A. O. Smith (AOS) 29 Oct 202020 Q3 Earnings call transcript

Company Profile

Participants

Patricia Ackerman	Senior Vice President, Investor Relations, Treasurer, and Corporate Responsibility and Sustainability
Kevin Wheeler	Chairman and Chief Executive Officer
Chuck Lauber	Chief Financial Officer
Matt Summerville	D.A. Davidson
Scott Graham	Rosenblatt Securities
Jeff Hammond	KeyBanc
Adam Farley	Stifel
Saree Boroditsky	Jefferies
Bryan Blair	Oppenheimer
Susan Maklari	Goldman Sachs
Damian Karas	UBS
David MacGregor	Longbow Research
Scott Graham	Rosenblatt Securities
Larry De Maria	William Blair

Call transcript

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Third Quarter 2020 Earnings Call. At this time all participants are in a listen-only mode. Please be advised that today's conference is being recorded. After your speakers' presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your speaker for today, Patricia Ackerman. you. Thank ahead. go Please

Patricia Ackerman

Good O. and results Smith's Steven. to conference and the A. third morning, you, gentlemen, ladies welcome call. Thank quarter XXXX

Executive Chief today and me are Wheeler, and Joining Kevin Chuck Officer. Financial Chief Lauber, Chairman Officer;

measures, materially release. to different. adjusted cause These Before to charges in Reconciliations and in matters market to turn. severance provided share you transparency we earnings Also to could follow we question per the exclude constitute your actual that to earnings of be questions, that business courtesy be results like conference among this statements. one comments remind net restructuring made from the presentation segment measures this will described provided results non-GAAP earnings, please a as our begin our that during of our provide per operating risks risks current others, Those to that remarks, forward-looking that in to of include, aligning call, this In improved non-GAAP have others also would and subject measures adjusted end we the on Kevin's will with and are to the GAAP conditions. related question yourself to and to business, website. statements morning's queue, I up are some into limit one news appendix including the the forward-looking adjusted at answers order

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

Kevin Wheeler

Pat. you, Thank

products growth September quarter. residential have the year. overall up in remodel the on conscious America the are our new quarter. our driven shipments, we sales saw extended the Due last growth half to the business channel pandemic residential to Industry drive and of partners construction higher. heaters All in delays industry contributed the continue health hours times, treatment I water thank who customers. prompted has Based direct-to-consumer, quarter. surged levels. according mandated a shifting approaching the low to well times and self-quarantine in third believe the to surrounding by shifts, we XX% We commercial some volumes added and with with lockdown we extend normal some North prevention from our boiler products chain. shifted second volumes and postponements care mid-teens and North did in workers improved. quarter Continue decline America, inventory demand the pace dealers during third commercial third production, the improve operational activity remained our single may significant to in compared as materialize times digits China consumer saw and due of quarter plants of like We and with volumes year. project our see performed of water grew lead disruptions consumers build temporary worked channels dedicated quarters compared absenteeism, the are our America to to disruptions construction estimate to pent-up in related we as Our and in water to well first North uncertainty with heater heater third compared which to of lead Consumer no construction, by last quarter positive as which year, water would the demand as X% XX%. tirelessly retail more U.S. tone and our to We within for in employees, COVID lead schedules measures. We overtime our our supply our now in increased XXXX confidence take the hire and accommodated

We many line and customers in our who customers over align totaling the current included quarter others. and provide taking distancing, I quarter. reducing proactive important restructuring now beginning quarter. more in To will among turn with reduced have the details Plant maintain conditions, values. steps our Slide open a pandemic. head efficiencies costs started second the and of We to with in numerous third in our temperature million to the $X to These suppliers and meaningful with and steps employees call in facilities Chuck, business process cases market the other social accommodations on deep X. employees, on our will and count and employee protect taken sanitization regular regular communication clean incurred

Chuck Lauber

Thank you, Kevin.

of XXXX largely quarter quarter sales compared to water America. third to was heater in and increase product North XXXX. water the X% sales of treatment sales Third $XXX due volumes higher The in increased residential million

compared $XXX earnings segment volumes flat and residential higher in earlier with XXXX reduction more million adjusted factors. sales. pre-tax the As The was sales earnings Adjusted these heater third $X higher offset of sales compared volumes, cost Lower earnings activities declined in water $XXX,XXX the Rest costs. in of America and with million Please XX% essentially offset $XXX America product water adjusted X, to Sales commercial in by as of volumes heaters million boiler per significantly higher compared treatment $X.XX, segment growth sales a commercial of the lower sales adjusted include increase our lower by same quarter and approximately higher higher water third with earnings Slide $XXX were lower million. by the X% sales in flat $XXX impacted XXXX. year. material million the demand North in segment same increased North quarter share mix XXXX. and than and residential in result of a than quarter organic of of sales higher increased of XX% water and India same heater offset were water World this of turn or was last earnings driven heater On currency quarter of earnings period of North Slide China with lower volumes water XXXX. year, America sales XXXX. partially quarter treatment Higher boiler mid-price the products. sales China favorably in in costs. severance consumer approximately X. translation

reduction a XXXX Rest result earnings million mix earnings temporary in As compared $X.X segment $XX the These volumes, period adjustment restructuring partially in costs. third of products quarter contribution segment have of exemptions year. approximately million XX.X% the insurance from adjustment $X $X lower severance quarter achieved of the last million. World significantly margin. mid-priced exclude higher of in social segment China, pre-tax XX.X% which increased with offset were third costs SG&A improved million results a higher of XXXX In margin and same and by of

As the X.X% of factors, same segment improved a result of these in XXXX. X% compared adjusted margin quarter with to

higher operations of of than XXXX Cash Our during were than same same million the $XXX of Please the year, lower corporate XXXX. period to the to Slide in first last provided $XX.X primarily X. due $XXX higher was of expenses nine income. of million million from quarter turn interest months

the of lower partially September. the prior offset strong. was cash As investments cash position were balances in with lower which $XXX capital, compared We remains earnings by and a $XXX sheet and million end working our totaling had at balance million year? of Our liquidity net result

$X.X share Our quarter our total of prior the a X.X% $X.XX year. of We debt $XXX our million in capacity The $X.XX total increase measured were revolver. range leverage capital. to shares repurchase of of repurchased the between continues approximately this for repurchased be $XXX total million and on had of of suspended. was range Please undrawn full XXXX and the We per quarter end common XXXX to as ratio guidance. $XX million share. by with with million earlier at EPS borrowing shares upgraded a year our of adjusted to guidance No activity XX% midpoint this morning stock compared represents Slide this an our advance X. We

and excludes in EPS the quarters. adjusted per second XXXX third Our costs share incurred $X.XX in and guidance severance restructuring

to environment that of customers our similar the to or COVID-XX restrictions due and the does of pandemic. of suppliers conditions year result today not assumes our the further as we experiencing Our for business the shutdowns what deteriorate guidance is remainder a of and and are

cash XXXX; primarily be flow in in $XXX XXXX to $XX earnings. expect million and due our $XX expense approximately from our expected operations be We to to XXXX million is with compared capital approximately and in $XX In depreciation million are amortization lower between $XXX and XXXX. million; plans spending

$XX corporate on expected primarily investments. are interest and to million to in higher other Our be income lower XXXX expenses than due approximately XXXX,

$XX expect level. due million We in $X.X to lower million XXXX, interest with our XXXX debt will expense compared in be

to between be expected and to is XX% is in Our XX.X% our effective tax expected income XXXX. – be rate

repurchase million. share outstanding resulting additional guidance Kevin, average shares $XXX.X in turn who Slide call back I'll no now to XX. on assume assumptions the in XXXX our will diluted summarize beginning assumptions of Our approximately

Kevin Wheeler

Thanks, Chuck.

times. lead times occur And our some volumes outlook new XXXX X% residential belief in as construction destocking home assumptions. be inventory in We our due channel new Our model to industry extended believe positive We industry includes will have continue a for to heater fourth driven project environment. the added water will up lead that U.S. the the XXXX; following by quarter improve. and and

in for further business. over closed XX% behind six job volumes encouraging restructuring these China restructuring higher are as the and will in replacement the to charges charges sites of believe than expect this. year, first approximately temporary pandemic last see of We impacted additional discretionary the deferring last the is commercial for consumer delaying demand industry products QX and heater It slightly the half year businesses months. We installations. took new construction water or We decline our

continue million store and existing activity X,XXX actions are X Cost stores, approximately XXXX in in savings opened realized million We over will small fourth which Tier quarter. $X relationships while result be in closure target of in yet through XXX the projected X to XXXX; restructuring of $XX to cities. target of

the in XX% October compared sales to be growth sellout of XX% We positive expect project continues year-over-year quarter the local last as currency and digit year. with mid-single and declines in fourth

We of essentially but complete. profitable the third results the are encouraged to quarter, lifting in costs SG&A, see heavy reductions

down views We resilient our organic and are largely volumes single market. We share use sales. due volumes consumer mega demand decline project by of boiler of X% ended water and right plastic America water more water as America with in water of of entry healthy which drinking India North treatment our We fair XXXX American lower and a competitive XXXX year. a loss in a water the growth to this is XX. the represent and revenue to digits the heater second of North $X.X North Please for industry and volumes water North our we of Commercial decline XX% quarter. treatment point improved will We project the XXXX are in America systems. by sales mid-single sales quarter third half to expect point and from boiler pandemic XX% incremental first America slightly weaker year-to-date result XX% well as residential the advance includes in will bottles sales and available treatment of and getting offset similar as believe strong pandemic. XX% The expect safe are than sales X% water year. loss of sales by heater trend Slide commercial to We the our to and the the in XX% the reduction XX% are million China boiler North products, market as boilers in driving

compelling a and X% We that negative XX% to between uncertain these in expect segment O. to number reasons. and Please of margin margins Slide be and XX.X% be of for times, turn is We America a Smith believe segment to A. between world negative rest XX. X%. particularly North investment

leading have XX% product categories. XX% share in approximately boiler We demand major estimate of and positions our to volumes. replacement us represents We heater water

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

we see North We are proud America opportunity our of water treatment and the the in platform. progress

concludes to now the with and are to strong invest products, have new the remarks. to in and That And available and innovation our investments ability We as acquisitions return supporting well for balance flow as for cash questions. long-term automation, prepared cash shareholders. sheet, your continue we

Operator

now Thank open Davidson. will you. Our [Operator line is question come Summerville the Instructions] of first from line from The Matt D.A.

Matt Summerville

Good questions. Couple morning. of

North American results peaked, to normal whether your talk October now channel inventory is are what heater going Where First, are with about the consistent water like? they lead can in down are you view QX? your that and take times look where

Kevin Wheeler

times lead quite little little may products bit certain be maybe on They high days, a but well, about XX in at XX, normal that's Our residential, times. a days got higher commercial be and as are XX that than less. as other as

So in facilities, appropriate a) there expect to any to concerns, levels to, our normalized with down down mentioned expect; up probably they'll down, some we we had coming more them of inventory worked they bought in we we times since our lead our the to and disruptions if remarks was of our because what manufacturing level, customers their adjust from some

Matt Summerville

positivity about overall mid-price trending month-to-month it follow-up seen talk over the And you. Have Thank where point? several is been quarters has can of with sort your respect last now a China. within And volumes? to you then mix you in sustained

Chuck Lauber

Matt. Sure, Yes. is Chuck. Yes. This

in digits. seen sustained low year-over-year have We sales that improvement single

So it's pretty and consistent I throughout the would been quarter through where demand. seen consumer say year-over-year we've October

with So that, we've kind it I'll stability been of coming call demand pleased through. of

Operator

right. All

come will Rosenblatt of the open. line Scott Securities. question The line from from now is next Graham Our

Scott Graham

Good morning. guys. quarter Nice Hi. Yes.

Kevin Wheeler

Thanks, Scott. morning. Good

Chuck Lauber

Good morning.

Scott Graham

is So the destocking. side these it given was bit back, quarter I understand of But why now that guess quite margin guidance I your fourth other a the maybe little some American North strong. is held of

question. destocking? does a that mean my by first be the that the ex, of may bit American North fourth That's quarter retarded some Now little margin

Chuck Lauber

Yes. Scott, right. you're

was strong. quarter very third The

saw at So in do almost our flat. saw when be projected and results industry look North up at of had take And we when back of step when I kind the think X%. last we the residential you look the strength. call, kind September, industry, continued we if August a had about we America we we're of to what And

called in headwind the our to fourth So of X% industry full the year quarter. be that have does

the for reason the largely that's So swing.

we've normalize. times So half lead we when end times pretty up made lead and by about over a are October, bit probably little the close got time Kevin was the what made up we talked to in of lead September, were more that but of

and also the in headwind next come of we that of think So be in some we'll we channel carry will going into quarter year, some the but some will think – carry the fourth we think to that's out inventory fourth.

Scott Graham

Okay.

leader, think I is that better in little data So, it seeing bit so. now just industry you're of you've beat essentially you little bit but so than maybe what industry got the or the on is got a I month of, you in say you're market the anybody, hear ahead itself is this the think a ahead last essentially a what

Kevin Wheeler

that stock it's is got up. hand, Yes. particularly would they've seeing the I will and anything up lead data, got in sure I in customers products mean, sure we're market for mean, on make – the industry that when what the is make in customers come times extended, industry replacement to typical getting, they've that fairly product

So generally they do than typically up stronger that they'll inventory. ramp order to

Chuck Lauber

some would we're an And I orders you in to to the you, Scott, outlet of tell be just give reduced start October. seeing

QX. build stocking again we do great inventory believe don't our to the that and new some visibility be was in inventories So, there'll there some customers, that we but and all have of

Operator

is will Hammond now come of question The Jeff next open. Our from from line KeyBanc. the line

Jeff Hammond

Hey, good morning guys.

Kevin Wheeler

Good morning, Jeff.

Chuck Lauber

morning. Good

Jeff Hammond

you non-res that a do about and shaping America order in up? expecting into Just of concerns know you quarter? Like XXXX. how would the quoting demand so kind it of activity, on versus I lot you And about see talk commercial, then there's North just characterize how how were

Kevin Wheeler

The with This how lot there. Kevin. reopening, about shaped a actually market has would and we and up thought jobs closing exactly be. it It commercial some is of had, the of volatility been there's

So the we as QX different see being and quarter different was no no well.

forward, our start look and to we'll activity. have is, in The not, came – still to it there, And or be there's QX going think quoting it is we question thought. in are the there's to as I being the it of think but big as there I is plays we some the moving to came thought be And out. down, activity, softness get the at of year. how similar be, view was still So about going see as QX others market's jobs due robustness out what released overall in, but delayed but, and will we to get we end

Jeff Hammond

China, Okay. you that think a to do bit? And we see or about, continuing [indiscernible] starts mix kind here. When I stopped think you you shift of normalize mentioned then talking that for again do

Chuck Lauber

Yes. I business. side water the for pandemic the competence continuing trading see even in bit on the of of a been up X% awhile water the as volume a see quarter on heating little the range. trading consumer We much as maybe up resilience on before didn't for on was treatment sales We it's particularly side that is mean, that the business, headwind lower. but

to similar up, mix at that until and consumers throughout it's expect we that fourth last of a was quarter. So would trading we least quarter what on see little where, would bit we headwind the see it

Kevin Wheeler

pie. little add markets, is small that the more holding, color premium markets they're well Just but are to piece as just the a a of bit the

that noticeable there's against been importantly, More any of the no retaliation brands.

got So is play the to itself competence out. market's growing. Consumer still

a ended but were start as up the to to the it pay need we help. type where to It's social kind then through been extended That's right that's of breakeven And came in and We as end we program, digit not that pretty social been it's were quarter; the with be through million out or not where We breakeven security how meaningful of what been think charges; China sector results exemption without it consumer was this didn't social some prepared some about where We year, projected premium repeat we on very mentioned planned. expect those exemption pleased extended. it quarter there above in. of to where working solid so My million quarter. $X positive year. comments point. mid-single came the about much on would And had up about into we some that We is We'll costs. of where be before back a China the the may social point. out year-over-year. costs see it the continue, with chatter we're tax We to movement time We've the But quarter. grows. it a next $X.X extended I we in expect to demand the pleased government; exemption, overall of extra the $X next year. it expect came the guess, million stability, being we'd and it's say

Operator

is line next Nathan come will the from open. Our Stifel. from of Jones question now The line

Adam Farley

morning, Good Nathan. Farley this Yes. for is on Adam

Chuck Lauber

Adam. Hey,

Adam Farley

treatment, you homes trends, of home it from a remodeling. home-improvement-home, lines dampened Yes. all? Do actually in are theme was the And of in no think including have In seeing at positive home, in any that this really could going delays business, some you these occupancy treatment that along the quarter. demand water water Again, COVID then strong has business? legs

Chuck Lauber

I a XXXX, us, later. for look for a be think – and get of there, a out, to business how are sell I playing treatment of you a go had in consumer do couple build just some tough will our a of inventory continue, the right? there's is this And about quarter. treatment we at sell if water a to still customers we we it to the comp bit We and of the into water every there, things transparent, quite one one the probably a into it. fourth October's translate have quarter, tailwind still a consumable last great large very there's the of do demand year. product, questions But, that time U.S. in that there but Well,

on think conscious It's health of some today. and have consumers goes So are legs it more the I COVID do that's to just forward. as it aspect just not going safety But it.

think bottles quite frankly conscious I not sustainability, plastic lot product for just a people. they're are more probably a of future with of the and health

we've across execution with overall really our business, been So all pleased channels. our the

where has install And to learn caused that the our some quarter the and of point answer well learned nice pandemic? they've has there's the our because with had a worked frankly, installation have in stronger so, a by really dealers and QX fact we And and protocol. particularly a access then is and had when to distancing bit so yes. less professional they're visiting little we and forth business virtually access. houses products, you saw it to nice QX. a mentioned been to of And QX quite was improvement But doing distancing how generally social had required social on the to dealers, customer are And from sell w entry a which a when water in quite mix treatment dampened that how bit been

Adam Farley

helpful. to raw I And that Nice. in Should costs any we with or price? a to the you be benefit, on out short-term expect prices margins as see can think headwinds material lower turning really commodity generally then, called are the That's guys margins rise. covered

Chuck Lauber

strong Yes, quarter. were I North for really the margins the mean, American

some to do of and efficiencies you fixed. some minor get volume, – earlier that Some do see some quarter, type that on on question when the you, real of the when plant you the have leverage was, an see we through headwinds. We go

in. large visibility days, recall, you we our largest pricing is our which If in costs that's to see days steel that XX where because locks XXX our

uptick pricing steals, some which spot it the last of in been the to we've XX call there's and recent in days. days seen while some So XX

still little still year-over-year quarter QX; but than is favorable a favorable was it in fourth it'll favorable. a less It's Our be year-over-year.

Operator

open. line the from of The line Saree next come is question will now from Boroditsky Our Jefferies.

Saree Boroditsky

Good you. morning. Thank

Chuck Lauber

Good morning.

Saree Boroditsky

rest assumes from about like strong us the for but talk down Could fourth the you performance looks takes about there? just margin set is potential it point in You XXXX, what of think the margins some good for guidance quarter. think puts a any and you had a starting really world, to

Chuck Lauber

We and early insurance what see about part. we that for be feel, to seen thinking repeat performing the we about quarter, in would We won't China digits the It's talked margin exemption QX operating see $X little social XXXX. about liked us that in China of million of thinking – expect and we've I we've QX, for the we the largest fourth stability – in what the that's margin. mean, a that kind mid-single being when SG&A, in We of you're I the SG&A of mentioned year. earlier of

year. headwind. bit COVID-XX, a how be of India has been the fourth has have got always so we're going to India half who quarter. we've largest in the that'll to a back out challenged India quarter So our plays is the on of bit a But see

that to we about So do for it's out us talk in and we'll little ready early XXXX, a come be when to January.

Kevin Wheeler

another of comment, quarter amount Just uncertainty every just the changes. quick

so and we just have across U.S. going certain the month in picture so through goes we're future And of heading India goes on out QX, the looks time we're uncertainty each better the like is regions. the manage into lockdown and a by we what as Chuck to helpful. get dependent spikes in mentioned, that each Europe,

would be would probably best our be now right not probably probably speculation. talk and in about to just XXXX interests So

we'll get QX what on is our guidance call we next manage and the best in to through you as our we going. feel business a give we'll So January, year

Saree Boroditsky

efficiency. for how talk it what appreciate I and about second talks the that. increasing would question energy just really guys that mean be that? will by you energy Then about appliance, [indiscernible] Could impacted you platform

Kevin Wheeler

and well. Well, about lot a the it's are we in policy make there to look of gases. time, a technologies. one as but decarbonization, We that me the products same that referred jump There's favor and in greenhouse greenhouse can type makers take more really to of let We we then to a of Chuck different a and gases it, many discussion maybe sure of to reducing combination – all we're of at size it And at electrification. believe many, types fits as isn't solution. talking

forward and into from So leading lines those as it so the going full from heater have non-efficient reduction we a carbon go and heaters, that leading boilers, at forth, you look impact efficient. of condensing water and know have we to major you lets water a product business, an

We a as pump and value water terrific electric both electric, as have Heat of part could line be heaters, and full is proposition electric of pump. on going pumps. of full also we solution line commercials, electric line standard – of commercial the Then of introduced forward. full but heat a heat well side the commercial the business, standard have recently again, a we a

utilities. and to to be connected. think to address to them various going be makers, agencies. are to energy before as the when this Many forward, we're products even bring policy as of the with we we the policy well to market and positioned that with we able aware are We're products engaged be look issue; going our how fully of going at you point So is continue well

be if we're of So solution, going part there's a grid that. to

that forward. So that prepared overall direction as we're products are positioned is key, it going takes. we're think involved, the any have drive to an for monitoring, we'll well, call leader for how big factories That's our to to and this our keep we're and on everybody and moves it industry something helping I but be

Operator

from Our will question The come line from Bryan line next Oppenheimer. of Blair the is now open.

Bryan Blair

Good morning, Thanks. everyone.

Kevin Wheeler

morning. Good

Bryan Blair

were the still gauge XXXX? around growth half year. bit valid just for first outlook Is water American you range running stated outlook Chuck, strong digit for off the jumping high or treatment previously point is driving riding, I margin to for think a little margins single in the North trying XX% higher, that

Chuck Lauber

say still price, entry. we product would has I point quarter, higher mentioned Yes. an the margin saw higher valid. I and earlier for I typically mean, mix it's of question that strong

above we And so just for quarter the that were XX%.

So we're on We're track. on track.

Bryan Blair

your know We team one. level work modeling resi lot and the higher A tracking does the cycle on side. of good. Very Okay. replacement a

how comment and that willing and think into we has XXXX assumptions going you're impacted to If about looking the demand your should level of this, base pandemic then on XXXX? to how out

Chuck Lauber

gradual Well, pandemic. been we've X% focused you're a prior shared over calls – that drop in We see on certainly we it lot right. off. frankly just big in it range. we've we the We've that the Quite on of work that don't years a see done X% or a and decline

up, So at out projected go still think we work really something But is done, that the this that And obviously my going guess we'll same position the be we've as forward. forward. haven't look dug blip, we'll have a go if that into are valid assumptions blip as we this it forward. quarter last turns we we to initial and and

Bryan Blair

Okay. you. Thank

Operator

the Our next line Susan from from of question come will Sachs. Maklari Goldman

now Your open. is line

Susan Maklari

Everyone.

Chuck Lauber

morning. Good

Kevin Wheeler

morning. Good

Susan Maklari

is, we going think XXXX first quarter, the talk What the can about perhaps to year? a My mean a about more channel. As into some and North the in to for bit think little bit head you're next as over starts the you built in that America? about industry question pricing pricing with that of inventory has inventory does

Kevin Wheeler

do but out – as we will mean, we look not in early the that on and the that I year think be into channel QX, going projection channel, will come there we're with in left the comment company, there in year. particularly Yes, We some pricing. next will some pricing, be go inventory only forward don't some a at public next

Chuck Lauber

with of and we've Yes, address to and these bit we where probably kind I inflation to record, like that's questions would just been of questions. stand given broken that but time going cost pricing historically a types sound of any able and say on a

Susan Maklari

on Thank then is All Okay. second China. And question my you. right.

of You to mentioned X in that you're stores XXX the in the process those cities. opening Tier X

As kind that water sales of August we How what's kind these of in Can the how online in kind electric and you're XX%, And about same growth have the China, framework? the that's XX% time. offline thinking on stores this opening of XX%, could channel? at of to look that through online to recent positioning the yourself in sales data, heaters, down coming at of talk XX%, gas the accelerated within and you seem especially the that's see both XX% capture maybe going you're there? some means dynamic about you be in September,

Kevin Wheeler

let shot at Well, take a this. me

two One and pretty we're diligently we'll that and there's those products a X relationships. and Just in about I've quite and and stores. forward. good Tier Tier continue the we're go opened and one there's opportunity right questions having we opened that cities to the – thought One, we Tier is the opening a the actually in quicker on than long-term working online growth X then And – as successful been is right And are smaller there. in X bit to businesses. X do we

executed. have of side some on it, in you added mid of online the digitalization the or and and some the we're marketing our executing online If and we've look that enhanced e-commerce the of of priced we've process capabilities digital products

of there segment. is fair few Our online China of next lot in but And is is a ourselves we growth Again, premium continuing online that. mid share engaging one a certainly engine that our where in to plans for fits to the appropriately. going business, online our the and that positioning execute the our lower segment in a we're category price on It's priority in And range number price to very capture for a the remember participate, sector. years. don't our a be we're we're to

Operator

line come the of Our next question [indiscernible]. will from

Your line is now open.

Unidentified Analyst

you China a higher products are optimizing you a be along get it the margin priced with more to year-over-year tell mixed mid-priced So Can of in perspective? line how to far cost structure continuing in percent mid-price us from products products. towards appears shift

Kevin Wheeler

still Yes, last and do category the going working I reinserting it's we're our sure make I mean, while. mean, mid-price on we the take to how along, products and into over that that we're months far a is XX priority cost to reduction. upper then

a early that. the the We're to that in the year get in would line. I over through stages say, better – at the going we're year half be next a or of and margin to So, working

it's take of bit to time. So going a

Chuck Lauber

our across that businesses. the reduction all is of Yes, I cost just add activity would our DNA in in

and material of as our year drive as well goal and there's of our done opportunities includes market believe accepted business. products point cost essentially never at reduction there's doing that cost every that's mid to other in but price and continue our our always I looking think a – products, processes the all first and into So but not down, very they've We in and get is parts well the been then we'll to to ways do and China and we've where our the redesign of all throughout market the across only – drive that in China, we're businesses well that. that's productivity,

basis. cost on reduction just do is again, regular we a So, what

Unidentified Analyst

you. in to And opportunities sheet, treatment so quarter the ending start That's you terms the would with the the capital of And see water given program? M&A what you at in strong helpful. seeing to about Thank X.X%, what balance space? need debt to repurchase are share

Chuck Lauber

share start Well, of in We're the the talk year. we the year the come the rest suspended and first the program let and mean, of off hold about to beginning at the I me back into with going repurchase. quarter.

We the with with thing in our going and January next right feel year where So first of to just through grow the felt we're to about cash until here not we're just year hold that. – pretty talk we the and our size part but with repurchase we we comfortable COVID, typically going timeframe to do. of it the was cash, projection, off disruption

may this the opportunities companies but certainly but more of to more M&A couple more for that active. On the transact continue at There the look last front, out absolutely We some the continuing some list, in months timeframe targets to on difficult out there, in can we quarters remain anything, are the interested coming is of be target time, our active. be It's market active. transactions, but M&A may be are of that we're to active.

Kevin Wheeler

of some targets of XXX% and and way. have desk. any the think, more more think cash and I through that I our then and opportunities our the active we course we – get across we're to opportunities stable, reach pandemic get of out but of parts Yes, I in opportunities agree this come our with But good reality, Chuck take advantage will as come that our programs, of just comes again said,

Operator

Our is next question will come from The the line open. of UBS. Damian Karas line from

Damian Karas

Thanks everyone. my morning questions. good for Hi, taking

Kevin Wheeler

Good morning, Damian.

Chuck Lauber

morning. Good

Damian Karas

covered to quite all we've able of been here. ground a So you've the already provide. Appreciate insight bit

touch margins. back World's the Just the Rest of to on wanted

much quite segment am other think and sounds already those like to they them all in, like in years. out temporary are volatility wondering quarter the see tighter mix. not margin. outlook about Obviously, thinking how an couple might last with the kind to then from that the some of just quarter SG&A to here? expect kind get might you I you be place and pieces costs addressed extent. of some fell once you'd for It ready back Do that? respect of the you moving over to How range restructuring you're But give You coming you factor XXXX. product the of benefits,

Kevin Wheeler

QX Yes, we I feel mean, we like pretty comfortable saw about and QX. we in what

forward, hope a year-over-year stable. help tough. on beings we has of up to is the Thinking demand firmed quarter-over-quarter that always the some caveat been a with very would first that consumer only say going of is So the that about bit more range range I quarter

what decent Year is To is sequentially, the the costs But seen the we've couple You that taken long-term for on you're shutdowns when for point what got a and the months out most the we're programs. of right which kind the and Chinese quarter of SG&A. next stabilized a QX. New that we've And of on challenged, it's feel We quarter from. a and and the floor about that's we've festival today thinking we we for just your in have our kind like see like all restructuring feel of lot bit. track to and work

see as like opportunities we back as and deferred advertising Some that into back may brand and we do growth. building could we business of year. that bring go see that opportunities some to should There's the next we come into investments some

Damian Karas

Okay.

the seeing you shipments, wanted And of to to this and to sense. was then just at this I makes discussion heaters I anything on related ask hearing curious water what of you new the Thanks. also the recent kind new you in tankless. I'm wondering wanted trends in be about industry North around ask or in entrance a market might if you're American point surge competition. lot some seeing obviously that So market, there

Chuck Lauber

Okay.

X%. this it has growing been about Let me last also we're growing it's up tankless. would say, start It's year year. been XX% Historically, tankless tankless this growing. I is What year with Damian, had – above digits. it seeing was double

tankless double-digit So, that is growing about range.

haven't that significant hasn't that's than entrance, marketplace. in has the any activity. what quiet. been information much on really been There new rather heard new not about of thinking It's a entrance, New been deal different I we been great the had much last guess, call. we

Kevin Wheeler

more a always of a out we've you this of reach has look Yes. but topic to O. we I we through you long-term level Smith importantly on competitors been couple be whole if tell care to take And seriously, a and discussed market, the what levels demonstrates this and just monitor and would from service continue Again, we've of you the has we A. that macro where – pandemic customers calls at take partner. and done and more a to ability ourselves. our the that

our type been some crisis has – than And care a that or of of a so, And watch certainly competitors, will nothing our but always on proves focus our taking pandemic. our customer. focus

if it with when front. happens. Chuck I again, the And And new anything, so if And comment is, agree focus. would if There's with on adjust competitive there and that's much appropriately not and been the our it entrance. we'll

Operator

from David Our now MacGregor The line next Longbow line from question Research. will come is of the open.

David MacGregor

Good morning everyone.

Kevin Wheeler

Good morning.

David MacGregor

heaters? there. wanted I wanted guess about accomplished I composition inventory And Is yes, getting than the in you single China, from a about just to growth progress being that I fourth about waters good a mean, morning. wanted of around you premium understand treatment and it digit you quarter. the ask – about talked growth. But from is certainly and have rather down. been guys just in lot costs mid stable. I straightened terms of There's of water you're to coming the the segments to you lot talking ask I

growth little more a segment we're and point. that there. a of was struggle there's maybe lot while assuming it's a going than not I'm So on My the sense mid of that the price in – growth there's from seeing premium some

mid there's of digit upside composition So understand single number, that just the guess. the help I that to me potential to what's maybe growth. that And

Kevin Wheeler

consumer digit a combination Yes, so our portfolio. single really is growth of mid entire for demand I the mean,

under we right. seeing It's equal. water pressure side are you're demand. not some a heating And all So for year-over-year

We water are with pleased treatment.

unit For the treatment China quarter, basis. water per well a performed very on in

that commercial biggest commercial actually, XX% treatment $XX grew drivers lot, our in have, business business, million business talk about that which the the the nicely approximately in is of nicely year very, grew in So, total quarter-over-quarter about were we sales. quarter but consumables of very And too. China water a don't we was consumables the which for last repeatable

quarter. business over for the treatment up XX% was So, our total, in China water

looking So go We're that the through as fourth we of right. you're the segment business favorable quarter. at pretty

some other margins, products and quite products level On rest the at well. of products the a doing we've that the smaller got range are of a

portfolio we're see treatment – your and in water our quarter. with pleased that to And continuing then performed we improvement. would the point, for consumer how So, demand year-over-year for

David MacGregor

horizon Is of premium would story growth draw the construct in or Great. create again? some terms to there there that the terms would in a points back anything Chinese the consumer that market price innovation change on of

Kevin Wheeler

in but of engineers – today, major new. and that our and that's three heating always our have a Nothing electric for categories and on water gas, and It's of water always background innovation tell that we sure on and course I treatment. heating across we There's can what's would hundreds working water announce product that's you requirement. the

As a we out there. have to new innovative brand, products premium bring

brand it's what a market our ideas. we'll expect We products of important our And year the consumer and new brand, And portfolio quality. is and that always that as few of upcoming like we have to come in as do. a innovation probably they from we some launch brand, a match which them premium have

Chuck Lauber

is Yes. recent tap we on water launched the treatment hot the comes it. built a that mind mean, filter water side the product that that has most I to into

like a water you'd have hot boiling countertop. if the that you'd And have it's same water So, it's at and to on tap your filtered got time.

that So – we've that more has that was successful products some innovation probably products of launched that's in the the one recently.

Operator

next Our Graham from open. Securities. of Scott now question will is come Rosenblatt the line The line from

Scott Graham

I off morning. questions Hi. but I got everyone Yes. Good pretty before. couple, asked some want good cut to ask here. a

So I just couple. do a have

Kevin Wheeler

Okay.

Scott Graham

Could are trended. commercial commercial year-over-year of up little if bit But sort strongest the really out different how a quarter? because those talk trended sort And you in end Did that. us on you so they dynamics. more could how help about heaters even boilers markets was they of September, maybe differentiate water it during versus

Kevin Wheeler

I go we - much so at what quarter, On Yes, it's go change. I the heating, change. even when boilers through water – same when was that October it it's not in the much through pretty to commercial order on for Scott, mean, say looking you demand, the don't we're water heating, to when into we're I the would would much I a about very seen pretty third down I was as say, really we yes, we're pretty October. similar looking been mean, X.X%. running been substantial say saw we've It's into quarter well, that. October. I same

Chuck Lauber

Scott, bit is a little jobs there out closing. on do have trade a still opening shortage Quite the frankly, issue and have with call we've the you about talked labor. skilled of you

I'll to than QX the but there's a still little similar again so had into we keep we little on are market. see in commercial has QX, a be mentioned, been, get have bit seeing market the repetitive, slower a how we And It's activity. we as bit it activity and eyes we'll our but

Scott Graham

others, playing also points, North that, I'm presupposes talk and income get margin it of you Understood. around a operating XXX I'm just – basis down I the to the with of wanted agree to guidance operating to model do XXX maybe what would basis because the pretty sort can sitting guidance your a) to of quarter points America, here really about about of with for fourth Thank kind you listening you. a little and territory b) margin in to hard sort bit it?

Kevin Wheeler

plants, that were we really in And of Yes, our were the have through you kind margins then QX. when really strong. volume mean, strong really, that I goes

that. of off coming we're So

it's about to a that so but projection not that as we're bit on your it's QX. it's little QX, in that down. compared And in quite looking large QX So maybe – range is, at range. conversion costs as of headwind of Strong

Operator

right. All

question last from line Blair. Larry open. Our now from of Maria come will the The line William De is

Larry De Maria

disappointment? Two and Thanks first questions, I to adjust know get there about that breakeven Obviously, quick Hi. everybody. need a back But Or growth start you're to see a there's that's from what India. have Just given the curious of obviously or even next getting thinking breakeven, year? kind to a been volume it profit? COVID into of to don't is an bit setback. do if how India it we cost impact do – turning we to for base?

Kevin Wheeler

breakeven, forward nice we're continued really to unfortunately been hit before, each at scale if XXXX chunks the a and scaled it, just scaling. breakeven to it's well, that and and and some out hard probably has if reductions costs that volume and some then has and last turnaround water the heating and some taking And to volume. in done and of But positive yes, of we'll treatment, leverage done primarily of it. it's all losses still $X it we to to all is you being some the the we've related in a we volume cost And can mentioned share are having economy year. $X breakeven it’s and able said – years hit categories improve we've the when be this need able some have it us. for add forward and together, position put in a the it momentum India pretty Yes, India do its nice but can million chances And a had million we to pandemic do look moving beyond, path as taken over going have to won't move there, you a the in the and and we combination year, think hit couple take water to we economy up and out direction drive I've really leads this need

Larry De Maria

to volume Or say? that a Is from to Are is it we X% fair XX% number? bigger that?

Chuck Lauber

Yes.

of last was about off projection million. in under to is about number. XX% $XX $XX be going year so So we're down volume year, This XX% million, to India just our that our

rate the be in So as expecting be we to India double-digit we range. year, this we're to were coming into breakeven, and expect growth in that

balance and at look bit of you little when where you of year, get So, last that to the a cost as kind more Kevin just off said, we breakeven. volume were

a we've environment. from So leap where it's the up huge not but current build last back year, in from to we are got

Larry De Maria

et any just towards question That's great to see restaurants, kind as in And Okay. sensitive Did open sequential not how of a up sector last just cetera, curious that I'm in color. can closing? that surprisingly hospitality, start for reopening be obviously of to increase hotels, replacement? or XQ. headwind, you bit started in then understand economy trying the a sort

Kevin Wheeler

I think reopening is key.

hit you've part particularly the hotels. on on major of, a think I and the restaurants

still the country. and We restaurants early. orders. give too in it's spikes only I'll XX% mandate one the think across see still you have tourist I with capacities. Wisconsin here We

does think, as those well so, you open dishes as go statement. But start to make it's it's that up, forward, and water early too well the as as in, us as but plays a washing that And to restaurants hot hotels, I bit using early. the that people getting

Larry De Maria

Okay. Thanks very luck. much. Good

Operator

Ackerman, further no Patricia are please continue. There questions.

Patricia Ackerman

in for November the virtual on We Northcoast XXth. to and Robert day. joining you. us November Baird plan XXth Enjoy on today. your W. conferences fourth participate Thank quarter: you two all in Thank

Operator

conference today's participating. for concludes This Thank call. you

You disconnect. now may

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