A. O. Smith(AOS) - 2023 Q3 - Quarterly Report

North America Segment Performance - North America segment sales increased by $57.0 million in Q3 2023 compared to Q3 2022, driven by higher residential water heater volumes[91] - North America segment earnings rose 19.9$170.0 million, with segment margins improving to 23.9%[91] - North America segment earnings for Q3 2023 were $170.0 million, a 19.9$141.8 million in Q3 2022[104] - North America water treatment product sales are anticipated to grow 5-7% in 2023, primarily driven by pricing[87] - Commercial water heater industry volumes in 2023 are expected to increase mid-teens compared to 2022[87] - Boiler sales in North America decreased 11% in the first nine months of 2023, with a revised outlook of a high single-digit decrease for the full year[87] - The company recorded pre-tax pension settlement income of $5.0 million in the North America segment and$1.0 million in Corporate expenses[109] - The company incurred pre-tax pension settlement expense of $346.8 million in the North America segment and$70.5 million in Corporate expenses[109] - The company reported pre-tax pension expense of $9.7 million in the North America segment and$2.0 million in Corporate expenses[109] Rest of World Segment Performance - Rest of World segment sales in Q3 2023 were $233.4 million, up$3.2 million (1.4%) compared to $230.2 million in Q3 2022, driven by higher volumes in China, partially offset by$11 million unfavorable foreign currency translation[93] - Rest of World segment earnings in Q3 2023 were $23.2 million, up from$21.8 million in Q3 2022, with segment margins improving to 9.9% from 9.5%[93] - Adjusted Rest of World segment earnings for the first nine months of 2023 were $69.3 million, with an adjusted segment margin of 9.9$12.5 million impairment expense[93] - Rest of World segment earnings for Q3 2023 were $23.2 million, a 6.4$21.8 million in Q3 2022[104] - 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[109] Financial Performance and Projections - Company-wide gross profit margin increased to 38.0% in Q3 2023 from 34.9% in Q3 2022, primarily due to lower material costs[89] - The company expects 2023 consolidated sales to increase by 2% compared to 2022, excluding potential future acquisitions[87] - The company expects 2023 consolidated sales to increase by 2% compared to 2022, driven by a 4% increase in residential unit volumes, higher commercial water heater volumes, and increased water treatment sales[94] - Adjusted earnings for the first nine months of 2023 were $430.4 million, compared to$357.1 million in the same period last year, with adjusted EPS of $2.84 versus$2.28 in 2022[101] - Earnings Before Provision for Income Taxes (GAAP) for Q3 2023 was $176.4 million, compared to$144.7 million in Q3 2022, representing a 21.9% increase[104] - Total Segment Earnings (non-GAAP) for Q3 2023 was $193.2 million, up 18.1$163.6 million in Q3 2022[104] - Adjusted EPS guidance for 2023 is $3.70 to$3.80, compared to 2022 adjusted EPS of $3.14[108] Cash Flow and Debt Management - Cash provided by operating activities in the first nine months of 2023 was$439.0 million, up from $214.7 million in the same period last year, with free cash flow of$396.3 million compared to $163.8 million in 2022[97] - The company expects 2023 cash provided by operating activities to be between$640 million and $665 million, with free cash flow projected between$575 million and $600 million[97] - Total debt decreased by$214.9 million in the first nine months of 2023, with the leverage ratio improving to 6.4% from 16.5% at the end of 2022[97] - Free cash flow (non-GAAP) for the first nine months of 2023 was $396.3 million, a 141.9$163.8 million in the same period of 2022[107] Share Repurchases and Tax Rates - The company repurchased 2,388,000 shares in the first nine months of 2023 at a total cost of $161.4 million, with plans to spend approximately$300 million on stock repurchases in 2023[97] - Effective income tax rate for the nine months ended September 30, 2023 was 24.7%, with an estimated annual rate of approximately 24% for 2023[89] China Market and Currency Impact - Sales in China are projected to grow 3-5% in 2023 in local currency, but currency translation is expected to negatively impact sales by approximately 6%[87] Impairment and Pension 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[87] - 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[109] - The company recorded pre-tax pension settlement income of$5.0 million in the North America segment and $1.0 million in Corporate expenses[109] - The company incurred pre-tax pension settlement expense of$346.8 million in the North America segment and $70.5 million in Corporate expenses[109] - The company reported pre-tax pension expense of$9.7 million in the North America segment and $2.0 million in Corporate expenses[109]