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10-Q





☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


March 31, 2024





☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





1-475





A. O. Smith Corporation











Delaware





11270 West Park Place Milwaukee Wisconsin





39-0619790








53224-9508





414 359-4000











Title of Each ClassTradingSymbolName of Each Exchangeon Which RegisteredCommon Stock (par value $1.00 per share)AOSNew York Stock Exchange


Yes


Yes





Large accelerated filer☒Accelerated Filer☐Non-accelerated filer☐Smaller reporting company☐Emerging growth company☐





☐


25,886,364


120,783,753













---










PagePart I.FINANCIAL INFORMATIONCondensed Consolidated Statements of Earnings - ThreeMonths EndedMarch31, 2024and 20233Condensed Consolidated Statements of Comprehensive Earnings - ThreeMonths EndedMarch31, 2024and 20233Condensed Consolidated Balance Sheets -March31, 2024and December 31, 20234Condensed Consolidated Statements of Cash Flows -ThreeMonths EndedMarch31, 2024and 20235Condensed Consolidated Statements of Stockholders’ Equity - ThreeMonths EndedMarch31, 2024and 20236Notes to Condensed Consolidated Financial Statements -March31, 20247-17Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations18-25Item 3.Quantitative and Qualitative Disclosures about Market Risk25Item 4.Controls and Procedures25-26Part II.OTHER INFORMATIONItem 1.Legal Proceedings26Item 2.Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities26Item 5.Other Information26Item 6.Exhibits26Index to Exhibits27Signatures28







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Three Months EndedMarch 31,20242023Net sales$978.8$966.4Cost of products sold594.1592.3Gross profit384.7374.1Selling, general and administrative expenses192.2187.2Impairment expense—15.6Interest expense1.04.0Other income, net(1.2)(4.0)Earnings before provision for income taxes192.7171.3Provision for income taxes45.144.4Net Earnings$147.6$126.9Basic Net Earnings Per Share of Common Stock$1.00$0.84Diluted Net Earnings Per Share of Common Stock$1.00$0.84Dividends Per Share of Common Stock$0.32$0.30






















Three Months EndedMarch 31,20242023Net earnings$147.6$126.9Other comprehensive earnings (loss)Foreign currency translation adjustments(4.8)2.5Unrealized gains (losses) on cash flow derivative instruments, less related income tax (provision) benefit of $(0.3) in 2024, and $0.0 in 20231.0(0.1)Adjustment to pension liability, less related income tax provision of $0.0 in 2024, and $0.0 in 20230.1—Comprehensive Earnings$143.9$129.3










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(unaudited)March 31,2024December 31,2023AssetsCurrent AssetsCash and cash equivalents$251.6$339.9Marketable securities51.523.5Receivables584.6596.0Inventories522.3497.4Other current assets51.543.5Total Current Assets1,461.51,500.3Property, plant and equipment1,429.91,418.6Less accumulated depreciation(830.9)(821.1)Net property, plant and equipment599.0597.5Goodwill651.5633.4Other intangibles333.5336.7Operating lease assets35.737.3Other assets101.0108.7Total Assets$3,182.2$3,213.9LiabilitiesCurrent LiabilitiesTrade payables$557.7$600.4Accrued payroll and benefits54.392.2Accrued liabilities197.1177.4Product warranties64.365.3Debt due within one year10.010.0Total Current Liabilities883.4945.3Long-term debt109.7117.3Product warranties120.7122.8Long-term operating lease liabilities26.427.9Other liabilities160.2156.2Total Liabilities1,300.41,369.5Stockholders’ EquityClass A Common Stock (shares issued, 26,017,732 and 26,023,132 as of March 31, 2024 and December 31, 2023, respectively)130.1130.1Common Stock (shares issued 164,689,862 and 164,684,460 as of March 31, 2024 and December 31, 2023, respectively)164.7164.7Capital in excess of par value589.5578.2Retained earnings3,358.63,258.1Accumulated other comprehensive loss(87.9)(84.2)Treasury stock at cost(2,273.2)(2,202.5)Total Stockholders’ Equity1,881.81,844.4Total Liabilities and Stockholders’ Equity$3,182.2$3,213.9










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Three Months EndedMarch 31,20242023Operating ActivitiesNet earnings$147.6$126.9Adjustments to reconcile net earnings to cash provided by (used in) operating activities:Depreciation and amortization19.619.2Stock based compensation expense8.37.0Deferred income taxes2.9—Non-cash impairment—15.6Net changes in operating assets and liabilities:Current assets and liabilities(73.7)(50.6)Noncurrent assets and liabilities1.91.8Cash Provided by Operating Activities106.6119.9Investing ActivitiesCapital expenditures(22.0)(10.7)Acquisition of business(21.1)—Investments in marketable securities(48.1)(14.7)Net proceeds from sale of marketable securities20.015.6Cash Used in Investing Activities(71.2)(9.8)Financing ActivitiesLong-term debt repaid(6.8)(3.7)Common stock repurchases(74.5)(53.1)Net proceeds from stock option activity8.04.7Dividends paid(47.3)(45.4)Cash Used in Financing Activities(120.6)(97.5)Effect of exchange rate changes on cash and cash equivalents(3.1)2.4Net (decrease) increase in cash and cash equivalents(88.3)15.0Cash and cash equivalents - beginning of period339.9391.2Cash and Cash Equivalents - End of Period$251.6$406.2










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Three Months EndedMarch 31,20242023Class A Common StockBalance at the beginning of period$130.1$130.2Conversion of Class A Common Stock——Balance at end of period$130.1$130.2Common StockBalance at the beginning of period$164.7$164.7Conversion of Class A Common Stock—$—Balance at end of period$164.7$164.7Capital in Excess of Par ValueBalance at the beginning of period$578.2$555.9Issuance of share units(14.6)(10.1)Vesting of share units(1.8)(3.1)Stock based compensation expense7.76.8Exercises of stock options5.44.7Issuance of share based compensation14.610.1Balance at end of period$589.5$564.3Retained EarningsBalance at the beginning of period$3,258.1$2,885.0Net earnings147.6126.9Dividends on stock(47.1)(45.4)Balance at end of period$3,358.6$2,966.5Accumulated Other Comprehensive Loss (see Note 15)$(87.9)$(80.0)Treasury StockBalance at the beginning of period$(2,202.5)$(1,905.7)Exercise of stock options2.70.2Shares repurchased(74.5)(53.1)Excise tax on repurchases of common stock(0.7)—Vesting of share units1.83.1Balance at end of period$(2,273.2)$(1,955.5)Total Stockholders’ Equity$1,881.8$1,790.2










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Basis of Presentation
















Revenue Recognition





30 90


62.9 59.7 11.4 10.1





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two








900

















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(dollars in millions)Three Months EndedMarch 31,20242023North AmericaWater heaters and related parts$648.3$637.3Boilers and related parts58.758.4Water treatment products and related parts59.357.0Total North America766.3752.7Rest of WorldChina$200.6$190.2All other Rest of World26.328.9Total Rest of World226.9219.1Inter-segment sales(14.4)(5.4)Total Net Sales$978.8$966.4




Acquisition and Dispositions





21.1 three years














During the first quarter of 2023, the Company determined that the disposal group met the criteria to be classified as held for sale and that the fair value of the disposal group, less cost to sell, was lower than its carrying amount. As a result, in the first quarter of 2023, the Company recorded an impairment expense of $15.6 million, of which $12.5 million was recorded in the Rest of World segment, and $3.1 million was recorded in Corporate Expense. The impairment was recorded as a net reduction of $4.5 million to the assets and liabilities and $11.1 million for the anticipated liquidation of the cumulative foreign currency translation adjustment associated with the disposal group. The remaining carrying value of the disposal group as of March 31, 2023, was $0.6 million and classified as held for sale.










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Inventories





(dollars in millions)March 31,2024December 31, 2023Finished products$196.8$177.7Work in process44.244.2Raw materials325.6322.6Inventories, at FIFO cost566.6544.5LIFO reserve(44.3)(47.1)Inventories, at LIFO cost$522.3$497.4




Product Warranties


The following table presents the Company’s warranty liability activity:


(dollars in millions)Three Months EndedMarch 31,20242023Balance at January 1,$188.1$182.5Expense19.718.4Claims settled(22.8)(19.7)Balance at March 31,$185.0$181.2




Debt


500 850 500 two




Earnings per Share of Common Stock


The following table sets forth the computation of basic and diluted weighted-average shares used in the earnings per share calculations:


Three Months EndedMarch 31,20242023Denominator for basic earnings per share - weighted average shares147,178,955150,897,302Effect of dilutive stock options and share units1,118,5261,003,545Denominator for diluted earnings per share148,297,481151,900,847




Stock Based Compensation


2,293,586





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8.3 7.0





three year ten years three year 0.2 0.3








Weighted-Avg. PerShareExercisePriceNumber ofOptionsAverageRemainingContractualLifeAggregateIntrinsicValue(dollars inmillions)Outstanding at January 1, 2024$52.931,872,553Exercised44.72(242,687)Forfeited74.27(1,167)Outstanding at March 31, 202454.141,628,6996 years$57.5Exercisable at March 31, 202452.771,523,9326 years$55.9





three years 189,792 165,686


15.6 11.1 three-year 7.8 6.6





Number of UnitsWeighted-AverageGrant Date ValueIssued and unvested at January 1, 2024381,189$63.33Granted189,79282.22Vested(92,582)60.78Forfeited(776)68.16Issued and unvested at March 31, 2024477,62371.16








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three years zero 150 28,390 24,580


2.3 1.7 three-year 0.3 0.1





Number of UnitsWeighted-AverageGrant Date ValueIssued and unvested at January 1, 202434,758$67.14Granted28,39082.04Performance adjustments1,55067.14Issued and unvested at March 31, 202464,69873.68




Pensions





(dollars in millions)Three Months EndedMarch 31,20242023Service cost$0.3$0.3Interest cost0.30.3Expected return on plan assets(0.3)(0.3)Amortization of unrecognized loss0.1—Total pension expense$0.4$0.3


no no







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Segment Results


two The following table presents the Company’s segment results:


(dollars in millions)Three Months EndedMarch 31,20242023Net salesNorth America$766.3$752.7Rest of World226.9219.1Inter-segment(14.4)(5.4)$978.8$966.4Segment earningsNorth America$198.7$188.6Rest of World(1)17.25.3Inter-segment earnings elimination(0.3)—215.6193.9Corporate expense(2)(21.9)(18.6)Interest expense(1.0)(4.0)Earnings before income taxes192.7171.3Provision for income taxes45.144.4Net earnings$147.6$126.9Additional Information(1)Adjustments: Rest of Worldincludes impairment expense of:$—$12.5(2)Adjustments: Corporate expenseincludes impairment expense of:$—$3.1




Fair Value Measurements








Fair Value Measurement UsingBalance Sheet LocationMarch 31,2024December 31, 2023Quoted prices in active markets for identical assets (Level 1)Marketable Securities$51.5$23.5Significant other observable inputs (Level 2)Other current assets / (Accrued liabilities)3.1(4.1)





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Derivative Instruments




















one year 2.3 0.9





(dollars in millions)March 31, 2024December 31, 2023BuySellBuySellCanadian dollar$—$60.3$—$80.5Euro25.1—24.1—Mexican peso16.1—14.2—Total$41.2$60.3$38.3$80.5











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4.0 0.5 204.0 1.1 4.2











Derivatives in ASC 815 cash flow hedging relationshipsAmount of gain recognized in othercomprehensiveloss on derivativesLocation of gainreclassified fromaccumulated othercomprehensive lossinto earningsAmount of gainreclassified fromaccumulated othercomprehensiveloss into earnings2024202320242023Foreign currency contracts$1.8$1.7Cost of products sold$0.6$1.9








0.3 0.8





(dollars in millions)March 31, 2024December 31, 2023BuySellBuySellCanadian dollar$—$30.4$44.1$—Chinese yuan202.2—206.8—Total$202.2$30.4$250.9$—











Derivatives not designated as hedging instruments:Location within the consolidated statements of earnings20242023Foreign exchange contractsOther income - net$4.0$(0.1)







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Income Taxes


23.4 24 24.5 25.9 15.6


As of March 31, 2024, the Company had $17.2 million of unrecognized tax benefits of which $3.5 million would affect its effective income tax rate if recognized. The Company recognizes potential interest and penalties related to unrecognized tax benefits as a component of income tax expense. The Company’s U.S. federal income tax returns and its U.S. state and local income tax returns are subject to audit for the years 2017-2024 and 2007-2024, respectively. The Company is subject to examinations in foreign tax jurisdictions for the years 2018-2024.




Commitments and Contingencies





The Provider is required to indemnify the Company for any losses the Company would incur in the event of an inventory repurchase under these arrangements. Potential losses under the repurchase arrangements represent the difference between the repurchase price and net proceeds from the resale of the product plus costs incurred in the process, less related distributor rebates. The Company’s reserves for estimated losses under these repurchase arrangements were immaterial as of March 31, 2024 and December 31, 2023.







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Changes in Accumulated Other Comprehensive Loss by Component





(dollars in millions)Three Months EndedMarch 31,20242023Cumulative foreign currency translationBalance at beginning of period$(80.3)$(84.1)Other comprehensive loss before reclassifications(4.8)2.5Balance at end of period(85.1)(81.6)Unrealized net gain on cash flow derivativesBalance at beginning of period0.74.9Other comprehensive gain before reclassifications1.41.3Realized gains on derivatives reclassified to cost of products sold (net of income tax provision of $0.1 and $0.5 in 2024 and 2023, respectively)(0.4)(1.4)Balance at end of period1.74.8Pension liabilityBalance at beginning of period(4.6)(3.2)Amounts reclassified from accumulated other comprehensive loss:(1)0.1—Balance at end of period(4.5)(3.2)Accumulated other comprehensive loss, end of period$(87.9)$(80.0)(1)Amortization of pension items:Actuarial losses$0.1$—(2)Reclassification net of income tax benefit$0.1$—













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(dollars in millions)Three Months EndedMarch 31,20242023Net sales$978.8$966.4Cost of products sold594.1592.3Gross profit384.7374.1Gross profit margin %39.3%38.7%Selling, general and administrative expenses192.2187.2Impairment expense—15.6Interest expense1.04.0Other income, net(1.2)(4.0)Earnings before provision for income taxes192.7171.3Provision for income taxes45.144.4Net Earnings$147.6$126.9
































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(dollars in millions)Three Months EndedMarch 31,20242023Net Sales$766.3$752.7Segment Earnings198.7188.6Segment margin25.9%25.1%














(dollars in millions)Three Months EndedMarch 31,20242023Net Sales$226.9$219.1Segment Earnings17.25.3Segment margin7.6%2.4%
























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(dollars in millions)Three Months EndedMarch 31,20242023Cash provided by operating activities$106.6$119.9Cash used in investing activities(71.2)(9.8)Cash used in financing activities(120.6)(97.5)

























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Three Months EndedMarch 31,20242023Net Earnings (GAAP)$147.6$126.9Impairment expense, before tax—15.6Tax effect on above items——Adjusted Earnings (non-GAAP)$147.6$142.5Diluted Earnings Per Share (GAAP)$1.00$0.84Impairment expense per diluted share, before tax—0.10Tax effect on above items per diluted share——Adjusted Earnings Per Share (non-GAAP)$1.00$0.94











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Three Months EndedMarch 31,20242023Earnings Before Provision for Income Taxes (GAAP)$192.7$171.3Add: Corporate expense(1)21.918.6Add: Interest expense1.04.0Total Segment Earnings (non-GAAP)$215.6$193.9North America$198.7$188.6Rest of World(2)17.25.3Inter-segment earnings elimination(0.3)—Total Segment Earnings (non-GAAP)$215.6$193.9Additional Information(1)Corporate expense$(21.9)$(18.6)Impairment expense, before tax—3.1Adjusted Corporate expense (non-GAAP)$(21.9)$(15.5)(2)Rest of World$17.2$5.3Impairment expense, before tax—12.5Adjusted Rest of World (non-GAAP)$17.2$17.8





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Three Months EndedMarch 31,20242023Cash provided by operating activities (GAAP)$106.6$119.9Less: Capital expenditures(22.0)(10.7)Free cash flow (non-GAAP)$84.6$109.2























2024Guidance2023Diluted EPS (GAAP)$3.90 - 4.15$3.69Restructuring and impairment expense—0.12(1)Adjusted EPS (non-GAAP)$3.90 - 4.15$3.81













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ISSUER PURCHASES OF EQUITY SECURITIESPeriodTotal Number of Shares PurchasedAverage Price Paid per ShareTotal Number of Shares Purchased as Part of Publicly Announced Plans or ProgramsMaximum Number of Shares that may yet be Purchased Under the Plans or ProgramsJanuary 1 - January 31, 2024344,000$80.84344,0005,157,462February 1 - February 29, 2024277,00079.98277,0004,880,462March 1 - March 31, 2024285,00086.05285,0004,595,462










adopted terminated















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ExhibitNumberDescription31.1Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 193431.2Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 193432.1Written Statement of the Chief Executive Officer Pursuant to 18 U.S.C. Section 135032.2Written Statement of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350101The following materials from A. O. Smith Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2024 are filed herewith, formatted in XBRL (Extensive Business Reporting Language): (i) the Condensed Consolidated Statement of Earnings for the three months ended March 31, 2024 and 2023, (ii) the Condensed Consolidated Statement of Comprehensive Earnings for the three months ended March 31, 2024 and 2023, (iii) the Condensed Consolidated Balance Sheets as of March 31, 2024, and December 31, 2023 (iv) the Condensed Consolidated Statement of Cash Flows for the three months ended March 31, 2024 and 2023 (v) the Condensed Consolidated Statement of Stockholders’ Equity for the three months ended March 31, 2024 and 2023 (vi) the Notes to Condensed Consolidated Financial Statements.







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A. O. SMITH CORPORATIONApril 26, 2024/s/ Benjamin A. OtchereBenjamin A. OtchereVice President and Controller/s/ Charles T. LauberCharles T. LauberExecutive Vice President and Chief Financial Officer