A. O. Smith Corporation (0L7A.L) QQ1 2025 Results — Resilient Margins and Steady Cash Generation in a Moderating Demand Environment
Executive Summary
A. O. Smith Corporation reported QQ1 2025 revenue of $963.9 million, with a gross margin of 38.95% and an operating margin of 18.96%, resulting in net income of $136.6 million and EPS of $0.95. The year-over-year (YoY) revenue declined 1.52%, while the quarter-over-quarter (QoQ) improvement was +5.64%, reflecting a cautious demand backdrop offset by ongoing cost discipline and price realization. Net income and EPS benefited from a favorable operating leverage dynamic as volumes stabilized from the prior quarter.
The company generated $38.7 million of net cash from operating activities, invested $21.3 million in property, plant and equipment, and delivered free cash flow of $17.4 million. Cash and equivalents stood at $173.0 million at period end, with a net debt position of approximately $122 million (total debt $295 million; interest coverage ~63x). The balance sheet remains solid, supported by strong equity (~$1.856 billion) and a favorable current ratio (~1.61). While the business demonstrates robust profitability and liquidity, the revenue trajectory remains modestly challenged versus a prior-year period, underscoring the importance of cost control, mix, and potential growth in Rest of World markets.
Overall, AO Smith presents a defensible earnings profile within the Industrials space, characterized by durable margins, solid cash conversion, and a conservatively leveraged balance sheet. The key questions for investors are the trajectory of demand across regions, the pace of Rest of World expansion, and the sustainability of margin expansion given input costs and competitive dynamics.
Key Performance Indicators
Revenue
963.90M
QoQ: 5.64% | YoY:-1.52%
Gross Profit
375.40M
38.95% margin
QoQ: 11.03% | YoY:-2.27%
Operating Income
182.80M
QoQ: 17.10% | YoY:-5.04%
Net Income
136.60M
QoQ: 24.52% | YoY:-7.45%
EPS
0.95
QoQ: 26.67% | YoY:-5.00%
Revenue Trend
Margin Analysis
Key Insights
QQ1 2025 revenue: $963.9 million; YoY change: -1.52%; QoQ change: +5.64%. The modest YoY decline reflects a softer demand environment, while the QoQ uptick indicates stabilization entering the year.
Gross Profit: $375.4 million; Gross Margin: 38.95%; YoY gross profit change: -2.27%; QoQ change: +11.03%. Margin resilience suggests favorable pricing, mix benefits, and some operating discipline.
Operating Income: $182.8 million; Operating Margin: 18.96%; YoY change: -5.04%; QoQ change: +17.10%. Margin pressure YoY partially offset by cost control and leverage as volumes improved QoQ.
Net Income: $136.6 million; Net Margin: 14.17%; YoY change: -7.45%; QoQ change: +24.52%. Net results benefited from operating leverage and lower tax or one-time effects not disclosed in the provided data.
EPS: $0.95; EPS Diluted: $0.95; YoY EPS change: -5.00%; QoQ change: +26.67%. Diluted share count remained flat (weighted average shares ~144.4 million).
Liquidity and Cash Flow:
Net cash provided by operating activities: $38.7 million; Capex: $21.3 million; Free cash flow: $17.4 million.
Cash at end of period: $173.0 million; Beginning cash: $239.6 million; Net change in cash: -$66.6 million.
Net income: $136.6 million; Depreciation/Amortization: $20.7 million; Changes in working capital: -$119.7 million; Other working capital effects: -$119.7 million; Free cash flow yield modest given capex and working capital dynamics.
Balance Sheet:
Total assets: $3.268 billion; Total liabilities: $1.4126 billion; Total stockholders’ equity: $1.8551 billion.
Financial Highlights
Revenue:
- QQ1 2025 revenue: $963.9 million; YoY change: -1.52%; QoQ change: +5.64%. The modest YoY decline reflects a softer demand environment, while the QoQ uptick indicates stabilization entering the year.
Gross Profit: $375.4 million; Gross Margin: 38.95%; YoY gross profit change: -2.27%; QoQ change: +11.03%. Margin resilience suggests favorable pricing, mix benefits, and some operating discipline.
Operating Income: $182.8 million; Operating Margin: 18.96%; YoY change: -5.04%; QoQ change: +17.10%. Margin pressure YoY partially offset by cost control and leverage as volumes improved QoQ.
Net Income: $136.6 million; Net Margin: 14.17%; YoY change: -7.45%; QoQ change: +24.52%. Net results benefited from operating leverage and lower tax or one-time effects not disclosed in the provided data.
EPS: $0.95; EPS Diluted: $0.95; YoY EPS change: -5.00%; QoQ change: +26.67%. Diluted share count remained flat (weighted average shares ~144.4 million).
Liquidity and Cash Flow:
- Net cash provided by operating activities: $38.7 million; Capex: $21.3 million; Free cash flow: $17.4 million.
- Cash at end of period: $173.0 million; Beginning cash: $239.6 million; Net change in cash: -$66.6 million.
- Net income: $136.6 million; Depreciation/Amortization: $20.7 million; Changes in working capital: -$119.7 million; Other working capital effects: -$119.7 million; Free cash flow yield modest given capex and working capital dynamics.
Balance Sheet:
- Total assets: $3.268 billion; Total liabilities: $1.4126 billion; Total stockholders’ equity: $1.8551 billion.
- Cash and cash equivalents: $173.0 million; Accounts receivable: $641.5 million; Inventory: $532.6 million.
- Current assets: $1.4221 billion; Current liabilities: $882.1 million; Quick/Current ratios: 1.008 and 1.612 respectively; Debt: Total debt $295.0 million; Net debt: $122.0 million; Long-term debt: $285.0 million.
- Margins and efficiency metrics: Gross margin 38.9%; Operating margin 19.0%; Net margin 14.2%; ROA 4.18%; ROE 7.36%; ROCE 7.66%; Interest coverage 63.0x; Payout ratio 36.0%.
- Leverage indicators: Debt-to-capitalization 13.7%; Debt-to-Equity 0.159; Cash conversion cycle 58.6 days; DSO 59.9 days; DIO 81.5 days; DPO 82.7 days. These figures indicate a balanced working capital profile with moderate leverage.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
963.90M
-1.52%
5.64%
Gross Profit
375.40M
-2.27%
11.03%
Operating Income
182.80M
-5.04%
17.10%
Net Income
136.60M
-7.45%
24.52%
EPS
0.95
-5.00%
26.67%
Key Financial Ratios
currentRatio
1.61
grossProfitMargin
38.9%
operatingProfitMargin
19%
netProfitMargin
14.2%
returnOnAssets
4.18%
returnOnEquity
7.36%
debtEquityRatio
0.16
operatingCashFlowPerShare
$0.27
freeCashFlowPerShare
$0.12
dividendPayoutRatio
36%
priceToBookRatio
5.09
priceEarningsRatio
17.27
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Earnings call transcript: Not provided in the data set. As a result, no management quotes or thematic highlights from the call can be extracted. The analysis below integrates the disclosed financials with an industry-contextual view and signals to watch, should a transcript become available.
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Forward Guidance
No explicit formal guidance for the full-year 2025 was provided in the data. Given QQ1 2025 results, the company demonstrated resilient margins and solid free cash flow generation in a mixed demand environment. Potential guidance factors to monitor include: (i) regional demand recovery in North America versus Rest of World, (ii) commodity and input cost trajectories impacting gross margins, (iii) currency effects given the London listing (0L7A.L) and USD-denominated reporting, and (iv) capital allocation choices (reinvestment vs. share repurchases vs. dividends). Our qualitative assessment suggests a base case of modest revenue stability with continued margin discipline, supported by scale benefits and a continued focus on cash generation. Upside would come from healthier North American demand, higher-margin product mix (e.g., high-efficiency heat pumps and filtration), and potential share buybacks if macro conditions permit. Downside risks include macroeconomic weakness, slower trend in housing and commercial construction, and volatility in raw material costs.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
0L7A.L Focus
38.95%
19.00%
7.36%
17.27%
0L77.L
41.30%
17.10%
2.53%
21.91%
0IIR.L
86.10%
55.30%
3.65%
24.27%
0QYD.L
46.80%
30.70%
-3.24%
43.54%
0L8A.L
48.10%
25.90%
3.94%
18.96%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
AO Smith exhibits a compelling combination of durable profitability, solid cash conversion, and a conservatively leveraged balance sheet. The QQ1 2025 results show a stable margin structure with a YoY revenue dip offset by QoQ momentum and effective cost management. At an approximate 17x trailing P/E, 5x+ price-to-book, and a modest dividend yield (~0.5%), the stock trades at mid-to-high single-digit multiples relative to broad Industrials benchmarks, reflecting a defensible earnings profile rather than a high-growth growth story. The main catalysts for upside include stronger North American demand, successful Rest of World expansion, and favorable mix toward higher-margin, energy-efficient products. Risks center on macro volatility, input costs, and currency dynamics related to the London listing. Investors should monitor management commentary on demand trends, capital allocation decisions, and any updated guidance as it becomes available. In a base-case scenario, AO Smith should sustain margin discipline and generate steady cash flow, with potential multiple expansion if growth drivers in Rest of World materialize and the company maintains prudent capital allocation.
Key Investment Factors
Growth Potential
Rest of World expansion in water heating, filtration, and related products; continued adoption of energy-efficient solutions (gas heat pumps, high-efficiency boilers) and Aquasana direct-to-consumer channels; durable brand with multi-channel distribution supporting stable demand.
Profitability Risk
Cyclicality tied to construction and housing markets; input cost volatility; currency risk due to UK listing; competitive pressure in a fragmented industrial machinery space; reliance on North American demand mix; potential working capital fluctuations during turnover cycles.
Financial Position
Strong balance sheet with $3.27B assets and $1.86B equity. Modest leverage (total debt $295M; net debt $122M) and robust interest coverage (~63x) support resilience. Liquidity and cash flow generation enable prudent capital allocation and potential share repurchases.
SWOT Analysis
Strengths
Healthy gross margin of approximately 39% and robust operating margin near 19%
Solid free cash flow generation and strong cash position ($173m) with low leverage
Diversified product portfolio (residential/commercial water heating, boilers, water treatment, filtration) and multi-region exposure
Established brands (A. O. Smith, Lochinvar, Aquasana) and broad distribution channels
Strong liquidity metrics (current ratio ~1.61, quick ratio ~1.01) and high interest coverage
Weaknesses
YoY revenue decline (-1.5%) suggests sensitivity to macro conditions and housing/construction cycles
Working capital typically a source of cash consumption (CCC ~141 days) and sizable change in working capital in QQ1
Limited visible top-line growth in the near term given lack of explicit full-year guidance
Opportunities
Accelerated growth in Rest of World through product expansion and channel development
Increased penetration of energy-efficient solutions and filtration/softening products
Potential capital allocation benefits from disciplined buybacks and incremental capex in high-return projects
Threats
Macro slowdown impacting housing/construction cycles and discretionary spend
Commodity price volatility and supply chain disruptions
Competitive dynamics and pricing pressure in a fragmented industrial machinery landscape
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