A. O. Smith tops Q3 profit estimates, misses on revenue

A. O. Smith Corporation (AOS) said in a news release on Oct. 29 that third-quarter 2026 net sales were $940.5 million and diluted earnings per share were 93 cents. The company topped the 91-cent EPS estimate compiled by Finnhub but came in below the $969.84 million revenue estimate from the same source.

The company also updated its 2026 guidance to exclude its China business and said it expects to report that business as discontinued operations beginning in the fourth quarter.

Here's how the company did:

• Net sales: $940.5 million vs. $942.5 million a year earlier, and $969.84 million expected, according to Finnhub
• Net earnings: $126.3 million vs. $132.0 million a year earlier
• Diluted EPS: 93 cents vs. 94 cents a year earlier, and 91 cents expected, according to Finnhub

Segment results

North America sales rose 3% to $761.6 million. The company said the increase was driven by higher boiler volumes, pricing benefits and a $15 million sales contribution from Leonard Valve, which it acquired in January 2026.

Excluding Leonard Valve, North America organic sales increased 1%. Segment margin fell to 23.6% from 24.2% a year earlier, which the company attributed mainly to lower residential water heater volumes and higher steel and freight costs.

Rest of World sales fell 7% to $192.8 million. China sales decreased 17% in local currency, reflecting weak consumer demand and disruption tied to the strategic assessment. Segment margin was 5.4%, compared with 7.4% a year earlier.

China sale and 2026 guidance

On Oct. 27, the company agreed to let CPE acquire an 81% interest in its China business. A. O. Smith will keep a 19% stake and enter a long-term brand license agreement. The company said the transaction values the China business at approximately $400 million on a cash-free, debt-free basis, and that total value is expected to exceed $500 million including licensing economics.

The company expects to repatriate about $80 million in cash now held in China. The transaction is expected to close in the first half of 2027, subject to regulatory approvals and other customary closing conditions.

Chairman and CEO Steve Shafer said, "For A. O. Smith, this transaction completes our strategic assessment and enables us to focus our capital and resources on our highest-return opportunities and sustainable value creation."

Excluding China, the company now expects 2026 net sales growth of approximately 4% and adjusted EPS of $3.42 to $3.52. That guidance excludes about $20 million of North America water treatment restructuring and impairment expenses. The company's July 30 adjusted EPS range was $3.70 to $3.85, but the new range excludes China and is not directly comparable.

Dividend and share repurchases

On Oct. 12, the board approved a 6% increase in the dividend rate, which the company said results in a five-year compound annual dividend growth rate of approximately 7%. The company has increased its dividend for more than 30 consecutive years.

The company repurchased 4.2 million shares for $260.6 million in the first nine months of 2026. It projects full-year 2026 repurchases of about $300 million and said about 1.6 million shares remained under its repurchase authority as of Sept. 30.

As of Sept. 30, cash totaled $234.5 million and debt totaled $673.1 million. The company said the higher debt reflects a term loan used to acquire Leonard Valve.