Q2 2021 A O Smith Corp Earnings Call
[music].
Good day and thank you for standing by welcome to the second quarter 2021, a O Smith earnings call at this time, all participants on a listen only mode.
After the speaker presentation, there will be a question and answer session.
To ask a question during this session and you need to press star 1 on your telephone. Please be advised that today's conference is being recorded if.
If you require any further assistance please press star zero.
I would now like to hand, the conference over to your speaker today Ms. Patricia Ackerman. Thank you. Please go ahead ma'am.
Good morning, ladies and.
Gentlemen, and welcome to the a O Smith second quarter results conference call and I am Pat Ackerman Senior Vice President of Investor Relations corporate responsibility and sustainability and a treasurer. Joining me today are Kevin Wheeler, Chairman and Chief Executive Officer, and Chuck Lauber, Chief Financial Officer.
Before we begin with Kevin's remarks, I would like to remind to remind you that some of the comments that will be made during this conference call, including answers to your questions will constitute forward looking statements.
These forward looking statements are subject to risks that could cause actual results to be materially different.
Risks include among others matters that we have described in this morning's press release.
Also as a courtesy to others and a question queue. Please limit yourself to 1 question and 1 follow up per turn if you have multiple questions. Please rejoin the queue.
I will now turn the call over to Kevin.
We will begin our prepared remarks on slide 3.
Thank you Pat and good morning, everybody, our global Aon Smith team delivered second quarter EPS of <unk> 73.
On a 30% increase of sales demonstrating solid execution and operational agility, despite supply chain and logistic challenges.
Those along with rapidly rising material costs.
I am thankful for my fellow a O Smith employees, who tirelessly navigated through the pandemic.
Paul by weather related production disruptions and.
A continued to navigate supply chain constraints.
And I appreciate the creativity and a collaboration of our team to find.
And just as a keep our customers supplied with water heating and water treatment products.
Boiler sales grew 35% driven by strong demand as a result of completed projects carried over from 2020 as well as an active education and market for.
For reference our boiler sales were down 15%.
<unk> second quarter of 2020, which was negatively impacted by the pandemic and.
North America water treatment grew 17% driven by continued consumer demand for home improvement products, which provide safe drinking water and the whole.
Our water quality of dealers performed particularly well in the quarter and online.
Online promotional shopping days also boosted sales.
Consistent with our strategy to build out distribution for North America water treatment, we acquired master of water conditioning Corp.
The acquisition of supplements our presence in the northeast and we are excited to add expertise and local water condition and solutions and.
And this region to our family.
Our North America water treatment sales, including this acquisition are expected to be over $200 million and 2021.
Our volumes of U S take residential water meters increased and the second quarter.
We believe the strong demand is a continued result of extended lead times caused.
Caused by production constraints due to strength and the supply chain finding.
And finally in advance of price increases and incremental new home construction.
After a weather related disruptions and production, which we talked about on our first quarter call. We have seen month over month sequential improvement and certain of our suppliers recently noted.
And a moderation of demand and supply imbalances.
But we remain village and <unk>.
As the imbalances are spotting.
And we expect supply chain challenges to be with us through the remainder of the year.
And response to continued material and logistic cost increases, we recently announced.
A for price increase of between 10 and 12% effective August 1.
And China sales increased over 26% and local currency driven by growth and each of our major product categories, including electric and gas tankless water heaters and water treatment products, including commercial and replacement filters.
I will now turn the call over to Chuck who will provide more details on the second quarter beginning on slide 4 thank you Kevin.
Record second quarter sales of $860 million increased 30% compared with 2020, which was negatively impacted by the pandemic.
Second quarter net earnings.
<unk> increased 74% to a $118 million of <unk> 73 per share compared with $68 million or <unk> 42 per share and 2020.
Please turn to slide 5.
Sales and the North America segment of $604 million increased 26% compared with.
And quarter of 2020, driven by higher volumes of water heaters boilers, and water treatment products and inflation related price increases.
Rest of the World segment sales of $263 million increased 39% from the second quarter of 2020.
Growth in each of our major product categories.
And China contributed to local currency growth of 26% in the quarter.
Currency translation of China sales favorably impacted sales by approximately $20 million.
India sales more than doubled and the second quarter. Despite the recent search and cases of the virus and that region.
North.
The <unk> segment earnings of a $142 million increased 34% compared with a second quarter of 2020, the impact to earnings from higher volumes and inflation related price increases was partially offset by higher material and freight costs.
As a result of these factors segment operating margin.
And of 23, 5% improved compared with the second quarter of 2020 segment margin of 21, 9%.
Rest of the World segment earnings of $22 million increased significantly compared with a loss of $5.8 million and the second quarter of 2020, which was negatively impacted by shutdowns.
<unk> and reduced consumer spending resulting from the pandemic.
And China higher volumes and lower selling and administrative costs were partially offset by the absence of social insurance flavors, which were received in 2020.
As a result segment operating margin of 8.5% improved from a negative 3%.
<unk> and the second quarter of 2020.
Our corporate expenses of $12 million were higher than last year, largely due to management incentives.
Our effective tax rate of 21, 9% was essentially the same as last year.
Let's turn to slide 7.
Cash provided.
The operations of a $196 million during the first half was higher than during the first half of 2020 higher earnings in 2021 compared with the prior year were partially offset by a larger investment and working capital during the first half of 2021 compared with the same period and 2020.
Our cash balances totaled $582 million at the end of June and our net cash position was $476 million our leverage ratio was 5.5% as measured by total debt to a total capital at the end of June.
Through June 30, we repurchased approximately 3 million shares of common stock for a total.
<unk> added about a 198 million balance.
Please turn to slide 8.
We upgraded our 2021 EPS guidance. This morning, with a range of between $2.70, and $2.76 per share the midpoint of our range represents an increase of 5% compared with a prior quarter.
For full year guidance.
We expect cash flow from operations and 2021 to be between $500 million and.
$525 million compared with $560 million and 2020.
We expect higher earnings in 2021 will be more than offset by higher investments and working capital than in the prior year.
Total our 2021 capital spending plans are between 85% and $90 million and our.
<unk> and amortization expenses expected to be approximately 80 million balance.
Our corporate and other expenses are expected to be approximately $50 million similar to 2020.
Our effective tax rate as of.
Assumed to be approximately 22% and 2021.
Average outstanding diluted shares of a 160 million and assume $400 million worth of shares repurchase in 2021.
I will now turn the call over to Kevin who will summarize our guidance assumptions beginning on slide.
Slide 9.
Kevin.
Our businesses continue to navigate through supply chain and logistics challenges.
That being said, we raised our 2021 top line growth expectation and now project an increase of between 17, and 18% driven by strong demand and price increases implemented in response to rising material.
Transportation costs.
Our revenue outlook for 2021 includes the following assumptions.
With 7 months of visibility, we've upgraded our U S residential water heater industry volume forecast to increase of approximately 3% compared with last year.
We expect continued resilient replacement.
Demand and growth and new home construction.
With our fourth price increase and the market and continued consumer demand, we no longer believe there'll be channel inventory destocking and the back half of the year.
We expect commercial industry water heater volumes will increase approximately 2% as pandemic impacted businesses reopen.
Open and new construction and replacement installations come back online.
We believe the demand we saw on the last few months was partially driven by a pre buy activity in advance of the price increases.
And China. It is encouraging to see sales of our products continued to remain strong our.
Our strategy to continue to expand.
Infusion to tier 4 through 6 cities is on track.
We see improvement and consumer trends towards.
Towards trading up for a higher price products across all of our product categories, driven by differentiated new products launched and the last 12 months to 24 months.
We expect year over year increases and local currency sales.
Between 20, and 22% and China.
We assume China currency rates will remain at current levels, adding approximately $51 million and $4 million for sales and profit over the prior year respectively.
Boiler sales grew 24% and the first half of 2021 the.
For comparison will be tougher and the back half of.
And discharge and we expect boiler sales will grow by a low double digits for the full year compared with last year.
We project, 13% to 14% full year sales growth and North America water treatment.
We believe the mega trends of healthy and safe drinking water as well as reduction of single use plastic bottles will continue to drive.
Consumer demand for our point of views and point of entry water treatment system.
We project margin in this business to grow by a 100 basis points above and nearly 10% achieved in 2020.
We continue to experience deflation across our supply channel, particularly steel and logistic costs steel.
Steel and <unk>.
Increased 23% since our third water heater price increase became effective on June 1 we.
We announced a fourth price increase in late June on water use effective August 1 at a rate between 10 and 12%.
Yeah.
We expect North America segment margin to be between 23, and 3 quarter and 23%.
Rest of World segment margins to be approximately 8%.
And our procurement and operations teams face continued challenges and the second quarter.
And while we expect continued headwinds and supply chain and logistics throughout the remainder of the year.
These challenges are moderating and I am <unk>.
Confidence and our team to continue to navigate through this.
Of this difficult environment.
That concludes our prepared remarks, and we're now available for your questions.
As a reminder to ask a question you will need to press star 1 on your telephone.
I had a question press the pound key please standby, while we compile the Q&A roster.
Your first question comes from the line of Bryan Blair with Oppenheimer.
Thanks, Good morning, everyone. Good morning, good morning, Brian.
Momentum and Youre boiler sales and is very encouraging you called out a strong trends and education vertical I was wondering if there's any concern about the sustainability of.
Project activity there.
And the counter our read on the incremental funding that's coming through just looking at the 12% growth and Q1 mid thirty's lift for Q2 the.
Full year guide implies quite a bit of a moderation in the back half.
Well I think.
We had a very strong first half of the year on and again.
And as we mentioned a back half of it.
Get a bit tougher comp.
There is always challenges with COVID-19, and the variance out there and of course of labor and so forth.
Overall again job activity has remained healthy.
Recent nonresidential Abi data was.
Sales in June I think 50.750.
And our July heavy of a solid July so.
We.
We don't see really anything that becoming an issue, but again in this environment, there's always things that could pop up and it can be a bit spotty for us yes.
I guess, the only other thing I would add.
Part of it was an easy comp in Q2 last year and we did do a residential and early buy program that we pushed back because of the pandemic last year into Q3 that got pulled into Q2, which is normal thats. The normal cadence of when we do that and that helped that helped a little bit on the volume.
And I appreciate the color there.
Does that clarify and does the the outlook for 13, and 14% North American water treatment growth and include master of winter contribution.
No that's organic growth of 13% to 14%.
So we.
We frame kind of a north America water treatment of at around $200 million I think before we were.
And to call about approaching $200 million, so with the acquisition and a half year, it's just over $200 million.
Excellent and anything you can offer on.
Margin contribution from that business and.
Even more importantly.
Additional color on and what the asset adds 2 technology.
And footprint channel presence and you mentioned.
And your expanding into the northeast, which which is important but any other color you can offer on strategic impact of would be great. Yes.
Yes.
I'll take the strategic impact of it.
This is part of our strategy to improve our footprint across North America and buildup that distribute.
<unk>.
The water quality dealer is a bit different and see our wholesale business advised truckloads of 200 water heaters that on a regular basis.
A lot of our a water quality dealers will buy palette for maybe a couple of pellet flow of product, it's really important.
And that we have these distribution points and and this is a start with matched a water.
And so that we can improve our service levels.
Delivering 24 hours of a smaller clients and do them in and effective and productive way. So this is an important first step in kind of building out that framework that we need.
To be successful and the water quality side of our business.
Very helpful. Thank you.
Your next question comes from the line of Scott Graham from Rosenblatt Securities.
Hey, good morning, all nice print and good.
And so.
And a couple of questions hopefully you can answer them all.
I know of.
Each of the price increases.
Did you say that you're trending.
Toward the middle and higher end of the range that you've given in the past.
I guess, Scott just kind of look at a floor together and when we accumulate the for and get to the fourth quarter of a fourth 1 will be effective will start seeing that and the fourth quarter and worried about a 40% increase.
Increase price increase on the water heating side.
Okay.
Thank you and then are we looking at similar type of price increases for boilers.
Not not a similar.
Boilers are for the most part a a lot.
And of our projects for our quoted.
And.
We are taking steps to adjust our our quotes to adjust for the cost. So we have taken steps, but it's not as formal.
As a residential has been a commercial business, but we are taking steps and quite frankly, we're taking steps across globally of <unk>.
And all of our businesses to adjust for the equation.
<unk> costs that we.
<unk> been impacted by a continued to be impacted volume.
And let me, let me just add a little color to the water heating side because of that 40% of specific to water heating and.
You know steel is a major part of of water heating costs for us theres other other costs, including freight and foam and.
And so forth, but still is the largest part so when we when we kind of look at the cadence of the cost for the year. When we can for the fourth quarter, we're going to be and we have good visibility into the fourth quarter because as you know we've got 90 to 100 day visibility for were down on what we're going to be paying for steel or cost Q4 year over.
And it's going to be 2 and a half to 3 times higher on just feel alone. So I just wanted to kind of frame that the other other businesses outside of water heating certainly have seen some cost increases and we've got price increases at various points, but certainly the water heater side bears the brunt of that steel increase.
Your next question comes from the line of Ethan Binder with Citi.
Hi, Good morning, Thank you for taking my question.
Good morning.
So Q1 had weather issues and Ashland and Juarez on top of supply chain constraints, which limited and North America water heater production.
<unk> and supply chain constraints lingering into Q2, how much of a production levels improved and can you quantify the percent utilization within North America water heater production capacity during the quarter.
No.
And not specifics that I always tell you that we had month on month improvement.
And again, we have.
Terrific suppliers that are also working very hard to raise their capacity and the important note is we believe that's going to carry on into Q3 and into Q4. So.
And we certainly have plenty of demand or orders are marrying the industry. It's just a matter of us.
And being able to work those overtime.
And of Saturdays and and we've been.
And a bit constrained with some of the.
A supply chain issues, and we talked about and of course, there's court issues there.
Trucking issues that we're working through.
But the takeaway is that.
It's a sequential improvement and that should carry over into the back half of the year.
Thank you that's helpful.
And 2020 of the cadence of social insurance was heaviest in Q2, and Q3 and understanding that keeps you on Q4 is normally the highest margin quarter for the rest of World segment and last year was 11, 2% margin with minimal impact from social insurance, where does that potential factors that could keep margin down.
<unk> per year.
Yes. This is Chuck I mean, it's really mostly volume.
And we really had a strong Q4 last year and that volume really matters on the incremental base base of the business. It really perhaps nicely to the bottom line. So last year, we had a very strong fourth quarter and.
And we called it out on our call.
Last year and it could have been some pent up demand from the pandemic not exactly sure all of the drivers, but that's probably the major difference there was some social insurance last year and I want to say that.
<unk> like you said, it's probably $12 million for the year and the bulk of that fell into Q2, and Q3, and we will see a similar similar of a headwind in Q3.
And that we saw on Q2.
Yes.
Your next question comes from the line of Damian Karas from UBS.
Hi, Good morning, everyone. Good morning, Hey, good morning.
So for any notable change in your view on the water heater.
Market shipments.
From down 2% now up 3% for the year I was just wondering if you could elaborate on your earlier comments about the inventory destocking youre, not expecting net anymore and and really just a.
Yes elaborate on what's changed since last quarter.
Well.
I'll start with that and Chuck and Jim.
And we don't move our forecast very optimist.
Some clear line of sight, what's really changed is is 1 we didn't plan on floor price increases this year and thats.
That makes a big difference and pre buys and by a buy ahead and quite frankly, the market has been continues to be stronger than we anticipate.
And new home construction continues to do very well so as we were.
Putting.
This all together and you come into the second half of the year. Those are there's been multiple changes that have changed our opinion for this year to move it up that 3%.
Yes.
We are.
Correct inventories to come down based on the order rate that we've seen.
When we looked at a full year outlook for the industry. I mean last year was basically a record year of residential water heaters and to be 3% up over a record years pretty meaningful.
But when we kind of look at the first half of the year and then look at the second half of the year here.
Storage flee those volume percentage is kind of break down 52% and the first half of the year, 48% and the back half of a year.
So last year it was exactly opposite.
It was 48% because of all of the headwinds that the industry had and production in Q2, but it was 48% front.
And for <unk>.
52% back half and.
And when we looked at the full year, we went back to kind of a normal cadence too. So we looked at that and said, let's go back to that $52.48.
Thinking about what what kind of demand, we're seeing and again with for price increases, it's a little bit difficult to read out for a total demand but.
And being and decided to go up 3%.
Half of the assumption of inventories would not would not decrease.
Okay, great that makes sense.
And then I was curious.
If you've seen any market share jostling going on just as a result of the current environment and with the supply chain issues and.
Yes, some of the capacity constrain.
Percent Lou and the other <unk>.
Letters of yours and had to deal with.
Maybe you could just talk about kind of.
And that the 3 of channels and at the regional level if theres.
What's happening with market share.
Well youre right market share is a bit messy right now because of a different price increases and the support.
Apply chain.
Yes, I would tell you right now at a O Smith is lagging a bit.
Not because we don't have the orders that <unk> and <unk>.
And not because our customers we have a solid customer base with no change there, it's really been just more of a.
Various constraints on what we can produce out of our factories.
Of course, it and we mentioned and the first called the Gulf for US did not help.
But when it's all said and done with no major changes and customers.
And we'll get our fair share of orders that over time. This is probably of all going to work itself out but right now a O Smith is lagging a bit and we anticipate that we will.
<unk> and <unk>.
Minimized by the kind of a get through the rest of the year.
Your next question comes from the line of Matt Summerville with D. A Davidson.
Thanks, a couple of questions first on China, I was hoping you could comment on what sell in versus sell through looks.
And how you're feeling about your inventory position there.
Sure sure.
We feel very very good about our inventory position there.
Felt good about it a year ago and it's it's.
Significantly improved its at its lowest point and 5 years and I would say that its probably its.
It's a fresh.
<unk> been so we're in a great inventory position and the channel and China.
Let me help frame kind of the the sales growth for the quarter. So we're up 28, 26% and.
Inorganic.
Local currency.
But if you kind of take a look at that last year, we did have some headwind.
And on channel inventories coming down when we look at sellout and demand for this quarter.
We're probably up about mid single digits, we're right in that range and.
And it's across our whole portfolio of products. So we're pleased with a 26% growth and you've got a recall last year, China came out of the pandemic.
Earlier than North America got got into it and it came out of it a little sooner, but that was a quarter that was building from April may and June so.
Mid single digits up for the quarter and we kind of of when we think about the rest of the year, we're kind of looking at something roughly in that same range.
Back half of the year.
And then just sticking with with China can you speak to kind of I'm thinking about the pricing spectrum right and how things trended a few years ago kind of a up isn't that high and then things trended more into the mid price point range where are.
Relative to historical peak and maybe the recent trough there with respect to your product set and realization there.
Let me just frame it kind of quarter over quarter comparison, because it is very similar to where we've been in the last couple of quarters I would say.
What we've seen is a little bit of improvement.
And through that higher in price and the gas tankless and on electric heating and on water treatment and it's roughly the same so it.
Hasnt changed a great deal, we see some indications of the higher and look.
On a premium part of the market growing but we have not seen.
A great deal of change.
<unk> and pleased though that we've seen a little bit of movement on the gas tankless.
Your next question comes from a line of Marine Alright, <unk> with Jefferies.
Good morning, good morning.
Was that originally talked about some inventory coming out of a channel this year and now with residential.
And so heaters and could see a 3% you are no longer talking about that so just how are you thinking about ending inventories for the industry and then how does that set up for demand in 2022.
Alright, you're talking North America.
North America residential.
And again, we'll have to see how things.
And there is still 5 months left and the year and so.
No.
We've raised it as we've talked about and we'll have to get a a better view as the next few months.
Opinion on how and how we're producing how people are consuming how the economy is doing it's hard to look into 2022.
<unk> and July right now and so we'll look at a closer we'll talk more as we get closer to the end of the year.
But right now as we said demand is up and Theres a lot of <unk>.
Good momentum and new construction and so that plays well for the balance of the year.
<unk>.
Got it and so with higher North America volumes have you seen implemented a number of price increases the margin expectations are a little bit lower so how are you.
And thinking about Matthew price cost and the second half of a year.
And anything about margin improvement of 2 Michael. Thank you just as some of these costs hopefully from less of a headwind.
And I mean.
Since our first price increase was announced in November of last year, we have just seen costs continue to rise.
Every price increase that we've launched into the marketplace has been consistently followed by higher steel costs and higher costs. So.
We as we go into the back half of this year and get to the.
The fourth quarter, where a fourth price increase starts coming into the market and we start seeing a we're basically matching costs. So we're not covering our margin and the fourth quarter and thats a bit of a headwind that we see and the back half.
It's too early for us to be kind of speculating I think on 2020, 2 and what we're going to see on costs certainly.
Yet seen these types of cost increases and the market.
But but it's hard to speculate how long they'll be there whether they'll come back out.
Obviously, there's a lot of discussion on transitory inflation, but.
We're not yet ready to kind of predict and we're going to see any relief.
Your next question comes from the line of David Macgregor with Longbow Research.
Okay.
And your prepared remarks, you talked about water treatment and seeing more promotional days and so I wonder if we could just circle back to that for a moment and just talk about the extent to which youre seeing.
And maybe a little more of a way.
We have expectations from some of your channel partners with respect to your level of promotional channel support.
I would tell you our promotional channels data, we talked about were pretty much normal.
And there wasn't a increase of it but a pretty effective and water treatment.
Our.
Close rates have been high as people continue to look at water treatment as a health issue and for their family.
But.
I don't want to mislead and those were normal base of just performed at a higher level for us and I think it comes down for the whole Mega trend that we're seeing with water quality and and the safety part of that continues.
And a continued into the second quarter.
Water treatment.
Formed well, a 17% increase quarter over quarter, but I just wanted to remind remind us that last year and grew by 19%. So as a part of our business last year that actually grew in 2020 and Q2 and grew again this year, so pretty resilient and still.
Performing well.
And how much of what we're a watershed, but how much of that growth would be attributed to expanded distribution as opposed to just a greater pool.
That's a.
That's why we probably can't give you any specific Ark, if you breakdown of our business it has to do with.
We have a direct to consumer of which of course, that's that's just an ongoing business we are a marketplace.
Got a fairly nice job of expanding our dealer network and give you specifics, but that area and I called it out in a remarks has grown substantially and doing a really nice job and has a nice backlog but.
Can't give you specifics about really the number of new dealers, but going in the right direction and performing very very well.
Your next question comes from the line of Nathan Jones with Stifel.
Good morning, everyone. Good morning.
Nathan.
I wanted to follow up on the channel inventory to beat a dead horse here.
Had expected a day stuck in the second half of your now not expecting a day stuck in a second half can you talk about the inputs that go into that in terms of are you expecting high demand customers ordering ahead of pricing.
The increases and because of supply chain challenges and do you think the channel inventory and a year at an appropriate level or under or overstocked.
You've framed the pieces for us.
A bit I mean, there is higher demand on the price increase for sure.
And that always is there and we manage we manage that working with our customers.
<unk>.
The constraints, we see on supply chain I think encourage people to make sure they have product on hand.
This will be our projection of on 3% up will be a another record year back to back.
And where we ended up on the channel inventory I think is a little hard to say and I think and it will play out a bit on what.
And it happens in new construction and what we see as.
As far as the supply chain and getting a little more normal.
Fair enough and then just a follow up on India, you said it doubled year over year, obviously, India has had issues with kind of it can you tell a can you just give us a number of relative to where it was in 2019.
2019, I mean zero.
Gosh I don't have that in front of US right now I'd say I'm pretty confident that it's higher than 2019, but I do want a frame it a bit because typically you know 35% to 40% of our sales are in Q4.
But we're really pleased with how the team has performed for the quarter and a real in a re.
Environment, which obviously the add on to it EMEA, India with Savage by Covid.
And our team.
Did what they needed to do to protect our employees, but more importantly, really developed a strong relationship on the online segment of the business, which helped drive.
Some of the sales we're talking about.
And even in the pandemic we introduced.
New products, both and water treatment and and water for you that has done exceptionally well so.
Recall that out because.
Quite frankly, it's.
It's a phenomenal job by a team.
That really had.
Severe headwinds throughout the second quarter.
Tufting throughout the first part of the year and we're looking for the back half of again, a bit better and and again as Chuck said Thats, where we get about 50 percentage of our sales sales last for months.
Your next question comes from the line of Susan Mcclary with Goldman Sachs.
Thank you good morning, everyone. Good.
Good morning, Susan and my first question is around the <unk>.
And the boiler business you know you guided or you held your guide of of a low double digit increase this year.
And yet you said you saw the sales of about 35% in a quarter can you just talk to how you're thinking about the back half of this year of some of the orders that are coming through and how we should.
Quarter about that deceleration on a relative basis that youre expecting and there.
Again, as we've talked about the back half is a.
A more difficult comp.
And.
And as we look forward, we talked about bringing forward. The early volume, which was a record of early buy for us from.
From the from the third quarter. So there is there's a few items that.
And.
Or a headwind as we get into the second half of the year. So that's the primary reason behind it order bookings are good.
Sales seems to be pretty healthy with regards to.
Our quoting activity.
Be thinking of but when we put the numbers together and chuckled, maybe elaborate on them a bit more.
And that's how we feel that it's going to it's going to play out for the second half of the year.
Yes.
And the only thing I would add is.
And trying to think about kind of a benchmark for 2019 and I believe when you kind of a look at 2019 were up.
High single digits compared to 2019, we're just confirm and that number just to help kind of frame, where we are because 2020 had quite a bit of disruption in Q2. There is a lot of jobs and they were closed and a lot of lot of production that will be a disruptive so.
And we're trying to help us for 2019 framing and raw.
Roughly.
It's up it's up about 6% for 2019.
Okay, Okay got it.
That's helpful and I guess building on that too can you talk a little bit about what youre seeing on a commercial water heater side that had obviously been a bit weaker compared to boilers.
And.
Updates on how that's trending and you know obviously the comps are a bit easier and the back half of how should we be thinking about it for.
Commercial water heaters.
When you reopen the economy.
And we've seen.
I think we've talked about this and the past we do have some Iot on on our water heaters and we can see how it.
It's being used and so forth, it's not a broad view, but its a snapshot and.
And we're just seeing activity grow we're seeing and our restaurants open up we're seeing people invest back in their business. So overall, it's nice to see the economy with a commercial side of the business.
Starting to reopen and get back to and we're.
We're not theory of that back to a kind of a normal replacement cycle and maintenance cycles. So.
That's where we raised our guidance of a couple of points and it's based on those.
Early trends continuing into the back half of the year.
Your next question comes from the line of Scott Graham.
With Rosenblatt Securities.
Yes, hi, good morning on thanks for taking my follow up here it seems forgotten.
Cutoff on us.
And the Middle of my next question for you, but I may be just wanted to go back for the pricing on geis and I have a tracked with August for.
For price increases this year I don't quite recall the amount of the 1 from last year and November can you remind me of that 1.
I think it was approaching 10%.
All 3 together, we've been kind of accumulating them and as we go a long.
That will take.
A quick look here.
The first 1 of those roughly that amount I believe yes, Scott I would tell you that's a long time ago well for you.
And we look back at it because.
And we've been chasing these costs for a while.
Okay and so the other question I had was you know Kevin around your comments with the supply.
Train and I know that water heater volumes were up but I am assuming they were up.
Sort of.
Double digit and.
The reason I'm asking that is that you know the.
First 2 months of the quarter trade data.
And there's sort of upped.
And.
Over 20% and how that's only the first 2 months, but it.
Would just seem like that should be a.
Did you keep pace with the industry and.
And the second quarter, I guess would be the simple question.
No.
As I mentioned, we lagged a bit as the industry.
<unk> and you look at the industry is up through me.
11, and 12% total.
And quite a bit of a thats been driven by price increases and those type of activities along with a new construction and so forth. So we have been lagging.
And and again, it's our order entry.
<unk> is right in line with the industry, However, and again some of the constraints that we've talked about as a cost a few issues for us.
But again I look and this will be a great operating people and in the back half of the year, we're up to work through that and.
But I wanted to make sure you understand where we were and where we're going in and we.
We don't see fundamentally anything.
And again with regards to our customers of our market share as we finally get through this.
These difficult times and and.
Finish of 2021, and Scott just a follow up that first price increase was up 2.9% so pretty pretty close of that and then I mentioned, but up to 9 as what we went out with.
And your final question comes from the line of Kevin <unk> with North.
Accounts.
Hey, good morning, everybody.
Wondering if Bob.
To that point on on the supply chain issues expectation of 3% volume growth for the year do you think.
With all of the actions Youre taking.
And things like that things.
And things are getting better do you think youll be able to grow in line with the industry and maybe make up for that in the back half of the year or does that perhaps defer some shipments for you guys to 2022.
I would tell you of our expectation is to certainly give up of the industry and the close that gap by year and again.
The orders are there, it's just a matter and our customers are just a matter of.
Working like I said I go back to work and those 9 hours worked and the occasional Saturday to close that gap and thats going to be all predicated on our supply chain, which again and I've talked to many of our key suppliers.
They're all getting better at it and they're all coming online.
And it sounded a bit more and we're anticipating that's going to carryover to the back half of the year and we'll be able to ramp up production at a much higher rates and we had and the first half.
Okay, Great and then.
On the water heater side. So if you back if I back into the numbers. It seems like water heater sales probably grew 25.
5.6% and that in.
And the second quarter. So I'm wondering if you can just is that.
Thank you historically give price volume or anything but is that mostly price or fairly split between price volume and and I think you guys made a comment that 40% pricing will be.
And kind of once every.
<unk> and the fourth quarter that'll be what pricing is so does that mean, we should be thinking water heater.
Price water heater sales up 40% and the fourth quarter of plus or minus whatever.
Volume expectation is.
Yes, let me let me just go back to kind of the price and volume.
That kind of Q2 and.
And we typically don't but I think it's very helpful and the environment that we and that we gave a little more data. So in Q2, when we kind of look at the amount that we were up in North America I'll frame as North America.
40% of that roughly was price and the rest was basically volume.
Of course, the bulk of it was volume, but there was a percentage.
For about 40% of that increase that was price.
On the fourth quarter.
Could you could you frame that again kind of a fourth quarter question Blake.
Yes, I think I think you mentioned that.
Just for modeling purposes, and I think you had mentioned that when all for price increases.
And in fact, it would be 40% cumulative so does that mean that that water heater.
A portion of North America sales should be up 40% in the fourth quarter and once all of those are implemented plus or minus whatever we think of volume and mix of dose.
And that's roughly right I mean, the fourth price increase comes into the fourth quarter and.
It's early on and the fourth quarter, but.
That's a good way to look at it yes, I would say plus or minus though.
There's going to be some drag probably with a.
That price net of the fourth quarter.
Okay. Okay, all right. Thank you very much.
There are no further questions at this time I would like to turn the call back.
All of Us and Ms Patricia Ackerman.
Thank you for joining us today, we plan to participate and 2 virtual conferences and the third quarter Jefferies on audit third next week and D. A Davidson on September 22nd have a great day.
This concludes today's conference call you may now disconnect.
[music].
[music].
[music].
And.
[music].
[music].