Core Insights - A. O. Smith Corporation (AOS) reported adjusted earnings of $1.07 per share for Q2 2025, exceeding the Zacks Consensus Estimate of 97 cents, with a year-over-year increase of 1% [1] - Net sales reached $1.01 billion, surpassing the consensus estimate of $990.9 million, although this represented a 1% decline year-over-year due to lower water heater volumes and decreased sales in China [1] Segmental Details - North America sales decreased by 1% year-over-year to $779 million, compared to an estimated $758.9 million, primarily due to lower water heater volumes [2] - Segmental earnings remained flat year-over-year at $198.1 million [2] - Sales in the Rest of the World segment totaled $240.1 million, down 2% year-over-year, with China sales decreasing by 11% and India sales increasing by 19% in local currency [3] Margin Details - Cost of sales was $614.2 million, down 2.2% year-over-year, while selling, general & administrative expenses rose by 1.5% to $191.3 million [4] - Gross profit increased by 0.3% year-over-year to $397.1 million, resulting in a gross margin of 39.3%, up from 38.7% in the previous year [4] - Interest expenses rose to $4.6 million from $1.8 million in the year-ago quarter [4] Liquidity & Cash Flow - As of June 30, 2025, cash and cash equivalents totaled $177.9 million, down from $239.6 million at the end of December 2024 [5] - Long-term debt increased to $284.2 million from $183.2 million at the end of December 2024 [5] - Cash provided by operating activities for the first half of 2025 was $178.3 million, compared to $164 million in the same period last year [5] Share Repurchases - In the first half of 2025, A. O. Smith repurchased 3.8 million shares for $251.3 million, with 3 million shares remaining under the existing repurchase authorization as of June 2025 [6] 2025 Outlook - A. O. Smith raised its sales outlook for 2025 to a range of $3.85-$3.93 billion, up from the previous estimate of $3.8-$3.9 billion, with reported sales of $3.82 billion in 2024 [7] - Adjusted earnings per share (EPS) forecast for 2025 is now projected to be between $3.70-$3.90, compared to the earlier expectation of $3.60-$3.90 [8]

Financial Data and Key Metrics Changes - The company reported sales of $1 billion in Q2 2025, a decrease of 1% year-over-year, while earnings per share increased by 1% to $1.07 [16] - North America segment sales were $779 million, down 1% compared to the previous year, with segment operating margin increasing by 30 basis points to 25.4% [16][17] - Operating cash flow for the first six months of 2025 was $178 million, with free cash flow of $140 million, both higher than the same period last year [19] Business Line Data and Key Metrics Changes - North America water heater sales decreased by 2% in Q2 2025, while boiler sales increased by 6% [9][10] - North America water treatment sales saw slight growth, driven by priority channels like e-commerce and direct-to-consumer, contributing to margin expansion [10][17] - In China, sales decreased by 11% in local currency due to economic challenges and limited government subsidies [10][12] Market Data and Key Metrics Changes - The company expects China sales to decrease by 5% to 8% in local currency for 2025, with ongoing economic challenges impacting performance [26] - The North America boiler sales projection was raised to an increase of 35% to 46% compared to 2024 [27] - The company anticipates a decline of approximately 5% in North America water treatment sales for 2025 [28] Company Strategy and Development Direction - The company is focused on operational excellence, technology investment, and innovation to drive future growth [32][34] - A strategic assessment of the China business is underway to explore options for improvement and competitiveness [11][12] - The company is committed to portfolio management and is open to M&A opportunities to strengthen its core business and explore new growth platforms [36][37] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's future, emphasizing the importance of operational efficiency and innovation [6][39] - The company remains cautious about the near-term market outlook, particularly in China, but sees long-term potential in the market [12][26] - Management highlighted the need to navigate tariff impacts and cost pressures while maintaining strong market leadership [39] Other Important Information - The company plans to increase its share repurchase program from $306 million in 2024 to approximately $400 million in 2025 [20] - The board approved a quarterly dividend of $0.34 per share [20] - The company is on track to achieve $15 million in annual benefits from restructuring initiatives [12] Q&A Session Summary Question: Why is the company assessing its China business now? - Management indicated that the assessment is to explore options for improving competitiveness and success in the challenging market environment [44][46] Question: What are the expectations for margins in the second half of the year? - Management expects continued headwinds in China but anticipates realizing full annual savings from cost reduction actions [48][49] Question: How did the company manage the pull forward of volumes in the first half? - The company worked closely with customers to smooth production schedules and avoid inefficiencies [72][75] Question: What is the outlook for the North America water heater business? - Management expects improved market share in the second half of the year due to better order management [55][56] Question: Is the company considering transformational M&A? - Management is open to transformational M&A but emphasizes the need for careful evaluation and alignment with strategic goals [81][83]

Financial Data and Key Metrics Changes - The company reported sales of $1 billion in Q2 2025, a decrease of 1% year over year, while earnings per share increased by 1% to $1.07 compared to the prior period [14] - North America segment sales were $779 million, also down 1% year over year, with segment operating margin increasing by 30 basis points to 25.4% [14][15] - Operating cash flow for the first six months of 2025 was $178 million, with free cash flow at $140 million, higher than the same period last year [17] Business Line Data and Key Metrics Changes - North America water heater sales decreased by 2% in Q2 2025 due to lower volumes, while boiler sales increased by 6% [7][8] - North America water treatment sales saw slight growth, offsetting expected retail declines, contributing to operating margin expansion [8][15] - In China, sales decreased by 11% in local currency due to economic challenges and limited government subsidies [8][10] Market Data and Key Metrics Changes - The company expects China sales to decrease by 5% to 8% in local currency for 2025, with ongoing economic challenges impacting performance [24] - The North America boiler sales projection was raised to an increase of 35% to 46% compared to 2024 [25] - The company anticipates North America water treatment sales to decline approximately 5% in 2025 [27] Company Strategy and Development Direction - The company is focused on operational excellence, innovation, and portfolio management to drive future growth [30][32][34] - A new product development center has been commissioned to enhance innovation capabilities [33] - The company is assessing its China business to explore options for improvement and strategic partnerships [9][10][34] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's future despite current macroeconomic challenges, highlighting the long-term potential of the China market [10][36] - The company is cautious about the near-term market outlook, particularly in China, but remains optimistic about operational efficiencies and margin improvements [24][36] - The leadership team is committed to leveraging the AOS operating system and driving innovation to enhance competitive positioning [38] Other Important Information - The company announced a quarterly dividend of $0.34 per share and plans to repurchase approximately $400 million of shares in 2025 [19] - The company is actively assessing strategic opportunities and has sufficient resources for suitable acquisitions [19] Q&A Session Summary Question: Why is the company assessing its China business now? - Management indicated that the assessment is to explore options for ensuring the business is positioned for success in a challenging environment [40][41] Question: What are the expectations for margins in the second half of the year? - Management expects continued headwinds in China and a cautious outlook for margins due to rising costs and tariff impacts [42][43] Question: How did the company manage the pull forward of volumes in the first half? - The company worked closely with customers to smooth production schedules and avoid inefficiencies caused by order surges [67][68] Question: What is the competitive landscape like in the North America water heater market? - Management noted that new entrants face challenges in gaining market share due to the need for a comprehensive product portfolio and the complexities of regulatory changes [96][97]

Financial Performance - Net sales decreased slightly to $1 billion[11] - Earnings Per Share (EPS) increased by 1% year-over-year to $1.07[11] - North America segment sales decreased by 1% year-over-year[11] - Rest of World segment sales decreased by 2% due to lower sales in China[11] - Free cash flow increased to $139.9 million compared to $119.1 million in the same period last year[43] Segment Analysis - North America segment margin increased to 25.4%[11] - Boiler sales in North America increased by 6%[19] - China third-party sales declined 11% in local currency due to weak consumer demand[23] Strategic Initiatives and Outlook - The company projects share repurchases of approximately $400 million for the full year[27] - Revenue is expected to increase by approximately 1% to 3% for 2025[30] - The company is initiating an assessment of its China business to ensure it is well-positioned for the future[40] - The company expects free cash flow between $500 million and $525 million[30]

Company Performance - A.O. Smith reported quarterly earnings of $1.07 per share, exceeding the Zacks Consensus Estimate of $0.97 per share, and showing a slight increase from $1.06 per share a year ago, resulting in an earnings surprise of +10.31% [1] - The company posted revenues of $1.01 billion for the quarter ended June 2025, surpassing the Zacks Consensus Estimate by 2.06%, although this represents a slight decrease from year-ago revenues of $1.02 billion [2] - Over the last four quarters, A.O. Smith has surpassed consensus EPS estimates two times and topped consensus revenue estimates three times [2] Stock Outlook - A.O. Smith shares have increased approximately 4.7% since the beginning of the year, compared to the S&P 500's gain of 8.1% [3] - The current consensus EPS estimate for the upcoming quarter is $0.89 on revenues of $927.15 million, and for the current fiscal year, it is $3.76 on revenues of $3.83 billion [7] - The estimate revisions trend for A.O. Smith was mixed ahead of the earnings release, resulting in a Zacks Rank 3 (Hold) for the stock, indicating expected performance in line with the market [6] Industry Context - The Manufacturing - Electronics industry, to which A.O. Smith belongs, is currently in the top 10% of over 250 Zacks industries, suggesting a favorable outlook for stocks within this sector [8] - Empirical research indicates a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can be tracked by investors [5]

[Executive Summary & Q2 Highlights](index=1&type=section&id=Executive%20Summary%20%26%20Q2%20Highlights) This section provides an overview of Q2 2025 financial results, key performance indicators, and strategic initiatives, including the assessment of the China business [Q2 2025 Financial Performance](index=1&type=section&id=Q2%202025%20Financial%20Performance) A. O. Smith reported Q2 2025 diluted EPS of $1.07, a 1% YoY increase, despite a 1% decline in net sales to $1.01 billion and a 3% decrease in net earnings to $152.2 million. North America operating margin improved to 25.4%, and Rest of World operating margin showed sequential improvement to 10.5% Q2 2025 Financial Highlights | | Q2 2025 (millions USD) | Q2 2024 (millions USD) | % Change YoY | | --- | --- | --- | --- | | Net sales | $1,011.3 | $1,024.3 | -1% | | Net earnings | $152.2 | $156.2 | -3% | | Diluted earnings per share | $1.07 | $1.06 | 1% | - North America operating margin increased **30 basis points to 25.4%**[3](index=3&type=chunk) - Rest of World operating margin continued sequential improvement to **10.5%**[3](index=3&type=chunk) [Strategic Initiatives and CEO Commentary](index=1&type=section&id=Strategic%20Initiatives%20and%20CEO%20Commentary) CEO Steve Shafer highlighted steady growth in commercial boilers and North America water heater volumes, alongside strong growth in India. The company is initiating a formal assessment of its China business to explore strategic opportunities, including partnerships, to drive greater value through operational excellence, innovation, and portfolio management - Initiating assessment of strategic opportunities for **China business**[3](index=3&type=chunk)[4](index=4&type=chunk) - New CEO Steve Shafer focuses on improved operational excellence, breakthrough innovation, and portfolio management[4](index=4&type=chunk) - Legacy India business grew **19% in local currency**, and Pureit, a recent acquisition in India, contributed **$16 million in sales**[4](index=4&type=chunk) [Segment-level Performance](index=2&type=section&id=Segment-level%20Performance) This section details the financial performance of the North America and Rest of World segments, highlighting regional sales, earnings, and margin trends [North America Segment](index=2&type=section&id=North%20America) North America sales decreased 1% to $779.0 million compared to a challenging prior year, as higher boiler sales were offset by lower water heater volumes. Segment earnings remained essentially flat at $198.1 million, but segment margin expanded 30 basis points to 25.4%, driven by mix benefits from water treatment and high-efficiency water heaters North America Segment Performance | Metric | Q2 2025 (millions USD) | Q2 2024 (millions USD) | | :--- | :--- | :--- | | Sales | $779.0 | $790.7 | | Earnings | $198.1 | $198.4 | | Segment Margin | 25.4% | 25.1% | - Improved segment operating margin was driven by mix benefits from the water treatment priority channel strategy and growth in high efficiency water heaters[6](index=6&type=chunk) [Rest of World Segment](index=2&type=section&id=Rest%20of%20World) Rest of World sales decreased 2% to $240.1 million, primarily due to an 11% decline in China sales (local currency), largely offset by 19% organic sales growth in India and a $16 million contribution from the Pureit acquisition. Segment earnings were $25.3 million, with margin at 10.5%, remaining relatively flat due to restructuring and cost reduction actions offsetting lower China volumes Rest of World Segment Performance | Metric | Q2 2025 (millions USD) | Q2 2024 (millions USD) | | :--- | :--- | :--- | | Sales | $240.1 | $244.8 | | Earnings | $25.3 | $25.9 | | Segment Margin | 10.5% | 10.6% | - **China sales decreased 11%** in local currency year-over-year[7](index=7&type=chunk) - Organic sales in India grew **19% in local currency**, and Pureit contributed **$16 million to sales** in the second quarter of 2025[7](index=7&type=chunk) [Financial Position & Capital Allocation](index=3&type=section&id=Balance%20Sheet%2C%20Liquidity%20and%20Capital%20Allocation) Overview of the company's balance sheet, liquidity, cash flow generation, and strategies for returning capital to shareholders [Balance Sheet and Liquidity](index=3&type=section&id=Balance%20Sheet%20and%20Liquidity) As of June 30, 2025, the company maintained a strong liquidity position with $177.9 million in cash and marketable securities and total debt of $303.4 million, resulting in a low leverage ratio of 14.1% as measured by total debt-to-total capitalization Key Balance Sheet and Liquidity Metrics | Metric (as of June 30, 2025) | Amount (millions USD) | | :--- | :--- | | Cash and marketable securities | $177.9 | | Total debt | $303.4 | | Leverage ratio (total debt-to-total capitalization) | 14.1% | [Cash Flow and Shareholder Returns](index=3&type=section&id=Cash%20Flow%20and%20Shareholder%20Returns) Cash provided by operations increased to $178.3 million and free cash flow to $139.9 million in the first six months of 2025, primarily due to lower working capital outlays. The company returned capital to shareholders by repurchasing $251.3 million of shares and approving a $0.34 per share dividend Cash Flow Performance | Metric (Six Months Ended June 30) | 2025 (millions USD) | 2024 (millions USD) | | :--- | :--- | :--- | | Cash provided by operations | $178.3 | $164.0 | | Free cash flow | $139.9 | $119.1 | - The Company repurchased **3.8 million shares** at a cost of **$251.3 million** in the first six months of 2025[11](index=11&type=chunk) - The Company's board of directors approved a **$0.34 per share dividend** for shareholders of record on July 31, payable on Aug. 15[11](index=11&type=chunk) [Full Year Outlook](index=3&type=section&id=Outlook) This section presents the updated full-year 2025 guidance for sales and diluted EPS, reflecting market confidence and operational benefits [2025 Guidance](index=3&type=section&id=2025%20Outlook) A. O. Smith raised its full-year 2025 sales outlook to grow between 1% and 3% and the midpoint of its diluted EPS outlook to a range of $3.70 to $3.90. This reflects confidence in managing tariffs, expected improved market share, and ongoing benefits from 2024 restructuring actions. The guidance excludes potential impacts from future acquisitions and the China business assessment Full Year 2025 Outlook | Metric | 2024 Actual (millions USD) | 2025 Outlook (Low End, millions USD) | 2025 Outlook (High End, millions USD) | | :--- | :--- | :--- | :--- | | Net sales | $3,818 | $3,850 | $3,930 | | Diluted earnings per share | $3.63 | $3.70 | $3.90 | | Adjusted earnings per share | $3.73 | $3.70 | $3.90 | - Consolidated sales are expected to grow between **1% and 3%**[3](index=3&type=chunk)[12](index=12&type=chunk) - Diluted EPS is projected with a range of **$3.70 to $3.90**[3](index=3&type=chunk)[12](index=12&type=chunk) - The Company's guidance excludes the potential impacts from future acquisitions and any potential outcomes of the assessment of its China business[13](index=13&type=chunk) [Additional Information](index=3&type=section&id=Additional%20Information) This section clarifies non-GAAP financial measures, outlines forward-looking statement risks, and provides a brief company overview [Non-GAAP Financial Measures](index=3&type=section&id=Non-GAAP%20Financial%20Measures) The company provides non-GAAP measures like free cash flow (cash provided by operations less capital expenditures) and adjusted earnings/EPS (excluding restructuring and impairment charges) to offer improved transparency into its operating results - Free cash flow is defined as cash provided by operations less capital expenditures[15](index=15&type=chunk) - Adjusted earnings, adjusted EPS, adjusted segment earnings and adjusted corporate expenses exclude the impact of restructuring and impairment charges[15](index=15&type=chunk) [Forward-Looking Statements](index=4&type=section&id=Forward-looking%20Statements) This section outlines various risks and uncertainties that could cause actual results to differ materially from forward-looking statements, including international tariffs, softening demand, global inflationary pressures, supply chain issues, economic conditions in China, and competitive pressures - Forward-looking statements are subject to risks such as international tariffs, global inflationary pressures, supply chain issues, and economic conditions in China[16](index=16&type=chunk) - Uncertain outcomes and costs and other potential impacts of the Company's assessment relating to the Company's China business are identified as important factors[16](index=16&type=chunk) [About A. O. Smith](index=4&type=section&id=About%20A.%20O.%20Smith) A. O. Smith Corporation, headquartered in Milwaukee, Wisconsin, is a global leader applying innovative technology and energy-efficient solutions to products manufactured and marketed worldwide, specializing in residential and commercial water heating equipment, boilers, and water treatment products - A. O. Smith is a global leader in residential and commercial water heating equipment and boilers, as well as a manufacturer of water treatment products[17](index=17&type=chunk) [Financial Statements](index=5&type=section&id=Financial%20Statements) This section includes the condensed consolidated statements of earnings, balance sheet, and cash flows for the reported periods [Condensed Consolidated Statement of Earnings](index=5&type=section&id=Condensed%20Consolidated%20Statement%20of%20Earnings) This statement presents the company's revenues, costs, and profits for the three and six months ended June 30, 2025, and 2024, showing net sales of $1,011.3 million and net earnings of $152.2 million for Q2 2025 Condensed Consolidated Statement of Earnings (millions USD, except per share data) | | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $1,011.3 | $1,024.3 | $1,975.2 | $2,003.1 | | Cost of products sold | 614.2 | 628.3 | 1,202.7 | 1,222.4 | | Gross profit | 397.1 | 396.0 | 772.5 | 780.7 | | Selling, general and administrative expenses | 191.3 | 188.5 | 383.9 | 380.7 | | Interest expense | 4.6 | 1.8 | 7.5 | 2.8 | | Other income, net | (0.4) | (0.9) | (1.6) | (2.1) | | Earnings before provision for income taxes | 201.6 | 206.6 | 382.7 | 399.3 | | Provision for income taxes | 49.4 | 50.4 | 93.9 | 95.5 | | Net earnings | $152.2 | $156.2 | $288.8 | $303.8 | | Diluted earnings per share of common stock | $1.07 | $1.06 | $2.01 | $2.05 | | Average common shares outstanding (000's omitted) | 142,484 | 147,600 | 143,440 | 147,949 | [Condensed Consolidated Balance Sheet](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheet) This statement details the company's assets, liabilities, and stockholders' equity as of June 30, 2025, and December 31, 2024, showing total assets of $3,246.7 million at the end of Q2 2025 Condensed Consolidated Balance Sheet (millions USD) | ASSETS: | June 30, 2025 (millions USD) | December 31, 2024 (millions USD) | | :--- | :--- | :--- | | Cash and cash equivalents | $177.9 | $239.6 | | Marketable securities | — | 36.5 | | Receivables | 640.3 | 541.4 | | Inventories | 519.3 | 532.1 | | Other current assets | 51.0 | 43.3 | | **Total Current Assets** | **1,388.5** | **1,392.9** | | Net property, plant and equipment | 637.1 | 628.7 | | Goodwill and other intangibles | 1,085.6 | 1,082.8 | | Operating lease assets | 37.4 | 32.8 | | Other assets | 98.1 | 102.8 | | **Total Assets** | **$3,246.7** | **$3,240.0** | | LIABILITIES AND STOCKHOLDERS' EQUITY: | | | | Trade payables | $521.8 | $588.7 | | Accrued payroll and benefits | 80.2 | 78.5 | | Accrued liabilities | 148.3 | 153.0 | | Product warranties | 73.5 | 67.0 | | Debt due within one year | 19.2 | 10.0 | | **Total Current Liabilities** | **843.0** | **897.2** | | Long-term debt | 284.2 | 183.2 | | Operating lease liabilities | 28.2 | 23.5 | | Other liabilities | 245.4 | 252.6 | | Stockholders' equity | 1,845.9 | 1,883.5 | | **Total Liabilities and Stockholders' Equity** | **$3,246.7** | **$3,240.0** | [Condensed Consolidated Statement of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statement%20of%20Cash%20Flows) This statement outlines the cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2025, and 2024, showing cash provided by operating activities of $178.3 million for the first six months of 2025 Condensed Consolidated Statement of Cash Flows (millions USD) | Six Months Ended June 30, | 2025 (millions USD) | 2024 (millions USD) | | :--- | :--- | :--- | | **Operating Activities** | | | | Net earnings | $288.8 | $303.8 | | Depreciation & amortization | 41.2 | 39.2 | | Share based compensation expense | 8.6 | 10.4 | | Deferred income taxes | (9.1) | (1.5) | | Net changes in operating assets and liabilities: | | | | Current assets and liabilities | (159.0) | (173.2) | | Noncurrent assets and liabilities | 7.8 | (14.7) | | **Cash Provided by Operating Activities** | **178.3** | **164.0** | | **Investing Activities** | | | | Capital expenditures | (38.4) | (44.9) | | Acquisitions | — | (21.3) | | Investment in marketable securities | (22.6) | (50.9) | | Net proceeds from sale of marketable securities | 59.2 | 57.0 | | **Cash Used in Investing Activities** | **(1.8)** | **(60.1)** | | **Financing Activities** | | | | Long-term debt incurred | 108.2 | 14.3 | | Common stock repurchases | (251.3) | (153.2) | | Net (payments) proceeds from stock option activity | (0.5) | 9.4 | | Dividends paid | (97.5) | (94.2) | | **Cash Used in Financing Activities** | **(241.1)** | **(223.7)** | | Effect of exchange rate changes on cash and cash equivalents | 2.9 | (4.0) | | Net decrease in cash and cash equivalents | (61.7) | (123.8) | | Cash and cash equivalents - beginning of period | 239.6 | 339.9 | | **Cash and Cash Equivalents - End of Period** | **$177.9** | **$216.1** | [Business Segments Data](index=8&type=section&id=Business%20Segments) This section provides a breakdown of net sales and earnings for the North America and Rest of World segments for the three and six months ended June 30, 2025, and 2024, including inter-segment eliminations and corporate expenses Net Sales by Business Segment (millions USD) | Net sales | Three Months Ended June 30, 2025 (millions USD) | Three Months Ended June 30, 2024 (millions USD) | Six Months Ended June 30, 2025 (millions USD) | Six Months Ended June 30, 2024 (millions USD) | | :--- | :--- | :--- | :--- | :--- | | North America | $779.0 | $790.7 | $1,527.7 | $1,557.0 | | Rest of World | 240.1 | 244.8 | 466.8 | 471.7 | | Inter-segment sales | (7.8) | (11.2) | (19.3) | (25.6) | | **Total Net Sales** | **$1,011.3** | **$1,024.3** | **$1,975.2** | **$2,003.1** | Earnings by Business Segment (millions USD) | Earnings | Three Months Ended June 30, 2025 (millions USD) | Three Months Ended June 30, 2024 (millions USD) | Six Months Ended June 30, 2025 (millions USD) | Six Months Ended June 30, 2024 (millions USD) | | :--- | :--- | :--- | :--- | :--- | | North America | $198.1 | $198.4 | $383.3 | $397.1 | | Rest of World | 25.3 | 25.9 | 45.0 | 43.1 | | Inter-segment earnings elimination | (0.2) | (0.1) | (0.2) | (0.4) | | Corporate expense | (17.0) | (15.8) | (37.9) | (37.7) | | Interest expense | (4.6) | (1.8) | (7.5) | (2.8) | | Earnings before income taxes | 201.6 | 206.6 | 382.7 | 399.3 | | Provision for incomes taxes | 49.4 | 50.4 | 93.9 | 95.5 | | **Net earnings** | **$152.2** | **$156.2** | **$288.8** | **$303.8** | [Non-GAAP Reconciliations](index=9&type=section&id=Non-GAAP%20Reconciliations) This section provides reconciliations from GAAP measures to non-GAAP measures, specifically for free cash flow and adjusted EPS, offering a clearer view of operational performance by excluding certain charges Free Cash Flow Reconciliation (millions USD) | Free Cash Flow (Six Months Ended June 30) | 2025 (millions USD) | 2024 (millions USD) | | :--- | :--- | :--- | | Cash provided by operating activities (GAAP) | $178.3 | $164.0 | | Less: Capital expenditures | (38.4) | (44.9) | | **Free cash flow (non-GAAP)** | **$139.9** | **$119.1** | Adjusted EPS Reconciliation (USD per share) | EPS Guidance and Adjusted EPS | 2025 Guidance (USD) | 2024 (USD) | | :--- | :--- | :--- | | Diluted EPS (GAAP) | $3.70-3.90 | $3.63 | | Restructuring and impairment expense | — | 0.10 | | **Adjusted EPS (non-GAAP)** | **$3.70-3.90** | **$3.73** |

Core Insights - A. O. Smith Corporation reported second quarter 2025 net sales of $1,011.3 million, a decrease of 1% compared to $1,024.3 million in Q2 2024, with net earnings of $152.2 million, down 3% from $156.2 million in the prior year [1][3] - The company experienced growth in commercial boilers and North America water heater volumes, while facing challenges in the China market and lower water heater volumes in North America [1][5] - A formal assessment of the China business is being initiated to explore strategic opportunities, reflecting the company's commitment to realizing long-term prospects in that market [1][12] Key Financial Metrics - Net sales for Q2 2025 were $1,011.3 million, compared to $1,024.3 million in Q2 2024, representing a 1% decline [1][3] - Net earnings were $152.2 million, down from $156.2 million, while diluted earnings per share increased slightly to $1.07 from $1.06 [1][3] - The North America operating margin increased by 30 basis points to 25.4%, and the Rest of World operating margin improved sequentially to 10.5% [3][4] Segment Performance - North America sales were $779.0 million, a decrease of 1% year-over-year, primarily due to lower water heater volumes despite higher boiler sales [2][22] - Rest of World sales totaled $240.1 million, down 2% from $244.8 million, with China sales decreasing by 11% in local currency, while India saw a 19% growth in local currency [5][22] - Segment earnings for North America were $198.1 million, essentially flat compared to $198.4 million in the prior year, while Rest of World segment earnings were $25.3 million, slightly down from $25.9 million [4][6] Cash Flow and Capital Allocation - Cash provided by operations was $178.3 million, with free cash flow of $139.9 million for the first half of 2025, an increase from $164.0 million and $119.1 million in the same period of 2024, respectively [8][24] - The company repurchased $251.3 million worth of shares in the first half of 2025 and expects to spend approximately $400 million on share repurchases for the full year [9][3] - As of June 30, 2025, cash and marketable securities totaled $177.9 million, with total debt at $303.4 million, resulting in a leverage ratio of 14.1% [7][19] Outlook - The company raised its full-year 2025 sales outlook, projecting consolidated sales growth between 1% and 3%, with diluted EPS guidance set between $3.70 and $3.90 [11][25] - The outlook reflects confidence in managing tariffs and expected improvements in market share performance due to production initiatives [11][12]

Core Viewpoint - A. O. Smith Corporation (AOS) is expected to report second-quarter 2025 results on July 24, with mixed performance indicators suggesting potential challenges and opportunities ahead [1][9]. Revenue and Earnings Estimates - The Zacks Consensus Estimate for A. O. Smith's revenues is $987.3 million, reflecting a 3.6% decline from the previous year [2]. - The consensus estimate for adjusted earnings is 97 cents per share, indicating an 8.4% decline year-over-year [2]. Segment Performance - The North-American segment is anticipated to benefit from strong demand for commercial boilers and water treatment products, although a decline of 3.4% year-over-year to $764 million is expected due to softness in the residential and commercial water heater industry [3]. - The Rest of World segment is projected to generate revenues of $234 million, down 4.5% from the prior year, primarily due to challenges in the Chinese real estate market affecting residential water treatment and gas water heating products [4]. Cost and Acquisition Impact - A. O. Smith has faced high costs and expenses, with labor shortages and increased material costs negatively impacting performance, despite some moderation in supply-chain constraints [5]. - Recent acquisitions, such as the Pureit business from Unilever and Impact Water Products, are expected to positively influence the company's top line and enhance its position in the water treatment industry [6][7]. Earnings Expectations - A. O. Smith has an Earnings ESP of +4.48%, with the Most Accurate Estimate at $1.01 per share, suggesting a potential earnings beat despite the projected decline in EPS [8][9].

Core Viewpoint - A.O. Smith (AOS) is expected to report a quarterly earnings per share (EPS) of $0.97, reflecting an 8.5% year-over-year decline, with revenues projected at $987.3 million, a decrease of 3.6% compared to the previous year [1]. Earnings Estimates - Over the past 30 days, the consensus EPS estimate has been revised downward by 0.6%, indicating a reassessment by analysts [2]. - Revisions to earnings estimates are crucial for predicting investor actions, as empirical research shows a strong correlation between earnings estimate trends and short-term stock price performance [3]. Revenue Estimates - The consensus estimate for 'Geographic Revenue- North America' is $763.85 million, suggesting a year-over-year change of -3.4% [5]. - The estimated 'Geographic Revenue- Rest of World' is $234.39 million, indicating a decline of 4.3% from the prior-year quarter [5]. Segment Operating Earnings - Analysts estimate 'Segment Operating Earnings (NON-GAAP)- North America' to be $180.26 million, down from $198.40 million reported in the same quarter last year [6]. - The estimate for 'Segment Operating Earnings (NON-GAAP)- Rest of World' is $22.62 million, compared to $25.90 million in the previous year [6]. - The average prediction for 'Segment Operating Earnings (GAAP)- North America' is $174.91 million, also down from $198.40 million reported last year [7]. - The consensus for 'Segment Operating Earnings (GAAP)- Rest of World' is $23.46 million, compared to $25.90 million in the same quarter of the previous year [7]. Stock Performance - Over the past month, A.O. Smith shares have returned +12.1%, outperforming the Zacks S&P 500 composite's +5.4% change [7]. - A.O. Smith currently holds a Zacks Rank 3 (Hold), suggesting its performance may align with the overall market in the near future [7].

Core Viewpoint - A.O. Smith is anticipated to report a year-over-year decline in earnings and revenues for the quarter ended June 2025, with earnings expected at $0.97 per share, reflecting an 8.5% decrease, and revenues projected at $987.3 million, down 3.6% from the previous year [1][3]. Earnings Expectations - The upcoming earnings report is scheduled for July 24, and the stock may rise if the actual results exceed expectations, while a miss could lead to a decline [2]. - The consensus EPS estimate has been revised down by 0.56% over the last 30 days, indicating a reassessment by analysts [4]. Earnings Surprise Prediction - A.O. Smith has a positive Earnings ESP of +4.48%, suggesting analysts have recently become more optimistic about the company's earnings prospects [12]. - The stock currently holds a Zacks Rank of 3, indicating a neutral outlook, but the combination of a positive Earnings ESP and this rank suggests a likelihood of beating the consensus EPS estimate [12]. Historical Performance - In the last reported quarter, A.O. Smith had an earnings surprise of +5.56%, reporting earnings of $0.95 per share against an expectation of $0.90 [13]. - Over the past four quarters, the company has only beaten consensus EPS estimates once [14]. Conclusion - A.O. Smith is viewed as a potential earnings-beat candidate, but investors should consider other factors influencing stock performance beyond just earnings results [15][17].