Results
Second Quarter 2026 Highlights
Sales of $1 billion; net earnings of $125 million and diluted earnings per share (EPS) of $0.91; adjusted earnings of $142 million 1 and adjusted EPS of $1.03 1
North America segment sales of $820.5 million increased 5% driven by the Leonard Valve acquisition, 21% boiler sales growth and carryover pricing actions, partially offset by lower residential water heater volumes
Rest of World segment sales of $194.9 million decreased 19%, reflecting continued weakness in China's consumer appliance market
8Year-to-date operating cash flow increased 42% to $254 million and free cash flow increased 67% to $233 million
Capital return
12026 full year share repurchase target increased to $300 millionGuidance raised
Outlook
2026 full year sales EPS guidance updated to
Results
7Sales growth of between 2% and 3%
Outlook
Diluted EPS of between $3.60 and $3.75
Adjusted EPS of between $3.70 and $3.85
Results
Second Quarter
Q2 2026Q2 2025% Change YoY
Net sales$1,004.3$1,011.3-1%
Net earnings$124.9$152.2-18%
Adjusted earnings$142.0 2$152.2-7%
Diluted earnings per share$0.91$1.07-15%
Adjusted earnings per share$1.03 2$1.07-4%
Management commentary
“Our team continued to execute well in the second quarter, demonstrating the resilience of the A. O. Smith team and our business model,” said Steve Shafer, chairman and chief executive officer.
“While North America continued to face softer residential water heater demand, we are pleased with the progress we are making in our market share, as well as the strong growth in our boiler business.
Operational excellence and delivering for our customers remained key priorities throughout the quarter.
In China, we managed through a significantly weaker market environment and continue our strategic assessment of the business.
We remain committed to disciplined execution and investing in opportunities that will strengthen our competitive position and drive long-term value creation.”
Results
Second quarter sales increased 5% to $820.5 million, driven by higher boiler volumes, the benefits of carryover pricing and a $16 million sales contribution from Leonard Valve, acquired in January 2026, partially offset by lower residential water heater volumes.
6Excluding Leonard Valve, organic sales increased 3%.
Segment earnings were $177.2 million, and segment margin was 21.6% in the second quarter of 2026 compared to second quarter of 2025 segment earnings of $198.1 million and segment margin of 25.4%.
Second quarter 2026 adjusted segment earnings and adjusted segment margin were $199.8 million and 24.4%, respectively, and exclude $22.6 million of restructuring and impairment expenses associated with a restructuring plan designed to improve profitability and accelerate growth through footprint optimization and brand rationalization in our North America water treatment business.
Beginning in 2027, annual savings associated with these restructuring actions are projected to be approximately $6 million to $8 million.
The year-over-year decrease in segment earnings and segment margin was primarily due to restructuring and impairment expenses.
Adjusted segment earnings were slightly higher with a decrease in adjusted segment margin, primarily due to higher steel and other input costs largely offsetting realized pricing in the quarter.
Rest of World sales of $194.9 million decreased 19% compared to the prior year period and included a favorable currency translation impact of $6 million primarily related to sales in China.
China sales decreased 28% in local currency due to continued weak consumer demand and a challenging market environment.
Segment earnings were $10.2 million, and segment margin was 5.2% in the second quarter of 2026, compared to segment earnings of $25.3 million and segment margin of 10.5% in the same period of 2025.
The lower segment earnings and segment
margin compared to the prior year were primarily due to lower China sales volumes which were partially offset by continued cost management.
Corporate events
As of June 30, 2026, cash balances totaled $181.3 million and debt totaled $637.5 million, resulting in a leverage ratio of 25.7% as measured by total debt-to-total capitalization.
The increased leverage ratio compared to 2025 was due to cash borrowed under a new term loan used to acquire Leonard Valve in January 2026.
Results
Cash provided by operations was $253.8 million and free cash flow was $233.3 million in the first half of 2026, up 42% and 67%, respectively, versus the prior year period, primarily driven by working capital management that more than offset lower earnings.
Capital return
As part of its commitment to return capital to shareholders, the Company deployed $162.4 million to repurchase 2.6 million shares in the first half of 2026.
As of June 30, 2026, authority remained to repurchase approximately 3.2 million additional shares.
2Supported by strong cash flow performance in the first half of the year, the Company increased its full-year 2026 share repurchase target by 50% to $300 million from $200 million.Guidance raised
On July 13, 2026, the Company’s board of directors approved a quarterly cash dividend of $0.36 per share for shareholders of record on July 31, payable on August 17.
Outlook
Outlook
2026 Outlook
20252026 Outlook
ActualLow EndHigh End
Results
Net sales$3,830$3,900$3,950
Diluted earnings per share$3.85$3.60$3.75
Adjusted earnings per share$3.85$3.70 3$3.85 3
Outlook
3Due to continued softness in residential water heater industry volumes, the Company narrowed its full-year 2026 sales growth outlook to a range of 2% to 3%, compared to its previous range of 2% to 4%.Guidance lowered
4The Company also narrowed its full-year 2026 adjusted EPS outlook to be between $3.70 and $3.85, from $3.70 to $4.00.Guidance lowered
Management commentary
Shafer concluded, “While residential water heater demand remains soft, we are confident in our business fundamentals, competitive position and ability to execute our strategy.
5Our strong cash flow generation underscores the resilience of our operating model and supports disciplined capital deployment, including our decision to increase the full-year share repurchase target by 50% as we continue returning value to shareholders.”Guidance raised
43 boilerplate lines (safe-harbor disclaimer, contacts, call details) are set aside.