Q3 2025 A.O. Smith Corp Earnings Call

October 28, 2025

Today's conference is being recorded after the speaker's presentation, there will be a question and answer session to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again I would now like turn the conference over to your speaker today Helen Gerhold.

Good morning, and welcome to the a O Smith third quarter Conference call I'm, Helen <unk>, Vice President Investor Relations and financial planning and analysis.

I'm joined by Steve Schaefer, Chief Executive Officer, and Chuck Lauber, Chief Financial Officer.

In today's presentation, we have provided non-GAAP measures free cash flow is defined as cash from operations less capital expenditures reconciliations from GAAP measures to non-GAAP measures are provided in the appendix at the end of this presentation and on our website.

Friendly reminder, that some of our comments and answers. During this conference call will be forward looking statements that are subject to risks that could cause actual results to be materially different.

Those risks include matters that we described in this morning's press release among others.

Also as a courtesy to others in the question queue. Please limit yourself to one question and one follow up per turn.

You have multiple questions. Please rejoin the queue.

We'll use we will be using slides as we move through today's call you can access them on our website at Investor Dot a O Smith dot com.

I'll now turn the call over to Steve to begin our prepared remarks.

Thank you Helen and good morning, everyone.

I would like to start by briefly thanking the many dedicated a O Smith's employees and broader set of partners and customers in our ecosystem for another quarter of helping to make clean and safe water available to millions of people.

We appreciate all you do to make that happen.

Please turn to slide four and I will now review our financial performance in the quarter.

Our global Ao Smith team delivered third quarter sales of $943 million a year over year increase of 4% and EPS of <unk> 94.

15% increase over 2024.

North America sales grew 6%, primarily as a result of our pricing actions and strong commercial water heater and boiler volumes.

We achieved North America segment margin expansion of 110 basis points and rest of World segment margin expansion of 90 basis points.

Continued economic challenges and more limited availability of government government stimulus programs led to a 12% decrease in local currency sales in China.

<unk> contributed $17 million of sales in the quarter and our legacy India business continued its strong double digit growth trajectory by delivering 13% growth in local currency.

North America water heater sales increased 6% in the third quarter driven by pricing actions taken in response to higher tariffs and other input costs as well as higher commercial water heater volumes.

Our market, leading high efficiency condensing gas and heat pump products continue to have a compelling payback story in commercial applications.

Our residential water heater volumes were also positive, but we believe that Q3 industry volumes declined year over year.

As we expected we believe or we believe we outperformed the residential and commercial markets in the quarter.

In part due to our production efficiency initiative that limited the pre buy impact on our sales in the first half of the year.

Our North America boiler sales increased by 10% compared to the third quarter of 2024 led by the benefits of pricing actions and higher volumes of our high efficiency boilers.

North America water treatment sales decreased 5% in the third quarter as continued growth in our priority channels was more than offset by an expected decrease from our retail channel.

Our priority dealer e-commerce, and direct to consumer channels grew 11% in the quarter.

In China third quarter sales decreased 12% in local currency as the ongoing economic challenges and reduced availability of government subsidy program, along with an increasingly competitive environment led to lower volumes.

Despite these challenges and the resulting volume pressure, we achieved 90 basis points of margin expansion compared to last year through the restructuring initiatives, we undertook in 2024 and other cost saving measures.

Please turn to slide five.

I would now like to take a moment and talk about our commitment to sustainability.

For us sustainability is not just a goal, but a core part of who we are and what we do everyday.

We are committed to not only developing and bringing to market innovative high efficiency products, but we are also dedicated to sustainability in our facilities and manufacturing processes.

Later this week, we will publish our sustainability progress report, which will include our sustainability scorecard and an update on our water conservation greenhouse gas emissions and waste reduction goals.

What the report will show is that we are meeting or exceeding the goals, we set out for ourselves.

The outcome of these efforts are providing both sustainability and bottomline results.

Kevin Wheeler: Sustainability is not just a goal, but a core part of who we are and what we do every day. We are committed to not only developing and bringing to market innovative, high-efficiency products, but we are also dedicated to sustainability in our facilities and manufacturing processes. Later this week, we will publish our sustainability progress report, which will include our sustainability scorecard and an update on our water conservation, greenhouse gas emissions, and waste reduction goals. What the report will show is that we are meeting or exceeding the goals that we set out for ourselves. The outcome of these efforts is providing both sustainability and bottom-line results.

Example initiatives we've undertaken to support these goals include the test water recirculation system, which recycles water used during our product testing processes.

And our glass enamel reuse process, which captures waste glass enamel for reuse in our tank manufacturing process.

These are examples of how we are seamlessly.

Are we seamlessly integrate sustainability into two of our priority areas operational excellence and innovation.

We remain dedicated to finding better ways of doing things, including how to improve our business while protecting our planet.

I'll now turn the call over to Chuck who will provide more details on our third quarter performance.

The outcome of these efforts are providing both sustainability and bottom line results.

Thank you, Steve and good morning, everyone.

Kevin Wheeler: Example initiatives we have undertaken to support these goals include the test water recirculation system, which recycles water used during our product testing processes, and our glass enamel reuse process, which captures waste glass enamel for reuse in our tank manufacturing process. These are examples of how we seamlessly integrate sustainability into two of our priority areas: operational excellence and innovation. We remain dedicated to finding better ways of doing things, including how to improve our business while protecting our planet. I'll now turn the call over to Chuck, who will provide more details on our third quarter performance.

Example initiatives we've undertaken to support these goals include the test water recirculation system, which recycles water used during our product testing processes.

Please turn to slide six.

Third quarter sales in the North America segment of $743 million increased 6% compared to the same period last year, primarily due to benefits of pricing actions as well as higher commercial water heater and boiler volumes.

And our glass enamel Reeves process, which captures waste glass enamel for reuse in our tank manufacturing process.

These are examples of how we are seamlessly.

North America segment earnings were $180 million.

We seamlessly integrate sustainability into two of our priority areas operational excellence and innovation.

An 11% increase over the third quarter of 2024 <unk>.

Segment operating margin was 24, 2% to an increase of 110 basis points year over year.

We remain dedicated to finding better ways of doing things, including how to improve our business while protecting our planet.

Primarily due to pricing actions and higher volumes more than offsetting higher material and other input costs.

I'll now turn the call over to Chuck who will provide more details on our third quarter performance.

Moving to slide seven.

Chuck Lauber: Thank you, Steve, and good morning, everyone. Please turn to slide six. Third quarter sales in the North America segment of $743 million increased 6% compared to the same period last year, primarily due to benefits of pricing actions, as well as higher commercial water heater and boiler volumes. North America segment earnings were $180 million, an 11% increase over the third quarter of 2024. Segment operating margin was 24.2%, an increase of 110 basis points year over year, primarily due to pricing actions and higher volumes more than offsetting higher material and other input costs. Moving to slide seven, rest of the world segment sales of $208 million decreased slightly compared to last year and included $17 million of sales from the PURE acquisition. Sales in our legacy India business grew 13% in local currency. China third-party sales decreased 12% on a constant currency basis.

Thank you, Steve and good morning, everyone.

Russ rest of the World segment sales of $208 million decreased slightly compared to last year and included $17 million of sales from the pure acquisition.

Please turn to slide six.

Sales in our legacy <unk> business grew 13% in local currency.

Third party sales decreased 12% on a constant currency basis.

North America segment earnings were $180 million.

Rest of the World segment earnings of $15 million increased year over year, and it's continued expense management and the benefits of restructuring actions more than offset lower volumes in China.

An 11% increase over the third quarter of 2020 for segment operating margin was 24, 2% an increase of 110 basis points year over year, primarily due to pricing actions and higher volumes more than offsetting higher material and other input costs.

Segment operating margin was seven 4% an increase of 90 basis points compared to the prior period.

Moving to slide seven.

<unk> will continue to be a headwind in the near term as we focus on integration, which is progressing well.

Rest of the World segment sales of $208 million decreased slightly compared to last year and included $17 million of sales from the pure acquisition.

Please turn to slide eight.

Operating cash flow grew 21% to $434 million in free cash flow grew 35% to $381 million.

Sales in our legacy <unk> business grew 13% in local currency.

China Third party sales decreased 12% on a constant currency basis.

During the first nine months of 2025.

Compared to the same period last year, primarily due to lower inventory balances that were partially offset by other working capital outlays, including lower customer deposits in China.

Chuck Lauber: Rest of the world segment earnings of $15 million increased year over year as continued expense management and the benefits of restructuring actions more than offset lower volumes in China. Segment operating margin was 7.4%, an increase of 90 basis points compared to the prior period. PURE will continue to be a headwind in the near term as we focus on integration, which is progressing well. Please turn to slide eight. Operating cash flow grew 21% to $434 million, and free cash flow grew 35% to $381 million during the first nine months of 2025 compared to the same period last year, primarily due to lower inventory balances that were partially offset by other working capital outlays, including lower customer deposits in China. Our cash balance totaled $173 million at the end of September, and our net debt position was $13 million.

Rest of the World segment earnings of $15 million increased year over year as continued expense management and the benefits of restructuring actions more than offset lower volumes in China.

Our cash balance totaled $173 million at the end of September.

Segment operating margin was seven 4% an increase of 90 basis points compared to the prior period.

And our net debt position was $13 million.

Our leverage ratio was nine 2% as measured by total debt to total capital.

<unk> will continue to be a headwind in the near term as we focus on integration, which is progressing well.

Let's now turn to slide nine.

Please turn to slide eight.

Earlier this month, our board approved a 6% increase in our quarterly dividend to <unk> 36 per share, making 2025 to 30 <unk> consecutive year that a O Smith has raised its dividend.

Operating cash flow grew 21% to $434 million in free cash flow grew 35% to $381 million during the first nine months of 2025.

We repurchased approximately 5 million shares of common stock in the first nine months of 2025 for a total of $335 million.

Compared to the same period last year, primarily due to lower inventory balances that were partially offset by other working capital outlays, including lower customer deposits in China.

This is an increase compared to the same period last year as we raised our planned full year repurchase intentions from $306 million in 2024 to approximately $400 million of shares for 2025.

Our cash balance totaled $173 million at the end of September.

And our net debt position was $13 million.

Chuck Lauber: Our leverage ratio was 9.2% as measured by total debt to total capital. Let's now turn to slide nine. Earlier this month, our board approved a 6% increase in our quarterly dividend to $0.36 per share, making 2025 the 32nd consecutive year that A. O. Smith Corporation has raised its dividend. We repurchased approximately 5 million shares of common stock in the first nine months of 2025 for a total of $335 million. This is an increase compared to the same period last year, as we raised our planned full-year repurchase intentions from $306 million in 2024 to approximately $400 million of shares for 2025. Consistent with our key priorities, we are actively assessing strategic opportunities and have sufficient dry powder for acquisitions that meet our strategic and financial criteria. Our M&A priority continues to be deals that strengthen our core business or help us build new growth platforms.

Our leverage ratio was nine 2% as measured by total debt to total capital.

Consistent with our key priorities, we are actively assessing strategic opportunities and have sufficient dry powder for acquisitions that meet our strategic and financial criteria are.

Let's now turn to slide nine.

Earlier this month, our board approved a 6% increase in our quarterly dividend to <unk> 36 per share, making 2025 to 32nd consecutive year at a O. Smith has raised its dividend.

Our M&A priority continues to be deals that strengthen our core business or help us build new growth platforms.

We repurchased approximately 5 million shares of common stock in the first nine months of 2025 for a total of $335 million.

Please turn to slide 10, and our 2025 earnings guidance and outlook.

We are narrowing the range and lowering the top end of our 2025 EPS outlook from a range of $3 70 to $3 90.

This is an increase compared to the same period last year as we raised our planned full year repurchase intentions from $306 million in 2024 to approximately $400 million of shares for 2025.

Per share to a range of $3 70 to $3 85 per share.

We have included the following assumptions in our outlook.

Consistent with our key priorities, we are actively assessing strategic opportunities and have sufficient dry powder for acquisitions that meet our strategic and financial criteria.

We began to see the impact from tariffs in the third quarter and expect that our tariff costs will continue to increase into the fourth quarter as additional impacts make their way through our supply chain.

Our M&A priority continues to be deals that strengthen our core business or help us build new growth platforms.

So the tariff landscape remains uncertain, we maintain our estimate an annualized tariffs will increase total company cost of goods sold by approximately 5%, which includes tariff rates currently in place as well as the mitigation efforts we have implemented.

Chuck Lauber: Please turn to slide 10 and our 2025 earnings guidance and outlook. We are narrowing the range and lowering the top end of our 2025 EPS outlook from a range of $3.70 to $3.90 per share to a range of $3.70 to $3.85 per share. We have included the following assumptions in our outlook. We began to see the impact from tariffs in the third quarter and expect that our tariff costs will continue to increase into the fourth quarter as additional impacts make their way through our supply chain. Though the tariff landscape remains uncertain, we maintain our estimate that annualized tariffs will increase total company cost of goods sold by approximately 5%, which includes tariff rates currently in place, as well as the mitigation efforts we have implemented. As a reminder, our mitigation strategies include footprint optimization, strategic sourcing, and other cost controls and pricing actions as necessary.

Please turn to slide 10, and our 2025 earnings guidance and outlook.

We are narrowing the range and lowering the top end of our 2025 EPS outlook from a range of $3 70 to $3 90.

As a reminder, our mitigation strategies include footprint optimization strategic sourcing and other cost controls and pricing actions as necessary.

Per share to a range of $3 70 to $3 85 per share.

Apart from tariffs, we expect overall material costs for the year to remain approximately flat versus last year with steel costs rising 15% to 20% in the second half of 2025 compared to the first half we.

We have included the following assumptions in our outlook.

We began to see the impact from tariffs in the third quarter and expect that our tariff costs. We will continue to increase into the fourth quarter as additional impacts make their way through our supply chain.

We estimate that 2025, capex will be approximately $75 million, we expect to generate free cash flow of approximately $500 million.

Interest expense is projected to be approximately $15 million corporate and other expenses are expected to be approximately $75 million. Our effective tax rate is estimated to be approximately 24% and.

As a reminder, our mitigation strategies include footprint optimization strategic sourcing and other cost controls and pricing actions as necessary.

And we project our outstanding diluted shares will be $142 million at the end of 2025.

Chuck Lauber: Apart from tariffs, we expect overall material costs for the year to remain approximately flat versus last year, with steel costs rising 15% to 20% in the second half of 2025 compared to the first half. We estimate that 2025 CapEx will be approximately $75 million. We expect to generate free cash flow of approximately $500 million. Interest expense is projected to be approximately $15 million. Corporate and other expenses are expected to be approximately $75 million. Our effective tax rate is estimated to be approximately 24%, and we project our outstanding diluted shares will be 142 million at the end of 2025. I will now turn the call back over to Steve, who will provide more color around our key markets, top-line growth outlook, and segment expectations for 2025. Remaining at slide 10. Steve.

I will now turn the call back over to Steve who will provide more color around our key markets topline growth outlook and segment expectations for 2025 remaining on slide 10, Steve.

Thanks, Chuck key assumptions in our topline outlook include the following.

We estimate that 2025, capex will be approximately $75 million, we expect to generate free cash flow of approximately $500 million.

We projected 2025 U S residential industry unit volumes will be flat to slightly down compared to last year, a slight decrease from our previous guidance due to residential new construction expectation that had come down since last quarter.

Lower housing completions, particularly in multifamily as well as concern around consumer confidence have led to this revised outlook.

And we project our outstanding diluted shares will be $142 million at the end of 2025.

Our wholesale channel impact is expected to be greater due to its heavier exposure to new construction.

I will now turn the call back over to Steve who will provide more color around our key markets topline growth outlook and segment expectations for 2025 remaining on slide 10.

That said, we are encouraged by the resilient demand we are seeing in the commercial water heater market segments and as a result, we are increasing our projection for commercial water heater industry volumes from flat to last year to up low single digits.

<unk>.

Kevin Wheeler: Thanks, Chuck. Key assumptions in our top-line outlook include the following. We project that 2025 U.S. residential industry unit volumes will be flat to slightly down compared to last year, a slight decrease from our previous guidance due to residential new construction expectations that have come down since last quarter. Lower housing completions, particularly in multifamily, as well as concern around consumer confidence, have led to this revised outlook. The wholesale channel impact is expected to be greater due to its heavier exposure to new construction. That said, we are encouraged by the resilient demand we are seeing in the commercial water heater market segment, and as a result, we are increasing our projection for commercial water heater industry volumes from flat to last year to up low single digits.

Thanks, Chuck key assumptions in our top line outlook include the following.

We are pleased with our strong performance relative to the market in the third quarter and the share momentum we have going into the fourth quarter supported by our winning products in this segment.

Economic challenges persist in China.

While government stimulus programs helped to stabilize parts of the market in the first half of 2025, we believe the stimulus programs pulled forward a significant amount of demand.

Lower housing completions, particularly in multifamily as well as concern around consumer confidence have led to this revised outlook.

The wholesale channel impact is expected to be greater due to its heavier exposure to new construction.

During the third quarter National subsidies were discontinued resulting in increased promotional activity and discounting from our competitors much.

Much of which we chose not to participate.

Because we do not expect an improvement in market conditions in the near term we are lowering our 2025, China sales outlook to a decline of approximately 10% in local currency.

Kevin Wheeler: We are pleased with our strong performance relative to the market in the third quarter and the share momentum we have going into the fourth quarter, supported by our winning products in this segment. Economic challenges persist in China. While government stimulus programs helped to stabilize parts of the market in the first half of 2025, we believe the stimulus programs pulled forward a significant amount of demand. During the third quarter, national subsidies were discontinued, resulting in increased promotional activity and discounting from our competitors, much of which we chose not to participate in. Because we do not expect an improvement in market conditions in the near term, we are lowering our 2025 China sales outlook to a decline of approximately 10% in local currencies.

We are pleased with our strong performance relative to the market in the third quarter and the share momentum we have going into the fourth quarter supported by our winning products in this segment.

We continue to benefit from the restructuring actions taken in 2024 as well as other cost saving measures, which we project will offset the margin impact of lower volumes for the year.

Economic challenges persist in China.

While government stimulus programs helped to stabilize parts of the market in the first half of 2025, we believe the stimulus programs pulled forward a significant amount of demand.

Our 2025, North America boiler sales projection of.

Of an increase of between 4% and 6% compared to 2024 is unchanged.

During the third quarter National subsidies were discontinued resulting in increased promotional activity and discounting from our competitors.

We are very pleased with our growth in the first nine months of the year. Although we may have benefited from a minimal amount of pre buy related to price increases implemented in the second quarter we.

Of which we chose not to participate.

Because we do not expect an improvement in market conditions in the near term we are lowering our 2025, China sales outlook to a decline of approximately 10% in local currency.

We continue to monitor our key markets closely.

We have not changed our guidance that North America water treatment sales will decline approximately 5% in 2025, as we deemphasize less profitable retail channel.

Kevin Wheeler: We continue to benefit from the restructuring actions taken in 2024, as well as other cost-saving measures, which we project will offset the margin impact of lower volumes for the year. Our 2025 North America boiler sales projection of an increase of between 4% and 6% compared to 2024 is unchanged. We are very pleased with our growth in the first nine months of the year, although we believe we may have benefited from a minimal amount of pre-buy related to price increases implemented in the second quarter. We continue to monitor our key markets closely. We have not changed our guidance that North America water treatment sales will decline approximately 5% in 2025, as we de-emphasize the less profitable retail channels. We continue to be pleased with the growth we have seen in our priority channels and our onboarding of new dealers during the year.

We continued to benefit from the restructuring actions taken in 2024 as well as other cost saving measures, which we project will offset the margin impact of lower volumes for the year.

We continue to be pleased with the growth we have seen in our priority channels.

Our onboarding of new dealers during the year.

Our plan to drive 250 basis points of operating margin improvement in 2025 for the North America water treatment business is on track.

Our 2025, North America boiler sales projection of.

Of an increase of between 4% and 6% compared to 2024 is unchanged.

Finally, we expect the addition of pure it will add approximately $55 million in sales in 2025.

Slightly higher than our earlier guidance.

It will not have a significant bottom line contribution this year as we worked through integration.

We continue to monitor our key markets closely.

We have not changed our guidance that North America water treatment sales will decline approximately 5% in 2025, as we deemphasize less profitable retail channel.

Based on the continued economic challenges in China, and the softening wholesale residential water heater market in the U S. We have lowered our full year sales outlook from 2% to 3% growth to a range of flat to up 1% compared to last year.

We continue to be pleased with the growth we have seen in our priority channels.

Our onboarding of new dealers during the year.

We continue to expect our North America segment margin will be between 24% to 24, 5%.

Kevin Wheeler: Our plan to drive 250 basis points of operating margin improvement in 2025 for the North America water treatment business is on track. Finally, we expect the addition of PURE will add approximately $55 million in sales in 2025, slightly higher than our earlier guidance. It will not have a significant bottom-line contribution this year as we work through integration. Based on the continued economic challenges in China and the softening wholesale residential water heater market in the U.S., we have lowered our full-year sales outlook from 2% to 3% growth to a range of flat to up 1% compared to last year. We continue to expect our North America segment margin will be between 24% to 24.5%, and we expect that the rest of the world segment margin will be approximately 8%. Please turn to slide 11. Last quarter, I laid out my areas of focus.

Our plan to drive 250 basis points of operating margin improvement in 2025 for the North America water treatment business is on track.

We expect that rest of world segment margin will be approximately 8%.

Please turn to slide 11.

Finally, we expect the addition of pure it will add approximately $55 million in sales in 2025.

Last quarter I laid out my areas of focus.

Slightly higher than our earlier guidance.

Earlier this month the top 140 leaders of a O Smith gathered to talk about the future of our company to align on key priorities and inspire each other through the opportunity to connect and share ideas on how to deliver the next great chapter of the Ao Smith legacy.

It will not have a significant bottom line contribution this year as we worked through integration.

I came away from this important time together confident in our path forward and with the commitment from our leadership team to execute.

We continue to expect our North America segment margin will be between 24% to 24, 5%.

I look forward to sharing more regarding this leadership summit and our focus areas in the quarters to come.

We expect that rest of world segment margin will be approximately 8%.

I'm also pleased to welcome Chris <unk>, as our new Chief Digital information Officer.

Please turn to slide 11.

Chris is the transformational leader that we need to help us invest wisely in new technologies for the future.

Last quarter I laid out my areas of focus.

Kevin Wheeler: Earlier this month, the top 140 leaders of A. O. Smith gathered to talk about the future of our company, to align on key priorities, and inspire each other through the opportunity to connect and share ideas on how to deliver the next great chapter of the A. O. Smith legacy. I came away from this important time together confident in our path forward and with the commitment from our leadership team to execute. I look forward to sharing more regarding this leadership summit and our focus areas in the quarters to come. I am also pleased to welcome Chris Howe as our new Chief Digital Information Officer. Chris is the transformational leader that we need to help us invest wisely in new technologies for the future and unlock even more value potential in the technologies we are invested in today.

Unlock even more value potential in the technologies, we're invested in today.

In his previous roles, Chris led transformational effort to leverage enterprise software solutions and most recently worked on the forefront of generative AI solutions.

He will be instrumental in ensuring we have the technical capabilities needed to support all our priorities, especially operational excellence and innovation.

I came away from this important time together confident in our path forward and with the commitment from our leadership team to execute.

I look forward to sharing more regarding this leadership summit and our focus areas in the quarters to come.

As we shared last quarter and as part of our portfolio management priority, we announced the intention of our formal.

I'm also pleased to welcome Chris <unk>, as our new Chief Digital information Officer.

Of our formal China strategic assessment.

Chris is the transformational leader that we need to help us invest wisely in new technologies for the future.

While we remain early in the process, we are making good progress.

We commissioned a third party analysis of the China market and have confirmed many of our assumptions entering this strategic assessment.

Unlock even more value potential and the technologies, we're invested in today.

Kevin Wheeler: In his previous roles, Chris led transformational efforts to leverage enterprise software solutions and most recently worked on the forefront of generative AI solutions. He will be instrumental in ensuring we have the technical capabilities needed to support all our priorities, especially operational excellence and innovation. As we shared last quarter and as part of our portfolio management priorities, we announced the intention of our formal China strategic assessment. While we remain early in the process, we are making good progress. We commissioned a third-party analysis of the China market, and it confirmed many of our assumptions entering the strategic assessment. One, our brand remains strong, well-known, and respected among Chinese consumers, especially with regard to our innovative products and premium solutions. Two, our strategy to expand into broader categories that can be connected by smart home solutions and our AI link capability was a necessary path forward.

In his previous roles, Chris led transformational effort to leverage enterprise software solutions and most recently worked on the forefront of generative AI solutions.

One our brand remains strong well known and respected among Chinese consumers, especially with regard to our innovative products and premium solutions.

He will be instrumental in ensuring we have the technical capabilities needed to support all our priorities, especially operational excellence and innovation.

Two our strategy to expand into broader categories that can be connected by smart home solutions and our AI link capability was a necessary path forward.

As we shared last quarter and as part of our portfolio management priority, we announced the intention of our formal.

And three we have a number of go to market and business model opportunities to better strengthen the business and capture our fair share of market recovery.

Of our formal China strategic assessment.

While we remain early in the process, we are making good progress.

We believe that we have a good understanding of our challenges and are evaluating potential opportunities to ensure the future success of this business as we drive greater value for shareholders employees and other stakeholders.

We commissioned a third party analysis of the China market and have confirmed many of our assumptions entering this strategic assessment.

One our brand remains strong well known and respected among Chinese consumers, especially with regard to our innovative products and premium solutions.

In conclusion I am.

I'm pleased with our third quarter execution, particularly in the North American segment.

I'm also encouraged by the progress, we're making on our strategic priorities, including portfolio workouts strengthen our business going forward.

Two our strategy to expand into broader categories that can be connected by smart home solutions and our AI link capability was a necessary path forward.

Regarding execution.

We delivered a solid third quarter North America led by pricing performance and our strong commercial high efficiency portfolio, while expanding margins through operational discipline.

Kevin Wheeler: Three, we have a number of go-to-market and business model opportunities to better strengthen the business and capture our fair share of market recovery. We believe that we have a good understanding of our challenges and are evaluating potential opportunities to ensure the future success of this business as we drive greater value for shareholders, employees, and other stakeholders. In conclusion, I am pleased with our third-quarter execution, particularly in the North American segment. I'm also encouraged by the progress we are making on our strategic priorities, including portfolio work to help strengthen our business going forward. Regarding execution, we delivered a solid third quarter in North America, led by pricing performance and our strong commercial high-efficiency portfolio while expanding margins through operational discipline.

And three we have a number of go to market and business model opportunities to better strengthen the business and capture our fair share of market recovery.

Looking forward, we remain confident in our ability to navigate the tariff and competitive landscape and our core water heater and boiler businesses.

Where we serve a large replacement driven market with our broad industry, leading portfolio and go to market model.

In conclusion, I am pleased with our third quarter execution, particularly in the North American segment.

Regarding our portfolio, we are driving double digit growth in priority areas, including boilers select North America water treatment channels in India.

I'm also encouraged by the progress we are making on our strategic priorities, including portfolio works out to strengthen our business going forward.

At the same time through our strategic assessment, we are working to understand and address what is required to improve the performance of our China business.

Regarding execution.

We delivered a solid third quarter in North America led by pricing performance and our strong commercial high efficiency portfolio, while expanding margins through operational discipline.

Finally, we continue to generate cash maintain a strong balance sheet, an already with dry powder necessary to build out our portfolio in ways that complement our business today.

Kevin Wheeler: Looking forward, we remain confident in our ability to navigate the tariff and competitive landscape in our core water heater and boiler businesses, where we serve a large replacement-driven market with a broad industry-leading portfolio and go-to-market model. Regarding our portfolio, we are driving double-digit growth in priority areas, including boilers, select North America water treatment channels, and India. At the same time, through our strategic assessment, we are working to understand and address what is required to improve the performance of our China business. Finally, we continue to generate cash, maintain a strong balance sheet, and are ready with dry powder necessary to build out our portfolio in ways that complement our business today. With that, we conclude our prepared remarks and are now available for your questions.

Looking forward, we remain confident in our ability to navigate the tariff and competitive landscape in our core water heater and boiler businesses, where.

With that we conclude our prepared remarks and are now available for your questions.

Where we serve a large replacement driven market with our broad industry, leading portfolio and go to market model.

As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please limit yourself to one question and one follow up one moment for questions.

Regarding our portfolio, we are driving double digit growth in priority areas, including boilers select North America water treatment channels in India.

Okay.

At the same time through our strategic assessment, we are working to understand and address what is required to improve the performance of our China business.

Our first question comes from Sara.

<unk> with Jefferies. You May proceed.

Hi, good morning, and thanks for all the color commentaries, maybe just building on some of the China.

Finally, we continue to generate cash maintain a strong balance sheet, an already with dry powder necessary to build out our portfolio in ways that complement our business today.

Hilary you, obviously lowered expectations around China.

Let's talk about your performance versus the overall market, there and persistent weak market or anything or any competitive dynamics going on.

With that we conclude our prepared remarks and are now available for your questions.

Yes. Good morning, so it is a little bit of both so the market continues to have its challenges and as I mentioned theres been a little bit of a pull forward demand driven by the government subsidy program. So we're on the other side of that and I think within that down market. The competitive intensity continues to increase.

Operator: Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please limit yourself to one question and one follow-up. One moment for questions. Our first question comes from Saree Boroditsky with Jefferies. You may proceed.

Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please limit yourself to one question and one follow up one moment for questions.

Okay.

Our first question comes from Saree <unk> with Jefferies. You May proceed.

We sell a lot of promotional activities trying to step in where government subsidies were playing a role to generate demand previously and so that's adding to the competitive pressure and.

Saree Boroditsky: Hi, good morning, and thanks for all the color in the commentaries. Maybe just building on some of the China color, you obviously lowered expectations around China sales. Could you just talk about your performance versus the overall market there? Is this just a weaker market, or is there any competitive dynamics going on?

Hi, good morning, and thanks for all the color commentaries, maybe just building on some of the China.

Because we see our path forward as I mentioned, we've got confirmation that our brand remains very strong there we have a really strong innovative portfolio to serve our customers.

Hillary obviously lowered expectations around China.

Talk about your performance versus the overall market there.

So can we can market or anything or any competitive dynamics going on.

But we need to work through this period of.

Yes, good morning, it's a little bit of both so the market continues to have its challenges and as I mentioned theres been a little bit of a pull forward demand driven by the government subsidy programs. So we're on the other side of that and I think within that down market. The competitive intensity continues to increase.

Kevin Wheeler: Good morning. It's a little bit of both. The market continues to have its challenges. As I mentioned, there's been a little bit of a pull forward demand driven by the government subsidy program. We're on the other side of that. I think within that down market, the competitive intensity continues to increase. We see a lot of promotional activities trying to step in where government subsidies were playing a role to generate demand previously. That's adding to the competitive pressure. I think as we see our path forward, as I mentioned, we've got confirmation that our brand remains very strong there. We have a really strong innovative portfolio to serve our customers. We need to work through this period of challenging market conditions.

Challenging market conditions.

I appreciate that and then obviously one of the bright spot. This quarter was in the North America commercial water heater sales.

I think previously you attributed some of the strength to pre buy so Jim maybe just a little more detail on what youre seeing in that market and what's driving the strength there.

We sell a lot of promotional activities trying to step in where government subsidies were playing our role to generate demand previously and so that's adding to the competitive pressure and.

And it's been it's been a strong.

<unk> condition for.

Commercial <unk>.

Commercial product, but I'd also say, we have a really strong portfolio in that space and I mentioned on the last earnings call the launch of our.

Because we see our path forward as I mentioned, we've got confirmation that our brand remains very strong there we have a really strong innovative portfolio to serve our customers.

Our flex commercial water heater and so we've got that out in the marketplace that I think is performing very well. So it's a combination of a really strong market backdrop, but also in an area, where we've got really competitive product offerings.

But we need to work through this period of.

Challenging market conditions.

Saree Boroditsky: Appreciate that. One of the bright spots this quarter was on the North America commercial water heater sales. I think previously you attributed some of the strength to pre-buy. Maybe a little bit more detail on what you're seeing in that market and what's driving the strength there.

I appreciate that and then obviously one of the bright spot. This quarter was in the North America commercial water heater sales.

And I would add that during the third quarter, we benefited from our production efficiency program to make sure that we were level loading a bit closer to the market.

I think previously you attributed some of the strength to pre buy.

Thank you Tom on what Youre seeing in that market and what's driving the strength there.

And some of that.

Strength, we saw in commercial and residential heater was a part of the output of that benefit.

Kevin Wheeler: Yeah, it's been a strong market condition for, you know, commercial products. I'd also say we have a really strong portfolio in that space. I mentioned on the last earnings call the launch of our Flex commercial water heater, and we've got that out in the marketplace that I think is performing very well. It's a combination of a really strong market backdrop, but also in an area where we've got really competitive product offering.

And it's been it's been a strong.

Market condition for.

Our loyalty program.

Commercial <unk>.

Commercial products, but I would also say we have a really strong portfolio in that space and I mentioned on our last earnings call the launch of our.

Thank you.

Our next question comes from Bryan Blair with Oppenheimer You May proceed.

Thank you good morning Ross.

Good morning.

Just to level set on the <unk>.

On a strategic review we know there is there isn't a timetable.

As of now in terms of the ultimate decision.

Given the insights from the assessment so far.

Chuck Lauber: I would add that, during the third quarter, we benefited from our production efficiency program to make sure that we were level loading a bit closer to the market. Some of that strength we saw on commercial and residential heater was a part of the output of that benefit in the level loading program.

And I would add that during the third quarter, we benefited from our production efficiency program to make sure that we were level loading a bit closer to the market.

Has the range of potential outcomes has been narrowed as anyway.

No Brian not yet I mean, we're.

Still early enough in the process that we're not ruling out any outcomes at this point.

And some of that.

Strength, we saw in commercial and residential heater was a part of the output of that benefit in the level of the program.

So like I said, we've done some really good work just trying to profile and understand the market. We've got some third party assessment to do that.

Operator: Thank you. Our next question comes from Bryan Blair with Oppenheimer. You may proceed.

Thank you.

We've started the process of reaching out to other participants which is why we wanted to announce that.

Our next question comes from Bryan Blair with Oppenheimer You May proceed.

We were.

Bryan Blair: Thank you. Morning, everyone.

Thank you good morning, everyone. Good morning.

Putting the business under the strategic assessment, but we're not at a point, yet where we've kind of narrowed down or have a view of what the outcome of that is yet still too early.

Kevin Wheeler: Morning.

Saree Boroditsky: Morning.

Bryan Blair: Just to level set on the China strategic review, we know there isn't a timetable as of now in terms of the ultimate decision. Given the insights from the assessment so far, has the range of potential outcomes been narrowed in any way?

Just to level set on the China Strategic review, we know there is there isn't a timetable.

Understood I appreciate the color.

As of now in terms of the ultimate decision.

<unk> priority channel growth in North American water treatment.

Given the insights from the assessment so far.

Certainly encouraging in Q3, and then 11% nicely aligns with the 10% to 12% organic growth target you had put out at Investor day with mix now reset for the platform is that kind of organic growth in play going forward.

Is the range of potential outcomes been narrowed it anyway.

Kevin Wheeler: No, Brian, not yet. I mean, we're still early enough in the process that we're not ruling out any outcomes at this point. Like I said, we've done some really good work just trying to profile and understand the market. We've gotten some third-party assessment to do that. We've started the process of reaching out to other participants, which is why we wanted to announce that we were putting the business under the strategic assessment. We're not at a point yet where we've kind of narrowed down or have a view of what the outcome of that is yet. It's still too early.

No Brian not yet I mean, we're.

Still early enough in the process that we're not ruling out any outcomes at this point.

So like I said, we've done some really good work just trying to profile and understand the market. We've gotten some third party assessment to do that.

I mean, that's certainly how we think about.

The business long term I would say there is still more work to be done right. So we've done some re prioritization of the channels and where we think we can be competitive and win I think there is still more work and investment in that space to build out that platform, but we feel good about the.

We've started the process of reaching out to other participants which is why we wanted to announce that we were.

Putting the business under this strategic assessment, but we're not at a point, yet where we've kind of narrowed down or have a view of what the outcome of that is yet still too early.

The growth potential of that business.

Bryan Blair: Yeah, understood. Appreciate the color. The priority channel growth in North American water treatment is certainly encouraging in Q3. That 11% nicely aligns with the 10% to 12% organic growth target you had put out at Investor Day. With mix now reset for the platform, you know, is that kind of organic growth in play going forward?

Understood I appreciate the color.

Thank you.

The priority channel growth in North American water treatment, certainly encouraging in Q3 and that 11% nicely aligns with the 10% to 12% organic growth target you had put out at Investor day with mix now reset for the platform is that kind of organic growth in play going forward.

Our next question comes from Jeff Hammond with Keybanc capital markets. You May proceed.

Hey, good morning, good morning, good morning.

Just on the U S. Rajiv water heater market I would say I think you didn't change your industry shipment assumptions, but seemed to lean a little more cautious so I just wanted to understand a little bit better.

Kevin Wheeler: I mean, that's certainly how we think about the business long term. I would say there's still more work to be done, right? We've done some reprioritization of the channels and where we think we can be competitive and win. I think there's still more work and investment in that space to build out that platform. We feel good about the growth potential of that business.

I mean, that's certainly how we think about.

How you see that playing out.

The business long term I would say there is still more work to be done right. So we've done some re prioritization of the channels and where we think we can be competitive and win I think there is still more work and investment that space to build out that platform, but we feel good about the.

Yes, our outlook for the industry, we were talking about flat industry on our last call and now we're saying flat to slightly down. So we do see a little bit of pressure on the residential side most of that is coming through.

New home construction completions on the residential side that we're seeing some of that weakness. So we've taken it down just a tad.

The growth potential of that business.

Operator: Thank you. Our next question comes from Jeff Hammond with KeyBanc Capital Markets. You may proceed.

Thank you.

Our next question comes from Jeff Hammond with Keybanc capital markets. You May proceed.

And are you seeing.

Kind of the market share recapture play out as Giovanni.

Jeff Hammond: Hey, good morning.

Hey, good morning, good morning, good morning.

Kevin Wheeler: Good morning.

Jeff Hammond: Just on the U.S. resi water heater market, I think you didn't change your industry shipment assumptions, but seemed to lean a little more cautious. I just wanted to understand a little bit better, you know, how you see that playing out.

Just on the U S. Rajiv water heater market and I'd say I think you didn't change your industry shipment assumptions, but seemed to lean a little more cautious so I just wanted to understand a little bit better.

Yes.

As we were looking at level loading our production this year.

We've seen our performance relative to the market in Q3 come back and gained share back as we expected.

How you see that playing out.

Okay and then.

Chuck Lauber: Yeah, our outlook for the industry, you know, we were talking about flat industry on our last call, and now we're saying flat to slightly down. We do see a little bit of pressure on the residential side. Most of that is coming through new home construction completions on the residential side that we're seeing some of that weakness. We've taken it down just a tad.

I think you mentioned some additional tariff headwinds, maybe quantify or talk about where youre seeing that and then just as you look at steel pricing and kind of forward tariffs enter into 26, how does that kind of inform.

New home construction completions on the residential side that we're seeing some of that weakness. So we've taken it down just a tad.

Pricing actions you need to take into 'twenty six we're seeing.

From kind of other channels that maybe next year is another above average increase and just wanted to get your view there.

Jeff Hammond: Are you seeing, you know, kind of the market share recapture play out as you thought?

And are you seeing.

Kind of the market share recapture play out as Giovanni.

Yes. This is Chuck I mean dimension on tariff pressure was really framing from third quarter to fourth quarter, It's probably maybe 20 basis points on North American margins, where we're seeing a bit heavier tariffs kind of accumulate our full year outlook at 5% has not changed so.

Kevin Wheeler: Yes, as we were looking at level loading our production this year, we've seen our performance relative to the market in Q3 come back and gain share back as we expected.

Yes.

As we were looking at level loading our production this year.

We've seen our performance relative to the market in Q3 come back and gained share back as we expected.

Jeff Hammond: Okay. I think you mentioned some additional tariff headwinds. Maybe quantify or talk about where you're seeing that. As you look at steel pricing and kind of forward tariffs into 2026, how does that inform pricing actions you need to take into 2026? We're hearing from other channels that maybe next year is another above-average increase, and just wanted to get your view there.

Okay and then.

I think you mentioned some additional tariff headwinds maybe quantify or talk about where you are seeing that and then just as you look at steel pricing and kind of forward tariffs.

Still a little bit of timing I'm, putting a little pressure on the north American margins in the fourth quarter.

We will be back in January and giving a little bit of an outlook on cost first world is a bit volatile. So I think we'll kind of hold off commentary to see where material Costco in that in that respect.

And the 26, how does that kind of inform.

Pricing actions you need to take into 'twenty six we're seeing we're hearing from kind of other channels that maybe next year is another above average increase and just wanted to get your view there.

Thank you.

Our next question comes from Mike Halloran with Baird You May proceed.

Chuck Lauber: Yeah, this is Chuck. The mention on tariff pressure was really framing from third quarter to fourth quarter. It's probably maybe 20 basis points on North America margins where we are seeing a bit heavier tariffs kind of accumulate. Our full-year outlook at 5% has not changed. It's a little bit of timing, putting a little pressure on the North America margins in the fourth quarter. We'll be back in January and giving a little bit of an outlook on costs. The tariff world is a bit volatile. I think we'll kind of hold off commentary to see where material costs go in that respect.

Yes. This is Chuck I mean dimension on tariff pressure was really framing from third quarter to fourth quarter, It's probably maybe 20 basis points in North American margins, where we're seeing a bit heavier tariffs kind of accumulate our full year outlook at 5% has not changed so.

Hey, good morning, everyone. Good morning.

So could you talk a little bit through what you're seeing in the residential side of things in terms of the discretionary.

I certainly heard the commentary earlier that some of that weakness or incremental weakness you saw in the residential volume side from an outlook perspective is tied to new housing starts.

A little bit of timing I'm, putting a little pressure on the north American margins in the fourth quarter.

Being a little bit lower no surprise are you seeing anything different on the discretionary piece.

We will be back in January and giving a little bit of an outlook on cost first world is a bit volatile. So I think we'll kind of hold off commentary to see where material costs go in that in that respect.

We really haven't seen that changed.

We do a survey every quarter, we look at proactive replacement as you know.

Operator: Thank you. Our next question comes from Mike Halloran with Baird. You may proceed.

We kind of look at that survey, there's quarters, where it edges up is down but overall, it's still above that 30% proactive replacement remains pretty resilient certainly something we will watch as we go forward but.

Thank you.

Our next question comes from Mike Halloran with Baird You May proceed.

[Analyst]: Hey, good morning, everyone.

Hey, good morning, everyone. Good morning.

Kevin Wheeler: Morning, Mike.

Saree Boroditsky: Morning.

[Analyst]: Could you talk a little bit through what you're seeing in the residential side of things in terms of the discretionary spend? I certainly heard the commentary earlier that some of that weakness, that or incremental weakness you saw on the residential volume side from an outlook perspective is tied to new housing starts being a little bit lower. No surprise. Are you seeing anything different on the discretionary piece?

So could you talk a little bit through what you're seeing in the residential side of things in terms of the discretionary.

It's a backward stands the last trailing 12 months survey. So we'll have to continue to watch and make sure. We understand if there was a trend developing but right now still above 30%.

I certainly heard the commentary earlier that some of that weakness or incremental weakness you saw in the residential volume side from an outlook perspective is tied to new housing starts.

And then following up on just the other question I know, you're not giving 2006 stock process, but if trends were to play out and we werent going to get any incremental actions.

Being a little bit lower no surprise are you seeing anything different on the discretionary piece.

Chuck Lauber: We really haven't seen that change. We do a survey every quarter, and we look at proactive replacement, as you know. If we kind of look at that survey, there are quarters where it edges up, edges down, but overall, it's still above that 30%. Proactive replacement remains pretty resilient. Certainly, something we'll watch as we go forward. It's a backwards, it's the last trailing 12 months survey. We will have to continue to watch that and make sure we understand if there's a trend developing. Right now, still above 30%.

We really haven't seen that changed.

The pricing that you've taken in your mind is enough to meet key price cost positive.

We do a survey every quarter, we look at proactive replacement as you know in <unk>.

Or at least be price cost neutral.

Kind of look at that survey, there's quarters, where it edges up it's down but overall, it's still above that 30% proactive replacement remains pretty resilient certainly something we'll watch as we go forward but.

On the margin line or in terms of EBITDA dollars once kind of all the catch up happens is that the thought process or.

Is there still going to be some gaps relative to what youre seeing from an inflation perspective with the actions you've already taken.

It's a backwards to answer the last trailing 12 months survey. So we will have to continue to watch and make sure. We understand if there was a trend developing but right now still above 30%.

And when we do our price increases and it really was no different other than the amount of the price increase this time with the tariff costs hitting us we typically look to cover margin plus cost.

[Analyst]: Following up on Jeff's other question, I know you're not getting '26 thought process, but if trends were to play out and we were not going to get any incremental actions, the pricing that you've taken in your mind is enough to make you price cost positive, or at least be price cost neutral on the margin line or in terms of EBITDA dollars once kind of all the catch-up happens. Is that the thought process, or is there still going to be some gap relative to what you're seeing from an inflation perspective with the actions you've already taken?

And then following up on Jeff's other question I know youre, not giving 'twenty six thought process, but if trends were to play out and we werent going to get any incremental actions.

So just a reminder, the last one was second quarter because it was effective when we announced those prices. They go out and certainly we see pressures over time.

The pricing that you've taken in your mind is enough to meet key price cost positive.

On the price and we have a bit of let's say so I think we're kind of still reserve kind of the answer to that as we get into the next quarter, but we're comfortable with our price cost relationship now, but as Youll see theres. Some pressure when you look at our guidance.

Or at least be price cost neutral.

On the margin line or in terms of EBITDA dollars once kind of all the catch up happens is that the thought process or.

Is there still going to be some gaps relative to what youre seeing from an inflation perspective with the actions you've already taken.

Little bit of pressure on margins in the fourth quarter.

Thank you.

Our next question comes from Susan Mcclary with Goldman Sachs. You May proceed.

Chuck Lauber: Yeah, where we do our price increases, and it really was no different other than the amount of the price increase this time with the tariff costs hitting us. We typically look to cover margin plus cost. Just a reminder, the last one was second quarter that it was effective. When we announced those prices, they go out, and certainly, we see pressures over time on the price, and we have a bit of a fade. I think we'll kind of still reserve kind of the answer to that as we get into the next quarter. We're comfortable with our price cost relationship now. As you'll see, there's some pressure when you look at our guidance and a little bit of pressure on margins in the fourth quarter.

And when we do our price increases and it really was no different other than the amount of the price increase this time with the tariff costs hitting us we typically look to cover margin plus cost.

Hi, Good morning, everyone. This is Charles running proceed thanks for taking my question.

First I'd like to go back on the China market understanding the market conditions are tough, but I guess do you have any thoughts on potential additional restructuring initiatives in the region, given the environment and something that would be done at potential strategic announcement.

Just a reminder, the last one was second quarter because it was effective when we announced those prices. They go out and certainly we see pressures over time.

The pricing, we have a bit of let's say so I think.

I think it's one of the things we're going to continue to kind of work through and we're more about as we go through our strategic assessment in.

We're kind of still reserve kind of the answer to that as we get into the next quarter, but we're comfortable with our price cost relationship now, but as Youll see theres. Some pressure when you look at our guidance.

Kind of alluded to the fact that there is there is.

<unk> for us as we think about how we go to market our business model, we're going to continue to evaluate those things, where we do those through partnerships, where we need them for ourselves.

Bit of pressure on margins in the fourth quarter.

Operator: Thank you. Our next question comes from Susan McClary with Goldman Sachs. You may proceed.

Thank you.

Our next question comes from Susan Mcclary with Goldman Sachs. You May proceed.

It's something we still have to work through but.

Charles Lauber: Hi, good morning, everyone. This is Charles Lauber in Pursuit. Thanks for taking my question. First, I'd like to go back on the China market. Understanding the market conditions are tough, but I guess, do you have any thoughts on potential additional restructuring initiatives in the region given the environment and something that would be done ahead of potential strategic announcements?

Hi, Good morning, everyone. This is Charles running proceed thanks for taking my question.

Our goal is to make sure that the business is set up well for success and obviously a little bit of market recovery will help aid that in a bit but we're going to continue to kind of learn from the changing market environment and make the necessary changes and whether that comes through things that will take on itself helps to do.

Kevin Wheeler: I think it's one of the things we're going to continue to work through and learn more about as we go through our strategic assessment. I alluded to the fact that there's opportunities for us as we think about how we go to market, our business model. We're going to continue to evaluate those things. Whether we do those through partnerships or we do them for ourselves, it's something we still have to work through. No matter what, our goal is to make sure that the business is set up well for success. Obviously, a little bit of market recovery will help aid that in a bit. We're going to continue to learn from the changing market environment and make the necessary changes.

And I guess one of the things we're going to continue to kind of work through and are more about as we go through our strategic assessment in.

That or whether that's done through partnerships as one of the things we're assessing right now.

Okay. That's helpful color and then I think in your prepared remarks, you talked about the potential for strategic acquisition within Europe or adjacent market.

I kind of alluded to the fact that there is there.

There is opportunities for us as we think about how we go to market our business model, we're going to continue to evaluate those things, where we do those through partnerships or we do them for ourselves.

I guess on this can you talk about what is the pipeline for these types of <unk> in the current environment.

The timing of any strategic decision on that is dependent on the potential.

It's something we still have to work through but.

The strategic review on China.

No I think one of us.

Strengths, we have right has a strong balance sheet and our cash generation capability. So we've got an active pipeline.

We continue to evaluate that from kind of a strategic lens financial lens, where we want to go next.

Kevin Wheeler: Whether that comes through things that we'll take on in self-help to do that, or whether that's done through partnerships is one of the things we're assessing right now.

Or whether that's done through partnerships as one of the things we're assessing right now.

Mentioned, partly it's how do we strengthen the core of our business how do we think about.

Charles Lauber: Okay, that's helpful, Color. In your prepared remark, you talked about the potential for strategic acquisition within your or adjacent market. I guess on this, can you talk about what is the pipeline for these types of opportunities in the current environment, along with the timing of any strategic decision on that is dependent on the potential announcement of the strategic review on China?

Okay. That's helpful color and then I think in your prepared remarks, you talked about the potential for strategic acquisition within Europe or adjacent market.

Building, new higher growth businesses, and we're going to continue through that process. So I don't I don't think it's connected to other decisions, we're making across our portfolio at this time and we're ready to move I think when the right opportunities come about.

I guess on this can you talk about what is the pipeline for these types of before changes in the current environment.

Thank you.

The timing of any strategic decision on that is dependent on the potential.

Our next question comes from David Macgregor with Longbow Research you May proceed.

The two strategic review on China.

Yes, good morning, everyone.

Kevin Wheeler: I think one of the strengths we have is a strong balance sheet and our cash generation capabilities. We've got an active pipeline. We continue to evaluate that from a strategic lens, financial lens, where we want to go next. As we mentioned, partly it's how do we strengthen the core of our business? How do we think about building new, higher growth businesses? We're going to continue through that process. I don't think it's connected to other decisions we're making across our portfolio at this time. We're ready to move, I think, when the right opportunities come about.

No I think one of us.

I'm wondering if you could just give us an up hey.

Good morning, I was wondering if you could just give us an update on gas tankless. The progress to date on relocation of manufacturing and market development and just the impact on third quarter margin contribution and maybe the fourth quarter.

Strengths, we have right has a strong balance sheet and our cash generation capability. So we've got an active pipeline.

We continue to evaluate that from kind of a strategic lens financial lens, where we want to go next as we.

<unk> got 25 guidance.

Mentioned, partly it's how do we strengthen the core of our business how do we think about.

Sure.

We've made a big investment to enter with our own products into the gas Tankless space.

Building, new higher growth businesses, and we're going to continue through that process. So I don't think its connected to other decisions, we're making across our portfolio at this time and we're ready to move I think when the right opportunities come about.

<unk> been building out the right set of products the manufacturing capability.

Here in North America, and all of that is progressing well I think the market itself for Tankless is under under pressure.

Operator: Thank you. Our next question comes from David MacGregor with Longbow Research. You may proceed.

Thank you.

Our next question comes from David Macgregor with Longbow Research you May proceed.

[Analyst]: Good morning, everyone. I was wondering if you could just give us an update on gas tankless and the progress to date on relocation and manufacturing and market development, and just the impact on third-quarter margin contribution and maybe the implied fourth quarter, which you've got in the 2025 guide.

Yes, good morning, everyone.

Heavily connected back to the residential construction.

I'm wondering if you could just give us an up.

Market that we talked about so from that standpoint.

It remains kind of a challenging market, but I think we're really excited I think we've got the right products.

We've got the manufacturing capability ready.

As we've talked about in the past we've made some changes in the past we were talking about launching in China moving to North America, we've made some changes into that strategy.

<unk> got 25 guidance.

Kevin Wheeler: Sure. As you know, we've made a big investment to enter with our own products into the gas tankless space. We've been building out the right set of products, the manufacturing capability here in North America, and all of that is progressing well. I think the market itself for tankless is under pressure, heavily connected back to the residential construction market that we talked about. From that standpoint, it remains kind of a challenging market. I think we're really excited that we've got the right products. We've got the manufacturing capability ready. As we've talked about in the past, we've made some changes. In the past, we were talking about launching in China, moving to North America. We've made some changes to that strategy, which has made some delays to our current plan in terms of how we're going to go after the market.

Sure.

We've made a big investment to enter with our own products into the gas Tankless space.

<unk> has made some delays to our current plan in terms of how we're going to go after the market, but I think we're happy with where we're at and we'd like to we'd like to move faster in the marketplace and I think as the market picks up and recovers, especially around new construction and with the product offering we have in the supply chain, we have will be ready to compete successfully.

<unk> been building out the right set of products the manufacturing capability.

Here in North America, and all of that is progressing well I think the market itself for Tankless is under under pressure.

Heavily connected back to the residential construction.

Are you seeing any good feedbacks.

A market that we talked about so from that standpoint.

Oh, sorry, sorry go ahead.

I was just going to answer that question and margin pressure.

It remains kind of a challenging market, but I think we're really excited that I think we've got the right products.

<unk> when we first launched the product last year, so the margin pressures a bit less than the 40 basis points, we had historically talked about for.

We've got the manufacturing capability ready.

As we've talked about in the past we've made some changes in the past we were talking about launching in China moving to North America, we've made some changes into that strategy.

For the quarter, it's probably about 20 basis points, it's not overly significant.

Okay, and I think you were asking about show feedback.

Yes, I was just wondering just you just talk a little bit about what youre getting back from the marketplace.

Kevin Wheeler: I think we're happy with where we're at. We'd like to move faster in the marketplace. I think as the market picks up and recovers, especially around new construction and with the product offering we have and the supply chain we have, we'll be ready to compete successfully.

Our people I know that you were.

Undertaking a phased launch on that product in terms of just incremental models.

The acceptance level relatively good at this point or are people waiting for the full assortment.

Just any commentary that would be helpful. Yes folks love the product.

[Analyst]: Are you getting good feedback?

Are you seeing any good feedbacks.

Kevin Wheeler: Oh, sorry.

[Analyst]: Sure, go ahead.

Oh, sorry, sorry go ahead.

And when they get their hands on it.

Kevin Wheeler: I was just going to answer the question on margin pressure. You know, we're anniversary when we first launched the product last year. The margin pressure is a bit less than the 40 basis points we had historically talked about. For the quarter, it's probably about 20 basis points. It's not overly significant.

I was just going to answer the question on margin pressure it's.

Get comfortable with it and as you know we've been building out our portfolio. So we have a full portfolio will be even more compelling. There's also elements of how we serve this market right a lot of more gas tank was tied to the new construction. So we're working on the business model as well, but I would say at the end of the day.

We're anniversarying when we first launched the product last year, so the margin pressures a bit less than the 40 basis points, we had historically talked about for.

For the quarter, it's probably about 20 basis points, it's not overly significant.

[Analyst]: Okay.

Okay, and I think you were asking about she'll feedback.

Kevin Wheeler: I think you were asking about initial feedback.

The product is.

[Analyst]: Yeah, I was just going to get you to talk a little bit about what you're getting back from the marketplace. Are people, I know that you were undertaking a phased launch on that product in terms of just incremental models. Is the acceptance level relatively good at this point, or are people waiting for the full assortment? Any commentary on that would be helpful.

Yes, I was just wondering just you just talk a little bit about what youre getting back from the marketplace.

As a market leading product and Thats, what we look to do when we when we got kind of our own product offering into this space.

Our people I know that you were.

Undertaking a phased launch on that product in terms of just incremental models.

Thank you.

Our next question comes from Nathan Jones with Stifel. You May proceed.

The acceptance level relatively good at this point or are people waiting for the full assortment.

Good morning, This is Adam Farley on for Nathan.

Just any commentary that would be helpful. Yes folks love the product.

Kevin Wheeler: Yeah, folks love the product. When they get their hands on it and they get comfortable with it, we've been building out our portfolio. When we have the full portfolio, we'll be even more compelling. There are also elements of how we serve this market, right? A lot more of gas tankless tied to the new construction. We're working out on the business model as well. I would say at the end of the day, the product is a market-leading product. That's what we look to do when we got kind of our own product offering into this space.

Good morning, I wanted to follow up on Hey, Good morning, I wanted to follow up on the China commentary I know fourth quarter is typically a seasonally stronger quarter due to the shopping holidays. So what is your expectation for the selling season going into the fourth quarter balancing that with.

And when they get their hands on it.

Get comfortable with it and as you know we've been building out our portfolio. So we have a full portfolio will be even more compelling. There's also elements of how we serve this market a lot of more gas tankless tied to the new construction. So we're working on on the business model as well, but I would say at the end of the day.

With some of the headwinds you guys are seeing there.

Well Youre exactly right is typically the fourth quarter is one of our strongest quarters in China.

The product is.

Our outlook assumes that there is an uptick in volume in the fourth quarter compared to the third quarter.

As a market leading product and Thats, what we look to do when we when we got kind of our own product offering into this space.

But I will say when you kind of frame our outlook for China overall to be down 10%. You'll note the fourth quarter gets a little more pressure on.

Operator: Thank you. Our next question comes from Nathan Jones with Stifel. You may proceed.

Thank you.

Our next question comes from Nathan Jones with Stifel. You May proceed.

Year over year comps compared to compared to the third quarter. So.

[Analyst]: Good morning. This is Adam Farley on for Nathan.

Good morning, This is Adam Farley on for Nathan.

Without that with the discontinuation of the subsidy program, there's a bit of uncertainty in China, and how the fourth quarter may play out, but right now we have kind of normal cadence, but not at normal volumes that just kind of relative to the third quarter, we do see a bit of an uptick.

Kevin Wheeler: Morning, Adam.

[Analyst]: I wanted to follow up on the China commentary. I know fourth quarter is typically a seasonally stronger quarter due to the shopping holidays. What is your expectation for the selling season going into the fourth quarter, balancing that with some of the headwinds that you guys are seeing there?

Good morning, guys I wanted to follow up on Hey, Good morning, I wanted to follow up on the China commentary I know fourth quarter is typically a seasonally stronger quarter due to the shopping holidays. So what is your expectation for the selling season going into the fourth quarter balancing that with.

With some of the headwinds you guys are seeing there.

Alright, Thats helpful. And then maybe shifting to boilers and she was a bright spot in the quarter.

Chuck Lauber: You're exactly right. Typically, the fourth quarter is one of our strongest quarters in China. Our outlook assumes that there is an uptick in volume in the fourth quarter compared to the third quarter. I will say when you kind of frame our outlook for China overall to be down 10%, you'll note the fourth quarter gets a little more pressure on year-over-year comps compared to the third quarter. With the discontinuation of the subsidy program, there's a bit of uncertainty in China on how the fourth quarter may play out. Right now, we have kind of normal cadence, but not at normal volumes. It's just kind of relative to the third quarter, we do see a bit of an uptick.

Well Youre exactly right is typically the fourth quarter is one of our strongest quarters in China.

I think you mentioned, maybe you think there is a little bit of pre buy there.

Our outlook assumes that there is an uptick in volume in the fourth quarter compared to the third quarter.

Also I'm wondering if the boiler sales cycle is maybe along anything at all.

But I will say when you kind of frame our outlook for China overall to be down 10%. You'll note the fourth quarter gets a little more pressure on.

General market uncertainty or maybe thats not an issue at all.

Year over year comps compared to compared to the third quarter. So.

No.

We do believe that there was some pre buy so there is certain boilers that I'll call. It inventory of those size. There is small enough that you'd be willing to invest and to put them in inventory. We've seen a couple strong quarters in boilers typically our strongest quarters the third quarter.

[Analyst]: All right, that's helpful. Maybe shifting to boilers, which was a bright spot in the quarter. I think you mentioned maybe you think there's a little bit of pre-buy there. I was also wondering if the boiler sales cycle is maybe elongating at all due to general market uncertainty, or maybe that's not an issue at all.

So we do think we'll see a little bit of headwind as we go into the fourth quarter for some of the unwind of that call it inventory of oil boilers that.

Alright, Thats helpful. And then maybe shifting to boilers and she was a bright spot in the quarter.

I think you mentioned, maybe you think there is a little bit of pre buy there.

We will come out in the fourth quarter, but overall the market coding remains pretty steady pretty consistent particularly on the large crest units. So.

Also I'm wondering if the boiler sales cycle is maybe along anything at all.

General market uncertainty or maybe thats not an issue at all.

Not seeing any major change or elongation, and what I would say quoting too.

Chuck Lauber: No, I mean, we do believe that there was some pre-buy. There are certain boilers that I'll call inventoryable size. They're small enough that you'd be willing to invest in to put them in inventory. We've seen a couple of strong quarters in boilers. Typically, our strongest quarter is the third quarter. We do think we'll see a little bit of headwind as we go into the fourth quarter for some of the unwind of the, I'll call it, inventoryable boilers that will come out in the fourth quarter. Overall, the market quoting remains pretty steady, pretty consistent, particularly on the large crest units. We're not seeing any major change or elongation in what I would say quoting to the order cycle.

No.

The order cycle.

Thank you.

Our next question comes from Andrew Kaplowitz with Citi. You May proceed.

Good morning, everyone.

Good morning, good morning.

Steve Obviously, you had good operating experience in your past positions, maybe just stepping back as you've looked at AOS and given how many of your markets are relatively sluggish how have you size the potential opportunity for cost that overall at AOS and or the <unk>.

So we do think we'll see a little bit of a headwind as we go into the fourth quarter for some of the unwind of call it inventory of oil boilers that.

We will come out in the fourth quarter, but overall the market coding remains pretty steady pretty consistent particularly on the large crest units. So.

To accelerate new product related growth as you begin to transition into 'twenty.

Yes.

Not seeing any major change or elongation, and what I would say quoting too.

I've mentioned two of our priority areas are.

The order cycle.

The operational excellence and how do we get more out of the a O Smith operating system and innovation and I think that good at gets after both components of your question I think.

Operator: Thank you. Our next question comes from Andrew Kaplowitz with Citi. You may proceed.

Thank you.

Our next question comes from Andrew Kaplowitz with Citi. You May proceed.

We don't have a good sizing yet of what the value is at stake on that but what I will tell you is I am encouraged by the fact that.

Bryan Blair: Good morning, everyone.

Good morning, everyone.

Saree Boroditsky: Morning.

Kevin Wheeler: Morning.

Good morning, good morning.

Bryan Blair: Steve, obviously, you've had good operating experience in your past positions. Maybe just stepping back as you've looked at A. O. Smith Corporation and given how many of your markets are relatively sluggish, how have you sized the potential opportunity for cost out overall at A. O. Smith Corporation and/or, you know, the potential to accelerate new product-related growth as you begin to transition into 2026?

Steve Obviously, you've had good operating experience in your past positions, maybe just stepping back as you've looked at AOS and given how many of your markets are relatively sluggish how have you size the potential opportunity for cost that overall at AOS and or the <unk>.

We can bring even more kind of discipline into our operating rhythm.

At a O Smith's I think we have great manufacturing capability and we run a lot of our business with great people with a lot of experience and I think bring.

So to accelerate new product related growth as you begin to transition into 'twenty.

Bringing some discipline and I mentioned, Chris how joining us as our CTO I think discipline and leveraging some of the technology investments. We've made is going to be a meaningful opportunity for us and we havent kind of frame that in numbers, yet we're sort of building. The foundation that we can build on and I think thats something we will continue to.

Kevin Wheeler: Yeah, as I've mentioned, two of our priority areas are operational excellence and how do we get more out of the A. O. Smith operating system and innovation. I think that gets after both components of your question. We don't have a good sizing yet of what the value is at stake on that. What I'll tell you is I'm encouraged by the fact that we can bring even more kind of discipline into our operating rhythm at A. O. Smith. I think we have great manufacturing capability, and we run a lot of our business with great people with a lot of experience. I think bringing some discipline, and I mentioned Chris Howe joining us as our Chief Digital Information Officer, I think discipline and leveraging some of the technology investments we've made is going to be a meaningful opportunity for us.

Yes.

I've mentioned two of our priority areas are.

The operational excellence and how do we get more out of the a O Smith operating system and innovation and I think that good at gets after both components of your question I think.

Talk to you all about going forward and then on the innovation front. We also have a new CTO and one of the things. We're really focused on is how do we kind of increased.

We don't have a good sizing yet of what the value is at stake on that but what I will tell you is I am encouraged by the fact that.

We can bring even more kind of discipline into our operating rhythm.

The pace and success of our commercialization capabilities and.

At a O Smith's I think we have great manufacturing capability and we run a lot of our business with great people with a lot of experience and I think bring.

Across our businesses and so that's another area of focus and again, we're kind of putting the foundation in place, but we.

We've got a great history of this company of breakthrough innovation, creating categories and so tapping into that culture of innovation is something thats another big priority for us.

That's helpful and maybe just a little more color on inventories across your measured channels.

Kevin Wheeler: We haven't kind of framed that in numbers yet. We're sort of building the foundation that we can build on. I think that's something we'll continue to talk to you all about going forward. On the innovation front, we also have a new Chief Technology Officer. One of the things we're really focused on is how do we kind of increase the pace and success of our commercialization capabilities across our businesses. That's another area of focus. Again, we're kind of putting the foundation in place. We've got a great history at this company of breakthrough innovation, creating categories. Tapping into that culture of innovation is something that's another big priority for us.

Anything you're seeing there, obviously revenue each that because having much more difficult time than resin water heaters, given their own inventory problems over there doesn't seem to be the case with you guys here, but whats the risk given weaker consumer confidence that we could see some destocking.

Talk to you all about going forward and then on the innovation front. We also have a new CTO and one of the things. We're really focused on is how do we kind of increased.

The pace and success of our commercialization capabilities.

Right now I would say, we think that inventories in the channel on both residential and commercial side is that pretty normal levels pretty pretty much target levels.

Across our businesses and so that's another area of focus and again, we're kind of putting the foundation in place, but we've got a great history of this company of breakthrough innovation, creating categories and so tapping into that culture of innovation is something thats another big priority for us.

As there is hesitancy, maybe on new home construction may see some of the distributors looking to be very prudent on how they manage inventories in the back half of the year, but we feel like channel inventories are pretty pretty much where they should be right now.

Bryan Blair: That's helpful. Maybe just a little more color on inventories across your resi channels. Anything you're seeing there? Obviously, resi HVAC is having a much more difficult time than resi water heaters, given their own inventory problems over there. It doesn't seem to be the case with you guys here, but what's the risk given weaker consumer confidence that we could see some destocking?

That's helpful and maybe just a little more color on inventories across your ready channels.

Anything you're seeing there obviously revenue each back as having much more difficult time in reservoir heaters, given their own inventory problems over there doesn't seem to be the case with you guys here, but whats the risk given weaker consumer confidence that we could see some destocking.

Thank you.

Our next question comes from Tom <unk> with Jpmorgan you May proceed.

Morning, everyone.

Morning.

Thank you for taking my questions. My first question is on Capex could you talk about the.

Chuck Lauber: Right now, I would say we think that inventory in the channel on both residential and commercial side is at pretty normal levels, pretty much target levels. As there's hesitancy maybe on new home construction, you may see some of the distributors looking to be very prudent on how they manage inventories in the back half of the year. We feel like channel inventories are pretty much where they should be right now.

Right now I would say, we think that inventories in the channel on both residential and commercial side is that pretty normal levels pretty pretty much target levels.

The capex guidance compared to three months ago, including what kind of items like <unk> for the full year. Please.

Yes, we've lowered our capex outlook, just a little bit pushed out some of the investments that we had planned for the fourth quarter of this year.

As there is hesitancy, maybe on new home construction may see some of the distributors looking to be very prudent in how they manage inventories in the back half of the year, but we feel like channel inventories are pretty pretty much where they should be right now.

Into early next year some of those not all of those were related to just watching the E.

<unk> commercial regulatory initiatives out there.

Operator: Thank you. Our next question comes from Tomohiko Sano with JP Morgan. You may proceed.

Thank you.

Being prudent on making those investments until we have.

Our next question comes from Tom <unk> with Jpmorgan you May proceed.

Born of surety around that.

Bryan Blair: Good morning, everyone.

Hey, everyone.

Kevin Wheeler: Good morning.

Morning.

Thank you and my follow up is capital locations. So you have been.

Bryan Blair: Thank you for taking my questions. My first question is on CapEx. Could you talk about the CapEx guidance compared to three months ago, including what kind of items did you revise for the full year, please?

Thank you for taking my questions. My first question is on Capex could you talk about.

Aggressive with buybacks and dividend increases how do you prioritize capital allocations going forward, especially if the macro headwinds I appreciate its place.

The capex guidance compared to three months ago, including what kind of items like <unk> for the full year. Please.

I mean, certainly the dividend is very important to us we've raised it for 32 years.

Chuck Lauber: Yeah, we've lowered our CapEx outlook just a little bit. We've pushed out some of the investments that we had planned for the fourth quarter of this year into early next year. Some of those, not all of those, were related to just watching the DOE commercial regulatory initiatives out there. We're just being prudent on making those investments until we have a more assured year around that.

Yes, we've lowered our capex outlook, just a little bit pushed out some of the investments that we had planned for the fourth quarter of this year.

Look at that from a yield perspective, and we feel pretty comfortable with where we're at on that.

Buybacks were framing really.

Into early next year some of those not all of those were related to just watching the.

That grow cash, which we're buying back a prudent amount, we believe to not grow cash and still reserve firepower for acquisitions. So.

E commercial regulatory initiatives out there.

Just being prudent on making those investments until we have.

As Steve mentioned, we have adequate firepower, we're looking for adding those acquisitions and we're in a good position to do that.

More surety around that.

Bryan Blair: Thank you. My follow-up is capital allocation. You have been aggressive with the buybacks and dividend increases. How do you prioritize capital allocation going forward, especially if the macro headwinds persist, please?

Thank you and my follow up is capital locations. So you have been aggressive.

And I would say in terms of.

Market conditions, and how they change we still recognize we need to deploy capital to our core business and we have a very resilient core business standpoint, so making sure that we.

Hi, Chris here, where the buybacks and dividend increases how do you prioritize capital allocation going forward, especially if the macro headwinds I appreciate his place.

The main.

Chuck Lauber: I mean, certainly, the dividend is very important to us. We've raised it for 32 years. We look at that from a yield perspective, and we feel pretty comfortable with where we are at on that. Buybacks, we're framing really to not grow cash, which, we're buying back a prudent amount, we believe, to not grow cash and still reserve firepower for acquisitions. As Steve mentioned, we have adequate firepower. We're looking for adding those acquisitions, and we're in a good position to do that.

We maintain a very strong core business its cash flow generating isn't that dynamic as well.

We certainly the dividend is very important to us we've raised it for 32 years.

Look at that from a yield perspective, and we feel pretty comfortable with where we're at on that.

At the same time, we're looking to how do we provide more adjacencies that get us into higher.

Buybacks were framing really.

Hi, Brooks.

<unk> ROE cash, which we're buying back a prudent amount, we believe to not grow cash and still reserve firepower for acquisition. So.

Thank you and as a reminder to ask a question. Please press star one on your telephone. Our next question comes from Scott Graham with Seaport Research Partners. You May proceed.

As Steve mentioned, we have adequate firepower, we're looking for adding those acquisitions and we're in a good position to do that.

Yeah, Hi, good morning.

Sorry for jumping on late.

Kevin Wheeler: In terms of market conditions and how they change, we still recognize we need to deploy capital to our core business. We have a very resilient core business from that standpoint. Making sure that we maintain a very strong core business that's cash flow generating is in that dynamic as well. At the same time, we'll look into how do we provide more adjacency to get us into kind of higher growth businesses.

And I would say in terms of.

<unk> I think several conference call so.

Market conditions, and how they change we still recognize we need to deploy capital to our core business and we have a very resilient core business from that standpoint, so making sure that we.

I missed your prepared remarks was sort of the lean into the.

I should say the reduction to the lower end of the guide range for the year.

We made.

We maintain a very strong core business, that's cash flow generating isn't that dynamic as well.

Was that on China exclusively because it looks like the North American.

At the same time right, we're looking to how do we provide more adjacencies that get us into higher.

Items are fairly.

Fairly flat versus last quarter was that China or was it something else.

Higher revenues.

Operator: Thank you. As a reminder, to ask a question, please press star one one on your telephone. Our next question comes from Scott Graham with Seaport Research Partners. You may proceed.

Yes, Scott there were two things we've pointed out there was obviously the softness and we did revise down our our China outlook for the year to down 10%. So that was a big part of it. The other thing we've highlighted is weakness on the residential side of the North America business, and we just see that a little bit softer.

Thank you and as a reminder, task a question. Please press star one on your telephone. Our next question comes from Scott Graham with Seaport Research Partners. You May proceed.

[Analyst]: Yeah, hi. Good morning. I'm sorry for jumping on late, balancing several conference calls. I missed your prepared remarks. Was the reduction to the lower end of the guide range for the year on China exclusively? It looks like the North American items are fairly flat versus last quarter. Was that China or was it something else?

Yes, hi, good morning.

Sorry for jumping on late.

<unk> I think several conference call so.

I missed your prepared remarks was sort of the lean into the.

Now where it previously we talked about it as a flat market, we now see as flat to slightly down. So those two components are what have us being a little bit more cautious.

I should say the reduction to the lower end of the guide range for the year.

Okay. So thank you for that and I'm, sorry for having to ask something you already said.

On China exclusively because it looks like the North American.

Does that pre suppose that for maybe contemplate that the October industry shipments were better than September because September really dropped off there.

Items are fairly.

Fairly flat versus last quarter was that China or was it something else.

Kevin Wheeler: Yeah, Scott, there were two things we pointed out. There was obviously the softness, and we did revise down our China outlook for the year to down 10%. That was a big part of it. The other thing we've highlighted is weakness on the residential side of the North America business. We just see that a little bit softer now, where previously we talked about it as a flat market. We now see it as flat to slightly down. Those two components are what have us being a little bit more cautious.

You kind of talk about what youre seeing in the industry in <unk>.

In October.

While the industry shipments August really was down quite a bit on the residential side.

Residential side of the North America business, and we just see that a little bit softer now, whereas previously we talked about it as a flat market. We now see as flat to slightly down. So those two components are what have us being a little bit more cautious.

I think September will be similar.

Similarly down but was also weak and as we think about kind of our orders and maybe that's where we can come in in October because we haven't seen any industry data yet for October but in October as we look at our orders.

[Analyst]: Thank you for that. I'm sorry for having to ask that. It was something you already said. Does that presuppose that or maybe contemplate that the October industry shipments were better than September because September really dropped off there? Can you kind of talk about what you're seeing in the industry in October?

Okay. So thank you for that and I'm, sorry for having to ask something you already said.

We haven't seen resiliency, particularly on the wholesale side, which is generally more influenced by new home construction. So it's been a bit weak.

Does that presuppose that or maybe contemplate that.

October industry shipments were better than September because September really dropped off there can you kind of talk about what youre seeing in the industry in.

Overall, so those all kind of all those factors come into play.

Scott when we're thinking about flat industry last quarter now flat to slightly down we just see a little bit of pressure, particularly on the new home construction.

In October.

Chuck Lauber: The industry shipments, you know, August really was down quite a bit on the residential side. We think September will be, you know, not similarly down, but was also weak. As we think about kind of our orders, maybe that's where we can come in in October because we haven't seen any industry data yet for October. In October, as we look at our orders, we haven't seen resiliency, particularly on, you know, the wholesale side, which is generally more influenced by new home construction. It's been a bit weak overall. All those factors come into play, Scott, when we're thinking about a flat industry last quarter, now flat to slightly down. We just see a little bit of pressure, particularly on the new home construction.

While the industry shipments August really was down quite a bit on the residential side.

And we've talked about our approach to try to level load our production a bit more for the efficiency benefits of that working closely with our customers to do that so we saw Q3.

We think September will be.

Similarly down but was also weak and as we think about kind of our orders and that's where we can come in in October because we haven't seen any industry data yet for October but in October as we look at our orders.

The industry was down a bit but we also gained share as was our intention as we walk through the quarter.

The way, we look at our production.

We havent seen resiliency, particularly on the wholesale side, which is generally more influenced by new home construction. So it's been a bit weak overall, so those all kind of all those factors come into play.

Thank you I would now like to turn the call back over to Helen <unk> for any closing remarks.

Thank you for joining US today, let me conclude by reminding you that we are pleased with our growth in the quarter. We look forward to updating you on our progress in the quarters to come. In addition, please mark your calendars to join our presentations at three conferences. This quarter fared on November 11th UBS on December 3rd and Goldman on December.

When we're thinking about flat industry last quarter now flat to slightly down we could see a little bit of pressure, particularly on the new home construction.

Kevin Wheeler: We have talked about our approach to trying to level load our production a bit more for the efficiency benefits of that, working closely with our customers to do that. We saw Q3 where the industry was down a bit, but we also gained share, as was our intention as we walked through the quarter because of the way we level loaded our production.

And we've talked about our approach to try to level load our production a bit more for the efficiency benefits of that working closely with our customers to do that so we saw Q3, where the.

<unk>, Thank you and enjoy the rest of your day.

Thank you. Thank you. This does concludes the conference. Thank you for your participation you may now disconnect.

The industry was down a bit but we also gained share as was our intention as we walk through the quarter.

The way we level loaded our production.

Operator: Thank you. I would now like to turn the call back over to Helen Gerholt for any closing remarks.

Thank you I would now like to turn the call back over to Helen <unk> for any closing remarks.

Helen Gerholt: Thank you for joining us today. Let me conclude by reminding you that we are pleased with our growth in the quarter. We look forward to updating you on our progress in the quarters to come. In addition, please mark your calendars to join our presentations at three conferences this quarter: Baird on November 11, UBS on December 3, and Goldman on December 4. Thank you and enjoy the rest of your day.

Thank you and enjoy the rest of your day.

Kevin Wheeler: Thank you.

Thank you. Thank you.

Chuck Lauber: Thank you.

Operator: This concludes the conference. Thank you for your participation. You may now disconnect.

Concludes the conference. Thank you for your participation you may now disconnect.

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Q3 2025 A.O. Smith Corp Earnings Call

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