Charles T. Lauber
Executive Vice President and Chief Financial Officer at A. O. Smith
Thank you, Kevin, and good morning, everyone. I'm on slide seven. Third quarter sales in the North America segment were $710 million, a 9% increase over the same period last year. The increase was primarily driven by higher residential water heater volumes that were partially offset by lower boiler volumes. North America segment earnings of $170 million increased 28% compared with the adjusted segment earnings in the third quarter of 2022. Operating margin of 23.9% improved 350 basis points compared to adjusted segment operating margin in the third quarter of last year. The higher segment earnings and operating margin were primarily due to higher residential water heater volumes and lower steel costs, partially offset by lower boiler volumes. Segment pricing was relatively flat in the quarter compared to last year. Moving on to slide eight. Rest of the World segment sales of $233 million, increased 1% year-over-year and 6% on a constant currency basis. Currency translation unfavorably impacted segment sales by approximately $11 million. Sales of newly introduced kitchen appliance products, higher commercial water treatment sales and a positive mix in China, drove the sales increase in the quarter. India sales grew 13% in local currency in the third quarter compared to last year. Rest of the World segment earnings of $23 million increased 6% compared to segment earnings in the third quarter of 2022. Segment operating margin was 9.9%, an increase of 40 basis points compared to the same period last year, primarily as a result of higher sales of new products and a positive mix. Please turn to slide nine.
We generated free cash flow of $396 million in the first nine months of 2023, more than 2 times the free cash flow generated in the same period last year. This was largely 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 $342 million at the end of September, and our net cash position was $212 million. Our leverage ratio was 6.4%, as measured by total debt to total capital. Our 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 a 7% increase to our quarterly dividend to $0.32 per share. We repurchased 2.4 million shares of common stock in the first nine months of 2023 for a total of $161 million. We expect to repurchase $300 million of our shares for the full year 2023. Let's now turn to slide 10. In addition to returning capital to shareholders, we continue to see opportunities for organic growth through innovation and new product development across all of our product lines and geographies. The strength of our balance sheet also allows us to pursue strategic acquisitions along with organic growth. Please turn to slide 11 and our revised 2023 earnings guidance and outlook. We have increased our 2023 outlook with an expected adjusted earnings per share range of $3.70 to $3.80 per share.
The midpoint of our adjusted earnings per share range represents an increase of 19% compared with 2022 adjusted EPS. Our outlook is based on a number of key assumptions, which include a stable supply chain with limited disruption. We have increased our North America full year margin guidance to be approximately 25% based on our full year outlook on volumes and price cost relationship. We forecast that our Q4 material costs will be similar to our Q3 material costs. Our Rest of the World margin guidance of approximately 10% remains unchanged. We expect to generate strong free cash flow of between $575 million and $600 million. For the year, capex should be approximately $65 million, corporate and other expenses are expected to be approximately $60 million. Our effective tax rate is estimated to be approximately 24%. And with the expectation to repurchase approximately $300 million of shares of our stock, the resulting average outstanding diluted shares is expected to be 151 million at the end of 2023. I'll now turn the call back over to Kevin, who will provide more color on our key markets, top line growth outlook and segment expectations for 2023, staying on slide 11.
