Chuck Lauber
Chief Financial Officer at A. O. Smith
Thank you, Kevin, and good morning, everyone.
I am on slide seven. Second quarter sales in the North America segment were $722 million, a 3% decline from the same period last year. The decrease is primarily driven by higher commercial and residential water heater volumes that were more than offset by lower boiler sales and pricing. Lower volumes contributed to approximately one-half of the organic growth decline. North America adjusted segment earnings of $194 million increased 19% compared with the second quarter of 2022.
Adjusted operating margin of 26.9% improved 510 basis points from the segment adjusted operating margin in the second quarter of last year. The higher segment earnings and operating margins were primarily due to lower steel costs and higher volumes of commercial and residential water heaters, partially offset by lower boiler volumes.
Moving to slide eight. Rest of the World segment sales of $244 million increased 6% year-over-year, and 12% on a constant currency basis. Currency translation unfavorably impacted segment sales by approximately $14 million. Our sales increase was primarily driven by higher consumer demand and favorable mix in China particularly for residential and commercial water treatment products. India sales grew 15% in local currency in the second quarter compared to last year. Rest of the World segment earnings of $28 million increased 56% compared to segment earnings in 2022. Segment operating margin was 11.6%, an increase of 370 basis points compared to the second quarter of last year. Primarily as a result of higher volumes of water treatment products and positive mix.
Please turn to slide nine. We generated free cash flow of $236 million in the first half of 2023, higher than the first half of 2022 due to higher earnings and lower working capital cash outlays, primarily related to lower inventory levels and lower 2022 incentive payments paid in 2023. Our cash balance totaled $410 million at the end of June, and our net cash position was $204 million. Our leverage ratio was 9.8% as measured by total debt to total capital. Our strong annual free cash flow and solid balance sheet enable us to focus on capital allocation priorities and return of cash to shareholders. Earlier this month, our Board approved our next quarterly dividend of $0.30 per share. We repurchased approximately 175,000 shares of common stock in the first half 2023 for a total of $70 million. We are committed to repurchasing $300 million of our shares for the full year of 2023.
Now I will turn to slide 10. In addition to returning capital to shareholders, we continue to see opportunities for organic growth driven by innovation and new product development across all of our product lines and geographies. We believe that our technology leadership and culture of innovation puts us in a strong position to capitalize on the megatrends of decarbonization and sustainability. The strength of our balance sheet also allows us to pursue strategic acquisitions as we grow organically.
Please turn to slide 11. In our revised 2023 earnings guidance and outlook, we have increased our 2023 outlook with an expected adjusted EPS range of $3.45 and $3.60 per share. The midpoint of our adjusted EPS range represents an increase of 12% compared with 2022 adjusted EPS. Our outlook is based on a number of key assumptions including, our outlook assumes relatively stable supply chain with limited disruption. We remain in close contact with our suppliers and logistics providers to manage and resolve supply chain issues as they arise.
We have increased our North America full year margin guidance to a range of between 24% and 24.25% based on our full year outlook, volumes and price cost relationship. We will have higher steel costs in the back half of the year, which will put some pressure on North American margins. We forecast that steel costs in the second half of the year will be approximately 20% higher than the first half of the year. Our guidance assumes that other costs outside steel remain at current levels.
Our Rest of the World margin guidance of approximately 10% remains unchanged. We expect to generate free cash flow of between $550 million and $600 million. For the year capex should be between $70 million and $75 million. Corporate and other expenses are expected to be approximately $55 million. Our effective tax rate is estimated to be approximately 24% and we expect to repurchase approximately $300 million of shares of our stock resulting in an average outstanding diluted shares of $151 million at the end of 2023.
I will now turn the call back over to Kevin who will provide more color on our key markets and topline growth outlook for 2023, all staying on slide 11. Kevin?
