September 21, 2023

A.O. Smith anticipating flat gross sales in 2023 with U.S. residential market down

The A.O. Smith headquarters in Milwaukee.

Milwaukee-based A.O. Smith Corp. is projecting its 2023 gross sales will probably be flat because it navigates an anticipated decline within the U.S. residential water heater market.

The corporate, which makes each residential and industrial water heaters together with water remedy merchandise, is coming off file gross sales of $3.75 billion in 2022, a rise of 6%.

Gross sales within the firm’s North American phase have been up 11% to $2.8 billion. Pricing actions added $370 million to gross sales for the 12 months and acquisitions added $103 million, however decrease volumes of residential water heaters have been a $184 million drag on gross sales.

Looking forward to 2023, A.O. Smith is projecting income to be in a variety from 3% down to three% up. The steering consists of an expectation for the U.S. residential water heater business to be down 2% to five%.

Round 15% to twenty% of North American residential water heater gross sales at A.O. Smith come from new development whereas 80% to 85% comes from substitute demand.

“Whereas we imagine that new dwelling development stays a deficit, we anticipate it will likely be a headwind in 2023,” mentioned Kevin Wheeler, chairman and chief government officer of A.O. Smith.

Regardless of considerations about new dwelling development, the corporate is seeing encouraging indicators within the substitute market. Chuck Lauber, chief monetary officer at A.O. Smith, mentioned proactive water heater replacements traditionally accounted for round 20% or 25% of the market. Lately, nonetheless, proactive replacements have been round 30% or 35%. The newest surveys have continued to point out proactive replacements at round 30%,

“We’re nonetheless projecting a reasonably sturdy proactive substitute portion of the substitute market,” Lauber mentioned.

Elsewhere in its North American enterprise, A.O. Smith is projecting boiler gross sales development of 10% to 12% and water remedy development of 5% to 7%.

One other potential space of development is in China, the place the corporate is anticipating 3% to five% development in native foreign money. Wheeler spoke positively concerning the likelihood for demand to return in China as the corporate emerges from its zero-COVID strategy, though it could take just a little bit to come back to fruition.

Executives additionally mentioned the corporate is sustaining an lively pipeline of potential acquisitions, though Wheeler famous the present atmosphere – marked by larger rates of interest and considerations a few potential recession – is “a bit unusual proper now.”

“There’s plenty of wait and see strategy on the market with I’d say targets,” Wheeler mentioned. “We’re going to remain near our potential targes and keep lively within the pipeline.”

He mentioned multiples could have ticked down barely however haven’t actually modified for potential offers.

“So far as actionability, it at all times depends upon the particular person saying ‘sure,” Wheeler mentioned, nothing there’s a must work by a number of the uncertainty available in the market.

“We take a look at this as a chance,” he mentioned. “Unsure occasions, with our steadiness sheet, may very well be some good alternatives.”