A.O. Smith Corporation

Good day, and thank you for standing by. Welcome to the A.O. Smith First Quarter 2023 Earnings Conference Call. At this time, all participants are in a 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 11 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would like to hand the conference over to your speaker today, Helen Gerholt. Helen, please go ahead.

Thank you, Eleanor. Good morning, and welcome to the AO Smith first quarter conference call. I'm Helen Gerholt, Vice President, Investor Relations and Financial Planning and Analysis. Joining me today are Kevin Wheeler, Chairman and Chief Executive Officer, and Chuck Lauber, Chief Financial Officer. In order to provide improved transparency into the operating results of our business, we provide non-GAAP measures. Free cash flow is defined as cash from operations, less capital expenditures. Adjusted earnings, adjusted earnings per share, adjusted segment earnings, and adjusted corporate expenses exclude the impact of impairment charges, non-operating non-cash pension expenses, as well as legal judgment income and terminated acquisition-related expenses. We also provide total segment earnings. Reconciliations from GAAP measures to non-GAAP measures are provided in the appendix at the end of this presentation and on our website. A friendly reminder that some of our comments and answers during this conference call will be forward-looking statements that are subject to risks that could cause actual results to be materially different. Those risks include matters that we described in this morning's press release, among others. 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. We will be using slides as we move through today's call. You can access them on our website at investor.aosmith.com. I will now turn the call over to Kevin to begin our prepared remarks. Please turn to the next slide.

Thank you, Helen. Good morning, everyone. I'm on slide four, and we'll review a few highlights of our first quarter results. Our team delivered record first quarter adjusted EPS of 94 cents. driven by strong performance in North America with sales up 3% due to higher commercial and residential water heater volumes. In addition, we saw margin expansion across our water heating, boiler, and water treatment product categories due to a more favorable price-cost relationship. Our rest-of-world segment delivered consistent performance in the first quarter despite headwinds in the economy and currency exchange in China. In India, our sales grew 28% local currency in the first quarter due to strong demand for our water heating and water treatment products. Please turn to slide five. North America water heater sales grew 3% in the first quarter of 2023, as we believe we outperformed the market and experienced resilient demand for our commercial and residential water heater products. Sales of commercial electric products were strong in the quarter. as demand returned to pre-2022 levels. Last year, commercial industry shipments were negatively impacted by a regulatory change for commercial electric products greater than 55 gallons. Our North America boiler sales grew 2%, driven by previously announced price increases to offset higher costs. Residential boiler volumes decreased year over year, primarily driven by elevated channel inventory levels, coming off a particularly strong fourth quarter of 2022. we believe inventory levels have normalized by the end of the quarter. Demand for our commercial, high-efficiency condensing boilers, particularly our HealthCat crest boilers with O2-sensing technology, remains strong. North America water treatment sales were flat in the first quarter of 2023 compared to a tough comp in 2022, as higher direct-to-consumer and e-commerce sales were offset by lower sales in our dealer and specialty wholesale channels. Sales in the first quarter of 2022 benefited from strong shipments as supply chain constraints improved and we worked down our order backlog. We believe the majority of our dealers and wholesale customers exited the first quarter with normal inventory levels. In China, first quarter sales decreased 10% local currency compared to the first quarter of 2022, primarily due to weakened consumer demand. We have seen sequential improvement through April and expect that improvement to continue through the year. We believe it will take time for the Chinese economy and consumer confidence to improve. We saw favorable price mix in the quarter, particularly in our water treatment, as we recently introduced our large flow products that have been well received by the market. I'm now on slide six. AO Smith has recently been named a 2023 Energy Star Partner of the Year Sustained Excellence winner. by the EPA and the U.S. Department of Energy. The Energy Star Award is given to companies that have made a long-term commitment to energy management through their products or services. This is the fifth consecutive Energy Star Partner of the Year Award AO Smith has received, and the third time being named a Sustained Excellence Partner. These awards are a direct result of our strategic objective to expand and enhance our high-efficiency product portfolio including heat pumps, as evidenced by the recent launch of our Voltex AL heat pump water heater. We are committed to continued development of sustainable water heating and water treating technology. I'll now turn the call over to Chuck, who will provide more details on our first quarter performance.