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 nine. We delivered record third quarter sales of $915 million, up 20% year-over-year, driven by continued strong demand and inflation-related pricing actions. These higher volumes led to third quarter net earnings of $132 million or $0.82 per share, which is a 25% increase compared with net earnings of $105 million or $0.65 per share in 2020. Please turn to slide 10. Sales in the North America segment rose to $658 million, a 21% increase compared to the third quarter of 2020. Pricing actions largely on water heaters represented approximately 80% of the increase. Higher volumes in water heaters and boilers were driven by strong replacement and new construction demand. The higher volumes of water treatment products added to segment growth also. North America segment earnings of $152 million increased 14% compared with the third quarter of 2020.
The earnings benefit of inflation-related price increases and higher volumes was offset somewhat by higher material and freight costs. Pricing actions led rapidly rising steel costs, which resulted in a lower segment operating margin of 23.1% compared with the third quarter of 2020 segment market. Moving to slide 11. Rest of the World segment sales of $263 million increased 19% year-over-year, approximately 60% of which was due to volume increases. Currency translation of China sales favorably impacted sales by approximately $14 million. Growth in each of our product categories in China contributed to local currency growth of 12% in the quarter, impacted largely by channel inventory changes, which remained at levels similar to the beginning of the year. Our products with higher selling prices, particularly our super-quiet gas tankless water heaters and water treatment products that deliver hot and ambient filtered water, contributed to sales gains.
India sales grew 38% in the quarter as the economy begin to regain its footing after the COVID-19 delta variant wave subsided in that region. Rest of the World earnings of $27 million increased 60% from the third quarter of 2020. In China, higher volumes were partially offset by employee incentive costs and higher advertising as well as an absence of social insurance waivers, which were received in 2020. Segment operating margin improved to 10% compared with the third quarter of 2020, primarily as a result of improved operating leverage from higher volumes. Please turn to slide 12. We generated strong free cash flow of $332 million during the first nine months, 13% higher than during the same period in 2020, partially impacted by a larger investment in working capital to support demand levels. Free cash flow conversion was 95%, slightly below our historical performance of a 100%.
Our cash balance totaled $685 million at the end of September, and our net cash position was $579 million. Our leverage ratio was 5.3% as measured by total debt to total capital at the end of September. Our free cash flow and solid balance sheet enables us to focus on capital allocation priorities and return cash to shareholders. Earlier this month, our Board approved an 8% increase in our quarterly dividend, which is now $0.28 per share. This marks the 30th consecutive year of dividend increases and is consistent with our capital deployment strategy to return value to shareholders through sustained and increasing dividend. Year-to-date through September 30, we repurchased approximately 3.2 million shares of common stock for a total of $212 million and have the ability to repurchase 5.4 million shares more on our current authorization. We took a pause in our measured stock repurchase pace in the third quarter as we enter the blackout period due to the acquisition of Giant.
We plan to resume our repurchase program in early November, targeting $400 million for a total share repurchase in 2021. Let's now turn to slide 13. In addition to returning capital to shareholders, we continue to target strategic acquisitions with a focus on water heating and water treating assets that we believe can return our cost of capital in three years. Giant is a great example. The purchase price of USD192 million represents a multiple of approximately 9.5 times projected 2023 adjusted EBITDA, and the acquisition returns our cost of capital in the second full year, this is inclusive of the present value of an expected tax benefit of approximately $6.5 million that will be realized by treating the transaction as a purchase of assets for tax purposes and projected operating synergies of approximately $5 million achieved over a two-year period.
We expect no impact to fourth quarter EPS due to customary purchase accounting adjustments and one-time transaction expenses. Purchase accounting headwinds are expected to run into the first quarter of 2022, as a result of Giant's conservative practice of carrying high levels of inventory, which are valued as of the acquisition date by marking the value to market. Giant's practice of carrying safety stock has served them well, especially during the current challenges within the supply chain and rapidly rising costs. We continue to finalize our purchase accounting and currently project the acquisition will add between $0.06 to $0.08 per share in 2022. Please turn to slide 14, at our updated full year 2021 outlook. We are now projecting full year sales to increase between 20% and 21% year-over-year. Based on this updated forecast and improved profitability, we are increasing our EPS range to between $2.86 and $2.90 per share.
The mid-point of that range represents an increase of 5% compared with our previous guidance. We expect cash flow from operations for the year to be between $550 million and $575 million compared with $560 million in 2020. For the year, capex should be between $70 million and $75 million, and we expect to generate strong free cash flow of approximately $490 million with an over 100% conversion rate. We continue to experience inflation across our supply chain, particularly steel and logistics. Steel indices have increased 100% since the beginning of the year. We announced a fifth price increase on water heaters to be effective November 15 at a rate of up to 8.5%. These 2021 price increases are projected to have a cumulative effect on water heating prices of approximately 50% when fully effective in late December of this year. Based on that, we are raising the lower end of our North America segment margin guidance to between 22.75% and 23% and an improvement from our previous outlook.
And Rest of the World segment margins to be approximately 8%, which is unchanged. Our updated outlook is based on key assumptions, including I've announced inflation-related price increases compounding to approximately 50% for water heaters as we exit 2021. Mid- to high single-digit inflation-related price increases in the remainder of our global portfolio. Strong demand in backlog in North America for all of our water heating product categories, driven by growth and replacement demand and new construction spending, along with the price increase announcements in our water heater and boiler end markets. No material changes -- and no material changes in the current macro environment. As for other housekeeping assumptions, corporate and other expenses are expected to be approximately $50 million, similar to 2020.
Our effective tax rate is estimated to be approximately 22%. Important to note, our effective tax rate of 20.9% in the third quarter was lower than the prior year as it was favorably impacted by approximately $4 million or $0.03 per share, relating to amending previously filed tax return along with the change in our geographic earnings mix. Finally, we expect to end the year at outstanding diluted shares of 161 million. I will now turn the call back to Kevin, who will provide more color on our top line growth outlook for 2021, which is on slide 15. Kevin?