Release Date: April 29, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- A.O. Smith Corp (AOS, Financial) delivered a solid first-quarter performance with volumes tracking expectations and sequential quarter-over-quarter improvement.
- North America boiler sales increased by 10% compared to the first quarter of 2024, driven by high-efficiency commercial boilers.
- The company repurchased $121 million of shares in the first quarter, front-loading a portion of the full-year 2025 repurchase outlook of $400 million.
- A.O. Smith Corp (AOS) maintained its 2025 EPS outlook with an expected range of $3.60 to $3.90 per share, indicating confidence in managing costs and pricing.
- The company was recognized as one of the world's most ethical companies by Ethisphere for the second year in a row, highlighting its commitment to ethical business practices.
Negative Points
- North America segment sales declined by 2% due to lower water heater volumes, despite higher boiler sales.
- China third-party sales decreased by 4% in local currency, reflecting ongoing economic weakness and soft consumer demand.
- First-quarter earnings per share decreased by 5% compared to the prior period, with sales down 2% year-over-year.
- The Rest of World segment sales were flat, with China sales declines offset by the Pureit acquisition.
- The company faces uncertainty around tariffs, which could increase the total cost of goods sold by approximately 6% to 8%, impacting profitability.
Q & A Highlights
Q: With the current pricing actions, do you expect to see demand destruction, and will the price increases cover incremental inflation?
A: Charles Lauber, CFO, stated that the pricing actions are expected to be EPS neutral, covering costs rather than increasing margins. The company is fortunate to have a stable replacement business, which helps stabilize demand despite pricing actions.
Q: Can you clarify the 6% to 8% tariff exposure on cost of goods sold? Does this include steel inflation?
A: Charles Lauber clarified that the 6% to 8% figure is specific to tariffs and does not include steel inflation, which is accounted for separately in their outlook. The largest component of the tariff impact is related to imports from China, particularly tankless water heaters.
Q: How are you managing the potential impact of tariffs on your supply chain and production?
A: Stephen Shafer, President and COO, explained that cross-functional teams are working on mitigating tariff impacts through actions like accelerating tankless production in Mexico and optimizing the supply chain. The company is prepared to adjust its strategy as the tariff situation evolves.
Q: What is your outlook for the China market, and how are you managing the current challenges there?
A: Stephen Shafer noted that the company is cautious about the Chinese market due to low consumer confidence and a weak real estate market. They are focusing on maintaining their premium brand position and rightsizing the organization to the new market reality.
Q: How are you handling the regulatory changes expected in 2026 regarding low-efficiency commercial gas products?
A: Kevin Wheeler, CEO, stated that the company is preparing for the regulatory changes as they are law and will proceed with necessary adjustments in their Mac B commercial facility. They are ready to adapt if there are any changes in the regulations.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
