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+5.8%
growth in revenue a year, FY2020 to FY2025
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China exit leaves a North American water heating company
Q3 FY2026, the quarter to Sep 30, 2026 · 10-Q filed Oct 29, 2026
Largest source of revenue: North America, 80.5% of the total.
Agreeing to sell control of a shrinking China business concentrates the company on North American replacement demand.
North America brought in $756.8M of the quarter's $940.5M in net sales to outside customers, 80.5% of the total. Rest of World, which the filing describes as primarily China, India and Europe, brought in $183.7M, or 19.5%. Total net sales were close to flat against $942.5M a year earlier.1
The two regions moved in opposite directions. In North America the filing credits the Leonard Valve acquisition, a 13% rise in boiler sales and pricing actions, partly offset by lower water heater sales. China sales fell 17% in local currency, which the filing attributes to continued weak consumer demand and disruption from the strategic assessment.1
After the quarter ended, the company agreed to sell a majority interest in its China business to CPE, keeping a minority stake and a long-term brand licensing agreement. It expects to report China as discontinued operations from the fourth quarter, recast prior periods, and prioritize share repurchases with the after-tax proceeds.1
AnalysisAnalysis: growth rates after the recast will not compare cleanly with those reported before it. The business that remains leans even more on North American replacement demand, so the steadiness of that demand, rather than a recovery in China, becomes the main driver of results.
Operating earnings held flat, so borrowing for Leonard Valve and a higher tax rate explain the lower net earnings.
Earnings before interest and taxes were $174.4M against $175.4M a year earlier, almost unchanged. Gross profit was $364.7M against $364.5M, and selling, general and administrative expenses were $189.5M against $188.9M.1
Interest expense rose to $7.7M from $3.6M, which the filing attributes to higher debt taken on for the Leonard Valve acquisition. Interest now takes 4.4% of earnings before interest and taxes, against 2.1% a year earlier.1
The tax rate rose to 24.2% of pre-tax earnings from 23.2%, which the filing puts down to an unfavorable geographical earnings mix. Pre-tax earnings were $166.7M against $171.8M, and net earnings fell 4.3% to $126.3M from $132.0M, a net margin of 13.4% of sales.1
Diluted earnings per share fell less than net earnings, to $0.93 from $0.94, because share repurchases lowered the weighted share count.1
AnalysisAnalysis: the operating business absorbed higher steel and freight costs without losing ground; the financing choice is what shows in net earnings. Whether the acquisition pays depends on Leonard Valve earning more over time than its interest and amortization.
Capital spending is a sliver of sales, so most profit turns into cash for dividends, buybacks and debt repayment.
Operating cash flow was $175.6M, 1.39 times net earnings of $126.3M. Capital spending was $12.7M, 1.35% of net sales, leaving free cash flow of $162.9M, 17.3% of sales and more than net earnings.1
Full years show the same shape. In FY2025 free cash flow was $546.0M against net earnings of $546.2M, with capital spending of $70.8M, 1.8% of revenue of $3,830.2M. In FY2020 free cash flow of $505.3M exceeded net earnings of $344.9M.1
The quarter was lower than a year earlier: operating cash flow of $175.6M against $255.4M, and free cash flow of $162.9M against $240.6M. Cash flow swings between quarters; in Q1 FY2025 free cash flow was only $17.4M.1
The quarterly dividend rose to $0.36 a share from $0.34, equal to 38.7% of diluted earnings per share of $0.93, even as earnings per share slipped.1
AnalysisAnalysis: because the plants need little new capital, cash flow rather than reported growth sets what the company can return to shareholders or spend on adjacencies such as Leonard Valve.
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Where A. O. Smith stands among its peers, ten years of growth and cash, where the profit is made, and the edge and the risks.
How A. O. Smith's model works step by step, where every $100 of revenue goes against the industry, and how long it took to scale.
Revenue went from $2.7B in FY2016 to $3.8B in FY2025, the operating margin from 19.2% to 19.0%, over 9 years.
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What A. O. Smith's numbers depend on from here, read from the filing: the conditions behind this period's margins and growth, and where a change would show first.
How North American replacement demand, pricing and Leonard Valve have to perform to carry results after the recast.
What the gap between rising input costs and announced prices means for margins, and which signals show it widening.
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Business Lens describes A. O. Smith from its own filings with the SEC. It is not a view on its shares, a target, or advice to buy, sell or hold anything; figures are as filed and may be restated by the company later. The filing, the dates and the version are under the financial data above.