A.O. Smith Corporation

Good day and thank you for standing by. Welcome to A.O. Smith Corporation Third Quarter 2024 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 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today. Helen Gerholt, please go ahead.

Good morning, and welcome to the A.O. Smith Third 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 pension settlement income and restructuring and impairment expenses. 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.

Thank you, Helen, and good morning, everyone. I'm on slide four and our third quarter results. As we previously announced, our third quarter sales and earnings decreased compared to last year as consumer demand in China and water heater demand in North America was weaker than expected. China third-party sales declined 17% in local currency. North America water heater sales decreased 4% as pricing actions were more than offset by lower volumes. I am pleased with the double-digit growth we had in the quarter in our North America boiler and water treatment businesses, as well in India. In October, we increased our dividend by 6%. We have increased our dividend annually for the last 32 years. In addition, we are on track to close PURIT by the end of the year. Please turn to slide five. In China third quarter, third party sales decreased 17% local currency as a result of weaker than expected consumer demand. We believe our position in the premium portion of the market remains stable. However, we saw increased pricing and promotional pressure, particularly in the mid-price sector of the market. While we expect consumer demand softness to persist through the remainder of the year, a government-sponsored appliance trade-in program and other recently announced government stimulus programs may provide a positive impact beyond 2024. In our North American water heater business, orders were softer than expected in the quarter. In both the US and Canada, for both residential and commercial water heaters. We believe a price increase related pre-buy and a reduction in our order lead times and a softening in end market demand led our customers to adjust order patterns and reduce their inventories during the quarter. As we have discussed, we launched our AO Smith design and manufactured tankless product in the second quarter, which is currently manufactured in our China facility. Early feedback has been positive on our innovative, scale-resistant design. While sales have lagged our expectations, we remain positive about the long-term outlook, and we are on track to launch two additional models in early 2025. Our North America boiler sales grew 15% in the quarter compared to last year, as our commercial condensing boilers continue to perform well in the market. We believe we are growing our share in the commercial condensing portion of the market led by our Crest Boiler with Hellcat technology. North America water treatment sales increased 16% year-over-year due to acquisition-related dealer sales and organic growth in our dealer and wholesale channels. I'm now on slide six. As we have discussed earlier this year, we commenced several expansion projects in 2024 to support our long-term growth strategy. We recently celebrated the grand opening of our new facility on our campus in Juarez, where we will manufacture gas tankless water heaters for North America. While there is still startup work to be completed, production is expected to begin in early 2025 with a ramp up through the year. We have also added additional heat pump capacity on the same site in support of increased demand for our residential heat pump water heaters. Also, we have made progress on our new state-of-the-art commercial product development center, which is located on the same site as our Lebanon, Tennessee facility. This expanded facility, which is projected to be completed in mid-2025, will enhance our product development and testing capabilities and knowledge sharing by bringing together our commercial water heater and boiler engineering teams. I'll now turn the call over to Chuck, who will provide more details on our third quarter performance. Thank you, Kevin.