AOS - Earnings call 3 2023 | A. O. Smith Corporation

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Operator

Good day, and thank you for standing by. Welcome to the A.O. Smith Corporation con call. [Technical Difficulty] Good afternoon, and thank you for joining our call, please standby. Good day, and thank you for standing by. A. the to Welcome O. XXXX Quarter Earnings Third Call. Smith's Please recorded. Instructions] be advised being is conference today's that [Operator now to would speaker I like for our over today, first to Helen Gurholt. hand the call

now is line Your open.

Helen Gurholt

technical for and morning, while with Analysis. A.O. I'm conference thank and third everyone, Helen President, difficulties. Welcome Good and your Gurholt, Financial our to Planning Vice you, we patience dealt quarter call. Smith's our Investor Relations

nonoperating from as and adjusted and adjusted provide noncash Chief Financial Joining earnings and expenses. transparency Executive as and operations, flow me Wheeler, expenses today results earnings Chief legal to are earnings, terminated is the and Chuck acquisition-related we measures. expenditures. corporate segment less operating Officer. In Adjusted our per expenses judgment share, Chairman charges, order business, provided impact improved Kevin income pension into as capital income Lauber, defined our Free Officer; of well cash non-GAAP adjusted exclude impairment of cash

total in reminder GAAP the end earnings. Reconciliations X Those question actual provide question comments to X cause that those will at could presentation our on turn. be in conference that We risks queue, to matters to from be risks this materially please per this yourself some and that morning's subject appendix forward-looking non-GAAP release, the friendly results a among to as of courtesy during different. website. A press include limit measures measures provided are this and described we follow-up our the others. of also call segment that are in answers statements to Also,

queue. the rejoin please questions, multiple have you If

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

turn our slide. at over Please website to prepared the call begin next Kevin can You to them access our the investor.aosmith.com. I turn remarks. to will on now

Kevin Wheeler

execution review India kitchen in Thank you, of as the as performance for everyone. quarter both margin. water year-over-year very all segment heating businesses highlights. and particularly Helen, entered I'm good well economic products, $X.XX. our third on ] few of heaters operating pleased currency. growth we'll and EPS products in I'm strong challenging with our water was resilient the XX% brand, were strong improvement newly by received of delivered combined to deliver morning, our XX% our of team introduced local [ quarter drove strong. products our X, the of and well North despite a We year-over-year third of new products of treatment The a market. Innovative with improvement across appliance Slide as water a year demand residential saw America backdrop. and a introducing China's sales our year-to-date in new new number has growth categories (sic) the drove continued our

residential our acquisition quarter with We to strategic A. demand. Water XX% company. Arizona-based aspirations high-quality heater result in treatment Tec, expand welcome water continued water also O. acquired the This turn across in water as family. Please aligns water sales increased Slide America treatment heater X. Tec U.S. the team to a North Smith We the growth of third to strength a Water

As you channel. wholesale by in were of third in inventory may channel year quarter of primarily the water recall, the last sales heaters, residential negatively destocking impacted

water introduced a making we worked local difficult and quarter North currency significant North improvement. In sales margin approaching efficiency of year, third driven China, quarter by XXXX, our also X% quarter newly and our last e-commerce X. sales the in boiler to benefited benefited primarily due products. third primarily mix. I'm Slide XXXX. treatment after Our from believe our particularly positive inventories for We water X% pricing steam XX% dishwasher supply America sales in production on the the the quarter commercial XXXX, In treatment boilers, third quarter and quarter pricing-related declined condensing oven sales. are in against higher quarter. Hellcat now levels. Demand and America from CREST channel in of normal increased sales third remained also increased steady on boilers chain The the compared comp to commercial The our improvements. backlog quarter third high

easy We products Smith introduce under new product to and takes filtration process. innovative The launch brands. reverse new Aquasana filter osmosis highlight SmartFlow our of up I'm space filtration. features in less continue A.O. the to and water system pleased our an replacement both

innovative features of including features side X our Our also This is details treatment more market. On to products and businesses our technology, who the of driving exclusive third products most example quarter filtration global to commitment systems will contaminants, treating multistage stream Investor of water X heating this process XX.X% SmartFlow and turn to reverse performance. that osmosis the removes Chuck, that bringing in water-efficient at to the over X, innovative our and the the arsenic, on marketplace. I'll a Day, water will call now It making technology provide PFOS, in lead. new are November up the microplastics of our our market. highlight results each

Charles Lauber

Kevin, everyone. X. Slide and on morning, good Thank I'm you,

America XXXX. were to the was sales to lower operating the the adjusted in quarter residential water the that of earnings $XXX heater in costs, lower volumes America XX.X% offset primarily last Segment volumes increase partially quarter were was pricing by driven lower segment water primarily were compared flat and relatively X% North XX% to in XXX million earnings offset compared adjusted $XXX a The margin residential of North third over same points margin in third steel segment of Operating the volumes. by operating of period the quarter compared basis year. segment The heater increased volumes. higher and by year. boiler segment quarter due segment earnings last Third million, last partially increase boiler higher improved margins higher year. with

to of Currency mix X. increase unfavorably points increase positive of currency and drove the as XXXX. a segment impacted a and of sales million the segment flow grew Rest approximately $XXX by new earnings in first to of generated introduced Xx increased incentive $XXX free kitchen outlays in Sales local of third cash year, China, of margin sales in products on of higher newly currency period higher commercial million, payments cash an sales water to X% on the million the World $XX products, more sales was constant in Slide X% lower XXXX. generated in related working in capital X quarter. was lower treatment higher Moving and World quarter XXXX, Slide the of lower earnings mix. Please India the same XXXX of of turn increased translation the This in Segment period operating and months than year. $XX compared inventory same to last basis. basis of appliance positive paid million. and XX% flow year-over-year the free year. X. sales primarily compared to a largely X% the last to levels segment primarily sales segment quarter third last XX compared X.X%, result the in due a We cash to Rest earnings

$XXX end the at was million of position September, net $XXX totaled balance cash million. and cash our Our

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

a X% Our capital to this of shareholders. Earlier on repurchased of to a return and total allocation X cash month, of priorities XXXX stock common months for us $XXX flow Board to the and our shares balance share. in X.X per free focus cash approved quarterly solid our We million $X.XX million. enable increase to sheet first dividend of

We repurchase shares million for our XXXX. expect to full $XXX year of the

Slide to XX. turn now Let's

to earnings and geographies. organic our shareholders, product us sheet organic The development In strength of product returning growth and balance pursue acquisitions innovation our revised also we continue addition turn and Slide allows capital across to see to XXXX and opportunities outlook. growth. Please to through to strategic guidance lines new along of our with XX all for

We our earnings EPS. midpoint XX% of of increase per adjusted expected XXXX an with to compared $X.XX range represents share. with $X.XX share our share have of earnings per adjusted The XXXX adjusted range increased per outlook an

a is stable chain based key number include of outlook which limited with assumptions, on Our disruption. supply a

margin volumes to We on be have that will year relationship. forecast costs We year full based America our material costs. full on material our cost North guidance QX similar be price outlook increased QX to XX% and our our approximately

unchanged. Our Rest of of remains the World XX% approximately margin guidance

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

corporate approximately year, the to ], For CapEx should approximately $XX and [ million expected other are $XX million. be expenses be

to approximately end And resulting XX%. is effective expectation shares the of of approximately diluted with stock, to tax at be the of Our XXX $XXX expected repurchase shares million is our average million to outstanding estimated the XXXX. be rate

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

Kevin Wheeler

Thank you, Chuck.

which our end We to XXXX, have XXXX outlook previous guidance. was narrowed to sales the compared approximately high of grow our X%

Our compared X% following project strong to year. Residential outlook Therefore, heater remained approximately residential orders includes we last water through increase XXXX the October. volumes heater industry will assumptions: water

housing We of which both continue be than replacement monitor electric favorable. Demand commercial for robust. proactive to to greater water new completions, continue and XX-gallon remain heaters

mid-teens China commercial X% for water We our X% XXXX. compared local is currency maintain that heater to to our guidance in in volumes to industry guidance grow increase XXXX Our will sales unchanged.

to X% Our will forecast devalue assumes approximately that the compared Chinese currency in XXXX XXXX.

is of unchanged. outlook business single digits being high year boiler to last compared Our down

of As is exited difficult a year our worked the a XXXX a with year contributing partially large we down business to with growth reminder, a which XXXX. and backlog last entered backlog, We comp. boiler in XX% normalized

normalized through the of In water our America, to treatment to heater Again, grow X% year. Please half up with is the also performance The this XXXX. for our quarter. the and in the of Our in grow sales back are the in XX% India lining X will We first water commercial XX% year. remained approximately X% outlook to changed. of have first in that year is project America North third half of XX. volume XX% a strong months has Slide for North approximately split we XXXX turn demand not the year pleased sales of very residential to

we of continues China, As in through lines to remained we North a sequentially across the at operating quarter, but go-to-market costs half to strong expected, steel compared as strategy. team performance historical well the very America even balanced the was product higher our first various recognized quarter, in year. In XX.X%, the channel execute the to down relative margin

commercial product through operating India introductions as growth see potential our and XX% continued in for water introductions, the outperform it mix India business treatment to to led deliver growth positive quarter. continues service. We product new customer and margin industry. great the to in a premium New continues

water global of conclude technology leader. With taking key we to to customers our are on we available our care as remains objectives as continue our and strategic remarks, focus now a we advance prepared that, for questions. Our our position execute your

Operator

Baird. Instructions] comes Halloran first Our from question line the Michael [Operator of of

next We Please will question. by. now stand to our move

line next question Saree comes from the Our of Jefferies. from Boroditsky

Saree Boroditsky

Congrats on the quarter.

just of at surprise the X% came thinking went anticipated to bit for stronger been residential how So you America as now X% to water we going biggest little does digging about more North as year. down you than from be in demand, much it to into are initially obviously up we And the you XXXX? volumes that X%? a look set start up the What's

Kevin Wheeler

into moderate Well, I'll quarter, positive of completions would be pleased strong been surprise -- That's the And as the continues And it very business. we strong. well. with has we've biggest number been as talking to it been thought that's side proactive each we our we're replacement and came about of quite that frankly, stayed tell you, XXXX. and a

surprise a quarter. into fourth but a put strong and we that with having it's So you together, good that X year water put yes, convergence heater continuing the you see been X for along and replacement, those demand, together, the

Saree Boroditsky

What good about It performance? And there then just America that of we think has think else similar staying question. XXXX? on Obviously, with like been maybe anything stronger type margins than contribution it this higher that of point was you a year's have better. quarter? been the North looks And we as expected. cost starting is Is margin about that volumes outside in should price

Charles Lauber

the the growth. to very for had by I -- Yes. growth is this pricing segment organic water way. America little slight on heating The But Chuck, you North bit and headwind volume. mean America the organic contributed segment when boiler treatment the of look our side. side, pricing of a We in incremental to little contributed water a at the most North on growth was

Saree Boroditsky

as is or think onetime point Is that there we good any year for in starting about think about items this we this a should XXXX?

Charles Lauber

No, onetime significantly a nothing -- there's significant from nothing item.

out fairly Margins We margin a came perspective. how remain are with resilient. pleased quarter from the

Operator

stand question. by for next Please our

of question Nathan the comes line of Stifel. from next Our Jones

Nathan Jones

has more I And proactive business? you more the of just if on think be why thoughts mix mix or commentary be business. businesses color any to to wanted strong? so can that part to you that go for of so market? on it strong. give continued discourages have there's existing normal around expect Do you to continues the that's existing -- homes, why follow I Just structurally I just to that high the changed of generated any continues any but you still side replacement up back really interest us a have or give business more of a can you mean that you homes. more traditional when is know the sale so to I would Obviously, be strong rates think Would sales in guys. you typically in that something

Kevin Wheeler

Well, we to the just they're people have replacement right here actions. been some with. trending taking up careful since you now. outlined different be Certainly, that moving anecdotal about There's sitting has aren't There's many proactive renovation, Really at are so people XXXX. reasons higher of homes.

And generational don't we that we're take year impact here really and trend. hasn't as And in there's here. so fourth -- X changed. a year some it there's evidence anecdotal some But our

do generation, more And indicate look a maybe it the boomer a proactive they changed, their at and right breaks, Gen bit till maybe Zs I that work of now millennials would so salt it watched to where a continues take it's that hasn't predecessors. But grain than you and that a younger would baby we've for strong. -- but the number of X now, with and trend be for months, it wait

a But up but generational So there it. quarters. continue there? to well right Maybe, we'll straight it's together, now, is you now XX put that monitor held surprisingly impact for

Nathan Jones

it's a to a the I That industry. be if guess nice would my second... tailwind, structural change

Kevin Wheeler

But I data you, that. for well, we're that we we say tell again, plus. use, not we doing been think a it's we've but this the decade and something as that ready to watch

again, So long But But we we'll for a now, guidepost side it's out. us how holding proactive good right term. been see of it up see plays the it well. pretty

Nathan Jones

input. question second on, news. your That's I good guess, I guess cost

see pretty rolling last of Difficulty]. first half before that should a of And the with half months Should steel we see 'XX? [Technical last outperformance in in a guided get steel in the the the getting rolling have lower nice you're than sequentially to still in We guys lower did price seeing some You the X-odd cost to are margins bit in margins higher-priced P&L start half from the the and second the half. costs significant expect second first the 'XX, the through the over first in benefit you declines despite half. standpoint week. half P&L than second first half, costs

Operator

by next question. our Please stand for

Bryan of comes Oppenheimer. the Our of next question line Blair from

Bryan Blair

To offerings World profitability about potential on the there. the think your of segment to us think what's operating segment help your margin there? quarter. compared average? in new India? leverage how contribution margin run Rest does rate And about and team your How does China And Solid

Unknown Executive

Difficulty] [Technical

Bryan Blair

It's the your some rate your Any executed just an with offer macro That that middle been treatment in bolt-ons that and mosaic. on are water down year environment color quick makes sense. M&A of terms pretty uncertainty pipeline? overall You've you'd interesting in the strategy.

about how your has funnel your how is the deal term? thinking actionability over progressed team near curious Just and

Charles Lauber

Difficulty] [Technical

Operator

Please stand next for our by question.

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

Susan Maklari

over for I our were we when line, a key but bit just quarters. go not Maybe maybe to coming up be and you about some I'm you raw sure you those broke of little if how maybe question with, steel on materials previous next talking thinking back should it's the think reiterate points start and perhaps us? Can the about

Charles Lauber

[Technical Difficulty]

Susan Maklari

right very you're clear now. No,

Charles Lauber

[Technical Difficulty]

Susan Maklari

helpful. bit thinking portion a versus perhaps well give of replacement on up there. nondiscretionary shift today really defining the Okay. about following color of versus you more thoughts today conversation the sort the pieces sort structural That's very you're demand how on that earlier the as from of you're And the volumes other? replacement coming that's is what thinking to then of on potential as of any through, or on relative the side nondiscretionary X that Can And coming more proactive of proactive it?

Unknown Executive

[Technical Difficulty]

Operator

next for question. Please our stand by

the from Kaplowitz Andy question line Our of of Citigroup. next comes

Andrew Kaplowitz

and China treatment Kevin 'XX? and into benefit you're growth the as commercial of the mix new of then as going getting? Chuck, strength into do in durability well products of think more terms us can how water the growth that you're the you the give seeing color you about And components in growth

Kevin Wheeler

[Technical Difficulty]

Andrew Kaplowitz

North then having, expected shifting Maybe pretty seen that And rise be heaters, Any lately? up would helpful. good given have Commercial sort the you've very the back It's quoting still of water America. maybe to strength, duration color activity? rates in kept you're helpful. reasonably you conversations impressive of Any strength.

Unknown Executive

Difficulty] [Technical

Operator

by stand next our for Please question.

question of D.A. comes the Matt line from & Summerville next Our of Company. Davidson

Matt Summerville

happening my hear really you X because clear Can FYI. of, other every Is just is guys counterpart it aware that and sell-side garbled at me? I'm on to end least that's answer

has channel year-end what inventories, of us heaters, that in to respectively, you will resi water and level volume for boilers heaters, outlook channel how may water next North assessment, inform yes. the my far As but as a each, as can America No, a year? look commercial inventories like I asked, treatment apologize, in this for and -- already thinking kind I give that. you completely you're yes, appreciate been If as the

Unknown Executive

Difficulty] [Technical

Matt Summerville

can. Very. Yes, I

Charles Lauber

[Technical Difficulty]

Matt Summerville

already. apologies answered as just follow-up. my this again, if you then a And And

product to cycle When relates macro cycle, line it launch? will, the from think you in kitchen-related duration the how top the as environment And of You've obviously China your products this the just we in of that kind about did those if been in benefiting on China? of offering. should context

Unknown Executive

[Technical Difficulty]

Operator

for stand our Please last question. by

question Karas from line last UBS. of the comes Damian Our of

Your now line open. is

Damian Karas

since loud you you've a and to I guys of the able have Q&A. hear comment, clear been can I started I but now, understand said literally wisp anything haven't do on Matt's we

is asked everybody it's I think you, that what's for the going else. analyst hear but like of the can question, very kind on garbled

ground I on you've apologize but the replacement. So proactive for about I touching already to here, covered ask do wanted

trying to in what -- are think I'm or be may these not curious Just scale shifts actually on the I'm credits factoring so some extent just of a like proactive replacement that you're follow-up. and to of Are efficiency really? in IRA if efficiency seeing notable any mix --

Charles Lauber

[Technical Difficulty]

Damian Karas

do That's steel about you started Great. next the are having since from in potential year, have some the seen how cost Okay. lower Just floating that that? price. helpful. move you prices index also but earlier And realizing thinking just price where we price impact

Charles Lauber

Difficulty] [Technical

Operator

turn Gurholt This the closing back now you. remarks. session. for would over call question-and-answer I to concludes Thank like Helen the to

Helen Gurholt

Difficulty] [Technical

Operator

your for the does participation This program. today's you in conference. conclude Thank

You may disconnect. now

A. O. Smith (AOS) 26 Oct 232023 Q3 Earnings call transcript