A. O. Smith's (NYSE:AOS) Q1: Beats On Revenue

Water heating and treatment solutions company A.O. Smith (NYSE:AOS) reported Q1 CY2025 results beating Wall Street’s revenue expectations, but sales fell by 1.5% year on year to $963.9 million. The company’s full-year revenue guidance of $3.85 billion at the midpoint came in 0.5% above analysts’ estimates. Its GAAP profit of $0.95 per share was 5.4% above analysts’ consensus estimates.

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"We maintain our full-year sales and EPS guidance. Given the uncertainty of the tariff environment, our guidance does not include our announced pricing, which we project will offset, along with other actions, the current announced tariffs. In addition to pricing, our other actions include footprint optimization, strategic sourcing actions and other cost containment initiatives. In North America, we expect water heater industry unit volumes to be flat year-over-year with less first half versus second half volatility compared to 2024, as we focus on plant operating efficiency and order management related to our announced price increases. In our Rest of World segment, we continue to expect a single-digit sales decline in China as consumer demand remains low," stated Steve Shafer, president and chief operating officer.

Company Overview

Credited with the invention of the glass-lined water heater, A.O. Smith (NYSE:AOS) manufactures water heating and treatment products for various industries.

Sales Growth

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Unfortunately, A. O. Smith’s 5.7% annualized revenue growth over the last five years was tepid. This fell short of our benchmark for the industrials sector and is a rough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. A. O. Smith’s recent performance shows its demand has slowed as its revenue was flat over the last two years.

This quarter, A. O. Smith’s revenue fell by 1.5% year on year to $963.9 million but beat Wall Street’s estimates by 1.1%.

Looking ahead, sell-side analysts expect revenue to grow 1.9% over the next 12 months, similar to its two-year rate. Although this projection implies its newer products and services will catalyze better top-line performance, it is still below average for the sector.

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Operating Margin

A. O. Smith has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 17.8%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Looking at the trend in its profitability, A. O. Smith’s operating margin rose by 1.7 percentage points over the last five years, as its sales growth gave it operating leverage.

This quarter, A. O. Smith generated an operating profit margin of 19%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Earnings Per Share

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

A. O. Smith’s EPS grew at a remarkable 12.3% compounded annual growth rate over the last five years, higher than its 5.7% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

We can take a deeper look into A. O. Smith’s earnings to better understand the drivers of its performance. As we mentioned earlier, A. O. Smith’s operating margin was flat this quarter but expanded by 1.7 percentage points over the last five years. On top of that, its share count shrank by 11.4%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For A. O. Smith, its two-year annual EPS growth of 51.2% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.

In Q1, A. O. Smith reported EPS at $0.95, down from $1.00 in the same quarter last year. Despite falling year on year, this print beat analysts’ estimates by 5.4%. Over the next 12 months, Wall Street expects A. O. Smith’s full-year EPS of $3.58 to grow 6.7%.

Key Takeaways from A. O. Smith’s Q1 Results

It was encouraging to see A. O. Smith beat analysts’ EBITDA expectations this quarter. We were also happy its revenue narrowly outperformed Wall Street’s estimates. Overall, this quarter had some key positives. The stock remained flat at $64.78 immediately after reporting.

Should you buy the stock or not? The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.