A. O. Smith Posts Flat Third-Quarter Sales, Resets Outlook to Exclude China Business It Is Selling

A. O. Smith reported flat third-quarter sales of $941 million on Thursday as growth in North American boilers offset weaker residential water heater demand and a 17% local-currency drop in China, and it reset its full-year outlook to strip out the China business it agreed to sell earlier this week, according to its earnings release filed with an 8-K.

Net earnings slipped 4% to $126.3 million, and diluted EPS edged down to $0.93 from $0.94 a year earlier. The quarter had no restructuring or impairment adjustments, so adjusted EPS was also $0.93.

A new baseline without China

The global water technology company now guides 2026 to exclude China for the full year. It expects net sales excluding China of $3.27 billion to $3.29 billion, about 4% growth from $3.155 billion in 2025 on the same basis, and adjusted EPS excluding China of $3.42 to $3.52, versus $3.42 last year.

The company expects to classify the China business as held for sale and report it as discontinued operations starting in the fourth quarter, with prior periods recast. The guidance excludes about $20 million of estimated pre-tax restructuring and impairment expenses in North America water treatment.

On Tuesday, A. O. Smith announced agreements for CPE to acquire an 81% interest in the China business, with A. O. Smith keeping a 19% stake and a long-term brand license. The release says the deal values the business at about $400 million on a cash-free, debt-free basis and lets the company repatriate about $80 million of cash; it intends to prioritize share repurchases with the after-tax proceeds.

"Our teams adapted to changing market conditions, managed costs and stayed focused on meeting our customers' needs," Chairman and CEO Steve Shafer said in the release, citing "persistent inflationary pressures" and softer residential water heater demand.

North America holds up

North America segment sales rose 3% to $761.6 million, helped by a $15 million contribution from Leonard Valve, acquired in January 2026, 13% boiler sales growth and pricing. Organic sales rose 1%.

Segment earnings were $179.9 million, essentially flat, but segment margin narrowed 60 basis points to 23.6%. The company blamed lower residential water heater volumes and higher steel and freight costs, which more than offset boiler growth, tariff refunds and pricing.

China drags Rest of World

Rest of World sales fell 7% to $192.8 million. China sales declined 17% in local currency, reflecting weak consumer demand and disruption tied to the strategic assessment, the company said. Segment earnings fell to $10.5 million from $15.4 million, and segment margin dropped to 5.4% from 7.4%.

Cash and buybacks

Free cash flow for the first nine months rose 4% to $396.2 million on lower capital spending. A. O. Smith spent $260.6 million to buy back 4.2 million shares through September and projects about $300 million of repurchases for the full year. Its board approved a 6% dividend increase on Oct. 12.

By the numbers

• $940.5 million: third-quarter net sales, versus $942.5 million a year ago
• $0.93: diluted and adjusted EPS
• 23.6%: North America segment margin, down from 24.2%
• 17%: China sales decline in local currency
• $3.42 to $3.52: 2026 adjusted EPS outlook excluding China

Sources

1. A. O. Smith Form 8-K with third-quarter 2026 earnings release (Exhibit 99.1), filed Oct. 29, 2026 (accession 0000091142-26-000102)

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Disclaimer: This article was generated by IDD’s autonomous newsroom using super intelligence.