about is That has growing substantially. in faster delta it's side down on

-- difficult -- I So contraction look the to Again, I've at we years, it because you -- so bake industry units, XXX,XXX relatively is a millions number it's no that frankly, and at hundred predict quite you quarter-to-quarter, look a couple the it, there's X. XX swings in XXX,XXX into this when been between there's if when there a you And anything, meaningful or that's this change. the small sell. thousand,

come I'll market our to replacement is North tank what believe we solid. American back remains So

We are going improve. be the that share gas still have that we're category, and gaps to XXXX. to tankless a tankless in the category, business filling a participant in continuing in low double-digit We're

changes. no So

feel confident Our into into to distributors fairly the seems going quarter, next year.

that to a that the status overall, year. pretty So of was much say it's way has beginning long from been what the quo

Charles Lauber

Rob, into channel come mention and quick here I to China. real back to China in And want visibility the about inventory

really We customers have think We it a to work channel. we're That's certainly inventory. change them control them pretty consumer little channel in with into inventory. we and try What through It's the estimate the move our to channel don't with And visibility sellout inventory. -- we that demand. we good struggling our the have bit the help is quarter-over-quarter. just remembering

really the in variable We the and delta consumer the from have them programs work But demand. last and is promotion closely. with step outlook down

Operator

from Longbow. will next MacGregor David line our question the And of from come

David MacGregor

to I And earlier to ask could was various October amendments at wondering defensive in you of for incorporating just measures. talk just X-K incorporation. an looking back just articles wanted just filed about if these I you the about motivation the

Patricia Ackerman

may? I If

Kevin Wheeler

Sure.

Patricia Ackerman

bylaws basically and is bring this peers up our standard. amendment charter current to Pat. David, our The to was and

just director So best and practices for for and what it proposals that we at benchmarking some had nominee. shareholder looked really done was

practices amendment. the benchmarking that and best So was really drove it

David MacGregor

to price a and in Got get you'd premium then And about point just China. the the last us asked question. between And back it. mid-price quarter I you follow-up point -- split with said that. you sort of

could if you question the and and, again middle the wondering could sense give doing on just of that anything contribution I if just to improve with point guess, us there's Chinese proportion a the be we better term business than margin follow longer So in other scale. up price product

Charles Lauber

Yes.

is this Chuck. So

have points. So we of mid-price granularity into the don't change necessarily

X,XXX RMB high more working products But -- like introduced many not cost isn't reduction RMB more the margin high margin contribution introduced the the have in we are before, contribution which, to in as we like the on many We programs of said we as market. we products, more X,XXX do. range, the products always end

We production have as process -- improvement. and well as productivity lower product cost to cost reduction programs improve

So it's today And mid-price that. the customers the because those, now. time, higher mid-price. I'll the market. take channel newer that products marketplace has over mix to just received Right end diligently models the call, than introduce on we same to towards does the right what in it models more are at the work well high continue continue of end channel it now, are of and the the inventory fact in want to that our the, time, of heavier to, higher-priced But products work some in down really the those

Operator

from we follow-up the of Hammond line And have a KeyBanc. Jeff from

Jeffrey Hammond

market recent mean, few been -- good Just the rational, about you I America there's the on entering Haier pretty returns. article news players, Can building speak heater a -- and market's the water clearly, the North plant. just

there? Just that what are out what you from are entrant? new And seeing expectations your

Kevin Wheeler

about and the they've going that What announced electric South an indicate publicly to million. tell in they they water they're announcement market can that of to I have been you is heater investment are Carolina -- enter is what's going $XX

would We Smith that regardless, with what seen has customers. What relationship long-standing you and tell I a in more have A.O. than competition. I what And the is market, not frankly always much don't we they now quite have would published. know -- any product we

market, the relationships technology, service share. broadest of portfolio with -- have levels. market in high have We And we the and long-term meeting products

and -- have We'll with of a starts So at year, about with partial the we next And end, it competitors. as talking when with that looks competitor materialize, if be to other [one]. it deal like they're a another our there'll all QX.

that's good forth and so not So to than value much and -- successful as there's this you've that forward markets. of other move commercial, in residential, And think products to in market be bring our what in and our to in read. our we position -- what tankless both broad I say continue share we're

Jeffrey Hammond

that X% would've treatment. the comp? -- just exclude did that back water then Okay. customer? that the Great. tough that was And large to Or included Chuck, that

Charles Lauber

had of That a because customer. the the unusually of ramp-up an of excluded large customer high Yes. ramp-up load-in we

of more So as base the as growth the the view of baseline business. X%, kind we

Operator

And McCarthy. we a have follow-up Robert from

Robert McCarthy

would Lowe's? us guess I is of is embedded changed kind give next year? expectation kind thinking for Yes. what into can any translated you mean updated this the about relationship I year anything with question and guidance for terms in of No. your I of there a has have And

Kevin Wheeler

our in not to Really, retail going No. talk and can't. about water to performance. particularly network, all forward, business, our dealer I on as specific it said, categories, wholesale. we and improve, Overall, treatment -- we're going be we direct-to-consumer, that's continues customers whether our

improving. Margins moving is business direction these right We're more continue the business overall, is the in becoming productive. as segments. the we moving So are and up, penetrate market to

Robert McCarthy

a it think years material And ago. versus then GE forward to you I Haier. just American or could do But I and market in that that through think guess, I in an stands worked It does lead to if more going on return of, reason price the players, the several a trading pass North pressure mean it guess if the How clearly, thresholds oligopoly. follow-up North you put increase a on was mean of a more forward, competitive put growth context definitely cap going out. some with gets it I worked America to though margins? about environment the entrance changes? and do to lower profitability that

Kevin Wheeler

the One, you they've relationship, investment market. from think in XX million, that. look forward. the you invested, we okay? But player be to I'm the if it's down trade. XX this do But not potential for this exclusive, macro million We've we I more $XXX the XXx don't and making sales just picture, we what And get $XX in takes from as at we future. product, and -- can And in so manufacturing, that we're compete what regarding mutually years. going I competitor. last to pillars our a tell great last And take into have -- shape. the this said, announced they're a we're specifics major engineering building and that perspective, a business of good continue to that's to forth, don't whether over it we've XX to one feel in do. they road. we about let's done investment, years. lot engineering to feel that I much think That's going And be XX, to we'll And the And are this we're It about organizations going

Operator

have we follow-up David. a from And do

David MacGregor

the but indicate we as much a raw extent could release your I pretty probably in markets, exposed American spot contract the that steel influence to a the guess, been from that which about price from has press the materials, your forward? I substantially. this of well. about, through How Can down extent you first in to prepared next about standpoint, you contribution We grow what and through had haven't should margin on come the remarks as is talked on year? mean it raws into did your Not half going move in -- your indirect positive favorably clear in talk margins. U.S., versus XQ think and coming contribution just we and call North

Charles Lauber

or We costs, those Well, of just XX- we steel for set about kind advance. whether QX, those to go they we'll steel on have costs lag talk the XXX-day down. when are up in see

and our steel back in QX, on So XXXX. look position look it's at can you of for best cost kind QX and

have just also mind -- way. we margin side, on do some the other moved So and large that formula pricing customers though retail the in have that keeping so

pricing certainly on there's that offsets some goes margin corresponding it. So expansion that there's when opportunity while also headwind down, steel

end it the the in steel is through our looking So year, of best QX. position

Operator

time. showing remarks. closing at not to this I'm questions the I'd for any back over further call And like turn Patricia to

Patricia Ackerman

our all you us joining for call today. on Thank

quarter. in participate course the conferences the over will fourth of We several

conference first Baird Chicago. in is The the

November We Stephens and the participate great and of will in in on the day. a Have November we November XX. will X; morning X there be conference in on Nashville

Operator

conference concludes call. Ladies this gentlemen, for and you today's Thank participating.

disconnect. now may You

A. O. Smith (AOS) 29 Oct 192019 Q3 Earnings call transcript