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. Record first quarter sales in the North America segment rose to $753 million, a 3% increase compared with the same period last year. The increase is primarily driven by higher commercial and residential water heater volumes, partially offset by pricing. North America segment earnings of $188.6 million increased 22% compared with the first quarter of 2022. Operating margin of 25.1% improved 400 basis points from the segment adjusted operating margin in the first quarter of last year. The higher segment earnings and operating margin are primarily due to higher volumes of commercial and residential water heaters and lower steel costs.
Moving to Slide eight. Rest of the World segment sales of $219.1 million decreased 14% year-over-year and 8% on a constant currency basis. Currency translation unfavorably impacted segment sales by approximately $17 million. Our sales decrease was primarily driven by lower sales in China as consumer demand was negatively impacted by COVID-19-related headwinds. We saw month-over-month improvement in consumer demand during the quarter. India sales grew 28% in local currency in the first quarter compared to 2022, as our new products have been well received by the market.
Rest of the World adjusted segment earnings of $17.8 million decreased 28% compared to segment earnings in 2022. Segment adjusted operating margin was 8.1%, a decrease of 160 basis points compared to the first quarter of last year, primarily as a result of lower volumes in China, partially offset by lower selling costs. Please turn to Slide nine. We generated free cash flow of $109 million in the first three months of 2023, higher than the same period in 2022, due to higher earnings and lower working capital outlays, primarily related to lower inventory levels and a lower 2022 incentive payments paid in 2023. Our cash balance totaled $496 million at the end of March, our net cash position was $155 million.
Our leverage ratio was 16% 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 cash to shareholders. Earlier this month, our Board approved our next quarterly dividend of $0.30 per share, which represents our 83rd consecutive year of dividend payments. We repurchased approximately 821,000 shares of common stock in the first quarter of 2023 for a total of $53 million. We expect to repurchase $300 million of our shares in 2023, a $100 million increase from previous guidance. Let's now 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 categories and geographies.
The strength of our balance sheet allows us to pursue strategic acquisitions even in times of economic uncertainty. During the quarter, we committed to selling our business in Turkey and recognized a non-cash impairment charge of $15.6 million. Primarily in anticipation of the liquidation of the cumulative foreign currency translation adjustment. The business model in Turkey is more project-based than our core consumer and commercial water treatment business and no longer fits our current strategy. Please turn to Slide 11 and our revised 2023 guidance and outlook. We've increased our 2023 outlook with an expected adjusted EPS range of $3.30 and $3.50 per share.
The midpoint of our adjusted EPS range represents an increase of 8% compared with 2022 adjusted EPS. Our outlook is based on a number of key assumptions, including -- we assume a relatively stable supply chain, while challenges persist, disruptions are limited. We remain in close contact with our suppliers and logistics providers to manage and resolve supply chain issues as they arise. We've increased our North American margin guidance from approximately 23% to a range of between 23% and 23.5%. Based on a full-year outlook on volumes and price cost relationship, we have recently seen a meaningful rise in steel index pricing, which will translate into higher input costs and relative to the first quarter, put pressure on North American margins in the back half of the year. We forecast that our steel cost 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 of steel remain relatively flat to our previous guidance, with favorable adjustments in our transportation cost outlook, offset by moderately higher costs outside of transportation. We expect to generate free cash flow of between $575 million and $625 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 as I noted earlier, we expect to repurchase approximately $300 million of shares of our stock, resulting in average outstanding diluted shares of $150 million at the end of 2023. I'll now turn the call back to Kevin, who will provide more color on our key markets and topline growth outlook and segment expectations for 2023, Staying on Slide 11. Kevin?
