A.O. Smith Corporation

Good day, and thank you for standing by. Welcome to the A.O. Smith Corporation Q2 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'll need to press star 1-1 on your telephone, and you will then hear an automated message advising you that you're raised. To withdraw your questions, simply press star 1-1 again. Please be advised that today's conference is being recorded. Without further ado, I'll hand the conference over to your first speaker, Helen Gerholt. Helen, please go ahead.

Thank you, Eric, and good morning, everyone, and welcome to the A.O. Smith Second 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 plus 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 income and 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 second quarter results. Our team delivered record-adjusted EPS of $1.01 in the second quarter, driven by strong performance in our operating segments. We saw margin expansion in our North America segment, primarily due to a more favorable price-cost relationship, as well as robust demand for our commercial and residential water heaters. Our restoral segment delivered improved performance in the second quarter, even as headwinds in the economy and currency exchange continue in China. Both China and India delivered sales growth of 15% local currency in the second quarter. Please turn to slide five. North America water heater sales decreased 2% in the second quarter of 2023, as higher volumes are offset by lower pricing. We saw continued resilience in residential water heater demand and year-over-year improvement in our commercial water heater business. Our North America boiler sales declined 13% in the second quarter compared to a tough comp last year, as lower volumes more than offset the benefits from pricing. Channel inventory levels of residential and light commercial boilers remain elevated in the quarter, as a warmer-than-normal winter resulted in lower industry demand. We believe channel inventory levels are approaching normal levels at the end of the quarter. Demand for our custom commercial high-efficiency condensing boilers, particularly our Hellcat crust boilers with O2 sensing technology, was steady in the quarter and continues to gain traction in the market. North America water treatment sales were down 2% in the second quarter of 2023 compared to another tough comp in 2022, as pricing and strong e-commerce sales were offset by lower sales in our specialty wholesale and dealer channels. Sales in the first half of 2022 benefited from strong shipments as supply chain constraints improved and we worked down our order backlog. I'm particularly pleased with the margin improvement we have seen this quarter. and our North America water treatment business. In China, second quarter sales increased 15% in local currency compared to the second quarter of 2022, which was negatively impacted by COVID-19 related shutdowns. Demand continued to improve for our products, particularly for residential and commercial water treatment products. Sales of water treatment consumables were particularly strong in the quarter. We also saw favorable mix in our water treatment and electric water heater product categories this quarter, as recently launched products continue to be well received by the market. I'm now on slide six. According to our recent National Consumer Survey, nearly nine out of 10 Americans have concerns about microplastics in their drinking water. Reducing plastic pollution has long been a priority for our North America water treatment business. Our North American water treatment products filter enough water to potentially eliminate over 1 billion single-use plastic bottles per year. I am pleased to announce that all of our countertop and under-sink water filters are now independently certified to remove up to 99.6% of microplastics, in addition to over 70 other contaminants, including PFAS and pesticides. We remain committed to leading the charge in identifying, and becoming certified to remove harmful contaminants as they emerge. I'll now turn the call over to Chuck, who will provide more details on our second quarter performance.