A. O. Smith (NYSE:AOS) reported second-quarter 2026 sales of approximately $1 billion and adjusted earnings per share of $1.03, as growth in its North American businesses and stronger cash flow were partly offset by continued weakness in China.
Chief Executive Officer Stephen Shafer said the company gained traction in North America, where sales increased 5% year over year to $821 million. Organic sales, excluding the Leonard Valve acquisition, rose 3%. Leonard Valve, acquired earlier this year to expand A. O. Smith’s water-management and digital-control capabilities, contributed $16 million in second-quarter sales.
North America growth led by boilers
North America’s organic growth was driven primarily by a 21% increase in boiler sales, as well as carryover pricing in water heaters. Boiler sales were up 12% in the first half of 2026. Lauber said commercial boiler demand was strong during the quarter, including seasonal orders tied to early-buy programs, while residential boiler demand also remained favorable.
North America water heater sales increased 2%, though residential water heater industry demand remained pressured by weak new construction and existing-home sales. Shafer said the company has continued to make progress stabilizing market share, particularly in the wholesale channel, where it has taken targeted steps to regain share.
North America water treatment sales declined 2%, as growth in the company’s priority dealer channel was offset by softer demand in other channels. A. O. Smith is taking steps to optimize its water treatment footprint and streamline its brand portfolio. Those actions are expected to generate annual savings of approximately $6 million to $8 million beginning in 2027.
North America adjusted segment earnings were $200 million, modestly above the prior-year period, while adjusted segment margin declined 100 basis points to 24.4%. Higher steel and other input costs largely offset the benefits of organic growth and Leonard Valve. Steel costs rose about 20% year over year in the second quarter, Lauber said.
China weakness continues as strategic review nears conclusion
Rest of World sales declined 19% to $195 million, reflecting lower volumes in China amid weak consumer demand. China sales fell 28% in local currency, with particular pressure in the premium appliance segment. Favorable foreign-currency translation partly offset the decline.
Rest of World segment earnings fell to $10 million, with segment margin declining to 5.2%, primarily because of lower China sales volumes. The company said continued cost-management efforts provided a partial offset.
Shafer said A. O. Smith’s strategic assessment of its China business is nearing completion and that all potential outcomes remain under consideration. The company expects to provide a conclusion by its next quarterly earnings call. Shafer said management has gained greater clarity on changes needed to position the business for success, whether those changes are led by A. O. Smith, a partner, or another party.
Cash flow supports higher repurchase target
A. O. Smith generated first-half free cash flow of $233 million, a 67% increase from the same period in 2025. Lauber attributed the increase primarily to working-capital management, which more than offset lower earnings.
The company ended the quarter with $181 million in cash and net debt of $456 million. Its leverage ratio, measured as total debt to total capital, was 25.7%, reflecting financing for the Leonard Valve acquisition.
Supported by cash flow performance and its confidence in the business, A. O. Smith increased its 2026 share repurchase target by 50% to $300 million from $200 million. The company repurchased approximately 2.6 million shares for $162 million in the first half. Its board also approved a quarterly dividend of $0.36 per share.
Guidance narrowed on softer residential water heater demand
The company narrowed its full-year outlook, now expecting sales growth of approximately 2% to 3% and adjusted EPS of $3.70 to $3.85. Previously, it projected sales growth of 2% to 4% and adjusted EPS of $3.70 to $4.00.
The change was driven by softer-than-expected demand in the North American residential water heater market. A. O. Smith now expects U.S. residential water heater industry demand to decline at a low-double-digit rate for the year, compared with its earlier outlook of flat to down low double digits.
- North America boiler sales growth is still expected to be 6% to 8% for the full year.
- North America water treatment sales are still expected to rise 5% to 6%.
- Leonard Valve is expected to contribute about $70 million in full-year sales.
- China sales are still expected to decline at a low-double-digit rate in local currency.
- U.S. commercial water heater industry volumes are still expected to be approximately flat with last year.
Anderson said second-quarter results benefited from boiler early-buy programs and customer purchases ahead of announced water heater and boiler price increases, moving some expected third-quarter demand into the second quarter. Pricing actions of 4% to 7% are expected to begin contributing around the middle of the third quarter, with a fuller benefit in the fourth quarter.
Management expects steel inflation to be somewhat higher in the second half than in the first half, while tariffs and non-steel inflation, including transportation and oil-based materials, will remain headwinds. The company expects its overall price-cost relationship to be relatively neutral in the second half. It said third-quarter EPS is expected to be lower than both the second and fourth quarters because of demand pull-forward, rising costs, tariff effects and continued China weakness.
About A. O. Smith (NYSE:AOS)
A. O. Smith Corporation, based in Milwaukee, Wisconsin, is a leading manufacturer of water heating and water treatment products for residential and commercial applications. Since its founding in 1874, the company has built a reputation for producing reliable, energy-efficient water heaters, boilers and pressure vessels. Its product portfolio encompasses gas, electric, condensing and tankless water heaters, as well as specialty boilers designed to meet a variety of building and industrial needs.
The company operates through two primary segments: North America and Asia.
