A.O. Smith shares rise on record annual earnings amid strong 2026 outlook
Water heater manufacturer returned $597M to shareholders and expects EPS growth to continue through next fiscal year
A.O. Smith Corporation reported record full-year diluted earnings per share of $3.85 for 2025, a 6% increase from the previous year, as the water treatment and water heating equipment manufacturer delivered despite mixed quarterly results. The shares rose more than 2% in after-hours trading following the announcement.
For the fourth quarter, the Milwaukee-based company reported diluted earnings per share of $0.82, surpassing analyst expectations. Net sales for the quarter totaled $916.1 million, essentially flat compared to the same period in 2024. Net earnings reached $116.3 million, representing a 6% year-over-year increase.
The company achieved sales of $3.83 billion for the full year 2025, with net earnings growing 2% to $546.2 million. Operating margins improved by 80 basis points year-over-year, reflecting the company's operational efficiency initiatives. Perhaps most notably, A.O. Smith generated free cash flow of $546 million, equal to 100% of net earnings—a significant milestone for capital allocation flexibility.
Looking ahead, management provided 2026 earnings per share guidance of $3.85 to $4.15, with the midpoint suggesting modest growth from the record levels achieved in 2025. The guidance compares to an analyst consensus estimate of $4.03, according to data from Investing.com. The outlook incorporates expectations for continued operating margin improvement, building on the company's track record of expanding profitability.
Capital returns to shareholders featured prominently in the company's performance for 2025. A.O. Smith returned $597 million to shareholders through a combination of dividends and share repurchases. The dividend yield currently stands at 1.91%, providing steady income for shareholders while the buyback program supports earnings per share growth by reducing the share count.
The company's strong free cash flow generation has positioned it to maintain its shareholder-friendly capital allocation strategy. With a dividend of $1.36 per share and a history of consistent payouts, A.O. Smith appeals to income-oriented investors while pursuing growth opportunities in emerging markets, particularly in Asia where demand for water treatment solutions continues to expand.
Analysts currently maintain a consensus "Hold" rating on the stock with an average price target of approximately $76.50, according to MarketBeat data. The stock has outperformed the broader market recently, gaining 3.8% over the past month compared to the S&P 500.
A.O. Smith's performance comes against a backdrop of mixed results across the industrial sector, where many companies face demand uncertainty and pricing pressures. The company's ability to expand margins while maintaining steady sales speaks to its operational execution and pricing power in key markets. The water treatment business, a strategic growth initiative, continues to gain traction alongside the core water heating operations.
The company's focus on innovation and sustainability positions it to benefit from longer-term trends in water infrastructure and energy efficiency. As municipalities and homeowners invest in modern water systems, A.O. Smith's diversified product portfolio across residential and commercial applications provides multiple growth avenues.
Investors will be watching the company's progress against its 2026 guidance targets when first-quarter results are released, with particular attention to whether margin expansion can continue in the face of potential economic headwinds. The sustained free cash flow generation and disciplined capital allocation should provide support even if market conditions become more challenging.