Slides
Page 1
1First Quarter 2025 Earnings Presentation | First Quarter 2025 ResultsApril 29, 2025
Page 2
2First Quarter 2025 Earnings Presentation | Kevin J. WheelerChairman and Chief Executive Officer Charles T. LauberExecutive Vice Presidentand Chief Financial Officer Helen E. GurholtVice President - Investor Relations, Financial Planning & AnalysisStephen M. Shafer President and Chief Operating Officer
Page 3
3First Quarter 2025 Earnings Presentation | Forward Looking StatementsThis presentation contains statements that we believe are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally can be identified by the use of words such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “continue,” “ forecast,”“guidance” or words of similar meaning. Important factors that could cause actual results to differ materially from these expectations include, among other things, the following:negative impact to the Company’s businesses from international tariffs, including any new or increased tariffs that could also trigger retaliatory responses from other countries,as well as, trade disputes and geopolitical differences, including the conflicts in Ukraine and the Middle East; further softening in U.S. residential and commercial water heaterdemand; negative impacts to the Company, particularly the demand for its products, resulting from global inflationary pressures or a potential recession in one or more of themarkets in which the Company participates; the Company’s ability to continue to obtain commodities, components, parts and accessories on a timely basis through its supplychain and at expected costs; negative impacts to demand for the Company’s products, particularly commercial products, as a result of changes in commercial property usagethat followed the COVID-19 pandemic; further weakening in North American residential or commercial construction or instability in the Company’s replacement markets; inabilityof the Company to implement or maintain pricing actions; inconsistent recovery of the Chinese economy or a further decline in the growth rate of consumer spending or housingsales in China; the availability, timing or effects of China stimulus programs; potential weakening in the high-efficiency gas boiler segment in the U.S.; substantial defaults inpayment by, material reduction in purchases by or the loss, bankruptcy or insolvency of a major customer; foreign currency fluctuations; the Company’s inability to successfullyintegrate or achieve its strategic objectives resulting from acquisitions; failure to realize the expected benefits of acquisitions or expected synergies; failure to realize theexpected benefits, timing and extent of regulatory changes; competitive pressures on the Company’s businesses, including new technologies and new competitors; the impact ofpotential information technology or data security breaches; negative impact of changes in government regulations or regulatory requirements; the inability to respond to seculartrends toward decarbonization and energy efficiency; and adverse developments in general economic, political and business conditions in key regions of the world. . Forward-looking statements included in this presentation are made only as of the date of this presentation, and the Company is under no obligation to update these statements to reflectsubsequent events or circumstances. All subsequent written and oral forward-looking statements attributed to the Company, or persons acting on its behalf, are qualified entirelyby these cautionary statements. This presentation contains certain non-GAAP financial measures as that term is defined by the SEC. Non-GAAP financial measures are generallyidentified by “Adjusted” (Adj.) or “Non-GAAP.”
Page 4
4First Quarter 2025 Earnings Presentation | First Quarter MessagesChina sales decreased 4% in local currency driven by continued weak consumer demand 3200+ bps operating margin improvement in China and North American Water Treatment enabled by restructuring and cost controlsPureit added $12 million to Rest of World salesNorth America sales declined 2% compared to a tough prior year comp; up 9% sequentially from Q4 2024Sales of $964M and EPS of $0.95 4 5 2 1
Page 5
5First Quarter 2025 Earnings Presentation | First Quarter Performance and HighlightsHighlights•Net sales decreased 2 percent to $964M•EPS down 5 percent to $0.95North America•Sales down 2 percent relative to a tough prior year comp•Segment margin decreased to 24.7 percentRest of World•Flat sales as lower sales in China were offset by Pureit acquisition sales•Segment margin increased 110 basis points$979M$964MQ1 2024 Q1 2025$749M$227MNorth AmericaRest of World$185M$20MNorth AmericaRest of World-2%YOY$1.00 $0.95 Q1 2024 Q1 2025-5%YOYSegment SalesEPS Segment EarningsSales
Page 6
6First Quarter 2025 Earnings Presentation | First Quarter North America Segment•Sales decreased primarily due to lower water heater volumes, partially offset by pricing action benefits•Boilers sales increased 10 percent•Earnings decline driven by lower water heater volumes, partially offset by higher boiler sales and water treatment margin improvement•Higher input costs driven by:•Continued strategic investments, including tankless•Lower volume-related absorption•Segment margin was 24.7%, a decrease of 120 bps Segment Operating Earnings ($M)Segment Sales ($M)($4)$766 $(16)$3 $749 Q1 2024 SalesOrganic GrowthAcquisitionFXQ1 2025 Sales-2%YOY$199 $(5)$(6)$(3)$185 Q1 2024 EarningsOrganic GrowthInput CostsSG&A and FXQ1 2025 Earnings25.9% 24.7%
Page 7
7First Quarter 2025 Earnings Presentation | First Quarter Rest of World Segment•Flat sales as lower China volumes offset by acquisition sales•China third-party sales declined 4 percent in local currency due to continued weak consumer demand•Pureit added $12 million to the quarter•Operating earnings increased as SG&A expense reductions more than offset lower volumes in China•Cost controls and restricting benefits enabled China operating margin expansion of 200 bps •Pureit integration on track$17($2)$5$20Q1 2024 EarningsOrganic GrowthSG&A and OtherQ1 2025 Earnings$12 $(2)$227 $(10)$227 Q1 2024 SalesOrganic GrowthAcquisitionFXQ1 2025 Sales7.6%8.7%Segment Operating Earnings ($M)Segment Sales ($M)FLAT
Page 8
8First Quarter 2025 Earnings Presentation | $200MCash balance212.7%Debt to capital ratio$70MNet debt position~1.8MShares repurchased in Q1 2025 totaling ~$121M Cash Flow and Liquidity1 1As of March 31, 20252Includes cash, cash equivalents and marketable securities $107 $39 Q1 2024 Q1 2025 $85 $17Q1 2024 Q1 2025Free Cash Flow ($M)Cash Flow From Operations ($M)
Page 9
9First Quarter 2025 Earnings Presentation | Capital Allocation Priorities•Opportunities for organic growth in all our businesses and geographies•Disciplined focus on transactions that expand/grow the core, enable geographic growth, and establish adjacencies•Recent transactions include Pureit and Impact Water•Cultivating active pipeline•Five-year CAGR of 7 percent•Over 30 consecutive years of dividend increases•$121 million in Q1 2025; $400 million projected for the full yearAcquisitionsOrganic GrowthDividendsPhilosophy: growing, competitive sustainable dividendShare Repurchases
Page 10
10First Quarter 2025 Earnings Presentation | 2025 Outlook and Assumptions1 1As of April 29, 2025; does not include impact of 2025 announced tariffs or pricing ~Flat to 2%Revenue Increase~FlatU.S. Residential Water Heater Industry~FlatCommercial Water Heater Industry~-5% to -8% China Sales Decrease (Local Currency) ~3% to 5%North American Boiler Sales Growth~-5% North American Water Treatment Decrease~24% to 24.5%North America Segment Margin~8% to 9%Rest of World Segment Margin$500M to $550MFree Cash Flow~$90M to $100MCapital Expenditures~$80MDepreciation & Amortization~$15M to $20MInterest Expense~$75MCorporate/Other Expense~24% to 24.5%Effective Tax Rate~$400MShare Repurchase~142MShare Count – Diluted 20242025 Guidance$3.63$3.60 - $3.90Diluted EPS (GAAP)$0.101-Restructuring and impairment expense$3.73$3.60 - $3.90 Adjusted EPS (non-GAAP)1Includes pre-tax restructuring and impairment expenses of $6.3 million and $11.3 million, within the North America segment and the Rest of World segment, respectively.
Page 11
11First Quarter 2025 Earnings Presentation | •Majority of North American Segment capacity is based in U.S.•15% of U.S. residential tank water heater production in Mexico and is USMCA compliant•Accelerated transition of gas tankless production from China to Mexico•Average range of 6 to 9% price increases on most of water heater products•Actions vary depending on cost impact and relative value proposition Tariff Impact & Actions Taken to Mitigate Risk Confident in our ability to navigate tariff volatilityBased upon current trade/tariff conditions as of April 29, 2025 Potential Annualized Tariff Exposure: ~6 to 8% of Cost of Goods Sold
Page 12
12First Quarter 2025 Earnings Presentation | Continuing to Execute Our Strategy Product Development Center•Opened in Lebanon, TN•Leverages commercial engineering talent and expands commercial testing capabilitiesA. O. Smith Recognized for Ethics For 2nd Year in a Row
Page 14
14First Quarter 2025 Earnings Presentation | Powerful Investment Thesis Leading with innovative products that drive technology and meet sustainability needs Capitalizing on global megatrends in a large and growing market supported by regulatory changes Leading North American water heater and boiler producer with stable and consistent replacement demand Leveraging strong balance sheet for organic and inorganic growth while returning capital to shareholders Compelling brand awareness in emerging markets with attractive growth and margin expansion opportunities12345
Page 15
15First Quarter 2025 Earnings Presentation | Free Cash Flow($ in Millions)