A. O. Smith (AOS -2.58%), a leading manufacturer of water heaters and boilers, reported its quarterly results on July 24, 2025, for the second quarter of fiscal 2025. The company beat analyst estimates, posting GAAP earnings per share of $1.07 versus the $0.99 consensus, and revenue of $1.01 billion against the $996.6 million forecast. However, both profit and sales showed modest year-over-year declines. Management raised its full-year financial outlook, citing ongoing strength in North American margins and improved cost control, but highlighted ongoing challenges with weak China demand and tariff impacts. Overall, the quarter showed operational resilience despite global volatility.
| Metric | Q2 2025 | Q2 2025 Estimate | Q2 2024 | Y/Y Change |
|---|---|---|---|---|
| EPS (GAAP) | $1.07 | $0.99 | $1.06 | 0.9 % |
| Revenue (GAAP) | $1.01 billion | $996.6 million | $1.02 billion | -1.0 % |
| Net Earnings | $152.2 million | $156.2 million | (2.6 %) | |
| Operating Margin – North America | 25.4 % | 25.1 % | 0.3 pp | |
| Operating Margin – Rest of World | 10.5 % | 10.6 % | (0.1) pp |
Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q1 2025 earnings report.
Overview of A. O. Smith's Business and Strategy
A. O. Smith is one of the largest North American makers of residential and commercial water heaters, boilers, and water treatment equipment through a wide distribution network, including a long-standing relationship with Lowe's.
Recent business focus centers on market leadership in North America, energy-efficient innovation, and growth in international markets like China and India. Key success factors include managing raw material costs, expanding its product range such as high-efficiency water heaters, and maintaining strong partnerships in both domestic and global distribution.
Quarter in Review: Financial and Operational Highlights
The company delivered financial results that, while down from the prior year, outperformed expectations. GAAP EPS exceeded consensus, and revenue exceeded forecasts by $14.7 million. Management cited strong margin management in North America and tight cost controls as drivers.
In the North America segment, sales dipped to $779.0 million from $790.7 million one year earlier. Operating margin improved by 0.3 percentage points to 25.4%, driven by growth in high-efficiency water heaters. Segment earnings remained flat. The company’s strategy of level-loading production helped smooth out any market disruption from anticipated price changes.
The Rest of World segment, which includes international markets such as China and India, reported a 2% drop in sales to $240.1 million. Segment profit also edged lower, with operating margin slipping slightly to 10.5%. Persistent weakness in China impacted the overall result, as local currency sales there fell 11 %. The company began a formal review of its China business, including potential partnerships or other strategic moves. sales in the legacy India business grew 19% in local currency, boosted by solid demand and contributions from the newly acquired Pureit brand of water filters and treatment devices, which added $16 million in sales.
Pricing actions have been deployed to manage new import tariffs, with up to a 6-8% increase in cost of goods sold anticipated annually due to tariff headwinds. The transition of its tankless water heater production to Mexico, away from China, is a key supply chain initiative designed to address these pressures. Management has stated that these interventions, along with close coordination with customers, are helping to stabilize production and manage market pricing events.
Operationally, the company demonstrated discipline in capital spending and cash flow. Free cash flow (non-GAAP) for the first half of 2025 totaled $139.9 million, up 17.4% from the same period last year. Share repurchases also ramped up, with $251.3 million spent in the first half of 2025, exceeding last year’s pace. The quarterly dividend remained at $0.34 per share, consistent with previous payouts.
Looking Ahead: Guidance and Risks
Management raised its outlook for fiscal 2025, expecting consolidated sales to increase between 1% and 3% for full year 2025, an upward revision from flat to 2 % growth. The EPS guidance midpoint also moved higher, with projected full-year GAAP earnings per share between $3.70 and $3.90 for FY2025. Adjusted (non-GAAP) EPS guidance matches these targets for FY2025. This guidance does not include any possible impact from acquisitions or major changes resulting from the China business review.
Looking forward, investors should watch several dynamics. Management continues to focus on North American market leadership, but soft replacement demand or rising competitive pressure could challenge revenue growth. The China business remains under review, and any significant move—such as a partnership or restructuring—could materially affect future performance. Ongoing trade tariffs and their effect on the supply chain will remain a central theme in future earnings updates. Expectations are to complete about $400 million in share buybacks in 2025, while capital expenditures are projected to be between $90 million and $100 million for FY2025.
The quarterly dividend was held steady at $0.34 per share.
Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.
