Charles T. Lauber
Executive Vice President & Chief Financial Officer at A. O. Smith
Thank you, Kevin, and good morning, everyone.
I'm on Slide 6. Full year sales in the North America segment rose to $2.9 billion, a 4% increase compared with 2022. Higher volumes of water heaters were partially offset by lower sales of boilers and pricing. North America segment earnings of $726 million increased 19% compared with 2022. Adjusted segment margin was 24.8%, an increase of 310 basis points year-over-year. The higher adjusted segment earnings and adjusted segment margin were primarily driven by higher water heater volumes and lower material costs.
Moving to Slide 7. Rest of the World segment sales of $957 million decreased 1% year-over-year, including unfavorable currency translation of $44 million, primarily related to China. Segment sales increased 4% on a constant currency basis. Our sales increase was primarily driven by higher sales of kitchen products and water treatment products in China. India sales grew 15% in local currency in 2023, which is approximately 3 times the market. Rest of the World segment earnings of $99 million increased 3% compared to segment earnings in 2022, primarily due to higher sales in China. Adjusted segment operating margin was 10.4%, an increase of 40 basis points compared to 2022.
Please turn to Slide 8. Turning to fourth quarter performance, we delivered sales of $988 million in the fourth quarter of 2023, an increase of 6% year-over-year, led by higher water heater volumes in North America and higher kitchen product sales in China that more than offset lower boiler sales and pricing. Adjusted earnings in the fourth quarter were $0.97 per share compared with adjusted earnings of $0.86 per share in the fourth quarter of 2022.
Please turn to Slide 9. Fourth quarter sales in the North America segment were $738 million, a 7% increase compared to sales in the fourth quarter of 2022 as a result of higher water heating volumes partially offset by lower boiler sales. North America segment adjusted earnings of $173 million increased 8% compared to 2022. Adjusted operating margin of 23.5% increased 20 basis points compared to last year. The higher adjusted segment earnings and adjusted segment margin were primarily due to higher water heater volumes.
Moving on to Slide 10. Fourth quarter Rest of the World segment sales of $260 million increased 4% year-over-year primarily driven by sales of new products, partially offset by unfavorable currency translation of $3 million in China. India sales grew 11% in local currency in 2023 compared to 2022. Rest of the World adjusted segment earnings of $30 million decreased 6% compared to Q4 2022 segment earnings. And adjusted segment margin of 11.5% decreased 120 basis points compared to segment margin in the same period last year. The decreases were primarily due to promotions and advertising supporting the launch of our dishwasher and steam oven products in China.
Please turn to Slide 11. We generated free cash flow of $598 million during 2023, an increase of 86% over 2022 primarily driven by higher earnings and lower working capital means. 2023 free cash flow conversion was 107%. Our cash balance totaled $363 million at the end of December and our net cash position was $236 million. Our leverage ratio was 6.5% as measured by total debt to total capital.
Now I'll turn to Slide 12. As we detailed at our Investor Day, in addition to returning capital to shareholders, we continue to see opportunities for organic growth, innovation and new product development across all of our product lines and geographies. We target strategic acquisitions that meet our financial metrics of accretive to earnings in the first year and return our cost of capital in 3 years. The strength of our balance sheet allows us to continue to invest in ourselves through research and development and capital expansion, while pursuing strategic acquisitions. Earlier this month, our Board approved our next quarterly dividend of $0.32 per share. We have increased our dividend for over 30 consecutive years. We repurchased approximately 4.4 million shares of common stock in 2023 for a total of $307 million. We continue our strong track record of delivering return to shareholders. Over the last 2 years, we have returned over $1 billion to shareholders through our dividends and share repurchases.
Please turn to Slide 13 and our 2024 earnings guidance and outlook. We are pleased to introduce our 2024 outlook with an expected EPS range of $3.90 and $4.15 per share. The midpoint of our EPS range represents an increase of 6% compared with 2023 adjusted EPS. Our outlook is based on a number of key assumptions, including our guidance assumes that steel prices in 2024 will be a slight headwind compared to 2023. Relative to current steel prices, our projection includes a decline in steel price index in the second half of the year. Our outlook assumes non-steel material costs are similar in 2024 as they were in 2023. Our guidance also assumes a relatively stable supply chain environment, similar to what we experienced throughout 2023.
We are monitoring the situation in the Red Sea and Panama Canal currently have not experienced any negative impacts. We launched our internally designed and manufactured gas tankless products earlier this month. As we mentioned at our Investor Day, these products will be manufactured in our China facility until our North America capacity is completed in 2025. Associated import tariffs and other launch costs will impact North America margins by approximately 50 basis points. We are investing in manufacturing in Juarez, Mexico, that would eliminate the tariff in the future.
For the year, capex should be between $105 million to $115 million, an increase over the last several years due to capacity expansion projects related to our gas tankless manufacturing facility in Juarez, the expansion of our engineering capabilities in Lebanon, Tennessee, and an increase in high-efficiency commercial water heating manufacturing capacity to align with regulatory changes coming in 2026. We expect to generate strong free cash flow of between $525 million and $575 million.
Corporate and other expenses are expected to be approximately $60 million. Our effective tax rate is estimated to be between 24% and 24.5%. And we expect to repurchase $300 million of shares of our stock, resulting in our outstanding diluted shares of 147 million at the end of 2024.
I'll now turn the call back over to Kevin, who will provide more color on our key markets and top line growth outlook and segment expectations for 2024, staying on Slide 13. Kevin?
