Earnings call transcript Q4 2022

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Operator

Good day, and thank you for standing by. Welcome to the A. O. Smith Corporation's Fourth Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. there a presentation, session. speaker the will question-and-answer be After conference advised recorded. [Operator be today's is Instructions] Please that being

And I Ms. would over ahead. to now like to speaker Ms. hand today, Helen Gurholt. Gurholt, go your please the conference

Helen Gurholt

morning, full-year call. Relations and and Good fourth Planning and President, Gurholt, conference welcome A.O. I'm to Smith and Analysis. quarter Vice Financial Helen Investor the

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

Reconciliations measures. adjusted business, Free improved provided provide this into presentation and operating at impact as we and transparency exclude as legal of well from non-operating, provided in the our from earnings, expenditures. to end non-GAAP share, our as flow In less order to on expenses. income expenses GAAP measures non-GAAP the pension the segment cash cash measures results the of appendix adjusted are income site. defined Web earnings is capital of expenses, corporate judgment and adjusted and operations Adjusted acquisition-related non-cash per terminated earnings,

described Also, limit others we morning's that matters A and call turn. answers different. question per risks courtesy to to among in others. risks friendly and materially this include one release, as the could press that statements yourself cause during question our subject that in are be comments please of be forward-looking conference actual will Those to this results that some a reminder queue, one to follow-up

the questions, queue. rejoin multiple have please you If

We move will today's be slides using as we through call.

Web them You our on site at can investor.aosmith.com. access

next slide. prepared to to our the Please the remarks. turn over call I to turn Kevin will now begin

Kevin Wheeler

results. on Thank everyone. slide you, Helen, our I'm morning full-year good four and and

place a fourth improvement America despite activity, our inflation, supply lingering demand Despite XX% sales chain due third began inflationary the on adjusted boilers Residential took residential destocking strong increased in residential quarter team compared the an and XXXX record-setting quarter. wholesale earnings and the to third products. treatment Our and primarily in to destocking in fourth U.S. volumes water inventory the quarter, for compared industry to that commercial sales normalize the North channel quarter. year-over-year to were and and activity headwinds, XX% delivered and significant basis in pricing up

consistent the Our XXXX, and World currency XXXX XX%. despite improved headwinds grew by delivered and team margins XX% Rest local performance improving profitable. basis almost be Segment their operating margins segment operating in points of economy full-year our in currency In continued exchange. XXX China in to our India, in sales driven to

of pre-tax divided of majority liabilities shareholders. in to is XXXX, $XXX a adjusted This December expense and EPS. we adjusted capital from $XXX $X.XX repurchases, million share With million resulted our of the of settled returned pension our we EPS. in excluded expected, and which non-cash As expense earnings of or

Please turn five. to slide

to the inventory to implemented material XXXX unit residential record offset team heater second greater-than-average that result demand Our water and logistic response quarters. team. lower channel approximately in X% by Global a We XXXX, $X.X industry wholesale revenue of $X.XX, third that costs, pricing a decreased volumes. destocking of sales effective of our growth, and as occurred two to XX%, billion to and achieved and delivered due XX% Smith acquisition-related increase in North XXXX. rising years primarily After grew was residential strong compared A. due performance in a partially XXXX during EPS this from sales America XXXX, O. execution of actions adjusted over

large the industry the at both than beginning industries, gallon, continued product to which change XX% was residential the electric are the part was due from our experienced contraction to water portion We we Despite reducing to and in of a year-over-year. units a approximately lead decrease we performance greater don't and residential commercial of our in by our and with levels. customer XXXX reduction A order products driven delivering expect residential category heaters. The Commercial weakness in pleased in improved pre-XXXX in product that XX times. decreased XXXX. market strength impacted share both commercial rebound by regulatory our was

America grew higher boiler higher sales North by and XX% previously price offset costs. increases Our driven announced volumes to

backlog to supply reduce efforts chain improvement the second-half Our allowed in us our XXXX. of record

CREST focus boilers decarbonization North and higher water and grew our demand specialty in channel. in for XX% sensing condensing technology. volumes, particularly our contributed on in strong our innovation, America treatment with pricing due efficiency particularly Our sales high-efficiency boilers, dealer wholesale actions OX XXXX to Hellcat

to approach opportunities. quality We omni-channel the and water acquisition product Our to view pursue through and market work we our dealers an strategy share. is independent outperforming as market been development have this grow our gaining market share with

local In China, COVID-XX-related from X% impacts to disruptions. full-year XXXX sales due compared decreased in currency to

Our core down water heating in performed products well market. a

now replacement and treatment Our currency, of almost sales residential, consumables overall filter in nearly XX% water over with of consumable water overall local grew of treatment our X% filter business, commercial, repeatable represents representing business, sales. XX% and comprised

year, in XX.X%. operating were margins the China For

As several quarters. to X% a spending, each past the margins and result discretionary operating years China of has of the actions in business manage seven above taken over right-size achieved the past

ESG slide December. I'm third six. We now on report in released our

XXX,XXX to a are good highly in citizen, strides including work, emphasizing of significant our by The performance. GHG history. report initial of and emission reduction embedded heaters step progress XXX-year boilers, demonstrates in made an our to ESG preserving XX% of verification, WAVE being and Council, a achieving good of and growth. commitment creating within through tons developed our goal a efficient The by XXXX in good foundation our almost a preventing the our stewardship water XXXX, ESG, carbon and values sales have commitment towards strategy metric place concepts process to as to our Water We profitable innovation, name, improve water our our of ESG emissions

to will Chuck who fourth full-year over provide call more quarter our the on turn now will details I performance. and

Chuck Lauber

sales sales by increases treatment $XX material with water in added October, adjusted lower America earnings million, were partially water I'm segment offset everyone. million. North to heaters. was Full-year morning, largely compared compared benefit billion, and America freight volumes volumes rose heaters, sales and seven. water acquired costs volumes. and with actions, Good in water products earnings, XXXX, The of XX% residential boilers incremental partially price XXXX. Pricing also Kevin. X% of of by slide segment an lower Higher Giant of XXXX. volumes of on segment $X.X $XXX added to treatment of offset residential higher growth. inflation-related and water boilers North increase on and you, products Thank higher increased heater

quarterly operating margin XXX driven points margins production of inefficiencies. the operating decline year XXXX XX.X%, our year-over-year, adjusted volume-related headwinds of XX.X%. a and Adjusted with exited was basis by highest at of inflationary We

to and X% approximately eight, Rest sales X% China unfavorably translation the Moving of World slide $XX constant $XX by sales, impacted year-over-year currency Currency basis. impacted of million, million, segment sales. $XXX in decreased of segment which million

to Our of to Rest to in lower sales XXXX. restrictions. negatively of earnings India sales China demand segment the primarily compared was earnings, $XX local we in outperform XX% in as was consumer as impacted XXXX, sales compared the segment continued in currency XXXX, by market. increased driven decrease X% grew million, World by COVID-XX-related

and impact an to basis improved Segment discretionary increase a to In China. was from improved incentive of compared spending operating management expenses. of volumes XXXX, points XX%, offset selling, as more China, the XXX of advertising, lower margin lower result than in primarily by

Please turn to slide nine.

offset driven than lower Turning of adjusted of of in consumer share, share fourth America pricing the more that inflation-related to quarter were demand per by XXXX, the fourth in down X% Adjusted we delivered quarter earnings residential $XXX $X.XX earnings XXXX. the fourth sales China year-over-year, in quarter volumes compared heater actions. per North lower quarter of fourth performance, to in million $X.XX in water and

a Please XXXX. however, were still turn were North of Fourth levels demand; quarter-over-quarter heater in decrease residential to water in improvement the XX. quarter below segment We industry sales quarter the slide heater record million, the in fourth sales of fourth X% compared America volumes XXXX. water of record saw quarter to $XXX

from slightly quarter volumes, compared price with of with XX.X% offset The improved residential resulted lower driven by earnings, earnings sales heater and adjusted pricing inflation-related sales of adjusted actions benefit relationship fourth boiler volumes. higher backlog margin by stronger compared America water XXXX operating lower benefited segment XXXX. boiler price-cost of decreased Our And margin million, was reduction. of North XX% growth and segment the steel of costs in increases, segment $XXX higher adjusted XX%.

million the Currency of currency China segment XX, world $XXX by of driven translation XX% lower approximately sale million. of China $XX slide sales related due impacted unfavorable the fourth to year-over-year, by in decreased consumer COVID-XX demand impacts translation primarily quarter, and to restrictions. unfavorably Moving rest

earnings. and of volumes of to In margin resulting higher improvement XX.X% QX in of $XX X% approximately sales in decreased China, currency operating in selling a earnings the lower expenses offset fourth world sales In was segment segment XX% than compared segment local currency, margin Rest the of currency incentives translation XX.X%, slightly XXXX over was China India and operating grew year-over-year. segment in headwinds local significant quarter XXXX. XXXX lower XXXX. million,

that slide China, $XXX primarily higher And payments as offset in XX. by outlays capital accounts XXXX. more earnings offset higher We to lower XXXX; customer incentive cash adjusted deposits million lower free to XXXX cash of than flow inventory receivable in higher generated XXXX than Please lower in turn related were made during the balances. working

totaled December. Our our million. position And net end cash cash of million the balance $XXX $XXX at was

measured capital. to leverage as ratio was Our to total by debt XX.X% total

to Now innovation, of organic turning capital product to shareholders, see and to new to product continue slide all for across development geographies. line in returning we our addition XX, opportunities growth,

earnings, strength acquisition to that that pursue the economic a in years. allows accretive of our capital the continue our uncertainty. financial year, us of are to target in to across strategic metrics three The meet return strategic first balance We acquisitions times sheet even in

their our $X.XX month, dividend of approved Earlier next share. quarterly this per Board

XXXX our increased of of dividend maintain total X.X stock allows for million. track to $XXX sheet million our We a strength repurchased consecutive common of approximately The years. for returns record of also us balance to delivering strong in have XX shares shareholders. our We

Over two billion have repurchases. $X to years, share our we returned through past the shareholders dividend

earnings slide Please outlook. XXXX and and our turn guidance XX, to

to to liability. annuitized defined measured we earned our at Tax which over settlement The was benefits previously path were XX% pension pension of quarter, derisk associated million for termination plan strategy $XXX previously of benefit The plan the The our pension completed followed funded XXXX. XX, and fourth the December The pre-tax settlement, expenses. non-cash $XXX accelerated we pension in the million. of liability pension was the the pension recognition terminated company's plan's XXXX. sunset with which glide in pension fully end in terminated represented exposure XXXX plan liability. of As discussed, benefits the

include recorded impact And tax rates, an EPS results after historical of tax amounts in at $X.XX. and

We range to are XXXX range EPS with our share. adjusted our The EPS of pleased per XXXX compared increase of introduce $X.XX of represents EPS. $X.XX X% an with expected an outlook midpoint and

that a fourth quarter annual an Our on XXXX of outlook XXXX of XXXX on to XX% key the is to basis will first XXXX. XX% a XX% our number approximately assumptions of to quarter steel to based XX% sequential compared prices in including including approximately improvement the guidance of assumes improve from

sequential We the steel through our further not And XXXX. costs meaningful have in seen therefore, project steel reduction flattening of a outlook index. a does

steel, seen in of cost outside costs other levels. at have generally elevated flattening Regarding we

through buyers half market material supply in buying XXXX. continued improvement a expect to not neutral costs year, as of saw shift our improvement in the While power second outlook in chain the significant in a non-steel do move we progress does We XXXX. our towards we assume in from

We they resolve remain close challenges in limited. suppliers manage issues and to arise. and While our chain logistics with disruptions as still contact providers persist, are supply

to We and free $XXX between $XXX flows expect cash strong million million. generate

Corporate $XX CapEx million. million approximately other to expected are be expenses and the $XX between million. For year, be should $XX and

expect shares resulting Our XXX effective end diluted of of of stock And tax repurchase approximately in to the shares be rate to at XXXX. approximately million estimated our XX%. of is outstanding million we $XXX

to over and outlook expectations growth color who key slide top back Kevin? will line on provide now more markets XX. and Kevin XXXX staying I'll call turn the our on for segment

Kevin Wheeler

XXXX XXXX the assumptions. be to plus Thank normal inventory Chuck. with flat a exited range majority includes minus the of We sales approximately which the midpoint of near you, project XXXX We'll be our customers following levels. with to or X%, at

expect will we we believe we Therefore While X% a be project headwind in construction home approximately XXXX a to new that deficit, year. remains it be industry compared residential last down that X% unit XXXX. to will volumes

gallons chain to us. constraints change XX greater water up heaters volumes as to industry largely to heater behind market the water supply commercial regulatory related ease than be the commercial slightly project We is flat in electric correction

be lifting while Zero to and COVID-XX In believe there could New the surges, as related We travel, we to will expect Year real challenged of X% take to China sales positive time recent project see that in step then China, market, and the currency economic X% we will estate Policy the environment. XXXX. related local weaken of housing a go consumer improve and the they economy improve we Chinese COVID a in China confidence in our to

improved Our assumes China sequentially guidance volumes the in throughout year.

the that be will XXXX. forecast similar currency translation Our sales on impact assumes to

in XX% We increase will our North XXXX. expect to approximately XX% America boiler sales

as footprint. commercial to to X%. driven improve Our The energy transition boilers overall particularly will efficient their expectations are by of carbon continue buildings higher growth industry an X%

condensing the Hellcat commercial with CREST standard. our boiler quickly launch, after industry is year becoming Technology A

to XXXX. implemented expect continued pricing see from benefits in We actions

are normal as as in backlog XXXX. of products, largely growth water Our project per exited levels of of is XX% a growth as we we a X% reduced entered XXXX. approximately which than to at year, backlogs our expectation North result boiler treatment X% America sales We lower

to have segment Based America's of healthy continue our and of the on second and drive we approximately will safe as products. for water, factors, XX% well World use largest demand bottles drinking these consumer of pricing XX%. trends plastic mega approximately be North benefits as expect reduction to We will our Rest margins will be and single

water returning global expand on capabilities priorities in advance strategic to to our are, product by treating portfolio, treatment including and investing people priorities as and by distribution, heating, the our in water a acquisitions, shareholders. expand slide our remain capital investing heat pumps key high efficiency We to leader for our position ourselves, and focused in world. turn enhance around XX. and Those effectively heating space and deploy water capital technologies, Please

are XXXX, there As uncertainties economic us. ahead of we enter

positives. XXXX adjustments are are inventory wholesale the there residential market However, We in believe behind us. the

in We expect volumes unit normalized more XXXX.

operating Our and favorable fourth year efficiently are of quarter we running a America the improved exit price-cost third after margin, adjusted quarter over North relationship XXXX XX.X%, the our more volume as quarters plants previous with adjustments.

cash from on focus of across Zero-COVID remain a economic to as flow expect In in American disruptions a China focused is our and on customers. improved China, positive lifting North the policy servicing a We we In environment. emerges step XXXX, an our COVID-XX-related strong reduction rebound dedicated operations. free inventory

Our product the strong with brands combined enhance across portfolio, will market development technology-driven new leadership. innovation our and

in confident we opportunities We are ability to execute capitalize on to as continue our strategy. our

that, we for available And we're questions. our prepared your now conclude With remarks.

Operator

of Thank Our you. LLC. from Saree Jefferies will Instructions] question Boroditsky come first [Operator

line Your is open.

Saree Boroditsky

Good morning.

And replacement, you this year? related X% we for just residential to the -- much proactive outlook heaters lap can replacement housing downturn? to then [Ph] be water So, on to how to X% the down about [source] that this year, in impact is new home start of you talk how seeing touching about as are to

Chuck Lauber

Saree. Chuck. This is Good morning, Thanks.

looking the year down on I residential XX% housing about we're we're as a a market correction. to expect Housing, the XX% where mean inventory next of XX%. in we year, headwind we're off with So, maybe coming at

survey, replacement, tick a it's to XX%. get strong We -- runs historically in pretty an which And that's next through that of as replacement down housing going Just to XX% X% down. how we're year. be measure we've you range, the looking will it at proactive is XX% proactive kind for replacement we XX% to got market, XX% Where replacement headwind. a saw proactive up, on into XX% so that to third-party

XX%. that survey XX% last it to has past years our And it's couple the XX%. above still been in During

next still So, portion year, we're proactive strong a the going projecting, replacement fairly market. into of replacement

Saree Boroditsky

the pricing in I Great. you channel? see in versus decline a you retail just pricing know about just balance And talk water if And but expect for contracts? in indexed the guess, don't do prices on think heater do guys pricing to the then, so, I the lot, wholesale how the residential channel, like to you retail

Kevin Wheeler

one, we a hasn't But -- of customers. at of we you're structure periodic models, as we And Kevin. we to channels have changed. and going between compete -- is those look are it different they feel When Well, you a of at as -- at the regional. at conflicts traditionally, for be hi. it's some manager pricing, as kind they business both that This lot our but going Historically, pricing both two they're channels, look how same channels, value they're competitive. to our to the

competing be at at will level. an So, in market channels again, we the look both that equal

kind of how rest see we'll So, that's the play at out now, of and things right we're where year. the

Operator

will Instructions] from [Operator next Michael you. Our Thank Halloran Baird. come question of

mute, line Mr. unmute is line open. your line. your if Halloran, Your Hello, is please

Michael Halloran

was really I so apologies. hear didn't too, this anybody. from I gave muted; I I enthusiastic hello was bummed

Chuck Lauber

Well, hello.

Michael Halloran

time. everyone. Thanks, Yes. Appreciate the

the you're first, and So, thinking things. on guide about sequential, couple how

year? First, seasonal embedded you the a comps normal work as patterns obviously get the when load, through kind the of And second-half the year. secondarily, about relatively for load the back-half XH think year-over-year easier we lot of then assumption, in is

we think talk cadences you through the So, year? maybe about as how growth look

Chuck Lauber

Mike. Sure,

the we China going to prior it that, And normal we laid have like in to much year, usually back-half bit to we've a the normal. out at disruptions. Boilers, a to our When the to you XX%, with slow similar got starting COVID get it out cadence. bit that have strongest typically quarter, so back third out residential pretty China, laid the look of outlook XX%-XX%; believe be volumes, year, back in it's front-half We it's of XX%. cadence.

bit quarter, as quarter the Chinese got -- for lighter a little you first in just festival with but improving China we the on And we again volumes. we quarter know, normal normal got the of year. fourth, As through as on routine always improvement the that strongest, go challenge retail And us. quarter, a is fourth to back would the expect COVID the for China our cadence strong about situation a first we being

Michael Halloran

any just also the the And it, competitive then maybe high the of rest might commentary the about component the things as dynamic, are stay from on China, but things performing component like market tracking it, market end is share talk on of appreciated? but well competitive to the share Feels be would to landscape how stable, a versus market? how are

Kevin Wheeler

When Yes, always go fair share to with and when Share believe are we omni-channel high we always to our ticking pay talked do, continue new we it bringing for. with get our as together, keeps the channels. hi, little market market We products, the market, continues is sleeve a it great of we're that about believe happy I we're it's getting have here. the happy Mike, comes to what how a average that don't difficult the you, introducing different But up that it Kevin our we're that the would tell and hedges sales, to products sense, in all consumers visibility bit. have makes and to we to end of the willing that pricing.

saving they consumer right still that smaller market, as now are have a ever. China, in the is we rate so, -- the it's -- and lifting the improve. the get through again, will We activity Consumers, that on record highest are our Zero-COVID in But hope grows base.

go And to helping of look their looking Thanks China some of inventory. just forward. sectors be about government; by housing in up for some at there as up some nothing demand the out again, is stimulus the some So, at some general, there build we we today. discussions specific could consumer pent

again And comfortable. years market. some improvement recovers long there's I seen Chuck that's than China lockdown, at of the more as we're there's a it our time looking get consumer starts positives that basically, think the as lot and more a in take time three of, why, year, through to pointed will out, sequential in but we've and from but inactivity So, positives,

Chuck Lauber

quarter-over-quarter, consistency, add on has to in pleased really our discretionary currency. growth just our our noted, said constant the I discipline we're it And mode that, back with managing Mike, that we the of where a as towards -- spend remarks, our in outlook you performance to 'XX for prepared us

to corner, X% So, -- be that hopefully pleased we're to turning in growing in of local X% a currency. kind

Michael Halloran

Great, really --

Operator

next Markets. KeyBanc Instructions] Capital you. Our will Jeff Thank of [Operator question from come Hammond

line open. Your is

Jeff Hammond

morning, good Hey, everyone.

Kevin Wheeler

morning, Jeff. Good

Jeff Hammond

to just price. on so come want Yes, back I

your your going be I was on are to formulas negative think Kevin, think side. material channels formulaically, I comment, competitive. price go the DIY you with both But price on

So, I'm there? fall-off margins America wholesale And if comment maybe what stick if Thanks. some there's the more upside that we on wondering or do the pressure steel? side we implies to the North given in is do, pricing your

Kevin Wheeler

now Well, for steel stabilized has a while.

through But, that So, been Chuck as it also come process haven't remarks in mentioned and cost had non-steel stabilized. the down. as our there's they -- many related

adjustments we have back keep we appropriate look as we are as historically the similar as So, made to past. we view there managing to we Again, reiterate, we business continue And in as our in both a I over forward. the channels. the the are have we year, competitive. go channels last And are going

of of commitment. our and of So, forward channels. materials competitive kind remain We with look both is we stabilized. do since that's lot it again, stabilization go in our steel at and more And as kind business and of plateaued have channels a we like goal in looks customers both to

price between But, it's There don't historic competitive or past. we we in into always a have channels the the So, paid. is see some than nothing as seen issue XXXX. go different forward

Jeff Hammond

then Yes. stabilization. decline. decrease. I you But, kind I think And increase cycles relative bigger mentioned kind past much to to guess of that's steel mean XX% I a XX% understand of and that I the

if wondering different. just are the behaviors am any I So,

Kevin Wheeler

that's the really XX% the America. would fourth peak, down going we stayed have North take flattens I'll we in XX% a on just quarter into challenged of if have think better kind profile in little the tick steel would kind margin mean comment And, profile of that I another you been what a to is does And and probably that we I out. then But maybe decline, grew bit. out margin Yes. happened retreated come QX. at as steel of

So, quite had steel the some bit cost we because margin the American on of of in North headwind earlier 'XX in a of higher year.

Jeff Hammond

years then, signed $XXX buyback. I one just Okay. for last And up the million you of think one, couple last

stepping think to the are down I kind you couple years? of informs past it buyback anything And million. $XXX that just versus the lower the of

Kevin Wheeler

built paid with that, where mean next of in But XXX% conversion backlogs And to. inventories, be committed looking the year. entered I working as as are Yes. cash now are conversion buyback. are million and committed as cash million worked our we Pleased down. we we target consciously, to we a we inventories on in $XXX we is that we did of will at reducing shy that a little $XXX XXXX, our XXXX, bit the target

of down year. and through And see may We an year. year M&A. bit. the think through inventories to out go still it out are really we are work acquisition to going going go to we we our as the the that be the with as go there potentially on as looking grow revisit at we We perspective how as revisit opportunities a we from But, kind we 'XX through cash rolls

Jeff Hammond

much. Thanks so Okay.

Operator

Matt from next question [Operator Summerville Davidson. D.A. Instructions] come will of you. Our Thank

open. Your line is

Will Jellison

insight XXXX? allocation And off expenditure are priorities. growth organic Hi, This forward? I and about on growth, starting if Matt good today you wondering making its And is more moving any Summerville. provide into with I what how ask and wanted was can Jellison considering support in morning. projects you investments both business those the capital sorts capital of Will to questions

Kevin Wheeler

Yes.

just growth couple organic that. of around a the mean On comments I

capital in say of invest the always categories we those of pumps, I a support heat the product support some of into perspective, development. would some might developments. get new that. where developments other From to we growth the you have So, product innovation, when

Chuck Lauber

facilities pretty capital, growth as And there factory. at at will when cost large in in as reduction technologies, it have down to in. And maintenance look so pretty be new efficiencies back well, we also we from and is we some our perspective that and break invest we the forth automation, a we invest component a large

So, our is that there those are say consistent I under specific normal. in a three But, no that three there categories expense outside all would major is company. buckets spend

Will Jellison

Understood, are targets actionability the pipeline? conversation you of okay. allocation those upon can observing to speak how acquisitions, of And in market acted for of What out then in potential thought be what's overall the things And XXXX. many pivoting you there? is to kind for capital could to your

Kevin Wheeler

haven't say, I about but approach little talk maybe wait of down would the, can right strange what ticked talk bit multiples bit, And targets. tell you a lot there's is that bit I of is changed, a of just really -- with and a see a out there the potential and environment, so what Let's which some now, forth. interest the Recession higher rates to

continuing active the pipeline. stay to targets stay potential close So, we're our and in to

about at nice play times get get sheet. as to opportunities, look we but These an we uncertainty. uncertain a we to bit, pipeline, about you need the an this to continue good are our of through our with we're And And balance going some work on companies needs the driving it. opportunity that as are of those we closures. good again, feel in But feel out to some

able of forward, we it each go bring through last far a few person -- couple As Hopefully, always we'll still to keep as finish across but be the acquisitions in small as we've we'll saying on those there, XXXX. made yes, years. line depends and the working actionability,

Operator

of from Sachs. Thank please you. one Susan will moment Maklari for And question Goldman our our next And next come question.

Your open. line is

Charles Perron

Thanks morning. for Hey, this in Charles everyone. good question. morning, Susan This Perron is taking for my

Kevin Wheeler

help Charles out there? good thank Yes, morning. Can us you says, you.

Charles Perron

nonsterile to of trajectory Yes, my have price about going the obviously, to mentioned obviously, gradually America you would the through margin water the first category but the to margin us should throughout for first then deleveraging And half. in go I that going I North also, like heater year, year, coming to through And outlook the help cost, it's the if the back throughout guess XXXX. think XXXX. question, improve walk volumes, probably back, we're you

fair to in the is it ramp year? So, margins expect a the gradual maybe throughout

Kevin Wheeler

to Yes, we're kind I pleased boiler call American we really XX.X. that did to in that in where have pretty some QX, up on volumes do fact out came of comment the margins we And strong first quarter. in is want QX North

pleased of helped that we're boiler, off, coming boiler, out sales help on that's us that. we're that's, higher coming margin got we but come commercial off, So, some some where product

it bit, fairly So, our the little of gains bit cadence is, year, boilers balancing earlier for even usually but we the the have strongest that in way a on talked I it's through little margins lighter, quarter. are And a expands a the that we've XX:XX the outlook little possibly the third on residential, kind for the occurs. got the year

year and outlook, but haven't baked much So, as it's we just, of we have it, our costs the but into don't opportunities, year, coming some the that half fairly back of assumption deal a down smooth potential for opportunity our got great we look at non-steel we at the in opportunity see we outlook.

Charles Perron

And the supporting span indicators drivers non-residential industry that the seen the we've maybe significant growth, guidance sales to there. price? there few my volume in months? initiative, Can growth that's commercial good the boiler Got 'XX, 'XX. weakening the you've for of the impressive color follow-up the you. of versus growth expand XX% growth, over seen on last then That's considering And volumes in considering the you the or a sales XX% a or be on may

Kevin Wheeler

quarter particularly see to Yes, some the year, helped down the that I XX% did at XXXX, pretty to in drawing fourth was normal, in in growth year exited we we price. which XX% backlogs for mean, that of on and by our next we boiler great again side, XX% that is had growth the XX%

So, volume. carry over little growth that prices it's the XX%. to is half of over on, is The rest of a XX% on

Chuck Lauber

there's to institutional of with activity XXXX. market still again, just pretty but lot the the quoting up stable, that. Yes, that remain add had in down, so I We would segment our positive came is still some a maybe a education, bringing Boiler feel orders the do strong strong, in momentum in growth to on we backlog

far the able to that again stable. the as product timely what's times we we're really that's is fashion. orders normal, a be out door should to our great now in in seen lead over And we've last are month, And where get back indicating that's so come being

the residential. we still feel whole about good overall to really tends So, the lag And boiler side of market. business the commercial

seems still could be year XXXX business. boilers like for our a solid So,

Operator

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

line Your open. is

David MacGregor

XXXX, throw is in respect any to supply to is what Yes, first cost boiler and good kind XXXX got EBIT? in a of way any disruptions there incremental back And and does with XXXX but of normalized, chain in it there's I'm looking morning chain estimate mean, My positive just 'XX? you the supply revenue become on that you backlogs forward into wondering everyone. mentioned benefit I normalization. an question the terms just if from

Chuck Lauber

some made to back backlog fairly interruptions, and when side, on side the side, these no, back we've is stops of to From and on up, normal we're Treatment residential you American times the a had the on too. that front volume have we a half backlog I particularly the would some, boiler all we're pretty year. North But starts perspective, normal say normal Water

perspective of don't to the operating in QX a we think result little saw quantify those an volume and on our operating a in and that's saw to fourth that in we normal disruptions just less volumes. side, So, on bit improvement a efficiencies, some disruption volume cadence of plants quarter bit from cost a in a more harder

Kevin Wheeler

on just I'll to that. Yes, add

the had was outages really kind our only really And that All one only didn't much. improved we quarter, productivity and two all we're impact the sporadic supply of throughout entire items The year, very throughout but that did and plans exception much is overall in not year, of the supply stabilized. chain chain chasing portfolio. towards really, the our China now, fourth

David MacGregor

terms to way come sort realize the up minimis, just but impact the the impact, of isn't of what Okay. XXXX to some in estimate kind with XXXX with is saying respect cost And 'XX to on a you're it be of might going any? have an de revenues, there

Kevin Wheeler

But was different volume. being don't residential heater is can side, a us drastic about exceptionally overall, on them QX tough for you tell drop were water of I building in in quarter because XXXX. the efficiencies. just see those I XXXX we up

Chuck Lauber

up it Supply supply inventory, backlog little bit better more with a chain in on little chain. the backlog in volumes on us catching our work a side helped carrying water treatment actually boiler down we and XXXX couldn't because

David MacGregor

point Can the on XX.X%. with quarter down is on progress China, a I'm the Okay, X%, Rest local would upside XXXX, competition the China and obviously XXs XX, and obviously XX that India, last created to be you the of about With you're like price that's months? to limitations maybe too, approaching range or achieved XX going margin China interesting. done mix back you're lot you and costs. of kind market of just within margins XX further ROW, being just opportunity it sales in over mix which other currency some XXXX, to lines specific changes with of good in structural are again? and second And guessing at in in maybe smaller these regional is My now a of those anyway, drivers high level managing and you what World talk levels looks good, to and the is work XX, that hold that question there next

Chuck Lauber

to for there. with just will But you that that way, I you be thank the the I right number by variables one of volume. is from tell going perspective, you, kidding question our lot tell the I'll you a Well, you. will tell

from standpoint. getting down And back quarter and they be Zero products, goods lift is and that will come first but home. we've three now we're going been to and as back And volume to important for their start the in out consumer new start in that more all comfortable durable get of It's related. As buying we And through to really they're there. COVID. consumer feeling activity challenged structural well entertainment a do the become about. volume But and it the restaurants to positioned to they're out investing years increases that new going homes now volume in market the

positioned it's the well. of my the perspective, one is rest really variable going to So, be from business volume, really is

Operator

And Thank you. next please come Maria our question one Lawrence question. our next And of De moment from will for William Blair.

Your line is open.

Lawrence De Maria

thanks. morning, Good Hey, everybody.

down in the outlook, and Just essentially it exiting North the American benefits mix margin much it to costs. Thanks. else could positive would Anything lower frame maybe and for of a steel then price potential based there how to there, you 'XX 'XX, is driving into, what's to carryover North follow-up maybe you related that, and in on yet? pushback for margins risks is downside in the America concessions distill price

Kevin Wheeler

great and and the notice we've little in a year. deal provide as holding pretty we We going for of but our America year, operate next -- there'll resilient smoothly, operating in water we outlook pricing, XX%, just costs year, a as our managing a midpoint XX%, side didn't some our that to overall. but in point that heater so next costs a kind margins next feel plants fairly range higher carryover North the Conversion Well, into you'll to carryover estimate. expect pricing material just to a comfortable not of more had embedded be we've costs, got

biggest the heaters, boilers business, cost price North some and relationship relationship water for the to expect, other North and expect we treatment takes carryover we America. we So, in our pricing in continue water to puts on had reasonable parts are like have have a of America

Lawrence De Maria

in Thank kind markets, it Okay, curious their growth, comments, But given then, that's sounded to just really like works? you. price. build your X% residential mostly then in just And of I more up to add underpinning the if could treatment X% what's that, water it's how helpful. prepared one weakness the

Kevin Wheeler

You price mostly business the treatment boiler the bit the of of is like the are a It side brought inventory on a down, going in business, of our channel Again into in we XXXX. side backlogs next year. correct. saw bit water the we adjustment

some we year but of we could the mean, is potentially next So, see trends as water pressure by the spending in XXXX. confidence consumer certainly, North year, into most underlying volume we on in I And driven treatment, have price. America next we head

Lawrence De Maria

luck. good and you, thank Okay,

Operator

Thank you.

will Andrew Citi. question come of next from Our Kaplowitz

Your open, is line me. excuse

Andrew Kaplowitz

Good morning, everyone.

Kevin Wheeler

morning. Good

Andrew Kaplowitz

telling you color electric any you Can water but color little answered maybe in you there, versus sort regulatory the a in water flattop heaters, mostly heater more market behind hanging into electric commercial you're overall, think what's helpful. in you know mentioned the I your about what's commercial overhang, I of going on about gas, and are partners 'XX? thinking how commercial be give would channel markets more you

Kevin Wheeler

that Again, than slightly times bit more flat have still to extended a we lead little have are we'd a we up a or, like.

inventory still that to around gas we We So, upside we're like XX some normally deficits there's market it's XX. out and replacement. be believe there, days, around some just, some the there're on

it's of gas because greater go going year, on with we slightly the we as But just side was market and components look the And normalize just that was through and issue chain the the supply market the mid-single-digits. to So, the XX underneath commercial artificially, see being business. artificial, positive and gallon. XX% a of we was down at it that, particularly the is

Andrew Kaplowitz

talk is a later with heat the you you market then QX, Voltex the your the particular business, implications And small become and how and heat about I 'XX heat 'XX that know your part IRA a might still also pump I Helpful. penetration as can pump early into factor introduced pump in of in but they impact know business?

Kevin Wheeler

There's to more X% you and upfront you our pumps this to going it's a bigger installation market that portfolio. but the is replacement the both some is, a but move parts trend, expensive. positive some heat will become forward. are of a residential than out some time heat certainly heat And difficult costs are if one pump It's right, little take looking about, I rate the look commercial a residential you're the forward, a that are on again, normal to at of side commercial. part There's of that's XX% priorities pump today. is business really and to Yes, nice it entire XX%. represent our of residential the about of talked as got And of growth

It's Act Inflation at look where its but the been propositions. there'll when It's decarbonization going Reduction provide takes of two, promoted a will that next out, So that's year it again, as be at still going by of got over a to it's help forward, best some working one states. the of message. go way well. there that's a and you course, market or stimulus number hopefully And component long-term that great it's to not the pace value but move the

early, that few feel So, then Voltex to little benefits that I greater overall, it our real and but about features to quite needs well, clearance. market that application go done four good It's terrific the and would of months. zero a brings the UF the has and just different a just out tell than we you, product it it's about any to. It's a can been into

rate continue to year-over-year. far grow so the in pumps been but And a it's well. early at received again, it will greater really heat accelerated But stages,

Operator

the portion I back Gurholt Thank the closing you. This Q&A turn now end would for will conference the Helen remarks. conference. to to Ms. of like

Helen Gurholt

us today. joining for everyone you Thank

sales Global Smith progress delivered XXXX. in on record strong updating We forward in to you A. look O. Let earnings adjusted team the reminding and you by conclude our me to quarters our that come.

conferences Thank three mark enjoy at this February Citi on Loop presentations your you and In addition, your UBS and of our XX, the March rest on day. March calendars XX, please to join on quarter. XX.

Operator

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

disconnect may You have and day. now a pleasant

A. O. Smith (AOS) 31 Jan 232022 Q4 Earnings call transcript