Key Highlights

  • EPS of USD 0.93 beat the consensus estimate of USD 0.90, though below USD 0.94 a year earlier.
  • Net sales of USD 940.5 million slipped from USD 942.5 million and missed the consensus estimate of USD 960.2 million.
  • Gross profit margin edged up to 38.8% from 38.7%, while North America segment margin slipped to 23.6% from 24.2%.
  • An agreement to sell an 81% interest in the China business values that unit at about USD 400 million.

A. O. Smith Corporation (NYSE:AOS) reported third quarter 2026 diluted earnings per share of USD 0.93, above a consensus estimate of USD 0.90 and below USD 0.94 in the same quarter last year. Net sales were USD 940.5 million, compared with USD 942.5 million a year earlier and a consensus estimate of USD 960.2 million. Net earnings were USD 126.3 million versus USD 132.0 million, and GAAP and adjusted results were identical for the quarter because the nine month restructuring charges were not recorded in the third quarter.

Segments Split Between North America and China

North America net sales rose 3% to USD 761.6 million, helped by about USD 14.8 million from the Leonard Valve acquisition, a 13% increase in boiler sales and pricing, while water heater sales declined 1%. Segment earnings were flat at USD 179.9 million, and segment margin narrowed to 23.6% from 24.2% on lower residential water heater volumes and higher steel and freight costs, partly offset by boiler volumes and IEEPA tariff refunds.

Rest of World net sales fell 7% to USD 192.8 million, as China sales dropped 17% in local currency on weak consumer demand and disruption from the strategic assessment. Segment earnings fell to USD 10.5 million from USD 15.4 million, and margin slid to 5.4% from 7.4%. Interest expense rose to USD 7.7 million from USD 3.6 million on debt used to fund the acquisition, and the effective tax rate was 24.2% against 23.2%.

China Sale and Capital Allocation

On October 27, 2026, the company announced definitive agreements with CPE to sell an 81% interest in its China business, retaining 19% and a long term brand licensing arrangement. The transaction values the unit at about USD 400 million on a cash free, debt free basis, before the licensing royalty stream. Closing is projected for the first half of 2027, subject to regulatory approvals, and the company intends to prioritize share repurchases with after tax proceeds.

Leonard Valve was acquired on January 6, 2026 for USD 469.5 million, funded with a new three year USD 470 million term loan. Total debt to total capitalization stood at 27.0% versus 7.7% at year end. In the third quarter the company repurchased 1,598,303 shares at an average of USD 61.44 for USD 98.2 million, and it declared a quarterly dividend of USD 0.38 per share payable November 16, 2026.

Signposts for the Fourth Quarter and 2027

The company plans to classify the China business as held for sale and report it as discontinued operations beginning in the fourth quarter of 2026, with prior periods recast. The company also plans to review its segment reporting structure in the same quarter.

Other markers include 1,604,001 shares remaining on the repurchase authorization, the first half 2027 closing window, and cash flow figures: operating cash flow of USD 429.4 million and free cash flow of USD 396.2 million for nine months, up from USD 380.5 million. Cash stood at USD 234.5 million, and USD 500.0 million of revolving credit capacity was undrawn.