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.
Revenue: $963.9 million vs analyst estimates of $953.7 million (1.5% year-on-year decline, 1.1% beat)
EPS (GAAP): $0.95 vs analyst estimates of $0.90 (5.4% 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
EPS (GAAP) guidance for the full year is $3.75 at the midpoint, roughly in line with what analysts were expecting
Operating Margin: 19%, in line with the same quarter last year
Free Cash Flow Margin: 1.8%, down from 8.6% in the same quarter last year
Market Capitalization: $9.30 billion
"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.
A. O. Smith Quarterly Revenue
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.
A. O. Smith Year-On-Year Revenue Growth
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.
A. O. Smith Trailing 12-Month Operating Margin (GAAP)
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.
A. O. Smith Trailing 12-Month EPS (GAAP)
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.
A. O. Smith Diluted Shares Outstanding
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.
