A. O. SMITH CORPORATION Investor Presentation
Leading Provider of Innovative Solutions in Water Heating & Treatment
Winter 2024
Forward Looking Statements
This 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: softening in U.S. residential water heater demand; 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 the markets in which the Company participates; the Company's ability to continue to obtain commodities, components, parts and accessories on a timely basis through its supply chain and at expected costs; negative impacts to demand for the Company's products, particularly commercial products, as a result of changes in commercial property usage that followed the COVID-19 pandemic; further weakening in U.S. residential or commercial construction or instability in the Company's replacement markets; inability of 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 housing sales in China; negative impact to the Company's businesses from international tariffs, trade disputes and geopolitical differences, including the conflicts in Ukraine, the Middle East and attacks on commercial shipping vessels in the Red Sea; potential further weakening in the high-efficiency gas boiler segment in the U.S.; substantial defaults in payment by, material reduction in purchases by or the loss, bankruptcy or insolvency of a major customer; foreign currency fluctuations; the Company's inability to successfully integrate or achieve its strategic objectives resulting from acquisitions; competitive pressures on the Company's businesses, including new technologies and new competitors; the impact of potential information technology or data security breaches; changes in government regulations or regulatory requirements; the inability to respond to secular trends 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 news release are made only as of the date of this release, and the Company is under no obligation to update these statements to reflect subsequent events or circumstances. All subsequent written and oral forward-looking statements attributed to the Company, or persons acting on its behalf, are qualified entirely by these cautionary statements. This presentation contains certain non- GAAP financial measures as that term is defined by the SEC. Non-GAAP financial measures are generally identified by "Adjusted" (Adj.) or "Non-GAAP."
Investor Presentation | | | 2 |
Company Overview
Powerful Investment Thesis
1 | 2 | 3 |
Leading with | Capitalizing | Leading |
innovative | on global | North American |
products | megatrends in a | water heater and |
that drive | large and growing | boiler producer |
technology and | market supported | with stable and |
meet | by regulatory | consistent |
sustainability | changes | replacement |
needs | demand |
4
Compelling
brand awareness
in emerging markets with attractive growth and margin expansion opportunities
5
Leveraging
strong balance
sheet for
organic
and inorganic growth while returning capital
to shareholders
Investor Presentation | | | 4 |
A. O. Smith Snapshot
Leveraging 150 Years of Innovation to Continue Delivering Growth
25% | Segment Revenue | Headquarters | Milwaukee, WI | ||
2023 Revenue ~$3.9B | |||||
North America | Global Employees | ~12,000 | |||
Rest of World | |||||
75% | Mfg. Facilities | 27 | |||
Products | Countries Served | ~80 | |||
• Water Heaters: Tank, Tankless, Heat Pump | |||||
• Boilers: Residential and Commercial | Sales CAGR1 | 4% | |||
• Water Treatment: Water Softeners and Filtration | EPS CAGR1 | 7% | |||
Leading Brands | Gross Margin | 39% | |||
Water | EBIT Margin | 19% | |||
Heaters | |||||
& Boilers | Avg. 5-year FCF | 104% | ||
Conversion | ||||
Water | ||||
Treatment | ||||
1 2018 - 2023 | Investor Presentation | | 5 |
Our Company Vision
Vision
To be the leading provider of innovative, highly efficient and differentiated solutions used to heat and treat water, creating exceptional long-term value for our global customers and stakeholders in a socially responsible manner.
Strategy
Deliver profitable growth by…
- Living our values
- Taking care of our customers
- Creating value through innovation
- Driving operational excellence
- Investing in our people
- Expanding geographically
- Enhancing our portfolio through strategic acquisitions
Investor Presentation | | | 6 |
Building on 150 Years of Innovation…
Foundation of Innovation | Expansion to Water | |
1874 - 1927 | 1927 - Today | |
1874 | 1948 | 2001 |
C.J. Smith and Sons machine shop founded in Milwaukee, WI
Entered market for coil-type instantaneous commercial water heaters
Acquired State Industries, nearly doubling water heater business and entering retail market segment
1904
A.O. Smith incorporated
1921
Developed world's 1st automated automobile frame assembly plant oil pipelines
1925
Introduced 1st high-pressure vessel used to refine oil
1927
Developed method of producing large-diameter steel line pipe, key in launching natural gas and transcontinental oil pipelines
1936
A. O. Smith patents the process of glass-lining a water heater tank. This concept became the standard of the industry.
1954
Introduced first glass-lined commercial water heater
1961
Opened first international water heater and boiler plant in Canada
1972
Water heater division opens its first European operation
1974
Introduction of Conservationist line of residential water heaters
1995
Entered China market with three joint ventures including residential water heaters
2006
Completed acquisition that added American, Whirlpool, GSW & John Wood brands
2008
Entered India water heater market
2011
Acquired Lochinvar, manufacturer of high efficiency condensing boilers
2016
Acquired Aquasana and entered the North America Water Treatment market
2021
Acquired Giant, a Canadian water heater manufacturer
Investor Presentation | | | 7 |
Delivering Long-term Outperformance and Value Creation
10-Year Performance
Market-cap | +$7.6B |
14.6% | |
A.O. Smith Annualized TSR1 | |
S&P 500 Annualized TSR1 | 12.7% |
+290.9%
+229.9%
+175.6%
2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | |||
AOS | S&P 500 | S&P 500 Industrials | |||||||||||
1 Includes dividends. As of 2/15/2024 Source FactSet | Investor Presentation | | 8 |
Strategy, Portfolio and Culture that Preceded Global Mega Trends
Energy Efficiency & Decarbonization
Clean Water
Rising Consumer Class in Emerging Markets
Global Investment in Clean Energy ($B)1
Sanitation & Drinking Water Index (0 - 100)2
GDP ($T)3
Share of Global GDP3,4
1,617
1,407
1,226 1,258
1,740
84 86
54
60
20
4.0% | 5.9% | 9.8% |
CAGR | CAGR | CAGR |
55.2
45.3
23.6
17.7 |
19% 20%
8%
15%
30%
10 |
3.7 | 5.9 |
21%
2019 | 2020 | 2021 | 2022 | 2023 | ||
Renewable Power | Energy Efficiency | Grids | ||||
Electric Vehicles | Other End Use | Nuclear | ||||
Battery Storage | Low-Emission Fuels & CCUS | |||||
US | China | India | ||
2012 | 2022 | |||
US + EU27 | China | India | |||
2023 | 2028 | ||||
2023 2050
China India US + EU27
- Global investment in clean energy and energy efficiency is growing
- Increasing energy intensity improvement is required to meet Net Zero goals
- Poor global water quality and increasing awareness of residential treatment systems
- Increased spending power in India and China drive demand
- COVID-19pandemic has driven a heightened focus on health and safety issues
- Emerging markets, including China and India, will dominate the world's top 10 economies by 2050, with realignment of global economic growth and activity from G7 to E7 economies
1 Source: | International Energy Agency (2023); | 2 Source: Yale Center for Environmental Law & Policy Environmental Performance Index (2022); | 3 Source: IMF (2023); | Investor Presentation | | | 9 |
4 Source: | PwC (2017). |
Our Core Business:
North America
Water Heaters & Boilers
- Largest manufacturer and marketer of water heaters and boilers with leading share in both residential and commercial markets
- Significant reoccurring replacement cycle: 80% to 85% of water heater and boiler sales
- Increased focus on energy efficiency and decarbonization provide additional growth opportunities in both boilers and water heaters
Stable and Profitable Core Business
Supports Growth Opportunities
Expanding Organic Growth in China
- A leading supplier of residential water heaters with 25+ years of experience
- Growing presence in water treatment (now ~35-40% of sales)
- Adding adjacent kitchen product business
- Focused on the long-term, supported by trends and innovation through connectivity
Laying the Groundwork in India
- Growing market due to large population with favorable demographics
- Driving growth through innovation, building awareness and expanded distribution
- Long-termgrowth supported by urbanization, decarbonization and growing demand for clean water
Invest and Grow Global Water Treatment
- Growing market with consolidation opportunities
- Omnichannel approach ensures broad market reach
- Global support through sustainability trend and quality of life issues
Investor Presentation | | 10 |
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Disclaimer
A.O. Smith Corporation published this content on 14 March 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 15 March 2024 12:13:15 UTC.
