A. O. Smith(AOS 0.45%) reported second quarter 2025 results on July 24, 2025, posting sales of $1 billion, and earnings per share (EPS) of $1.07.
Management raised full-year 2025 EPS guidance to $3.70–$3.90 per share and increased expected 2025 share repurchases to approximately $400 million. The following insights highlight critical updates on strategic reviews, operational execution, and innovation that impact A. O. Smith’s long-term investment outlook.
Launches strategic review of China business
The China segment reported an 11% year-over-year sales decline in local currency, pressured by weak consumer confidence and inconsistent government subsidies, contrasting with India’s 19% local-currency growth. Management has begun evaluating a wide range of strategic options for China, including potential partnerships or alternatives beyond ongoing restructuring, marking a new approach after already executing $15 million in annualized cost saves from prior initiatives.
"We are also announcing today that we are initiating a process to further assess our China business in an effort to ensure that it's best positioned to compete and succeed in the future. We intend to evaluate a broad range of options in addition to further business improvement, including strategic partnerships and other alternatives."
— Stephen Shafer, Chief Executive Officer
Explicit consideration of structural options for China signals a potential inflection point for company portfolio management, introducing near-term uncertainty but also raising the possibility of unlocking trapped value or mitigating downside risk associated with prolonged market stagnation.
Margin improvement in North America
Segment operating margin in North America expanded 30 basis points year over year to 25.4%, despite a 2% year-over-year decline in water heater sales and overall segment sales down 1% year over year. Improved channel mix in water treatment, alongside higher-margin high-efficiency boiler sales (up 6% year over year), offset industry-wide volume volatility due to front-loaded pre-buying and tariff timing.
"In addition to the growth in these priority channels, we are pleased with the improved profitability it provided, which helped contribute to North America segment operating margin expansion in the quarter."
— Stephen Shafer, Chief Executive Officer
A. O. Smith’s ability to deliver margin accretion amid volume headwinds demonstrates operational agility and validates the effectiveness of proactive customer management and high-value channel emphasis in defending profitability during transitional periods.
Continued investment in innovation
The company highlighted multiple recent product launches, including the industry-first Adapt SC tankless water heater, whole-house PFAS-removing Home Shield filter, and upcoming Cyclone Flex commercial water heater, all tied to both regulatory preparedness and premium market positions. These launches coincide with the commissioning of a new product development center in Tennessee and the addition of a Chief Technology Officer with strong industrial credentials.
"We have also just launched our Home Shield Whole House Water Filter, which is certified to reduce PFAS to less than four parts per trillion for 500,000 gallons of water. … Next month, we will introduce the Cyclone Flex, the next generation of our industry-leading commercial water heater … best positioned for the 2026 regulatory change in the commercial market and remain the industry's number one specified commercial gas water heater."
— Stephen Shafer, Chief Executive Officer
These innovation initiatives reinforce A. O. Smith’s ability to address evolving regulatory requirements and sustain premium market share, while the new CTO and R&D investments are likely to accelerate product differentiation and long-term growth opportunities.
Looking ahead
Management raised expected full-year 2025 sales growth to 1%–3% year over year and narrowed non-GAAP EPS guidance to $3.70–$3.90 for full-year 2025, accounting for a projected 15% steel cost increase and a full-year 5% tariff headwind.
The company expects North America segment margin of 24%–24.5% for full-year 2025 and Rest of World margin of 8%–9%, with $500 million–$525 million in free cash flow generation (non-GAAP) and $90 million–$100 million in capital expenditures for full-year 2025.
Strategic capital deployment will prioritize M&A aligned with core or adjacent growth platforms, while the China business review remains ongoing with no outcome or timetable specified.
