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AOS Q3 Earnings Beat Estimates on Boiler Growth, Pricing
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Key Takeaways
A. O. Smith's adjusted EPS of 93 cents beat estimates, but earnings fell 1.1% year over year.
North America sales rose 3%, while China sales fell 17% amid weak demand and business disruptions.
A. O. Smith plans to sell an 81% stake in its China business in a deal valued at $400 million.
A. O. Smith Corporation (AOS - Free Report) reported third-quarter 2026 adjusted earnings of 93 cents per share, beating the Zacks Consensus Estimate of 90 cents by 3.3%. The bottom line declined 1.1% year over year, as lower residential water heater volumes and higher input costs weighed on profitability.
Net sales of $940.5 million missed the consensus estimate of $959.99 million by 2% and fell 0.2% year over year. North America sales rose 3%, supported by 13% boiler sales growth, pricing benefits and Leonard Valve, while China sales dropped 17% in local currency.
Segmental Details of AOS
A. O. Smith's quarterly sales in North America (comprising the United States and Canada operations) increased 3% year over year to $761.6 million. This uptick was driven by higher boiler volumes, benefits from pricing actions and a $15 million contribution from the Leonard Valve acquisition, partially offset by lower residential water heater volumes. Excluding Leonard Valve, organic sales increased 1%.
Segmental earnings were $179.9 million, up 0.1% year over year. The segment margin declined to 23.6% from 24.2% in the year-ago period, primarily due to lower residential water heater volumes and higher steel and freight costs. Higher boiler volumes, tariff refunds, pricing benefits and Leonard Valve contributions partially offset these headwinds.
Quarterly sales in the Rest of the World (including China, India and Europe) segment were $192.8 million, down 7.3% year over year. Sales included a favorable currency translation impact of $5 million, primarily related to China. Weak consumer demand and disruptions associated with the company's strategic assessment process affected China sales.
The segment's earnings were $10.5 million, down 31.8% year over year, due to lower China sales volumes, partially offset by continued cost-management actions. The segment margin declined to 5.4% from 7.4% in the year-ago quarter.
A. O. Smith Corporation Price, Consensus and EPS Surprise
AOS' cost of sales was $575.8 million, down 0.4% year over year. Selling, general and administrative expenses were $189.5 million, up 0.3% from the year-ago period.
Gross profit increased marginally year over year to $364.7 million from $364.5 million. The gross margin was 38.8% compared with 38.7% in the year-ago period. Interest expenses increased to $7.7 million from $3.6 million in the prior-year quarter.
AOS' Liquidity & Cash Flow
As of Sept. 30, 2026, AOS’ cash and cash equivalents totaled $234.5 million compared with $174.5 million at the end of December 2025.
At the end of the third quarter, long-term debt was $632.1 million compared with $112.7 million at the end of December 2025. The increase in the debt level was attributable to cash borrowed by the company under a new term loan for the acquisition of Leonard Valve.
In the first nine months of 2026, cash provided by operating activities totaled $429.4 million compared with $433.7 million in the year-ago period.
A. O. Smith's Share Repurchases
In the first nine months of 2026, A.O. Smith repurchased 4.2 million shares for $260.6 million. As of the end of the third quarter, approximately 1.6 million shares were left to be repurchased under the share repurchase authorization.
AOS maintained its full-year 2026 share repurchase target of approximately $300 million, reflecting its continued commitment to returning capital to shareholders.
AOS' China Business Divestiture
Oct. 27, 2026, A. O. Smith announced definitive agreements under which CPE will acquire an 81% interest in its China business. AOS will retain a 19% stake and enter into a long-term brand licensing agreement.
The transaction values the China business at approximately $400 million on a cash-free, debt-free basis. Including the present value of future licensing payments, the total value is expected to exceed $500 million. The transaction is expected to close in the first half of 2027, subject to regulatory approvals and customary closing conditions.
A. O. Smith's 2026 Outlook
A.O. Smith expects 2026 net sales, excluding China, in the range of $3.27-$3.29 billion, implying growth of approximately 4%. The company updated its guidance to exclude the China business following the announced sale of a majority interest in the business.
Management currently projects adjusted earnings per share, excluding China, in the band of $3.42-$3.52. The outlook also excludes approximately $20 million in estimated pretax restructuring and impairment expenses related to the North America water treatment business.
AOS’ Zacks Rank
The company currently carries a Zacks Rank #4 (Sell).
In the third quarter of 2026, Graco Inc. (GGG - Free Report) came out with quarterly earnings of $0.81 per share, missing the Zacks Consensus Estimate of $0.82 per share. This compares with earnings of $0.73 per share a year ago.
Graco reported revenues of $586.39 million in the quarter ended September 2026, missing the Zacks Consensus Estimate by 0.58%. This compares with year-ago revenues of $543.36 million.
Dover Corporation (DOV - Free Report) has reported third-quarter 2026 adjusted earnings of $2.88 per share, rising 10% year over year and beating the Zacks Consensus Estimate of $2.83 by 1.77%. The improvement reflected broad-based demand, higher revenues and operational execution.
Revenues increased 7.5% year over year to $2.23 billion, beating the Zacks Consensus Estimate of $2.20 billion by 1.47%. Organic revenues grew 7.1%. Our model expected organic revenues to rise 4%.
Allegion plc (ALLE - Free Report) reported third-quarter 2026 adjusted earnings of $2.60 per share, up 13% year over year. The figure beat the Zacks Consensus Estimate of $2.49 by 4.4%, supported by strong organic growth and margin expansion.
Revenues increased 9.6% year over year to $1.17 billion, beating the Zacks Consensus Estimate of $1.13 billion by 3.4%. Organic revenues grew 7.2%, driven by strength in the Americas non-residential business, volume growth and price realization.
View the Zacks #1 Rank List
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AOS Q3 Earnings Beat Estimates on Boiler Growth, Pricing
Key Takeaways
A. O. Smith Corporation (AOS - Free Report) reported third-quarter 2026 adjusted earnings of 93 cents per share, beating the Zacks Consensus Estimate of 90 cents by 3.3%. The bottom line declined 1.1% year over year, as lower residential water heater volumes and higher input costs weighed on profitability.
Net sales of $940.5 million missed the consensus estimate of $959.99 million by 2% and fell 0.2% year over year. North America sales rose 3%, supported by 13% boiler sales growth, pricing benefits and Leonard Valve, while China sales dropped 17% in local currency.
Segmental Details of AOS
A. O. Smith's quarterly sales in North America (comprising the United States and Canada operations) increased 3% year over year to $761.6 million. This uptick was driven by higher boiler volumes, benefits from pricing actions and a $15 million contribution from the Leonard Valve acquisition, partially offset by lower residential water heater volumes. Excluding Leonard Valve, organic sales increased 1%.
Segmental earnings were $179.9 million, up 0.1% year over year. The segment margin declined to 23.6% from 24.2% in the year-ago period, primarily due to lower residential water heater volumes and higher steel and freight costs. Higher boiler volumes, tariff refunds, pricing benefits and Leonard Valve contributions partially offset these headwinds.
Quarterly sales in the Rest of the World (including China, India and Europe) segment were $192.8 million, down 7.3% year over year. Sales included a favorable currency translation impact of $5 million, primarily related to China. Weak consumer demand and disruptions associated with the company's strategic assessment process affected China sales.
The segment's earnings were $10.5 million, down 31.8% year over year, due to lower China sales volumes, partially offset by continued cost-management actions. The segment margin declined to 5.4% from 7.4% in the year-ago quarter.
A. O. Smith Corporation Price, Consensus and EPS Surprise
A. O. Smith Corporation price-consensus-eps-surprise-chart | A. O. Smith Corporation Quote
A. O. Smith's Margin Details
AOS' cost of sales was $575.8 million, down 0.4% year over year. Selling, general and administrative expenses were $189.5 million, up 0.3% from the year-ago period.
Gross profit increased marginally year over year to $364.7 million from $364.5 million. The gross margin was 38.8% compared with 38.7% in the year-ago period. Interest expenses increased to $7.7 million from $3.6 million in the prior-year quarter.
AOS' Liquidity & Cash Flow
As of Sept. 30, 2026, AOS’ cash and cash equivalents totaled $234.5 million compared with $174.5 million at the end of December 2025.
At the end of the third quarter, long-term debt was $632.1 million compared with $112.7 million at the end of December 2025. The increase in the debt level was attributable to cash borrowed by the company under a new term loan for the acquisition of Leonard Valve.
In the first nine months of 2026, cash provided by operating activities totaled $429.4 million compared with $433.7 million in the year-ago period.
A. O. Smith's Share Repurchases
In the first nine months of 2026, A.O. Smith repurchased 4.2 million shares for $260.6 million. As of the end of the third quarter, approximately 1.6 million shares were left to be repurchased under the share repurchase authorization.
AOS maintained its full-year 2026 share repurchase target of approximately $300 million, reflecting its continued commitment to returning capital to shareholders.
AOS' China Business Divestiture
Oct. 27, 2026, A. O. Smith announced definitive agreements under which CPE will acquire an 81% interest in its China business. AOS will retain a 19% stake and enter into a long-term brand licensing agreement.
The transaction values the China business at approximately $400 million on a cash-free, debt-free basis. Including the present value of future licensing payments, the total value is expected to exceed $500 million. The transaction is expected to close in the first half of 2027, subject to regulatory approvals and customary closing conditions.
A. O. Smith's 2026 Outlook
A.O. Smith expects 2026 net sales, excluding China, in the range of $3.27-$3.29 billion, implying growth of approximately 4%. The company updated its guidance to exclude the China business following the announced sale of a majority interest in the business.
Management currently projects adjusted earnings per share, excluding China, in the band of $3.42-$3.52. The outlook also excludes approximately $20 million in estimated pretax restructuring and impairment expenses related to the North America water treatment business.
AOS’ Zacks Rank
The company currently carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank stocks here.
Performance of Other Companies
In the third quarter of 2026, Graco Inc. (GGG - Free Report) came out with quarterly earnings of $0.81 per share, missing the Zacks Consensus Estimate of $0.82 per share. This compares with earnings of $0.73 per share a year ago.
Graco reported revenues of $586.39 million in the quarter ended September 2026, missing the Zacks Consensus Estimate by 0.58%. This compares with year-ago revenues of $543.36 million.
Dover Corporation (DOV - Free Report) has reported third-quarter 2026 adjusted earnings of $2.88 per share, rising 10% year over year and beating the Zacks Consensus Estimate of $2.83 by 1.77%. The improvement reflected broad-based demand, higher revenues and operational execution.
Revenues increased 7.5% year over year to $2.23 billion, beating the Zacks Consensus Estimate of $2.20 billion by 1.47%. Organic revenues grew 7.1%. Our model expected organic revenues to rise 4%.
Allegion plc (ALLE - Free Report) reported third-quarter 2026 adjusted earnings of $2.60 per share, up 13% year over year. The figure beat the Zacks Consensus Estimate of $2.49 by 4.4%, supported by strong organic growth and margin expansion.
Revenues increased 9.6% year over year to $1.17 billion, beating the Zacks Consensus Estimate of $1.13 billion by 3.4%. Organic revenues grew 7.2%, driven by strength in the Americas non-residential business, volume growth and price realization.