A.O. Smith Corporation

Good day, ladies and gentlemen, and welcome to the AO Smith 2020 results conference call. At this time, our participants are in a listen-only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star then zero on your touchtone telephone. As a reminder, the conference call is being recorded. I would now like to turn the conference over to your host, Ms. Patricia Ackerman, Senior Vice President, Investor Relations, CRS, and Treasurer. You may begin again.

Thank you, Julie. And I apologize to everyone on this call this morning. We had telephone problems. And so we will start over from the beginning so that you can hear all of our prepared remarks, and then we will go into questions and answers. I believe you heard the introduction that I gave, so I will turn the call over directly to Kevin Wheeler.

Okay, again, thank you, Pat, and our apologies for some technical difficulties here. This may be redundant, but we think it's important to start from the beginning. Before we begin discussing our results and outlook, I want to send my deepest gratitude to the thousands of A.O. Smith employees who have been working under less than ideal conditions and to continue to keep our operations running, offices open, and customers in hot and treated water. To recap 2020, better than expected fourth quarter results drove our 2020 performance above our expectations. North America water treatment grew 14% organically, driven by continued consumer demand for products promoting a safe home. The direct-to-consumer channel with our Aquasana brand, retail outlets with our A.O. Smith brand, and the dealer channel all contributed to solid 2020 growth. We believe industry shipments of US residential water heaters, including tankless, surged to a record, exceeding 10 million units or 8% growth over the prior year. This assessment is based on our strong December shipments. We believe the overall positive tone to new residential and safe at home remodel construction activity including an increase in proactive replacement demand, and channel inventory stocking related to extended industry lead times resulted in above-trend growth in 2020. Due to construction project delays and postponements in North America, as well as pandemic-related weakness in restaurant and hospitality new construction and replacement demand, we saw commercial water heater and boiler industry volumes decline by 8 to 10%. we maintained our market share in both of these categories. Progressive year-over-year improvement in consumer demand for our products in China continued in the fourth quarter. As a result of higher volumes and diligent efforts by our team to reduce costs and reorganize, high single-digit margins were achieved in the second half of the year. In North America, aside from the voluntary closure of our Mexican facility for several weeks in the second quarter, We remain operational throughout 2020 with no significant disruptions within our plants and our supply chain. Pandemic related safety protocols remain in place in our facilities and offices. Due to strong residential water heater demand, coupled with self quarantine related absenteeism, our lead times remain above normal. We continue to use temporary workers, swing shifts, and expedite logistics, in some cases to take care of our customers. All these efforts result in inefficiencies and incremental costs. To align our business with current global market conditions, we reduced headcount and incurred other restructuring costs, totaling approximately $6 million after tax in 2020. The majority of these actions took place in China. We published our second corporate responsibility and sustainability report in January. I'm very proud of our accomplishments since our first report. particularly in employee engagement, safety, resource reduction in our facilities, and a product portfolio that boasts some of the most efficient products in their respective categories. We introduced our first-ever public greenhouse gas emission goal. We strive to reduce GHG emissions by 10% by 2025. I will now turn the call over to Chuck, who will provide more details on the full year and the fourth quarter, beginning on slide five.