A. O. Smith’s first quarter was marked by a positive market reaction, as the company exceeded Wall Street’s revenue and non-GAAP earnings expectations despite a modest year-over-year decline in sales. Management pointed to a challenging comparison with unusually high water heater volumes last year, combined with a more normalized demand environment in North America and continued economic softness in China. CEO Kevin Wheeler emphasized that the bulk of the quarter’s performance was driven by disciplined cost management, sequential volume improvement, and ongoing strength in high-efficiency boiler sales. Wheeler noted, “We are pleased with our sequential quarter-over-quarter improvement,” and highlighted that North American boiler sales outperformed, offsetting softer water heater volumes.
Is now the time to buy AOS? Find out in our full research report (it’s free).
A. O. Smith (AOS) Q1 CY2025 Highlights:
- Revenue: $963.9 million vs analyst estimates of $953.7 million (1.5% year-on-year decline, 1.1% beat)
- Adjusted EBITDA: $203.5 million vs analyst estimates of $197.3 million (21.1% margin, 3.2% beat)
- The company reconfirmed its revenue guidance for the full year of $3.85 billion at the midpoint
- Management reiterated its full-year Adjusted EPS guidance of $3.75 at the midpoint
- Operating Margin: 19%, in line with the same quarter last year
- Market Capitalization: $8.92 billion
While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.
Our Top 5 Analyst Questions A. O. Smith’s Q1 Earnings Call
- Jeff Hammond (Keybanc Capital Markets) asked about potential demand destruction from price increases and how margin would be impacted. CEO Kevin Wheeler said price increases are intended to be EPS-neutral, just covering incremental costs, and noted the recurring replacement nature of the water heating business supports volume stability.
- Mike Halloran (Baird) questioned the normalization of order patterns and production cadence in light of pricing actions. CFO Charles Lauber explained that the company is focused on leveling production and managing orders to ensure plant efficiency, expecting a more typical seasonal cadence in 2025.
- Saree Boroditsky (Jefferies) inquired about the timing and impact of announced price increases, and whether top-line guidance assumes their effect. Lauber clarified that while price actions are in place to respond to tariffs, sales guidance does not include these due to tariff uncertainty.
- Bryan Blair (Oppenheimer) asked about the pro forma tariff exposure after transitioning tankless production to Mexico and the company’s competitive positioning. Lauber confirmed that tankless is the largest component of current tariff exposure and emphasized that A. O. Smith’s in-country-for-country strategy should provide a relative advantage.
- David MacGregor (Longbow Research) probed U.S. manufacturing capacity and vertical integration as tariffs rise. Wheeler responded that the company is already highly vertically integrated domestically, with the flexibility to shift production as needed, minimizing repatriation risk.
Catalysts in Upcoming Quarters
In the coming quarters, the StockStory team will be watching (1) the pace at which announced price increases are absorbed by the market and whether they offset rising input and tariff costs; (2) the progress and financial impact of accelerating tankless water heater production in Mexico; and (3) further developments in China’s economic environment and the effectiveness of restructuring in supporting profitability. We will also monitor any regulatory or tariff changes that could impact supply chain strategy or demand.
A. O. Smith currently trades at $62.74, down from $64.80 just before the earnings. Is the company at an inflection point that warrants a buy or sell? See for yourself in our full research report (it’s free).
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