A. O. Smith(AOS) - 2023 Q2 - Quarterly Report

North America Segment Performance - North America segment sales in Q2 2023 were $722.3 million, a decrease of 2.9$744.1 million in Q2 2022, primarily due to lower boiler volumes and unfavorable pricing[90] - North America segment earnings in Q2 2023 increased by 24.5% to $199.1 million, driven by lower material costs and higher water heater volumes[90] - North America segment margin in Q2 2023 improved to 27.6$199.1 million, up 24.5% from $159.9 million in Q2 2022[102] - Adjusted North America segment earnings (non-GAAP) for the first six months of 2023 were$382.7 million, up 20.8% from $316.9 million in the same period of 2022[102] - North America water treatment product sales are expected to increase 5-7$5.0 million in the North America segment[107] Rest of World Segment Performance - Rest of World segment sales in Q2 2023 were $244.2 million, up$14.3 million (6.2%) compared to Q2 2022, driven by strong demand in China for water treatment products[91] - Rest of World segment earnings in Q2 2023 were $28.3 million, up 56.4$18.1 million in Q2 2022, with segment margin improving to 11.6% from 7.9%[91] - Adjusted Rest of World segment earnings for the first six months of 2023 were $46.1 million, with an adjusted segment margin of 10.0$12.5 million impairment expense[91] - Rest of World segment earnings (non-GAAP) for Q2 2023 grew to $28.3 million, a 56.4$18.1 million in Q2 2022[102] - The company reported a pre-tax impairment expense of $12.5 million in the Rest of World segment for the first six months of 2023[107] Consolidated Financial Performance - Consolidated sales in Q2 2023 were$960.8 million, a slight decrease of 0.5% compared to $965.9 million in Q2 2022[88] - Gross profit margin in Q2 2023 increased to 40.0$3.45 to $3.60[92] - Adjusted earnings for the first six months of 2023 were$295.0 million, up 17.8% from $250.5 million in the same period last year[99] - Adjusted EPS for the first six months of 2023 was$1.94, up 22.0% from $1.59 in the same period last year[99] - Earnings Before Provision for Income Taxes (GAAP) for Q2 2023 increased to$208.9 million, up from $165.3 million in Q2 2022, representing a 26.4$227.4 million, compared to $178.0 million in Q2 2022, a 27.8$3.45 and $3.60, compared to the 2022 adjusted EPS of$3.14[107] Cash Flow and Debt Management - Cash provided by operating activities in the first six months of 2023 was $260.2 million, up 378.3$54.4 million in the same period last year[95] - The company expects 2023 free cash flow to be between $550 million and$600 million, with capital expenditures projected at $70 to$75 million[95] - Total debt decreased by $138.5 million in the first six months of 2023, with leverage ratio improving to 9.8$69.6 million, with plans to spend approximately $300 million on stock repurchases in 2023[95] - Free cash flow (non-GAAP) for the first six months of 2023 was$236.0 million, a significant increase from $23.7 million in the same period of 2022[105] - The company's cash provided by operating activities (GAAP) for the first six months of 2023 was$260.2 million, compared to $54.4 million in the same period of 2022[105] Impairment and Tax Expenses - The company recognized a non-cash impairment charge of$15.6 million in Q1 2023 related to the sale of its business in Turkey[86] - The company's effective income tax rate for the six months ended June 30, 2023 was 25.3%, up from 23.6% in the same period last year[89] - The company reported a pre-tax impairment expense of $12.5 million in the Rest of World segment and$3.1 million in Corporate expenses for the first six months of 2023[107] - Pension settlement income for the first six months of 2023 included $1.0 million in Corporate expenses[107] China Market Outlook - In China, the company projects 2023 sales growth of 3-5% in local currency, but expects a negative currency translation impact of approximately 5%[86]