SMITH A O CORP Q4 FY2024 earnings call

• Returned $496 million of capital to shareholders via dividend and share repurchases. - Completed construction of tankless manufacturing facility. - Implemented strategy to improve margin profile of North America water treatment business. - Began reorganizing China business to reduce costs. - Announced new sustainability goal of reducing water usage by 40 million gallons by 2030. - Closed Pureit acquisition in fourth quarter with minimal impact on sales and earnings. - Pureit acquisition complements India business, helping reach number three position in the market.

North America Segment: 2024 sales were $3 billion, slightly up from 2023, with adjusted segment earnings of $714 million, a 2% decrease, and an adjusted segment margin of 24.2%, down 60 basis points. Fourth quarter 2024 sales were $690 million, down 7%, with adjusted segment earnings of $154 million, a 11% decrease, and an adjusted operating margin of 22.4%, down 110 basis points. Rest of the World Segment: 2024 sales were $919 million, down 4% including $13 million unfavorable currency translation, with segment third-party sales down 4% on constant currency. India sales grew 13% in local currency in 2024. Rest of the World adjusted segment earnings were $76 million, a 24% decrease from 2023. Fourth quarter 2024 sales were $237 million, down 9%, with rest of the world adjusted segment earnings of $19 million, lower than 2023.

• 2025 EPS expected to be in the range of $3.60 to $3.90 per share. - Free cash flow projected to be between $500 million and $550 million. - North America boiler sales expected to grow 3% to 5% in 2025. - North America water treatment sales expected to be between $235 million to $245 million, a decrease of approximately 5% due to business reprioritization. - India business expected mid-teen top line growth. - Restructuring in China expected to be mostly implemented by second quarter, realizing annual savings of ~$15 million, leading to operating margin recovery to 8% to 10% in 2025.

• Economic challenges in China impacting sales. - Tariff uncertainties, particularly potential increase in China tariffs affecting gas tankless imports. - Market competition and volatility in the North America water heater market.

Q: Timing and impact of China restructuring and balance sheet inventories?

A: Kevin Wheeler said China restructuring is over halfway done, with benefits starting now and expected to be fully implemented by Q2 2025, focusing on streamlining and competitiveness. Chuck Lauber mentioned inventories are higher than desired, with a target to be below 40-day level for days of inventory by end of 2025.