Sales Performance - The company faced a 12% decrease in third-party sales in China in local currency for 2025 compared to 2024, with approximately 18% of total sales attributed to the Chinese market [45]. - Sales to the five largest customers represented approximately 41% of total sales in 2025, indicating a high customer concentration risk [49]. - Residential new construction activity in North America declined in 2025, with projections for new housing starts to remain flat and housing completions expected to decrease in 2026 compared to 2025 [49]. - Approximately 31% of total sales in 2025 were generated from international markets, primarily in China and Canada, exposing the company to various geopolitical and economic risks [47]. - Water heater sales in North America increased by 1% in 2025, with residential industry unit volumes estimated to be flat compared to the prior year [86]. - Boiler sales grew by 8% in 2025, with expectations of 6% to 8% growth in 2026 due to pricing benefits and demand for high-efficiency condensing gas boilers [86]. - North America water treatment product sales are projected to grow by 10% to 12% primarily due to tariff-related pricing benefits [86]. - The Rest of World segment generated $880.4 million in sales for 2025, down from $918.6 million in 2024 and $956.9 million in 2023 [189]. Financial Performance - Net sales for 2025 were $3,830.2 million, a slight increase of $12.1 million from 2024's $3,818.1 million, driven by price increases and higher sales volumes of commercial water heaters and boilers, along with $54 million from the acquisition of Pureit [90]. - Gross profit margin improved to 38.8% in 2025 from 38.1% in 2024, primarily due to pricing actions and a higher mix of commercial products [91]. - Selling, general, and administrative (SG&A) expenses rose to $759.4 million in 2025, an increase of $20.1 million from 2024, mainly due to higher employee costs [92]. - Interest expense increased to $13.5 million in 2025 from $6.7 million in 2024, attributed to higher average debt levels [94]. - Total segment earnings for 2025 reached $804.1 million, up from $771.6 million in 2024, driven by North America segment earnings of $727.9 million [122]. - Adjusted earnings for 2025 were $546.2 million, slightly down from $548.0 million in 2024, while diluted earnings per share increased to $3.85 from $3.73 [120]. - Net earnings for 2025 were $546.2 million, up from $533.6 million in 2024, representing an increase of about 2.3% [145]. - Free cash flow for 2025 was reported at $546.0 million, an increase from $473.8 million in 2024, supported by cash provided by operating activities of $616.8 million [124]. Acquisitions and Investments - The company signed a definitive agreement to acquire LVC Holdco LLC (Leonard Valve) for $470 million, expected to contribute approximately $70 million in sales in 2026 [84]. - The acquisition of Pureit from Unilever for approximately $125 million contributed $54 million to sales in 2025 [84]. - The company continues to seek acquisitions to enable growth and expand its core business [84]. Risk Factors - The company is subject to risks from import tariffs and trade regulations, which could significantly increase raw material costs and affect profit margins [41]. - The company has experienced inflation-related increases in transportation and input costs, which could impact profitability if not recovered through price increases [44]. - Changes in consumer preferences towards lower-priced models and e-commerce could adversely affect sales and market positioning [44]. - The company is actively assessing its China business strategy, which may lead to uncertain outcomes and impacts on financial performance [46]. - Product defects may lead to increased warranty costs and potential damage to brand reputation, impacting financial condition and cash flows [52]. - Future acquisitions could consume significant capital, and integration challenges may hinder profitability and strategic objectives, potentially increasing debt levels [53][54]. - Regulatory changes, particularly related to energy efficiency and environmental standards, could raise manufacturing and operational costs, affecting product demand and competitiveness [55]. - The company is exposed to various market risks, primarily currency, and employs forward contracts to mitigate these risks [129]. - The company anticipates potential impacts from global inflationary pressures and geopolitical tensions, which could affect demand for its products [131]. Cash and Capital Management - Cash provided by operating activities was $616.8 million in 2025, up from $581.8 million in 2024, due to higher earnings and a one-time tax adjustment [105]. - Capital expenditures totaled $70.8 million in 2025, down from $108.0 million in 2024, with projections for 2026 between $70 million and $80 million [106]. - The company reported a cash decrease of $65.1 million in 2025, with cash and cash equivalents ending at $174.5 million [148]. - The company repurchased 5,942,601 shares at a total cost of $400.8 million in 2025, with plans to repurchase approximately $200 million in 2026 [111]. - The balance of Treasury Stock at the end of 2025 was $(2,904.3) million, an increase from $(2,502.0) million in 2024, primarily due to share repurchases [149]. Assets and Liabilities - The total current assets decreased from $1,392.9 million in 2024 to $1,291.5 million in 2025, a decline of approximately 7.3% [144]. - Total liabilities decreased from $1,356.5 million in 2024 to $1,284.8 million in 2025, a reduction of approximately 5.3% [144]. - The company’s retained earnings increased from $3,601.3 million in 2024 to $3,951.8 million in 2025, reflecting a growth of about 9.7% [144]. - The company’s diluted net earnings per share increased from $3.63 in 2024 to $3.85 in 2025, a rise of approximately 6.1% [145]. - The company’s total intangible assets increased from $512.1 million in 2024 to $568.1 million in 2025, with amortization expenses of $14.8 million recorded in 2025 [206]. Governance and Management - The Smith Family controls approximately 67.8% of the total voting power, which may influence corporate governance and strategic decisions [57]. - The company has not experienced material cybersecurity incidents in recent years, but continues to invest in cybersecurity measures to protect its systems and data [64]. - The company conducts an Enterprise Risk Management process to identify and manage significant risks, including decarbonization and cyber threats [126]. Environmental and Regulatory Matters - The company has taken steps to mitigate risks from natural disasters, but facilities located in floodplains and disaster-prone areas remain vulnerable [42]. - Environmental expenditures were not material in 2025, and the company expects them to remain non-material in the future [125]. - The company expects no material adverse effect from environmental claims on its financial position or results of operations [238].

Core Viewpoint - A. O. Smith Corporation (NYSE:AOS) has shown resilience with a fourth-quarter earnings beat, although the 2026 revenue outlook is weaker than expected, leading to a mixed market reaction [2][3]. Financial Performance - The company reported an adjusted net income of $125.4 million, or $0.90 per share, for the fourth quarter, up from $109.7 million, or $0.75 per share, a year earlier [4]. - North American sales increased by 3.5% to $713.7 million, driven by pricing strategies and improved profitability in water treatment, which offset higher input costs [4]. - Total revenue for the quarter ended December 31 was $912.5 million, remaining essentially flat compared to the previous year [4]. - A. O. Smith expects full-year earnings per share to range between $3.85 and $4.15 [4]. Market Reaction - Following the earnings report, shares of A. O. Smith rose approximately 5%, attributed to short covering despite the mixed results [2]. Strategic Insights - The company continues to face challenges in China, yet it reported improved margins in that market, indicating potential for strategic partnerships and other options to enhance its business there [3][5].

Core Insights - Zacks Premium offers tools for investors to enhance their stock market engagement and confidence, including daily updates, research reports, and stock screens [1] Zacks Style Scores - Zacks Style Scores are indicators that help investors select stocks likely to outperform the market in the next 30 days, rated from A to F based on value, growth, and momentum characteristics [2] - The Value Score identifies attractive and discounted stocks using ratios like P/E, PEG, and Price/Sales [3] - The Growth Score focuses on a company's financial health and future outlook, analyzing projected and historical earnings, sales, and cash flow [4] - The Momentum Score helps investors capitalize on price trends, utilizing factors like one-week price changes and monthly earnings estimate changes [5] - The VGM Score combines the three Style Scores to identify stocks with the best value, growth forecasts, and momentum, serving as a strong indicator alongside the Zacks Rank [6] Zacks Rank - The Zacks Rank is a proprietary model based on earnings estimate revisions, aiding investors in building successful portfolios [7] - Stocks rated 1 (Strong Buy) have produced an average annual return of +23.83% since 1988, significantly outperforming the S&P 500 [8] - Investors are encouraged to select stocks with a Zacks Rank of 1 or 2 and Style Scores of A or B for optimal success [9] Stock Example: A.O. Smith Corporation - A.O. Smith Corporation is a leading manufacturer of water heating equipment and treatment products, known for innovative and energy-efficient solutions [11] - The company holds a Zacks Rank of 3 (Hold) with a VGM Score of B, indicating potential for growth investors [12] - A.O. Smith is forecasted to achieve year-over-year earnings growth of 7% for the current fiscal year, with upward revisions in earnings estimates and an average earnings surprise of +7.2% [12]

Core Viewpoint - A.O. Smith reported strong fourth-quarter earnings that surpassed Wall Street expectations, leading to a significant increase in share price [1] Group 1: Fourth-Quarter Performance - The company posted earnings per share (EPS) of $0.90, exceeding the consensus estimate of $0.84 by six cents [1] - Revenue for the quarter was $912.5 million, slightly below analyst expectations of $928.11 million [1] - Total sales remained essentially flat year over year, but diluted EPS increased by 20% compared to the prior-year period, driven by pricing benefits and improved profitability in both North America and Rest of World segments [2] Group 2: Full-Year 2025 Results - For the full year 2025, A.O. Smith reported record diluted EPS of $3.85, a 6% increase from 2024 [3] - Total sales were stable at approximately $3.8 billion, with North America showing slight growth while the Rest of World segment declined by 4%, primarily due to weaker demand in China [3] Group 3: Future Guidance - The company provided guidance for 2026, projecting revenue between $3.9 billion and $4.02 billion, and EPS in the range of $3.85 to $4.15 [3] - The midpoint of the EPS outlook suggests an approximate 4% growth compared to 2025 [3]

Core Insights - A. O. Smith Corporation (AOS) reported fourth-quarter 2025 adjusted earnings of 90 cents per share, exceeding the Zacks Consensus Estimate of 84 cents, marking a 6% year-over-year increase [1] - The company's net sales for the quarter were $912.5 million, falling short of the consensus estimate of $923 million, but remained stable year over year due to strong performance in the commercial water heater and boiler markets in North America [1] Financial Performance - For the full year 2025, A. O. Smith generated revenues of $3.83 billion, reflecting a 0.3% increase year over year, with adjusted earnings at $3.85 per share, up from $3.73 in 2024 [2] - North America sales increased by 3.5% year over year to $713.7 million, surpassing the estimated $702.5 million, driven by effective pricing strategies [3] - The Rest of the World segment reported sales of $205.7 million, down 13.1% year over year, with notable declines in China, although India saw an 18% increase in organic sales [4] Margin and Cost Analysis - A. O. Smith's cost of sales decreased by 2.1% year over year to $562.1 million, while selling, general, and administrative expenses rose by 2.5% to $186.6 million [5] - Gross profit increased by 3.6% year over year to $350.4 million, resulting in a gross margin of 38.4%, up from 37.1% in the previous year [5] Liquidity and Cash Flow - As of December 31, 2025, A. O. Smith's cash and cash equivalents totaled $174.5 million, down from $239.6 million at the end of December 2024 [6] - Long-term debt decreased to $112.7 million from $183.2 million at the end of December 2024, while cash provided by operating activities increased to $616.8 million from $581.8 million year over year [6] Share Repurchase and Future Outlook - In 2025, A. O. Smith repurchased 5.9 million shares for $400.8 million, with approximately 0.8 million shares remaining under the repurchase authorization [9] - The company expects to repurchase shares worth approximately $200 million in 2026, following a board decision to increase the buyback program by an additional 5 million shares [9] - A. O. Smith projects net sales for 2026 to be in the range of $3.90-$4.02 billion, with adjusted earnings per share expected between $3.85 and $4.15 [10]

Financial Data and Key Metrics Changes - The company reported sales of $3.8 billion in 2025, a slight increase over the previous year, with earnings per share (EPS) rising 6% to a record $3.85 [10][6] - Free cash flow for 2025 was $546 million, a 15% increase compared to 2024, with a free cash flow conversion rate of 100% [13][14] - The company returned $597 million to shareholders through dividends and share repurchases [6][14] Business Line Data and Key Metrics Changes - North America segment sales were $3 billion, slightly up from 2024, with a segment margin of 24.4%, an increase of 20 basis points year-over-year [10][11] - North America water heater sales increased by 1%, while boiler sales grew by 8% due to higher commercial and residential volumes [7][10] - Water treatment sales in North America decreased by 2%, but sales in priority channels grew by 10% [8][9] - Rest of the World segment sales decreased by 4% to $880 million, primarily due to lower sales in China [11][12] Market Data and Key Metrics Changes - In China, third-party sales decreased by 12% in local currency due to economic weakness and soft consumer demand [9][11] - The company expects China sales to decrease mid-single digits in 2026 due to ongoing market challenges [20][21] - The India business, including Pureit, is projected to grow approximately 10% as the company leverages brand synergies [21][28] Company Strategy and Development Direction - The company is focused on portfolio management, innovation, and operational excellence as key strategic priorities [22][24] - The acquisition of Leonard Valve is aimed at expanding into the water management market, enhancing digital capabilities and integrated product offerings [26][27] - The company plans to continue investing in gas tankless offerings and other energy-efficient products to maintain market leadership [16][22] Management's Comments on Operating Environment and Future Outlook - Management noted that the U.S. residential market is expected to remain flat to down due to pressures in new home construction [18][19] - The company anticipates a return to growth in China in the second half of 2026, driven by internal actions and market recovery [21][38] - Management expressed confidence in the company's ability to navigate competitive pressures and maintain profitability through strategic actions [28][29] Other Important Information - The company has increased its dividend for over 30 consecutive years, with a quarterly dividend of $0.36 per share approved [14][15] - The company expects to repurchase approximately $200 million of its stock in 2026 [17][15] Q&A Session Summary Question: What is driving the persistent downturn in residential volumes? - Management indicated that the downturn is primarily due to pressures in new home construction, with emergency and proactive replacements remaining stable [36][37] Question: What indicators suggest a return to growth in China? - Management highlighted the need to move past the impact of government subsidies and focus on remodeling and refurbishments as key drivers for growth [38] Question: Can you elaborate on the competitive intensity in the wholesale channel? - Management noted that competitive pressure is increasing due to low new home construction and retail gaining market share, but emphasized their strong position in both retail and wholesale channels [42][43] Question: What is the growth outlook for the water treatment business? - Management expressed optimism about continued growth and margin expansion in the water treatment business, driven by strategic focus and integration efforts [70][73]

Financial Data and Key Metrics Changes - The company reported sales of $3.8 billion in 2025, a slight increase over the previous year, with earnings per share (EPS) rising 6% to a record $3.85 [9][5][4] - Free cash flow for 2025 was $546 million, a 15% increase compared to 2024, driven by lower capital investments and higher earnings [12][10] - The company returned $597 million to shareholders through dividends and share repurchases [5][14] Business Line Data and Key Metrics Changes - North America segment sales were $3 billion, slightly increasing from 2024, with segment earnings of $728 million, up 2% year-over-year [9][10] - North America water heater sales increased by 1%, while boiler sales grew by 8% due to higher commercial and residential volumes [6][7] - Water treatment sales in North America decreased by 2%, but sales in priority channels grew by 10% [8][6] - Rest of the World segment sales decreased by 4% to $880 million, primarily due to a 12% decline in China [10][8] Market Data and Key Metrics Changes - In China, third-party sales decreased by 12% in local currency due to economic weakness and soft consumer demand [8][10] - The company anticipates a mid-single-digit decline in China sales for 2026, with expected challenges in the first half of the year [20][19] Company Strategy and Development Direction - The company aims to strengthen its portfolio through acquisitions, such as the recent acquisition of Leonard Valve, which expands its water management market reach [5][26] - Strategic priorities include portfolio management, innovation, and operational excellence to drive long-term growth [21][22] - The company is focusing on expanding its water treatment business and enhancing profitability through targeted investments [23][24] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating a dynamic environment, citing strong performance in commercial markets despite challenges in residential channels [4][5] - The outlook for 2026 includes an expected EPS range of $3.85-$4.15, reflecting a 4% growth over 2025 [14][15] - Management noted that the first half of 2026 may be particularly challenging due to subdued consumer demand in China [20][19] Other Important Information - The company has increased its dividend for over 30 consecutive years, with a quarterly dividend of $0.36 per share approved [14][13] - The company plans to repurchase approximately $200 million of its stock in 2026 [16][14] Q&A Session Summary Question: What is driving the persistent downturn in residential volumes? - Management indicated that the downturn is primarily due to pressures in new home construction, with emergency and proactive replacements remaining stable [35][36] Question: What indicators suggest a return to growth in China? - Management noted that the return to growth will be driven by moving past the phase of government subsidies and focusing on remodel and refurbishment needs [37][36] Question: Can you elaborate on the competitive intensity in the wholesale channel? - Management explained that competitive pressure is increasing due to low new home construction and retail gaining market share, but they maintain a strong position in both retail and wholesale channels [41][42] Question: How do you expect price costs to trend through the year? - Management expects to protect the price-cost relationship but acknowledges potential challenges due to rising input costs [55][54] Question: What are the growth prospects for Leonard Valve? - Management indicated that Leonard Valve has been growing at double digits, and they expect it to contribute approximately $70 million in sales in 2026 [54][53]

Financial Data and Key Metrics Changes - The company reported sales of $3.8 billion in 2025, a slight increase from the previous year [9] - Earnings per share (EPS) increased by 6% to a record $3.85, compared to adjusted earnings of $3.73 per share in 2024 [5][9] - Free cash flow reached $546 million in 2025, a 15% increase over 2024, with a conversion rate of 100% [12] Business Line Data and Key Metrics Changes - North America segment sales were $3 billion, slightly up from 2024, with a segment margin of 24.4%, an increase of 20 basis points year-over-year [9][10] - North America water heater sales increased by 1%, while boiler sales grew by 8% [6][9] - Water treatment sales in North America decreased by 2%, but sales in priority channels grew by 10% [7][8] - Rest of the World segment sales decreased by 4% to $880 million, primarily due to a 12% decline in China [10] Market Data and Key Metrics Changes - In China, third-party sales decreased by 12% in local currency due to economic weakness and soft consumer demand [8] - The company anticipates a mid-single-digit decline in China sales for 2026, with expected challenges in the first half of the year [19][20] Company Strategy and Development Direction - The company is focused on portfolio management, innovation, and operational excellence as key strategic priorities [22] - The acquisition of Leonard Valve is aimed at expanding into the water management market and enhancing digital capabilities [25][26] - The company plans to continue investing in gas tankless offerings and expects to generate strong free cash flow in 2026 [16] Management's Comments on Operating Environment and Future Outlook - Management noted that the softness in new home construction is expected to persist into 2026, impacting residential industry volumes [18][35] - The company is optimistic about returning to growth in China in the second half of 2026, driven by internal actions and market recovery [20][36] - The outlook for 2026 includes an expected EPS range of $3.85-$4.15, representing a 4% growth over 2025 [15] Other Important Information - The company returned $597 million to shareholders through dividends and share repurchases in 2025 [5][14] - The board approved a quarterly dividend of $0.36 per share, marking over 30 consecutive years of dividend increases [14] Q&A Session Summary Question: What is causing the persistent downturn in residential volumes? - Management indicated that the downturn is primarily due to pressures in new home construction, which is expected to continue without stimulus or lower interest rates [34][35] Question: What indicators suggest a return to growth in China? - Management highlighted the need to move past the phase of government subsidies and focus on remodel and refurbishment demand as key drivers for growth [36] Question: Can you elaborate on the competitive intensity in the wholesale channel? - Management noted that competitive pressure is increasing due to low new home construction and retail gaining market share, but they maintain a strong position in both retail and wholesale channels [41][42] Question: How will earnings and revenue cadence look in 2026? - Management expects a more normalized year in 2026, with a potential 50/50 split between the first and second halves, contrasting with previous years where the front half was stronger [44][45] Question: What are the growth prospects for Leonard Valve? - Leonard Valve is expected to contribute approximately $70 million in sales in 2026, with a growth rate in the double digits driven by digital market expansion [52][53]

Core Insights - A.O. Smith reported $912.5 million in revenue for Q4 2025, showing no year-over-year change, while EPS increased to $0.90 from $0.85 a year ago [1] - The revenue fell short of the Zacks Consensus Estimate by -1.15%, while the EPS exceeded the consensus estimate by +7.78% [1] Financial Performance - The company’s revenue in North America was $713.7 million, surpassing the average estimate of $708.74 million, reflecting a year-over-year increase of +3.5% [4] - Revenue from the Rest of World segment was $205.7 million, below the estimated $224.71 million, indicating a year-over-year decline of -13.1% [4] - Inter-segment sales reported at -$6.9 million, better than the average estimate of -$11.28 million, but showed a significant year-over-year decrease of -50.7% [4] Stock Performance - A.O. Smith shares have returned +3.9% over the past month, outperforming the Zacks S&P 500 composite, which saw a +0.8% change [3] - The stock currently holds a Zacks Rank 3 (Hold), suggesting it may perform in line with the broader market in the near term [3]

Full Year & Fourth Quarter 2025 Results January 29, 2026 Charles T. Lauber Executive Vice President and Chief Financial Officer Fourth Quarter 2025 Earnings Presentation 2 Stephen M. Shafer President and Chief Executive Officer Highlights North America Rest of World Helen E. Gurholt Vice President - Investor Relations, Financial Planning & Analysis Forward Looking Statements This presentation contains statements that we believe are "forward-looking statements" within the meaning of the Private Securities Li ...