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August 18, 2025 • 4 min read
A. O. Smith Corporation, a global leader in water heaters, boilers, and water treatment systems, recently released its financial results for the second quarter of 2025. Let's dive into their latest 10-Q filing to see how the company is performing and what the numbers tell us about its operational health and strategic direction.
For a visual breakdown of the company's revenues and expenses, here is a flow diagram of the income statement for the quarter.
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You might notice the 'Unallocated' category in the diagram. The company provides a detailed product breakdown—water heaters, boilers, and water treatment systems—for its North America segment only. The $232.3 million in 'Unallocated' revenue represents the net sales from the Rest of World segment, which are not broken down by product line in the filing.
At first glance, A. O. Smith's top line shows a slight cooling. Net sales for the second quarter came in at $1.01 billion, a modest 1.3% decrease from the $1.02 billion reported in the same quarter last year. Net earnings saw a similar small dip, landing at $152.2 million compared to $156.2 million in Q2 2024.
However, the real story emerges when we look closer at the operational segments and shareholder returns. Despite the slight drop in net income, Diluted Earnings Per Share (EPS) actually ticked up to $1.07 from $1.06. This subtle but important increase is a direct result of the company's aggressive share buyback program, which we'll touch on later.
A. O. Smith's business is split into two main geographic segments: North America and Rest of World. Their performance tells two different stories.
North America: This segment, which includes water heaters, boilers, and water treatment products, remains the company's profit powerhouse. While sales dipped slightly to $779 million from $791 million last year, the segment's profitability improved. The segment margin expanded to 25.4% from 25.1%, indicating strong cost management and pricing power in its core market.
Rest of World: This segment saw a more complex picture. Overall sales decreased to $240.1 million from $244.8 million. This was driven by a notable 12% drop in sales in China, its largest international market. However, this weakness was significantly cushioned by an impressive 80% surge in sales from all other international markets, which grew from $26.6 million to $47.8 million. This highlights a successful strategic push to diversify its global footprint beyond China.
One of the clearest takeaways from the filing is management's commitment to returning capital to its shareholders.
Share Repurchases: The company has been actively buying back its own stock. In the first six months of 2025, A. O. Smith repurchased $251.3 million of its shares, a substantial increase from the $153.2 million repurchased during the same period in 2024. As noted earlier, these buybacks reduce the number of shares outstanding, directly boosting the earnings per share.
Dividends: The company also increased its quarterly dividend to $0.34 per share, up from $0.32 per share last year, continuing its track record of rewarding long-term investors.
A. O. Smith's Q2 report paints a picture of a resilient company navigating a mixed global environment. While facing headwinds in the Chinese market, the company's core North American business remains highly profitable, and its diversification efforts in other parts of the world are bearing fruit. Management is leveraging its strong cash flow to deliver direct value to shareholders through dividends and significant buybacks. For investors, the key will be to watch if the growth in emerging international markets can continue to offset the softness in China and support the company's stable, shareholder-focused strategy.
Last updated: August 18, 2025