A. O. Smith’s third quarter results saw a negative market reaction, reflecting investor concern over persistent challenges in China and muted organic growth. Management attributed the quarter’s performance to strong commercial water heater and boiler volumes in North America, which benefited from pricing actions and production efficiency initiatives. CEO Stephen Shafer noted, “Our market-leading high-efficiency condensing gas and heat pump products continue to have a compelling payback story in commercial applications.” On the other hand, ongoing economic challenges and reduced government stimulus in China contributed to a 12% decline in sales there, adding pressure to segment results.
Is now the time to buy AOS? Find out in our full research report (it’s free for active Edge members).
A. O. Smith (AOS) Q3 CY2025 Highlights:
- Revenue: $942.5 million vs analyst estimates of $947.1 million (4.4% year-on-year growth, in line)
- EPS (GAAP): $0.94 vs analyst estimates of $0.91 (3% beat)
- Adjusted EBITDA: $197.2 million vs analyst estimates of $193.4 million (20.9% margin, 2% beat)
- The company dropped its revenue guidance for the full year to $3.83 billion at the midpoint from $3.89 billion, a 1.7% decrease
- EPS (GAAP) guidance for the full year is $3.78 at the midpoint, missing analyst estimates by 1.6%
- Operating Margin: 18.6%, in line with the same quarter last year
- Organic Revenue rose 2.5% year on year vs analyst estimates of 3.4% growth (84.6 basis point miss)
- Market Capitalization: $9.14 billion
While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.
Our Top 5 Analyst Questions From A. O. Smith’s Q3 Earnings Call
- Saree Boroditsky (Jefferies) asked about A. O. Smith’s competitive positioning in China and the impact of subsidy removal. CEO Stephen Shafer explained that both weaker overall demand and heightened promotional activity are increasing market pressure, but the brand remains strong.
- Bryan Blair (Oppenheimer) inquired about the timeline and scope of the China strategic review. Shafer stated the process is still early, with all outcomes being considered, and that third-party analysis has confirmed key challenges and opportunities.
- Jeffrey Hammond (KeyBanc Capital Markets) questioned the outlook for U.S. residential water heater volumes and market share gains. CFO Charles Lauber said the company now expects flat to slightly down volumes, mainly due to softer new construction, but noted that production efficiency has helped regain share.
- David S. MacGregor (Longbow Research) asked for an update on the gas tankless water heater rollout and its margin impact. Shafer described continued product development and manufacturing progress, while Lauber noted the margin drag is lessening as the business scales.
- Adam Farley (Stifel) queried about Q4 expectations for China, given shopping holidays and recent sales trends. Lauber confirmed that volumes typically rise in Q4, but uncertainty remains due to the end of subsidies and increased competition.
Catalysts in Upcoming Quarters
Looking ahead, our analysts will be tracking (1) the pace of recovery or further restructuring in the China segment, (2) the company’s ability to offset rising tariffs and input costs through pricing and efficiency, and (3) continued performance in North American commercial water heaters and boilers. Developments in digital strategy and any M&A activity will also be important signs of A. O. Smith’s execution on its long-term strategy.
A. O. Smith currently trades at $66, down from $68.61 just before the earnings. Is the company at an inflection point that warrants a buy or sell? Find out in our full research report (it’s free for active Edge members).
Our Favorite Stocks Right Now
Trump’s April 2025 tariff bombshell triggered a massive market selloff, but stocks have since staged an impressive recovery, leaving those who panic sold on the sidelines.
Take advantage of the rebound by checking out our Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today.
StockStory is growing and hiring equity analyst and marketing roles. Are you a 0 to 1 builder passionate about the markets and AI? See the open roles here.
