- Company name
- A. O. Smith
- Sector
- Water heaters & boilers
- About
- A. O. Smith makes water heaters, boilers and water treatment products for homes and commercial buildings. North America is its largest segment, with $761.6 million of the $940.5 million of sales in Q3 2026. In North America, most sales are replacements of old water heaters, which home owners need when a unit fails, so demand is more stable than new construction. It sells through wholesale distributors and large retailers such as Lowe's. The Rest of World segment is mostly China, where it sells water heaters and water purifiers to consumers, and India. On October 27, 2026, A. O. Smith agreed to sell 81% of its China business to the investment firm CPE. It keeps 19% and licenses the A. O. Smith brand in China. Sales in 2025 were $3.83 billion. In January 2026, A. O. Smith bought Leonard Valve, a maker of water temperature control valves, for about $470 million in cash. It makes money from the margin between its prices and the cost of steel, parts and labor, and it raises prices when steel costs rise.
- Thesis
- A. O. Smith trades at a discount because its main market is weak and its costs rise. In North America, residential water heater volumes fell again in Q3 2026, and the company expects industry residential volumes to fall by a low single-digit percentage in 2026. Steel and freight costs rose, and the North America segment margin fell to 23.6% in Q3 2026 from 24.2% a year earlier. China was the second problem. Sales there fell 17% in local currency in Q3 2026, after a 28% fall in Q2. On October 27, 2026, the company agreed to sell 81% of the China business to CPE, at a value of about $400 million for the whole business before brand royalties. This removes most of the China risk, but it also makes A. O. Smith a smaller company that depends more on North America. Its 2026 guidance without China is adjusted EPS of $3.42 to $3.52, against $3.42 in 2025 on the same basis. For the gap to close, the North America water heater price increases must hold, residential volumes must stop falling, and the China sale must close in the first half of 2027 as planned, with the proceeds used for share buybacks. The next test is the full-year 2026 report and the first 2027 guidance without China, expected in late January 2027. The second test is the closing of the China sale. If prices hold and volumes stabilize, the gap can close over the next two to four quarters. The main risk is a longer fall in US housing activity and replacement demand.
- Risks
- Residential water heater demand in North America is weak. The company expects industry volumes to fall by a low single-digit percentage in 2026. If home owners delay replacements or buy cheaper units, volumes and margins fall.
China sales fell 28% in local currency in Q2 2026 and 17% in Q3 2026. A. O. Smith agreed on October 27, 2026 to sell 81% of the China business, with closing planned in the first half of 2027. The deal needs regulatory approvals and can bring charges. Until it closes, the China business stays in the results, and after it closes, A. O. Smith keeps a 19% stake that can lose value.
Steel cost about 20% more in Q2 2026 than a year earlier, and higher steel and freight costs cut the North America margin in Q3 2026. Tariffs add cost. A. O. Smith plans 4% to 7% price increases on North America water heaters. If competitors such as Rheem and Bradford White do not follow, A. O. Smith can lose share or margin.
Without China, A. O. Smith is a smaller company with about $3.3 billion of sales, and North America gives most of its earnings. A weak year in US water heaters will hit the whole company harder.
- Balance sheet
- Cash: $235M
Debt: $673M
Net debt: $438M
Interest cover: 22×
Debt due within 12 months: $41M
At September 30, 2026, A. O. Smith had $234.5 million of cash and no marketable securities. Debt was $673.1 million, of which $632.1 million was long-term. Most of the debt came from a term loan that paid for Leonard Valve in January 2026. Debt was 27.0% of total capital. Interest cover is earnings before interest and taxes of $502.3 million divided by interest expense of $22.9 million in the first nine months of 2026. Free cash flow was $396.2 million in the first nine months of 2026, up 4%. In that period, A. O. Smith bought back 4.2 million shares for $260.6 million, and it expects about $300 million of buybacks for all of 2026. The Board raised the quarterly dividend to $0.38 per share on October 12, 2026. The sale of 81% of the China business, planned to close in the first half of 2027, can bring cash proceeds and about $80 million of cash held in China, which the company plans to use mainly for buybacks.
As of Sep 30, 2026.
- Checkpoints
- Oct 29, 2026: Q3 2026 results: water heater prices and China. Failed. Watch: North America price increases that hold, unchanged 2026 adjusted EPS guidance of $3.70 to $3.85, and a decision on China pass; a cut to the guidance or a further large fall in China sales fails. Outcome: A. O. Smith agreed to sell 81% of its China business, but China sales fell another 17% in local currency, and the guidance without China of $3.42 to $3.52 is near the 2025 level.
Jan 29, 2027 (estimate): Full-year 2026 results and 2027 guidance without China. Pending. Watch: 2027 guidance with stable residential water heater volumes and higher North America margins passes; guidance for another year of lower volumes fails.
Q2 2027 (estimate): Closing of the China sale to CPE. Pending. Watch: Closing in the first half of 2027 with the proceeds used for share buybacks passes; a delay past mid-2027 or a failed regulatory approval fails.
- Recent events
- Oct 29, 2026: A. O. Smith reported Q3 2026 results. Sales were $940.5 million, flat, and diluted EPS was $0.93, down 1%. North America sales grew 3% to $761.6 million, with $15 million from Leonard Valve and 13% boiler growth, but residential water heater volumes fell. Rest of World sales fell 7%, and China sales fell 17% in local currency. The company changed its 2026 guidance to exclude China: sales of $3,270 million to $3,290 million and adjusted EPS of $3.42 to $3.52. It expects to report China as a discontinued operation from Q4 2026.
Oct 27, 2026: A. O. Smith agreed to sell 81% of its China business to CPE, an investment firm. The deal values the China business at about $400 million, free of cash and debt, and above $500 million with the brand royalties. A. O. Smith keeps 19%, licenses its brand in China for many decades and can bring back about $80 million of cash from China. It plans to use the after-tax proceeds mainly for share buybacks. The deal needs regulatory approvals and is to close in the first half of 2027.
Oct 12, 2026: The Board raised the quarterly dividend by about 6% to $0.38 per share, from $0.36.
Oct 2, 2026: A. O. Smith said that it will report Q3 2026 results on October 29, 2026, before the market opens, with a call at 10:00 a.m. Eastern time.
Jul 30, 2026: A. O. Smith reported Q2 2026 results. Sales were $1,004.3 million, down 1%. Adjusted EPS was $1.03, down 4%, and diluted EPS was $0.91, down 15%, after $22.6 million of restructuring and impairment charges in North America water treatment. North America sales grew 5% to $820.5 million, with $16 million from Leonard Valve. Rest of World sales fell 19%, and China sales fell 28% in local currency. The company narrowed its 2026 adjusted EPS guidance to $3.70 to $3.85, from $3.70 to $4.00, and raised its 2026 share buyback target to $300 million from $200 million.
Jun 22, 2026: A. O. Smith said that Executive Chairman Kevin Wheeler retires on July 1, 2026. The Board elected CEO Stephen Shafer as chairman.
Apr 30, 2026: A. O. Smith reported Q1 2026 results. Sales were $945.6 million, down 2%, and diluted EPS was $0.85, down 11%. China sales fell 17% in local currency. The company lowered the top of its 2026 sales growth guidance to 4% from 5%. The CEO said that actions in China wait for the end of the assessment of the business.