Third Quarter 2025 Results October 28, 2025 Third Quarter 2025 Earnings Presentation | 1 Stephen M. Shafer President and Chief Executive Officer Charles T. Lauber Executive Vice President and Chief Financial Officer Helen E. Gurholt Vice President - Investor Relations, Financial Planning & Analysis Third Quarter 2025 Earnings Presentation | 2 Forward Looking Statements This presentation contains statements that we believe are "forward-looking statements" within the meaning of the Private Securities Litigati ...

Financial Performance - A.O. Smith reported quarterly earnings of $0.94 per share, exceeding the Zacks Consensus Estimate of $0.89 per share, and up from $0.82 per share a year ago, representing an earnings surprise of +5.62% [1] - The company posted revenues of $942.5 million for the quarter ended September 2025, surpassing the Zacks Consensus Estimate by 0.69% and increasing from $902.6 million year-over-year [2] Market Performance - A.O. Smith shares have increased by approximately 0.6% since the beginning of the year, while the S&P 500 has gained 16.9% [3] - The stock currently holds a Zacks Rank 3 (Hold), indicating it is expected to perform in line with the market in the near future [6] Future Outlook - The current consensus EPS estimate for the upcoming quarter is $0.92 on revenues of $964.08 million, and for the current fiscal year, it is $3.83 on revenues of $3.88 billion [7] - The outlook for the Manufacturing - Electronics industry, where A.O. Smith operates, is currently in the top 26% of over 250 Zacks industries, suggesting a favorable environment for stock performance [8]

Core Insights - Aquasana is committed to enhancing contaminant reduction in drinking water, particularly against PFAS and microplastics, in response to growing health concerns [1][2] - The new Claryum® under sink systems achieve up to 99.99% reduction of 78 contaminants, including lead and PFAS, and meet stricter NSF certification standards [1][3] Product Features - The Claryum® technology employs four advanced filtration methods: activated carbon, catalytic carbon, ion-exchange, and sub-micron filtration, while preserving beneficial minerals [3] - The new under sink filters offer aesthetic options with premium metal faucets in various finishes and a no-faucet option for customization [2] Market Availability - The enhanced Claryum® under sink filters are available nationwide, starting at $99.99 for the no-faucet option and $124.99 for systems with dedicated faucets [4] Company Overview - Aquasana, a subsidiary of A. O. Smith Corporation, focuses on providing high-quality water filtration systems to improve health and wellness at home [5]

Financial Performance - A. O. Smith reported third quarter 2025 net sales of $942.5 million, a 4% increase compared to $902.6 million in Q3 2024[2] - Net earnings for the third quarter increased by 10% to $132 million, with diluted earnings per share rising 15% to $0.94[3] - North America sales grew 6%, with an operating margin expansion of 110 basis points to 24.2%[3] - The company experienced a 12% decline in local currency sales in China, contributing to a 1% decrease in the Rest of World segment[3] - Net earnings for the nine months ended September 30, 2025, were $420.8 million, a slight decrease from $423.9 million in the same period of 2024[27] - Earnings before income taxes for the nine months ended September 30, 2025, were $554.5 million, slightly down from $555.9 million in 2024[27] Cash Flow and Capital Expenditures - Cash provided by operations increased by 21% to $434 million, while free cash flow grew 35% to $381 million in the first nine months of 2025[3] - Cash provided by operating activities increased to $433.7 million for the nine months ended September 30, 2025, compared to $359.9 million in 2024, representing a growth of approximately 20.5%[28] - Free cash flow for the nine months ended September 30, 2025, was $380.5 million, up from $282.5 million in 2024, indicating a significant increase of 34.7%[28] - Capital expenditures for the nine months ended September 30, 2025, were $53.2 million, a decrease from $77.4 million in 2024, reflecting a reduction of approximately 31.2%[28] Shareholder Returns - A. O. Smith repurchased 5 million shares for $335.4 million in the first nine months of 2025, with an expected total of approximately $400 million for the year[11] - The company approved a 6% increase in the dividend rate, marking over 30 consecutive years of dividend increases[12] - The company repurchased $335.4 million in common stock during the nine months ended September 30, 2025, compared to $237.1 million in 2024, representing an increase of 41.5%[25] Financial Position - As of September 30, 2025, total cash and marketable securities were $172.8 million, with total debt at $185.8 million, resulting in a leverage ratio of 9.2%[9] - The total cash and cash equivalents at the end of the period were $152.7 million, down from $219.3 million at the end of September 2024[25] Guidance and Outlook - The full year 2025 sales outlook has been adjusted to a range of flat to up 1%, with diluted EPS guidance narrowed to $3.70 to $3.85[3] - The company reported a diluted EPS guidance for 2025 of $3.70-3.85, compared to an adjusted EPS of $3.73 for 2024[30]

Core Insights - A. O. Smith Corporation reported a 4% increase in net sales for Q3 2025, reaching $942.5 million compared to $902.6 million in Q3 2024, with net earnings rising by 10% to $132 million [1][5] - The North America segment experienced a 6% sales growth, driven by pricing actions and strong demand for commercial water heaters and boilers, while the China market faced a 12% decline in local currency sales [1][2][5] - The company has adjusted its full-year sales outlook to a range of flat to up 1% and narrowed its diluted EPS guidance to $3.70 to $3.85 [5][12] Key Financial Metrics - Q3 2025 net sales: $942.5 million, up from $902.6 million in Q3 2024, representing a 4% YoY increase [1][5] - Net earnings for Q3 2025 were $132 million, compared to $120.1 million in Q3 2024, marking a 10% increase [1][5] - Diluted earnings per share rose to $0.94 from $0.82, reflecting a 15% increase YoY [1][5] Segment Performance - North America segment sales reached $742.8 million, a 6% increase YoY, primarily due to pricing actions and higher volumes of commercial water heaters and boilers [2][5] - Segment earnings for North America were $179.7 million, an 11% increase from $162.5 million in the prior year, with an operating margin of 24.2%, up 110 basis points [3][22] - The Rest of World segment saw sales decrease by 1% to $207.9 million, with a 12% decline in China sales offset by a 13% growth in India [6][7] Cash Flow and Capital Allocation - Cash provided by operations increased by 21% to $434 million, while free cash flow grew by 35% to $381 million in the first nine months of 2025 [5][9] - The company repurchased 5 million shares for $335.4 million in the first nine months of 2025, with an expected total repurchase of approximately $400 million for the year [10][11] Dividend and Shareholder Returns - A. O. Smith's board approved a 6% increase in the dividend rate, continuing a trend of over 30 consecutive years of dividend increases [11][24]

Core Insights - A. O. Smith Corporation (AOS) is set to release its third-quarter 2025 results on October 28, with earnings estimates remaining stable over the past 60 days [1][9] - The Zacks Consensus Estimate for AOS's revenues is $936 million, reflecting a 3.7% increase year-over-year, while adjusted earnings are expected to be 89 cents per share, indicating an 8.5% rise from the previous year [2][9] Revenue Expectations - The North America segment is anticipated to see a revenue increase of 2.7% year-over-year to $722.2 million, despite a decline in orders for residential water heater products, with strong demand for boilers expected to support performance [3] - The Rest of the World segment's revenues are projected to rise by 3.4% year-over-year to $217.4 million, aided by incremental sales from the Pureit business, despite challenges in the Chinese real estate market affecting water treatment and heater product volumes [4] Challenges and Opportunities - A. O. Smith has faced negative impacts from supply-chain constraints, particularly for engineered components, which have increased costs and delayed product deliveries [5] - The company's international operations expose it to foreign currency headwinds, potentially affecting profitability [5] - Recent acquisitions, including Pureit from Unilever and Impact Water Products, are expected to positively influence revenue and enhance AOS's position in the water treatment industry [6][7] Earnings Predictions - The current Earnings ESP for AOS is -1.31%, with the Most Accurate Estimate at 88 cents per share, which is below the Zacks Consensus Estimate of 89 cents, indicating uncertainty regarding an earnings beat this quarter [8][10]

Core Viewpoint - A.O. Smith is anticipated to report a year-over-year increase in earnings and revenues for the quarter ended September 2025, with the actual results being a significant factor influencing its near-term stock price [1][2]. Earnings Expectations - The upcoming earnings report is expected to be released on October 28, with a consensus EPS estimate of $0.89, reflecting an 8.5% increase year-over-year. Revenues are projected to be $936.17 million, up 3.7% from the previous year [3][2]. Estimate Revisions - The consensus EPS estimate has been revised down by 0.86% over the last 30 days, indicating a collective reassessment by analysts regarding the company's earnings prospects [4]. Earnings Surprise Prediction - A.O. Smith has a negative Earnings ESP of -1.31%, suggesting that analysts have recently become bearish on the company's earnings outlook. However, the stock holds a Zacks Rank of 2, complicating predictions of an earnings beat [12]. Historical Performance - In the last reported quarter, A.O. Smith exceeded the expected EPS of $0.97 by delivering $1.07, resulting in a surprise of +10.31%. Over the past four quarters, the company has beaten consensus EPS estimates twice [13][14]. Conclusion - A.O. Smith does not currently appear to be a strong candidate for an earnings beat, and investors should consider additional factors when evaluating the stock ahead of its earnings release [17].

Core Insights - A.O. Smith (AOS) and Kone Oyj Unsponsored ADR (KNYJY) are being compared for value investment opportunities in the Manufacturing - Electronics sector [1] Valuation Metrics - AOS has a forward P/E ratio of 18.03, while KNYJY has a forward P/E of 28.33 [5] - AOS has a PEG ratio of 1.50, indicating a more favorable earnings growth outlook compared to KNYJY's PEG ratio of 2.96 [5] - AOS's P/B ratio is 5.25, compared to KNYJY's P/B of 11.43, suggesting AOS is more undervalued relative to its book value [6] Investment Ratings - AOS currently holds a Zacks Rank of 2 (Buy), while KNYJY has a Zacks Rank of 3 (Hold), indicating a stronger earnings outlook for AOS [3] - AOS has received a Value grade of B, whereas KNYJY has a Value grade of C, reflecting AOS's more attractive valuation metrics [6] Conclusion - Given the stronger estimate revision activity and more attractive valuation metrics, AOS is positioned as the superior investment option for value investors at this time [7]

Market Overview - Volatility has returned to Wall Street, with major indexes retreating from all-time highs due to concerns over high inflation, a shrinking labor market, and renewed trade war fears with China [1][3] - The ongoing government shutdown has further unsettled investors, depriving them of economic data to assess the economy's health [4] Investment Opportunities - Cautious investors may consider dividend-paying stocks as a means to generate steady income and protect capital during market fluctuations [2] - Three notable dividend-paying stocks include: - **A. O. Smith Corporation (AOS)**: Announced a dividend of $0.36 per share with a yield of 2.01%, having increased its dividend six times over the past five years [7][10] - **Lockheed Martin Corporation (LMT)**: Declared a dividend of $3.45 per share with a yield of 2.62%, also increasing its dividend six times in the last five years [9][10] - **THOR Industries, Inc. (THO)**: Raised its dividend to $0.52 per share with a yield of 1.98%, having similarly increased its dividend six times over the past five years [12][10]

Core Insights - A. O. Smith Corporation is recognized as a reliable dividend stock, benefiting from housing and economic growth [2][6] Group 1: Company Overview - A. O. Smith Corporation is a leading manufacturer of residential and commercial water heaters, boilers, and water treatment systems, with approximately two-thirds of its revenue generated in North America and the remainder primarily from China [2] - The company has maintained steady growth in the US market due to a strong economy and rising home prices, which encourage consumer spending on home upgrades [3] Group 2: Growth Prospects - Emerging markets, particularly China, are expected to significantly contribute to the company's expansion, driven by a large population, a growing middle class, and consistent economic growth [4] - The company's strong market position provides it with pricing power and solid profit margins, enabling substantial cash flow for innovation and product development [5] Group 3: Dividend Performance - On October 13, A. O. Smith Corporation announced a 6% increase in its quarterly dividend to $0.36 per share, marking the 33rd consecutive year of dividend growth, with a current dividend yield of 2.10% [6]