$AOS · SMITH A O CORP
A. O. Smith reported Q3 2026 results with sales of $940.5M (flat YoY), net earnings of $126.3M (-4%), and EPS of $0.93 (-1%). The company also announced definitive agreements for CPE to acquire an 81% stake in its China business at a ~$400M valuation, with total value exceeding $500M including long-term brand royalties. Full-year 2026 guidance was updated to exclude China, projecting net sales of $3.27B-$3.29B and adjusted EPS of $3.42-$3.52.
- Q3 revenue of $940.5M was flat YoY vs $942.5M; net earnings fell 4% to $126.3M
- EPS of $0.93 missed the prior-year $0.94; Rest of World sales dropped 7% on China weakness
- China business valued at ~$400M cash-free/debt-free; total value including brand royalties expected to exceed $500M
- 2026 guidance reset to exclude China: net sales ex-China of $3.27B-$3.29B, adjusted EPS ex-China of $3.42-$3.52
- Company repurchased 4.2M shares for $260.6M YTD; plans ~$300M in full-year buybacks
Extended-hours trading shows AOS down 5.04% to $57.79 vs the $60.86 regular close, signaling a negative reaction to the Q3 miss and China divestiture announcement. The $8.27B market cap company faces repricing as investors digest the strategic portfolio shift and flat North America organic growth.
A major strategic pivot: A. O. Smith exits control of its three-decade China business while retaining a 19% stake, refocusing capital on North American water heating and treatment.
The China exit mirrors broader industrial de-risking trends as Western manufacturers restructure exposure to China's slowing consumer economy. A. O. Smith's retained 19% stake and brand license structure is a notable alternative to a full divestiture.
China transaction may fail to close (regulatory approvals needed, H1 2027 target); China consumer weakness could persist and erode the retained 19% stake's value. North America faces softening residential water heater demand and higher steel/freight input costs.