A.O. Smith Corporation

Ladies and gentlemen, thank you for standing by and welcome to the second quarter 2020 earnings call. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone keypad. Please be advised that today's conference is being recorded. And if you require any further assistance, please press star 0. Now I would like to hand the conference over to your first speaker for today, Ms. Patricia Ackerman, Senior Vice President of Investor Relations, Corporate Responsibility, and Sustainability and Treasurer. Thank you. Please go ahead, Madam.

Thank you, Maike. Good morning, ladies and gentlemen, and welcome to A.O. Smith's second quarter 2020 results conference call. Joining me today are Kevin Wheeler, Chairman and Chief Executive Officer, and Chuck Lauber, 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 and on slide two. On slide three, in order to provide improved transparency into the operating results of our business, we provided non-GAAP measures, adjusted net earnings, adjusted earnings per share, and adjusted segment earnings that exclude the severance and restructuring charges related to aligning our business to current market conditions. Reconciliations from GAAP measures to non-GAAP measures are provided in the appendix at the end of this presentation and also on our website. Also, as a courtesy to others in the questions queue, please limit yourself to one question and one follow-up question 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. Before I summarize the quarter and check us through the results, I want to express how proud I am of our global team. We faced challenges and complexities to our business that we have never faced before. Our number one goal was and remains to keep our employees safe while delivering our essential products to our customers. I say confidently that our team met and often exceeded my expectations. Thank you to the men and women in the A.O. Smith family around the world for your dedication and your spirit. You truly make A.O. Smith a remarkable company. The business performed in the second quarter is largely in line with what we saw in April. Continuing the pace of growth we saw in the first quarter, our North America water treatment business organically grew 19%. Direct-to-consumer and retail sales were particularly strong as consumers became more health conscious during the pandemic and the shelter-in-place orders confined many of us to our homes. As expected, industry volumes of residential water heaters in the U.S. held up notably well. Based on our June shipments, we estimate industry volumes were flat to slightly less in the quarter compared to last year. Due to construction project delays and postponements in North America, we saw commercial water heater and boiler volumes decline in line with our estimates of the industry declines of 20 to 25% in the quarter compared to last year. Consumer demand for our products in China was flat to slightly positive compared to the second quarter of 2019, as restaurants and shopping malls reopened and retail foot traffic increased. We remained operational with no significant disruptions. Our Juarez Mexico plant, which we voluntarily closed in April, reopened in May and ramped up production over the latter portion of the quarter. We have taken numerous and meaningful steps to protect our employees, suppliers, and customers in the pandemic. These important steps, in many cases reduced efficiencies, include continuous communication and training to our employees on living and working safely in a COVID-19 world, planned accommodations and reconfiguration to maintain social distancing, masks for all employees, implementation of sanitizing stations, temperature taking, and regular proactive deep cleaning and sanitization of our facilities. Our global supply chain remain operational. We continue to monitor and manage our ability to operate effectively as tariffs and the evolving nature of the COVID-19 pandemic and the related stresses on the supply chain and periodic marketplace disruptions impact our operation. To align our business with current market conditions, primarily in China and to a lesser extent in North America, reduced headcount and incurred other restructuring costs totaling $6 million in the second quarter. I will now turn the call over to Chuck who will provide more details on the quarter beginning on slide five.