A.O. Smith Corp (AOS) (Q1 2024) Earnings Call Transcript Highlights: Robust Growth and ...

• Total Revenue: $979 million in Q1 2024, a 6% increase over Q1 2023.

• Earnings Per Share (EPS): $1 in Q1 2024, up from adjusted EPS in Q1 2023.

• North America Sales: Increased by 2% to $766 million.

• North America Segment Earnings: $199 million, up 5% from Q1 2023.

• North America Segment Margin: Increased by 80 basis points to 25.9%.

• Rest of World Sales: $227 million, a 4% increase including a negative currency translation impact.

• Rest of World Segment Earnings: $17 million, slightly decreased from Q1 2023.

• Free Cash Flow: $85 million, a decrease from the previous year.

• Capital Expenditures: Increased by $11 million year-over-year.

• 2024 EPS Guidance: Expected range of $3.90 to $4.15 per share.

• 2024 Sales Growth Outlook: Projected to grow between 3% and 5% compared to 2023.

• Warning! GuruFocus has detected 6 Warning Sign with AOS.

Release Date: April 25, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Q & A Highlights

Q: Can you discuss the first quarter water heater demand and its impact on January and February shipments? A: (Kevin J. Wheeler - Chairman & CEO) January and February saw higher AHRI data due to prebuy activities from a price increase. March normalized, aligning with our forecast for flat residential business in 2024. We entered April with a strong backlog, which we expect to work through in Q2.

Q: How are you adjusting the North America segment margin expectations in light of steel cost projections? A: (Charles T. Lauber - Executive VP & CFO) Initially, we guided to 24.5-25% margins, now adjusted to approximately 25%. This adjustment reflects confidence in operational performance and accounts for upcoming pressures from steel costs and tankless product launch costs.

Q: What are the expectations for commercial water heater volumes in 2024? A: (Kevin J. Wheeler - Chairman & CEO) We project low single-digit growth, driven by both electric and commercial gas categories. The growth in commercial gas was a positive surprise this quarter.

Q: Can you provide insights into the channel inventories and the impact of prebuy activities? A: (Kevin J. Wheeler - Chairman & CEO) Channel inventories are aligned with expectations, with some pull forward managed within Q1. We anticipate normalizing this in Q2. Distributors are performing well, indicating a positive start to the year.

Q: How is the launch of North American tankless products progressing, and what are the sales expectations for this year? A: (Kevin J. Wheeler - Chairman & CEO) We're excited about the tankless product launch, with prebuy orders already in place. We anticipate an additional $15-20 million in sales from this new line in phases throughout the year.

Q: What is the current status and future expectations for kitchen products in China? A: (Charles T. Lauber - Executive VP & CFO) Kitchen products currently make up a small portion (~5%) of our revenue in China but are crucial for our strategy to offer bundled, value-oriented packages. While they put slight pressure on margins, they are key for top-line stability and growth.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.