AOS changes

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View the full Oct 31, 2026 version

Price: $59.34 → $64.61(+8.9%)
Next earnings: Oct 29, 2026 → Jan 29, 2027
Next earnings is estimate: No → Yes
About: A. O. Smith makes water heaters, boilers and water treatment products for homes and commercial buildings. North America is its largest segment, with removed: $820.5 added: $761.6 million of the removed: $1,004.3 added: $940.5 million of sales in removed: Q2 added: 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. added: 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 removed: both of its removed: markets are added: main market is weak removed: at the same time. added: and its costs rise. In North America, residential water heater removed: demand is weak, added: volumes fell again in Q3 2026, and the company expects industry residential removed: water heater volumes to fall by a low single-digit percentage in 2026. removed: In China, sales added: Steel and freight costs rose, and the North America segment margin fell removed: 28% added: to 23.6% in added: Q3 2026 from 24.2% a year earlier. China was the second problem. Sales there fell 17% in local currency in removed: Q2 2026 on weak consumer demand, and added: Q3 2026, after a 28% fall in Q2. On October 27, 2026, the company removed: has assessed options for this business since added: agreed to sell 81% of the removed: third quarter added: China business to CPE, at a value of removed: 2025 with no decision yet. Costs rise too: steel cost about removed: 20% more in Q2 2026 than a year earlier, and tariffs add cost. Management lowered added: $400 million for the removed: top added: whole business before brand royalties. This removes most of removed: its added: the China risk, but it also makes A. O. Smith a smaller company that depends more on North America. Its 2026 added: guidance without China is adjusted EPS removed: guidance added: of $3.42 to removed: $3.85 from $4.00 and said that Q3 2026 EPS will be lower than added: $3.52, against $3.42 in removed: Q2 and Q4, because customers bought early before price increases. added: 2025 on the same basis. For the gap to close, the removed: 4% to 7% North America water heater price removed: increase added: increases must hold, residential volumes must stop falling, and removed: A. O. Smith added: the China sale must removed: reach adjusted EPS added: close in the first half of removed: $3.70 to $3.85 for 2026. It must also make a decision on China, such added: 2027 as removed: a partnership or a sale, that stops added: planned, with the removed: fall in Rest of World earnings. added: proceeds used for share buybacks. The removed: first added: next test is the removed: Q3 2026 report on October 29, 2026. The second test is the full-year 2026 report and the added: first 2027 removed: guidance, added: guidance without China, expected in late January 2027. added: The second test is the closing of the China sale. If prices hold and removed: China stops falling, added: 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 removed: in Chinese consumer added: 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 removed: 2026, added: 2026 and removed: the Rest of World segment margin fell added: 17% in Q3 2026. A. O. Smith agreed on October 27, 2026 to removed: 5.2% from 10.5%. The assessment added: sell 81% of the China removed: business started added: business, with closing planned in the removed: third quarter added: first half of removed: 2025 added: 2027. The deal needs regulatory approvals and removed: has no result yet. A sale or restructuring can bring charges. added: 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 removed: tariffs added: 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. removed: Q2 2026 sales included early purchases before price increases added: Without China, A. O. Smith is a smaller company with about $3.3 billion of sales, and removed: boiler early-buy programs. These pulled demand from Q3 2026, so management expects Q3 EPS to be lower than added: North America gives most of its earnings. A weak year in removed: Q2 and Q4. added: US water heaters will hit the whole company harder.
Balance sheet: Cash: removed: $181M added: $235M Debt: removed: $638M added: $673M Net debt: removed: $457M added: $438M Interest cover: 22× Debt due within 12 months: removed: $40M added: $41M At removed: June added: September 30, 2026, A. O. Smith had removed: $181.3 added: $234.5 million of cash and no marketable removed: securities, down from $18.7 million of marketable securities at December 31, 2025. added: securities. Debt was removed: $637.5 added: $673.1 million, of which removed: $39.5 added: $632.1 million was removed: due within one year. added: long-term. Most of the debt came from a removed: new term loan that paid for Leonard Valve in January 2026. Debt was removed: 25.7% added: 27.0% of total capital. Interest cover is earnings before interest and taxes of removed: $327.9 added: $502.3 million divided by interest expense of removed: $15.2 added: $22.9 million in the first removed: half added: nine months of 2026. Free cash flow was removed: $233.3 added: $396.2 million in the first removed: half added: nine months of 2026, up removed: 67%. added: 4%. In removed: the first half, added: that period, A. O. Smith bought back removed: 2.6 added: 4.2 million shares for removed: $162.4 added: $260.6 million, and it removed: raised its 2026 buyback target to added: expects about $300 removed: million. added: million of buybacks for all of 2026. The removed: quarterly dividend was $0.36 per share, and the Board raised removed: it added: the quarterly dividend to $0.38 added: per share on October 12, 2026. added: 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 removed: Jun added: Sep 30, 2026.
Checkpoints: Oct 29, 2026: Q3 2026 results: water heater prices and China. removed: Pending. added: 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. added: 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 added: 29, 2027 (estimate): Full-year 2026 results and 2027 removed: guidance. added: 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. added: 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 added: 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.