A.O. Smith Corporation

Good day, ladies and gentlemen, and welcome to the first quarter 2019 earnings call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. If anyone should require assistance during the conference, please press star then zero to reach an operator. As a reminder, this call is being recorded. I would now like to turn the call over to Patricia Ackerman. You may begin.

Thank you. Good morning, ladies and gentlemen, and thank you for joining us on our first quarter 2019 earnings call. With me today are Kevin Wheeler, our chief executive officer, John Pita, our retiring chief financial officer, and Chuck Lauber, our incoming chief financial officer. Before we begin with Kevin's remarks, I would like to remind you that some of the comments that will be made during this conference call, including answers to your questions, will constitute forward-looking statements. These forward-looking statements are subject to risks that could cause actual results to be materially different. Those risks include, among others, matters that we have described in this morning's press release. In order to provide improved transparency into the operating results of our business, we provided non-GAAP measures, adjusted net earnings and adjusted earnings per share, For 2018, that excludes the restructuring and impairment costs associated with our plant closure in Renton, Washington. Reconciliations from GAAP measures to non-GAAP measures are provided in the appendix at the end of this presentation and also on our website. As a courtesy to others in the question queue, please limit yourself to one question and one follow-up per turn. If you have multiple questions, please rejoin the queue. I will now turn the call over to Kevin, who will begin our prepared remarks on slide four.

Thank you, Pat, and good morning, ladies and gentlemen. Our first quarter results met our expectations and are aligned with our previously communicated projection for China of a lower year-over-year sales as a result of a channel inventory build in the first quarter of 2018. Company sales of $748 million declined 5% from the prior year. Earnings per share of 53 cents declined 12% from the prior year. We repurchased approximately 900,000 of our shares for approximately $46 million. We are pleased to announce the acquisition of Water Right, one of the strongest names in residential and commercial water treatment solutions earlier this month. Please advance to slide five for more details on this strategic acquisition. Water treatment solution providers, Water Right, squarely supports our growth trajectory in water treatment and enables us to expand beyond our strong presence in the direct-to-consumer and retail channels with Water Right's capabilities in the wholesale and water quality dealer channels. The water treatment category in the U.S. is evolving from a taste and odor market to a health and safety market as families become more aware of contaminants in their drinking water. Water Right brings us additional solutions for residential and commercial applications. Water Right's product portfolio and channel access strengthens A.O. Smith's ability to serve customers seeking drinking water safety in any stage of their life, from school and college age, where portability and refillable bottles are prevalent, to first apartment, to home ownership when whole house products are desired. The purchase price of $107 million represents a trailing EBITDA multiple of approximately nine times after the expected tax benefit related to a Section 338H tenant election. Water Right meets our return on invested capital objective in the first full year. We expect Water Right to add approximately $45 million of revenue in 2019. The positive impact to earnings in 2019 is expected to be minimal due to interest and purchase accounting and one-time costs. At this time, I would like to thank and acknowledge John Keita, who is on his last earnings call before retiring from A.O. Smith after over 30 years. We have transformed to a pure play water company during his tenure as CFO. and John was integral in communicating the potential of A.O. Smith to investors. We wish John well in his retirement.