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SMITH A O CORP - Quarter Report: 2025 June (Form 10-Q)

Issued and unvested at June 30, 2025  
9.
reporting segments: North America and Rest of World. The Rest of World segment is primarily comprised of China, Europe and India. Both segments manufacture and market comprehensive lines of residential and commercial gas and electric water heaters, boilers, tanks and water treatment products. Both segments primarily manufacture and market in their respective regions of the world.  $ $— $ $ $ Inter-segment sales  —      —    Elimination of Inter-segment sales()()— () ()Net Sales  —    Cost of products sold  —    Gross Profit  —    Inter-segment Profit—  ()— — — Selling, general and administrative expenses  —    Other (income) expense, net() —  ()()Earnings$ $ $()$ $()$ Interest expense()Earnings before provision for income taxes$ 
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9. Segment Results (continued)
 $ $— $ $ $ Inter-segment sales  —      —    Elimination of Inter-segment sales()()— () ()Net Sales  —    Cost of products sold  —    Gross Profit  —    Inter-segment Profit—  ()— — — Selling, general and administrative expenses  —    Other expense (income), net ()—  ()()Earnings$ $ $()$ $()$ Interest expense()Earnings before provision for income taxes$ 
Six Months Ended June 30, 2025
(dollars in millions)North AmericaRest of WorldInter-segment EliminationTotal Segments Corporate ExpensesTotal
Sales from external customers$ $ $— $ $ $ 
Inter-segment sales  —    
  —    
Elimination of Inter-segment sales()()— () ()
Net Sales  —    
Cost of products sold  —    
Gross Profit  —    
Inter-segment Profit—  ()— — — 
Selling, general and administrative expenses  —    
Other (income) expense, net() —  ()()
Earnings$ $ $()$ $()$ 
Interest expense()
Earnings before provision for income taxes$ 
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9. Segment Results (continued)
 $ $— $ $ $ Inter-segment sales  —      —    Elimination of Inter-segment sales()()— () ()Net Sales  —    Cost of products sold  —    Gross Profit  —    Inter-segment Profit—  ()— — — Selling, general and administrative expenses  —    Other expense (income), net ()— ()()()Earnings$ $ $()$ $()$ Interest expense()Earnings before provision for income taxes$ 
Assets, depreciation and capital expenditures by segment
Assets
(dollars in millions)June 30, 2025December 31, 2024
North America$ $ 
Rest of World  
Total Segments  
Corporate(1)
  
Total$ $ 
(1) The majority of corporate assets consist of cash, cash equivalents, marketable securities, and deferred income taxes.
Depreciation and amortizationThree Months Ended
June 30,		Six Months Ended
June 30,
(dollars in millions)2025202420252024
North America$ $ $ $ 
Rest of World    
Total Segments    
Corporate    
Total$ $ $ $ 
Capital expendituresThree Months Ended
June 30,		Six Months Ended
June 30,
(dollars in millions)2025202420252024
North America$ $ $ $ 
Rest of World    
Total Segments    
Corporate    
Total$ $ $ $ 
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10.
 $ Significant other observable inputs (Level 2)Accrued Liabilities()()
Items measured at fair value were comprised of the Company’s marketable securities (Level 1) and derivative instruments (Level 2). There were no changes in the Company's valuation techniques used to measure fair values on a recurring basis during the six months ended June 30, 2025.
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million as of June 30, 2025 which was recorded in Other current assets within the condensed consolidated balance sheet. The combined fair value of the foreign currency forward contracts was a liability balance of $ million as of December 31, 2024 which was recorded in Accrued liabilities within the condensed consolidated balance sheet.
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11. Derivative Instruments (continued)
 $ $ $ Euro    Mexican peso    Total$ $ $ $ 

Interest Rate Swaps
The Company is exposed to interest rate risk as a result of its floating rate borrowings. The Company entered into a forward interest rate swap agreement with an independent counterparty to hedge the variability in cash flows due to changes in the Secured Overnight Financing Rate (SOFR) benchmark interest rate associated with variable rate borrowings. The interest rate swap at June 30, 2025 has a maturity date of September 30, 2029 and effectively converts the Company’s variable interest rate obligation to a fixed interest rate obligation. The interest rate swap had an aggregate notional amount of billion rupees as of June 30, 2025 and December 31, 2024. The aggregate effective interest rate of the swap as of June 30, 2025 was %.
The fair value of the interest rate swap contract was a liability balance of $ million and $ million as of June 30, 2025 and December 31, 2024, respectively, which was recorded in Accrued liabilities within the condensed consolidated balance sheet.
 $()Cost of products sold$ $ Interest rate swap() Interest expense() $()$()$ $ 
Six Months Ended June 30 (dollars in millions):
Derivatives in ASC 815 cash flow hedging relationshipsAmount of gain (loss) recognized in other
comprehensive
loss on derivatives		Location of (loss) gain
reclassified from
accumulated other
comprehensive loss
into earnings		Amount of (loss) gain
reclassified from
accumulated other
comprehensive
loss into earnings
2025202420252024
Foreign currency contracts$ $ Cost of products sold$()$ 
Interest rate swap() Interest expense() 
$ $ $()$ 

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11. Derivative Instruments (continued)
) million of after-tax losses and $ million of after-tax gains associated with hedges of net investments in non-U.S. subsidiaries in currency translation adjustment in other comprehensive loss in the three months ended June 30, 2025 and June 30, 2024, respectively. The Company recognized $() million of after-tax losses and $ million of after-tax gains associated with hedges of net investments in non-U.S. subsidiaries in currency translation adjustment in other comprehensive loss in the six months ended June 30, 2025 and June 30, 2024, respectively.
The contractual amount of the Company’s foreign currency denominated intercompany debt that is designated as a net investment hedge was ¥ billion RMB as of June 30, 2025 and December 31, 2024. The fair value of the net investment hedge was as of June 30, 2025 and December 31, 2024.
Balance Sheet Hedges
Foreign Exchange Contracts
The Company historically entered into foreign exchange contracts to mitigate the foreign currency volatility relative to certain intercompany loans. These foreign exchange contracts did not qualify for hedge accounting in accordance with ASC 815 and as such were marked to market through earnings. The fair value of the foreign exchange contracts was as of June 30, 2025 and December 31, 2024.
 $ $ $  $ 
Six Months Ended June 30 (dollars in millions):
Derivatives not designated as hedging instruments:
Location of expense within the condensed consolidated statements of earnings
20252024
Foreign exchange contractsOther expense, net$ $ 
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percent. The Company estimates that its annual effective income tax rate for the full year 2025 will be approximately between and percent. The effective income tax rate for the three and six months ended June 30, 2024 was percent and percent, respectively. The change in the effective income tax rate for the three and six months ended June 30, 2025 compared to the effective income tax rate for the three and six months ended June 30, 2024 was primarily due to the geographical earnings mix.
As of June 30, 2025, the Company had $ million of unrecognized tax benefits of which $ million would affect its effective income tax rate if recognized. The Company recognizes potential interest and penalties related to unrecognized tax benefits as a component of income tax expense. The Company’s U.S. federal income tax returns and its U.S. state and local income tax returns are subject to audit for the years 2018-2025 and 2006-2025, respectively. The Company is subject to examinations in foreign tax jurisdictions for the years 2019-2025.
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13.
14.
)$()Other comprehensive gain (loss) before reclassifications ()Balance at end of period()()Unrealized net (loss) gain on cash flow derivativesBalance at beginning of period() Other comprehensive losses before reclassifications()()
Realized losses (gains) on derivatives (net of income tax provision of $ and $ in 2025 and 2024, respectively)
 ()Balance at end of period() Pension liabilityBalance at beginning of period()()Amounts reclassified from accumulated other comprehensive loss:  Balance at end of period()()Accumulated other comprehensive loss, end of period$()$()

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14. Changes in Accumulated Other Comprehensive Loss by Component (continued)

)$()Other comprehensive gain (loss) before reclassifications ()Balance at end of period()()Unrealized net (loss) gain on cash flow derivativesBalance at beginning of period() Other comprehensive gain before reclassifications  
Realized losses (gains) on derivatives (net of income tax provision of $ and $ in 2025 and 2024, respectively)
 ()Balance at end of period() Pension liabilityBalance at beginning of period()()Amounts reclassified from accumulated other comprehensive loss:  Balance at end of period()()Accumulated other comprehensive loss, end of period$()$()

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ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Our company is comprised of two reporting segments: North America and Rest of World. Our Rest of World segment is primarily comprised of China, Europe and India. Both segments manufacture and market comprehensive lines of residential and commercial gas, heat pump and electric water heaters, boilers, tanks, and water treatment products. Both segments primarily manufacture and market in their respective region of the world.
We continue to seek acquisitions that enable geographic growth, expand our core business, and establish adjacencies. On November 1, 2024, we acquired Pureit from Unilever for approximately $125 million, subject to customary adjustments. Pureit, a leading water purification business in South Asia, offers a broad range of residential water purification solutions. Pureit contributed $28 million to sales in the first half of 2025 and is expected to have sales of approximately USD $50 million for the full year 2025. The acquisition fits squarely in our core capabilities and doubles our market penetration in the South Asia region. In the first quarter of 2024, we acquired Impact Water Products, a privately-held water treatment company. The acquisition supports our geographic expansion and growth strategy by expanding the West Coast presence of our water treatment business.
We continue to look for opportunities to add to our existing product portfolio in high growth regions demonstrated by our previous introductions of kitchen products and connected product technologies in China. We also recently introduced our internally designed and manufactured gas tankless water heaters in North America. In addition, we are expanding our commercial water heater capacity in North America in preparation for the new efficiency rule for commercial water heaters that the Department of Energy (DOE) has adopted that will take effect in 2026.
In 2024, we recognized restructuring and impairment expenses of $17.6 million. In China, severance expenses of $11.3 million related to the right sizing of that business for current market conditions. The remaining $6.3 million related to the restructuring of our water treatment business in North America as a part of a profitability improvement strategy that prioritizes improving our cost structure and emphasizes our more profitable channels.
In our North America segment, we saw lower water heater volumes in the first half of 2025 against a difficult comparison in the same period last year. We believe that a pre-buy ahead of our March 2024 price increase pulled forward some demand into the first half of 2024. In 2025, while we believe we benefited from some pre-tariff and price increase pull ahead, we actively worked with our customers to limit the impact to help enable greater operational efficiencies, a key 2025 company initiative. 2024 residential industry unit volumes were flat compared to the prior year and we project 2025 industry residential unit volumes will be flat as well. We anticipate that commercial water heater industry volumes will also be approximately flat in 2025 after minimal growth in 2024. In response to higher steel and other input costs, including tariffs, we announced price increases on most of our water heater and boiler products in the first half of 2025. In addition to pricing, we intend to mitigate the impact of tariffs through footprint optimization, strategic sourcing actions and other cost containment initiatives. We expect our boiler sales to grow between four and six percent in 2025 compared to 2024 as we continue to benefit from the transition to higher efficiency boilers. We anticipate sales of our North America water treatment products will be between $235 million and $245 million, a year-over-year decrease of approximately five percent as we de-emphasize certain channels and focus on our more profitable channels.
In our Rest of World segment, China sales declined eight percent in the first half of 2025 due to continued weak consumer demand. For the full year 2025, we project our third-party sales in China to decrease between five to eight percent in local currency compared to 2024 as we expect economic challenges will persist in 2025. We are initiating an assessment of strategic opportunities for our China business, including strategic partnerships and other alternatives. We believe the China market has substantial long-term prospects and are committed to realizing the potential upside inherent in our China business.
Combining all of these factors, we expect our 2025 consolidated sales to increase between one to three percent compared to 2024. Our guidance excludes the impacts from potential future acquisitions and any potential outcomes of the assessment of the China business.
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Results of Operations
(dollars in millions)Three Months Ended
June 30,		Six Months Ended
June 30,
2025202420252024
Net sales$1,011.3 $1,024.3 $1,975.2 $2,003.1 
Cost of products sold614.2 628.3 1,202.7 1,222.4 
Gross profit397.1 396.0 772.5 780.7 
Gross profit margin %39.3 %38.7 %39.1 %39.0 %
Selling, general and administrative expenses191.3 188.5 383.9 380.7 
Interest expense4.6 1.8 7.5 2.8 
Other income, net(0.4)(0.9)(1.6)(2.1)
Earnings before provision for income taxes201.6 206.6 382.7 399.3 
Provision for income taxes49.4 50.4 93.9 95.5 
Net Earnings$152.2 $156.2 $288.8 $303.8 
Our sales in the second quarter of 2025 were $1,011.3 million, and lower than the second quarter of 2024 sales of $1,024.3 million. Sales in the first six months of 2025 were $1,975.2 million, and lower than sales of $2,003.1 million in the same period last year. Compared to the prior year quarter, our net sales decrease was primarily driven by lower residential water heater volumes in North America, and lower sales in China, which more than offset our higher sales of boilers and incremental sales related to the 2024 acquisition of Pureit which added approximately $16 million in the second quarter. Our net sales decrease in the first six months of 2025 was primarily driven by lower residential water heater volumes in North America, lower sales in China, and unfavorable currency translation of approximately $8 million due to the depreciation of foreign currencies compared to the U.S. dollar, which more than offset our higher sales of boilers and incremental sales related to the 2024 acquisition of Pureit which added approximately $28 million in the first six months of 2025.
Our gross profit margin in the second quarter of 2025 was 39.3 percent, up compared to 38.7 percent in the second quarter of 2024. Gross profit margin in the first six months of 2025 was 39.1 percent essentially flat compared to the gross profit margin of 39.0 percent in the first six months of 2024. The increase in gross profit margin in the second quarter was primarily driven by mix benefits toward more profitable channels in water treatment.
Selling, general, and administrative (SG&A) expenses in the second quarter of 2025 increased $2.8 million compared to the second quarter of 2024. SG&A expenses increased $3.2 million in the first six months of 2025 compared to the prior year. The increase in SG&A expenses in the second quarter and first six months of 2025 compared to the prior year periods was primarily due to higher employee costs from management incentives and higher selling expenses to support our sales initiatives.
Interest expense in the second quarter of 2025 was $4.6 million compared to $1.8 million in the same period last year. Interest expense in the first six months of 2025 was $7.5 million compared to $2.8 million in the same period the previous year. The increase in interest expense in the second quarter and first six months of 2025 was primarily due to higher debt levels.
Other income, net was $0.4 million in the second quarter of 2025 compared to $0.9 million in the second quarter of 2024. Other income, net was $1.6 million in the first six months of 2025 compared to $2.1 million in the same period last year. The decrease in Other income, net in the second quarter and first six months of 2025 was primarily due to lower interest income.
Our effective income tax rate for the three and six months ended June 30, 2025 was 24.5 percent. The effective income tax rate for the three and six months ended June 30, 2024 was 24.4 percent and 23.9 percent, respectively. The change in the effective income tax rate for the three and six months ended June 30, 2025 compared to the effective income tax rate for the three and six months ended June 30, 2024 was primarily due to the geographical earnings mix. We estimate that our annual effective income tax rate for the full year of 2025 will be approximately 24 to 24.5 percent.

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North America Segment
(dollars in millions)Three Months Ended
June 30,		Six Months Ended
June 30,
2025202420252024
Net Sales$779.0 $790.7 $1,527.7 $1,557.0 
Segment Earnings198.1 198.4 383.3 397.1 
Segment margin25.4 %25.1 %25.1 %25.5 %
Sales in our North America segment were $779.0 million in the second quarter of 2025, a decrease of $11.7 million from $790.7 million in the second quarter of 2024. Sales in the first six months of 2025 were $1,527.7 million, or $29.3 million lower than sales of $1,557.0 million in the same period last year. Compared to the prior year quarter, our net sales decrease was primarily driven by lower residential water heater volumes and partially offset by favorable pricing actions and higher boiler sales. Our net sales decrease in the first six months of 2025 was driven by lower residential water heater volumes and an unfavorable currency translation of approximately $6 million which more than offset our favorable pricing actions and higher boiler sales.
North America segment earnings were $198.1 million in the second quarter of 2025, or $0.3 million lower than segment earnings of $198.4 million in the second quarter of 2024. Segment earnings in the first six months of 2025 were $383.3 million, a decrease of $13.8 million compared to segment earnings of $397.1 million in the first six months of 2024. Segment margins were 25.4 percent and 25.1 percent in the second quarter of 2025 and 2024, respectively. Segment margins were 25.1 percent and 25.5 percent in the first six months of 2025 and 2024, respectively. Lower segment earnings in the second quarter of 2025 compared to the prior year quarter were primarily due to lower water heater volumes that were partially offset by higher boiler sales. Higher segment margin in the second quarter of 2025 compared to the prior year quarter were primarily driven by mix benefits toward more profitable channels in water treatment as well as growth in high efficiency water heaters. Lower segment earnings and margin in the first six months of 2025 compared to the prior year were primarily due to lower water heater volumes, lower volume-related absorption, and continued strategic investments, which were partially offset by favorable pricing actions and higher boiler volumes. We estimate our 2025 North America segment margin will be approximately 24 to 24.5 percent.
Rest of World Segment
(dollars in millions)Three Months Ended
June 30,		Six Months Ended
June 30,
2025202420252024
Net Sales$240.1 $244.8 $466.8 $471.7 
Segment Earnings25.3 25.9 45.0 43.1 
Segment margin10.5 %10.6 %9.6 %9.1 %
Sales in the Rest of World segment were $240.1 million in the second quarter of 2025, compared to $244.8 million in the second quarter of 2024. Sales in the first six months of 2025 were $466.8 million, or $4.9 million lower than sales of $471.7 million in the same period last year. Compared to the prior year quarter, the decrease in sales was primarily due to lower volumes of our residential water treatment and water heater products in China that were partially offset by incremental sales related to our 2024 acquisition of Pureit which added approximately $16 million in net sales. Our net sales decrease in the first six months of 2025 was due to lower volumes of our residential water treatment and water heater products in China that were partially offset by incremental sales related to our 2024 acquisition of Pureit which added approximately $28 million in net sales.
Rest of World segment earnings were $25.3 million in the second quarter of 2025, or $0.6 million lower compared to $25.9 million in the second quarter of 2024. Segment earnings in the first six months of 2025 were $45.0 million, an increase of $1.9 million compared to segment earnings of $43.1 million in the first six months of 2024. Segment margins were 10.5 percent and 10.6 percent in the second quarter of 2025 and 2024, respectively. Segment margins were 9.6 percent and 9.1 percent in the first six months of 2025 and 2024, respectively. The lower segment earnings and segment margin in the second quarter of 2025 compared to the prior quarter were primarily driven by lower volumes in China, which were partially offset by cost reduction actions. The higher segment earnings and segment margin in the first six months of 2025 compared to the prior year were primarily driven by cost reduction actions and benefits from our fourth quarter of 2024 restructuring actions which more than
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offset lower volumes in China. We estimate our 2025 Rest of World segment margin will be approximately eight to nine percent.
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Outlook
We expect our consolidated sales in 2025 to increase between one and three percent compared to 2024. Our projection is driven by expected boiler sales growth of between four and six percent and flat industry residential and commercial volumes in North America in 2025 compared to 2024. In our Rest of the World segment, after a challenging 2024, we expect consumer demand softness will persist in 2025 in China and a decline in third-party sales. We intend to mitigate the impact of tariffs through pricing actions, footprint optimization, strategic sourcing actions and other cost containment initiatives We expect full-year earnings of between $3.70 and $3.90 per share. Our guidance excludes the impacts from potential future acquisitions and any potential outcomes of the assessment of the China business.
Liquidity & Capital Resources
Our working capital was $545.5 million at June 30, 2025, compared with $495.7 million at December 31, 2024. The increase in working capital was primarily related to higher receivable balances and lower accounts payable and partially offset by lower cash balances. As of June 30, 2025, cash balances were positively impacted by $2.9 million due to changes in foreign currency during the quarter. Cash and cash equivalents used to fund our operations are primarily generated through operating activities and our existing credit facilities. We believe our available cash and existing credit facilities are sufficient to cover our cash needs for the foreseeable future. We use a global cash pooling arrangement, intercompany borrowing, and some local credit lines to meet funding needs and allocate capital resources among various entities. We have historically made and anticipate future cash repatriations from certain foreign subsidiaries. In the first six months of 2025, we repatriated approximately $72 million of cash from our foreign subsidiaries and used the proceeds to pay down outstanding debt balances.
(dollars in millions)Six Months Ended
June 30,
20252024
Cash provided by operating activities$178.3 $164.0 
Cash used in investing activities(1.8)(60.1)
Cash used in financing activities(241.1)(223.7)
Cash provided by operations in the first six months of 2025 was $178.3 million and higher than $164.0 million in the first six months of 2024, primarily due to lower cash outlays for working capital needs in 2025 that were partially offset by lower current year earnings. Our free cash flow in the first six months of 2025 and 2024 was $139.9 million and $119.1 million, respectively. We expect cash provided by operating activities to be between $600 million and $625 million in 2025. We expect free cash flow to be between $500 million and $525 million in 2025. Free cash flow is a non-GAAP measure described in more detail in the Non-GAAP Measures section below.
Capital expenditures totaled $38.4 million in the first six months of 2025 compared with $44.9 million in the same period last year. We project that 2025 capital expenditures will be between $90 million and $100 million and full-year depreciation and amortization expense will be approximately $80 million.
In 2024, we renewed and amended our $500 million revolving credit facility ("renewed facility") which now expires on August 23, 2029. The renewed facility is with a group of nine banks and has an accordion provision that allows it to be increased up to $1 billion if certain conditions (including lender approval) are satisfied. Borrowing rates under the renewed facility are determined by our leverage ratio. The renewed facility requires us to maintain two financial covenants, a leverage ratio test and an interest coverage test, and we were in compliance with the covenants as of June 30, 2025, and expect to be in compliance for the foreseeable future. The renewed facility backs up commercial paper and credit line borrowings. At June 30, 2025, we had $145.0 million of borrowings outstanding under the renewed facility and an available borrowing capacity of $355.0 million. We believe the combination of available borrowing capacity and operating cash flows will provide sufficient funds to finance our existing operations for the foreseeable future.
Our total debt increased by $110.2 million in the first six months of 2025 as we used available cash to fund our stock repurchase program. Our leverage, as measured by the ratio of total debt to total capitalization, was 14.1 percent at June 30, 2025, compared with 9.3 percent at December 31, 2024.
In the first quarter of 2025, our Board of Directors approved adding 5,000,000 shares of common stock to the existing discretionary share repurchase authority. Under the share repurchase program, the common stock may be purchased through a combination of Rule 10b5-1 automatic trading plan and discretionary purchases in accordance with applicable securities laws. The stock repurchase authorization remains effective until terminated by our Board of Directors which may occur at any time, subject to the parameters of any Rule 10b5-1 automatic trading plan that we may then have in effect. During the first six months of 2025, we repurchased 3,786,073 shares at an average price of $66.37 per share and at a total cost of $251.3 million. As of
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June 30, 2025, there were 2,960,052 shares remaining on the existing repurchase authorization. Depending on factors such as stock price, working capital requirements, and alternative investment opportunities, we expect to spend approximately $400 million on stock repurchases in 2025 through a combination of any Rule 10b5-1 automatic trading plan and open market repurchases.
On July 7, 2025, our Board of Directors declared a regular quarterly cash dividend of $0.34 per share on our Common Stock and Class A common stock. The dividend is payable on August 15, 2025, to shareholders of record on July 31, 2025.
Non-GAAP Financial Information
We provide non-GAAP measures of free cash flow and adjusted EPS. We define free cash flow as cash provided by operating activities less capital expenditures, while adjusted EPS excludes the impact of restructuring and impairment expenses.
We believe that free cash flow provides useful additional information concerning cash flow available to meet future debt service obligations and working capital requirements and the measure of adjusted EPS provides useful information to investors about our performance and allows management and our investors to better understand our performance between periods without regard to items that we do not consider to be a component of our core operating performance or recurring in nature.



A. O. SMITH CORPORATION
Free Cash Flow
(dollars in millions)
(unaudited)

The following is a reconciliation of reported cash flow from operating activities to free cash flow (non-GAAP):

Six Months Ended
June 30,
20252024
Cash provided by operating activities (GAAP)$178.3 $164.0 
Less: Capital expenditures(38.4)(44.9)
Free cash flow (non-GAAP)$139.9 $119.1 

A. O. SMITH CORPORATION
2025 EPS Guidance and 2024 Adjusted EPS
(unaudited)

The following is a reconciliation of diluted EPS to adjusted EPS (non-GAAP) (all items are net of tax):

2025
Guidance		2024
Diluted EPS (GAAP)$3.70-3.90$3.63 
Restructuring and impairment expense— 0.10 
(1)
Adjusted EPS (non-GAAP)$3.70-3.90$3.73 
(1)Includes pre-tax restructuring and impairment expenses of $11.3 million and $6.3 million, within the Rest of World segment and North America segment, respectively.


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Critical Accounting Policies
Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the U.S., which requires the use of estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results inevitably will differ from those estimates, and such differences may be material to the financial statements. The critical accounting policies that we believe could have the most significant effect on our reported results or require complex judgment by management are contained in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the year ended December 31, 2024. We believe that at June 30, 2025, there was no material change to this information.
Recent Accounting Pronouncements
Refer to Recent Accounting Pronouncements in Note 1 – Basis of Presentation in the notes to our condensed consolidated financial statements included in Part 1 Financial Information.
Forward Looking Statements
This filing 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” 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 filing. Important factors that could cause actual results to differ materially from these expectations include, among other things, the following: 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; further softening in U.S. residential and commercial water heater demand; 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; negative impacts to demand for the Company’s products, particularly commercial products, as a result of changes in commercial property usage that followed the COVID-19 pandemic; further weakening in North American residential or commercial construction or instability in the Company's replacement markets; 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; potential 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; the Company’s inability to successfully integrate or achieve its strategic objectives resulting from acquisitions; failure to realize the expected benefits of acquisitions or expected synergies; 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. A more detailed description of these risks is contained under the heading "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2024. Forward-looking statements included in this filing are made only as of the date of this filing, 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.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As is more fully described in our Annual Report on Form 10-K for the year ended December 31, 2024, we are exposed to various types of market risks, including currency and certain commodity risks. Our quantitative and qualitative disclosures about market risk have not materially changed since that report was filed. We monitor our currency and commodity risks on a continuous basis and generally enter into forward and futures contracts to minimize these exposures. The majority of the contracts are for periods of less than one year. Our Company does not engage in speculation in our derivative strategies. It is important to note that gains and losses from our forward and futures contract activities are offset by changes in the underlying costs of the transactions being hedged.
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ITEM 4 - CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act). Based upon this evaluation of these disclosure controls and procedures, our principal executive officer and principal financial officer concluded that the disclosure controls and procedures were effective as of June 30, 2025 to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time period specified in the SEC rules and forms, and to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate, to allow timely decisions regarding disclosure.
Changes in internal control over financial reporting
There have been no changes in our internal control over financial reporting during the quarter ended June 30, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
There have been no material changes in the legal and environmental matters discussed in Part 1, Item 3 and Note 16 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2024.
ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES
In the first quarter of 2025, our Board of Directors approved adding 5,000,000 shares of common stock to the existing discretionary share repurchase authority. Under the share repurchase program, the Common Stock may be purchased through a combination of Rule 10b5-1 automatic trading plan and discretionary purchases in accordance with applicable securities laws. The number of shares purchased and the timing of the purchases will depend on a number of factors, including share price, trading volume and general market conditions, as well as working capital requirements, general business conditions and other factors, including alternative investment opportunities. The stock repurchase authorization remains effective until terminated by our Board of Directors which may occur at any time, subject to the parameters of any Rule 10b5-1 automatic trading plan that we may then have in effect. In the second quarter of 2025, we repurchased 1,991,379 shares at an average price of $65.64 per share and at a total cost of $130.7 million. As of June 30, 2025, there were 2,960,052 shares remaining on the existing repurchase authorization.
ISSUER PURCHASES OF EQUITY SECURITIES
PeriodTotal Number of Shares PurchasedAverage Price Paid per ShareTotal Number of Shares Purchased as Part of Publicly Announced Plans or ProgramsMaximum Number of Shares that may yet be Purchased Under the Plans or Programs
April 1 - April 30, 2025564,851 $63.72 564,851 4,386,580 
May 1 - May 31, 2025799,788 68.10 799,788 3,586,792 
June 1 - June 30, 2025626,740 64.24 626,740 2,960,052 
The Inflation Reduction Act of 2022, which was enacted into law on August 16, 2022, imposed a nondeductible 1% excise tax on the net value of certain stock repurchases made after December 31, 2022. All dollar amounts presented exclude such excise taxes, as applicable.
ITEM 5 - OTHER INFORMATION
During the three months ended June 30, 2025, none of our directors or Section 16 officers or a “Rule 10b5-1trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
ITEM 6 - EXHIBITS
Refer to the Exhibit Index on page 27 of this report.
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INDEX TO EXHIBITS
Exhibit
Number
Description
31.1
31.2
32.1
32.2
101The following materials from A. O. Smith Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2025 are filed herewith, formatted in XBRL (Extensive Business Reporting Language): (i) the Condensed Consolidated Statement of Earnings for the three and six months ended June 30, 2025 and 2024, (ii) the Condensed Consolidated Statement of Comprehensive Earnings for the three and six months ended June 30, 2025 and 2024, (iii) the Condensed Consolidated Balance Sheets as of June 30, 2025, and December 31, 2024 (iv) the Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 2025 and 2024 (v) the Condensed Consolidated Statement of Stockholders’ Equity for the three and six months ended June 30, 2025 and 2024 (vi) the Notes to Condensed Consolidated Financial Statements.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has authorized this report to be signed on its behalf by the undersigned.
A. O. SMITH CORPORATION
July 24, 2025/s/ Benjamin A. Otchere
Benjamin A. Otchere
Vice President and Controller
/s/ Charles T. Lauber
Charles T. Lauber
Executive Vice President and Chief Financial Officer
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