A.O. Smith Corporation

Welcome to the AO Smith Corporation's first quarter 2025 earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star 11 on your telephone. If your question has been answered, and you'd like to remove yourself from the queue, simply press star 11 again. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Helen Gerholt. Please go ahead.

Thank you, Jonathan. And good morning, everyone. And welcome to the A.O. 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 of Steve Schaefer, President and Chief Operating Officer, and Chuck Lauber, Chief Financial Officer. Within today's presentation, we have provided non-GAAP measures. Free cash flow is defined as cash from operations plus capital expenditures. 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 just 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, and good morning. Before I view our first quarter performance, I'd like to take a moment to highlight our recent announcement that Steve will assume the role of President and Chief Executive Officer effective July 1st. Over the past year, Steve has worked closely with me and our leadership team to deepen his understanding of our business and identify opportunities to enhance performance and drive growth. I have full confidence in his ability to lead A.O. Smith and advance our position as a global water technology leader. As we have throughout this process, we will continue to ensure a smooth CEO transition over the next two months. I will remain actively engaged as executive chairman of the board, continuing to support the company's strategic direction. Now turning to slide four and our financial performance. Our team delivered a solid performance in the first quarter with volumes tracking our expectations. I'm pleased with our sequential quarter-over-quarter improvement. As anticipated, North America's segment sales declined by 2%, as higher boiler sales were more than offset by lower water heater volumes. As a reminder, we had a very strong first quarter in 2024 for water heating, creating a challenging year-over-year comparison. Rest-of-world sales were essentially flat compared to last year. In China, third-party sales declined 4% local currency, reflecting ongoing economic weakness and soft consumer demand. In the quarter, we repurchased $121 million of our shares, front-loading a portion of our full-year 2025 repurchase outlook of $400 million. Please turn to slide five. North America water heater sales declined 4% in the first quarter, driven by lower volumes. First quarter 2024 shipments benefited from pre-vibrated volumes ahead of an announced price increase, a favorable commercial gas mix. In contrast, 2025 volumes reflected a more normalized annual cadence. One of our key initiatives for 2025 is to level low production across the year to ensure optimal plant efficiencies. We have maintained our planned production schedule despite stronger recent order rates, which appear to be in response to our announced price increases. Working closely with our customers, we are managing orders based on historical order rates and have adjusted lead times accordingly. We are continuing to monitor the situation closely. Our North American boiler sales increased by 10% compared to the first quarter of 2024. as our high efficiency commercial boilers continue to outperform the market. North America water treatment sales increased slightly in the first quarter as growth in our priority channels, e-commerce, dealer, and direct-to-consumer offset retail declines as we intentionally shift focus away from that channel. We are pleased with first quarter profitability, which is tracking in line with the full year 250 basis point improvement we discussed during January's call. In China, first quarter third-party sales decreased 4% in local currency. Higher sales of electric water heaters and commercial water treatment products were more than offset by lower volumes of residential water treatment products and gas water heaters. Margin improved by 200 basis points in the quarter, driven by ongoing cost control efforts and benefits from our 2024 restructuring initiatives. I'll now turn the call over to Chuck, who will provide more details on our first quarter performance.