AOS

The end of the earnings season is always a good time to take a step back and see who shined (and who didn’t). Let’s take a look at how hvac and water systems stocks fared in Q2, starting with A. O. Smith (NYSE:AOS). Many HVAC and water systems companies sell essential, non-discretionary infrastructure for buildings. Since the useful lives of these water heaters and vents are fairly standard, these companies have a portion of predictable replacement revenue. In the last decade, trends in energy efficiency and clean water are driving innovation that is leading to incremental demand. On the other hand, new installations for these companies are at the whim of residential and commercial construction volumes, which tend to be cyclical and can be impacted heavily by economic factors such as interest rates. The 9 hvac and water systems stocks we track reported a very strong Q2. As a group, revenues beat analysts’ consensus estimates by 4.7%. Amidst this news, share prices of the companies have had a rough stretch. On average, they are down 12% since the latest earnings results. Credited with the invention of the glass-lined water heater, A.O. Smith (NYSE:AOS) manufactures water heating and treatment products for various industries. A. O. Smith reported revenues of $1.00 billion, flat year on year. This print exceeded analysts’ expectations by 1.4%. Overall, it was a strong quarter for the company with a beat of analysts’ EPS estimates and full-year EPS guidance slightly topping analysts’ expectations. "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. A. O. Smith delivered the slowest revenue growth of the whole group. Investor expectations, however, were likely higher than Wall Street’s published projections, leaving some wishing for even better results (analysts’ consensus estimates are those published by big banks and advisory firms, not the investors who make buy and sell decisions). The stock is down 8.6% since reporting and currently trades at $56.71. Is now the time to buy A. O. Smith? Access our full analysis of the earnings results here, it’s free. Backed by two million square feet of lab testing space, AAON (NASDAQ:AAON) makes heating, ventilation, and air conditioning equipment for different types of buildings. AAON reported revenues of $627 million, up 101% year on year, outperforming analysts’ expectations by 24.6%. The business had an incredible quarter with a beat of analysts’ EPS estimates and an impressive beat of analysts’ EBITDA estimates. AAON achieved the biggest analyst estimate beat and fastest revenue growth among its peers. Although it had a fine quarter compared to its peers, the market seems unhappy with the results as the stock is down 19.2% since reporting. It currently trades at $76.63. Is now the time to buy AAON? Access our full analysis of the earnings results here, it’s free. Based in Texas and founded over a century ago, Lennox (NYSE:LII) is a climate control solutions company offering heating, ventilation, air conditioning, and refrigeration (HVACR) goods. Lennox reported revenues of $1.55 billion, up 3% year on year, falling short of analysts’ expectations by 1%. It was a mixed quarter as it posted an impressive beat of analysts’ organic revenue estimates but full-year EPS guidance missing analysts’ expectations significantly. Lennox delivered the weakest performance against analyst estimates in the group. As expected, the stock is down 29.4% since the results and currently trades at $383.92. Read our full analysis of Lennox’s results here. With low-pressure heating systems as its first product, Trane (NYSE:TT) designs, manufactures, and sells HVAC and refrigeration systems, the former to commercial and residential building customers and the latter to commercial truck manufacturers. Trane Technologies reported revenues of $6.35 billion, up 10.6% year on year. This number surpassed analysts’ expectations by 2.3%. Overall, it was a strong quarter as it also produced full-year EPS guidance exceeding analysts’ expectations and a narrow beat of analysts’ EPS estimates. The stock is down 1.5% since reporting and currently trades at $440.28. Read our full, actionable report on Trane Technologies here, it’s free. Claiming to have saved more than 30 billion gallons of water, Zurn Elkay (NYSE:ZWS) provides water management solutions to various industries. Zurn Elkay reported revenues of $491 million, up 10.5% year on year. This print topped analysts’ expectations by 1.6%. It was a strong quarter as it also logged a decent beat of analysts’ EBITDA estimates and a beat of analysts’ EPS estimates. The stock is down 7.7% since reporting and currently trades at $45.52. Read our full, actionable report on Zurn Elkay here, it’s free. Over the past year, investors have been forced to repeatedly answer the same question: what is the market’s biggest risk? The answer has changed several times, and each shift has reshaped market leadership. Late in 2025 and early 2026, artificial intelligence became the market’s primary uncertainty. Investors questioned whether AI would erode software pricing power and weaken competitive moats as AI made it easier to replicate once-differentiated products. By the spring, technology took a back seat to geopolitics. The U.S. conflict with Iran briefly became the market’s dominant narrative, raising concerns about oil prices, inflation, and global growth. But as energy markets remained orderly and fears of a prolonged supply disruption faded, investors quickly turned their focus back to fundamentals. Want to invest in winners with rock-solid fundamentals? Check out our Top 5 Growth Stocks and add them to your watchlist. These companies are poised for growth regardless of the political or macroeconomic climate.

Interested in A. O. Smith Corporation? Here are five stocks we like better. North America drove second-quarter performance: Sales rose 5% to $821 million, led by a 21% increase in boiler sales and a $16 million contribution from the Leonard Valve acquisition. Higher steel costs pressured margins despite the growth. China remained a major weakness: Rest of World sales fell 19%, including a 28% decline in China, while A. O. Smith nears a strategic review decision on the business and expects to provide an update next quarter. Outlook was narrowed, but cash flow strengthened: The company now expects 2026 sales growth of 2%–3% and adjusted EPS of $3.70–$3.85, citing softer residential water-heater demand. First-half free cash flow rose 67%, prompting the company to raise its 2026 share-repurchase target to $300 million. A. O. Smith (NYSE:AOS) reported second-quarter 2026 sales of approximately $1 billion and adjusted earnings per share of $1.03, as growth in its North American businesses and stronger cash flow were partly offset by continued weakness in China. Chief Executive Officer Stephen Shafer said the company gained traction in North America, where sales increased 5% year over year to $821 million. Organic sales, excluding the Leonard Valve acquisition, rose 3%. Leonard Valve, acquired earlier this year to expand A. O. Smith’s water-management and digital-control capabilities, contributed $16 million in second-quarter sales. → Why SK hynix Could Be the Best AI Chip Stock to Buy Now The company also announced a leadership transition. Executive Vice President Chuck Lauber, who had served as CFO, is retiring, and Carrie Anderson has joined A. O. Smith as chief financial officer. Shafer described the transition as planned and orderly. North America’s organic growth was driven primarily by a 21% increase in boiler sales, as well as carryover pricing in water heaters. Boiler sales were up 12% in the first half of 2026. Lauber said commercial boiler demand was strong during the quarter, including seasonal orders tied to early-buy programs, while residential boiler demand also remained favorable. → Microsoft Just Flipped the AI Spending Narrative Overnight North America water heater sales increased 2%, though residential water heater industry demand remained pressured by weak new construction and existing-home sales. Shafer said the company has continued to make progress stabilizing market share, particularly in the wholesale channel, where it has taken targeted steps to regain share. North America water treatment sales declined 2%, as growth in the company’s priority dealer channel was offset by softer demand in other channels. A. O. Smith is taking steps to optimize its water treatment footprint and streamline its brand portfolio. Those actions are expected to generate annual savings of approximately $6 million to $8 million beginning in 2027. → Carrier Earnings Could Send the Stock to a New All-Time High North America adjusted segment earnings were $200 million, modestly above the prior-year period, while adjusted segment margin declined 100 basis points to 24.4%. Higher steel and other input costs largely offset the benefits of organic growth and Leonard Valve. Steel costs rose about 20% year over year in the second quarter, Lauber said. Rest of World sales declined 19% to $195 million, reflecting lower volumes in China amid weak consumer demand. China sales fell 28% in local currency, with particular pressure in the premium appliance segment. Favorable foreign-currency translation partly offset the decline. Rest of World segment earnings fell to $10 million, with segment margin declining to 5.2%, primarily because of lower China sales volumes. The company said continued cost-management efforts provided a partial offset. Shafer said A. O. Smith’s strategic assessment of its China business is nearing completion and that all potential outcomes remain under consideration. The company expects to provide a conclusion by its next quarterly earnings call. Shafer said management has gained greater clarity on changes needed to position the business for success, whether those changes are led by A. O. Smith, a partner, or another party. A. O. Smith generated first-half free cash flow of $233 million, a 67% increase from the same period in 2025. Lauber attributed the increase primarily to working-capital management, which more than offset lower earnings. The company ended the quarter with $181 million in cash and net debt of $456 million. Its leverage ratio, measured as total debt to total capital, was 25.7%, reflecting financing for the Leonard Valve acquisition. Supported by cash flow performance and its confidence in the business, A. O. Smith increased its 2026 share repurchase target by 50% to $300 million from $200 million. The company repurchased approximately 2.6 million shares for $162 million in the first half. Its board also approved a quarterly dividend of $0.36 per share. The company narrowed its full-year outlook, now expecting sales growth of approximately 2% to 3% and adjusted EPS of $3.70 to $3.85. Previously, it projected sales growth of 2% to 4% and adjusted EPS of $3.70 to $4.00. The change was driven by softer-than-expected demand in the North American residential water heater market. A. O. Smith now expects U.S. residential water heater industry demand to decline at a low-double-digit rate for the year, compared with its earlier outlook of flat to down low double digits. North America boiler sales growth is still expected to be 6% to 8% for the full year. North America water treatment sales are still expected to rise 5% to 6%. Leonard Valve is expected to contribute about $70 million in full-year sales. China sales are still expected to decline at a low-double-digit rate in local currency. U.S. commercial water heater industry volumes are still expected to be approximately flat with last year. Anderson said second-quarter results benefited from boiler early-buy programs and customer purchases ahead of announced water heater and boiler price increases, moving some expected third-quarter demand into the second quarter. Pricing actions of 4% to 7% are expected to begin contributing around the middle of the third quarter, with a fuller benefit in the fourth quarter. Management expects steel inflation to be somewhat higher in the second half than in the first half, while tariffs and non-steel inflation, including transportation and oil-based materials, will remain headwinds. The company expects its overall price-cost relationship to be relatively neutral in the second half. It said third-quarter EPS is expected to be lower than both the second and fourth quarters because of demand pull-forward, rising costs, tariff effects and continued China weakness. A. O. Smith Corporation, based in Milwaukee, Wisconsin, is a leading manufacturer of water heating and water treatment products for residential and commercial applications. Since its founding in 1874, the company has built a reputation for producing reliable, energy-efficient water heaters, boilers and pressure vessels. Its product portfolio encompasses gas, electric, condensing and tankless water heaters, as well as specialty boilers designed to meet a variety of building and industrial needs. The company operates through two primary segments: North America and Asia. This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to [email protected]. The article "A. O. Smith Q2 Earnings Call Highlights" was originally published by MarketBeat. View MarketBeat's top stocks for August 2026.

Eaton Corporation plc ETN reported second-quarter 2026 adjusted earnings of $3.15 per share, up 6.8% year over year and 2.27% above the Zacks Consensus Estimate of $3.08. Revenues of $8.53 billion increased 21.4% and surpassed the consensus mark of $8.01 billion by 6.57%.GAAP earnings were $2.11 per share, down 15.9% from $2.51 a year ago. The gap between GAAP and adjusted results reflected 50 cents per share of intangible amortization, 49 cents of acquisition and divestiture charges, and 5 cents tied to restructuring. Second-quarter total revenues were $8.53 billion, surpassing the Zacks Consensus Estimate of $8 billion by 6.57%.Second-quarter sales growth included a 14% increase in organic revenues and a 7% contribution from acquisitions. Management said data centers remained a major growth engine, while demand was also robust across other served markets.The quarter benefited from double-digit organic growth in both electrical businesses and strong acquisition contributions. Electrical-sector backlog rose 43% year over year, while Aerospace backlog advanced 28%, underscoring sustained demand across key end markets. Eaton Corporation, PLC price-consensus-eps-surprise-chart | Eaton Corporation, PLC Quote Electrical Americas sales reached $3.95 billion, up 18% organically. Operating profit rose 10% to $1.09 billion, while margin was 27.5%, improving 190 basis points sequentially.Orders in the segment increased 41% on a rolling 12-month basis, and backlog grew 33% from June 2025. These metrics highlight continued strength in Eaton's largest business and provide visibility into future activity.Electrical Global sales climbed 44% to $2.52 billion. Organic growth was 18%, Boyd Thermal added 25%, and foreign exchange contributed 1%. Operating profit increased 41% to $499 million, with margin improving 60 basis points sequentially to 19.8%.The segment's backlog surged 103%, while rolling 12-month orders rose 33% organically. The combined Electrical businesses maintained a book-to-bill ratio of 1.2, meaning orders continued to exceed completed sales.Aerospace sales rose 13% to $1.22 billion, supported by 7% organic growth and a 6% acquisition contribution. Operating profit advanced 16% to $278 million, while margin expanded 60 basis points year over year to 22.8%. Rolling 12-month orders increased 17%.Mobility sales were $841 million. A 2% organic decline was offset by a 2% benefit from currency translation, leaving reported sales roughly flat year over year.Operating profit increased 7% to $109 million, and margin expanded 90 basis points to 13.0%. Eaton also agreed to separate Mobility through a Reverse Morris Trust transaction with Dana, which is expected to close in the first quarter of 2027. Total segment margin was 23.1%, 10 basis points above the high end of management's guidance but 80 basis points below the prior-year quarter. Acquisition-related effects and higher amortization weighed on reported profitability.Selling and administrative expense was $1.24 billion, research and development expense was $227 million, and net interest expense was $201 million. The company also recorded $24 million of restructuring charges during the quarter. Operating cash flow was $1.13 billion, up 23% year over year. After $253 million of capital expenditures, free cash flow totaled $874 million, an increase of 22%.At June 30, 2026, cash was $483 million compared with $622 million at year-end 2025. Long-term debt was $18.51 billion, up from $8.76 billion, reflecting the funding impact of recent acquisitions. For 2026, Eaton now expects organic growth of 11-13% (up from prior range of 9-11%), segment margin of 24.1-24.5% and adjusted earnings of $13.40-$13.60 per share (up from prior range of $13.05-$13.50). The midpoint of the earnings range implies 12% growth from 2025. For the third quarter, management projects organic growth of 13.5-15.5%, segment margin of 24.6-25% and adjusted earnings of $3.46-$3.56 per share. The outlook reflects expectations for continued demand momentum and stronger profitability. Eaton has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. A. O. Smith Corporation’s AOS second-quarter 2026 adjusted earnings of $1.03 per share beat the Zacks Consensus Estimate of 96 cents by 7.29%. The long-term (three to five years) earnings growth rate is pinned at 12%. The Zacks Consensus Estimate of $3.74 for 2026 earnings per share has declined 2.86% year over year.ABB Ltd. ABBNY reported quarterly earnings of 66 cents per share, lagging the Zacks Consensus Estimate of 79 cents by 16.46%.The long-term earnings growth rate is pinned at 17.67%. The Zacks Consensus Estimate for 2026 earnings per share has increased 51.81% year over year.AZZ AZZ reported quarterly earnings of $1.85 per share, beating the Zacks Consensus Estimate of $1.63 by 13.5%.The Zacks Consensus Estimate for fiscal 2026 earnings per share has increased 12.12% year over year. Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Eaton Corporation, PLC (ETN) : Free Stock Analysis Report A. O. Smith Corporation (AOS) : Free Stock Analysis Report AZZ Inc. (AZZ) : Free Stock Analysis Report ABB Ltd (ABBNY) : Free Stock Analysis Report This article originally published on Zacks Investment Research (zacks.com). Zacks Investment Research

Image source: The Motley Fool. Thursday, July 30, 2026 at 10 a.m. ET Vice President, Investor Relations and Financial Planning and Analysis - Helen E. Gurholt Chief Executive Officer - Stephen M. Shafer Executive Vice President - Charles T. Lauber Chief Financial Officer - Carrie L. Anderson Operator: Good day. And thank you for standing by. Welcome to the Second Quarter 2026 earnings conference call. This time, participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press *1 on your telephone. You will then hear an automated message advising your hand is raised. To start your question, please press *1 again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker today, Helen E. Gurholt. Please go ahead. Helen E. Gurholt: Thank you, Lisa. Good morning, everyone, and welcome to the A. O. Smith second quarter conference call. I am Helen E. Gurholt, Vice President, Investor Relations and Financial Planning and Analysis. Joining me today are Stephen Shafer, Chief Executive Officer Charles T. Lauber, executive vice president and Carrie L. Anderson, chief financial officer. In order to provide improved transparency into the operating results of our business, we provided non-GAAP measures. Free cash flow is defined as cash from operations less capital expenditures. North America segment organic growth excludes the impact of Leonard Valve. Adjusted earnings, adjusted earnings per share, and adjusted segment earnings exclude the impact of restructuring and impairment expenses. Reconciliations from GAAP measures to non-GAAP measures are provided in the appendix at the end of this presentation and on our website. A friendly reminder that some of our comments and answers during this conference call will be forward-looking statements. That are subject to risks that could cause actual results to be materially different. Those risks include matters that we described in this morning's press release among others. Also, as a courtesy to others in the question queue, please limit yourself to one question and one follow-up per turn. If you have multiple questions, please rejoin the queue. We will be using slides as we move through today's call. You can access them on our website at investor.aosmith.com. I will now turn the call over to Steve to begin our prepared remarks. Stephen M. Shafer: Thank you, Helen, and good morning, everyone. Before we get into our results, I want to start by recognizing Chuck Lauber, and thanking him for his many years of service as our CFO. Chuck has had a long and meaningful career with A. O. Smith. And his leadership has had a significant impact on our company. On behalf of all of us, Chuck, thank you for your many contributions and we wish you all the best in retirement. At the same time, I am very pleased to welcome Carrie L. Anderson to A. O. Smith as our new Chief Financial Officer. Carrie brings extensive financial leadership experience, across multiple industries. Including complex global manufacturing organizations. She also brings a collaborative leadership style and a disciplined approach to execution. Carrie has already become a valued partner to the team and we look forward to her leadership in strengthening our execution rigor and advancing our strategic priorities. This is another planned and orderly leadership transition at A. O. Smith. It reflects the strength of our broader leadership team. We have a highly experienced group of leaders with the right balance of fresh perspective, and deep industry knowledge. To continue executing our strategy and serving our customers well. Now moving on to our second quarter 2026 financial performance. Please turn to slide 4. While the quarter reflected very different market conditions across our businesses, I am pleased with how the A. O. Smith team executed. We continue to gain traction in North America, delivered strong free cash flow performance, and took additional actions to create value for shareholders. At the company level, sales were approximately $1 billion; adjusted earnings per share were $1.03. While our results were impacted by the continued weakness in China, our teams remain focused on operational execution, and cost management across the business. one of the highlights of the quarter was the North America sales increase of 5% to $821 million, which includes Leonard Valve, our recent acquisition that expands our water management and digital control capability. Excluding Leonard Valve, organic sales grew 3%, supported by strong boiler growth, carryover pricing actions, and continued focus on serving our customers. Another highlight of the quarter was our cash flow. Free cash flow increased 67% in the first half of the year. Reflecting the strength and resilience of our operating model. Supported by that performance, we increased our 2026 share repurchase target by 50% to $300 million, reinforcing our commitment to disciplined capital deployment and returning cash to shareholders. As expected, China sales decreased 28% in local currency. Largely due to broader market conditions. While the China appliance market remains challenging, particularly in the premium segment, we continue to manage the business thoughtfully while completing our strategic assessment. We expect to share our conclusion on that assessment by our next quarterly earnings call. And remain focused on identifying the best path forward to support long-term value creation. With that overview, let's take a closer look at the performance of our North America. North America water heater sales increased 2% in the quarter. Residential water heater industry demand remained pressured by softness in new construction as well as existing home sales, which can weigh on replacement demand. While the residential market remains competitive, we continue to make progress in our market share performance. In an environment where demand remains muted, our leading brands, broad channel presence, and strong customer relationships continue to differentiate A. O. Smith and reinforce our confidence in the long-term fundamentals of the business. Our North America boiler business delivered a strong quarter. With sales increasing 21%, contributing to 12% growth in the first half of the year. Growth was driven by continued momentum in residential boilers, and a return to growth in commercial boilers. We remain encouraged by the performance of this business and believe our investments in product innovation, customer service, and channel partnerships continue to position us well for an attractive market with significant long-term opportunities. North America water treatment sales decreased 2% as growth in our priority dealer channel was offset by softer demand in other channels. While consumers remain cautious in portions of the market, we continue to focus on the channels, products, and customer relationships where we see the greatest opportunities for growth. During the quarter, we advanced actions to optimize our footprint and streamline our brand portfolio, which we believe position the business to operate more efficiently, and accelerate profitable growth over time. We expect annual savings of approximately $6 to $8 million beginning in 2027. Leonard Valve contributed $16 million to sales in the second quarter of 2026. And we continue to target double-digit growth for the full-year. I will now turn the call over to Chuck, who will provide more specifics on our second quarter performance. Charles T. Lauber: Thank you, Steve, and good morning, everyone. Before I begin, I want to say how grateful I am for the opportunity to have served as CFO of A. O. Smith. it has been my privilege to work alongside so many talented colleagues and to be a part of a company with such a strong culture, trusted brands, and a long history of creating value. I am proud of what we have accomplished together and confident in the company's future. it has been a pleasure representing A. O. Smith in my many interactions with investors and analysts over the years. I also want to welcome and congratulate Carrie and wish her great success in her new role. I look forward to working with her over the next couple of months during the transition. Let's now turn to slide 5. North America segment sales of $821 million increased 5% compared to last year. As shown on the left side of the slide, organic growth of 3% in the quarter contributed $26 million of additional sales while Leonard Valve sales contributed another $16 million. The organic growth was driven primarily by 21% boiler sales growth, as well as carryover pricing benefits in our water heater business. These benefits were partially offset by lower residential water heater volumes as industry demand remained soft. Our boiler performance this quarter was driven by strong commercial demand including seasonal orders under early buy programs. In addition, the quarter benefited from customer pre-buy activity ahead of announced price increases on both water heater and boiler products. Resulting in some demand pull-forward into the second quarter. North America adjusted segment earnings were $200 million, modestly above the prior year period. Adjusted segment margin was 24.4%, a decrease of 100 basis points compared to last year. The benefits of organic growth and the contribution from Leonard Valve were largely offset by higher steel and other input costs. Steel costs rose year over year approximately 20% in Q2 and combined with tariffs and other inflationary costs, largely offset pricing benefits. IEEPA refunds had a minimal impact in the quarter. Moving to slide 6. Rest of the World segment sales of $195 million decreased 19% due to weak continued weak consumer demand in China driving lower volumes. Which was partially offset by favorable foreign currency translation. Rest of the World second quarter segment earnings of $10 million and segment margin of 5.2% decreased significantly compared with prior year period. The lower segment earnings and margin were primarily due to lower sales volumes in China, which were partially offset by continued cost. Please turn to slide 7. Cash flow performance remained a significant strength in the first half of this year. We generated free cash flow of $233 million in the first half of 2026, a 67% increase over 2025. Primarily driven by working capital management which more than offset lower earnings. We ended the quarter with $181 million of cash and a net debt position of $456 million. Our leverage ratio was 25.7%, as measured by total debt to total capital. Reflecting the financing associated with the Leonard Valve acquisition completed earlier this year. Even after funding the acquisition and returning capital to shareholders, our balance sheet remains strong and provides substantial flexibility to support future growth investments and acquisition opportunities. Let's now turn to Slide 8. Our capital allocation framework remains unchanged. And continues to balance investment in long-term growth. With meaningful returns to shareholders. Our priorities remain clear. Actively manage our portfolio, invest in innovation to drive organic growth, and advance operational excellence to improve productivity. Within portfolio management, we continue to evaluate M&A opportunities that fit our strategic direction and meet our financial criteria. Earlier this month, our board approved our next quarterly dividend of $0.36 per share. In addition, we repurchased approximately 2.6 million shares for a total of $162 million during the first half of the year. Given our cash flow performance and confidence in the business, we increased our 2026 share repurchase target by 50% from $200 million to $300 million. Importantly, this increased repurchase commitment still preserves significant flexibility to invest and grow and pursue strategic opportunities as they arise. I will now turn the call over to Carrie to share our 2026 earnings outlook. Carrie L. Anderson: Thank you, Chuck, and good morning, everyone. I am excited to join A. O. Smith and appreciate the warm welcome from Steve, Chuck, Helen, and the broader team. As I have settled into the role over these past several weeks, I have been impressed by the strength of the business, the quality of the team, and the discipline around capital allocation and finance management. I look forward to helping build on that foundation as we execute our strategic priorities and create long-term value for our shareholders. And I am very grateful for Chuck's partnership during this transition and wish him all the best in retirement. With that, let's turn to our 2026 outlook summarized on slide 9. As we enter the second half of the year, we have greater visibility into our end markets and our expected full-year performance, Based on our first half results and current outlook, we have narrowed our guidance range. Importantly, our overall view of the business has not materially changed since April. Our outlook for China, North America commercial water heaters, boilers, water treatment, India, and Leonard Valve remain largely unchanged from the assumptions we provided last quarter. The primary change in our outlook relates to the North America water heater market. Where industry demand has remained softer than we expected earlier in the year, reflecting continued weakness in both new construction activity and existing home sales. As a result, we now expect full-year sales growth of 2% to 3% and adjusted EPS of $3.70 to $3.85 per share compared with our prior outlook of 2% to 4% sales growth and adjusted EPS of $3.70 to $4 per share. The upper end of our prior guidance assumed that residential water heater industry demand during the second half of the year would be similar to the first half. Based on what we have seen through June and into July, we now believe results are more likely to skew towards the lower end of that prior range.Within U.S. residential water heaters, we are narrowing our industry outlook to down low single digits for the year compared to our prior expectation of flat to down low single digits. While emergency replacement demand remained stable, we continue to closely monitor proactive replacement activity. Which accounts for approximately 30% of total replacement demand and is more sensitive to consumer spending behavior. End market conditions tied to new housing activity have remained soft, primarily impacting the wholesale channel. Looking at our other major market assumptions, we continue to expect U.S. commercial water heater industry volumes to be flat with last year. We are maintaining our North America boiler sales growth of 6% to 8%, North America water treatment sales growth of 5% to 6%, and approximately $70 million of sales from Leonard Valve. We also continue to expect our China sales to decline at a low double-digit rate in local currency. As we think about the phasing of the balance of the year, Q2 earnings benefited from early buy programs in our boiler business as well as customer pre-buy activity, ahead of our announced water heater and boiler price increases. Which accelerated a portion of expected Q3 demand into the second quarter. In addition, Q2 benefited from a slightly lower effective tax rate than we expect for the full-year. And while our full-year outlook still assumes steel costs will be approximately 15% higher than 2025 levels, we expect steel inflation in the second half to be somewhat higher than the first half. Nonsteel material inflation and tariffs are expected to remain a headwind as we move through the remainder of the year. Tariff policy remains dynamic. And while we continue to evaluate the recently announced changes, we currently expect the new tariffs to have a modestly higher cost impact than the tariffs they replaced. While we continue to expect the overall impact to be manageable, the timing of these cost pressures combined with the customer pre-buy activity and seasonal boiler early buy program is expected to create a less favorable earnings profile in the third quarter. Together with continued weakness in China, these factors are expected to result in Q3 EPS that is lower than both Q2 and Q4. The midpoint of our range assumes Q3 segment margins in both North America and Rest of World are generally consistent with the margins reported in Q1. I will now turn the call back over to Steve for closing remarks. Stephen M. Shafer: Thanks, Carrie. Moving to slide 10. I would like to close with the key messages from the quarter. First, we delivered solid second quarter results. With sales exceeding $1 billion, 3% North America organic growth and adjusted earnings per share of $1.03. These results reflect the strength of our North America businesses. Disciplined execution across the organization, and the contribution from Leonard Valve as we begin to build out our water management platform. Second, our boiler business continued to perform exceptionally well. Boiler sales increased 21% in the quarter, driving year-to-date growth of 12%. We continue to benefit from strong commercial demand and remain confident in our outlook of 6% to 8% boiler growth for the full-year. Third, while residential water heater industry demand remains softer than we anticipated, we are confident in the long-term strength of our North America water heater business. The replacement market continues to represent approximately 80% to 85% of industry demand, Our market position remains strong. And we have continued to make progress stabilizing market share in a highly competitive environment. Fourth, our strategic assessment of the China business is nearing completion. While market conditions remain challenging, we are focused on determining the best path forward to support the long-term success of the business and create value for shareholders. Finally, our business has continued to generate strong cash flow. Which provides flexibility to invest in our businesses while returning capital to shareholders. This confidence is reflected in the 50% increase in our 2026 share repurchase target to $300 million. As Carrie discussed earlier, we have updated our full-year outlook to reflect continued softness in North America residential water heater industry demand. Importantly, our outlook for our other major businesses and markets remains largely consistent with the assumptions we provided earlier this year. Overall, we remain confident in our strategy, our market position, the resilience of our replacement-driven businesses, and our ability to create long-term value for shareholders. With that, we conclude our prepared remarks. and open the call for your questions. Operator: Thank you. As a reminder, if you would like to ask a question, please press *1 on your telephone. You will hear the automated message advising your hand is raised. If you would like to remove yourself from the queue, press *1 again. We ask that you wait for your name and company to be announced before proceeding with your question. One moment while we compile the Q&A roster. The first question of the day will be coming from the line of Bryan Blair of Oppenheimer. Please go ahead. Bryan Blair: Thank you. Good morning, everyone. Morning. Chuck, thank you very much for all the help over the years. And, Carrie, I look forward to working with you. Thank you. Likewise. Glad to be here. I guess to start, you did revise U.S. residential water heater volume outlook, although down low single digits still entails stabilization going forward. And that certainly counters pretty weak industry data year to date and generally unchanged macro variables. So I guess simple question, what gives your team confidence in that stabilization over the coming months? Stephen M. Shafer: Yeah. Bryan, when we kind of look at the way the industry rolls out, just recall that in 2024 and in 2025, we really had also price increases in the first half of the year, pulling volume into the first half. So some of the comps that we are seeing industry data and, kind of through May are comping against a pretty strong front half of the year. The way we have the year laid out, you know, the last couple years, it has been in the 52% to 53% in the front half. And this year, we have it about 51% in the front half. So we do not have quite as much pull-forward in the overall outlook and we have a little easier comps as we go into the back half. Of the year. Bryan Blair: Okay. Understood. That makes sense. I was hoping you could offer some more detail on how your team is thinking about North American margins in Q3 and Q4? We obviously have your full-year outlook, so we can back into the second half overall. But just given all of the moving parts at hand, price-cost, certainly among those factors, be very helpful if you spoke to quarterly expectations. Carrie L. Anderson: Yeah. I will take that question, and Chuck, if there are something I missed. Feel free to chime in here. I would say, generally, in the second quarter, our price-cost relationship was slightly positive. And, you know, overall, you know, we are taking pricing actions, and our water heating pricing at 4% to 7%. They are expected to begin to be realized midway through the third quarter. So we expect to see more of a contribution of that price as we move into the second half. But at the same time, we are also, if you go back to my prepared remarks, we do see a ramp up in some of our cost that is expected to increase, particularly steel in the back half of the year. And so overall, I would say in the back half of the year, we are gonna be more neutral, more neutral in that price-cost relationship. Specifically for the third quarter, I mentioned that North America margins will be similar to Q1, and that is more reflective of the fact that as you think about the demand that we saw move into the second quarter compared to the third quarter. that is gonna have a bit of a some volume pressure there. And the fact that we are gonna have some of that price kind of build over the quarter as those new effective price increases come into effect. So we will not have a full quarter impact of those new price increases in Q3. It will have the full benefit in Q4. Charles T. Lauber: Anything else, Carrie? No. Operator: Thank you. One moment for the next question. Next question is coming from the line of Mike Halloran of Baird. Please go ahead. Michael Halloran: Alright. Thank you. And let me echo Bryan's comments. Best of luck, Chuck. I enjoyed working with you for what was a very long period of time. And, Carrie, welcome. I look forward to working with you as well. Charles T. Lauber: Thank you, Mike. Stephen M. Shafer: My—Chuck's a little sensitive to when we say very long period of time. Michael Halloran: Hey. Look. I am incriminating myself there too. You know? So Yeah. Always. So can we talk a little bit about the residential landscape specifically? Obviously, the environment's weaker. I understand the back half guide, but maybe just talk a little bit about the market share comments. And how you feel like you are stabilizing things on that side. And any difference or trend line that you are seeing on the wholesale versus retail side of things? Stephen M. Shafer: Yeah. So maybe first off, regarding wholesale retail, you know, we continue to see kind of retail overall in the industry gain a little bit of share. Some of that is because the dynamics in the industry like new construction, impact wholesale a little bit more than retail, but also some of the big box retailer players are really getting organized around how to go after, in particular, kind of the small pros. And so there is that dynamic that is playing out. that has been playing out, I would say, for years and maybe accelerated a bit in the last few quarters. As there has been a lot more pressure, I think, on the wholesale side of the business. So that is one factor that is out there. I have talked about in the past kind of market share specifically on the wholesale side. We are very pleased with sort of how we performed in retail with our retail partners. But on the wholesale side, you know, it can be a little bit lumpy as there are some channel movement, and there are some actions taken either by us or competitors. And so we see that kind of ride up and down a little bit. But what we look to really do is make sure that we have a stable share performance and with the end of last year, we had a concerted effort to go back and win back a little bit of share that we maybe had lost in that wholesale channel. We have great relationships across the wholesale channel. We obviously know players in that space very well, and we have some targeted actions to win back a little bit of share. And then we are happy with the progress we are making there and some of the stabilization that we see in our share performance. Michael Halloran: Thanks for that. And then second question, just pricing. Maybe just talk a little bit about price acceptance. In the North America channels, both on the boiler and then the commercial and residential water heater side. How that is being shuffled through, and then know you answered a little bit for Bryan, but if you look at the next two to four quarters here, how does that price-cost relationship start tracking? And when do you feel like you are going to be in a really good spot on a net basis? Carrie L. Anderson: Maybe I will start with that one, and then Chuck can pick up the first part of your question. Carrie L. Anderson: But I would say, you know, it is too early to talk about future price increases at this point. You know, the material cost environment inclusive of tariffs remains quite dynamic, and as a result, we are watching and managing this quite closely with our teams. And our goal is to always make it a balance in that price-cost relationship as we also wanna make sure that our customers are kept competitive here. So at this point, I would say, you know, we are always gonna continue to monitor to try to maintain that relationship. Charles T. Lauber: And as far as acceptance of the price, I mean, it is it is pretty early days of the price increase. Right? We expect that we are gonna start seeing the positive impact of pricing call it, midway through the third quarter, and that is both on water heaters and boilers You know, I it was delayed, Was delayed a couple months. So, you know, we have a little bit of pressure in Q3. That we may not have seen had it been affected immediately that, you know, we are going to always keep competitive in the marketplace, and we feel, you know, that it should play out as it has historically. So we right now, are you know, have it in our outlook. Operator: Thank you. One moment for the next question. Next question is coming from the line of Susan Maklari of Goldman Sachs. Please go ahead. Your line is open, Susan. Please go ahead. One moment for the next question. Our next question is coming from the line of Nathan Jones, please go ahead, of Stifel. Nathan Jones: Good morning, everyone. I will congratulate you again, and Carrie, welcome to the team. I guess first question, Chuck, you just mentioned that the price increases were delayed by a couple months. Charles T. Lauber: Can you talk about the dynamics around that and why they were delayed and confident in them getting out into the market now when they are supposed to. Yeah. I mean, it was roughly a month that it was pushed back, and it really was because we wanted to remain competitive with some of the other market participants that came out with price but everybody is in the market with pricing. We expect it to go forward as planned. Nathan Jones: Okay. I guess the second question is you guys have had a fair amount of experience over the last several years with large price increases to cover inflation and service the industry. And a lot of experience with the demand pull-forward dynamics that come along with that. Can you talk about how that is played out this time versus you know, in previous occasions, how confident you are on I guess, what you have estimated as pull-forward into the quarter. I think that plays out in the back half. I guess the risk around, you know, maybe the pull-forward being a bit more, the market being a bit weaker than you think, and the risk to the second half? Just any color on your confidence there. Stephen M. Shafer: I would say it is a little bit of science and a little bit of art relative to how you manage that, and the important thing is we work really closely with our customers. As we think about stepping in and stepping through a price change know, a couple years ago, we saw a really big pull-forward that the in 2024 and 2025, we look to manage that and balance that a little bit with our customers to help on the production efficiencies. Every time we go through this, we try to find the right balance of serving, what our customers need, responding to the marketplace, but then optimizing for what makes sense in terms of our own production efficiencies. And so we continue to work with our customers, and I would say it is not a formula. Every year is exactly the same. there is always different dynamics to navigate through and different priorities from our customers that we work through with them. But I would say you know, this year, I think we continue to work closely, make sure we serve the demand, serve our customers well, but also with our customers when it made sense in terms of getting efficiencies on that back end. So I think it is a little bit more of a muted pull-forward this year just by some of those the nature of the dynamics that were out there. Charles T. Lauber: And just as a reference point, you mentioned you know, prior price increases. I mean, this price increase of 4% to 7% is probably on the lower end of what we have experienced over the last couple of years for price increase amount. And to Steve's point, we expect and feel like it is had a little bit less of a impact than maybe some of the other previous price increases. Operator: Thank you. Our next question will be coming from the line of Scott Graham of Seaport Research Partners. Please go ahead. Scott Graham: Hey. Good morning, Chuck. Congratulations on a great run. You for being so easy to work with. And, Carrie, welcome aboard. I have a sort of a similar question to, Nathan. Is there any way to size the dollars on the pre-buy, you know, what was pulled into the second quarter from the third quarter? And then secondarily, could you talk about some of the competitive and maybe more promotional activity you are seeing in the wholesale channel because, you know, we kinda know what they are all about. And not a reduction in foot traffic and all of this. And within that, maybe discuss, you know, you have another new competitor. And I know it is not a big overlap. With you, but, the dynamics of what they are doing in that channel. Thanks. Carrie L. Anderson: Yes. I will take the first part on the question on the size of your pre-buy. We generally you know, we do not size it, but I think within my prepared remarks, we did wanna make sure that we gave you a little bit more commentary around the phasing of the year. Because there was some pull-forward demand from the third quarter into the second quarter So I think my comments around the shape of the second half was specifically those comments on the third quarter. Can help you kinda think through that. In terms of thinking through the dynamics in the third quarter inclusive of some higher steel, cost that we expect in the half in the second half of the year, tariff dynamics as well as the pricing that we expect to have full traction in the back half of the quarter. Charles T. Lauber: And I would just supplement that with if you look at how we have the industry laid out for the year, This year, we are saying 51% in the first half. 49% in the back half. Prior two years, we are closer to 52% to 53% in the front half. So we do expect to have a less of an impact than what we have seen in other price increase pull-forward. Stephen M. Shafer: I think on your question around kinda yeah, wholesale dynamics, you know, we have talked about some of the things that are putting pressure on the wholesale market. Stephen M. Shafer: there are a couple players that I think look to serve that market and know, it is a competitive environment. And even more so when you do not have kind of meaningful growth that helps all the players sort of kind of move forward. So it is a competitive space. I do think, though, I go back to as it relates to new entrants and people trying to get into that space, difficult to do because you really have to have full conviction. I think, to serve the wholesale market well. You need to have the full breadth of the product portfolio. Be able to serve both the replacement market as well as the new construction demand You have gotta be able to support it with obviously high quality products at scale. You gotta be able to have the relationships and the brands to reach the contractors and that they know you are gonna stand behind the products. And it is the products that they are comfortable and used to, and you also have to have products that have the technology moving forward. And I think from that standpoint, that is that is how we serve that market with conviction. And I think it has served us well and it has especially served us well as new people to get into that space. Difficult to do without that full level of conviction in the full business model. Operator: Thanks. Thank you. One moment for the next question. Next question is coming from the line of Tomohiko Sano of JPMorgan. Please go ahead. Brendan: Hi. This is Brendan on for Tomohiko. So if I could just start on your product portfolio, as we think about the ongoing evolution of your product portfolio, which product categories or technologies are your top priorities for incremental R&D investment? And then specifically, what kind of milestones should we watch for progress there? Stephen M. Shafer: Well, as we have been talking about certainly here in North America, in the water heater and the boiler space, We have been making big investments to expand our portfolio in the tankless segment. As well as with heat pump technology. We believe those technologies have a relevant position in the future for how the water heating and boiler space will evolve. So we have we have been making investments over many years now there to kind of complement the strength of our more traditional tank portfolio. And we are really happy with the progress we have made in terms of the performance, the technical steps forward, and how we roll those out into the market. and how they have been accepted in the marketplace. So I think those are areas that you know, I think on the tankless side, we will see how it has to play out with new construction on the heat pump side. Obviously, still very much connected to regulatory and rebate. Actions, but we do believe that those are technologies relevant for our future. Water treatment is a space where I think there is more innovation happening and lots of awareness happening around water treatment in North America. And then how do you serve that awareness with the right types of technologies in the marketplace? that is an area that we have got today an increased focus on innovation as we go forward because we think it is a market space that is right for more innovative products. I would say if you think about outside North America, our markets in China and India, those are real, I would say, innovation juggernauts. The pace of change and innovation in those markets requires us to move at an incredibly high pace, and they evolve and consumer tastes evolve pretty quickly there. So that is a little bit really embedded in our DNA of how we bring new products to those consumers. Brendan: Great. Thank you. And then if I can get one more here. So you have highlighted deploying AI tools across, you know, order management, warranty processing, technical service. Just sort of thinking how you are thinking about the scale and timeline of productivity benefits from those initiatives. You know, is this primarily a cost story, a customer experience story, both? And how does that kinda fit within the broader margin improvement framework? Stephen M. Shafer: Yeah. I mean, I think, like a lot of companies now where there are AI kind of experiences and experimentation happening all across the company. Some of it is just more in general productivity gains and how all employees everywhere kind of bring it into their lives and bring it into their professional careers. And then there is more targeted, say, kind of AI use cases. That we are developing, and you mentioned a few of them. And I think we see the reality is having a meaningful impact on both things like customer experience and our productivity. You know, it takes a little bit of time to kind of build up the first of all, get the data structured and oriented and build up the models to really drive those programs. So we do feel like it is still early to kind of really size that for folks, but we are learning really quickly. Right? it is just as you think about how quickly AI is learning and I think our use cases of AI is evolving very quickly. And so it is one of those things that I think, you know, expect we will all be talking about more and more as we go forward and as we step into the next few quarters and years about how we are putting to work those types of models. But I do see it playing out very much in serving our customers better and doing it much more efficiently, in more productive ways. Operator: Thank you. If you would like to ask a question, please press *1 on your telephone. One moment for the next question. Next question is coming from the line of Jeffrey Hammond of KeyBanc Capital Markets. Your line is open. Mitch Moore: Hey, everyone. This is Mitch Moore on for Jeffrey. Good morning. Hey, Mitch. Good morning. Just on the China decision, sounds like you are getting close, and look forward to the update next quarter. But if you look at the spectrum of potential outcomes, any chance you could give us any color on which direction you are leaning? Stephen M. Shafer: Yeah. I mean, all outcomes are still on the table, Mitch. And, you know, we have been at this process for almost a year. We have had a lot of great discussions with a lot of different potential parties. We have learned a lot about our business and the potential levers we can pull, and I think we are actually getting pretty good clarity of what we think we need to do to kind of position the business for success going forward. Whether that is done in a structure where somebody else leads those changes and pulls those levers or whether we do it in partnership or whether we do it ourselves. I think all those options at this point are still on the table, and I think that is part of the clarity we will look to provide by our next earnings call is exactly how we are gonna move forward there. And that clarity, I know, you know, we owe it to you and our investors, but also our customers and our employees. Obviously, as we have gone through this assessment, there is a lot of uncertainty there. And so we recognize the need to kind of move forward and step forward and drive some of the changes that we think are needed for the business. And like I said, how we do that or how somebody else moves forward with that is what we are trying to finalize. Mitch Moore: Thank you. Appreciate the color there. And then just a cleanup question. I think you mentioned the IEEPA refunds were minimal in the quarter. Could you just quantify that? And do you anticipate any more in the second half? Carrie L. Anderson: Yeah. I will take that question. I mean, I think as just as a reminder, we are primarily a domestic manufacturer. So a significant portion of our tariff exposure is indirect with those tariff costs passed through to us via supplier price increases. As Chuck mentioned, in Q2, we did receive some refunds related to the IEEPA tariffs. In the cases where A. O. Smith was the importer of record. However, the amount in the quarter was not material. I would say about a penny But recognize that the tariff environment remains fairly fluid, including the recently announced Section 301 tariff. So if I step back a bit more broadly, overall tariffs, including tariff refunds, we are not expecting to have a material impact on earnings or margins for the full-year. And we just continue to monitor that evolving environment. Operator: One moment for the next question. Our next question is coming from the line of David MacGregor of Longbow Research. Please go ahead. Joe Nolan: Hey. Good morning. This is Joe Nolan on for David. Hi, Joe. Wanted to good morning. I just wanted to follow-up on the tariff comments right there. I think it was mentioned in the prepared remarks that you would see a slightly higher impact from tariffs. Could you just quantify the impact to the second half from higher tariffs? Carrie L. Anderson: Yes. We did not quantify that. I think, again, when you think about Section 301 tariffs replacing the Section 122 tariffs, as you as you think about how that was described, it would be a slightly you know, higher headwind there. But I think our intent is to try to continue to manage those costs. like we are managing all of our different material cost inflation headwinds in the back half of the year. So at this point, we did not quantify that other than to say we are working through those changes. And, obviously, believe that there will be a modest cost increase. But at this point, our plan is to continue to mitigate and manage best we can. Stephen M. Shafer: And I would say Yeah. Definitely. We are getting pretty good at navigating tariff you know, uncertainty, reactions, understand our supply base. So you know, there is a lot of levers we can pull to sort of to navigate through that. And I would also say nothing you can count on, relative going forward on tariffs. Right? I think it is just going to be a continued evolving landscape. I think all companies sort of have to get really good at just responding to those changes, and I think we are getting better at that. Joe Nolan: Got it. that is helpful. And then I just wanted to circle back on pricing. I was just wondering and a softer demand environment, are you seeing higher price elasticity on the recent price increases relative to increases over recent years? Charles T. Lauber: Not you know, I would say no. You know, in a softer environment, you know, consumers are not really focused on the end price when they put in a water heater. So from a price elasticity, we are not seeing consumer pushback. When you do have a situation, though, when you have volumes down and Steve mentioned earlier some of the challenges in the wholesale channel, The wholesale channel, as a reminder, is a large part of where housing gets pulled through. And certainly, it is a competitive environment. But know, we would not say price elasticity plays out directly. Operator: Thank you. One moment for the next question. Next question is coming from the line of Ryan Connors. Of Northcoast Research. Please go ahead. Ryan Connors: Good morning. Thanks, and congrats, Chuck, and welcome, Carrie. Thank you. I wanted to you have covered a lot of ground here. I appreciate you fitting me in. But, talk about dating ourselves. You know, one thing, I can I am old been around the story long enough to remember that next week is the 10-year anniversary of closing on Aquasana, which was really the platform creation of the water treatment business in North America. And, obviously, do not think it is quite reached the critical scale we would have thought at this point. So I guess as you go through the restructuring, can you just update us on your strategic thinking there? I mean, are we at a point where that is gonna start moving the needle in the next few years, or at some point, you have to make a strategic decision that it is you are just not reaching that scale, and what is holding it back from doing that. Curious if you could step back from the tactical restructuring talk and just address that business from a strategic context relative to where its expectations would have been. Stephen M. Shafer: Than it was today. I would say when we decided years ago to step into the water treatment space, a lot of work was done to understand the landscape, understand the megatrend, try to understand where the world was going around, you know, interest and understanding of water cleanliness, how regulatory you know, frameworks were gonna impact that. So viewed it as an attractive space. And we knew we needed to get you know, inorganically into it that we could get a collection of people and businesses that really understood the space well. And as you mentioned, Aquasana was kind of the initial entry into this, and we bought a number of businesses since then, really high quality assets. That have served that water treatment space well for a number of years. And I think as we have gone through that journey and as we have put these businesses together, we ourselves have learned a lot about the market space. And learned about what the different elements of the market, the different channels, the different products, And I think what you see now is putting that learning to work. Right? So what did we learn along the way? And then what does it mean for us in terms of how A. O. Smith can participate and create value going forward? And sure, we have every aspiration to make the business you know, more scaled, more profitable, and a bigger contributor to our portfolio, and that is some of the actions we are taking now. are related to trying to position the business to do that going forward. Obviously, as you sort of refine and you focus and you prioritize it can take a step back in terms of just sort of the growth profile as you do that. And we have gotta focus on really fine tuning where we wanna compete and win. That will help us, I think, drive more profitable growth going forward, and we have been taking some of those actions. And I think we still see it as a really attractive space. And I think now we see it as a really attractive space with I think, even greater clarity having been a participant in it for the last decade, about where it is we can go and where we think our business model can create value. Got it. that is a very helpful update. I appreciate that. And then secondly, you talked a lot about the shifts in the wholesale channel. The one thing in particular we hear a lot about is some of your channel partners talk about this dual-trade evolution where, you know, HVAC and plumbing being melded into one. Can you talk about how that impacts A. O. Smith? Is that an opportunity? Is that a risk? And how you view that and whether that is part of the shift that you talk about in wholesale. It when I talk about shift in wholesale, it is a little bit more, I would say, kind of near-term dynamics related to kind of housing starts and how they are serving the pros and how the retail side of the channel serving the pros. So that is a little bit more of what we are seeing right here and now. I think the topic you are talking about is, you know, how are the trades coming together with the HVAC world, What does that mean for the wholesalers who serve those spaces What does that mean for the OEM manufacturers? I think that is a that is a longer-term trend, and I would say it is one we follow closely, and we have a lot of conversations across our industry and the HVAC industry about those changes and what does it mean. You know, right now, at the end of the day, you can have you have plumbers and you have HVAC technicians. They are very different people. there are different skill sets. The replacement cycles are different. That convergence is not necessarily driving big impact for how people wanna interact with their water heater OEMs. Now over time, I think it does create opportunities. It is one thing we need to watch carefully is do consumers and do trades folks shift the way they think and operate? But it is one of those things that because we are an industry leader, and we are we are, you know, we are a thought leader across the industry, very much actively involved in understanding how those dynamics are changing. But we view it as a bit of a longer-term Thank you. Operator: Moment for the next question. Our next question is coming from the line of Susan Maklari of Goldman Sachs. Please go ahead. Susan Maklari: Thank you. Good morning, everyone. I am sorry I missed you earlier. Thanks for taking the question. Stephen M. Shafer: Good morning. Susan Maklari: I want to start on the boiler outlook, which seems to imply that you expect a meaningful step down in the second half despite the pricing that you are getting there. I realized that there was some pull-forward in that, but could you talk about the broader outlook there and your performance relative to that? Charles T. Lauber: Yeah. I mean, we are we are really pleased. With our boiler performance in the first half of the year. If you recall, the first quarter was a little weaker on the commercial side, but we have built momentum in overall, year to date being up 12% is a pretty healthy position. We have not changed our outlook. You know, we have not changed our outlook for the full-year, 6 to 8 percent. We are watching If you recall a couple of years ago, there was more channel inventory built up on a price increase than the perhaps what we have seen before. And on our prepared remarks, you know, we do have pre-buy programs ththat occur in the second quarter, somewhat fall into the third quarter, but largely in the second quarter. And so there will be some softness in the third quarter as a result of some of those pre-buy and price increase pull-forwards that happened in Q2. So overall, though, commercial order and quoting remains healthy. And we are very pleased with how we are performing in the market on the residential side of the boiler business. Susan Maklari: Okay. that is helpful. And then you also mentioned that you are seeing inflation in areas outside of steel. Can you talk about that headwind? Quantify it for us a bit. what is driving that and your ability to offset that pressure? Charles T. Lauber: Yeah. I mean, when you look at our cost, right, so steel is the largest, and we really see Q4 steel taking a meaningful increase in our cost base But the other factors that are out there are kind of oil related, I would call them. So if you think about transportation, we have seen, you know, a meaningful amount of increase in our transportation cost due to diesel surcharges. And just demand in transportation being a little more costly than what it has been in the past. And then also oil based products You know, we have quite a bit of foam that we put in our product and other plastics that are under pressure for some of the oil based pricing that we see hitting us particularly driving up costs in the back half of the year. Susan Maklari: Second part of the question was Ability to offset. Offset. Charles T. Lauber: And I think, you know, I think I think Carrie covered that pretty well. I mean, we have pricing in the marketplace in Q3. But we will see some pressures on margins as we go through the half of the year because the costs, particularly in the fourth quarter, are ramping up pretty quicklyly. Carrie L. Anderson: Yeah. But overall, I think we my comments were so, one of the questions was price-cost relationship fairly neutral in the second half. So we will continue to find ways to mitigate that, but I think there are some nuance in the phasing to pick up on in my prepared remarks that should help you kinda shape that back half of the year. Operator: Thank you. One moment for the next question. Our next question is coming from the line of Amit Mehrotra of UBS. Please go ahead. Pita: Hey. Good morning. This is Pita on for Amit Mehrotra. Morning. Hey. So my first question is like, looking at the North America, I think you mentioned third quarter margin is similar to the first quarter, and it seems second half could be similar to the first half as well. But when we take a look at the last three years, margins have been down in the second half compared to the first half. So can you walk us through some key drivers pressing this? And what makes it different from prior years. Charles T. Lauber: Yeah. it is a little different. And each of the last few years have been somewhat unique. We have had somewhat of a volatile environment as far as pricing and timing of pricing. So, you know, some of the some of the reasons last year are volume was a little bit more under pressure. I mentioned earlier about the at least the residential water heater industry being 51% in the front 49% in the back half. Prior years were a little bit more skewed towards the front half because of pricing. So that helps a bit. Even that out. So I think volume is a big part of that. Pita: Great. that is very helpful. Thank you. And just to follow-up on the commercial water heater market that is, like, outlook is still flattish for the year. But can you give details on how it has been trending in the first half? And are there any end markets doing better or worse? And additionally, like, what would need to improve for growth to reaccelerate in this business? other than the regulatory changes which got pushed forward? Charles T. Lauber: You know, the end markets on the commercial water heating side remain stable. We did we talked about it a bit on our last call is you know, the 2026 commercial DOE efficiency change We adjusted in our in the first quarter, our outlook on commercial because that was pushed out a year or the enforcement of that regulation was pushed out to 2027. So know, we probably saw a little bit more strength on commercial in the early part of the year before that announcement came out. And then since then, you know, a little softness on commercial as there is probably some pre-buy. But I think as we exit the second quarter, we are probably in a pretty neutral position for that change. Operator: Thank you. Thank you. That concludes today's Q&A session. I would like to turn the call back over to Helen for closing remarks. Please go ahead. Helen E. Gurholt: Thank you, everyone, for joining us today. We look forward to updating you on our progress in the quarters to come. In addition, please mark your calendars to join our presentations at two conferences this quarter: Seaport on August 18 and D.A. Davidson on September 24. Thank you, and enjoy the rest of your day. Operator: This does conclude today's program. Thank you so much for joining. You may now disconnect. Before you buy stock in A. O. Smith, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and A. O. Smith wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years. 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As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability. The Motley Fool has positions in and recommends A. O. Smith. The Motley Fool has a disclosure policy. A.O. Smith (AOS) Q2 2026 Earnings Call Transcript was originally published by The Motley Fool

Make better investment decisions with Simply Wall St's easy, visual tools that give you a competitive edge. A. O. Smith (AOS) stock is back in focus after the company released stronger than expected second quarter 2026 earnings, updated its full year outlook, and lifted its share repurchase target. See our latest analysis for A. O. Smith. A. O. Smith’s latest results landed against a weaker share price backdrop, with the stock at $60.13 and a year to date share price return down 11.99%, while the 1 year total shareholder return declined 12.70%. The earnings surprise, higher buyback target and updated guidance give investors fresh information to weigh against that softer recent performance. If you are reassessing A. O. Smith after these results, it can also be useful to compare it with other companies exposed to long term infrastructure and grid investment themes through the 35 power grid technology and infrastructure stocks A. O. Smith now trades well below recent highs, even as buybacks and updated guidance reshape the investment case. Does that mix still tilt the risk reward toward buyers, or has the easy upside already passed? The most followed narrative for A. O. Smith places fair value at $70.45, compared with the recent $60.13 close. That gap sits at the core of the current debate around the stock. Read the complete narrative. Curious what sits behind a higher fair value than today’s share price? The narrative leans on steady revenue growth, firmer margins, and a richer future earnings multiple. It also builds in ongoing share count reduction and a specific discount rate to bring those cash flows back to today. Result: Fair Value of $70.45 (UNDERVALUED) Have a read of the narrative in full and understand what's behind the forecasts. However, A. O. Smith still faces pressure from softer China demand and cost inflation, which could challenge the replacement driven story that underpins the current narrative. Find out about the key risks to this A. O. Smith narrative. With the current mix of caution and optimism around A. O. Smith, it helps to check the numbers for yourself and move quickly while sentiment is fresh. To see which factors investors are most positive about, review the 4 key rewards If you are reassessing A. O. Smith today, do not stop there. Use these focused stock lists to spot other opportunities that could better match your goals. Spot potential value opportunities early by reviewing companies highlighted in the 56 high quality undervalued stocks. Strengthen your income stream by scanning companies featured in the 9 dividend fortresses. Prioritize resilience by reviewing companies in the 82 resilient stocks with low risk scores. This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Companies discussed in this article include AOS. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email [email protected]

Second Quarter 2026 Highlights(Comparisons are year-over-year ("YoY"), unless otherwise noted) Sales of $1 billion; net earnings of $125 million and diluted earnings per share (EPS) of $0.91; adjusted earnings of $142 million1 and adjusted EPS of $1.031 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 Year-to-date operating cash flow increased 42% to $254 million and free cash flow increased 67% to $233 million 2026 full year share repurchase target increased to $300 million 2026 full year sales EPS guidance updated to: MILWAUKEE, July 30, 2026 /PRNewswire/ -- Global water technology company A. O. Smith Corporation ("the Company") (NYSE: AOS) today announced its second quarter 2026 results. Key Financial Metrics Second Quarter(in millions, except per share amounts) "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." Segment-level Performance North America 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. Excluding 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 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. Balance Sheet, Liquidity and Capital Allocation 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. 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. 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. Supported 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. 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. For the full release, click here. Outlook 2026 Outlook(in millions, except per share amounts) Due 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%. The Company also narrowed its full-year 2026 adjusted EPS outlook to be between $3.70 and $3.85, from $3.70 to $4.00. Shafer concluded, "While residential water heater demand remains soft, we are confident in our business fundamentals, competitive position and ability to execute our strategy. Our 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." The Company's guidance excludes the potential impacts from future acquisitions, any potential outcomes of the assessment of its China business and the potential impact of the recently announced changes in tariff policy. A. O. Smith will host a webcasted conference call at 10:00 a.m. (Eastern Daylight Time) today. The call can be heard live on the Company's website click here. An audio replay of the call will be available on the Company's website after the live event. To access the archived audio replay, go to the "Investors" page and select the Second Quarter 2026 Earnings Call link. To provide improved transparency into the operating results of its business, the Company is providing non-GAAP measures. Free cash flow is defined as cash provided by operations less capital expenditures. North America segment organic growth excludes the impact of Leonard Valve. Adjusted earnings, adjusted EPS and adjusted segment earnings exclude the impact of restructuring and impairment charges. Reconciliations from GAAP measures to non-GAAP measures are provided in the financial information included in this news release. Forward-looking Statements This release contains statements that the Company believes are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally can be identified by the use of words such as "may," "will," "expect," "intend," "estimate," "anticipate," "believe," "forecast," "continue," "guidance," "outlook", "confident" or words of similar meaning. All forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those anticipated as of the date of this release. Important factors that could cause actual results to differ materially from these expectations include, among other things, the following: further softening in U.S. residential and commercial water heater demand; further weakening in North American residential or commercial construction or instability in the Company's replacement markets; failure to realize the expected benefits of acquisitions or expected synergies; difficulties in predicting results of operations of an acquired business; negative impact to the Company's businesses from international tariffs, including any new or increased tariffs that could also trigger retaliatory responses from other countries, as well as trade disputes and geopolitical differences, including the conflicts in Ukraine and the Middle East; negative impacts to the Company, particularly the demand for its products, resulting from global inflationary pressures or a potential recession in one or more of the markets in which the Company participates; the Company's ability to continue to obtain commodities, components, parts and accessories on a timely basis through its supply chain and at expected costs, including the recent volatility in fuel and other material prices; inability of the Company to implement or maintain pricing actions; inconsistent recovery of the Chinese economy or a further decline in the growth rate of consumer spending or housing sales in China; the availability, timing or effects of China stimulus programs; uncertain outcomes and costs and other potential impacts of the Company's assessment relating to the Company's China business; the failure to realize the expected benefits of restructuring actions; further weakening in the high-efficiency gas boiler segment in the U.S.; substantial defaults in payment by, material reduction in purchases by or the loss, bankruptcy or insolvency of a major customer; foreign currency fluctuations; failure to realize the expected benefits, timing and extent of regulatory changes; competitive pressures on the Company's businesses, including new technologies and new competitors; the impact of potential information technology or data security breaches; negative impact of changes in government regulations or regulatory requirements; the inability to respond to secular trends toward decarbonization and energy efficiency; and adverse developments in general economic, political and business conditions in key regions of the world. Additional factors are discussed in the Company's filings with Securities and Exchange Commission, including the Company's Annual Report on Form 10-K for the year ended December 31, 2025, quarterly reports on Form 10-Q and current reports on Form 8-K. Forward-looking statements included in this news release are made only as of the date of this release, and the Company is under no obligation to update these statements to reflect subsequent events or circumstances. All subsequent written and oral forward-looking statements attributed to the Company, or persons acting on its behalf, are qualified entirely by these cautionary statements. About A. O. SmithA. O. Smith Corporation, with headquarters in Milwaukee, Wisconsin, is a global leader applying innovative technology and energy-efficient solutions to products manufactured and marketed worldwide. Listed on the New York Stock Exchange (NYSE: AOS), the Company is one of the world's leading manufacturers of residential and commercial water heating equipment and boilers, as well as a manufacturer of water treatment and water management products. For more information, visit www.aosmith.com. View original content to download multimedia:https://www.prnewswire.com/news-releases/a-o-smith-reports-second-quarter-2026-results-302838509.html

A. O. Smith Corporation AOS reported second-quarter 2026 adjusted earnings of $1.03 per share, beating the Zacks Consensus Estimate of 96 cents by 7.3%. The bottom line declined 4% year over year, as weaker China volumes and higher input costs weighed on profitability.Net sales of $1 billion surpassed the consensus estimate of $986.45 million by 1.8% but fell 1% year over year. North America sales rose 5%, supported by 21% boiler sales growth, carryover pricing and Leonard Valve, while China sales dropped 28% in local currency. A. O. Smith’s quarterly sales in North America (comprising the United States and Canada operations) increased 5% year over year to $820.5 million. Our estimate for segmental revenues was $781.4 million. This uptick was caused by higher boiler volumes, benefits from carryover pricing and a $16 million contribution from the Leonard Valve buyout, partially offset by lower residential water heater volumes.Segmental earnings were $177.2 million, down 10.6% year over year.Quarterly sales in the Rest of the World (including China, India and Europe) segment were $194.9 million, down 19% year over year. Our estimate for segmental revenues was $223.8 million. Sales in China fell 28% in local currency.The segment’s earnings were $10.2 million, down 59.7% year over year due to lower China sales volumes, which were partially offset by continued cost-management actions. A. O. Smith Corporation price-consensus-eps-surprise-chart | A. O. Smith Corporation Quote A.O. Smith’s cost of sales was $616.5 million, up 0.4% year over year. Selling, general & administrative expenses were $197.7 million, up 3.3%.Gross profit decreased 2.3% year over year to $387.8 million. The gross margin was 38.6% compared with 39.3% in the year-ago period. Interest expenses were $8.1 million compared with $4.6 million in the year-ago quarter. As of June 30, 2026, AOS’ cash and cash equivalents totaled $181.3 million compared with $174.5 million at the end of December 2025.At the end of the second quarter, long-term debt was $598 million compared with $112.7 million at the end of December 2025. The increase in debt level was attributable to cash borrowed by the company under a new term loan for the acquisition of Leonard Valve.In the first six months of 2026, cash provided by operating activities totaled $253.8 million compared with $178.3 million in the year-ago period. In the first six months of 2026, A.O. Smith repurchased 2.6 million shares for $162.4 million. As of second quarter-end, approximately 3.2 million shares were left to be repurchased under the share repurchase authorization.Supported by strong cash flow performance in the first half of 2026, AOS increased its full-year share repurchase target by 50% to $300 million from $200 million. A.O. Smith expects 2026 net sales in the range of $3.90-$3.95 billion, implying growth of 2-3%. The company had previously projected sales growth of 2-4%.Management currently projects adjusted earnings per share in the band of $3.70-$3.85, narrowed from the previous range of $3.70-$4.00. The company currently carries a Zacks Rank #4 (Sell). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. Constellium SE CSTM came out with quarterly earnings of $1.04 per share in the second quarter of 2026, beating the Zacks Consensus Estimate of $0.91 per share. This compares with earnings of $0.25 per share a year ago.Constellium posted revenues of $2.75 billion for the quarter ended June 2026, missing the Zacks Consensus Estimate by 3.5%. This compares with year-ago revenues of $2.1 billion.Generac Holdings Inc. GNRC came out with quarterly earnings of $2.91 per share in the second quarter of 2026, beating the Zacks Consensus Estimate of $1.95 per share. This compares with earnings of $1.65 per share a year ago.Generac Holdings posted revenues of $1.17 billion for the quarter ended June 2026, missing the Zacks Consensus Estimate by 0.37%. This compares with year-ago revenues of $1.06 billion.Graco Inc. GGG reported second-quarter 2026 adjusted earnings of 91 cents per share, up 17% from 78 cents in the year-ago quarter. The bottom line surpassed the Zacks Consensus Estimate of 81 cents by 12.4%.The company’s net sales rose 3% year over year to $590.6 million but lagged the consensus estimate of $609 million by 3%. Organic order backlog (excluding acquisitions) rose 28% from the end of 2025. Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report A. O. Smith Corporation (AOS) : Free Stock Analysis Report Graco Inc. (GGG) : Free Stock Analysis Report Generac Holdings Inc. (GNRC) : Free Stock Analysis Report Constellium SE (CSTM) : Free Stock Analysis Report This article originally published on Zacks Investment Research (zacks.com). Zacks Investment Research

Our analysts just identified a stock with the potential to be the next Nvidia. Tell us how you invest and we'll show you why it's our #1 pick. Tap here. North America organic growth of 3% was driven by strong boiler performance and carryover pricing, despite lower residential water heater volumes. Residential water heater demand remains pressured by high interest rates impacting new construction and existing home sales, which typically drive replacement activity. The boiler business saw a 21% sales increase, benefiting from robust commercial demand and seasonal early buy programs. China sales declined 28% in local currency as the appliance market remains challenged, particularly within the premium segment. Management is nearing the conclusion of a year-long strategic assessment of China operations to determine the optimal path for long-term value creation. Water treatment performance was mixed, with growth in priority dealer channels offset by cautious consumer spending in other retail segments. Full-year 2026 adjusted EPS guidance was narrowed to $3.70 to $3.85, reflecting a more cautious outlook for the North American residential water heater market. U.S. residential water heater industry volumes are now expected to be down low single digits for the year, a slight downgrade from the previous flat to down range. Third quarter earnings are expected to be lower than both Q2 and Q4 due to demand pull-forward into Q2 and the timing of price increase realizations. Steel costs are projected to be approximately 15% higher than 2025 levels, with inflation expected to accelerate in the second half of the year. The company increased its 2026 share repurchase target by 50% to $300 million, supported by strong free cash flow generation. The Leonard Valve acquisition contributed $16 million to Q2 sales, serving as a foundation for a new water management and digital control platform. A restructuring of the water treatment footprint and brand portfolio is expected to generate annual savings of $6 to $8 million starting in 2027. New Section 301 tariffs are expected to have a modestly higher cost impact than the previous Section 122 tariffs, though management views the impact as manageable. Proactive replacement demand, which accounts for approximately 30% of the market, remains a key sensitivity factor tied to consumer discretionary spending. One stock. Nvidia-level potential. 30M+ investors trust Moby to find it first. Get the pick. Tap here. Management noted that while industry data appears weak, year-over-year comparisons are easier in the second half because 2024 and 2025 had significant volume pull-forwards into the first half. The 2026 volume split is expected to be more balanced at 51% in the first half versus 52-53% in prior years. All options remain on the table, including maintaining the current structure, forming partnerships, or having a third party lead the business. Management expects to provide a definitive conclusion on the assessment by the next quarterly earnings call. Price increases of 4% to 7% were delayed by approximately one month to remain competitive with other market participants. Full realization of these price increases will not occur until midway through the third quarter, creating temporary margin pressure in Q3. Management acknowledged the business has not yet reached desired scale but remains committed to the category due to long-term water cleanliness trends. Current restructuring is focused on prioritizing specific channels and products to drive more profitable growth rather than just volume.

This article first appeared on GuruFocus. Release Date: July 30, 2026 For the complete transcript of the earnings call, please refer to the full earnings call transcript. North America sales increased 5% to $821 million, with organic growth of 3% driven by strong boiler sales. Free cash flow surged nearly 70% in the first half of 2026, reflecting strong operational efficiency. Boiler business delivered exceptional 21% sales growth in Q2, with year-to-date growth of 12%. Increased 2026 share repurchase target by 50% to $300 million, demonstrating confidence in cash flow and shareholder returns. Leonard Valve acquisition contributed $16 million in sales and is on track for double-digit growth for the full year. China sales declined 28% in local currency due to persistent weakness in the premium appliance market. North America residential water heater demand remains soft, with industry outlook revised to down low single-digits. Steel costs rose approximately 20% year-over-year in Q2, pressuring margins despite pricing actions. Adjusted segment margin in North America decreased 100 basis points to 24.4% due to higher input costs. Q3 earnings expected to be lower than Q2 and Q4 due to demand pull-forward, higher steel costs, and tariff headwinds. Warning! GuruFocus has detected 6 Warning Signs with MAA. Is AOS fairly valued? Test your thesis with our free DCF calculator. Q: You revised the US resi water heater industry volume outlook to down low single-digits. What gives your team confidence in stabilization over the coming months, given weak industry data year-to-date?A: (Chuck Lauber, Executive Vice President) In 2024 and 2025, price increases pulled volume into the first half. The industry split was 52-53% in the front half those years, but this year we see it at about 51%. We don't have as much pull-forward, and we have easier comps in the back half of the year. Q: Can you talk about the market share comments and how you feel you're stabilizing things, and any difference in wholesale versus retail trends?A: (Steve Schaeffer, CEO) Retail is gaining a bit of share, partly because new construction impacts wholesale more, and big box retailers are getting organized to serve small pros. On the wholesale side, we had a concerted effort to win back share we lost, and we're happy with the progress and stabilization we see in our share performance. Q: How does the price/cost relationship start tracking over the next 2 to 4 quarters, and when do you feel you'll be in a really good spot on a net basis?A: (Carrie Anderson, CFO) It's too early to talk about future price increases. The material cost environment, including tariffs, remains dynamic. Our goal is to maintain a balance in that relationship. We expect to see the positive impact of pricing midway through Q3, but it was delayed a couple of months, so we have a bit of pressure in Q3 that we may not have seen otherwise. Q: The price increases were delayed by a couple of months. Can you talk about the dynamics around that and your confidence in them getting into the market now?A: (Chuck Lauber, Executive Vice President) It was roughly a month pushed back because we wanted to remain competitive with other market participants. But everybody is in the market with pricing, and we expect it to go forward as planned. Q: Can you talk about how the demand pull-forward dynamics from price increases have played out this time versus previous occasions?A: (Steve Schaeffer, CEO) It's a mix of science and art. We work closely with our customers. This year, the price increase of 4-7% is on the lower end of what we've experienced, so we feel it had a little bit less of an impact and is a more muted pull-forward. Q: Is there any way to size the dollars on the pre-buy that was pulled from Q3 into Q2?A: (Chuck Lauber, Executive Vice President) We generally don't size it, but our commentary on the shape of the second half, specifically the Q3 comments, should help you think through that. The industry split is 51% in the first half and 49% in the back half, compared to 52-53% in prior years, so we expect less of an impact. Q: On the China decision, it sounds like you're getting close. Can you give any color on which direction you're leaning?A: (Steve Schaeffer, CEO) All outcomes are still on the table. We've had great conversations and learned a lot about the business and the levers we can pull. Whether we do it ourselves, in partnership, or someone else leads the changes, all options are still on the table. We'll provide clarity by our next earnings call. Q: You mentioned IEPA refunds were minimal in the quarter. Could you quantify that and do you anticipate any more in the second half?A: (Carrie Anderson, CFO) The amount in the quarter was not material, about a penny. The tariff environment remains fluid, including the recently announced Section 301 tariffs. Overall, including refunds, we aren't expecting tariffs to have a material impact on earnings or margins for the full year. Q: What product categories or technologies are your top priorities for incremental R&D investment?A: (Steve Schaeffer, CEO) In North America, we are investing in tankless and heat pump technology to complement our traditional tank portfolio. Water treatment is another area with increased innovation focus. In China and India, the pace of change requires us to move at an incredibly high pace, and innovation is embedded in our DNA there. Q: How are you thinking about the scale and timeline of productivity benefits from deploying AI tools?A: (Steve Schaeffer, CEO) AI experimentation is happening across the company. Some is general productivity, and there are more targeted use cases. It takes time to structure data and build models, so it's still early to size it. But we see it playing out in serving customers better and doing it more efficiently. For the complete transcript of the earnings call, please refer to the full earnings call transcript.