Smith AO Corporation

A.O. Smith reported second-quarter results that beat profit expectations but saw margins compress and China sales drop sharply, offsetting strong North America growth. Revenue was flat year on year at $1.00 billion, slightly above analyst estimates of $990.2 million, while adjusted earnings per share of $1.03 beat the consensus of $0.92 by 11.5%. Operating margin fell to 16.7% from 20.4% a year ago, as higher input costs and a 28% local-currency sales decline in China weighed on performance. The company lowered its full-year revenue guidance to $3.93 billion and adjusted EPS guidance to $3.78, citing continued softness in North America residential water heaters and inflationary pressures. Management highlighted a 21% surge in the North America boiler business and progress in stabilizing residential water heater market share, but noted that a strategic review of the China operations is underway with an outcome expected next quarter.

The nine HVAC and water systems stocks tracked by StockStory reported a very strong first quarter, with aggregate revenues beating analysts' consensus estimates by 6.9%. CSW Industrials posted all-time record revenue of $309 million, up 34% year on year, while AAON delivered the fastest revenue growth among peers at 54.3% to $496.9 million, exceeding expectations by 29.5%. Lennox reported $1.14 billion in revenue, a 5.8% increase that topped estimates by 6.7%, and Advanced Drainage Systems raised its full-year guidance the most after revenue rose 9.9% to $676.8 million. A. O. Smith was the weakest performer, with revenue down 1.9% to $945.6 million and full-year EPS guidance missing expectations. Share prices across the group have risen 11.3% on average since the latest earnings results.

A. O. Smith Corporation shares have declined 28.9% from their 52-week high of $81.86 reached on February 12, underperforming the iShares U.S. Industrials ETF. Over the past three months, the stock edged down 9.1% while the ETF gained 9.3%, and year-to-date AOS has fallen 13% compared to the ETF's 9.5% increase. The company reported first-quarter 2026 sales of $945.6 million, down 2% year-over-year, and earnings per share fell to $0.85 from $0.95, an 11% decline, prompting management to lower full-year adjusted EPS guidance to a range of $3.70 to $4.00 from the prior $3.85 to $4.15. Rival Watts Water Technologies gained 42.7% over the past year and 24.6% year-to-date, while analysts hold a consensus Hold rating on AOS with a mean price target of $70.30, 20.7% above the current price.

Zacks Investment Research added three stocks to its Zacks Rank #5 (Strong Sell) list on June 18. A. O. Smith Corporation saw its current-year earnings consensus estimate revised 5.8% downward over the last 60 days. Aris Mining Corporation's estimate was revised 6.2% lower, and Bank of Marin Bancorp's estimate was cut by 8.7% over the same period.