A.O. Smith Corp (AOS) — Q1 2024 Earnings Call Transcript

Good morning, and welcome to the A. O. Smith First Quarter Conference Call. I'm Helen Gurholt, Vice President, Investor Relations and Financial Planning and Analysis. Joining me today are Kevin Wheeler, Chairman and Chief Executive Officer; and Chuck Lauber, Chief Financial Officer. In order to provide improved transparency into the operating results of our business, we provided non-GAAP measures. Free cash flow is defined as cash from operations less capital expenditures, adjusted earnings, adjusted earnings per share, adjusted segment earnings and adjusted corporate expenses exclude the impact of impairment expenses. Reconciliations from GAAP measures to non-GAAP measures are provided in the appendix at the end of this presentation and on our website. A friendly reminder that some of our comments and answers during this conference call will be forward-looking statements that are subject to risks that could cause actual results to be materially different. Those risks include matters that we described in this morning's press release, among others. Also, as a courtesy to others in the question queue, please limit yourself to one question and one follow-up per turn. If you have multiple questions, please rejoin the queue. We will be using slides as we move through today's call, you can access them on our website at investor.aosmith.com. I will now turn the call over to Kevin to begin our prepared remarks.

Thank you, Helen, and good morning, everyone. I'd like to start off by extending a warm welcome to Steve Shafer, who has recently joined A. O. Smith as our Chief Operating Officer. Steve is an accomplished business leader with deep global experience in manufacturing and leading innovative businesses. His strategic acumen and extensive global leadership experience will prove invaluable as we continue to focus on innovation and driving operational performance to enhance shareholder value. Let's now turn to the quarter on Slide 4. Our global A. O. Smith team delivered sales of $979 million in 2024 and EPS of $1, a 6% increase over 2023 adjusted EPS. North America sales increased 2% and segment margins increased 80 basis points due to a positive mix, higher commercial volumes and lower material costs principally steel. Our Rest of World segment, sales grew 4%, recently introduced products in China contributed to the majority of the growth. In India, our sales grew 16% in local currency in the first quarter of 2024. Please turn to Slide 5. North America water heater sales grew 2% in the first quarter due to higher commercial volumes and a positive mix towards commercial gas and high-efficiency products, including heat pumps. Volumes were favorably influenced by our price increase effective March 1. However, year-over-year comps were somewhat muted by a strong first quarter 2023. Our North America order sales were flat compared to the first quarter of 2023. As a reminder, we do not begin to see the effects of the 2023 channel inventory destocking until the second quarter of last year. We are pleased to see sales of our high-efficiency residential orders returned to more normalized levels in the first quarter of 2024. Sales of our CREST commercial boilers with Hellcat technology increased over 30% in the quarter. North America water treatment sales grew 4% in 2024, driven by acquisition-related sales growth and pricing. Organic growth in the e-commerce and specialty wholesale channels were offset by softness in the direct-to-consumer and retail channels. In China, first quarter third-party sales increased 6% in local currency. Our recently launched Kitchen products continue to be well received in the market and provide bundling opportunities that drive overall sales growth. Sales of HVAC systems which generally combine a combi boiler with the heat pump water heater increased 14% local currency in the quarter as well. I will now turn the call over to Chuck, who will provide more details on our first quarter performance.

Thank you, Kevin, and good morning, everyone. I'm on Slide 6. First quarter sales in the North America segment were $766 million, reflecting a 2% increase compared to 2023, driven by higher commercial volumes and a shift towards high-efficiency water heaters, including heat pumps. North America segment earnings reached $199 million, up 5% compared to 2023. The segment margin was 25.9%, an increase of 80 basis points year-over-year. The growth in earnings and margin was mainly due to a favorable product mix and reduced material costs, although this was partially offset by increased selling and advertising expenses to support higher sales. Moving to Slide 7, sales in the Rest of the World segment amounted to $227 million, a 4% increase year-over-year, including a negative currency translation effect of $9 million primarily linked to China. Third-party sales in the segment totaled $219 million, also increasing 4% in constant currency. This growth was largely due to higher sales of kitchen and HVAC products in China. In India, sales rose 16% in local currency during the quarter, with strong growth in both water heating and water treatment, particularly in our e-commerce and commercial markets. Rest of World segment earnings totaled $17 million, slightly lower than adjusted earnings from 2023 due to sales promotions related to new product launches and changes in product mix in China. The third-party segment operating margin was 7.9%, down 20 basis points compared to adjusted margins in 2023. Please move to Slide 8. We generated $85 million in free cash flow during the first three months of 2024, down from the same period last year, primarily due to higher incentive payments tied to record sales and profits last year and increased inventory levels, which offset higher earnings and lower accounts payable balances. Capital expenditures rose by $11 million year-over-year, driven by expansion projects. Our cash balance at the end of March was $303 million, and our net cash position was $183 million. Our leverage ratio stood at 6%, calculated as total debt to total capital. Now let’s look at Slide 9. In addition to returning capital to shareholders, we see ongoing opportunities for investment in organic growth, innovation, and new product development across our product lines and geographies. We aim for strategic acquisitions that meet our financial criteria, being accretive to earnings in the first year and generating returns on our cost of capital within three years. In the first quarter, we welcomed Impact Water Products to the A. O. Smith family, supporting our growth strategy by expanding our water treatment business presence on the West Coast. Please turn to Slide 10 for our 2024 earnings guidance and outlook. We reaffirm our 2024 EPS outlook, projecting a range of $3.90 to $4.15 per share. The midpoint represents a 6% increase compared to the 2023 adjusted EPS. This outlook is based on several key assumptions, including that our steel costs in 2024 will be a slight headwind compared to 2023. We anticipate a 20% increase in steel input costs in the second quarter compared to the first quarter. Our full-year projection also includes a slight decline in the steel price index in the second half of the year. We expect non-steel material costs to be similar in 2024 to those in 2023 and anticipate a relatively stable supply chain environment like what we experienced throughout 2023. Earlier this year, we launched our internally designed and manufactured gas tankless products, which will be produced in our China facility until our North America capacity is completed in 2025. Customer shipments are expected to begin later in the second quarter. Associated import tariffs and other launch costs will negatively impact North America margins by about 50 basis points upon shipment. We are also investing in manufacturing in Juarez, Mexico, which will eliminate the future tariff. For the year, capital expenditures are projected to range between $105 million and $115 million, representing an increase year-over-year due to capacity expansion projects for our gas tankless manufacturing facility in Juarez, enhancements to our engineering capabilities in Lebanon, Tennessee, and increased capacity for high-efficiency commercial water heating to comply with regulatory changes anticipated for 2026. We expect to generate strong free cash flow between $525 million and $575 million, with corporate and other expenses estimated at around $65 million. Our effective tax rate is expected to be between 24% and 24.5%, and we continue to anticipate repurchasing approximately $300 million of our stock, resulting in approximately 147 million outstanding diluted shares by year-end. I will now turn the call back over to Kevin, who will elaborate on key markets, top-line growth outlook, and segment expectations for 2024, staying on Slide 13.

Thank you, Chuck. We reaffirm our outlook that 2024 sales will grow between 3% and 5% compared to 2023, which includes the following assumptions. We maintain our projection that 2024 U.S. residential industry unit volumes will be approximately flat to last year after seeing a 6% growth in 2023. Our assumption projects that new home construction and proactive replacement remain at levels similar to last year. Our projection that U.S. commercial water heater industry volumes will increase low single digits in 2024 is unchanged. Our outlook includes the announced price increases in North America water heating of 4% on most of our water heater products. The price increase for heat pump products is 8%. Our April orders are strong year-over-year as a result of resilient demand in our management of prebuy orders. In China, we believe that the economy and consumer confidence remains weak. The real estate and housing markets are challenged. We have not seen signs of improvement. Through March and April, we have seen headwinds in consumer demand. Given the continued weak economy and the softness we are seeing, we are lowering our 2024 third-party sales growth guidance in China to be flat to 3% up in local currency. Our forecast assumes a negative currency translation impact of approximately 1% for the year. We ended the second quarter with a strong backlog in our boiler business and reaffirm that we expect boiler sales to grow between 8% and 10% over last year. We are revising our sales growth guidance for North America water treatment products from an increase of 10% to 12% to an increase of 8% to 10%. This reduction reflects the softness we are experiencing in our direct-to-consumer business, the average order price in our retail channel, particularly for water softeners. Based on our 2024 assumptions, we expect our North America segment margin to be approximately 25% and Rest of World third-party segment margin to be approximately 10%. Please turn to Slide 11. We are pleased with our performance in early 2024. We had year-over-year growth in residential and commercial water heaters, along with a strong mix in the first quarter and we are pleased with our order rates we are seeing this month. India is on track for another year of projected double-digit sales growth. During the quarter, we initiated three capital expansion projects that will add capacity for key product categories in North America. First, we broke ground on our tankless manufacturing facility in Juarez, which is on the same campus as our current residential water heater facility. Production in Juarez will improve logistics as well as eliminate the tariff on products currently manufactured in our China facility. Production is targeted to begin in 2025. In addition, we launched our high-efficiency commercial gas water heater expansion in McBee, South Carolina. This expansion will increase our production capacity for our high-efficiency products, including our market-leading Cyclone product. As a reminder, Department of Energy regulatory changes largely impact commercial gas water heater efficiency levels and will eliminate lower efficiency products from the market beginning in late 2026. Finally, in support of our R&D and product innovation within our commercial water heater and boiler markets, we have initiated the expansion of our Lebanon, Tennessee commercial lab and engineering test facility. The state-of-the-art facility will combine our commercial water heating engineering expertise under one roof and allow for cross-functional collaboration, particularly with mutual technologies like heat pumps. We are in the early stages of all three projects, but we're off to a very good start. As always, we remain focused on meeting the needs of our customers as well as executing our key strategic priorities to advance our position as a leader in heating and treating water around the world. With that, we conclude our prepared remarks, and we are now available for your questions.

This is James on for Saree. So I wanted to ask about the first quarter water heater demand. So January and February shipments came in higher than your full year expectation. So can you kind of talk about what you saw from the water heater demand in the first quarter and potentially into April?

Yes. Certainly, if you saw January and February AHRI data, and that was up, and a portion of that was really due to a prebuy based on our price increase. We expect and see March coming in at a more normalized level and starting to get back to our forecast of a flat 2024 on the residential side of the business. We entered April with a really strong backlog, and we'll be working that down in the second quarter. It kind of behaved like we thought. We thought the 4% was probably would not have as much of a prebuy as it did, but it did. And we're working through that. We feel we got our fair share of orders from our customers. And again, in the second quarter, we'll work down that backlog and we remain on track, and it really ties right into our forecast and our - where we expect the year to end.

Got it. And I wanted to touch on the margin here. So I think you're now looking for North America segment margin to come in at a higher end of the range while like maintaining the steel cost expectation. So can you kind of provide more color on increasing your margin expectation for North America?

Yes. I mean we had previously guided to $24.5 to 25%. Now we're saying approximately 25%. We're very pleased with our North America margin performance in the first quarter, which came in nicely, helped a bit by mix. We had some weather situations in January, and the plants performed very well coming through that. So as we kind of look at the top end of that range and moved it slightly up, it's just some confidence in kind of the way the operations are running. We have pricing coming in, in the April time frame with steel costs going up. So there's a bit of pressure in the back half. But the way we started out and kind of looking through the full year and considering some of the launch costs that we know will be coming at us in the later part of the year with tankless, we feel pretty comfortable with moving closer to 25%.

Just want to clarify what you're talking to right there, Chuck. When you said pressure in the back half, you mean pressure sequentially versus front half, not year-over-year?

Correct. Sequentially. We're thinking about North America margins, our lowest steel costs that we project for the year is in Q1. So we'll see some pressure on steel in the back three quarters of the year quite actually. And then just relative to the first quarter, a little bit of pressure as we're excited to launch our tankless product. But for the time being, until we get production up running in Mexico, it's going to be a bit of a headwind to North America margins of about 50 basis points.

So what you're essentially suggesting then is 1Q might be the high watermark? 2Q is still decent. Well, they're all decent margins regardless. And then back half just down a touch from front half, right?

Right. 25.9% in Q1 and then we're saying about 25% for the year.

My first question is, considering the level of pull forward you mentioned in the first quarter on the residential side, how would you describe channel inventories as we enter the second quarter? Do you have any insights on that?

Yes. I will tell you, based on the feedback that we have from our distributors, one, our distributors are all doing pretty well to even to slightly up. Inventories are basically in line. There's going to be some pull forward, but they'll work that off in the second quarter. So things overall are pretty positive with our distributors. I wouldn't say crazy positive, but certainly, they're starting the year off in a more positive sales kind of mode. And I don't think this whole pull forward, this is not a unique thing in our industry. We've gone through it many times with our distributors. It was right in line what we thought, we see that being worked up in the second quarter.

Yes. I'll just add that some of the pull forward was within the quarter. You saw the strong data that came out on AHRI through February. For us, we saw a bit of moderation in March as we kind of work through that price increase.

Okay. All right. That's helpful. And then maybe turning to commercial. You highlighted that as a bright spot in the quarter. Just any further color on what drove that strength that you're seeing and the sustainability of it as we go into the spring and the summer?

I think there are a few key points about the commercial sector. First, there was some prebuy activity as well. When we look back to last year, much of the growth in the commercial market was driven by sales of electric products over 55 gallons. This quarter, we noticed a mid-single-digit increase in commercial gas, which was a pleasant surprise. While we don't attribute all of that to prebuying, we anticipate overall industry growth to remain in the low single-digit range, predominantly in the electric category. We are optimistic that our commercial gas segment will also contribute to this growth. Looking ahead, we feel positive about aligning with that low single-digit growth rate for the commercial market throughout the year.

A couple of questions, and I apologize if you touched on this. But just with respect to China, in the 0% to 3% constant currency growth expected. Can you kind of touch on your main product categories, water heaters, water treatment, some of the newer products, kitchen and HVAC relative to that 0% to 3%, how do you see those product groupings positioned, if you will?

Yes. So we did lower our guidance a bit. We were saying 3% to 5%. And last year, we grew at 3% to 5%, Matt. And some of that is kind of what we've seen in demand through the first 4 months of the year. We've seen a bit of pressure on our core products as we've come in through the end of April. We've seen a bit of slowness in the market with core products. The newer products, the kitchen products that we've launched year-over-year certainly, we launched this at the end of last year. So they continue to be well received. It's just early on in that process. So seeing a little bit of pressure on the order rates through April.

In the first quarter, we experienced significant promotions, particularly in March. We took a selective and targeted approach to our marketing strategy, treating our premium brand accordingly. This contributed to some softness in our water heating and water treatment product areas. While we are not overly concerned, there are a couple of key factors to consider moving forward. Consumer sentiment has not rebounded, and the challenges in the real estate market persist. Therefore, we have adjusted our outlook based on current observations. In China, conditions can change swiftly, but we remain optimistic about maintaining a flat to upward market. We believe we are capturing a fair share of our product categories and are cautious in our promotional spending. We will continue to monitor our expenses to ensure a balance between sales and profitability in our China operations.

Got it. And then as a follow-up, still sticking with China, what's your assessment of channel inventories in China? And then can you remind us how much of your China business today you feel is driven by replacement versus new?

Yes, channel inventory is currently normalized and within a typical range. We're estimating that replacement business in the water heating segment is around 50% to 60%. This replacement business provides a buffer that helps maintain our volume in China.

So just some clarifications here. Did you quantify or can you quantify how much you think was pulled forward 2Q to 1Q from the prebuy? And then just this 50 basis point headwind from shipping product, is that kind of a full year impact? And when do you think that the plant opens and what happens to that headwind once you get the plant open in Juarez?

Yes. I mean, that 50 basis points is a full year impact. It's kind of on an annualized basis. And production is scheduled mid-2025 roughly. We've broken ground. We've made good progress. We'll give updates as we go, but we're pleased with the start of the construction of the facility in Juarez. The quantification of the pull forward in Q1, it's always a little bit difficult to estimate that. It wasn't a huge price increase, 4%, did drive some volume. Clearly, we saw that in the data through February. We felt a bit of relief of that volume in March. Order rates are still strong through April. We do have a backlog, though, as we exit the quarter. So it doesn't impact our full year outlook, not a significant amount. We don't believe in the quarter, but there was some.

Maybe just to make a comment on this. We also limit the amount of prebuy that we have with our price increases. We realized that people are going to try to pull forward a bit. But it's going to be less than 30 days. And again, it's really difficult because business has been pretty good going through the first quarter. How much was prebuy, how much was just the need for the market. And I think it's going to wash itself out as we go into the next month or so. And that's why we've kept our flat U.S. residential industry volumes and where they're at. We don't think the prebuy is going to change our outlook at all.

Okay. And then just on the high mix product shift, how much of that is kind of being driven by clarification or support from IRA and then how sustainable do you think this kind of mix shift is?

The mix shift is distinct from our gas business, where we've consistently been a leader in efficiency. As customers upgrade from older, less efficient products to newer, more efficient ones, this trend continues. Rebates for heat pumps are important, particularly in certain regions like the West Coast and parts of the East. There are various programs in place, especially with regulatory changes expected by 2029. We have seen annual increases of 20%, 30%, and even 40% in heat pump sales for the past three years, and we anticipate this growth will continue at a rate of 20% to 25% as we approach 2029. This is not a one-time occurrence; it represents ongoing growth that we expect to see over the next few years.

I wanted to understand maybe ask the prebuy question a little bit differently. We're all looking at the AHRI data, and obviously, February was quite strong. Are you suggesting that March, that we're going to see numbers of March down less than February was up, and then that works then into April numbers being down? Because you said 30 days, I'm not sure if I followed that.

We limit prebuys to 30 days, but that doesn't mean everyone will pull in orders within that timeframe. As we look ahead to March, we anticipate it will start to normalize. The prebuy took place in February, which garnered a lot of attention. As for March, the year-over-year increase will likely decrease to a more normalized level. A prebuy is essentially pulling forward some orders, but it doesn't always indicate that there are additional orders out there. As we enter the quarter, some shipments have already been sent out, and a bit more will probably be shipped in Q2. Overall, we expect to return to normalized volumes. There is no indication that the 7% figure will maintain, nor do we expect it to negatively impact the second quarter or the rest of the year. We're looking at a steady figure of 9.2 million units a year based on our current understanding.

Yes. And I'll just add we've seen orders in April pretty strong on a relative basis. So we haven't seen a drop in that, Scott. So along with kind of managing, as Kevin said, the orders and then pushing some out and extending a bit of our lead times to manage the order rate. We've also seen decent order rates through April. So we feel pretty good about going into the second quarter.

Got it. I guess really my other question was a very simple one housekeeper. The boiler business. Could you tell us how that did in the quarter and what that backlog looks like?

Yes, it was flat for the quarter. So if you recall last year, we had a pretty decent first quarter in boilers and then we really got a bit of a comp headwind on channel inventories coming down. We had worked down our backlog quite a bit in 2022. So we saw some challenges in boilers last year. So we've got easier comps as we go forward. We feel good about the 8% to 10% growth rate. Our third quarter is typically highest in boilers. And the backlog is strong, it's strong. It's a bit stronger than it was last year. And relative to other years, we feel relatively strong going into the second quarter in both commercial and residential.

Can you give us more color into what you're seeing in Rest of World margins? Margin is usually, I think, seasonally weak in Q1, maybe slightly weaker than I thought. Did you just have higher advertising expense or something like that? And then you did keep your Rest of World margin the same for the year despite the slightly lower sales growth in China. So it looks like you still feel good about that. Anything you're doing to make sure that margins stay up at those levels?

Yes. Sure, Andrew. I mean, first quarter is always a challenge for us in China on margins. It's usually our lowest margin quarter. And as you know, Rest of the World is largely China. So it wasn't out of line with what we expected for the first quarter. We haven't changed our full year outlook. You're right. We did lower our top line guide a bit. But the team in China has done a great job of taking a look at SG&A being more flexible, more variable on those costs and we have confidence that the team, even with a little lower volume is going to continue to manage the bottom line. So yes, a little bit of a headwind on the top line. First quarter is always a challenge, but we still feel good about that range for the full year.

Great. And then just on North American water treatment, you did lower your forecast a little there. I think it was on the direct-to-consumer side that you said a little bit more weakness. Maybe just talk about visibility into sort of that end market, it does tend to be a bit fragmented, how our inventories on the channel side and just more elaboration around visibility would be helpful.

Yes, the market is certainly fragmented as we operate in five different channels, which affects our visibility. However, we've observed two main trends. On the consumer demand side, there is a slight decline in average pricing as customers have become more price-conscious. Additionally, our sales in water softeners haven't returned to the levels we anticipated, likely because it's often considered a discretionary purchase that people can postpone. Despite this, there’s nothing fundamentally wrong with the channels; consumers are just being more cautious with their discretionary spending. Overall, we remain optimistic about the business, projecting an 8% to 10% growth. We’re also excited about a recent acquisition that expands our presence in California. While each channel has its unique challenges, there are positive developments happening in our North American water treatment business.

I appreciate all the color on the AHRI data and some of this monthly choppiness around distributor inventories. I was hoping maybe you could just give us an update on your perception of proactive replacement. Is that still around 30%? Or have you seen any changes there versus where you were exiting 2023?

No. It's interesting, we watch that really closely because coming out, it's been elevated, and it's kind of normalized right now at that 30% level. We check it every quarter, and it's still holding up in that percentage. So no change. And with that, of course, our merchant replacement always remains consistent. And we also like what we're seeing in the new construction side, particularly on single-family housing. So overall, I think the consumer and kind of the components of how our units and volumes are made up are pretty consistent and have been that way for now for several, several months.

Interesting. Good to hear. And then I have a follow-up question for you on North American tankless. Obviously, exciting, you're going to start shipping that product in the second quarter. I think you've been soliciting orders maybe since late last year. Any chance you can give us a sense on the level of orders that you've already been able to line up for that product? And how are you thinking about the potential sales impact for this year on that new product?

Well, one, we're really excited about the tankless technology and so forth. And yes, we do have prebuy orders already in-house and so forth. As we look out on our tankless, we've kind of modeled an additional kind of $15 million to $20 million of incremental growth throughout the year as we launch this new product and bring it to market. And that will come in phases. The convincing pre-mix is our high-end really premium product. That's what we're going to be launching next month. But we also have two other product lines that will be phased in the back half of the year. So excited about it, excited to own the technology and being able to go to market with what we believe is a very competitive and compelling product line, and we haven't had that for another year. So that's kind of where we're at and look forward to sharing more of that as we get into the rest of the year.

This is Adam Farley on for Nathan. I wanted a follow-up on the commentary around kitchen products in China. Just wondering if you could provide any detail on the percentage of revenue these products account for and maybe where you expect kitchen products in China to go over time?

Yes. So this is Chuck. Kitchen products are still a very, very small part of our business in China. If you kind of look at the full year, it's around 5%. And I include in that range hoods, dishwashers, cook tops and steam oven. So you lump those altogether, it's still a very small part of kind of our revenue in China. It's an important part though of our strategy and having products that are in or around the kitchen that we can bundle, link together through AI Link, and give our distributors a more value-oriented package to sell to consumers. So a small part of our business but fits very well into our strategy.

And are these products accretive to Rest of World segment margins?

There is a little pressure on the Rest of the World segment margins. We're launching them. We've mentioned in some of our prepared remarks that we've got some cost and promotions behind them. We do appreciate the fact that launching into them and being a little bit of a headwind to average margins that they provide opportunities for us for top line stability and growth as we bundle products and go to market that way.

I want to start off by asking about the commercial business. And have you rolled out the 2-step pricing model yet? And if so, can you talk about the level of acceptance that you're seeing and just the initial impact on the business?

I'm assuming you are referring to the two-step pricing model we discussed during Investor Day. It's currently being rolled out, and we've conducted several pilots. We are continuing to implement it with various customers. Right now, we are still in the early phases, but the value proposition is exceptional. We can convert a few models into 25 different products almost instantly. This approach helps reduce the inventory that ties up capital, and more importantly, it increases our availability, allowing us to serve our customers much better. We will keep rolling this out. While it may not be suitable for every program, it offers significant benefits for our larger stocking commercial accounts, setting us apart in the market. We are very pleased with the reception, and customers appear to be satisfied as well. We will continue to make the most of this with the right customers.

Right. It's still early. Okay. Got that. And then I want to follow up and just ask you a little more on the steel pricing. And I appreciate that a portion of this is indexed to what you're selling the product for. But thinking about the residual steel risk exposure, price risk exposure. How much variability is there still remaining this year in kind of your steel forecast? You talked about 2Q being up 20% versus 1Q and then you gave some general commentary about the second half. But I'm just wondering how much variability or uncertainty remains in that outlook?

Yes. I mean we've talked about kind of the lag that we see. So we've got visibility looking forward in kind of a 90- to a 120-day time frame. So you kind of look from April, we can see forward through that amount of time. So really, fourth quarter is the biggest risk or opportunity for changes in index in steel as we kind of look forward to the rest of the year. So we've got a decent amount of the year covered from visibility.

Thank you, everyone, for joining us today. Let me conclude by reminding you that our global A. O. Smith team delivered strong sales and earnings in the first quarter. We look forward to updating you on our progress in the quarters to come. In addition, please mark your calendars to join our presentations at four conferences this quarter: Oppenheimer on May 6, KeyBanc on May 29, William Blair on June 4 and Wells Fargo on June 12. Thank you, and enjoy the rest of your day.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.