A.O. Smith Corporation

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 the speaker's presentation, there will be a question and answer session. To ask a question during that time, you will need to press start, the number one on your telephone keypad. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker for today, Patricia Ackerman. Thank you. Please go ahead.

Patricia Ackerman Thank you, Stephen. Good morning, ladies and gentlemen, and welcome to the A.O. Smith Third 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 question, 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 news release. 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 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. Our business has performed well in the third quarter. Continuing the pace of growth we saw in the first half of the year, our North America water treatment products grew 19%. All channels, direct-to-consumer, retail, and dealers contributed to the growth as health-conscious consumers continue to drive sales higher. Industry volumes of residential water heaters in the U.S. surged in the third quarter. Based on our September shipments, we estimate industry volumes were up mid-teens in the quarter compared with last year. We believe an overall positive tone to new residential and remodel construction activity and extended lead times driven by pandemic related disruptions may have prompted some channel partners to build inventory during the quarter. Due to construction project delays and postponements in North America, as well as uncertainty surrounding commercial construction, we saw commercial water heater and boiler volumes decline nine to 10% in the quarter compared with last year. Consumer demand for our products in China increased by low single digits compared with the third quarter of 2019, as pent-up demand from the lockdown materialized and consumer confidence improved. We remained operational with no significant disruptions within our plans and our supply chain. We did see our North America water heater lead times extend in the second and third quarters due to self-quarantine absenteeism. which we mandated according to our COVID prevention measures. We shifted some production, added shifts, hired temporary workers to improve our lead times, which are now approaching more normal levels. I would like to thank our dedicated employees who tirelessly worked overtime hours and accommodated shifting schedules to take care of our customers. We have taken numerous and meaningful steps to protect our employees, suppliers, and customers in the pandemic. These important steps, in many cases reducing efficiencies, included open and regular communication with employees and customers in line with our values, planned accommodations to maintain social distancing, employee temperature taking, and regular proactive deep cleaning and sanitization of our facilities, among others. To align our business with current market conditions, a process started in the second quarter. We reduced headcount and incurred other restructuring costs totaling $1 million in the third quarter. I will now turn the call over to Chuck, who will provide more details on the quarter beginning on slide five.