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4-09-30

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________________________________

FORM 10-Q

______________________________________________________


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2025.


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number 1-475

________________________________

A. O. Smith Corporation

(Exact name of registrant as specified in its charter)

________________________________

Delaware

(State of Incorporation)

11270 West Park Place, Milwaukee, Wisconsin

(Address of Principal Executive Office)

39-0619790

(I.R.S. Employer

Identification No.)

53224-9508

(Zip Code)

(414) 359-4000

(Registrant’s telephone number, including area code)

_________________________________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading
Symbol

Name of Each Exchange
on Which Registered

Common Stock (par value $1.00 per share)

AOS

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes o No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated Filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act.) ☐ Yes ☒ No

Class A Common Stock Outstanding as of October 24, 2025 - 25,865,697 shares

Common Stock Outstanding as of October 24, 2025 - 113,372,121 shares

Index

A. O. Smith Corporation


		Page
Part I.	FINANCIAL INFORMATION

	Condensed Consolidated Statements of Earnings - Three and Nine Months Ended September 30, 2025 and 2024	3

	Condensed Consolidated Statements of Comprehensive Earnings - Three and Nine Months Ended September 30, 2025 and 2024	3

	Condensed Consolidated Balance Sheets - September 30, 2025 and December 31, 2024	4

	Condensed Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2025 and 2024	5

	Condensed Consolidated Statements of Stockholders’ Equity - Three and Nine Months Ended September 30, 2025 and 2024	6

	Notes to Condensed Consolidated Financial Statements - September 30, 2025	7-19

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20-25

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	25

Item 4.	Controls and Procedures	26

Part II.	OTHER INFORMATION

Item 1.	Legal Proceedings	26

Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities	26

Item 5.	Other Information	26

Item 6.	Exhibits	26

Index to Exhibits		27

Signatures		28

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PART I - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

A. O. SMITH CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(dollars in millions, except for per share data)

(unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2025		2024		2025		2024
Net sales	$	942.5	$	902.6	$	2,917.7	$	2,905.7
Cost of products sold	578.0		565.3		1,780.7		1,787.7
Gross profit	364.5		337.3		1,137.0		1,118.0
Selling, general and administrative expenses	188.9		176.6		572.8		557.3
Interest expense	3.6		1.5		11.1		4.3
Other income, net	0.2		2.6		(1.4)		0.5
Earnings before provision for income taxes	171.8		156.6		554.5		555.9
Provision for income taxes	39.8		36.5		133.7		132.0
Net Earnings	$	132.0	$	120.1	$	420.8	$	423.9
Basic Net Earnings Per Share of Common Stock(1)	$	0.94	$	0.82	$	2.97	$	2.90
Diluted Net Earnings Per Share of Common Stock(1)	$	0.94	$	0.82	$	2.95	$	2.87
Dividends Per Share of Common Stock	$	0.34	$	0.32	$	1.02	$	0.96

(1)Earnings per share amounts are calculated discretely and, therefore, may not add up to the total due to rounding.

A. O. SMITH CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

(dollars in millions)

(unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2025		2024		2025		2024
Net earnings	$	132.0	$	120.1	$	420.8	$	423.9
Other comprehensive earnings (loss)
Foreign currency translation adjustments	(5.8)		7.6		9.4		0.4
Unrealized gains (losses) on cash flow derivative instruments, less related income tax (provision) benefit of $(0.5) and $(0.7) in 2025, $0.3 and $0.5 in 2024	1.4		(0.9)		2.0		(1.6)
Adjustment to pension liability, less related income tax provision of $0.0 and $0.1 in 2025, $0.0 and $0.1 in 2024	—		0.1		0.2		0.2
Comprehensive Earnings	$	127.6	$	126.9	$	432.4	$	422.9

See accompanying notes to unaudited condensed consolidated financial statements.

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A. O. SMITH CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in millions, except for shares)


	(unaudited) September 30, 2025		December 31, 2024
Assets
Current Assets
Cash and cash equivalents	$	152.7	$	239.6
Marketable securities	20.1		36.5
Receivables	589.0		541.4
Inventories	507.3		532.1
Other current assets	47.0		43.3
Total Current Assets	1,316.1		1,392.9
Property, plant and equipment	1,547.3		1,495.9
Less accumulated depreciation	(914.3)		(867.2)
Net property, plant and equipment	633.0		628.7
Goodwill	710.0		761.7
Other intangibles	366.1		321.1
Operating lease assets	45.6		32.8
Other assets	99.9		102.8
Total Assets	$	3,170.7	$	3,240.0
Liabilities
Current Liabilities
Trade payables	$	521.4	$	588.7
Accrued payroll and benefits	85.5		78.5
Accrued liabilities	154.0		153.0
Product warranties	72.6		67.0
Debt due within one year	19.0		10.0
Total Current Liabilities	852.5		897.2
Long-term debt	166.8		183.2
Product warranties	130.9		123.4
Long-term operating lease liabilities	35.6		23.5
Other liabilities	140.4		129.2
Total Liabilities	1,326.2		1,356.5
Stockholders’ Equity
Class A Common Stock (shares issued, 25,996,077 and 26,014,825 as of September 30, 2025 and December 31, 2024, respectively)	130.0		130.1
Common Stock (shares issued 164,711,517 and 164,692,769 as of September 30, 2025 and December 31, 2024, respectively)	164.7		164.7
Capital in excess of par value	612.4		601.3
Retained earnings	3,876.7		3,601.3
Accumulated other comprehensive loss	(100.3)		(111.9)
Treasury stock at cost	(2,839.0)		(2,502.0)
Total Stockholders’ Equity	1,844.5		1,883.5
Total Liabilities and Stockholders’ Equity	$	3,170.7	$	3,240.0

See accompanying notes to unaudited condensed consolidated financial statements.

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A. O. SMITH CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in millions)

(unaudited)


	Nine Months Ended September 30,
	2025		2024
Operating Activities
Net earnings	$	420.8	$	423.9
Adjustments to reconcile net earnings to cash provided by (used in) operating activities:
Depreciation and amortization	62.8		59.5
Share based compensation expense	11.3		12.7
Deferred income taxes	9.7		(0.9)
Net changes in operating assets and liabilities:
Current assets and liabilities	(83.6)		(121.3)
Noncurrent assets and liabilities	12.7		(14.0)
Cash Provided by Operating Activities	433.7		359.9
Investing Activities
Capital expenditures	(53.2)		(77.4)
Acquisition of business	—		(21.3)
Investments in marketable securities	(42.7)		(72.9)
Net proceeds from sale of marketable securities	59.2		60.5
Cash Used in Investing Activities	(36.7)		(111.1)
Financing Activities
Long-term debt incurred	(6.8)		(6.9)
Common stock repurchases	(335.4)		(237.1)

Net proceeds from stock option activity	0.7		17.2
Dividends paid	(145.1)		(140.9)
Cash Used in Financing Activities	(486.6)		(367.7)
Effect of exchange rate changes on cash and cash equivalents	2.7		(1.7)
Net decrease in cash and cash equivalents	(86.9)		(120.6)
Cash and cash equivalents - beginning of period	239.6		339.9
Cash and Cash Equivalents - End of Period	$	152.7	$	219.3

See accompanying notes to unaudited condensed consolidated financial statements.

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A. O. SMITH CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(dollars in millions)

(unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2025		2024		2025		2024
Class A Common Stock
Balance at the beginning of period	$	130.0	$	130.1	$	130.1	$	130.1
Conversion of Class A Common Stock	—		—		(0.1)		—
Balance at end of period	$	130.0	$	130.1	$	130.0	$	130.1
Common Stock
Balance at the beginning of period	$	164.7	$	164.7	$	164.7	$	164.7
Conversion of Class A Common Stock	—		$	—	—		$	—
Balance at end of period	$	164.7	$	164.7	$	164.7	$	164.7
Capital in Excess of Par Value
Balance at the beginning of period	$	609.4	$	593.1	$	601.3	$	578.2
Conversion of Class A Common Stock	—		—		0.1		—
Issuance of share units	(2.3)		—		(15.0)		(15.0)
Vesting of share units	—		(0.1)		(1.8)		(1.9)
Share based compensation expense	2.5		1.9		10.8		11.3
Exercises of stock options	0.5		4.7		1.1		11.0
Issuance of share based compensation	2.3		0.1		15.9		16.1
Balance at end of period	$	612.4	$	599.7	$	612.4	$	599.7
Retained Earnings
Balance at the beginning of period	$	3,792.5	$	3,467.6	$	3,601.3	$	3,258.1
Net earnings	132.0		120.1		420.8		423.9
Dividends on stock	(47.8)		(46.7)		(145.4)		(141.0)
Balance at end of period	$	3,876.7	$	3,541.0	$	3,876.7	$	3,541.0
Accumulated Other Comprehensive Loss (see Note 14)	$	(100.3)	$	(85.2)	$	(100.3)	$	(85.2)
Treasury Stock
Balance at the beginning of period	$	(2,754.8)	$	(2,351.9)	$	(2,502.0)	$	(2,202.5)
Exercise of stock options	0.7		3.1		(0.4)		6.3
Share incentives and directors' compensation	—		—		0.3		0.2
Shares repurchased	(84.1)		(83.9)		(335.4)		(237.1)
Excise tax on repurchases of common stock	(0.8)		(0.9)		(3.3)		(2.4)
Vesting of share units	—		—		1.8		1.9
Balance at end of period	$	(2,839.0)	$	(2,433.6)	$	(2,839.0)	$	(2,433.6)
Total Stockholders’ Equity	$	1,844.5	$	1,916.7	$	1,844.5	$	1,916.7

See accompanying notes to unaudited condensed consolidated financial statements.

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A. O. SMITH CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2025

(unaudited)

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Accordingly, they do not include all of the information and footnotes required for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2025 are not necessarily indicative of the results expected for the full year. It is suggested the accompanying condensed consolidated financial statements be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 filed with the SEC on February 11, 2025.

Recent Accounting Pronouncements

In November 2024, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2024-03 “Income Statement - Reporting Comprehensive Income (Topic 220): Disaggregation of Income Statement Expenses.” The ASU requires additional disclosures by disaggregating the costs and expense line items that are presented on the face of the income statement. The ASU is effective for the Company beginning with its 2027 annual disclosures and subsequent interim periods with early adoption permitted. This ASU requires a public company to apply the amendments either prospectively to financial statements issued for reporting periods after the effective date of this ASU or retrospectively to any or all prior periods presented in the financial statements. The Company is currently evaluating the impact of adopting this ASU on its disclosures.

In December 2023, the FASB amended Accounting Standards Codification (ASC) 740 (issued under ASU 2023-09, “Improvements to Income Tax Disclosures”). This ASU requires added disclosures related to the tax rate reconciliation and income taxes paid and includes other amendments intended to improve effectiveness and comparability. The amendment is effective for the Company beginning with its 2025 annual disclosures with early adoption permitted and should be applied on a prospective basis. The Company is currently evaluating the impact the adoption of ASU 2023-09 will have on its annual disclosures.

2. Revenue Recognition

Substantially all of the Company’s sales are from contracts with customers for the purchase of its products. Contracts and customer purchase orders are used to determine the existence of a sales contract. Shipping documents are used to verify shipment. For substantially all of its products, the Company transfers control of products to the customer at the point in time when title and risk are passed to the customer, which generally occurs upon shipment of the product. Each unit sold is considered an independent, unbundled performance obligation. The Company’s sales arrangements do not include other performance obligations that are material in the context of the contract.

The nature, timing and amount of revenue for a respective performance obligation are consistent for each customer. The Company measures the sales transaction price based upon the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment. Sales and value added taxes are excluded from the measurement of the transaction price. The Company’s payment terms for the majority of its customers are 30 to 90 days from shipment. Additionally, certain customers in China pay the Company prior to the shipment of products resulting in a customer deposits liability of $28.6 million and $54.4 million at September 30, 2025 and December 31, 2024, respectively. Customer deposit liabilities are short term in nature, recognized into revenue within one year of receipt.

The Company assesses the collectability of customer receivables based on the creditworthiness of a customer as determined by credit checks and analysis, as well as the customer’s payment history. In determining the allowance for credit losses, the Company also considers various factors including the aging of customer accounts and historical write-offs. In addition, the Company monitors other risk factors including forward-looking information when establishing adequate allowances for credit losses, which reflects the current estimate of credit losses expected to be incurred over the life of the receivables. The Company’s allowance for credit losses was $15.2 million and $12.9 million at September 30, 2025 and December 31, 2024, respectively.

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2. Revenue Recognition (continued)

Rebates and incentives are based on pricing agreements and are tied to sales volume. The amount of revenue is reduced for variable consideration related to customer rebates which are calculated using expected values and are based on program specific factors such as expected rebate percentages based on expected volumes. In situations where the customer has the right to return eligible products, the Company reduces revenue for its estimates of expected product returns, which are primarily based on an analysis of historical experience. Changes in such accruals may be required if actual sales volume differs from estimated sales volume or if future returns differ from historical experience. Shipping and handling costs billed to customers are included in net sales and the related costs are included in cost of products sold and are activities performed to fulfill the promise to transfer products.

Disaggregation of Net Sales

The Company is comprised of two 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, heat pump and electric water heaters, boilers, tanks and water treatment products. Both segments primarily manufacture and market in their respective regions of the world.

As each segment manufactures and markets products in its respective region of the world, the Company has determined that geography is the primary factor in reporting its sales. The Company further disaggregates its North America segment sales by major product line as each of North America’s major product lines is sold through distinct distribution channels and these product lines may be impacted differently by certain economic factors. Within the Rest of World segment, particularly in China and India, the Company’s major customers purchase across the Company’s product lines, utilizing the same distribution channels regardless of product type. In addition, the impact of economic factors is unlikely to be differentiated by product line in the Rest of World segment.

The North America segment's major product lines are defined as the following:

Water heaters The Company’s water heaters are open water heating systems that heat potable water. Typical applications for water heaters include residences, restaurants, hotels, office buildings, laundries, car washes and small businesses. The Company sells residential and commercial water heater products and related parts through its wholesale distribution channel, which includes approximately 900 independent wholesale plumbing distributors. The Company also sells residential water heaters and related parts through retail and maintenance, repair and operations (MRO) channels. A significant portion of the Company’s water heater sales in the North America segment is derived from the replacement of existing products.

Boilers The Company’s boilers are closed loop water heating systems used primarily for space heating or hydronic heating. The Company’s boilers are primarily used in applications in commercial settings for hospitals, schools, hotels and other large commercial buildings while residential boilers are used in homes, apartments and condominiums. The Company’s boiler distribution channel is comprised primarily of manufacturer representative firms, with the remainder of its boilers distributed through wholesale channels. The Company’s boiler sales in the North America segment are derived from a combination of replacement of existing products and new construction.

Water treatment products The Company’s water treatment products range from point-of-entry water softeners, solutions for problem well water, and whole-home water filtration products to on-the-go filtration bottles, point-of-use carbon, and reverse osmosis products. Typical applications for the Company’s water treatment products include residences, restaurants, hotels and offices. The Company sells water treatment products through its retail and wholesale distribution channels, similar to water heaters. The Company’s water treatment products are also sold through independent water quality dealers as well as directly to consumers including through e-commerce sales channels. A portion of the Company’s sales of water treatment products in the North America segment is comprised of replacement filters.

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2. Revenue Recognition (continued)

The following table disaggregates the Company’s net sales by segment. As described above, the Company’s North America segment sales are further disaggregated by major product line. In addition, the Company’s Rest of World segment sales are disaggregated by China and all other Rest of World:


(dollars in millions)	Three Months Ended September 30,				Nine Months Ended September 30,
	2025		2024		2025		2024
North America
Water heaters and related parts	$	604.9	$	568.9	$	1,873.9	$	1,877.4
Boilers and related parts	78.0		71.1		213.6		197.2
Water treatment products and related parts	59.9		63.3		183.0		185.7
Total North America	742.8		703.3		2,270.5		2,260.3
Rest of World
China	$	151.7	$	174.6	$	531.2	$	593.4
All other Rest of World	56.2		35.7		143.5		88.6
Total Rest of World	207.9		210.3		674.7		682.0
Inter-segment sales	(8.2)		(11.0)		(27.5)		(36.6)
Total Net Sales	$	942.5	$	902.6	$	2,917.7	$	2,905.7

3. Acquisitions

During the fourth quarter of 2024, the Company acquired Pureit, a residential water purification business in South Asia, from Unilever for an aggregate purchase price of $124.6 million. The acquired company is included in the Rest of World segment. The purchase price consisted of an initial cash payment of $117.9 million upon the closing of the transaction and a separate payment of $6.7 million for inventory made under a transitional supply agreement with Unilever. The Company incurred acquisition costs of approximately $1.4 million. The purchase price allocation remains preliminary and subject to final valuation adjustments that will be completed within the one-year period following the acquisition date.

The following table summarizes the preliminary allocation of the fair value of the assets acquired and liabilities assumed at the date of acquisition. Of the $56.5 million of acquired identifiable intangible assets, $48.5 million was assigned to trademarks that are not subject to amortization, $3.8 million was assigned to patents which are amortized over 15 years, and the remaining $4.2 million was assigned to customer relationships which are amortized over two to three years. The excess of the acquisition purchase price over the fair value assigned to the assets acquired and liabilities assumed was recorded as goodwill. The allocation of the purchase price to goodwill decreased by $0.9 million in the second quarter of 2025 due to valuation adjustments related to identifiable intangible assets.


(dollars in millions)
Current assets	$	5.6
Property, plant and equipment	0.6
Intangible assets	56.5
Goodwill	63.8
Total assets acquired	126.5
Current liabilities	(1.9)
Net assets acquired	$	124.6

During the first quarter of 2024, the Company acquired a privately-held water treatment company. The Company paid an aggregate cash purchase price of $21.3 million, net of cash acquired. The Company also agreed to make contingent payments based on the amount by which sales of products increase over the next three years. The addition of the acquired company expanded the Company's water treatment footprint in North America. The acquired company is included in the North America segment.

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4. Inventories

The following table presents the components of the Company’s inventory balances:


(dollars in millions)	September 30, 2025		December 31, 2024
Finished products	$	187.4	$	196.1
Work in process	46.1		42.4
Raw materials	320.7		343.0
Inventories, at FIFO cost	554.2		581.5
LIFO reserve	(46.9)		(49.4)
Inventories, at LIFO cost	$	507.3	$	532.1

5. Product Warranties

The Company offers warranties on the sales of certain of its products with terms that are consistent with the market and records an accrual for the estimated future claims. The following table presents the Company’s warranty liability activity:


(dollars in millions)	Three Months Ended September 30,
	2025		2024
Balance at July 1,	$	201.1	$	187.6
Expense	18.2		16.0

Claims settled	(15.8)		(16.4)
Balance at September 30,	$	203.5	$	187.2


(dollars in millions)	Nine Months Ended September 30,
	2025		2024
Balance at January 1,	$	190.4	$	188.1
Expense	61.0		58.5
Acquired obligations(1)	1.1		—
Claims settled	(49.0)		(59.4)
Balance at September 30,	$	203.5	$	187.2

(1) Refer to Note 3 for additional information regarding the acquisition of Pureit

6. Debt

In 2024, the Company renewed and amended its $500 million multi-year, multi-currency revolving credit agreement with a new expiration date of August 23, 2029. The facility has an accordion provision that allows it to be increased up to $1 billion if certain conditions (including lender approval) are satisfied. Borrowings under the Company's bank credit lines and commercial paper borrowings are supported by a $500 million revolving credit agreement. As a result of the long-term nature of this facility, the Company’s commercial paper and credit line borrowings are classified as long-term debt at September 30, 2025. At its option, the Company either maintains cash balances or pays fees for bank credit and services. The facility requires the Company to maintain two financial covenants, a leverage ratio test and an interest coverage test. The Company was in compliance with the covenants as of September 30, 2025.

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7. Earnings per Share of Common Stock

The numerator for the calculation of basic and diluted earnings per share is net earnings. The following table sets forth the computation of basic and diluted weighted-average shares used in the earnings per share calculations:


	Three Months Ended September 30,		Nine Months Ended September 30,
	2025	2024	2025	2024
Denominator for basic earnings per share - weighted average shares	139,953,331	145,577,396	141,707,680	146,404,181
Effect of dilutive stock options and share units	941,557	1,122,944	874,905	1,125,265
Denominator for diluted earnings per share	140,894,888	146,700,340	142,582,585	147,529,446

8. Share Based Compensation

The Company adopted the A. O. Smith Combined Incentive Compensation Plan (the Incentive Plan) effective January 1, 2007, and the Incentive Plan was most recently reapproved by stockholders on April 15, 2020. The Incentive Plan is a continuation of the A. O. Smith Combined Executive Incentive Compensation Plan which was originally approved by stockholders in 2002. The number of shares available for granting of share based compensation at September 30, 2025 was 2,043,675. Upon vesting or exercise of share based compensation, shares are issued from treasury stock.

Share Units

Participants in the Incentive Plan may be awarded share units. Share units vest three years after the date of grant. The Company granted 245,168 and 195,363 share units under the Incentive Plan in the nine months ended September 30, 2025 and 2024, respectively.

The share units were valued at $16.1 million at the date of issuance in both 2025 and 2024, based on the price of the Company’s Common Stock at the date of grant. The share units are recognized as compensation expense ratably over the three-year vesting period. Included in share unit expense in the nine months ended September 30, 2025 and 2024 was expense associated with accelerated vesting of share unit awards for certain employees who are retirement eligible or will become retirement eligible during the vesting period. Share based compensation expense attributable to share units of $2.1 million and $1.7 million was recognized in the three months ended September 30, 2025 and 2024, respectively. Share based compensation expense attributable to share units of $9.4 million and $10.9 million was recognized in the nine months ended September 30, 2025 and 2024, respectively. Certain non-U.S.-based employees receive the cash value of the share price at the vesting date in lieu of shares. Unvested cash-settled awards are remeasured at each reporting period.

A summary of share unit activity under the Incentive Plan is as follows for the nine months ended September 30, 2025:


	Number of Units	Weighted-Average Grant Date Value
Issued and unvested at January 1, 2025	469,269	$	71.50
Granted	245,168	65.82
Vested	(85,872)	73.72
Forfeited	(11,861)	70.82
Issued and unvested at September 30, 2025	616,704	68.75

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8. Share Based Compensation (continued)

Performance Stock Units

Beginning in 2023, certain executives may be awarded performance stock units under the Incentive Plan. Performance stock units vest over three years following the grant date. Performance stock units vest under a set of measurement criteria that are based upon achievement of certain Sustainability targets. Potential payouts range from zero to 150% of the target awards and changes from target amounts are reflected as performance adjustments. The Company granted 38,150 and 29,475 performance stock units under the Incentive Plan in the nine months ended September 30, 2025 and 2024, respectively.

The performance stock units were valued at $2.5 million and $2.4 million at the date of issuance in 2025 and 2024, respectively, based on the price of the Company’s Common Stock at the date of grant. The performance stock units are recognized as compensation expense ratably over the three-year vesting period. Share based compensation expense attributable to performance stock units of $0.7 million and $0.4 million was recognized in the three months ended September 30, 2025 and 2024, respectively. Share based compensation expense attributable to performance stock units of $1.9 million and $1.3 million was recognized in the nine months ended September 30, 2025 and 2024, respectively. Certain non-U.S.-based executives receive the cash value of the share price at the vesting date in lieu of shares. Unvested cash-settled awards are remeasured at each reporting period.

A summary of performance stock unit activity under the Incentive Plan is as follows for the nine months ended September 30, 2025:


	Number of Units	Weighted-Average Grant Date Value
Issued and unvested at January 1, 2025	74,398	$	75.40
Granted	38,150	65.64

Forfeited	(1,600)	71.23

Issued and unvested at September 30, 2025	110,948	72.10

9. Segment Results

The Company is comprised of two 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.


	Three Months Ended September 30, 2025
(dollars in millions)	North America		Rest of World		Inter-segment Elimination		Total Segments		Corporate Expenses		Total
Sales from external customers	$	737.7	$	204.8	$	—	$	942.5	$	—	$	942.5
Inter-segment sales	5.1		3.1		—		8.2		—		8.2
	742.8		207.9		—		950.7		—		950.7
Elimination of Inter-segment sales	(5.1)		(3.1)		—		(8.2)		—		(8.2)
Net Sales	737.7		204.8		—		942.5		—		942.5
Cost of products sold	447.9		130.1		—		578.0		—		578.0
Gross Profit	289.8		74.7		—		364.5		—		364.5
Inter-segment Profit	—		—		—		—		—		—
Selling, general and administrative expenses	109.6		58.6		—		168.2		20.7		188.9
Other (income) expense, net	0.5		0.7		—		1.2		(1.0)		0.2
Earnings	$	179.7	$	15.4	$	—	$	195.1	$	(19.7)	$	175.4
Interest expense											(3.6)
Earnings before provision for income taxes											$	171.8

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9. Segment Results (continued)


	Three Months Ended September 30, 2024
(dollars in millions)	North America		Rest of World		Inter-segment Elimination		Total Segments		Corporate Expenses		Total
Sales from external customers	$	697.6	$	205.0	$	—	$	902.6	$	—	$	902.6
Inter-segment sales	5.7		5.3		—		11.0		—		11.0
	703.3		210.3		—		913.6		—		913.6
Elimination of Inter-segment sales	(5.7)		(5.3)		—		(11.0)		—		(11.0)
Net Sales	697.6		205.0		—		902.6		—		902.6
Cost of products sold	432.8		132.5		—		565.3		—		565.3
Gross Profit	264.8		72.5		—		337.3		—		337.3
Inter-segment Profit	—		—		—		—		—		—
Selling, general and administrative expenses	102.7		58.6		—		161.3		15.3		176.6
Other expense (income), net	(0.4)		0.3		—		(0.1)		2.7		2.6
Earnings	$	162.5	$	13.6	$	—	$	176.1	$	(18.0)	$	158.1
Interest expense											(1.5)
Earnings before provision for income taxes											$	156.6


	Nine Months Ended September 30, 2025
(dollars in millions)	North America		Rest of World		Inter-segment Elimination		Total Segments		Corporate Expenses		Total
Sales from external customers	$	2,255.1	$	662.6	$	—	$	2,917.7	$	—	$	2,917.7
Inter-segment sales	15.4		12.1		—		27.5		—		27.5
	2,270.5		674.7		—		2,945.2		—		2,945.2
Elimination of Inter-segment sales	(15.4)		(12.1)		—		(27.5)		—		(27.5)
Net Sales	2,255.1		662.6		—		2,917.7		—		2,917.7
Cost of products sold	1,356.9		423.8		—		1,780.7		—		1,780.7
Gross Profit	898.2		238.8		—		1,137.0		—		1,137.0
Inter-segment Profit	—		0.2		(0.2)		—		—		—
Selling, general and administrative expenses	335.8		176.6		—		512.4		60.4		572.8
Other (income) expense, net	(0.6)		2.0		—		1.4		(2.8)		(1.4)
Earnings	$	563.0	$	60.4	$	(0.2)	$	623.2	$	(57.6)	$	565.6
Interest expense											(11.1)
Earnings before provision for income taxes											$	554.5

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9. Segment Results (continued)


	Nine Months Ended September 30, 2024
(dollars in millions)	North America		Rest of World		Inter-segment Elimination		Total Segments		Corporate Expenses		Total
Sales from external customers	$	2,243.6	$	662.1	$	—	$	2,905.7	$	—	$	2,905.7
Inter-segment sales	16.7		19.9		—		36.6		—		36.6
	2,260.3		682.0		—		2,942.3		—		2,942.3
Elimination of Inter-segment sales	(16.7)		(19.9)		—		(36.6)		—		(36.6)
Net Sales	2,243.6		662.1		—		2,905.7		—		2,905.7
Cost of products sold	1,356.3		431.4		—		1,787.7		—		1,787.7
Gross Profit	887.3		230.7		—		1,118.0		—		1,118.0
Inter-segment Profit	—		0.4		(0.4)		—		—		—
Selling, general and administrative expenses	327.0		175.7		—		502.7		54.6		557.3
Other expense (income), net	0.7		(1.3)		—		(0.6)		1.1		0.5
Earnings	$	559.6	$	56.7	$	(0.4)	$	615.9	$	(55.7)	$	560.2
Interest expense											(4.3)
Earnings before provision for income taxes											$	555.9

Assets, depreciation and capital expenditures by segment


Assets
(dollars in millions)	September 30, 2025		December 31, 2024
North America	$	2,365.2	$	2,315.2
Rest of World	556.1		592.1
Total Segments	2,921.3		2,907.3
Corporate(1)	249.4		332.7
Total	$	3,170.7	$	3,240.0

(1) The majority of corporate assets consist of cash, cash equivalents, marketable securities, and deferred income taxes.


Depreciation and amortization	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in millions)	2025		2024		2025		2024
North America	$	16.5	$	15.3	$	47.5	$	45.1
Rest of World	4.8		4.6		14.2		13.3
Total Segments	21.3		19.9		61.7		58.4
Corporate	0.3		0.4		1.1		1.1
Total	$	21.6	$	20.3	$	62.8	$	59.5


Capital expenditures	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in millions)	2025		2024		2025		2024
North America	$	12.4	$	30.9	$	45.1	$	71.4
Rest of World	2.4		1.6		8.1		5.9
Total Segments	14.8		32.5		53.2		77.3
Corporate	—		—		—		0.1
Total	$	14.8	$	32.5	$	53.2	$	77.4

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10. Fair Value Measurements

ASC 820, Fair Value Measurements, among other things, defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring basis or nonrecurring basis. ASC 820 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. Assets and liabilities measured at fair value are based on the market approach which are prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.

Assets (liabilities) measured at fair value on a recurring basis are as follows (dollars in millions):


Fair Value Measurement Using	Balance Sheet Location	September 30, 2025		December 31, 2024
Quoted prices in active markets for identical assets (Level 1)	Marketable Securities	$	20.1	$	36.5
Significant other observable inputs (Level 2)	Other current assets / (Accrued liabilities)	1.0		(1.9)

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 nine months ended September 30, 2025.

11. Derivative Instruments

The Company utilizes certain derivative instruments to enhance its ability to manage currency exposure as well as raw materials price risk. Derivative instruments are entered into for periods consistent with the related underlying exposures and do not constitute positions independent of those exposures. The Company does not enter into contracts for speculative purposes. The contracts are executed with major financial institutions with no credit loss anticipated for failure of the counterparties to perform.

Cash Flow Hedges

With the exception of its net investment hedges, the Company designates all of its hedging instruments that qualify for hedge accounting in accordance with ASC 815 as cash flow hedges. For derivative instruments that are designated and qualify as a cash flow hedge (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), gains or losses on the derivative instrument are reported as a component of other comprehensive loss, net of tax, and are reclassified into earnings in the same line item associated with the forecasted transaction and in the same period or periods during which the hedged transaction affects earnings.

Foreign Currency Forward Contracts

The Company is exposed to foreign currency exchange risk as a result of transactions in currencies other than the functional currency of certain subsidiaries. The Company utilizes foreign currency forward purchase and sale contracts to manage the volatility associated with foreign currency purchases, sales and certain intercompany transactions in the normal course of business. Principal currencies for which the Company utilizes foreign currency forward contracts from time to time include the British pound, Canadian dollar, Euro and Mexican peso.

Gains and losses on these instruments are recorded in accumulated other comprehensive loss, net of tax, until the underlying transaction is recorded in earnings. When the hedged item is realized, gains or losses are reclassified from accumulated other comprehensive loss to the condensed consolidated statement of earnings. The assessment of effectiveness for forward contracts is based on changes in the forward rates. These hedges have been determined to be effective. The majority of the amounts in accumulated other comprehensive loss for cash flow hedges are expected to be reclassified into earnings within one year.

The combined fair value of the foreign currency forward contracts was an asset balance of $2.1 million as of September 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 $1.4 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)

The following table summarizes, by currency, the contractual amounts of the Company’s foreign currency forward contracts as of the dates indicated that were designated as cash flow hedges:


(dollars in millions)	September 30, 2025				December 31, 2024
	Buy		Sell		Buy		Sell

Canadian dollar	$	—	$	52.2	$	—	$	28.9
Euro	3.5		—		14.0		—
Mexican peso	5.3		—		27.2		—
Total	$	8.8	$	52.2	$	41.2	$	28.9

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 September 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 4.2 billion rupees as of September 30, 2025 and December 31, 2024. The aggregate effective interest rate of the swap as of September 30, 2025 was 8.25%.

The fair value of the interest rate swap contract was a liability balance of $1.1 million and $0.5 million as of September 30, 2025 and December 31, 2024, respectively, which was recorded in Accrued liabilities within the condensed consolidated balance sheet.

The effect of cash flow hedges on the condensed consolidated statement of earnings:

Three Months Ended September 30 (dollars in millions):


Derivatives in ASC 815 cash flow hedging relationships	Amount of gain (loss) recognized in other comprehensive loss on derivatives				Location of gain (loss) reclassified from accumulated other comprehensive loss into earnings	Amount of gain (loss) reclassified from accumulated other comprehensive loss into earnings
	2025		2024			2025		2024
Foreign currency contracts	$	2.0	$	(0.8)	Cost of products sold	$	0.7	$	0.5
Interest rate swap	0.2		—		Interest expense	(0.2)		—
	$	2.2	$	(0.8)		$	0.5	$	0.5

Nine Months Ended September 30 (dollars in millions):


Derivatives in ASC 815 cash flow hedging relationships	Amount of gain (loss) recognized in other comprehensive loss on derivatives				Location of gain (loss) reclassified from accumulated other comprehensive loss into earnings	Amount of gain (loss) reclassified from accumulated other comprehensive loss into earnings
	2025		2024			2025		2024
Foreign currency contracts	$	3.6	$	(0.3)	Cost of products sold	$	0.6	$	1.9
Interest rate swap	(0.6)		—		Interest expense	(0.3)		—
	$	3.0	$	(0.3)		$	0.3	$	1.9

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11. Derivative Instruments (continued)

Net Investment Hedges

The Company uses foreign currency denominated intercompany debt and third-party foreign currency forward contracts to hedge the exposure to a portion of the Company’s net investments in certain non-U.S. subsidiaries against the effect of exchange rate fluctuations on the translation of foreign currency balances to the U.S. dollar. For the derivative instruments that are designated and qualify as net investment hedges, gains and losses are reported in other comprehensive loss where they offset gains and losses recorded on the Company’s net investments in its non-U.S. subsidiaries. These hedges are determined to be effective. The Company recognized $1.3 million and $4.0 million of after-tax losses associated with hedges of net investments in non-U.S. subsidiaries in currency translation adjustment in other comprehensive loss in the three months ended September 30, 2025 and September 30, 2024, respectively. The Company recognized $(5.1) million of after-tax losses and $1.4 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 nine months ended September 30, 2025 and September 30, 2024, respectively.

The contractual amount of the Company’s foreign currency denominated intercompany debt that is designated as a net investment hedge was ¥1.5 billion RMB as of September 30, 2025 and December 31, 2024. The fair value of the net investment hedge was zero as of September 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 zero as of September 30, 2025 and December 31, 2024.

The following table summarizes the contractual amounts of the Company's foreign exchange contracts that are designated as balance sheet hedges:


(dollars in millions)	September 30, 2025				December 31, 2024
	Buy		Sell		Buy		Sell
Canadian dollar	$	—	$	—	$	—	$	6.4

The amounts recognized within the condensed consolidated statements of earnings related to the Company's foreign exchange contracts are set forth below.

Three Months Ended September 30 (dollars in millions):


Derivatives not designated as hedging instruments:	Location of expense within the condensed consolidated statements of earnings	2025		2024
Foreign exchange contracts	Other income, net	$	—	$	(3.6)

Nine Months Ended September 30 (dollars in millions):


Derivatives not designated as hedging instruments:	Location of expense within the condensed consolidated statements of earnings	2025		2024
Foreign exchange contracts	Other expense, net	$	—	$	2.1

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12. Income Taxes

The Company’s effective income tax rate for the three and nine months ended September 30, 2025 was 23.2 percent and 24.1 percent respectively. The Company estimates that its annual effective income tax rate for the full year 2025 will be approximately between 23.5 and 24.0 percent. The effective income tax rate for the three and nine months ended September 30, 2024 was 23.3 percent and 23.7 percent, respectively. The change in the effective income tax rate for the three and nine months ended September 30, 2025 compared to the effective income tax rate for the three and nine months ended September 30, 2024 was primarily due to the geographical earnings mix.

As of September 30, 2025, the Company had $16.2 million of unrecognized tax benefits of which $4.3 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.

13. Commitments and Contingencies

The Company maintains a commercial relationship with a supply-chain service provider (the Provider) in connection with the Company’s business in China. In this capacity, the Provider offers order-entry, warehousing and logistics support. The Provider also offers asset-backed financing to certain of the Company’s distributors in China to facilitate their working capital needs. To facilitate its financing support business, the Provider has collateralized lending facilities in place with multiple Chinese banks under which the Company has agreed to repurchase inventory if both requested by the banks and certain defined conditions are met, primarily related to the aging of the distributors’ notes.

The Provider is required to indemnify the Company for any losses the Company would incur in the event of an inventory repurchase under these arrangements. Potential losses under the repurchase arrangements represent the difference between the repurchase price and net proceeds from the resale of the product plus costs incurred in the process, less related distributor rebates. The Company’s reserves for estimated losses under these repurchase arrangements were immaterial as of September 30, 2025 and December 31, 2024.

14. Changes in Accumulated Other Comprehensive Loss by Component

Changes to accumulated other comprehensive loss by component are as follows:


(dollars in millions)	Three Months Ended September 30,
	2025		2024
Cumulative foreign currency translation
Balance at beginning of period	$	(89.1)	$	(87.5)
Other comprehensive (loss) gain before reclassifications	(5.8)		7.6
Balance at end of period	(94.9)		(79.9)
Unrealized net gain (loss) on cash flow derivatives
Balance at beginning of period	(0.9)		—
Other comprehensive gains (losses) before reclassifications	1.7		(0.6)
Realized gains on derivatives (net of income tax provision of $0.1 and $0.1 in 2025 and 2024, respectively)	(0.3)		(0.3)
Balance at end of period	0.5		(0.9)
Pension liability
Balance at beginning of period	(5.9)		(4.5)

Amounts reclassified from accumulated other comprehensive loss:	—		0.1
Balance at end of period	(5.9)		(4.4)
Accumulated other comprehensive loss, end of period	$	(100.3)	$	(85.2)

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

Changes to accumulated other comprehensive loss by component are as follows:


(dollars in millions)	Nine Months Ended September 30,
	2025		2024
Cumulative foreign currency translation
Balance at beginning of period	$	(104.3)	$	(80.3)
Other comprehensive gain before reclassifications	9.4		0.4
Balance at end of period	(94.9)		(79.9)
Unrealized net gain (loss) on cash flow derivatives
Balance at beginning of period	(1.5)		0.7
Other comprehensive gain (loss) before reclassifications	2.1		(0.2)
Realized gains on derivatives (net of income tax provision of $0.1 and $0.5 in 2025 and 2024, respectively)	(0.1)		(1.4)
Balance at end of period	0.5		(0.9)
Pension liability
Balance at beginning of period	(6.1)		(4.6)

Amounts reclassified from accumulated other comprehensive loss:	0.2		0.2
Balance at end of period	(5.9)		(4.4)
Accumulated other comprehensive loss, end of period	$	(100.3)	$	(85.2)

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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 $45 million to sales in the first nine months of 2025 and is expected to have sales of approximately USD $55 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, water heater sales were essentially flat in the first nine months of 2025 compared to the same period last year as pricing benefits and higher commercial volumes we achieved in the third quarter were offset by lower residential volumes in the first half of the year. We believe we underperformed the market in the first half of the year as we limited prebuy ahead of our May 2025 price increase however we believe we outperformed the market in the third quarter and we expect to continue to strengthen our share through the fourth quarter. 2024 residential industry unit volumes were flat compared to the prior year and we project 2025 industry residential unit volumes will be flat to slightly down as new construction completions leads to softness in the wholesale residential channel. We anticipate that commercial water heater industry volumes will increase low single digits 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 less attractive channels and focus on our more profitable channels.

In our Rest of World segment, China sales declined nine percent in local currency in the first nine months of 2025 due to continued weak consumer demand and the cessation of the appliance government subsidy programs in the third quarter. For the full year 2025, we project our third-party sales in China to decrease approximately 10 percent in local currency compared to 2024 as we expect economic challenges will persist in 2025. In the third quarter, we initiated 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 be flat to up one 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 September 30,						Nine Months Ended September 30,
	2025			2024			2025			2024
Net sales	$	942.5		$	902.6		$	2,917.7		$	2,905.7
Cost of products sold	578.0			565.3			1,780.7			1,787.7
Gross profit	364.5			337.3			1,137.0			1,118.0
Gross profit margin %	38.7		%	37.4		%	39.0		%	38.5		%
Selling, general and administrative expenses	188.9			176.6			572.8			557.3
Interest expense	3.6			1.5			11.1			4.3
Other expense (income), net	0.2			2.6			(1.4)			0.5
Earnings before provision for income taxes	171.8			156.6			554.5			555.9
Provision for income taxes	39.8			36.5			133.7			132.0
Net Earnings	$	132.0		$	120.1		$	420.8		$	423.9

Our sales in the third quarter of 2025 were $942.5 million, and were higher than the third quarter of 2024 sales of $902.6 million. Sales in the first nine months of 2025 were $2,917.7 million, and were higher than sales of $2,905.7 million in the same period last year. Compared to the prior year quarter, our net sales increase was primarily driven by price increases in response to higher input costs, including tariffs, and higher commercial water heater and boiler volumes, partially offset by lower volumes in China and the incremental sales related to the 2024 acquisition of Pureit which added approximately $17 million in the third quarter of 2025. Our net sales increase in the first nine months of 2025 was primarily driven by the price increases mentioned above, higher commercial water heater and boiler volumes, and incremental sales related to the 2024 acquisition of Pureit which added approximately $45 million in the first nine months of 2025. This more than offset lower volumes in China, lower residential water heater volumes in North America and unfavorable currency translation of approximately $9 million due to the depreciation of foreign currencies compared to the U.S. dollar.

Our gross profit margin in the third quarter of 2025 was 38.7 percent, up compared to 37.4 percent in the third quarter of 2024. Gross profit margin in the first nine months of 2025 was 39.0 percent, up compared to the gross profit margin of 38.5 percent in the first nine months of 2024. The increases in gross profit margin in the third quarter and first nine months were primarily driven by the benefits of pricing actions implemented earlier this year to address increased input costs in North America.

Selling, general, and administrative (SG&A) expenses in the third quarter of 2025 increased $12.3 million compared to the third quarter of 2024. SG&A expenses increased $15.5 million in the first nine months of 2025 compared to the prior year. The increases in SG&A expenses in the third quarter and first nine months of 2025 compared to the prior year periods were primarily due to higher employee costs, partially offset by benefits of our 2024 China restructuring actions.

Interest expense in the third quarter of 2025 was $3.6 million compared to $1.5 million in the same period last year. Interest expense in the first nine months of 2025 was $11.1 million compared to $4.3 million in the same period the previous year. The increase in interest expense in the third quarter and first nine months of 2025 was primarily due to higher debt levels.

Other expense (income), net for the third quarter of 2025 was expense of $0.2 million, compared to expense of $2.6 million for the third quarter of 2024. Other expense (income), net for the first nine months of 2025 was income of $1.4 million compared to expense of $0.5 million in the same period last year. The change in Other expense (income), net in the third quarter of 2025 was primarily due to lower foreign currency translation losses and lower interest income. The change in Other expense (income), net in the first nine months of 2025 was primarily due to lower foreign currency translation losses.

Our effective income tax rate for the three and nine months ended September 30, 2025 was 23.2 percent and 24.1 percent, respectively. The effective income tax rate for the three and nine months ended September 30, 2024 was 23.3 percent and 23.7 percent, respectively. The change in the effective income tax rate for the three and nine months ended September 30, 2025 compared to the effective income tax rate for the three and nine months ended September 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 percent.

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North America Segment


(dollars in millions)	Three Months Ended September 30,						Nine Months Ended September 30,
	2025			2024			2025			2024
Net Sales	$	742.8		$	703.3		$	2,270.5		$	2,260.3
Segment Earnings	179.7			162.5			563.0			559.6
Segment margin	24.2		%	23.1		%	24.8		%	24.8		%

Sales in our North America segment were $742.8 million in the third quarter of 2025, an increase of $39.5 million from $703.3 million in the third quarter of 2024. Sales in the first nine months of 2025 were $2,270.5 million, or $10.2 million higher than sales of $2,260.3 million in the same period last year. Compared to the prior year quarter, our net sales increase was primarily driven by the benefits of pricing actions as well as higher commercial water heater and boiler volumes. Our net sales increase in the first nine months of 2025 was driven by the pricing actions and higher commercial water heater and boiler volumes as mentioned above, that were partially offset by unfavorable currency translation of approximately $6 million and lower residential water heater volumes.

North America segment earnings were $179.7 million in the third quarter of 2025, or $17.2 million higher than segment earnings of $162.5 million in the third quarter of 2024. Segment earnings in the first nine months of 2025 were $563.0 million, an increase of $3.4 million compared to segment earnings of $559.6 million in the first nine months of 2024. Segment margins were 24.2 percent and 23.1 percent in the third quarter of 2025 and 2024, respectively. Segment margins were 24.8 percent in the first nine months of both 2025 and 2024. Higher segment earnings and segment margin in the third quarter of 2025 and higher segment earnings for the first nine months of 2025 compared to the prior year periods were primarily due to pricing actions and higher commercial water heater and boiler volumes that more than offset higher material and other input costs. 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 September 30,						Nine Months Ended September 30,
	2025			2024			2025			2024
Net Sales	$	207.9		$	210.3		$	674.7		$	682.0
Segment Earnings	15.4			13.6			60.4			56.7
Segment margin	7.4		%	6.5		%	9.0		%	8.3		%

Sales in the Rest of World segment were $207.9 million in the third quarter of 2025, compared to $210.3 million in the third quarter of 2024. Sales in the first nine months of 2025 were $674.7 million, or $7.3 million lower than sales of $682.0 million in the same period last year. The decreases in sales in the third quarter and first nine months of 2025 compared to same periods in 2024 were 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 $17 million and $45 million in net sales in the third quarter and first nine month of 2025 respectively.

Rest of World segment earnings were $15.4 million in the third quarter of 2025, or $1.8 million higher compared to $13.6 million in the third quarter of 2024. Segment earnings in the first nine months of 2025 were $60.4 million, an increase of $3.7 million compared to segment earnings of $56.7 million in the first nine months of 2024. Segment margins were 7.4 percent and 6.5 percent in the third quarter of 2025 and 2024, respectively. Segment margins were 9.0 percent and 8.3 percent in the first nine months of 2025 and 2024, respectively. The higher segment earnings and segment margin in the third quarter and first nine months of 2025 compared to the prior quarter and prior year were primarily driven by benefits of our 2024 restructuring actions and tight spending controls in China that more than offset the lower China volumes. We estimate our 2025 Rest of World segment margin will be approximately eight percent.

Outlook

We expect our consolidated sales in 2025 to be flat to up one percent compared to 2024. Our projection is driven by expected boiler sales growth of between four and six percent, low single digit growth in commercial industry volumes, offset by flat to slightly down residential industry 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 leading to a decline in third-party sales. We expect full-year earnings of between $3.70 and $3.85 per share. Our guidance excludes the impacts from potential future acquisitions and any potential outcomes of the assessment of the China business.

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Liquidity & Capital Resources

Our working capital was $463.6 million at September 30, 2025, compared with $495.7 million at December 31, 2024. The decrease in working capital was primarily related to lower inventory and cash balances. As of September 30, 2025, cash balances were positively impacted by changes in foreign currency during the quarter of $2.7 million. 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 nine months of 2025, we repatriated approximately $93 million of cash from our foreign subsidiaries and used the proceeds to pay down outstanding debt balances.


(dollars in millions)	Nine Months Ended September 30,
	2025		2024
Cash provided by operating activities	$	433.7	$	359.9
Cash used in investing activities	(36.7)		(111.1)
Cash used in financing activities	(486.6)		(367.7)

Cash provided by operations in the first nine months of 2025 was $433.7 million and higher than $359.9 million in the first nine months of 2024, primarily due to lower inventory balances that were partially offset by other working capital outlays including lower customer deposits in China. Our free cash flow in the first nine months of 2025 and 2024 was $380.5 million and $282.5 million, respectively. We expect cash provided by operating activities to be approximately $600 million in 2025. We expect free cash flow to be approximately $500 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 $53.2 million in the first nine months of 2025 compared with $77.4 million in the same period last year. We project that 2025 capital expenditures will be approximately $75 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 September 30, 2025, and expect to be in compliance for the foreseeable future. The renewed facility backs up commercial paper and credit line borrowings. At September 30, 2025, we had $30.0 million of borrowings outstanding under the renewed facility and an available borrowing capacity of $470.0 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 decreased by $7.4 million in the first nine months of 2025 as we used available cash to pay down outstanding debt balances. Our leverage, as measured by the ratio of total debt to total capitalization, was 9.2 percent at September 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, 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 nine months of 2025, we repurchased 4,976,377 shares at an average price of $67.39 per share and at a total cost of $335.4 million. As of September 30, 2025, there were 1,769,748 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 October 13, 2025, our Board of Directors declared a regular quarterly cash dividend of $0.36 per share on our Common Stock and Class A common stock. The dividend is payable on November 17, 2025, to shareholders of record on October 31, 2025.

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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):


	Nine Months Ended September 30,
	2025		2024
Cash provided by operating activities (GAAP)	$	433.7	$	359.9
Less: Capital expenditures		(53.2)		(77.4)
Free cash flow (non-GAAP)	$	380.5	$	282.5

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)	$	3.70-3.85	$	3.63
Restructuring and impairment expense		—		0.10	(1)
Adjusted EPS (non-GAAP)	$	3.70-3.85	$	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 September 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; 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 September 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 September 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 third quarter of 2025, we repurchased 1,190,304 shares at an average price of $70.63 per share and at a total cost of $84.1 million. As of September 30, 2025, there were 1,769,748 shares remaining on the existing repurchase authorization.


ISSUER PURCHASES OF EQUITY SECURITIES
Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that may yet be Purchased Under the Plans or Programs
July 1 - July 31, 2025	598,076	$	69.21	598,076	2,361,976
August 1 - August 31, 2025	297,592	71.66		297,592	2,064,384
September 1 - September 30, 2025	294,636	72.48		294,636	1,769,748

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 September 30, 2025, none of our directors or Section 16 officers adopted or terminated 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						Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934

31.2						Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934

32.1						Written Statement of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350

32.2						Written Statement of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350

101						The following materials from A. O. Smith Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2025 are filed herewith, formatted in XBRL (Extensive Business Reporting Language): (i) the Condensed Consolidated Statement of Earnings for the three and nine months ended September 30, 2025 and 2024, (ii) the Condensed Consolidated Statement of Comprehensive Earnings for the three and nine months ended September 30, 2025 and 2024, (iii) the Condensed Consolidated Balance Sheets as of September 30, 2025, and December 31, 2024 (iv) the Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2025 and 2024 (v) the Condensed Consolidated Statement of Stockholders’ Equity for the three and nine months ended September 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

October 28, 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

SMITH A O CORP 10-Q