EPS of $0.94 increased by 13.3% from previous year
Gross margin of 38.7%
Net income of 132.00M
"Transcript not provided in the dataset." - N/A
A O Smith Corporation (0L7A.L) QQ3 2025 Results Analysis: Resilient Margins and Strong Cash Generation in Industrials Machinery
Executive Summary
Summary of QQ3 2025 results for A O Smith Corporation shows a financially solid quarter with earnings resilience and strong cash generation, set against a mixed top-line trajectory. Revenue of USD 942.5 million rose 4.4% year-over-year but declined 6.8% quarter-over-quarter, reflecting seasonality and ongoing macro volatility. Gross profit reached USD 364.5 million, yielding a gross margin of 38.7%, while operating income of USD 175.6 million produced an operating margin of 18.6%. Net income of USD 132.0 million and earnings per share (EPS) of USD 0.94 translate to net and diluted margins of ~14.0% and a solid 0.94 EPS, with YoY improvements of 9â13% across key profitability metrics. EBITDA stood at USD 197.0 million, with an EBITDA margin around 21.0%, underscoring robust cash generation capacity.
Profitability and margins:
- Gross Margin: 38.7%
- Operating Margin: 18.6%
- Pretax Margin: 18.2%
- Net Margin: 14.0%
- EBITDA: USD 197.0 million; EBITDAR 0.209x of revenue
Liquidity and leverage:
- Current Ratio: 1.54x; Quick Ratio: 0.95x; Cash Ratio: 0.18x
- Debt to Capitalization: 9.47%; Long-term Debt to Capitalization: 8.73%; Debt to Equity: 0.105x
- Interest Coverage: 48.8x
- Working capital dynamics: DSO ~56 days; DIO ~79 days; CCC ~135 days; Payables outstanding ~0 days
Cash flow and returns:
- Operating Cash Flow per Share: USD 1.813; Free Cash Flow per Share: USD 1.708; Cash per Share: USD 1.226
- Return on Assets: 4.16%; Return on Equity: 6.24%; Return on Capital Employed: 7.57%
- Dividend Payout: 36.1%; Dividend Yield: 0.46%
Valuation and market metrics:
- Price/Earnings: 19.59x; Price/Book: 4.89x; Price/Sales: 10.97x; Price/FCF: 42.99x
- Enterprise Value Multiple: 52.85x; Price to Operating Cash Flows: 40.50x; Price to Free Cash Flows: 42.99x
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
942.50M
4.42%
-6.80%
Gross Profit
364.50M
8.06%
-8.21%
Operating Income
175.60M
9.27%
-14.67%
Net Income
132.00M
9.91%
-13.27%
EPS
0.94
13.25%
-12.15%
Key Financial Ratios
currentRatio
1.54
grossProfitMargin
38.7%
operatingProfitMargin
18.6%
netProfitMargin
14%
returnOnAssets
4.16%
returnOnEquity
6.24%
debtEquityRatio
0.11
operatingCashFlowPerShare
$1.81
freeCashFlowPerShare
$1.71
dividendPayoutRatio
36.1%
priceToBookRatio
4.89
priceEarningsRatio
19.59
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Transcript highlights unavailable in the provided dataset. The earnings transcript is not included, so no management quotes can be cited directly. Key qualitative takeaways below are derived from disclosed financials and peer context:
- The company delivered solid profitability in a quarter with mixed top-line momentum, underscoring its ability to sustain margins amid macro volatility.
- Cash generation remains a strength, with strong operating cash flow per share and a meaningful free cash flow per share metric that supports a disciplined dividend and potential capital allocation.
- Working capital, particularly the lengthened cash conversion cycle, suggests ongoing opportunities to optimize inventory and receivables while preserving margin quality.
Transcript not provided in the dataset.
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Forward Guidance
Forward-looking guidance is not provided in the supplied materials. Based on QQ3 2025 results and industry dynamics, the following factors are likely to influence near-term performance:
- Revenue trajectory: Expect modest YoY growth as North American residential and commercial markets recover from macro softness, complemented by ongoing international opportunities. QoQ variability may persist due to seasonality in HVAC/water heating demand.
- Margin trajectory: Gross margins around the high-30s% with potential upside from mix shifts toward high-margin products and price realization, offset by input cost volatility (steel, copper, and energy) and any FX headwinds.
- Cash flow and capital allocation: The company has demonstrated robust operating cash flow and a healthy payout ratio; continued focus on working capital discipline, capex efficiency, and potential share repurchases or strategic investments could be expected.
- Key risk factors to monitor: raw material inflation, currency translation effects given the LSE listing and international exposure, competitive intensity, and regulatory changes affecting energy-efficient product standards.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
0L7A.L Focus
38.67%
18.60%
6.24%
19.59%
0L77.L
41.50%
11.60%
1.86%
26.71%
0IIR.L
38.10%
37.10%
2.18%
40.02%
0QYD.L
47.40%
33.00%
-4.98%
25.75%
0L8A.L
37.90%
32.70%
4.61%
16.05%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
AO Smith QQ3 2025 results illustrate a financially resilient company with meaningful profitability and cash generation, supported by a disciplined balance sheet. The quarter shows favorable YoY improvements in profitability metrics but a QoQ revenue dip that points to cyclicality. Relative to peers, AO Smith exhibits a strong operating margin and high interest coverage, while its leverage remains modest. Valuation is at a premium on earnings and book value, reflecting quality attributes but suggesting limited downside protection if growth remains muted. Investors should weigh the predictability of cash flows and dividend comfort against the cyclicality and margin pressures observed in the quarter. The key near-term catalysts are improved top-line momentum in North America, successful execution of international expansion, and continued cost discipline to sustain margins. Monitoring FX effects, commodity costs, and working capital efficiency will be critical for sustaining upside upside potential.
Key Investment Factors
Growth Potential
Solid profitability metrics (gross margin ~38.7%, operating margin ~18.6%) support durable cash generation. Moderate YoY revenue growth (+4.4%) against a QoQ decline suggests a favorable mix and resilience. International exposure and potential growth in Rest of World markets could provide volume catalysts. Free cash flow per share of USD 1.708 supports optionality in capital allocation and potential additional shareholder value.
Profitability Risk
Cyclicality in industrial machinery and housing-related demand could pressure volumes. Longer working capital cycle (CCC ~135 days) implies sensitivity to supply chain and inventory management. Input cost volatility and FX exposure (USD-denominated results with international operations) could impact margins. Competition and industry pricing pressure remain risks to margin stability.
Financial Position
Strong balance sheet with low debt ratios (debt to capitalization ~9.5%, debt to equity ~0.105) and high interest coverage (~49x) indicate financial resilience. Healthy liquidity indicators (current ratio ~1.54) plus robust operating cash flow per share bolster the ability to fund capex, dividends, and potential strategic investments.
SWOT Analysis
Strengths
Strong profitability with gross margin ~38.7% and operating margin ~18.6% in QQ3 2025.
Robust cash generation: Operating Cash Flow per Share USD 1.813 and Free Cash Flow per Share USD 1.708.
Low leverage: Debt to Capitalization ~9.5%, Interest Coverage ~48.8x.
Diverse product portfolio across residential/commercial water heating, boilers, water treatment, and related equipment.
Solid return metrics: ROA 4.16%, ROE 6.24%, ROCE 7.57%.
Weaknesses
Revenue declined QoQ by 6.8% in QQ3 2025, indicating quarter-to-quarter cyclicality or energy/heating demand volatility.
Working capital cycle is elongated (CCC ~135 days) with DSO ~56 days and DIO ~79 days, suggesting potential liquidity sensitivity to demand swings.
Valuation is relatively rich (P/E ~19.6x, P/B ~4.9x) versus some peers, requiring ongoing discipline in capital allocation to justify multiple expansion.
Opportunities
Expansion into Rest of World markets could unlock incremental volume and diversify geographic risk.
Product mix optimization toward higher-margin offerings and energy-efficient solutions could support margin stability.
Strong FCF generation enables attractive capital allocation, including potential dividends, special returns, or selective acquisitions.
Threats
Macro sensitivity of industrial machinery and housing-related sectors can impact demand.
Raw material cost volatility and FX exposure due to international operations and dual listing.
Competitive intensity and potential price pressure in a mature, low-growth environment.
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