AOS Building Products
A. O. Smith Corporation
A. O. Smith makes water heaters, boilers, and water treatment products. It believes it is the largest manufacturer and marketer of water heaters in North America, where 78% of its sales come from and much of the demand is for replacing existing units. FY2025 sales were flat at $3.83 billion; North America earned a 24.4% segment margin, while China sales fell 13% to $690 million. In Q3 2025 it began a strategic assessment of its China business. In January 2026 it acquired Leonard Valve for $470 million.
Last updated
Analysis last edited: October 7, 2026 · Financial data fetched: October 7, 2026 12:20 (SEC EDGAR) · Source 10-K filed: February 10, 2026
Next update expectedAfter FY2026’s 10-K is filed (roughly 60–90 days after fiscal year end (sooner for larger filers)), financials and analysis will be refreshed.
01
Company profile
- Legal name
- SMITH A O CORP
- Headquarters
- MILWAUKEE, WI
- Incorporated in
- Delaware
- Fiscal year end
- 12/31
- Exchange & ticker
- NYSE: AOS
- Industry
- Building Products
- CIK
- 91142
- Website
- https://www.aosmith.com/ ↗
Workforce (as of FY2025 year-end)
Employees
11,500
Source: Form 10-K (FY2025) cover page and business description
02
Earnings calendar
When the company reports each quarter: the quarter-end date, the day results were released, and when the 10-Q or 10-K was filed.
Next report
Q3 FY2026
Quarter end: September 2026. In past years, Q3 results were released 11–28 days after quarter end (Oct 28, 2025; Oct 11, 2024; Oct 26, 2023). No date has been announced in the sources this site uses.
Reporting pattern
- Fiscal year ends around December 31.
- Reports four times a year: three quarterly reports (10-Q) and an annual report (10-K) for Q4.
- Earnings releases came 11–30 days after quarter end over the last 12 quarters.
| Quarter | Quarter ended | Earnings release (8-K) | Report filed (10-Q / 10-K) |
|---|---|---|---|
| Q2 FY2026 | Jun 30, 2026 | Jul 30, 2026 (+30 days) | Jul 30, 2026 10-Q (+30 days) |
| Q1 FY2026 | Mar 31, 2026 | Apr 30, 2026 (+30 days) | Apr 30, 2026 10-Q (+30 days) |
| Q4 FY2025 | Dec 31, 2025 | Jan 29, 2026 (+29 days) | Feb 10, 2026 10-K (+41 days) |
| Q3 FY2025 | Sep 30, 2025 | Oct 28, 2025 (+28 days) | Oct 28, 2025 10-Q (+28 days) |
| Q2 FY2025 | Jun 30, 2025 | Jul 24, 2025 (+24 days) | Jul 24, 2025 10-Q (+24 days) |
| Q1 FY2025 | Mar 31, 2025 | Apr 29, 2025 (+29 days) | Apr 29, 2025 10-Q (+29 days) |
| Q4 FY2024 | Dec 31, 2024 | Jan 30, 2025 (+30 days) | Feb 11, 2025 10-K (+42 days) |
| Q3 FY2024 | Sep 30, 2024 | Oct 11, 2024 (+11 days) | Oct 23, 2024 10-Q (+23 days) |
| Q2 FY2024 | Jun 30, 2024 | Jul 23, 2024 (+23 days) | Jul 24, 2024 10-Q (+24 days) |
| Q1 FY2024 | Mar 31, 2024 | Apr 25, 2024 (+25 days) | Apr 26, 2024 10-Q (+26 days) |
| Q4 FY2023 | Dec 31, 2023 | Jan 30, 2024 (+30 days) | Feb 13, 2024 10-K (+44 days) |
| Q3 FY2023 | Sep 30, 2023 | Oct 26, 2023 (+26 days) | Oct 27, 2023 10-Q (+27 days) |
Source: SEC EDGAR filing history. Release dates are the dates the earnings release was furnished to the SEC on Form 8-K (Item 2.02), which is normally the day results are announced. Fiscal years are labeled by the calendar year in which they end.
03
Flagship products & services
North America
Water heaters
Examples: A. O. Smith, State, Lochinvar; ADAPT tankless, VERITUS heat pump, Cyclone Flex
Residential and commercial tank, tankless, heat pump, and solar units from 2.5 to 2,500 gallons.
North America
Boilers
Examples: Lochinvar
Residential and commercial boilers from 45,000 BTUs to 6.0 million BTUs, mainly for space heating.
North America
Water treatment
Examples: A. O. Smith, Aquasana, Hague, Water-Right
Water softeners, whole-home filtration, and reverse osmosis products.
North America
Water flow and temperature control
Examples: Leonard Valve
Acquired January 2026.
Rest of World
China and India products
Examples: Water heaters, reverse osmosis purifiers, kitchen products (China); Pureit purifiers (India)
From the FY2025 Form 10-K, Item 1.
04
Recent strategic focus
FY2025 developments from the 10-K, and 2026 events from 8-Ks.
Leonard Valve acquisition
Completed in January 2026 for $470M, funded with a new bank term loan; expected to add about $70M of 2026 sales.
Source: Form 10-K (FY2025)
China strategic assessment
Started in Q3 2025 to consider strategic partnerships and other alternatives; still ongoing as of July 2026.
Source: Form 10-K (FY2025); Q2 2026 earnings release
Q2 2026 results
Sales $1.00B (−1%); North America +5% with Leonard Valve and 21% boiler growth; Rest of World −19%. Full-year sales growth guidance was lowered to 2–3%.
Source: Q2 2026 earnings release (8-K filed 2026-07-30)
Leadership changes
Stephen Shafer, CEO since July 2025, also became Chairman on July 1, 2026; Carrie Anderson became CFO on July 1, 2026.
Source: 8-Ks filed 2026-05-19 and 2026-06-22
Capex ÷ D&A (FY2025)
0.83x
Roughly matches depreciation — mostly maintenance/replacement
formulacapital expenditures ÷ depreciation & amortization
e.g.$71M ÷ $85M = 0.83x
termsCapital expenditures (capex) · Depreciation & amortization (D&A)
R&D-to-revenue ratio (FY2025)
2.5%
formularesearch & development expense ÷ revenue × 100
e.g.$95M ÷ $3,830M × 100 = 2.5%
M&A spend (5-year total)
$378M
Latest year: $0
Cash-flow-statement spending on acquisitions, net of cash acquired
Where the money goes, over time
Unit: $M. Capex went from $75M in FY2021 to $71M in FY2025
- Capex
- R&D
- M&A spend
formulacapital expenditures ÷ depreciation & amortization
termsCapital expenditures (capex) · Depreciation & amortization (D&A)
Source: each period's Form 10-K (SEC EDGAR). Latest: filed 2026-02-10
05
Key figures at a glance
FY2021–FY2025, 5 years.
Revenue (FY2025)
$3.83B
As reported in the 10-K
Revenue CAGR (4 years)
+2.0%
formula(last-period revenue ÷ first-period revenue) ^ (1 ÷ years) − 1
e.g.($3,830M ÷ $3,539M) ^ (1÷4) − 1 = 2.0%
termsCAGR · ^ (exponent) · Revenue (net sales)
Operating margin (FY2025)
19.0%
-0.2pt vs. 4 years ago
formulaoperating income ÷ revenue × 100
e.g.$729M ÷ $3,830M × 100 = 19.0%
ROE (FY2025)
29.2%▲favorable
5-year average: 25.7%
As reported in the 10-K
P/B (FY2025 end)
4.99x
formulaP/E × EPS ÷ BVPS (= period-end share price ÷ book value per share)
e.g.17.4x × $3.85 ÷ $13.41 = 4.99x
Period-end (fiscal year-end) value, not today's P/B
EV/EBITDA (FY2025 end)
11.6x
formula(market cap + interest-bearing debt − cash and equivalents) ÷ (operating income + depreciation & amortization)
e.g.($9,487M + $155M − $175M) ÷ ($729M + $85M) = 11.6x
termsEV/EBITDA · Market capitalization · Interest-bearing debt · EBITDA · Depreciation & amortization (D&A)
Period-end (fiscal year-end) value, not today's multiple
- ―
Revenue grew +2.0% a year over 4 years (modest growth)
From $3.54B in FY2021 to $3.83B in FY2025. The annualized rate (CAGR) makes it possible to compare growth pace across companies of different sizes.
- ―
Operating margin held roughly flat: 19.3% → 19.0%
How much operating profit is left per $100 of revenue. It moved -0.2 points over 4 years — pricing power, cost control, and product mix all show up here.
- ▲
Equity ratio is 59.1% (a high level of financial stability)
The share of total assets funded by equity rather than debt. 50%+ is often read as low bankruptcy risk, though the right level varies by industry (real estate and leasing run lower, for instance).
- ▲
Free cash flow was positive in 5 of 5 years
Operating cash flow minus capital expenditures: the cash left over after funding the business’s own investment, available for dividends, buybacks, acquisitions, or debt paydown. A negative year can mean heavy investment, or weak core earnings — worth distinguishing.
- ▲
ROE averaged 25.7% over 5 years (latest: 29.2%)
How much profit was generated on shareholders’ equity. Roughly 10%+ is often cited as solid for a U.S. company, though this varies a lot by industry and capital intensity.
06
Business model
North America
Residential and commercial water heaters, boilers (Lochinvar brand), and water treatment products, mostly bought to replace existing units.
01 what it draws on
Inputs & resources
- Steel and components
- Plants in the U.S. and Mexico
- About 6,500 employees in North America
02 what it does
Activities
- Manufacturing water heaters, boilers, and water treatment products
- Selling through about 800 independent wholesale plumbing distributors, retail, and MRO channels
03 who it serves
Customers
- Wholesale distributors and contractors
- Home centers including Lowe's (exclusive A. O. Smith-brand relationship)
- Commercial buildings via manufacturer representatives
04 how money comes in
How it earns
- Product sales
North America: how it makes money
- Sales $2,984M and segment earnings $728M (24.4% margin) in FY2025.
- Water heaters and parts $2,460M; boilers $281M; water treatment $243M.
Rest of World
Water heaters, water treatment (mostly reverse osmosis), and kitchen products in China; water heaters and purifiers in India (including Pureit); and sales in Europe, the Middle East, and Vietnam.
01 what it draws on
Inputs & resources
- Global Engineering Center in Nanjing, China
- About 5,000 employees outside North America
02 what it does
Activities
- Manufacturing and marketing in China and India
03 who it serves
Customers
- Consumers via about 8,700 points of sale in China and e-commerce
- Wholesale, e-commerce, and retail channels in India
04 how money comes in
How it earns
- Product sales
Rest of World: how it makes money
- Sales $880M and segment earnings $76M (8.7% margin) in FY2025.
- China sales fell to $690M from $792M.
Revenue by segment (FY2025)
Unit: $M — bar length = revenue, (%) = share of total company revenue, margin = segment profit ÷ segment revenue × 100
North America
2,984 (77%)profit 728 · margin 24.4%
Rest of World
880 (23%)profit 76 · margin 8.6%
Source: Form 10-K (FY2025) — MD&A, segment results Profit is segment earnings. Inter-segment sales of −$34M are eliminated in total sales.
07
Where it earns
Many U.S.-listed companies earn most of their revenue outside the U.S. — this breaks down revenue by country/region so it's clear where the business actually makes its money.
Largest market (FY2025)
North America — 77% of revenue
Revenue by country / region (FY2025)
Unit: $M — bar length = revenue, (%) = share of total company revenue
North America
2,984 (77%)China
690 (18%)All other Rest of World
191 (5%)
Source: Form 10-K (FY2025) — Note on revenue disaggregation Segment sales before inter-segment eliminations of $34M.
08
Contract structure
Short-term or spot sales carry different earnings quality than long-term or auto-renewing contracts — this shows how the company actually contracts with its customers.
Sales are short-cycle product orders without significant backlogs. Some customers are contractually obligated to accept price changes tied to steel prices. The five largest customers made up about 41% of 2025 sales.
- Spot / one-off transaction
Water heaters and related parts (North America)
$2,460M (64% of FY2025 sales)
Typical term: Orders via wholesale, retail, and MRO channels
A significant portion is replacement demand.
- Spot / one-off transaction
Boilers and related parts
$281M (7%)
Typical term: Mainly via manufacturer representative firms
- Spot / one-off transaction
Water treatment (North America)
$243M (6%)
Typical term: Dealers, Amazon, e-commerce, home centers
- Spot / one-off transaction
Rest of World
$880M (23%)
Typical term: Retail outlets and e-commerce in China; wholesale, e-commerce, and retail in India
Source: Form 10-K (FY2025) — Item 1; Note on revenue disaggregation
09
Alliances & capital ties
Equity stakes, joint ventures, and strategic partnerships disclosed across the 10-K, 8-Ks, and proxy statement.
Business partnership
Lowe's
A long-standing exclusive relationship in which A. O. Smith sells A. O. Smith-branded products through Lowe's.
Source: Form 10-K (FY2025) — Item 1
10
Customers & suppliers
Who the company sells to and buys from. Companies rarely name either, so named counterparties come only from the company's own filings and press releases; otherwise this lists the concentration figures the 10-K discloses.
Customers
Wholesale plumbing distributors, home centers and hardware chains, MRO channels, water quality dealers, and consumers in China and India.
Named by the company
- Lowe's — Long-standing exclusive relationship for A. O. Smith-branded products.Form 10-K (FY2025) — Item 1
What the filings disclose
- The five largest customers represented about 41% of 2025 sales. (Form 10-K (FY2025), Risk Factors)
- Retail customers include four of the six largest national hardware and home center chains. (Form 10-K (FY2025), Item 1)
Suppliers
Steel is the main raw material and is generally available in adequate quantities.
Named by the company
None named in the 10-K or the company’s press releases.
11
Competitors & peers
Competitors the 10-K names, and the peer group the company itself chose in its proxy statement. Nothing here is this site's own pick.
A. O. Smith's 10-K names principal competitors by market and region. It competes on product design, reliability, quality, technology, energy efficiency, maintenance costs, and price.
Competitors named in the 10-K
Water heaters and boilers (North America)
Water treatment (U.S.)
Plus numerous regional assemblers.
China
Water heaters: Haier/Casarte, Midea/COLMO, Rinnai. Water treatment: Angel, Haier/Casarte, Midea/COLMO, Truliva.
India
Water heaters: Racold, Bajaj, Havells. Water treatment: Eureka Forbes, Kent.
Peer group the company chose
WTW compensation survey data, from the proxy statement. Peers are companies the board considers comparable — for example when setting executive pay — not necessarily direct competitors.
A. O. Smith doesn't use a named peer group. It benchmarks executive pay against WTW's survey database of over 800 companies, adjusted to similar revenue, and didn't rely on a specific subgroup of companies. Its pay-versus-performance disclosure compares returns with the S&P Select Industrials Index.
Source: Proxy statement (DEF 14A, filed 2026-03-04) — BenchmarkingCompany names link to this site’s analysis where one exists; “site ↗” opens the company’s own website.
12
M&A history
Companies acquired over the last five years, plus older large acquisitions that still anchor a current business — what each was bought to do, and what happened afterward. From the 10-K, 8-Ks, and the company's press releases.
Recent acquisitions extend A. O. Smith into water management and South Asian water purification.
Cash spent on acquisitions, FY2021–FY2025: $378M
Jan 2026
Leonard Valve (LVC Holdco LLC)
$470M, subject to customary adjustments
A manufacturer of water temperature and flow solutions.
- Stated purpose (company)
- A meaningful advancement into the water management market.
Nov 2024
Pureit (from Unilever)
About $125M
A water purification business in India and other South Asian markets.
- Stated purpose (company)
- To expand product offerings and geographic footprint.
13
Five years of financials
Each chart's axis holds a single unit (never mixing dollars, %, and $/share). The table's per-period header links to the filing the numbers came from.
Revenue over time
Unit: $M
Source: each period's Form 10-K (SEC EDGAR). Latest: filed 2026-02-10
Profit over time (operating → net)
Unit: $M
- Operating income
- Pretax income
- Net income
Source: each period's Form 10-K (SEC EDGAR). Latest: filed 2026-02-10
Margins over time
Unit: %
- Operating margin
- Net margin
formulaoperating income ÷ revenue × 100
formulanet income attributable to the company ÷ revenue × 100
Cash flow over time
Unit: $M (below zero = cash went out)
- Operating CF
- Investing CF
- Free CF
formulacash flow from operations − capital expenditures
termsFree cash flow (FCF) · Cash flow from operations (operating CF) · Capital expenditures (capex)
Source: each period's Form 10-K (SEC EDGAR). Latest: filed 2026-02-10
Financial stability & capital efficiency
Unit: %
- Equity ratio
- ROE
formulatotal equity ÷ total assets × 100 (as reported in the 10-K)
termsStockholders’ equity · Total assets
formulanet income ÷ average equity (beginning + ending, ÷2) × 100 (as reported in the 10-K)
termsNet income (attributable to the company) · Stockholders’ equity
Earnings per share (EPS) and dividend per share
Unit: $
- EPS
- Dividend per share
Source: each period's Form 10-K (SEC EDGAR). Latest: filed 2026-02-10
| Line item | FY202110-K on EDGAR ↗ | FY202210-K on EDGAR ↗ | FY202310-K on EDGAR ↗ | FY202410-K on EDGAR ↗ | FY202510-K on EDGAR ↗ |
|---|---|---|---|---|---|
| Income statement ($M) | |||||
| Revenue | 3,539 | 3,754 | 3,853 | 3,818 | 3,830 |
| Operating income | 682 | 362 | 746 | 708 | 729 |
| Pretax income | 626 | 224 | 734 | 701 | 715 |
| Net income (attributable) | 487 | 236 | 557 | 534 | 546 |
| Revenue growthcalc(this year’s revenue − last year’s revenue) ÷ last year’s revenue × 100 | — | 6.1% | 2.6% | -0.9% | 0.3% |
| Operating margincalcoperating income ÷ revenue × 100 | 19.3% | 9.6% | 19.3% | 18.5% | 19.0% |
| Net margincalcnet income attributable to the company ÷ revenue × 100 | 13.8% | 6.3% | 14.4% | 14.0% | 14.3% |
| Balance sheet ($M) | |||||
| Total assets | 3,474 | 3,332 | 3,214 | 3,240 | 3,143 |
| Total equity | 1,832 | 1,748 | 1,844 | 1,884 | 1,858 |
| Interest-bearing debtSum of short- and long-term borrowings, notes/bonds payable | 197 | 345 | 127 | 193 | 155 |
| Equity ratio | 52.7% | 52.4% | 57.4% | 58.1% | 59.1% |
| ROE | 26.6% | 13.2% | 31.0% | 28.6% | 29.2% |
| Cash flow ($M) | |||||
| Operating CF | 641 | 391 | 670 | 582 | 617 |
| Investing CF | -350 | 8 | -24 | -267 | -53 |
| Financing CF | -421 | -431 | -685 | -408 | -633 |
| Free cash flowcalccash flow from operations − capital expenditures | 566 | 321 | 598 | 474 | 546 |
| Cash and equivalents | 443 | 391 | 340 | 240 | 175 |
| Per share & other | |||||
| EPS ($) | 3.02 | 1.51 | 3.69 | 3.63 | 3.85 |
| BVPS ($) | 11.62 | 11.56 | 12.50 | 13.05 | 13.41 |
| Dividend per share ($) | 1.06 | 1.14 | 1.22 | 1.30 | 1.38 |
| Payout ratiocalcdividend per share ÷ diluted EPS × 100 | 35.1% | 75.5% | 33.1% | 35.8% | 35.8% |
| P/E (x) | 28.4 | 37.9 | 22.3 | 18.8 | 17.4 |
| EV/EBITDA (x)calc(market cap + interest-bearing debt − cash and equivalents) ÷ (operating income + depreciation & amortization) | 17.9 | 20.3 | 14.8 | 12.7 | 11.6 |
| P/B (x)calcP/E × EPS ÷ BVPS (= period-end share price ÷ book value per share) | 7.39 | 4.95 | 6.59 | 5.23 | 4.99 |
P/B and EV/EBITDA use each period’s period-end (fiscal year-end) figures, not the current share price. Figures without a "calc" tag are as reported in the Form 10-K (five-year selected financial data and the consolidated financial statements), pulled automatically from SEC EDGAR. Where a later filing restated a prior period, the restated figure is used.
14
Is ROIC above WACC?
ROIC (the return on money invested in the business) above WACC (the cost of raising that money) means the company is creating value. WACC is an estimate, so its assumptions can be adjusted below.
ROIC (FY2025)
28.1%
formulaoperating income × (1 − tax rate) ÷ invested capital × 100 *invested capital = interest-bearing debt + total equity (average of beginning/ending)
e.g.$729M × (1 − 21%) ÷ $2,045M × 100 = 28.1%
termsOperating income · Effective tax rate · Invested capital · Interest-bearing debt · Total equity
WACC (this site’s estimate)
8.05%
formulacost of equity × equity weight + cost of debt × (1 − tax rate) × debt weight
e.g.Equity weight: $9.49B ÷ ($9.49B + $155M) = 98.4%
e.g.Debt weight: $155M ÷ ($9.49B + $155M) = 1.6%
e.g.WACC: 8.1% × 98.4% + 8.7% × (1 − 21%) × 1.6% = 8.05%
termsCost of equity · Equity weight (E/(D+E)) · Cost of debt · (1 − tax rate) · Debt weight (D/(D+E)) · Market capitalization
WACC 8.05% is this site’s estimate under the assumptions below (not a figure the company has published)
- Risk-free rate
- 4%
- β
- 0.74 (price-derived adjusted beta)
- Equity risk premium
- 5.5%
- Cost of equity
- 8.07%
- Cost of debt
- 8.71%
- Effective tax rate
- 21%
- Capital structure (equity : debt)
- 98% : 2%
ROIC over time, vs. WACC
Unit: % — bars = each period's ROIC, horizontal line = latest WACC. Bars above the line are green, below are red
- ROIC (above WACC)
- ROIC (below WACC)
- WACC 8.05%
formulaoperating income × (1 − tax rate) ÷ invested capital × 100 *invested capital = interest-bearing debt + total equity (average of beginning/ending)
termsOperating income · Effective tax rate · Invested capital · Interest-bearing debt · Total equity
formulacost of equity × equity weight + cost of debt × (1 − tax rate) × debt weight
termsCost of equity · Equity weight (E/(D+E)) · Cost of debt · (1 − tax rate) · Debt weight (D/(D+E)) · Market capitalization
Try different WACC assumptions
β and the equity risk premium are estimates with a real range of plausible values — move the sliders to check whether ROIC > WACC still holds. The defaults reflect 2026-09.
Initial β: 0.74 (price-derived adjusted beta. Raw β 0.62, R² 0.14, 130 weeks)
formula0.67 × β + 0.33 (β = the slope of weekly stock returns regressed on weekly market returns)
e.g.0.67 × 0.619 + 0.33 = 0.744
termsβ (beta)
Period 2024-04-12–2026-10-06, using S&P 500 ETF (SPY) as the market proxy. Source: Yahoo Finance price history.
formularisk-free rate + β × equity risk premium
e.g.4.0% + 0.74 × 5.5% = 8.1%
termsCAPM · Risk-free rate · β (beta) · Equity risk premium (market risk premium)
formulaP/E × net income ≈ period-end share price × shares outstanding (= market cap)
termsP/E · Net income (attributable to the company) · Market capitalization · Market value of equity
formulainterest expense ÷ interest-bearing debt × 100 (clamped to 0–10%; falls back to the risk-free rate if there’s no debt)
15
What the price implies (DCF)
A company's value can be written as its free cash flow divided by (cost of capital − perpetual growth). Working that backwards from the market's valuation shows how much growth the share price assumed — compared here with the company's actual past growth.
Growth the price implies (FY2025)
2.3%
Perpetual FCF growth: g = r − FCF ÷ EV = 8.1% − 5.8%
Past FCF growth (FY2021–FY2025)
-0.9%
Compound annual rate, 4 years
Past revenue growth (FY2021–FY2025)
+2.0%
Compound annual rate, 4 years
Inputs (FY2025): free cash flow $546M (operating CF − capex); enterprise value $9.45B = market cap $9.49B + debt $155M − cash and short-term investments $193M; r = WACC of 8.1% using this page’s default assumptions (β 0.74, risk-free 4.0%, market premium 5.5%).
Try your own assumptions
V = FCF ÷ (r − g). It starts at the implied growth rate, where the theoretical value equals today’s enterprise value.
Theoretical enterprise value
$9.41B
FCF $546M ÷ (8.1% − 2.3%)
Theoretical ÷ actual enterprise value
1.00x
Below 1x: these assumptions value the business below the market did
How sensitive the answer is
Theoretical ÷ actual enterprise value for each combination of r and g.
| g \ r | 6.1% | 7.1% | 8.1% | 9.1% | 10.1% |
|---|---|---|---|---|---|
| 0% | 0.95x | 0.81x | 0.71x | 0.63x | 0.57x |
| 2% | 1.41x | 1.13x | 0.95x | 0.81x | 0.71x |
| 4% | 2.75x | 1.86x | 1.41x | 1.13x | 0.95x |
| 6% | 57.78x | 5.25x | 2.75x | 1.86x | 1.41x |
| 8% | — | — | 57.78x | 5.25x | 2.75x |
A simplified model for seeing what the market price assumes, not a forecast or a target price. It treats free cash flow as growing at one constant rate forever; the result swings widely with small changes in r and g, and is undefined when g reaches r. Free cash flow here is operating cash flow minus capex, which is after interest — a full DCF of enterprise value would use cash flow before interest. Market cap and enterprise value use the fiscal year-end price, not today’s.
16
Earnings quality
The same reported profit can mean different things depending on whether it's backed by cash, driven by the core business, or the result of a one-off item. Four checks below.
- ✓
Operating CF ÷ net income: averages 1.28x
Profit is backed by cash coming in.
- ✓
Accrual ratio (latest): -2.2%
A small share of profit rests on accounting estimates.
- ✓
Core-earnings share (operating income ÷ pretax income): 102%
Most profit comes from core operations.
- ✓
Days sales outstanding: 65 → 55 days
No major slowdown in collecting on sales.
Operating CF vs. net income
Unit: $M — operating CF above net income means profit is backed by cash
- Operating CF
- Net income
formulacash flow from operations ÷ net income attributable to the company
termsCash flow from operations (operating CF) · Net income (attributable to the company)
formula(net income − operating CF) ÷ average total assets × 100
termsNet income (attributable to the company) · Cash flow from operations (operating CF) · Total assets
Source: each period's Form 10-K (SEC EDGAR). Latest: filed 2026-02-10
Profit bridge (FY2025)
Unit: $M — what moved profit from operating income to net income
- Profit (each stage)
- Pushed profit up
- Pushed profit down
formulaoperating income ÷ income before income taxes × 100
termsOperating income · Income before income taxes (pretax income)
Source: each period's Form 10-K (SEC EDGAR). Latest: filed 2026-02-10
Receivables & inventory days
Unit: days — days grow when receivables or inventory build up faster than sales
- Days sales outstanding
- Days inventory outstanding
formulaperiod-end receivables ÷ revenue × 365
formulaperiod-end inventory ÷ revenue × 365
termsInventory · Revenue (net sales)
Worked examples (latest period)
formulacash flow from operations ÷ net income attributable to the company
e.g.$617M ÷ $546M = 1.13x
termsCash flow from operations (operating CF) · Net income (attributable to the company)
formulaoperating income ÷ income before income taxes × 100
e.g.$729M ÷ $715M × 100 = 102%
termsOperating income · Income before income taxes (pretax income)
formulaperiod-end receivables ÷ revenue × 365
e.g.$582M ÷ $3,830M × 365 = 55 days
17
Strengths & weaknesses
Strengths
1. North American leadership
A. O. Smith believes it is the largest manufacturer and marketer of water heaters in North America, with a leading share in both residential and commercial markets.
Evidence: Form 10-K (FY2025), Item 1
2. Replacement-driven demand
A significant portion of North America sales comes from replacing existing products.
Evidence: Form 10-K (FY2025), Item 1
3. High North America margin
North America segment margin was 24.4% in 2025 (24.0% in 2024).
Evidence: Form 10-K (FY2025), MD&A
4. Little debt and steady returns
Debt of $155M at year-end 2025; dividend per share rose from $1.06 (2021) to $1.38 (2025), and $400.8M of stock was repurchased in 2025.
Evidence: SEC EDGAR XBRL; Form 10-K (FY2025)
Weaknesses
1. Shrinking China business
China sales fell from $835M (2023) to $690M (2025), and fell another 28% in local currency in Q2 2026.
Evidence: Form 10-K (FY2025); Q2 2026 earnings release
2. Customer concentration
The five largest customers made up about 41% of 2025 sales.
Evidence: Form 10-K (FY2025), Risk Factors
3. Low growth
Sales were $3.85B, $3.82B, and $3.83B in 2023–2025.
Evidence: Form 10-K (FY2025)
18
What draws investors to it
Why the stock can look attractive to investors — each point paired with what has to hold for it to stay true, and the opposing view. This is this site's analysis, not a recommendation to buy or sell.
P/E (FY2025)
17.4x
Price at fiscal year-end ÷ diluted EPS
Dividend yield (FY2025)
2.06%
Dividends per share ÷ fiscal year-end price
Payout ratio (FY2025)
36%
Dividends per share ÷ diluted EPS
FCF yield (FY2025)
5.8%
(Operating CF − capex) ÷ market cap
1. Steady North American cash flow
A leading, replacement-driven water heater business with a segment margin near 24%.
- What has to hold
- Replacement demand and pricing hold.
- The other side
- Residential water heater volumes have been soft.
Evidence: Form 10-K (FY2025)
2. Shareholder returns
Rising dividends and buybacks; the 2026 repurchase target was raised to $300M.
- What has to hold
- Cash flow stays strong.
- The other side
- China results and the strategic assessment add uncertainty.
Evidence: Q2 2026 earnings release
The Smith family voting trust largely controls stockholder votes through Class A shares, which carry ten times the voting power of common shares.
19
Resilience
How well the company could absorb a bad year: its financial buffer, how its revenue and profit held up in the worst year on record, and what the 10-K says about the business's exposure to shocks. Figures and filing statements only — no overall rating.
1. Financial buffer (FY2025)
Cash & short-term investments ÷ debt due within a year
4.6x
$193M vs. $42M
Interest coverage (operating income ÷ interest expense)
54.0x
$729M vs. $14M
Free cash flow ÷ dividends paid
2.8x
$546M vs. $196M (FCF = operating CF − capex)
2. Worst year in the record, and the recovery
| Figure | Worst year-over-year change | Back to the prior level? |
|---|---|---|
| Revenue | -0.9% in FY2024 ($3.85B → $3.82B) | Not yet, as of FY2025 |
| Operating income | -46.9% in FY2022 ($682M → $362M) | Yes, by FY2023 |
Covers only the 5 fiscal years on record (FY2021–FY2025), which may not include a full recession — the worst year here isn’t necessarily how the company would fare in a severe downturn.
3. Business resilience (from the 10-K)
Low leverage
Debt of $155M at year-end 2025 before borrowing for Leonard Valve.
Source: SEC EDGAR XBRL; Form 10-K (FY2025)
Replacement demand
Much of North America demand comes from replacing failed units.
Source: Form 10-K (FY2025), Item 1
Cash generation
Operating cash flow of $617M against capital spending of $71M in 2025.
Source: SEC EDGAR XBRL
20
Risks (including geopolitical)
Starting from the 10-K's Risk Factors section, organized by category — geopolitical, currency, raw materials, regulatory, disaster, and more — with impact and likelihood assessed by this site.
Risk map
Vertical = impact on results, horizontal = likelihood. Upper right = most severe. Numbers match the list below (placement is this site’s own assessment).
Likelihood →
"Company disclosure" vs. "this site’s assessment"
The description and mitigation for each risk are this site’s summary of the 10-K’s "Risk Factors" section. Impact and likelihood are this site’s own assessment, not the company’s — where the company discloses its own likelihood assessment, that is noted in the summary.
Impact is judged from how large the affected business is relative to total revenue/profit, and from the risk’s track record of moving results in the past. Likelihood is judged from the filing’s wording and the current business environment (already occurring, or recurring).
- 1Demand & macro
Housing and construction weakness
- Company disclosure (summarized from the 10-K)
- Weaker North American residential or commercial construction or replacement markets, and lower U.S. residential water heater demand.
- Company’s stated mitigation
- Replacement demand and growth in boilers and commercial products.
- This site’s assessment
- Impact Med / Likelihood High
- 2Geopolitics & supply chain
China
- Company disclosure (summarized from the 10-K)
- Weak consumer demand and housing sales in China, and an ongoing strategic assessment that could lead to uncertain outcomes and costs.
- Company’s stated mitigation
- Restructuring actions taken at the end of 2024.
- This site’s assessment
- Impact Med / Likelihood High
- 3Costs & inflation
Steel and tariffs
- Company disclosure (summarized from the 10-K)
- Steel is the main raw material; steel cost volatility and tariffs raise input costs.
- Company’s stated mitigation
- Some customers are contractually obligated to accept steel-based price changes; pricing actions.
- This site’s assessment
- Impact Med / Likelihood High
- 4Law & regulation
Efficiency regulations
- Company disclosure (summarized from the 10-K)
- A DOE rule requiring condensing commercial water heaters takes effect in October 2026, and a residential rule promoting heat pump technology takes effect in 2029.
- Company’s stated mitigation
- Launched Cyclone Flex condensing units and expanded heat pump and tankless lines.
- This site’s assessment
- Impact Med / Likelihood Med
21
What to watch going forward
- Outcome of the China strategic assessment.
- North American residential water heater volumes.
- Effect of the October 2026 DOE commercial rule.
- Integration of Leonard Valve.
- Leadership changes: new CEO (2025), Chairman and CFO (2026).
22
Source documents
This page's financial figures come from the Form 10-Ks listed below. Check the original filings for full detail.
Last updated
Analysis last edited: October 7, 2026 · Financial data fetched: October 7, 2026 12:20 (SEC EDGAR) · Source 10-K filed: February 10, 2026
Next update expectedAfter FY2026’s 10-K is filed (roughly 60–90 days after fiscal year end (sooner for larger filers)), financials and analysis will be refreshed.
This page is this site’s own analysis based on public information, and does not represent A. O. Smith Corporation’s views. It is not a recommendation to buy or sell any security, and this site does not guarantee the accuracy of any figure or statement here. Always verify against the original source documents before making an investment decision.