A. O. Smith Q4 2025 A O Smith Corp Earnings Call | AllMind AI Earnings | AllMind AI
Q4 2025 A O Smith Corp Earnings Call
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I will now like to hand the call over to Helen girth. You may begin.
Good morning everyone and welcome to the AO Smith school year and fourth quarter conference call, I'm Helen gurholt vice president investor relations and financial planning and Analysis.
Joining me today are Steve Shaffer, chief executive officer and Chuck lober Chief Financial Officer.
In order to provide improved transparency, into the operating results of our business. We provided non-gaap measures
Free cash flow is defined as cash from operations, plus Capital expenditures.
Adjusted earnings adjusted earnings per share and adjusted segment earnings exclude, the impact of restructuring and impairment expenses.
Reconciliations from gaap measures to non-gaap measures are provided in the appendix at the end of this presentation and on our website.
A 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 Cube. Please limit yourself to 1 question and 1 follow-up per turn. If you have multiple questions, please rejoin the queue.
We will be using slides. As we move through today's call, you can access them on our website at investors.com.
I will now turn the call over to Steve to begin our prepared remarks, please turn to the next slide.
Thank you, Helen and good morning everyone.
I want to take a moment to sincerely, thank all of our employees for their outstanding dedication and hard work in 2025.
allowing us to navigate a dynamic environment and deliver records Epps
Their commitment to serving our customers adapting, to new challenges and consistently delivering high-quality Solutions is instrumental in our success.
Each and every member of the aosmith team plays, a vital role in building, trust with our customers and upholding the values that Define AO Smith.
I am truly grateful for your ongoing passion and collaboration. This has me excited for our potential together in 2026 and Beyond.
Now, moving on to our 2025 financial performance, please turn to slide 4.
Our 2025 sales increased slightly as pricing benefits and higher commercial water, heater and boiler volumes were offset by lower China. Sails,
Our EPS increased 6% to a record. 385 driven by profitability improvements in both segments.
North America, segment margin improved. 20 basis points over 2024, adjusted segment margin led by profitability, improvements in our water treatment business, as well as mixed benefits from higher commercial sales.
In our rest of the world. Segment benefits from our 2024 restructuring actions and other cost control measures in China. Resulted in margin expansion of 40 basis points. Even with lower China sails.
We returned 597 million of capital to shareholders with our dividends and share repurchases.
In the fourth quarter, we announced the acquisition of Leonard Bell which we completed earlier this month.
This acquisition expands our water management Market Reach digital capabilities and integrated product portfolio.
I welcome the Leonard valve team to the aosmith family.
Now, turning to our North America segment performance.
North America, water heater sales, increased 1% to 2025 as cost and tariff related. Pricing benefits and higher commercial volume offset lower wholesale residential volumes.
We project the full year 2025 residential industry unit volumes where roughly flat to 2024 and the commercial water heater industry volumes increased approximately 5%.
We are pleased with our performance in the commercial market and Retail residential channels.
However, we Face some challenges in the wholesale residential channel in the fourth quarter.
Initiatives by retailers to expand into serving the professional which is leading to increased competitive intensity.
The benefit for us as an industry leader is that we have a strong presence in both the retail and wholesale channels. And we have a good line of sight into how the market moves back by data analytics and extensive customer relationships.
We are actively working with select customers to address the specific geographies and product offerings that are under the most pressure to deliver better outcomes in the wholesale Market in 2026.
Our North American boiler, sales grew 8% compared to 2024 due to higher commercial and residential boiler volumes as well as pricing benefits.
We are pleased with our 2025 boiler performance and the continued strong demand for our Market leading high efficiency products.
North America, water treatment, sales decreased 2% in 2025, as our strategic shift away from the on the Shelf, retail Channel offset growth in our more profitable priority channels.
Sales in our priority Dealer Direct to Consumer and e-commerce channels, grew, 10% in 2025.
We also expanded operating margin by 400 basis points to almost 13% last year, which we expect to improve by an additional 200 basis points in 2026.
In China.
All year third party, sales decreased 12% in local currency as a result of continued economic weakness and soft consumer demand particularly in the second half of the year as government subsidy programs were discontinued.
The restructuring actions we took in late 2024 and expense management. Drove profitability, Improvement of 130 basis points.
Despite lower sales as the team executed, well in a challenging environment.
I'll now turn the call over to Chuck who will provide more details on our full year and fourth quarter performance.
Thank you, Steve, and good morning everyone. We delivered sales of 3.8 billion dollars in 2025, or slight increase over last year.
2025 earnings were $3.85 per share compared with adjusted earnings of $3.73 per share in 2024.
Turning to slide 5.
Phone your sales in the North America segment of 3 billion dollars increased slightly compared to 20124.
Pricing actions in the higher boiler and commercial water. Heater volumes were offset by lower volumes of residential. Wholesale water heaters.
North America segment earnings of 728 million increased 2% compared to 2024 adjusted segment earnings.
Segment, margin was 24.4% an increase of 20 basis points year-over-year.
Earnings and segment. Margins were primarily driven by improved profitability or water, treatment business, and a higher commercial volume.
Moving to slide 6.
rest of the world, segment sales of 880 million, decreased 4% year-over-year primarily driven by lower sales in China that were partially offset by 13% sales growth in our Legacy, India business, and pure sales of 54 million,
the rest of the world segment earnings of 76 million were flat to 2024 adjusted segment earnings as the impact from lower sales. In China was offset by the benefits from our 2024. Restructuring, actions and other cost-saving measures
Segment. Operating margin was 8.7%. An increase of 40 basis points over 2024, adjusted segment margin.
Please turn the slide 7.
Turning to fourth quarter performance. We delivered sales of 913 million in the fourth quarter of 2025 Flats of the same period in 2024.
Earnings in the fourth quarter were 90 cents per. Share a 6% increase over adjusted earnings of 85 cents per share in the fourth quarter of 2024.
This turned the slide 8.
Fourth quarter sales in the North America segment increased 3% to 714 million dollars compared to the same period in 2024 primarily primarily as a result of pricing benefits.
North America, segment earnings of 165 million increased 7% compared to 2024.
23.1% increase 70 basis points compared to last year's adjusted segment margin.
The higher 2025 statement, earning and segment margin were primarily due to pricing benefits and actions taken to improve water treatment profitability, which were partially offset by higher input costs.
Moving to slide 9.
Fourth quarter, rest of the world. Segment sales says, 206 million decreased, 13% year-over-year primarily driven by lower sales in China
Organic. India, sales grew 18% in local currency in 2025 and pure contributed 8 million dollars to sales in the quarter.
Rest of the world, segment earnings and segment margin of 16 million and 7.8% respectively in 2025 compared to adjusted segment earnings and adjusted segment margin of 19 million and 8.1% in 2024.
The lower segment, earnings and segment margins compared to the prior period, where primarily due to lower sales in China, partially offset by the benefits of our 2024. Restructuring actions, and other cost-saving measures.
Speaker #1: Was which were partially offset by higher input costs. Moving to slide nine, fourth quarter, rest of the world segment sales of 206 million dollars decreased 13% year over year, primarily driven by lower sales in China.
Charles Lauber: which were partially offset by higher input costs. Moving to slide 9. Fourth quarter, rest of the world segment sales of $206 million decreased 13% year-over-year, primarily driven by lower sales in China. Organic India sales grew 18% in local currency in 2025, and Puri contributed $80 million to sales in the quarter. Rest of the world segment earnings and segment margin of $16 million and 7.8% respectively in 2025, compared to adjusted segment earnings and adjusted segment margin of $19 million and 8.1% in 2024. The lower segment earnings and segment margins compared to the prior period were primarily due to lower sales in China, partially offset by the benefits of our 2024 restructuring actions and other cost-saving measures.
Charles Lauber: which were partially offset by higher input costs. Moving to slide 9. Fourth quarter, rest of the world segment sales of $206 million decreased 13% year-over-year, primarily driven by lower sales in China. Organic India sales grew 18% in local currency in 2025, and Puri contributed $80 million to sales in the quarter. Rest of the world segment earnings and segment margin of $16 million and 7.8% respectively in 2025, compared to adjusted segment earnings and adjusted segment margin of $19 million and 8.1% in 2024. The lower segment earnings and segment margins compared to the prior period were primarily due to lower sales in China, partially offset by the benefits of our 2024 restructuring actions and other cost-saving measures.
Please turn to slide 10.
Speaker #1: Organic India sales grew 18% in local currency in 2025, and Purek contributed $8 million to sales in the quarter. Rest of the world segment earnings and segment margin of 16 million dollars and 7.8%, respectively, in 2025 compared to adjusted segment earnings and adjusted segment margin of 19 million dollars and 8.1% in 2024.
We generated strong free cash flow of 546 million. During 2025, a 15% increase over 2024, primarily driven by lower year-over-year, Capital Investments, as well as higher earnings and a benefit of a 1-time tax adjustment.
2025. We patch full conversion was 100%.
Our cash balance told a 100 total 193 million at the end of December and our net cash position. Was 38 million. Our leverage ratio was 7.7% as measured by total debt total capital.
Speaker #1: The lower segment earnings and segment margins compared to the prior period were primarily due to lower sales in China, partially offset by the benefits of our 2024 restructuring actions and other cost-saving measures.
Well, our 2026 leverage will increase due to the cash. We borrowed under a new credit agreement, used to acquire Leonard Dow. We continue to have significant available capacity, capacity for future acquisitions.
Let's start to slide 11.
Speaker #1: Please turn to slide 10. We generated strong free cash flow of $546 million during 2025, a 15% increase over 2024, primarily driven by lower year-over-year capital investments as well as higher earnings and a benefit of a one-time tax adjustment.
Charles Lauber: Please turn to slide 10. We generated strong free cash flow of $546 million during 2025, a 15% increase over 2024, primarily driven by lower year-over-year capital investments, as well as higher earnings and the benefit of a one-time tax adjustment. 2025 free cash flow conversion was 100%. Our cash balance totaled $193 million at the end of December, and our net cash position was $38 million. Our leverage ratio was 7.7%, as measured by total debt to total capital. While our 2026 leverage will increase due to the cash we borrowed under a new credit agreement used to acquire Leonard Valve, we continue to have significant available capacity for future acquisitions. Let's turn to slide 11.
Please turn to slide 10. We generated strong free cash flow of $546 million during 2025, a 15% increase over 2024, primarily driven by lower year-over-year capital investments, as well as higher earnings and the benefit of a one-time tax adjustment. 2025 free cash flow conversion was 100%. Our cash balance totaled $193 million at the end of December, and our net cash position was $38 million. Our leverage ratio was 7.7%, as measured by total debt to total capital. While our 2026 leverage will increase due to the cash we borrowed under a new credit agreement used to acquire Leonard Valve, we continue to have significant available capacity for future acquisitions. Let's turn to slide 11.
In addition to returning, Capital to shareholders, we continue to drive organic growth through the development of innovative product offerings and continuous Improvement in productivity 2 of our key strategic priorities.
Speaker #1: 2025 free cash flow conversion was 100%. Our cash balance totaled 193 million dollars at the end of December, and our net cash position was 38 million dollars.
Consistent with our portfolio management priority. We continue to actively assess opportunities that meet our strategic and financial criteria.
Earlier this month, our board approved. Our next quarterly dividend of 36 cents per share. We have increased our dividend for over 30 consecutive years.
Speaker #1: Our leverage ratio was 7.7%, as measured by total debt to total capital. While our 2026 leverage will increase due to the cash reborrowed under a new credit agreement used to acquire lender Dow, we continue to have significant available capacity for future acquisitions.
We repurchased the approximately 5.9 million shares of common stock in 20125 for a total of 401 million.
We continue our strong track record of delivering returns to shareholders over the last 2 years we have returned almost 1.1 billion dollars to shareholders through dividends and share repurchases.
Speaker #1: Let's turn to slide 11. In addition to returning capital to shareholders, we continue to drive organic growth through the development of innovative product offerings and continuous improvement in productivity, two of our key strategic priorities.
Charles Lauber: In addition to returning capital to shareholders, we continue to drive organic growth through the development of innovative product offerings and continuous improvement in productivity, two of our key strategic priorities. Consistent with our portfolio management priority, we continue to actively assess opportunities that meet our strategic and financial criteria. Earlier this month, our board approved our next quarterly dividend of $0.36 per share. We have increased our dividend for over 30 consecutive years. We repurchased approximately 5.9 million shares of common stock in 2025 for a total of $401 million. We continue our strong track record of delivering returns to shareholders. Over the last 2 years, we have returned almost $1.1 billion to shareholders through dividends and share repurchases. Please turn to slide 12, and our 2026 earnings guidance and outlook.
In addition to returning capital to shareholders, we continue to drive organic growth through the development of innovative product offerings and continuous improvement in productivity, two of our key strategic priorities. Consistent with our portfolio management priority, we continue to actively assess opportunities that meet our strategic and financial criteria. Earlier this month, our board approved our next quarterly dividend of $0.36 per share. We have increased our dividend for over 30 consecutive years. We repurchased approximately 5.9 million shares of common stock in 2025 for a total of $401 million. We continue our strong track record of delivering returns to shareholders. Over the last 2 years, we have returned almost $1.1 billion to shareholders through dividends and share repurchases. Please turn to slide 12, and our 2026 earnings guidance and outlook.
Please turn to slide 12 and our 2026 earnings guidance and Outlook.
Our 2026 Outlook includes an expected, EPS range.
Speaker #1: Consistent with our portfolio management priority, we continue to actively assess opportunities that meet our strategic and financial criteria. Earlier this month, our board approved our next quarterly dividend of 36 cents per share.
Of $3.85 to $4.15 per share. The midpoint of our EPS range represents 4% growth over a 2025 BPS.
Speaker #1: We have increased our dividend for over 30 consecutive years. We repurchased approximately 5.9 million shares of common stock in 2025 for a total of $401 million.
Our Outlook is based on a number of key assumptions and including within material costs. Our guidance assumes that steals prices in the full year. 2026 will increase approximately 10% compared to 2025.
Speaker #1: We continue our strong track record of delivering returns to shareholders. Over the last two years, we have returned almost $1.1 billion to shareholders through dividends and share repurchases.
Other material and freight costs. Including the carryover impact of terrorists will also be admin 2026.
Our guidance assumes, no change to the current tariff levels that are in effect today. But we continue to monitor the situation closely.
Speaker #1: Please turn to slide 12 and our 2026 earnings guidance and outlook. Our 2026 outlook includes an expected EPS range of $3.85 to $4.15 per share.
We will continue to invest in our gas, tankless offering.
Charles Lauber: Our 2026 outlook includes an expected EPS range of $3.85 to 4.15 per share. The midpoint of our EPS range represents 4% growth over our 2025 EPS. Our outlook is based on a number of key assumptions, including: within material costs, our guidance assumes that steel prices in the full year 2026 will increase approximately 10% compared to 2025. Other material and freight costs, including the carryover impact of tariffs, will also be a headwind in 2026. Our guidance assumes no change to the current tariff levels that are in effect today, but we continue to monitor the situation closely. We will continue to invest in our gas tankless offerings.
Our 2026 outlook includes an expected EPS range of $3.85 to 4.15 per share. The midpoint of our EPS range represents 4% growth over our 2025 EPS. Our outlook is based on a number of key assumptions, including: within material costs, our guidance assumes that steel prices in the full year 2026 will increase approximately 10% compared to 2025. Other material and freight costs, including the carryover impact of tariffs, will also be a headwind in 2026. Our guidance assumes no change to the current tariff levels that are in effect today, but we continue to monitor the situation closely. We will continue to invest in our gas tankless offerings.
As a market leader, we believe that it's important for us to offer best-in-class products in this category.
Speaker #1: The midpoint of our EPS range represents 4% growth over our 2025 EPS. Our outlook is based on a number of key assumptions, including: within material costs, our guidance assumes that steel prices in the full year 2026 will increase approximately 10% compared to 2025.
We project our year-over-year impact to our North American margins would be minimal as we continue to build a foundation in this category and gain scale over time.
We estimate that 2026 capex. Will be between 70 and 80 million dollars, we project.
As generate a strong free, cash flow of between 525, and 575 million.
Speaker #1: Other material and freight costs, including the carryover impact of tariffs, will also be a headwind in 2026. Our guidance assumes no change to the current tariff levels in effect today, but we continue to monitor the situation closely.
Incurred to acquire Leonard valve.
Corporate and other expenses are expected to be approximately, 80 to 85 million and included advisory fees associated with the Leonard valve acquisition.
Speaker #1: We will continue to invest in our offering. As a market leader, we believe that it's important for us to offer best-in-class products in this category.
Charles Lauber: As a market leader, we believe that it's important for us to offer best-in-class products in this category. We project our year-over-year impact to our North America margins will be minimal, as we continue to build a foundation in this category and gain scale over time. We estimate that 2026 CapEx will be between $70 and 80 million. We project to generate a strong free cash flow of between $525 and 575 million. Interest expense is projected to be between $30 and 40 million, an increase over previous years due to the $470 million of additional debt incurred to acquire Leonard Valve. Corporate and other expenses are expected to be approximately $80 to 85 million and include advisory fees associated with the Leonard Valve acquisition.
As a market leader, we believe that it's important for us to offer best-in-class products in this category. We project our year-over-year impact to our North America margins will be minimal, as we continue to build a foundation in this category and gain scale over time. We estimate that 2026 CapEx will be between $70 and 80 million. We project to generate a strong free cash flow of between $525 and 575 million. Interest expense is projected to be between $30 and 40 million, an increase over previous years due to the $470 million of additional debt incurred to acquire Leonard Valve. Corporate and other expenses are expected to be approximately $80 to 85 million and include advisory fees associated with the Leonard Valve acquisition.
Our effective tax rate is estimated to be between 24 to 24.5%.
Speaker #1: We project our year-over-year impact to our North America margins would be minimal as we continue to build a foundation in this category and gain scale over time.
Our board has approved 5 million, additional shares of stock or repurchase, and we expect to repurchase approximately 200 million dollars of our stock in 202026.
Speaker #1: We estimate that 2026 CapEx will be between 70 and 80 million dollars. We project a generating strong free cash flow of between 525 and 575 million dollars.
We project our outstanding diluted shares will be 138 million at the end of 2026.
Speaker #1: Interest expenses projected to be between 30 million and 40 million dollars, an increase over previous years due to the 470 million dollars of additional debt, incurred to acquire lender Dow.
I'll now turn the call back over to Steve who will provide more color on our key markets and Topline growth outlook for 2026 as well as well as a portfolio update, staying all on slide 12. Steve
Thank you, Chuck. Our Top Line Outlook includes the following assumptions.
Speaker #1: expenses are expected to be approximately Corporate and other 80 to 85 million dollars, and included buyer's receipts associated with the lender Dow acquisition. Our effective tax rate is estimated to be between 24 to 24.5%.
While we believe that us new home construction remains in a deficit, we project that the softness and new construction will persist in the 2026.
Charles Lauber: Our effective tax rate is estimated to be between 24 to 24.5%. Our board has approved 5 million additional shares of stock for repurchase, and we expect to repurchase approximately $200 million of our stock in 2026. We project our outstanding diluted shares will be 138 million at the end of 2026. I'll now turn the call back over to Steve, who will provide more color on our key markets and top-line growth outlook for 2026, as well as a portfolio update, staying all on slide 12. Steve?
Our effective tax rate is estimated to be between 24 to 24.5%. Our board has approved 5 million additional shares of stock for repurchase, and we expect to repurchase approximately $200 million of our stock in 2026. We project our outstanding diluted shares will be 138 million at the end of 2026. I'll now turn the call back over to Steve, who will provide more color on our key markets and top-line growth outlook for 2026, as well as a portfolio update, staying all on slide 12. Steve?
We assume that proactive replacement remains steady and will be similar to 2025.
Speaker #1: Our board has approved $5 million additional shares of stock for repurchase, and we expect to repurchase approximately 200 million dollars of our stock in 2026.
based on those factors, we projected 2026 us residential industry unit volumes will be flat to down compared to 2025
Speaker #1: We project our outstanding diluted shares will be 138 million at the end of 2026. I'll now turn the call back over to Steve, who will provide more color on our key markets and top-line growth outlook for 2026, as well as a portfolio update, staying all on slide
our current projection assumes us commercial water heater industry volumes will increase mid single digits in 2026 due to a buy ahead of lower efficiency, non-condensing commercial, gas products that are scheduled to be eliminated as part of the October 2026, commercial regulatory change,
We assume that 2026 commercial electric industry volumes will be flat to 2025.
Speaker #1: 12. Steve? Thank
Speaker #2: you, Chuck. Our top-line outlook includes the following assumption: while we believe that U.S. new home construction remains in a deficit, we project that the softness in new construction will persist into 2026.
Stephen Shafer: Thank you, Chuck. Our top-line outlook includes the following assumptions. While we believe that US new home construction remains in a deficit, we project that the softness in new construction will persist into 2026. We assume that proactive replacement remains steady and will be similar to 2025. Based on those factors, we project that 2026 US residential industry unit volumes will be flat to down compared to 2025. Our current projection assumes US commercial water heater industry volumes will increase mid-single digits in 2026 due to a buy-ahead of lower efficiency, non-condensing commercial gas products that are scheduled to be eliminated as part of the October 2026 commercial regulatory change. We assume that 2026 commercial electric industry volumes will be flat to 2025. In addition, our outlook includes carryover from our May 2025 price increases in North America.
Stephen Shafer: Thank you, Chuck. Our top-line outlook includes the following assumptions. While we believe that US new home construction remains in a deficit, we project that the softness in new construction will persist into 2026. We assume that proactive replacement remains steady and will be similar to 2025. Based on those factors, we project that 2026 US residential industry unit volumes will be flat to down compared to 2025. Our current projection assumes US commercial water heater industry volumes will increase mid-single digits in 2026 due to a buy-ahead of lower efficiency, non-condensing commercial gas products that are scheduled to be eliminated as part of the October 2026 commercial regulatory change. We assume that 2026 commercial electric industry volumes will be flat to 2025. In addition, our outlook includes carryover from our May 2025 price increases in North America.
In addition, our Outlook includes carryover from our May 2025 price increases in North America.
Speaker #2: We assume that proactive replacement remains steady and will be similar to 2025. Based on those factors, we project that 2026 U.S. residential industry unit volumes will be flat to down compared to 2025.
We project our North America boiler, sales will grow between 6 to 8% in 2026, due to the carryover of pricing benefits and from the continuation of the transition of energy efficient boilers, particularly as commercial buildings look to improve their overall carbon footprint.
Speaker #2: Our current projection assumes U.S. commercial water heater industry volumes will increase mid-single digits in 2026 due to a buy-ahead of lower efficiency, non-condensing commercial gas products that are scheduled to be eliminated as part of the October 2026 commercial regulatory change.
We expect North America water, treatment sales will grow between 10 and 12%, due to tariff, related pricing benefits. And as we continue to grow faster than the market, through the expansion of our dealer Network,
And turning to our outlook for China, we foresee continued headwinds in our markets due to continued low consumer confidence, a discontinued government subsidy program and ongoing competitive intensity.
Speaker #2: We assume that 2026 commercial electric industry volumes will be flat to 2025. In addition, our outlook includes carryover from our May 2025 price increases in North America.
Because of these factors, we projected our 2026, China sales, will decrease mid single digits compared to last year.
Speaker #2: We project our North America boiler sales will grow between 6 to 8% in 2026 due to the carryover of pricing benefits and from the continuation of the transition of energy-efficient boilers particularly as commercial buildings look to improve their overall carbon footprint.
Stephen Shafer: We project our North America boiler sales will grow between 6% to 8% in 2026 due to the carryover of pricing benefits and from the continuation of the transition of energy-efficient boilers, particularly as commercial buildings look to improve their overall carbon footprint. We expect North America water treatment sales will grow between 10% and 12% due to tariff-related pricing benefits as we continue to grow faster than the market through the expansion of our dealer network. In turning to our outlook for China, we foresee continued headwinds in our markets due to continued low consumer confidence, a discontinued government subsidy program, and ongoing competitive intensity. Because of these factors, we project that our 2026 China sales will decrease mid-single digits compared to last year.
We project our North America boiler sales will grow between 6% to 8% in 2026 due to the carryover of pricing benefits and from the continuation of the transition of energy-efficient boilers, particularly as commercial buildings look to improve their overall carbon footprint. We expect North America water treatment sales will grow between 10% and 12% due to tariff-related pricing benefits as we continue to grow faster than the market through the expansion of our dealer network. In turning to our outlook for China, we foresee continued headwinds in our markets due to continued low consumer confidence, a discontinued government subsidy program, and ongoing competitive intensity. Because of these factors, we project that our 2026 China sales will decrease mid-single digits compared to last year.
We expect the first half of 2026 to be particularly difficult as consumer demand remains subdued. And we will face comps from 2025 during which stimulus programs were in place.
We anticipate a return to growth in the second half of the year.
We continue to manage our discretionary costs prudently in this environment.
Speaker #2: We expect North America water treatment sales will grow between 10 and 12% due to tariff-related pricing benefits as we continue to grow faster than the market through the expansion of our dealer network.
These decisive actions are designed to protect our profitability and strategically position the business to be.
Competitive during an eventual recovery. Once market dynamics, begin to improve.
Speaker #2: In turning to our outlook for China, we foresee continued headwinds in our markets. Due to continued low consumer confidence, a discontinued government subsidy program, and ongoing competitive intensity.
Our Outlook excludes any potential outcomes of the ongoing China assessment.
Speaker #2: Because of these factors, we project that our 2026 China sales will decrease mid-single digits compared to last year. We expect the first half of 2026 to be particularly difficult as consumer demand remains subdued and we will face comps from 2025 during which stimulus programs were in place.
We project our India. Business inclusive of pureit will have Topline growth of approximately 10% as we continue to leverage brand, synergies and introduce Innovative new products to grow faster than the market.
Stephen Shafer: We expect the first half of 2026 to be particularly difficult as consumer demand remains subdued, and we will face comps from 2025, during which stimulus programs were in place. We anticipate a return to growth in the second half of the year. We continue to manage our discretionary costs prudently in this environment. These decisive actions are designed to protect our profitability and strategically position the business to be competitive during an eventual recovery once market dynamics begin to improve. Our outlook excludes any potential outcomes of the ongoing China assessment. We project our India business, inclusive of Apure, will have top-line growth of approximately 10% as we continue to leverage brand synergies and introduce innovative new products to grow faster than the market. Based on these 2026 assumptions, we expect top-line growth of approximately 2% to 5%.
We expect the first half of 2026 to be particularly difficult as consumer demand remains subdued, and we will face comps from 2025, during which stimulus programs were in place. We anticipate a return to growth in the second half of the year. We continue to manage our discretionary costs prudently in this environment. These decisive actions are designed to protect our profitability and strategically position the business to be competitive during an eventual recovery once market dynamics begin to improve. Our outlook excludes any potential outcomes of the ongoing China assessment. We project our India business, inclusive of Apure, will have top-line growth of approximately 10% as we continue to leverage brand synergies and introduce innovative new products to grow faster than the market. Based on these 2026 assumptions, we expect top-line growth of approximately 2% to 5%.
Based on the 2026 assumptions. We expect Topline growth of approximately 2 to 5%.
We expect our North America segment margin to be between 24 and 24.5% and rest of the world, segment margin to be between 8 and 9%.
Speaker #2: We anticipate a return to growth in the second half of the year. We continue to manage our discretionary cost prudently in this environment. These decisive actions are designed to protect our profitability and strategically position the business to be competitive during an eventual recovery once market dynamics begin to improve.
Please turn to slide 13.
2025 was an exciting year of transition for AO Smith with several leadership changes including myself.
Speaker #2: Our outlook excludes any potential outcomes of the ongoing China assessment. We project our India business, inclusive of Puratt, will have top-line growth of approximately 10% as we continue to leverage brand synergies and introduce innovative new products to grow faster than the market.
As I began my tenure, as CEO. Last year, we announced 3 key, strategic value creation, levers, that will guide. AO Smith's path forward,
Portfolio management.
Innovation, and operational excellence.
These levers are fundamental to strengthening our industry leadership positions.
Supporting our customers through a dynamic Market environment and delivering long-term profitable growth.
Speaker #2: Based on these 2026 assumptions, we expect top-line growth of approximately 2 to 5%. We expect our North America segment margin to be between 24 and 24.5% and rest of world segment margin to be between 8 and 9%.
We will be providing periodic updates on each of these areas going forward.
Today, we'll discuss portfolio management.
Stephen Shafer: We expect our North America segment margin to be between 24 and 24.5%, and Rest of World segment margin to be between 8 and 9%. Please turn to slide 13. 2025 was an exciting year of transition for A. O. Smith, with several leadership changes, including myself. As I began my tenure as CEO last year, we announced three key strategic value creation levers that will guide A. O. Smith's path forward: portfolio management, innovation, and operational excellence. These levers are fundamental to strengthening our industry leadership position, supporting our customers through a dynamic market environment, and delivering long-term profitable growth. We will be providing periodic updates on each of these areas going forward. Today, we'll discuss portfolio management. Over the past year, we have been actively working to transform our portfolio to be better positioned for long-term profitable growth.
We expect our North America segment margin to be between 24 and 24.5%, and Rest of World segment margin to be between 8 and 9%. Please turn to slide 13. 2025 was an exciting year of transition for A. O. Smith, with several leadership changes, including myself. As I began my tenure as CEO last year, we announced three key strategic value creation levers that will guide A. O. Smith's path forward: portfolio management, innovation, and operational excellence. These levers are fundamental to strengthening our industry leadership position, supporting our customers through a dynamic market environment, and delivering long-term profitable growth. We will be providing periodic updates on each of these areas going forward. Today, we'll discuss portfolio management. Over the past year, we have been actively working to transform our portfolio to be better positioned for long-term profitable growth.
Polio to be better positioned for long-term profitable growth.
Speaker #2: Please turn to slide 13. 2025 was an exciting year of transition for AO SMITH, with several leadership changes including myself. As I began my tenure as CEO last year, we announced three key strategic value creation levers that will guide AO SMITH's path forward.
We have been focused on looking at strategic options in our China, assessment to better position our business there to be more competitive going forward and take advantage of the eventual Market recovery.
The assessment is ongoing and I am pleased with the quality of discussions. We are having with a number of potential partners,
Speaker #2: Portfolio management, innovation, and operational excellence. These levers are fundamental to strengthening our industry leadership position, supporting our customers through a dynamic market environment, and delivering long-term profitable growth.
We are also continuing to evaluate opportunities to strengthen. Our core North American water heater, and boiler business.
Example of actions, we have taken include our recent investments in gas, tank lists heat pumps and Commercial condensing, gas product development, and Manufacturing capacity.
Speaker #2: We will be providing periodic updates on each of these areas going forward. Today, we'll discuss portfolio management. Over the past year, we have been actively working to transform our portfolio to be better positioned for long-term, profitable growth.
We continue to evaluate broader options for strengthening our leadership positions in this space.
We have also announced over the past year a number of actions to help scale and improve the profitability of our North American Water Treatment System.
Speaker #2: We have been focused on looking at strategic options in our China assessment to better position our business there to be more competitive going forward and take advantage of the eventual market recovery.
Stephen Shafer: We have been focused on looking at strategic options in our China assessment to better position our business there to be more competitive going forward and take advantage of the eventual market recovery. The assessment is ongoing, and I am pleased with the quality of discussions we are having with a number of potential partners. We are also continuing to evaluate opportunities to strengthen our core North American water heater and boiler business. Examples of actions we have taken include our recent investments in gas tankless, heat pumps, and commercial condensing gas, product development, and manufacturing capacity. We continue to evaluate broader options for strengthening our leadership position in this space. We have also announced over the past year a number of actions to help scale and improve the profitability of our North American water treatment business.
We have been focused on looking at strategic options in our China assessment to better position our business there to be more competitive going forward and take advantage of the eventual market recovery. The assessment is ongoing, and I am pleased with the quality of discussions we are having with a number of potential partners. We are also continuing to evaluate opportunities to strengthen our core North American water heater and boiler business. Examples of actions we have taken include our recent investments in gas tankless, heat pumps, and commercial condensing gas, product development, and manufacturing capacity. We continue to evaluate broader options for strengthening our leadership position in this space. We have also announced over the past year a number of actions to help scale and improve the profitability of our North American water treatment business.
We have been learning much about the space through the acquisition of high-quality businesses. We have used as the foundation of this platform and have taken actions to prioritize the channels and further integrate the business to create more Synergy and scale.
Speaker #2: The assessment is ongoing, and I am pleased with the quality of discussions we are having with a number of potential partners. We are also continuing to evaluate opportunities to strengthen our core North American water heater and boiler business.
These actions have allowed us to improve the profitability of this business by 400 basis points last year, and we believe additional opportunities are still in front of us to both continue expanding margins.
And returning the business to higher growth.
Speaker #2: Examples of actions we have taken include our recent investments in gas tankless, heat pump, and commercial condensing gas product development and manufacturing capacity. We continue to evaluate broader options for strengthening our leadership position in this space.
Finally we have done work to evaluate expanding into the broader Market of water management.
This includes the broader ecosystem of moving, controlling and mixing water across the residential and Commercial markets.
these products systems and solutions, often interact with our water technology products that serve as our core business today,
Speaker #2: We have also announced over the past year a number of actions to help scale and improve the profitability of our North American water treatment business.
Speaker #2: We have been learning much about the space through the acquisition of high-quality businesses we have used as the foundation of this platform. And have taken actions to prioritize the channels and further integrate the business to create more synergy and scale.
Leonard valves and its portfolio of mixing Valves and control units represents our first action expanding into this attractive Market opportunity.
Stephen Shafer: We have been learning much about the space through the acquisition of high-quality businesses we have used as the foundation of this platform, and have taken actions to prioritize the channels and further integrate the business to create more synergy and scale. These actions have allowed us to improve the profitability of this business by 400 basis points last year, and we believe additional opportunities are still in front of us to both continue expanding margin and returning the business to higher growth. Finally, we have done work to evaluate expanding into the broader market of water management. This includes the broader ecosystem of moving, controlling, and mixing water across the residential and commercial markets. These products, systems, and solutions often interact with our water technology products that serve as our core business today.
We have been learning much about the space through the acquisition of high-quality businesses we have used as the foundation of this platform, and have taken actions to prioritize the channels and further integrate the business to create more synergy and scale. These actions have allowed us to improve the profitability of this business by 400 basis points last year, and we believe additional opportunities are still in front of us to both continue expanding margin and returning the business to higher growth. Finally, we have done work to evaluate expanding into the broader market of water management. This includes the broader ecosystem of moving, controlling, and mixing water across the residential and commercial markets. These products, systems, and solutions often interact with our water technology products that serve as our core business today.
Please turn the slide, 14. As I share more details, about our strategic rationale for this acquisition.
Speaker #2: These actions have allowed us to improve the profitability of this business by 400 basis points last year, and we believe additional opportunities are still in front of us both to continue expanding margins and return to business at higher growth.
Leonard valve is well aligned with our strategic and financial criteria, and is an excellent complement to our core water heater and boiler business.
It enters us into the attractive Water Management market with the well-established premium Leonard and heat timer brands.
Speaker #2: Finally, we have done work to evaluate expanding into the broader market of water management. This includes the water ecosystem moving, controlling, and mixing water across the residential and commercial markets.
Leonard's connected products which represents approximately 30% of their sales and growing expand. Our digital platform and provide us capabilities to leverage going forward.
Speaker #2: These products, systems, and solutions often interact with our water technology products that serve as our core business today. Glenvalve and its portfolio of mixing valves and control units represent our first action expanding into this attractive market opportunity.
By broadening and integrating our product offering, we will be able to create new and innovative solutions for our commercial and institutional customers.
Stephen Shafer: Leonard Valve and its portfolio of mixing valves and control units represents our first action expanding into this attractive market opportunity. Please turn to slide 14 as I share more details about our strategic rationale for this acquisition. Leonard Valve is well aligned with our strategic and financial criteria and is an excellent complement to our core water heater and boiler business. It enters us into the attractive water management market with a well-established premium Leonard and Heat-Timer brands. Leonard's connected products, which represents approximately 30% of their sales and growing, expand our digital platform and provide us capabilities to leverage going forward. By broadening and integrating our product offering, we will be able to create new and innovative solutions for our commercial and institutional customers.
Leonard Valve and its portfolio of mixing valves and control units represents our first action expanding into this attractive market opportunity. Please turn to slide 14 as I share more details about our strategic rationale for this acquisition. Leonard Valve is well aligned with our strategic and financial criteria and is an excellent complement to our core water heater and boiler business. It enters us into the attractive water management market with a well-established premium Leonard and Heat-Timer brands. Leonard's connected products, which represents approximately 30% of their sales and growing, expand our digital platform and provide us capabilities to leverage going forward. By broadening and integrating our product offering, we will be able to create new and innovative solutions for our commercial and institutional customers.
Speaker #2: Please turn to slide 14 as I share more details about our strategic rationale for this acquisition. Glenvalve is well aligned with our strategic and financial criteria and is an excellent complement to our core water heater and boiler business.
Along with entire growth profile. The business also has predictable Demand with Approximately 80% of the volume associated with repair and replacement.
Leonard is also a strong cultural fit as a values-based company with deep market experience.
Strong brand and reputation across the industry and many long tenured and dedicated employees that have a passion for serving their customers and the market. Well,
Speaker #2: It enters us into the attractive water management market with a well-established premium Leonard and heat timer brands. Leonard's connected products, which represent approximately 30% of their sales and growing, expand our digital platform and provide us capabilities to leverage going forward.
Simply put they do business a lot like how AO Smith does this and I'm looking forward to what we can do together.
We expect when our valve to contribute to approximately 70 million dollars in sales in 2026,
Speaker #2: By broadening and integrating our product offering, we will be able to create new and innovative solutions for our commercial and institutional customers. Along with its higher growth profile, the business also has predictable demand with approximately 80% of the volume associated with repair and replacement.
in summary, we are further strengthening our portfolio to deliver greater value to our customers and other stakeholders.
Stephen Shafer: Along with its higher growth profile, the business also has predictable demand, with approximately 80% of the volume associated with repair and replacement. Leonard is also a strong cultural fit as a value-based company with deep market experience, a strong brand and reputation across the industry, and many long-tenured and dedicated employees that have a passion for serving their customers and the market well. Simply put, they do business a lot like how A. O. Smith does business, and I'm looking forward to what we can do together. We expect Leonard Valve to contribute approximately $70 million in sales in 2026. In summary, we are further strengthening our portfolio to deliver greater value to our customers and other stakeholders. We also remain focused on leveraging operational excellence and innovation, in addition to portfolio management, to drive long-term sustainable growth for A. O. Smith.
Along with its higher growth profile, the business also has predictable demand, with approximately 80% of the volume associated with repair and replacement. Leonard is also a strong cultural fit as a value-based company with deep market experience, a strong brand and reputation across the industry, and many long-tenured and dedicated employees that have a passion for serving their customers and the market well. Simply put, they do business a lot like how A. O. Smith does business, and I'm looking forward to what we can do together. We expect Leonard Valve to contribute approximately $70 million in sales in 2026. In summary, we are further strengthening our portfolio to deliver greater value to our customers and other stakeholders. We also remain focused on leveraging operational excellence and innovation, in addition to portfolio management, to drive long-term sustainable growth for A. O. Smith.
We also remain focused on leveraging, operational excellence and innovation. In addition to portfolio management, to drive long-term sustainable growth for AO Smith.
Speaker #2: Leonard is also a strong cultural fit and a value-based company with deep experience and a strong brand reputation across the industry. And many long-tenured and dedicated employees that have a passion for serving their customers and the market well.
As we have discussed, while we had challenges to navigate in 2025, we also had meaningful achievements.
Highlights include.
The demonstrated strength and resiliency of our commercial water heater and boiler business.
Our leadership in these markets is well, recognised and valued by our customers.
Speaker #2: Simply put, they do business a lot like how AO SMITH does business, and looking forward to what we can do together. Keep Glenvalve contributing to approximately 70 million dollars in sales in 2026.
The significant profit Improvement driven by our prioritized approach in North American Water treatment.
We are now better positioned for long-term growth and profitability.
Speaker #2: In summary, we are further strengthening our portfolio to offer greater value to our customers and our stakeholders. We also remain focused on leveraging operational excellence and innovation, in addition to portfolio management, to drive long-term sustainable growth for A. O. Smith.
The discipline cost management actions actions in China as we look to reposition that business for a more competitive future.
The continued double-digit growth of our India business. Now complemented, by the addition of pureit, to drive continued growth at an even greater scale.
Speaker #2: As we have discussed, while we had challenges to navigate in 2025, we also had meaningful achievements. Highlights include the demonstrated strength and resiliency of our commercial water heater and boiler business.
And finally, the continued focus on making the necessary Investments to ensure our bright future despite the challenging and uncertain market conditions.
Stephen Shafer: As we have discussed, while we had challenges to navigate in 2025, we also had meaningful achievements. Highlights include: the demonstrated strength and resiliency of our commercial water heater and boiler business. Our leadership in these markets is well recognized and valued by our customers. The significant profit improvement, driven by our prioritized approach in North American water treatment. We are now better positioned for long-term growth and profitability. The disciplined cost management actions, actions in China as we look to reposition that business for a more competitive future. The continued double-digit growth of our India business, now complemented by the addition of Pureit to drive continued growth at an even greater scale. And finally, the continued focus on making the necessary investments to ensure our bright future, despite the challenging and uncertain market conditions.
As we have discussed, while we had challenges to navigate in 2025, we also had meaningful achievements. Highlights include: the demonstrated strength and resiliency of our commercial water heater and boiler business. Our leadership in these markets is well recognized and valued by our customers. The significant profit improvement, driven by our prioritized approach in North American water treatment. We are now better positioned for long-term growth and profitability. The disciplined cost management actions, actions in China as we look to reposition that business for a more competitive future. The continued double-digit growth of our India business, now complemented by the addition of Pureit to drive continued growth at an even greater scale. And finally, the continued focus on making the necessary investments to ensure our bright future, despite the challenging and uncertain market conditions.
Speaker #2: Our leadership in these markets is well-recognized and valued by our customers. The significant profit improvement is driven by our prioritized approach in North American water treatment.
When operational approach will enable aosmith to build on our leadership position, become more agile, and be better prepared to see future opportunities.
Speaker #2: We are now better positioned for long-term growth and profitability. The discipline, cost management actions in China as we look to reposition that business for a more competitive future.
With that, we conclude our prepared remarks, and we are now available for your questions.
Thank you.
ladies and gentlemen, as a reminder to ask the question,
please press Start 11 on your telephone, then wait for your name to be announced.
Speaker #2: The continued double-digit growth of our India business, now complemented by the addition of Puritt to drive continued growth at an even greater scale. And finally, the continued focus on making the necessary investments to ensure our bright future despite the challenging and uncertain market conditions.
To withdraw your question, please press star 11 again.
We ask that you limit yourself to 1 question and 1, follow-up and then return to the queue for additional questions.
Please stand by while we can power the Q&A roster.
Speaker #2: I am confident that the strategic actions we are taking today along with our continued discipline, operational approach, will enable AO SMITH to build on our leadership position, become more agile, and be better prepared to seize future opportunities.
Our first question comes from the line of sorry Braugher, disky with Jeffries. Your line is open.
Stephen Shafer: I am confident that the strategic actions we are taking today, along with our continued disciplined operational approach, will enable A. O. Smith to build on our leadership position, become more agile, and be better prepared to seize future opportunities. With that, we conclude our prepared remarks, and we are now available for your questions.
I am confident that the strategic actions we are taking today, along with our continued disciplined operational approach, will enable A. O. Smith to build on our leadership position, become more agile, and be better prepared to seize future opportunities. With that, we conclude our prepared remarks, and we are now available for your questions.
Uh, good morning. How this is James on for SS for taking questions?
Good morning.
Speaker #2: With that, we conclude our prepared remarks. And we are now available for your
Speaker #2: questions. Thank
Speaker #1: you. Ladies and gentlemen, as a reminder to ask the question, please start 11 minutes on. This will wait for your name to be announced.
Operator: Thank you. Ladies and gentlemen, as a reminder to ask the question, please press star one one on your telephone, then wait for your name to be announced. To withdraw your question, please press star one one again. We ask that you limit yourself to one question and one follow-up, and then return to the queue for additional questions. Please stand by while we compile the Q&A roster. Our first question comes from the line of Saree Boroditsky with Jefferies. Your line is open.
Operator: Thank you. Ladies and gentlemen, as a reminder to ask the question, please press star one one on your telephone, then wait for your name to be announced. To withdraw your question, please press star one one again. We ask that you limit yourself to one question and one follow-up, and then return to the queue for additional questions. Please stand by while we compile the Q&A roster. Our first question comes from the line of Saree Boroditsky with Jefferies. Your line is open.
Speaker #1: To wait for your question, please press star 1 again. We ask that you limit yourself to one question and one follow-up, and refer to the queue for questions.
Good morning. Yeah, I wanted to ask on the residential guidance here. Uh, your outlook is calling for uh, flood ish to down, kind of industrial volume here for 2026 and I think that this marks kind of third year of floods to declining volumes which we haven't really seen, uh, for a while. So, can you kind of provide me details on what is making this downturn, or weakness, kind of more persistent? And can you provide more details on what you're kind of seeing in the market generally?
Speaker #1: Please stand by while we compile the Q&A roster. Our first question comes from the line of Sari Broadiski, the Jeffries. Your line is
Speaker #1: open. Good morning.
Speaker #2: This is James for Sari. Thanks for taking questions.
Speaker #2: Good morning. Yeah, I wanted to ask on the residential guidance here. Your outlook is calling for a flattish to down kind of industry volume here for 2026.
[Analyst] (Jefferies): Good morning. This is James on for Saree. Thanks for taking questions.
[Analyst] (Jefferies): Good morning. This is James on for Saree. Thanks for taking questions.
Stephen Shafer: Good morning, James.
Stephen Shafer: Good morning, James.
[Analyst] (Jefferies): Good morning. Yeah, I wanted to ask on the residential guidance here. Your outlook is calling for a flattish to down kind of industry volume here for 2026, and I think then this marks kind of third years of flattish to declining volumes, which we haven't really seen for a while. So can you kind of provide me details on what is making this downturn or weakness kind of more persistent? And can you provide more details on what you're kind of seeing in the market generally?
[Analyst] (Jefferies): Good morning. Yeah, I wanted to ask on the residential guidance here. Your outlook is calling for a flattish to down kind of industry volume here for 2026, and I think then this marks kind of third years of flattish to declining volumes, which we haven't really seen for a while. So can you kind of provide me details on what is making this downturn or weakness kind of more persistent? And can you provide more details on what you're kind of seeing in the market generally?
Speaker #2: And I think then this marks kind of third years of flattish to declining volumes, which we haven't really seen for a while. So can you kind of provide me details on what is making this downturn or weakness kind of more persistent?
Speaker #2: what you're kind of seeing in the market And can you provide more details on generally?
Speaker #3: Yeah. Thanks for the question. So just overall, as we look into 2026, it was really three components as we think about it, right? We have the emergency replacement, which is very resilient.
Yeah, thanks for the question. Uh, so just overall as we look into 2026, it was really 3 components. As we think about it, right? We have the emergency replacement, which is very resilient, very reliable, very predictable and we expect that to continue. Um, we have proactive replacement, which, you know, we've talked about being fairly High the last 5 or 6 years, we feel like that's pretty resilient at this point. It's, it's been out there for 5 years, that above 30% of total replacement. And so we're expecting that to continue. We're seeing some headwind is kind of the new home completions, uh, multi-family and single family. We see pressure in that as we go into next year. So yes, we've had a couple of years of flat volumes coming off. Um you know, some some better growth years earlier that were a little lumpy due to co. But um the pressure we're seeing next year is really in the new home construction which you know we we feel like with without some stimulus with a lower interest rate or perhaps um,
Stephen Shafer: Yeah, thanks for the question. So just overall, as we look into 2026, there's really three components as we think about it, right? We have the emergency replacement, which is very resilient, very reliable, very predictable, and we expect that to continue. We have proactive replacement, which, you know, we've talked about being fairly high the last five or six years. We feel like that's pretty resilient at this point. It's, it's been out there for five years at above 30% of total replacement, and so we're expecting that to continue. Where we're seeing some headwind is kind of the new home completions, multifamily, and single family. We see pressure in that as we go into next year.
Stephen Shafer: Yeah, thanks for the question. So just overall, as we look into 2026, there's really three components as we think about it, right? We have the emergency replacement, which is very resilient, very reliable, very predictable, and we expect that to continue. We have proactive replacement, which, you know, we've talked about being fairly high the last five or six years. We feel like that's pretty resilient at this point. It's, it's been out there for five years at above 30% of total replacement, and so we're expecting that to continue. Where we're seeing some headwind is kind of the new home completions, multifamily, and single family. We see pressure in that as we go into next year.
Speaker #3: Very reliable. Very predictable. And we expect that to continue. We have proactive replacement, which we've talked about being fairly high the last five or six years.
Some velocity on new home sales uh is is going to be a bit of pressure on our Topline residential volumes.
Speaker #3: We feel like that's pretty resilient at this point. It's been out there for five years at above 30% of total replacement. And so we're expecting that to continue.
Speaker #3: Where we're seeing some headwind is kind of the new home completions, multifamily and single-family. We see pressure in that as we go into next year.
Great though, thanks for caller. And I guess I wanted to ask question on China. I I think your guidance kind of implies like double digit decline in first half and then return to growth here, uh, what specific like indicators are, kind of giving you confidence that it can kind of, what is it. Uh what is it returned to growth and second half?
Speaker #3: So yes, we've had a couple of years of flat volumes coming off some better growth years earlier that were a little lumpy due to COVID.
Stephen Shafer: So yes, we've had a couple of years of flat volumes coming off, you know, some better growth years earlier that were a little lumpy due to COVID. But, the pressure we're seeing next year is really in the new home construction, which, you know, we feel like without some stimulus, with a lower interest rate or perhaps, some velocity on new home sales, is gonna be a bit of pressure on our top-line residential volumes.
So yes, we've had a couple of years of flat volumes coming off, you know, some better growth years earlier that were a little lumpy due to COVID. But, the pressure we're seeing next year is really in the new home construction, which, you know, we feel like without some stimulus, with a lower interest rate or perhaps, some velocity on new home sales, is gonna be a bit of pressure on our top-line residential volumes.
Speaker #3: But the pressure we're seeing next year is really in the new home construction, which we feel like, without some stimulus with a lower interest rate or perhaps some velocity on new home sales, is going to be a bit of pressure on our top-line residential volumes.
Yeah. And some of it is we've got to work through a period where there was a lot of government government subsidies that were driving to some demand generation. So that's the, that's the challenge. We're going to face in the first half of this year, is we're now comping against that.
Speaker #2: Great, thanks for the caller. And I guess I wanted to ask a question on China. I think your guidance kind of implies double-digit decline in the first half and then a return to growth here.
The the return to growth will be partly driven by as we move past that phase and we get back to the remodeling and the refurbishments that that still need to happen in China. And part of it is some of our own actions internally to get behind and focus and drive growth in certain areas.
Thank you.
Please stand by for our next question.
[Analyst] (Jefferies): Great! Thanks for the color. I guess I wanted to ask a question on China. I think your guidance kind of implies like double-digit decline in first half and then a return to growth here. What specific like indicators are kind of giving you confidence that it can kind of return to growth in the second half?
[Analyst] (Jefferies): Great! Thanks for the color. I guess I wanted to ask a question on China. I think your guidance kind of implies like double-digit decline in first half and then a return to growth here. What specific like indicators are kind of giving you confidence that it can kind of return to growth in the second half?
Our next question comes from the line of Mike Halloran with Barrett. Your line is open.
Speaker #2: What specific indicators are kind of giving you confidence that it can kind of, what is it, what is it, return to growth in the second half?
Speaker #3: Yeah. Some of it is we've got to work through a period where there was a lot of government subsidies that were driving some demand generation.
Hey, good morning everyone. Um hey so can we can we first start on on just the the the comments Steve you made about increased competitive intensity and the wholesale Channel?
Speaker #3: So that's the challenge we're going to face in the first half of this year, is we're now comping against that. The return to growth will be partly driven by as we move past that phase and we get back to the remodel and the refurbishment that still need to happen in China.
Stephen Shafer: Yeah, and some of it is, we've got to work through a period where there was a lot of government, government subsidies that were driving some demand generation. So that's the, that's the challenge we're gonna face in the first half of this year, is we're now comping against that. The, the return to growth will be partly driven by as we move past that phase and we get back to the remodelments and the, the refurbishments that, that still need to happen in China. And part of it is some of our own actions internally to get behind and focus and drive growth in certain areas.
Stephen Shafer: Yeah, and some of it is, we've got to work through a period where there was a lot of government, government subsidies that were driving some demand generation. So that's the, that's the challenge we're gonna face in the first half of this year, is we're now comping against that. The, the return to growth will be partly driven by as we move past that phase and we get back to the remodelments and the, the refurbishments that, that still need to happen in China. And part of it is some of our own actions internally to get behind and focus and drive growth in certain areas.
Speaker #3: And part of it is some of our own actions internally to get behind, focus, and drive growth in certain areas.
Maybe just a little bit more context of of 2 things I suppose 1. Um, what does it mean in terms, what does it mean in terms of the price? Um, share Etc in that channel. But then secondarily when when you net the 2 together, um, with the strength you have on the retail side, how is that balancing out all else equal um to give both the the narrow View and the wholesale, but then draw it back to the how that's impacting the cube of Market.
Speaker #1: Thank you. Please stand by for our next question. Our next question comes from the line of Mike Holleran with Baird. Your line is open.
Operator: Thank you. Please stand by for our next question. Our next question comes from the line of Mike Halloran with Baird. Your line is open.
Operator: Thank you. Please stand by for our next question. Our next question comes from the line of Mike Halloran with Baird. Your line is open.
Speaker #4: Hey. Good morning, everyone.
Speaker #3: Good morning, Mike.
Speaker #4: Hey. So can we first start on just the comments Stevie made about increased competitive intensity in the wholesale channel? Maybe just a little bit more context of two things, I suppose.
Mike Halloran: Hey, good morning, everyone.
Mike Halloran: Hey, good morning, everyone.
Charles Lauber: Good morning, Mike.
[crosstalk] Good morning, Mike.
Mike Halloran: Hey, so can we first start on just the comments Steve, you made about increased competitive intensity in the wholesale channel? Maybe just a little bit more context of two things, I suppose. One, what does it mean in terms of the price share, et cetera, in that channel? But then secondarily, when you net the two together with the strength you have on the retail side, how is that balancing out all else equal to give both the narrow view on the wholesale, but then draw it back to the how that's impacting the cumulative market?
Mike Halloran: Hey, so can we first start on just the comments Steve, you made about increased competitive intensity in the wholesale channel? Maybe just a little bit more context of two things, I suppose. One, what does it mean in terms of the price share, et cetera, in that channel? But then secondarily, when you net the two together with the strength you have on the retail side, how is that balancing out all else equal to give both the narrow view on the wholesale, but then draw it back to the how that's impacting the cumulative market?
Speaker #4: One, what does it mean in terms what does it mean in terms of the price share, etc., in that channel? But then secondarily, when you net the two together, with the strength you have on the retail side, how is that balancing out all else equal to give both the narrow view on the wholesale, but then draw it back to how that's impacting the cumulative market?
Speaker #3: Sure. And I'll start by saying, as I mentioned, we have meaningful share in both the retail and wholesale sides. So, from that standpoint, we participate when there's kind of movement between the two.
Charles Lauber: Sure. And you know, I'll start by saying, you know, as I mentioned, you know, we have meaningful share in both the retail and wholesale side. So from that standpoint, we participate when there's kind of movement between the two. I would say specific update on wholesale, Mike, right. I mean, the dynamic of low new home construction, which we just talked about, and the fact that retail has made some inroads in terms of share gains overall in the industry, is just putting pressure on that part of the channel. And anytime you've got, you know, kind of pressure that way, where there's, you know, limited growth or even there's some declines, it just makes it a more competitive environment.
Stephen Shafer: Sure. And you know, I'll start by saying, you know, as I mentioned, you know, we have meaningful share in both the retail and wholesale side. So from that standpoint, we participate when there's kind of movement between the two. I would say specific update on wholesale, Mike, right. I mean, the dynamic of low new home construction, which we just talked about, and the fact that retail has made some inroads in terms of share gains overall in the industry, is just putting pressure on that part of the channel. And anytime you've got, you know, kind of pressure that way, where there's, you know, limited growth or even there's some declines, it just makes it a more competitive environment.
Speaker #3: I would say, specifically on wholesale, Mike, right? I mean, the dynamic of low new home construction, which we just talked about, and the fact that retail has made some inroads in terms of share gains overall in the industry, is just putting pressure on that part of the channel.
Speaker #3: And anytime you've got kind of pressure that way, where there's limited growth or even there's some declines, it just makes it a more competitive environment.
Speaker #3: And from what we see right now, it's not really driven by a lot of kind of new entrants into the space. It is primarily the leaders that serve the wholesale channel today.
You know, limited growth or even there's some some declines. It just makes it a more competitive environment and you know from what we see right now, it's it's not really driven by a lot of, you know, kind of new entrance into the space. It is primarily the, you know, kind of the leaders that serve the wholesale Channel today and it's not new that there's Dynamics playing out across the channel in terms of, you know, different different partners and and how that works, I would say it's a bit accelerated a bit, the last, you know, um, 6 months in particular just because of the pressure that's been in, in, in that market and I think, you know, as we look at it and this is again another area where because we are, you know, such a large player in the space. We know all the industry participants, we know all the all the different, um, distribution Partners. You know, we we know where those pressures are the greatest and that's really our Focus going forward, you know? So we obviously we're happy with the gains we've made on the retail side and with our part,
Charles Lauber: And, you know, from what we see right now, it, it's not really driven by a lot of, you know, kind of new entrants into the space. It is primarily the, you know, kind of the leaders that serve the wholesale channel today. And it's not new that there's dynamics playing out across the channel in terms of, you know, different partners and how that works. I would say it's a bit accelerated a bit the last, you know, six months in particular, just because of the pressure that's been in that market.
And, you know, from what we see right now, it, it's not really driven by a lot of, you know, kind of new entrants into the space. It is primarily the, you know, kind of the leaders that serve the wholesale channel today. And it's not new that there's dynamics playing out across the channel in terms of, you know, different partners and how that works. I would say it's a bit accelerated a bit the last, you know, six months in particular, just because of the pressure that's been in that market.
Speaker #3: And it's not new that there's dynamics playing out across the channel in terms of different partners and how that works. I would say a bit accelerated a bit in the last six months in particular just because of the pressure in the market.
Owners over there. Um, we we think we can do better on the wholesale side to serve that, that market and and that's what our focus is going to be uh, here right now.
Speaker #3: And I think as we look at it, and this is again another area where because we are such a large player in the space, we know all the industry participants.
Thanks for that. And then, um, maybe just some help with the Cadence Inc, through 2026, cumulatively, uh, you have a lot of moving pieces, front, half to back half. So any thoughts on how the the earnings and revenues should Cadence relative to the normal seasonality? Any 1 h 2, H dynamics that are worth mentioning.
Um, any help would be appreciated.
Speaker #3: We know all the different distribution partners. We know where those pressures are the greatest. And that's really our focus going forward. So we obviously were happy with the gains we've made on the retail side and with our partners over there.
Charles Lauber: I think, you know, as we look at it, and this is again another area where because we are, you know, such a large player in this space, we know all the industry participants, we know all the different distribution partners, you know, we know where those pressures are the greatest, and that's really our focus going forward. You know, so we obviously, we're happy with the gains we've made on the retail side and with our partners over there. We think we can do better on the wholesale side to serve that market, and that's what our focus is gonna be here right now.
I think, you know, as we look at it, and this is again another area where because we are, you know, such a large player in this space, we know all the industry participants, we know all the different distribution partners, you know, we know where those pressures are the greatest, and that's really our focus going forward. You know, so we obviously, we're happy with the gains we've made on the retail side and with our partners over there. We think we can do better on the wholesale side to serve that market, and that's what our focus is gonna be here right now.
Speaker #3: We think we can do better on the wholesale side to serve that market. And that's what our focus is going to be here right
Speaker #3: now. Thanks for that.
Speaker #4: And then maybe just some help with the cadencing through 2026 cumulatively. You have a lot of moving pieces, front half to back half. So any thoughts on how the earnings and revenue should cadence relative to normal seasonality?
Mike Halloran: Thanks for that. And then, maybe just some help with the cadencing through 2026 cumulatively. You have a lot of moving pieces front half to back half. So any thoughts on how the earnings and revenue should cadence relative to normal seasonality? Any 1H, 2H dynamics that are worth mentioning, any help would be appreciated.
Mike Halloran: Thanks for that. And then, maybe just some help with the cadencing through 2026 cumulatively. You have a lot of moving pieces front half to back half. So any thoughts on how the earnings and revenue should cadence relative to normal seasonality? Any 1H, 2H dynamics that are worth mentioning, any help would be appreciated.
Speaker #4: Any one H, two H dynamics that are worth mentioning? Any help would be
Speaker #4: Any one H, two H dynamics that are worth mentioning? Any help would be appreciated. Yeah.
Speaker #3: So yeah, as you look at 2026, Mike, it's going to look a little different than '24 and '25. Both those years—'24 and '25—on the residential side in particular, on commercial water heating, we had price increases that pulled volume forward in the front half of the year.
Charles Lauber: Yeah. So yeah, as you look at 2026, Mike, it's gonna look a little different than 2024 and 2025. Both those years, 2024 and 2025, on the residential side, in particular on commercial water heating, we had price increases that pulled volume forward in the front half of the year. So, you know, 2024 and 2025 cadence on the residential water heating side was, you know, 53% in the front half, 47% in the back half. We look at 2026 and expect a much more normalized year, and maybe closer to 50/50 or 51/49. So there will be, you know, tough comps in the front half of the year, both compared to 2025 and 2024 on the water heating side. You know, as you also step into next year or 2026, input costs, we're looking at those very closely.
Stephen Shafer: Yeah. So yeah, as you look at 2026, Mike, it's gonna look a little different than 2024 and 2025. Both those years, 2024 and 2025, on the residential side, in particular on commercial water heating, we had price increases that pulled volume forward in the front half of the year. So, you know, 2024 and 2025 cadence on the residential water heating side was, you know, 53% in the front half, 47% in the back half. We look at 2026 and expect a much more normalized year, and maybe closer to 50/50 or 51/49. So there will be, you know, tough comps in the front half of the year, both compared to 2025 and 2024 on the water heating side. You know, as you also step into next year or 2026, input costs, we're looking at those very closely.
Yeah, um, so yeah, as you look at 2026 Mike, um, it's going to look a little different than 24 and 25. Both those years 24, and 25. On the residential side, in particular on commercial water heating, we had price increases that pulled volume forward in the front, half of the year. So, you know, 24 and 25 Cadence on the residential water heating side was, you know, 53% in the front, half, 47 in the back half, we we look at 2026 and expect a much more normalized year, you know, maybe closer to 50/50 or 5149. So there will be, you know, tough comps in the front, half of the Year, both compared to 25 and 24 on the on the water heating side. You know, as you also step into the next year or 2026, um, input costs. We're looking at those very closely still should be up. It's expected to be up about 10% and as you know, we have pretty good visibility into that um, and and our forward,
Speaker #3: So '24 and '25 cadence on the residential water heating side was 53% in the front half, 47% in the back half. We look at 2026 and expect a much more normalized year, maybe closer to 50/50 or 51/49.
Speaker #3: So there will be tough comps in the front half of the year, both compared to '25 and '24 on the water heating side. As you also step into next year, or 2026, input costs, we're looking at those very closely.
View of what our what our pricing is. We'll have carryover tariffs into the first half of the year and other costs are also causing a bit of a headwind. And then, you know, thinking about China and we talked a lot in the past about the Cadence in China, um, as Steve said, a bit around. We'll see pressure in the first half of the year because of the subsidy program was in place in 2025 this year beginning actually beginning mid year.
Speaker #3: Steel should be up. It's expected to be up about 10%. And as you know, we have pretty good visibility into that in our forward view of what our pricing is.
Speaker #3: We'll have carryover tariffs into the first half of the year. And other costs are also causing a bit of headwind. And then thinking about China and we've talked a lot in the past about the cadence in China, as Steve said, a bit around we'll see pressure in the first half of the year because the subsidy program was in place.
Charles Lauber: Steel should be up. It's expected to be up about 10%, and as you know, we have pretty good visibility into that, in our forward view of what our pricing is. We'll have carryover tariffs into the first half of the year, and other costs are also causing a bit of a headwind. Then, you know, thinking about China, and we've talked a lot in the past about the cadence in China, as Steve said, you a bit around, we'll see pressure in the first half of the year because the subsidy program was in place in 2025. This year, beginning actually, beginning mid-year last year, it was discontinued, and that's why we saw a weakness in the back half of this year. We expect that to continue into next year until there's some traction.
Steel should be up. It's expected to be up about 10%, and as you know, we have pretty good visibility into that, in our forward view of what our pricing is. We'll have carryover tariffs into the first half of the year, and other costs are also causing a bit of a headwind. Then, you know, thinking about China, and we've talked a lot in the past about the cadence in China, as Steve said, you a bit around, we'll see pressure in the first half of the year because the subsidy program was in place in 2025. This year, beginning actually, beginning mid-year last year, it was discontinued, and that's why we saw a weakness in the back half of this year. We expect that to continue into next year until there's some traction.
Last year was discontinued and that's why we saw weakness in the back half of this year. We expect that to continue into next year until there's some traction. We think there was some pull ahead into the marketplace and expect some of that traction to come back. Perhaps in the second quarter or mid year. As you know, the first quarter is always a challenge in China because of the Chinese festival of New Year. We expect that to be a little bit more accentuated this year because of this continuance of the subsidy program. And then return to, I would say in the back half of the, of the year for China kind of kind of their normal, a little bit better in the third quarter and your outlook expects, it to be improved in the fourth quarter. Like a historically has been with some of the
Holiday shopping.
Speaker #3: In 2025, this year, beginning actually beginning mid-year last year, it was discontinued. And that's why we saw a weakness in the back half of this year.
Thank you.
Please stand by for our next question.
Speaker #3: We expect that to continue into next year until there's some traction. We think there was some pull ahead into the marketplace and expect some of that traction to come back, perhaps in the second quarter or mid-year.
Our next question comes from Milan of Jeff Hammond with keybanc capital markets, your line is open.
Hey everyone. Good morning. This is uh Mitch moron for Jeff. Thanks for taking my questions.
Speaker #3: As you know, the first quarter is always a challenge in China because of the Chinese festival of New Year. We expect that to be a little bit more accentuated this year because of the discontinuance of the subsidy program.
Charles Lauber: We think there is some pull ahead into the marketplace and expect some of that traction to come back, perhaps in the Q2 or mid-year. As you know, the Q1 is always a challenge in China because of the Chinese New Year. We expect that to be a little bit more accentuated this year because of the discontinuance of the subsidy program. And then return to, I would say, in the back half of the year for China, kind of the normal, a little bit better in the Q3, and your outlook expects it to be improved in the Q4, like it historically has been with some of the holiday shopping.
We think there is some pull ahead into the marketplace and expect some of that traction to come back, perhaps in the Q2 or mid-year. As you know, the Q1 is always a challenge in China because of the Chinese New Year. We expect that to be a little bit more accentuated this year because of the discontinuance of the subsidy program. And then return to, I would say, in the back half of the year for China, kind of the normal, a little bit better in the Q3, and your outlook expects it to be improved in the Q4, like it historically has been with some of the holiday shopping.
First, I was just wondering if you give a bit more color on Leonard valve, um to go to market strategy, what end markets, they plan and and maybe how much growth the 70 million in sales, you're expecting this year. Like, what growth rate that reflects thanks?
Speaker #3: And then return to, I would say, in the back half of the year for China, kind of their normal a little bit better in the third quarter and we're outlooked to expect it to be improved in the fourth quarter, like it historically has been with some of the holiday shopping.
Yeah, in terms of, um, and marketing and they, they're very strong in in kind of the the commercial markets, which was appealing to us. Um,
Speaker #1: Thank you. Please stand by for our next question. Our next question comes from the line of Jeff Hammond with KeyBank Capital Markets. Your line is
Speaker #1: open. Hey, everyone.
Operator: Thank you. Please stand by for our next question. Our next question comes from the line of Jeff Hammond with KeyBanc Capital Markets. Your line is open.
Operator: Thank you. Please stand by for our next question. Our next question comes from the line of Jeff Hammond with KeyBanc Capital Markets. Your line is open.
Speaker #5: Good morning. This is Mitch Moran for Jeff. Thanks for taking my questions.
Speaker #3: Hey, Mitch.
Speaker #5: First, I was just wondering if you could give a bit more color on Leonard Valve their go-to-market strategy, what end markets they plan, and maybe how much growth the $70 million in sales you're expecting this year.
[Analyst] (KeyBanc Capital Markets): Hey, everyone. Good morning. This is Mitch Moran for Jeff. Thanks for taking my questions.
Hey, everyone. Good morning. This is Mitch Moran for Jeff. Thanks for taking my questions.
Charles Lauber: Hey, Mitch. Good morning, Mitch.
[Analyst] (KeyBanc Capital Markets): Hey, Mitch. Good morning, Mitch.
Speaker #5: What growth rate does that reflect? Thanks.
[Analyst] (KeyBanc Capital Markets): First, I was just wondering if you could give a bit more color on Leonard Valve, their go-to-market strategy, what end markets they play in, and maybe how much growth, the $70 million in sales you're expecting this year, like, what growth rate that reflects? Thanks.
First, I was just wondering if you could give a bit more color on Leonard Valve, their go-to-market strategy, what end markets they play in, and maybe how much growth, the $70 million in sales you're expecting this year, like, what growth rate that reflects? Thanks.
Speaker #3: Yeah. In terms of the end markets, they're very strong in kind of the commercial markets, which was appealing to us. They serve in some ways, like with the heat timer controls business, it's very much a second-driven business, very similar to our lock and bar business.
Charles Lauber: Yeah, in terms of end markets, yeah, they're very strong in kind of the commercial markets, which was appealing to us. They serve in some ways, like with their the Heat-Timer controls business; it's very much a spec-in driven business, very similar to, like, our Lochinvar business. In fact, we show up on a lot of the same spec sheets together, so there's a similar go-to-market model that way. And there's just overlap in a lot of the channels, both with the representatives who take our products to market.
Charles Lauber: Yeah, in terms of end markets, yeah, they're very strong in kind of the commercial markets, which was appealing to us. They serve in some ways, like with their the Heat-Timer controls business; it's very much a spec-in driven business, very similar to, like, our Lochinvar business. In fact, we show up on a lot of the same spec sheets together, so there's a similar go-to-market model that way. And there's just overlap in a lot of the channels, both with the representatives who take our products to market.
Speaker #3: In fact, we show up on a lot of the same spec sheets together. So there's a similar go-to-market model that way. And there's just overlap in a lot of the channels, both in the representatives who take our products to market and in distribution as well.
Way. And then on the actual way, the product is used it, it it interacts in the ecosystem similar to our products. So, you know, it's it's down in the mechanical rooms where where our products are often found and I think that, um, a similar trades and contractors operate with, with the product. So from that standpoint, it's a very, it's a very close adjacency in terms of product expansion and I think it's what's got us excited, strategically that. There's both ways we can work together and, and serve the market better and how we go to market. But also ways in which we can innovate and find ways that our products can interface and and create better solutions for our customers.
Speaker #3: So it's close to our categories in that way. And then on the actual way the product is used, it interacts in the ecosystem, similar to our products.
You know, as far as growth rate, you know, with the business has been growing double digits. So in that 10% range, um, it's kind of baked into how we think about the growth rate, largely driven by the digital portion of the markets that they serve.
Stephen Shafer: ... and in distribution as well. So, it's close to our categories in that way, and then on the actual way the product is used, it interacts in the ecosystem similar to our product. So, you know, it's down in the mechanical rooms where our products are often found, and I think that it's similar trades and contractors operate with the product. So from that standpoint, it's a very close adjacency in terms of product expansion. And I think it's what's got us excited strategically, that there's both ways we can work together and serve the market better and how we go to market, but also ways in which we can innovate and find ways that our products can interface and create better solutions for our customers.
... and in distribution as well. So, it's close to our categories in that way, and then on the actual way the product is used, it interacts in the ecosystem similar to our product. So, you know, it's down in the mechanical rooms where our products are often found, and I think that it's similar trades and contractors operate with the product. So from that standpoint, it's a very close adjacency in terms of product expansion. And I think it's what's got us excited strategically, that there's both ways we can work together and serve the market better and how we go to market, but also ways in which we can innovate and find ways that our products can interface and create better solutions for our customers.
Speaker #3: So, it's down in the mechanical rooms where our products are often found. And I think that it's similar trades and contractors who operate with the product.
Speaker #3: So, from that standpoint, it's a very close adjacency in terms of product expansion. And I think it's what's got us excited strategically—that there are both ways we can work together and serve the market better in how we go to market, but also ways in which we can innovate and find ways that our products can interface and create better solutions for our customers.
Great, that's helpful. And um I know there's a lot of moving pieces around price costs just with tariffs and, you know, lapping price increases and whatnot. But you maybe just give some thoughts about how you expect price cost to Trend through the year.
Yeah. I mean if you Steve Steve had comments around the competitive nature of what's happening in the marketplace today. Um you know we certainly also we also commented that we have some carryover prices in that we expect
Speaker #3: As far as growth rate, the business has been growing double digits, so in that 10% range. It's kind of baked into how we think about the growth rate, largely driven by the digital portion of the market that they serve.
Charles Lauber: You know, as far as growth rate, you know, the business has been growing double digits, so in that 10% range. It's kind of baked into how we think about the growth rate, largely driven by the digital portion of the market that they serve.
You know, as far as growth rate, you know, the business has been growing double digits, so in that 10% range. It's kind of baked into how we think about the growth rate, largely driven by the digital portion of the market that they serve.
Speaker #5: Great. That's helpful. And I know there's a lot of moving pieces around price costs just with tariffs and lapping price increases and whatnot. But could you maybe just give some thoughts about how you expect price costs to trend through the
To carry over in the next year and historically and I'll say we do it really good job with protecting our price cost relationship. Um so we do expect that to continue over time but also historically we generally see some fade you know we'll be watching that closely. I'll just kind of say that we're we're very committed to making sure in the competitive environment that we keep our customers competitive and we'll be focused on that.
Thank you.
Please stand by for our next question.
[Analyst] (KeyBanc Capital Markets): Great, that's helpful. And, I know there's a lot of moving pieces around price costs, just with tariffs and, you know, lapping price increases and whatnot, but can you maybe just give some thoughts about how you expect price costs to trend through the year?
[Analyst] (KeyBanc Capital Markets): Great, that's helpful. And, I know there's a lot of moving pieces around price costs, just with tariffs and, you know, lapping price increases and whatnot, but can you maybe just give some thoughts about how you expect price costs to trend through the year?
Our next question comes from the line of Brian. Blair with Oppenheimer. Your line is open.
Speaker #5: year? Yeah.
Thank you morning, everyone.
Speaker #3: I mean, Steve had comments around the competitive nature of what's happening in the marketplace today. We also commented that we have some carryover pricing that we expect to carry over into next year.
Good morning, Brian.
That would be great to.
Charles Lauber: Yeah, I mean, Steve, Steve had comments around the competitive nature of what's happening in the marketplace today. You know, we also commented that we have some carryover pricing that we expect to carry over in the next year. And historically, you know, I'll say we do a really good job of protecting our price-cost relationship. So we do expect that to continue over time. But it, also historically, we generally see some fade. You know, we'll be watching that closely. I'll just kinda say that we're very committed to making sure in the competitive environment, that we keep our customers competitive, and we'll be focused on that.
Charles Lauber: Yeah, I mean, Steve, Steve had comments around the competitive nature of what's happening in the marketplace today. You know, we also commented that we have some carryover pricing that we expect to carry over in the next year. And historically, you know, I'll say we do a really good job of protecting our price-cost relationship. So we do expect that to continue over time. But it, also historically, we generally see some fade. You know, we'll be watching that closely. I'll just kinda say that we're very committed to making sure in the competitive environment, that we keep our customers competitive, and we'll be focused on that.
Speaker #3: And historically, say, we do a really good job of protecting our price-cost relationship, so we do expect that to continue over time. Also, historically, we generally see some fade.
I guess following up on on 1 now. It'd be great to hear a bit more about the build out and and Prospects of your water management platform. Uh, I guess how should we think about Tam expansion? Given the new products and applications that
Speaker #3: We'll be watching that closely. I'll just kind of say that we're very committed to making sure in the competitive environment that we keep our customers competitive and we'll be focused on that.
That are involved there. Um, or potential there and in what ways is is LBC, you know, foundational, uh, you know, to the build out, and again, given the right opportunities, how aggressive would your team like to be on incremental MNA?
Speaker #1: Thank you. Please stand by for our next question. Our next question comes from the line of Bryant Blair with Oppenheimer. Your line is
I mean, we're excited about the way. We're defining kind of the Water Management Market. Um,
you know, as I as I mentioned, it's it's kind of thinking about how does water
Speaker #1: open. Thank you.
Speaker #6: Good morning,
Speaker #6: everyone. Good morning,
Operator: Thank you. Please stand by for our next question. Our next question comes from the line of Bryan Blair with Oppenheimer. Your line is open.
Operator: Thank you. Please stand by for our next question. Our next question comes from the line of Bryan Blair with Oppenheimer. Your line is open.
Speaker #6: It'd be great Bryant. to, I guess, following up on Leonard Valve, it'd be great to hear a bit more about the build-out and prospects of your water management platform.
Bryan Blair: Thank you. Good morning, everyone.
Bryan Blair: Thank you. Good morning, everyone.
Charles Lauber: Good morning, Bryan.
[crosstalk] Good morning, Bryan.
Speaker #6: I guess, how would you think about TAM expansion given the new products and applications that are involved there or potential there? And in what ways is LVC foundational to the build-out and given the right opportunities, how aggressive would your team like to be on incremental M&A?
Bryan Blair: It'd be great to—I guess following up on one of now, but great to hear a bit more about the build-out and prospects of your water management platform. I guess, how should we think about TAM expansion, given the new products and then applications that are involved there, or potential there? And in what way is LVC, you know, foundational, you know, to the build-out? And again, given the right opportunities, how aggressive would your team like to be on incremental M&A?
Bryan Blair: It'd be great to—I guess following up on one of now, but great to hear a bit more about the build-out and prospects of your water management platform. I guess, how should we think about TAM expansion, given the new products and then applications that are involved there, or potential there? And in what way is LVC, you know, foundational, you know, to the build-out? And again, given the right opportunities, how aggressive would your team like to be on incremental M&A?
Speaker #3: I mean, we're excited about the way we're defining kind of the water management market. As I mentioned, it's kind of thinking about how does water move mix get controlled through the ecosystem of residential and commercial units.
Stephen Shafer: I mean, we're excited about the way we're defining kind of the water management market. You know, as I mentioned, it's kind of thinking about how does water move, mix, get controlled through the ecosystem of, you know, residential and commercial units. We play an important part in that today with the categories of our water heaters and boilers, and I think there's a lot of other products that help make that happen. So, you know, we're still early in our journey of kind of shaping up where the right places are for us to participate. So your question around TAM, I think we're excited about that it does open us up to bigger market opportunities. We've got what we think is an exciting and healthy pipeline of where we could go to do that.
Stephen Shafer: I mean, we're excited about the way we're defining kind of the water management market. You know, as I mentioned, it's kind of thinking about how does water move, mix, get controlled through the ecosystem of, you know, residential and commercial units. We play an important part in that today with the categories of our water heaters and boilers, and I think there's a lot of other products that help make that happen. So, you know, we're still early in our journey of kind of shaping up where the right places are for us to participate. So your question around TAM, I think we're excited about that it does open us up to bigger market opportunities. We've got what we think is an exciting and healthy pipeline of where we could go to do that.
Speaker #3: We play an important part in that today with the categories of our water heater and boilers. And I think there's a lot of other products that help make that happen.
Move mix get controlled through the ecosystem of, you know, residential and Commercial. You know, it's we play an important part in that today with the categories of our water heater water, heaters and boilers. And I think there's a lot of other uh products that help make that happen. And so you know we we we we're we're still early in our journey of kind of shaping up where the right places are for us to participate. So your question around Tam, I think we're excited about that. It does open us up to bigger Market opportunities. Um, we've got what we think is an exciting and healthy pipeline of where we could go to do that. Obviously, when it comes to acquisition, there's a lot of things that have to come together to make that work. But we think our reputation in the industry helps us, um, because we're a good spot for for good, high quality companies to kind of come together around and how we serve the market. And I think, you know that, there'll be that as near-term opportunities, as we think about how do we go together, um, into the marketplace.
Speaker #3: And so, we're still early in our journey of kind of shaping up where the right places are for us to participate. So your question around TAM, I think we're excited about that—it does open us up to bigger market opportunities.
Speaker #3: We've got what we think is an exciting and healthy pipeline of where we could go to do that. Obviously, when it comes to acquisition, there's a lot of things that have to come together.
Provide these products that are well established categories today and then longer term, I think it creates more growth for us because it allows us new ways to create, you know, value for our customers today. We do that in a, in a meaningful Way by driving more efficiency and performance, in the water heater, and boiler products that we serve the market. But if you think about how, you know, commercial customers, uh, you know, use our products,
Speaker #3: To make that work, but we think our reputation in the industry helps us because we're a good spot for good high-quality companies to kind of come together around and how we serve the market.
Are thinking about things like Energy Efficiency, more broadly, uh, having a a way to serve the market with an ecosystem, I think is a way to create more value.
Stephen Shafer: Obviously, when it comes to acquisition, there's a lot of things that have to come together to make that work, but we think our reputation in the industry helps us, because we're a good spot for good, high quality companies to kinda come together around in how we serve the market. And I think, you know, there'll be that near-term opportunities as we think about how do we go together, into the marketplace, provide these products that are well-established categories today. And then longer term, I think it creates more growth for us because it allows us new ways to create, you know, value for our customers. Today, we do that in a meaningful way by driving more efficiency and performance in the water heater and boiler products that we serve the market.
Obviously, when it comes to acquisition, there's a lot of things that have to come together to make that work, but we think our reputation in the industry helps us, because we're a good spot for good, high quality companies to kinda come together around in how we serve the market. And I think, you know, there'll be that near-term opportunities as we think about how do we go together, into the marketplace, provide these products that are well-established categories today. And then longer term, I think it creates more growth for us because it allows us new ways to create, you know, value for our customers. Today, we do that in a meaningful way by driving more efficiency and performance in the water heater and boiler products that we serve the market.
Speaker #3: think there'll be those near-term And I opportunities as we think about how do we go together into the marketplace, provide these products that are well-established categories today, and then longer-term, I think it creates more growth for us because it allows us new ways to create value for our customers.
Okay, that makes a lot of sense. And you noted, the Strategic assessment of China is is ongoing. Uh, so I know there isn't a definitive update but you did mention a number of potential partners.
Speaker #3: Today, we do that in a meaningful way by driving more efficiency and performance in the water heater and boiler products that we serve the market.
I just curious, if you could offer any any other color on on direction or whether, you know, options or considerations have narrowed, and whether there's any connection to, you know, any of the incremental, turnaround actions that are underway now.
Speaker #3: But if you think about how commercial customers use our products and are thinking about things like energy efficiency more broadly, having a way to serve the market with an ecosystem, I think, is a way to create more
Stephen Shafer: But if you think about how, you know, commercial customers, you know, use our products and are thinking about things like energy efficiency more broadly, having a way to serve the market with an ecosystem, I think is a way to create more value.
But if you think about how, you know, commercial customers, you know, use our products and are thinking about things like energy efficiency more broadly, having a way to serve the market with an ecosystem, I think is a way to create more value.
Speaker #3: value. Okay.
Speaker #6: That makes a lot of sense. And you noted the strategic assessment of China is ongoing. So we know there's a definitive update, but you did mention a number of potential partners.
Speaker #6: I'm just curious if you could offer any other color on direction or whether options or considerations have narrowed and whether there's any connection to any of the incremental turnaround actions that are underway
Bryan Blair: Okay, that makes a lot of sense. And you noted the strategic assessment of China is ongoing, so there isn't a definitive update, but you did mention a number of potential partners. I'm just curious if you could offer any other color on direction or whether, you know, options or considerations have narrowed, and whether there's any connection to, you know, any of the incremental turnaround actions that are underway now.
Bryan Blair: Okay, that makes a lot of sense. And you noted the strategic assessment of China is ongoing, so there isn't a definitive update, but you did mention a number of potential partners. I'm just curious if you could offer any other color on direction or whether, you know, options or considerations have narrowed, and whether there's any connection to, you know, any of the incremental turnaround actions that are underway now.
Speaker #6: now. Yeah.
Speaker #3: I'd say we're moving with urgency. Because we know when we talk about an assessment of the business, right, we're still running the business. And we have employees and customers that we want to provide some confidence and certainty to.
Stephen Shafer: Yeah, I'd say, you know, we're moving with urgency, 'cause we know when we talk about an assessment of the business, right? We're still running the business, and we have employees and customers that we wanna provide some confidence and certainty to. But I would say, while we do that with urgency, we're also being thoughtful to do it in the right way. And our goal, again, is to make sure that we set the business up to be as competitive as possible going forward. I can't get into the specifics of the folks that we're necessarily working with, but we are learning, I think a lot about other options out there on what we can pursue. I think, as I mentioned, the quality of the conversations have been terrific.
Stephen Shafer: Yeah, I'd say, you know, we're moving with urgency, 'cause we know when we talk about an assessment of the business, right? We're still running the business, and we have employees and customers that we wanna provide some confidence and certainty to. But I would say, while we do that with urgency, we're also being thoughtful to do it in the right way. And our goal, again, is to make sure that we set the business up to be as competitive as possible going forward. I can't get into the specifics of the folks that we're necessarily working with, but we are learning, I think a lot about other options out there on what we can pursue. I think, as I mentioned, the quality of the conversations have been terrific.
Speaker #3: But I would say while we do that with urgency, we're also being thoughtful to do it in the right way. And our goal, again, is to make sure that we set the business up to be as competitive as possible going forward.
But I would say while we do that with urgency, we're also being thoughtful to do it in a right way. And our goal again is to make sure that we set the business up to be as competitive as possible going forward. Um, I can't get into the specifics of the, of the folks that were necessarily working with but um, but we are learning, I think a lot about other options out there on what we can pursue. I think as I mentioned the the quality of the conversations have been terrific our our local team in China has been very active and involved in in that to make sure. We're, we're thinking about things the right way and I'm I'm, you know, we'll we'll continue to move that forward and we'll continue to update you guys, as we learn more. But at this point, we don't have anything in terms of how we've narrowed the scope in terms of what potential options uh and outcomes could come from it. But I'm I'm pretty happy that we're the process itself is uh has been very helpful for us.
Thank you.
Speaker #3: I can't get into the specifics of the folks that we're necessarily working with, but we are learning, I think, a lot about other options out there on what we can pursue.
Our next question comes from the line of David MacGregor with Longbow research, your line is open.
Speaker #3: I think, as I mentioned, the quality of the conversations have been terrific. Our local team in China has been very active and involved in that to make sure we're thinking about things the right way.
Yes. Uh, good morning everyone. Um, I guess I want to start by talking about good morning. I wanted to begin by asking you about the water treatment business and you called out the 400 basis points of margin Improvement. And
Speaker #3: And I'm we'll continue to move that forward, and we'll continue to update you guys as we learn more. But at this point, we don't have anything in terms of how we've narrowed the scope in terms of what potential options and outcomes could come from it.
2025, which is quite an accomplishment and maybe you could maybe talk a little further about uh just sort of the composition of that Improvement and and I guess as well just, you know where now in terms of where those margins go and
Stephen Shafer: Our local team in China has been very active and involved in that, to make sure we're thinking about things the right way. And I'm. You know, we'll continue to move that forward, and we'll continue to update you guys as we learn more. But at this point, we don't have anything in terms of how we've narrowed the scope, in terms of what potential options, and outcomes could come from it. But I'm pretty happy that we're with the process itself is has been very helpful for us.
Our local team in China has been very active and involved in that, to make sure we're thinking about things the right way. And I'm. You know, we'll continue to move that forward, and we'll continue to update you guys as we learn more. But at this point, we don't have anything in terms of how we've narrowed the scope, in terms of what potential options, and outcomes could come from it. But I'm pretty happy that we're with the process itself is has been very helpful for us.
Speaker #3: But I'm pretty happy that we're the process itself is been very helpful for
at 1 point, I think the the goal had been to grow those margins at about 100 basis points, a year through a variety of different initiatives. And, you know, how are you thinking now? About kind of multi-year annual profitability growth in that business
Speaker #3: us. Thank
Speaker #1: you. Our next question comes from the line of David McGregor with Longwell Research. Your line is open.
Speaker #5: Yes. Good morning, everyone. I guess I want to start by talking about good morning. I wanted to begin by asking you about the water treatment business.
Operator: Thank you. Our next question comes from the line of David MacGregor with Longbow Research. Your line is open.
Operator: Thank you. Our next question comes from the line of David MacGregor with Longbow Research. Your line is open.
Speaker #5: And you called out the 400 basis points of margin improvement. And 2025, which is quite an accomplishment, and maybe you could maybe talk a little further about just sort of the composition of that improvement and, I guess, as well, just where now in terms of where those margins go and at one point, I think the goal had been to grow those margins at about 100 basis points a year through a variety of different initiatives.
David MacGregor: Yes, good morning, everyone. Good morning. I wanted to begin by asking about the water treatment business. You called out the 400 basis points of margin improvement in 2025, which is quite an accomplishment, and maybe you could maybe talk a little further about just sort of the composition of that improvement. And I guess as well, just, you know, where now in terms of where those margins go? And at one point, I think the goal had been to grow those margins at about 100 basis points a year through a variety of different initiatives. And, you know, how are you thinking now about kind of multi-year annual profitability growth in that business?
David MacGregor: Yes, good morning, everyone. Good morning. I wanted to begin by asking about the water treatment business. You called out the 400 basis points of margin improvement in 2025, which is quite an accomplishment, and maybe you could maybe talk a little further about just sort of the composition of that improvement. And I guess as well, just, you know, where now in terms of where those margins go? And at one point, I think the goal had been to grow those margins at about 100 basis points a year through a variety of different initiatives. And, you know, how are you thinking now about kind of multi-year annual profitability growth in that business?
Speaker #5: And how are you thinking now about kind of multi-year, annual profitability growth in that business?
Speaker #3: Yeah, we like the space, and for AO Smith, we entered it eight years ago because we understood the megatrends, and we felt like there was a lot we could bring into the space in terms of how we run our businesses.
Stephen Shafer: Yeah, we like the space and at A. O. Smith, we entered in it, you know, 8 years ago because we understood the mega trends, and we felt like there was a lot we could bring into this space in terms of how we run our businesses. To kind of build the platform, we made a number of acquisitions, and I think what we've done recently is we've now taken kind of a state of what have we learned through the businesses that we bought and through running the businesses, and that helped define for us a little bit of our journey and our path going forward. And as we've been talking about for the last year or so, part of it was prioritizing which part of the market we wanted to really focus on and invest in.
Stephen Shafer: Yeah, we like the space and at A. O. Smith, we entered in it, you know, 8 years ago because we understood the mega trends, and we felt like there was a lot we could bring into this space in terms of how we run our businesses. To kind of build the platform, we made a number of acquisitions, and I think what we've done recently is we've now taken kind of a state of what have we learned through the businesses that we bought and through running the businesses, and that helped define for us a little bit of our journey and our path going forward. And as we've been talking about for the last year or so, part of it was prioritizing which part of the market we wanted to really focus on and invest in.
Yeah, we we we like the space and for as Smith we we entered it, you know, 8 years ago because we understood the mega Trends and we felt like there was a lot we could bring into the space in terms of how we run our businesses, um, to kind of build the platform. We made a number of Acquisitions. And I think, what we've done recently is we've now taken kind of a state of of what have we learned, uh, through the businesses that we bought and through running the businesses and that helped Define for us a little bit of our journey and our past going forward. And as, as we've been talking about for the the last year or so part of, it was prioritizing, which part of the market. Um, we wanted to really focus on and invest in and that's going to obviously a little bit of a growth drag for the business as we've decided to deprioritize some things. The end of 2024, we took some restructuring charges to to help reorient that business. And now I think, you know what we're excited about is that we we we know the spaces in the market where we really want to focus and play. Um,
Speaker #3: To kind of build the platform, we made a number of acquisitions, and I think what we've done recently is we've now taken kind of a state of what have we learned through the businesses that we bought and through running the businesses.
Speaker #3: And that helped define for us a little bit of our journey and our path going forward. And as we've been talking about for the last year or so, part of it was prioritizing which part of the market we wanted to really focus on and invest in.
And that's helping us uh, drive a more profitable part of the business. Also, the growth in the spaces where we want to play, and we're very pleased with um, and then also along with that is the natural path of just sort of learning how to kind of integrate the businesses. Take advantage of levers, you can pull to create value by doing that and and and and that I think is a journey we're still on.
Speaker #3: And that's been obviously a little bit of a growth drag for the business as we've decided to deprioritize some things. The end of 2024, we took some restructuring charges to help reorient that business.
Speaker #3: And now I think what we're excited about is we know the spaces in the market where we really want to focus and play. And that's helping us drive a more profitable part of the business.
Stephen Shafer: That's been obviously a little bit of a growth drag for the business as we've decided to deprioritize some things. The end of 2024, we took some restructuring charges to help reorient that business. Now I think, you know, what we're excited about is that we know the spaces in the market where we really want to focus and play, and that's helping us drive a more profitable part of the business. Also, the growth in the spaces where we want to play, we're very pleased with. And then also along with that, it's the natural path of just sort of learning how to kind of integrate the businesses, take advantage of levers you can pull to create value by doing that. And that, I think, is a journey we're still on.
That's been obviously a little bit of a growth drag for the business as we've decided to deprioritize some things. The end of 2024, we took some restructuring charges to help reorient that business. Now I think, you know, what we're excited about is that we know the spaces in the market where we really want to focus and play, and that's helping us drive a more profitable part of the business. Also, the growth in the spaces where we want to play, we're very pleased with. And then also along with that, it's the natural path of just sort of learning how to kind of integrate the businesses, take advantage of levers you can pull to create value by doing that. And that, I think, is a journey we're still on.
Going forward. I think like I said, I think we're we're we're focused on where we want to play. We think we can continue to really add value into the water treatment Market. Um, we're excited about where this business can go. We're still very excited about the market opportunity overall, and we think we can continue. As I've mentioned in my prepared comments to uh, to drive meaningful growth with this business, as well as continued to expand margins as we scale. And as we continue to pull levers on integrating the business,
Speaker #3: Also, the growth in the spaces where we want to play—we're very pleased with. And then, also along with that, is the natural path of just sort of learning how to kind of integrate the businesses, take advantage of levers you can pull to create value by doing that.
C, can you?
Margins might be today versus uh sort of the North American segment averages and then I have a follow-up.
Speaker #3: And that, I think, is a journey we're still on. And going forward, I think, like I said, I think we're focused on where we want to play.
Speaker #3: We think we can continue to really add value into the water treatment market. We're excited about where this business can go. We're still very excited about the market opportunity overall.
Stephen Shafer: Going forward, I think, like I said, I think we're focused on where we want to play, and we think we can continue to really add value into the water treatment market. We're excited about where this business can go. We're still very excited about the market opportunity overall, and we think we can continue, as I've mentioned in my prepared comments, to drive meaningful growth with this business, as well as continue to expand margins as we scale and as we continue to pull levers on integrating the business.
Going forward, I think, like I said, I think we're focused on where we want to play, and we think we can continue to really add value into the water treatment market. We're excited about where this business can go. We're still very excited about the market opportunity overall, and we think we can continue, as I've mentioned in my prepared comments, to drive meaningful growth with this business, as well as continue to expand margins as we scale and as we continue to pull levers on integrating the business.
Speaker #3: And we think we can continue, as I've mentioned in my prepared comments, to drive meaningful growth with this business, as well as continue to expand margins as we scale and as we continue to pull levers on integrating the business.
Yeah, I mean, the so the margins today, at 400 expansion of basis points, kind of takes you into the zip code of about 13% operating margins and, you know, our North America margins at 24.4 this year. So, you know, expanding it to 20, another 200 basis points because it's a 15% margins. Um, and we, you know, we we like the fact that we're kind of back to that mid teens digits and looking for opportunities for m&a to uh, match with
The business to continue to grow the business and maybe uh, have opportunities to enhance that margin profile throughout m&a transactions.
Speaker #5: Yeah. Can you offer any sort of thought on where those margins might be today versus sort of the North American segment averages? And then I have a follow-up.
Speaker #3: Yeah. I mean, so the margins today at 400 expansion of basis points kind of takes you into the zip code of about 13% operating margins.
Right, congratulations on that progress as a follow-up. I guess I just wanted to stay close to the water treatment business and just ask for any thoughts. You've got and what you're seeing in the way of consumer demand patterns and and how that may be evolving and how that's influencing your guide on 26.
David MacGregor: Yeah. Can you offer any sort of thought on where those margins might be today versus sort of the North American segment averages? And then I have a follow-up.
David MacGregor: Yeah. Can you offer any sort of thought on where those margins might be today versus sort of the North American segment averages? And then I have a follow-up.
Speaker #3: And you know our North America margins at 24.4 this year. So expanding it to another 200 basis points because there's a 15% margins and we like the fact that we're kind of back to that mid-teens digits and looking for opportunities for M&A.
Stephen Shafer: Yeah, I mean, so the margins today at 400 basis points expansion kind of takes you into the zip code of about 13% operating margins, and you know our North America margin's at 24.4% this year. So, you know, expanding it to 20, another 200 basis points gets us to 15% margins. And, we, you know, we like the fact that we're kind of back to that mid-teens digits and looking for opportunities for M&A to match with the business, to continue to grow the business, and maybe have opportunities to enhance that margin profile through a M&A transaction.
Stephen Shafer: Yeah, I mean, so the margins today at 400 basis points expansion kind of takes you into the zip code of about 13% operating margins, and you know our North America margin's at 24.4% this year. So, you know, expanding it to 20, another 200 basis points gets us to 15% margins. And, we, you know, we like the fact that we're kind of back to that mid-teens digits and looking for opportunities for M&A to match with the business, to continue to grow the business, and maybe have opportunities to enhance that margin profile through a M&A transaction.
For water treatment. Yeah, I mean, I think overall that that business is closely connected to Consumer. So there's there's, I'd say some caution that we see from consumers, you know, you know, um, in in some segments of the market it considered a discretionary spend item, so
Speaker #3: To match with the business to continue to grow the business and maybe have opportunities to enhance that margin profile throughout M&A.
growth, because we see,
Speaker #3: transactions. Right.
Speaker #5: Well, congratulations on that progress. As a follow-up, I guess I just wanted to stay close to the water treatment business and just ask for any thoughts you've got on what you're seeing in the way of consumer demand patterns and how that may be evolving and how that's influencing your guide on
The, the category is still growing, we still see penetration opportunities and we still see our opportunity to build out our own dealer Network and and grow, uh, even beyond the market.
Thank you.
David MacGregor: Right. Congratulations on that progress. As a follow-up, I guess I just wanted to stay close to the water treatment business and just ask for any thoughts you've got on what you're seeing in the way of consumer demand patterns and how that may be evolving, and how that's influencing your guide on 2026 for water treatment.
David MacGregor: Right. Congratulations on that progress. As a follow-up, I guess I just wanted to stay close to the water treatment business and just ask for any thoughts you've got on what you're seeing in the way of consumer demand patterns and how that may be evolving, and how that's influencing your guide on 2026 for water treatment.
Speaker #5: 26. For water treatment. Yeah.
Our next question comes from Milan of Scott, Graham with Seaport research Partners, your line is open.
Speaker #3: I mean, I think overall that business is closely connected to consumers. So, there's, I'd say, some caution that we see from consumers. In some segments of the market, it's considered a discretionary spend item.
Yeah, hi. Um, good morning. I wanted to maybe get a little bit more color from you guys on, uh, you know, maybe beyond what you provided with the initial question on this.
Stephen Shafer: Yeah, I mean, I think overall, that business is closely connected to consumers, so there's, I'd say, some caution that we see from consumers. You know, in some segments of the market, it's considered a discretionary spend item. So, you know, from that standpoint, I think there's maybe cautiousness as we enter 2026, but overall, we still see it as growth because we see the category is still growing, we still see penetration opportunities, and we still see our opportunity to build out our own dealer network and grow even beyond the market.
Stephen Shafer: Yeah, I mean, I think overall, that business is closely connected to consumers, so there's, I'd say, some caution that we see from consumers. You know, in some segments of the market, it's considered a discretionary spend item. So, you know, from that standpoint, I think there's maybe cautiousness as we enter 2026, but overall, we still see it as growth because we see the category is still growing, we still see penetration opportunities, and we still see our opportunity to build out our own dealer network and grow even beyond the market.
Speaker #3: So from that standpoint, I think there's maybe cautiousness as we enter 2026. But overall, we still see it as growth because we see the category still growing.
Competition in, you know, in distribution. Uh, wholesale. And what I'm wondering is
Saying that.
Like residential water heaters in that channel are now kind of more.
Speaker #3: We see penetration opportunities, and we still see our opportunity to build out our own dealer network and grow even beyond the market.
Jump ball, or is it that maybe some of the higher end stuff because of the pros?
Speaker #1: Thank you. Our next question comes from the line of Scott Graham with Seaport Research Partners. Your line is open.
That that is what is maybe under a little bit of pressure, is it? So in other words, you know, if wholesale is half of residential approximately
Speaker #4: Yeah. Hi. Good morning. I wanted to maybe get a little bit more color from you guys on maybe beyond what you provided with the initial question on this competition in distribution.
David MacGregor: Thank you. Our next question comes from the line of Scott Graham with Seaport Research Partners. Your line is open.
Operator: Thank you. Our next question comes from the line of Scott Graham with Seaport Research Partners. Your line is open.
Is that entire half an area of concern now? Or is it less?
Scott Graham: Yeah. Hi, good morning. I wanted to maybe get a little bit more color from you guys on, you know, maybe beyond what you provided with the initial question on this competition in, you know, in distribution, wholesale. And what I'm wondering is, are you kind of saying that, like, residential water heaters in that channel are now kind of more jump ball? Or is it that maybe some of the higher-end stuff, because of the pros, that that is what is maybe under a little bit of pressure? Is it, so in other words, you know, if wholesale is half of residential, approximately, is that entire half an area of concern now, or is it less?
Scott Graham: Yeah. Hi, good morning. I wanted to maybe get a little bit more color from you guys on, you know, maybe beyond what you provided with the initial question on this competition in, you know, in distribution, wholesale. And what I'm wondering is, are you kind of saying that, like, residential water heaters in that channel are now kind of more jump ball? Or is it that maybe some of the higher-end stuff, because of the pros, that that is what is maybe under a little bit of pressure? Is it, so in other words, you know, if wholesale is half of residential, approximately, is that entire half an area of concern now, or is it less?
Speaker #4: Wholesale. And what I'm wondering is, are you kind of saying that residential water heaters in that channel are now kind of more jump ball?
Speaker #4: Or is it that maybe some of the higher-end stuff, because of the pros, that is what is maybe under a little bit of pressure?
No, I I don't think the characterization of a jump ball is, is what's happening? I, I would care, I, I characterize it more of a lot of the industry dynamics that have always been out there, right? And you have, you have Channel partners that are, you know, dedicated to certain brands and and we partner very closely with them to help, you know, reach and serve our our, the contractors and And Trades groups well. And then there's others that carry multiple Brands and that some some share shift that happens.
Speaker #4: Is it so in other words, if wholesale is half of residential, approximately, is that entire half an area of concern now? Or is it
Speaker #4: Is it—so, in other words, if wholesale is half of residential, approximately, is that entire half an area of concern now? Or is it less?
Speaker #3: No, I don't think the characterization of a jump ball is what's happening. I would characterize it more as a lot of the industry dynamics that have always been out there, right?
Stephen Shafer: No, I don't think the characterization of a jump ball is what's happening. I would characterize it more of a lot of industry dynamics that have always been out there, right? And you have channel partners that are, you know, dedicated to certain brands, and we partner very closely with them to help, you know, reach and serve our, the contractors and trades groups well, and then there's others that carry multiple brands, and there's some share shift that happens through those dynamics. I would say that those are the dynamics. They've always been in that part of the market. They're still the dynamics playing out today. What we find is oftentimes when there are movements around share, there's typically reactions to those movements, and those take time to play out.
Stephen Shafer: No, I don't think the characterization of a jump ball is what's happening. I would characterize it more of a lot of industry dynamics that have always been out there, right? And you have channel partners that are, you know, dedicated to certain brands, and we partner very closely with them to help, you know, reach and serve our, the contractors and trades groups well, and then there's others that carry multiple brands, and there's some share shift that happens through those dynamics. I would say that those are the dynamics. They've always been in that part of the market. They're still the dynamics playing out today. What we find is oftentimes when there are movements around share, there's typically reactions to those movements, and those take time to play out.
Speaker #3: And you have channel partners that are dedicated to certain brands and we partner very closely with them. To help reach and serve the contractors and trades groups well.
Speaker #3: And then there's others that carry multiple brands. And there's some share shift that happens through those dynamics. I would say those are the dynamics they've always been in that part of the market.
Speaker #3: They're still the dynamics playing out today. What we find is oftentimes when there are movements around share there's typically reactions to those movements. And those take time to play out.
Through those Dynamics, I would say that those are the Dynamics, they've always been. In that part of the market. They're still the Dynamics playing out today. What we find is often times when there are movements, uh, around share, there's typically reactions to those movements and those take time to play out. And, and I think where we are right now in the wholesale market, like I said, it gets, it gets a little bit more intense when the market itself does not growing because the new construction builds aren't there that the wholesale Channel primarily, you know, is the, is the mechanism that serves that part of the market. Um, there's a little bit of pressure as we mentioned coming from the retail players who are really looking to make inroads with, with the professionals. So that intensity is dial up a little bit, but the Dynamics itself are not new and I'd say, they're ones that we typically know how to navigate, and we do this working closely with our customers. And like I said, as there are actions and movements that happen, um, there's typically reactions and over time those things work their way out. And that's that's our Focus.
Navigate here. Uh, when we talk about the start of 2026,
Speaker #3: And I think where we are right now in the wholesale market, like I said, it gets a little bit more intense when the market itself is not growing because the new construction builds aren't there that the wholesale channel primarily is the mechanism that serves that part of the market.
Stephen Shafer: And I think where we are right now in the wholesale market, like I said, it gets a little bit more intense when the market itself is not growing because the new construction builds aren't there. That, the wholesale channel primarily, you know, is the mechanism that serves that part of the market. There's a little bit of pressure, as we mentioned, coming from the retail players who are really looking to make inroads with the professionals. So that intensity is dialed up a little bit, but the dynamics itself are not new, and I'd say they're ones that we typically know how to navigate, and we do it working closely with our customers.
And I think where we are right now in the wholesale market, like I said, it gets a little bit more intense when the market itself is not growing because the new construction builds aren't there. That, the wholesale channel primarily, you know, is the mechanism that serves that part of the market. There's a little bit of pressure, as we mentioned, coming from the retail players who are really looking to make inroads with the professionals. So that intensity is dialed up a little bit, but the dynamics itself are not new, and I'd say they're ones that we typically know how to navigate, and we do it working closely with our customers.
Speaker #3: There's a little bit of pressure, as we mentioned, coming from the retail players who are really looking to make inroads with the professionals. So that intensity is dialed up a little bit, but the dynamics themselves are not new.
Speaker #3: And I'd say they're ones that we typically know how to navigate. And we do it working closely with our customers. And like I said, as there are actions and movements that happen, there's typically reactions.
Okay, thank you for that. I, I want to maybe just ask a follow-up question on Capitol. And, you know, with the Leonard valve Acquisitions. It's clearly, uh, more of a pivot to, you know, Stephen what you said about, you know, water management. And so what I'm wondering here is that with this pivot and I know you found Leonard valve and that's wonderful. But for many years the focus was on water treatment, pretty much as a silo.
Speaker #3: And over time, those things work their way out. And that's our focus of what we're going to navigate here when we talk about the start of 2026.
Speaker #3: And over time, those things work their way out. And that's our focus of what we're going to navigate here when we talk about the start of 2026.
And I'm just wondering how the pipeline is in water management with Leonard. Now done. Is that something that you have to build, or have you been building a pipeline there?
Stephen Shafer: And like I said, as there are actions and movements that happen, there's typically reactions, and over time, those things work their way out, and that's, that's our focus of what we're gonna navigate here, when we talk about the start of 2026.
And like I said, as there are actions and movements that happen, there's typically reactions, and over time, those things work their way out, and that's, that's our focus of what we're gonna navigate here, when we talk about the start of 2026.
Speaker #4: Okay. Thank you for that. I want to maybe just ask a follow-up question on capital and with the Leonard Valve acquisitions that's clearly more of a pivot to Steven, what you said about water management.
Scott Graham: Okay, thank you for that. I wanna maybe just ask a follow-up question on capital. And, you know, with the Leonard Valve acquisitions, it's clearly more of a pivot to, you know, Stephen, what you said about, you know, water management. And so, what I'm wondering here is that with this pivot, and I know you found Leonard Valve, and that's wonderful, but for many years, the focus was on water treatment, pretty much as a silo. And I'm just wondering how the pipeline is in water management with Leonard now done. Is that something that you have to build, or have you been building a pipeline there?
Scott Graham: Okay, thank you for that. I wanna maybe just ask a follow-up question on capital. And, you know, with the Leonard Valve acquisitions, it's clearly more of a pivot to, you know, Stephen, what you said about, you know, water management. And so, what I'm wondering here is that with this pivot, and I know you found Leonard Valve, and that's wonderful, but for many years, the focus was on water treatment, pretty much as a silo. And I'm just wondering how the pipeline is in water management with Leonard now done. Is that something that you have to build, or have you been building a pipeline there?
Speaker #4: And so what I'm wondering here is that, with this pivot—and I know you found Leonard Valve and that's wonderful—but for many years, the focus was on water treatment pretty much as a silo.
A, a pipeline that's been pretty visible for us for a while. I mean, I think when you're in kind of the plumbing space, you know, who the players are. Like I said, there's a lot of overlap on how how you go to market. There's a lot of overlap in terms of how you serve contractors, so it's not a starting from scratch, kind of pipeline. I think that's been visible to us. I think the focus and attention we're putting on it is, is, is now kind of dialed up because there's a lot of different options of ways we could go. As you mentioned, we've been very focused on building out the water treatment platform.
Speaker #4: And I'm just wondering how the pipeline is in water management with Leonard now done. Is that something that you have to build? Or have you been building a pipeline
Speaker #4: there? I
Speaker #3: I think it's a pipeline that's been pretty visible for us for a while. I mean, I think when you're in kind of the plumbing space, you know who the players are.
Speaker #3: Like I said, there's a lot of overlap on how you go to market. There's a lot of overlap in terms of how you serve contractors.
Stephen Shafer: I think it's a pipeline that's been pretty visible for us for a while. I mean, I think when you're in kind of the plumbing space, you know who the players are. Like I said, there's a lot of overlap on how you go to market. There's a lot of overlap in terms of how you serve contractors. So it's not a starting from scratch kind of pipeline. I think that's been visible to us. I think the focus and attention we're putting on it is now kind of dialed up, because there's a lot of different options of ways we could go. As you mentioned, we've been very focused on building out the water treatment platform. And, you know, this is a pivot that's not us walking away from water treatment.
Stephen Shafer: I think it's a pipeline that's been pretty visible for us for a while. I mean, I think when you're in kind of the plumbing space, you know who the players are. Like I said, there's a lot of overlap on how you go to market. There's a lot of overlap in terms of how you serve contractors. So it's not a starting from scratch kind of pipeline. I think that's been visible to us. I think the focus and attention we're putting on it is now kind of dialed up, because there's a lot of different options of ways we could go. As you mentioned, we've been very focused on building out the water treatment platform. And, you know, this is a pivot that's not us walking away from water treatment.
Speaker #3: So it's not a starting-from-scratch kind of pipeline. I think that's been visible to us. I think the focus and attention we're putting on it is now kind of dialed up because there's a lot of different options of ways we could go as you mentioned.
Speaker #3: We've been very focused on building out the water treatment platform. And this is a pivot that's not us walking away from water treatment. In fact, we think that's a very attractive growth platform that we're going to continue to invest in.
And you know this is a pivot that that's not us walking away from water treatment. In fact we think that's a very attractive growth platform that we're going to continue to invest in but we do feel like there's more opportunity for us as a company and we we we love our core water heater and boiler business today. It generates great cash flow, you know, it's very resilient. We're a market leader in that space, and, and we want to think about how do we leverage that to actually find more growth opportunities, um, where we participate. That's what we're trying to do with our water management effort. I think we, we know who the players are out there. But, as I mentioned, with any acquisition strategy, there's a lot dependent upon. Um, you know, what's available and when and I think we can be competitive there, and we're also going to remain disciplined in our approach and how we go after it.
Thank you.
Our next question comes from Alan of tommo. Hicko Sono with JP Morgan. Your line is open.
Speaker #3: But we do feel like there's more opportunity for us as a company, and we love our core water heater and boiler business today. It generates great cash flow.
Good morning. This is Ethan on for tommo. Thank you for taking my question today.
Stephen Shafer: In fact, we think that's a very attractive growth platform that we're gonna continue to invest in. But we do feel like there's more opportunity for us as a company, and we love our core water heater and boiler business today. It generates great cash flow. You know, it's very resilient. We're a market leader in that space. And we wanna think about how do we leverage that to actually find more growth opportunities, where we participate. That's what we're trying to do with our water management effort. I think we know who the players are out there, but as I mentioned, with any acquisition strategy, there's a lot dependent upon, you know, what's available and when, and I think we can be competitive there. We're also gonna remain disciplined in our approach on how we go after it.
In fact, we think that's a very attractive growth platform that we're gonna continue to invest in. But we do feel like there's more opportunity for us as a company, and we love our core water heater and boiler business today. It generates great cash flow. You know, it's very resilient. We're a market leader in that space. And we wanna think about how do we leverage that to actually find more growth opportunities, where we participate. That's what we're trying to do with our water management effort. I think we know who the players are out there, but as I mentioned, with any acquisition strategy, there's a lot dependent upon, you know, what's available and when, and I think we can be competitive there. We're also gonna remain disciplined in our approach on how we go after it.
Uh, I wanted to ask
Speaker #3: It's very resilient. We're a market leader in that space. And we want to think about how do we leverage that to actually find more growth opportunities where we participate.
Speaker #3: That's what we're trying to do with our water management effort. I think we know who the players are out there. But as I mentioned, with any upon what's acquisition strategy, there's a lot dependent available and when.
for a little bit more color on India. It seems like the you guys have delivered strong growth with the pure integration adding incremental Revenue. Uh, can you share a little bit on the road map for scaling India? Over the next 3 to 5 years? And maybe any details on potentially further m&a within that area?
Speaker #3: And I think we can be competitive there. We're also going to remain disciplined in our approach on how we go after
Speaker #3: And I think we can be competitive there. We're also going to remain disciplined in our approach on how we go after it. Thank
Speaker #1: you. Our next question comes from the line of Tomahiko Sano with JP Morgan. Your line is open.
Speaker #5: Good morning. This is Ethan on for Tomo. Thank you for taking my question today. I wanted to ask for a little bit more color on India. It seems like you guys have delivered strong growth, with the Pure integration adding incremental revenue.
Operator: Thank you. Our next question comes from the line of Tomohiko Sano with J.P. Morgan. Your line is open.
Operator: Thank you. Our next question comes from the line of Tomohiko Sano with J.P. Morgan. Your line is open.
[Analyst] (J.P. Morgan): Good morning. This is Ethan on for Tomo. Thank you for taking my question today. I wanted to ask for a little bit more color on India. It seems like you guys have delivered strong growth with the Pureit integration, adding incremental revenue. Can you share a little bit on the roadmap for scaling India over the next 3 to 5 years? And maybe any details on potentially further M&A within that area?
[Analyst] (JPMorgan): Good morning. This is Ethan on for Tomo. Thank you for taking my question today. I wanted to ask for a little bit more color on India. It seems like you guys have delivered strong growth with the Pureit integration, adding incremental revenue. Can you share a little bit on the roadmap for scaling India over the next 3 to 5 years? And maybe any details on potentially further M&A within that area?
Speaker #5: Can you share a little bit on the roadmap for scaling India over the next three to five years, and maybe any details on potentially further M&A within that area?
Speaker #3: I think right now our primary focus is on how do we take advantage of the Pure addition to our portfolio. India is a market that we've invested there significantly to get the business up and running.
I think you know, right now our primary focus is on on, you know, how do we take advantage of the the pureit addition to our portfolio. Uh, India is a market that, you know, we've invested their significantly, you know, to get the business up and running and obviously the pureit was an additional investment to that business. We've got a local team there, that really understands the local market. And we think we've got a lot of opportunities. Now, kind of organically if you will, with the combination of pureit nrao Smith business, it's it's a it's a market that requires a lot of high high, high Pace Innovation, bringing new products out to Market. That's a big driver of how we've been able to grow double digits, um, for many years in a row. And and that's, we're now going to do at a, at a bigger scale, as you mentioned. So that that's our primary focus, you know, ultimately over time, is it mean more Acquisitions or or not? I think that that, uh, still has to play out but our Focus,
Right now is primarily running with the business. We've got
Stephen Shafer: I think, you know, right now, our primary focus is on, you know, how do we take advantage of the Pureit addition to our portfolio. India is a market that, you know, we've invested there significantly, you know, to get the business up and running, and obviously, the Pureit was an additional investment to that business. We've got a local team there that really understands the local market, and we think we've got a lot of opportunities now, kind of organically, if you will, with the combination of Pureit and our A.O. Smith business. It's a market that requires a lot of high-paced innovation, bringing new products out to market.
Stephen Shafer: I think, you know, right now, our primary focus is on, you know, how do we take advantage of the Pureit addition to our portfolio. India is a market that, you know, we've invested there significantly, you know, to get the business up and running, and obviously, the Pureit was an additional investment to that business. We've got a local team there that really understands the local market, and we think we've got a lot of opportunities now, kind of organically, if you will, with the combination of Pureit and our A.O. Smith business. It's a market that requires a lot of high-paced innovation, bringing new products out to market.
Speaker #3: And obviously, the Pure was an additional investment to that business. We've got a local team there that really understands the local market. And we think we've got a lot of opportunities now kind of organically, if you will, with the combination of Pure and our AO Smith business.
Thank you, and looking more on the margin side for Internationals with, uh, India. India continued to scale up, can we kind of
Forecast out.
Speaker #3: It's a market that requires a lot of high-paced innovation. Bringing new products out to market. That's a big driver of how we've been able to grow double digits for many years in a row.
Strength within operational, improvements similar to this year, out into maybe 2027 or looking more on a longer term scale with uh, China potentially improving in the second, half this year.
Speaker #3: And that's we're now going to do at a bigger scale, as you mentioned. So that's our primary focus. Ultimately, over time, does it mean more acquisitions or not?
Stephen Shafer: That's a big driver of how we've been able to grow double digits for many years in a row, and we're now gonna do at a bigger scale, as you mentioned. So that's our primary focus. You know, ultimately, over time, does it mean more acquisitions or not? I think that still has to play out, but our focus right now is primarily running the business we've got.
That's a big driver of how we've been able to grow double digits for many years in a row, and we're now gonna do at a bigger scale, as you mentioned. So that's our primary focus. You know, ultimately, over time, does it mean more acquisitions or not? I think that still has to play out, but our focus right now is primarily running the business we've got.
Speaker #3: I think that still has to play out, but our focus right now is primarily running the business we've
Speaker #3: got. Thank
Speaker #5: you. And looking more on the margin side for internationals with India continuing to scale up, can we kind of forecast out strength within operational improvements similar to this year out into maybe 2027 or looking more on a longer-term scale with China potentially improving in the second half this
[Analyst] (J.P. Morgan): Thank you. Looking more on the margin side for internationals, with India, India continuing to scale up, can we kind of forecast out strength within operational improvements similar to this year out into maybe 2027, or looking more on a longer-term scale, with China potentially improving in the second half this year?
[Analyst] (JPMorgan): Thank you. Looking more on the margin side for internationals, with India, India continuing to scale up, can we kind of forecast out strength within operational improvements similar to this year out into maybe 2027, or looking more on a longer-term scale, with China potentially improving in the second half this year?
Yeah, this is Chuck I would say a little bit more longer term scale. I mean, we're still investing in growth in India. We love the fact we're growing double digits together with pureit, bringing those business together. You know, in India is still in the growth profile, you know, China. I think it's a little early to call out much margin Improvement. We're very pleased with how China performed this year, in the fourth quarter in, particularly the restructuring actions that we took in. 2024 are paying off and the team, you know, managing through a tough tough line did a very good job of managing the market, so, you know, margin Improvement in both businesses. I think will take a little bit of time, um, and we'll have to see how that plays out particularly the economy in China. And as we, you know, grow scale in India and invest in growth.
Thank you.
Speaker #5: year? Yeah, this is Chuck.
Please stand by for our next question.
Speaker #3: I would say a little bit more longer-term scale. I mean, we're still investing in growth in India. We love the fact we're growing double digits together with Pure.
Our next question comes from the line of Nathan Jones with seafood. Your line is open.
Speaker #3: Bringing those business together in India is still in the growth profile. China, I think it's a little early to call out much margin improvement.
Morning, everyone.
Charles Lauber: Yeah, this is Chuck. I would say a little bit more longer-term scale. I mean, we're still investing in growth in India. We love the fact we're growing double digits together with Pureit. Bringing those businesses together, you know, in India is still in the growth profile. You know, China, I think it's a little early to call out much margin improvement. We're very pleased with how China performed this year, in the fourth quarter, particularly. The restructuring actions that we took in 2024 are paying off, and the team, you know, managing through a tough top line, did a very good job of managing the margin.
Charles Lauber: Yeah, this is Chuck. I would say a little bit more longer-term scale. I mean, we're still investing in growth in India. We love the fact we're growing double digits together with Pureit. Bringing those businesses together, you know, in India is still in the growth profile. You know, China, I think it's a little early to call out much margin improvement. We're very pleased with how China performed this year, in the fourth quarter, particularly. The restructuring actions that we took in 2024 are paying off, and the team, you know, managing through a tough top line, did a very good job of managing the margin.
Speaker #3: We're very pleased with how China performed this year in the fourth quarter in particularly. The restructuring actions that we took in 2024 are paying off.
Good morning. Uh, follow up on steel prices. You guys said, you're expecting steel prices to be up. 10%.
Speaker #3: And the team, managing through a tough top line, did a very good job of managing the margin. So margin improvement in both businesses, I think, will take a little bit of time.
Can you just clarify what that means is that like average 2026 over average 2025 or are you expecting steel prices to increase from from where they are now?
Speaker #3: And we'll have to see how that plays out, particularly the economy in China and as we grow scale in India and invest in
Um and then does that imply that you need to to get more price in order to cover some of these inflationary pressures along with some of the other things that you mentioned, there are still inflationary pressures.
Charles Lauber: So, you know, margin improvement in both businesses, I think, will take a little bit of time, and we'll have to see how that plays out, particularly the economy in China and as we, you know, grow scale in India and invest in growth.
So, you know, margin improvement in both businesses, I think, will take a little bit of time, and we'll have to see how that plays out, particularly the economy in China and as we, you know, grow scale in India and invest in growth.
Speaker #3: growth. Thank
Speaker #1: you. Please stand by for our next question. Our next question comes from the line of Nathan Jones with C4. Your line is open.
Speaker #6: Morning,
Speaker #6: Hey, good morning, everyone. Follow-up on steel prices. You guys said you're expecting steel prices to be up 10%. Can you just clarify what that means?
Operator: Thank you. Please stand by for our next question. Our next question comes from the line of Nathan Jones with Stifel. Your line is open.
Operator: Thank you. Please stand by for our next question. Our next question comes from the line of Nathan Jones with Stifel. Your line is open.
Nathan Jones: Good morning, everyone.
Nathan Jones: Good morning, everyone.
Stephen Shafer: Hey, good morning.
[crosstalk] Hey, good morning.
Speaker #6: Is that average 2026 over average 2025? Or are you expecting steel prices to increase from where they are now? And then does that imply that you need to get more price in order to cover some of these inflationary pressures along with some of the other things that you mentioned that are still inflationary pressures?
Charles Lauber: Good morning.
Nathan Jones: Good morning.
Nathan Jones: Follow up on steel prices. You guys said you're expecting steel prices to be up 10%. Can you just clarify what that means? Is that like average 2026 over average 2025, or are you expecting steel prices to increase from where they are now? And then does that imply that you need to get more price in order to cover some of these inflationary pressures, along with some of the other things that you had mentioned? There are still inflationary pressures?
Follow up on steel prices. You guys said you're expecting steel prices to be up 10%. Can you just clarify what that means? Is that like average 2026 over average 2025, or are you expecting steel prices to increase from where they are now? And then does that imply that you need to get more price in order to cover some of these inflationary pressures, along with some of the other things that you had mentioned? There are still inflationary pressures?
Yeah, still pricing has gone up, right? So we've seen kind of a gradual, increase in the index, which does Drive what we pay on a 90 to 120 day leg that 10% up is the year-over-year average. Um, I would say if you kind of box it in its 10% 2026 over 2025, as well as 10% up, quarter over quarter 2025. So we'll see steel, we project steel to still rise a bit as we go through the back half of the year, but on average up 10% year-over-year.
Speaker #3: Yeah, steel pricing has gone up, right? So we've seen kind of a gradual increase in the index, which does drive what we pay on a 90- to 120-day lag.
As far as price cost relationship, you know, we we do have, you know, a carryover tariffs. We've got other costs that are going up. I'll just kind of, um, point to kind of our historical ability to be able to, over time, kind of maintain and protect our price cost relationship and our margin profile.
Okay, I guess and then my follow-up question. The the slot on landed valve.
Speaker #3: That 10% up is the year-over-year average. I would say, if you kind of box it in, it's 10% 2026 over 2025, as well as 10% up quarter over quarter in 2025.
Charles Lauber: ... Yeah, steel pricing has gone up, right? So we've seen kind of a gradual increase in the index, which does drive what we pay on a 90- to 120-day lag. That 10% up is the year-over-year average. I would say if you kind of box it in, it's 10%, 2026 over 2025, as well as 10% up quarter-over-quarter 2025. So we'll see steel, we project steel to still rise a bit as we go through the back half of the year, but on average, up 10% year-over-year. As far as price-cost relationship, you know, we, we do have, you know, carryover tariffs. We've got other costs that are going up.
Stephen Shafer: ... Yeah, steel pricing has gone up, right? So we've seen kind of a gradual increase in the index, which does drive what we pay on a 90- to 120-day lag. That 10% up is the year-over-year average. I would say if you kind of box it in, it's 10%, 2026 over 2025, as well as 10% up quarter-over-quarter 2025. So we'll see steel, we project steel to still rise a bit as we go through the back half of the year, but on average, up 10% year-over-year. As far as price-cost relationship, you know, we, we do have, you know, carryover tariffs. We've got other costs that are going up.
Speaker #3: So we'll see steel we project steel to still rise a bit as we go through the back half of the year, but on average up 10% year-over-year.
Has 2022 to 2020, uh, 5 revenue kga of double digits. I think you said it was about 10%. That was a lot of inflation and I assume that there's a lot of metals in in a lot of their products as well. And a fair amount of that kind of growth was probably driven by price as well.
Speaker #3: As far as price cost relationship, we do have carryover tariffs. We've got other costs that are going up. I'll just kind of point to kind of our historical ability to be able to, over time, kind of maintain and protect our price cost relationship and our margin
Thing there over the last few years. Thanks.
Speaker #3: profile. Okay, I guess.
Charles Lauber: I'll just kinda point to kind of our historical ability to be able to, over time, kind of maintain and protect our price-cost relationship and our margin profile.
I'll just kinda point to kind of our historical ability to be able to, over time, kind of maintain and protect our price-cost relationship and our margin profile.
Speaker #6: And then my follow-up question: the slide on Leonard Valve has 2022 to 2025 revenue CAGR of double digits. I think you said it was about 10%?
Helen Gurholt: Okay, I guess – and then my follow-up question, the slide on Leonard Valve has 2022 to 2025 revenue CAGR of double digits. I think you said it was about 10%. There was a lot of inflation, and I assume that there's a lot of metal in a lot of their products as well, and a fair amount of that kind of growth was probably driven by price as well. Could you maybe just comment on what you think the long-term growth of that business is, kind of the volume that they can generate, rather than what I just assume is some price-driven growth that we've seen there over the last few years? Thanks.
Nathan Jones: Okay, I guess – and then my follow-up question, the slide on Leonard Valve has 2022 to 2025 revenue CAGR of double digits. I think you said it was about 10%. There was a lot of inflation, and I assume that there's a lot of metal in a lot of their products as well, and a fair amount of that kind of growth was probably driven by price as well. Could you maybe just comment on what you think the long-term growth of that business is, kind of the volume that they can generate, rather than what I just assume is some price-driven growth that we've seen there over the last few years? Thanks.
Speaker #6: There was a lot of inflation. And I assume that there's a lot of metals in a lot of their products as well. And a fair amount of that kind of growth was probably driven by price as well.
Speaker #6: Could you maybe just comment on what you think the long-term growth of that business is, kind of the volume that they can generate, rather than what I just assume is some price-driven growth that we've seen there over the last few years?
Speaker #6: Thanks.
Speaker #3: Yeah, actually, the biggest
Speaker #3: The source—and Chuck mentioned it—of the growth in Leonard Valve has been the digital transition of mixing valves. So, it's a technology upgrade that's happening that's adding a lot of value in the marketplace.
Yeah. Actually the biggest source in Chuck mentioned of the growth in Leonard valve has been the digital transition of of mixing valve. So it's a it's a technology upgrade that's happening. That's adding a lot of value in the marketplace and so more so than just a pure kind of pass through of cost pricing. That's been the Big Driver of the growth over the last few years and it and it was 1 of the real appealing characteristics for us to both get more involved on that digital upgrade. But also bring that kind of capability and thinking into the broader ecosystem of solutions that we can serve our customers. So from that standpoint we think it's a you know, it's a growth that has still more momentum to it and just to frame. I mean about 30% of their volume or the revenue is digital and and connected products. So it's a base that we look to grow over time.
Thank you.
Please stand by for our next question.
Stephen Shafer: Yeah. Actually, the biggest source, and Chuck mentioned it, of the growth in Leonard Valve has been the digital transition of mixing valves. So it, it's a technology upgrade that's happening that's adding a lot of value in the marketplace. And so more so than just a pure kind of pass-through of cost pricing, that's been the big driver of the growth over the last few years, and it was one of the real appealing characteristics for us to both get more involved on that digital upgrade, but also bring that kind of capability and thinking into the broader ecosystem of solutions that we can serve our customers. So from that standpoint, we think it's a, you know, growth that has still more momentum to it.
Stephen Shafer: Yeah. Actually, the biggest source, and Chuck mentioned it, of the growth in Leonard Valve has been the digital transition of mixing valves. So it, it's a technology upgrade that's happening that's adding a lot of value in the marketplace. And so more so than just a pure kind of pass-through of cost pricing, that's been the big driver of the growth over the last few years, and it was one of the real appealing characteristics for us to both get more involved on that digital upgrade, but also bring that kind of capability and thinking into the broader ecosystem of solutions that we can serve our customers. So from that standpoint, we think it's a, you know, growth that has still more momentum to it.
Speaker #3: And so more so than just a pure kind of pass-through of cost pricing, that's been the big driver of the growth over the last few years.
Our next question comes from the line of Andrew kaplowitz with City. Your line is open.
Hey, good morning, everyone.
Good morning.
Speaker #3: And it was one of the real appealing characteristics for us to both get more involved on that digital upgrade, but also bring that kind of capability of thinking into the broader ecosystem of solutions that we can serve our customers.
Speaker #3: So, from that standpoint, we think it's a growth that still has more momentum to it. And just to frame it, I mean, about 30% of their volume or their revenue is digital.
See, I know that the, uh, strategic review is ongoing in China as you said, uh, but restructuring does seem to be helping, uh, you know, stabilize the margin the business. So if if, for instance, the market doesn't come back as you expect in the second half. Do you have more restructuring that you can do? Uh, you know, how do you think about the ability to sort of maintain margin if the market is still difficult?
Speaker #3: And connected products. So it's a base that we look to grow over
Speaker #3: time.
Charles Lauber: And just to frame, I mean, about 30% of their volume or their revenue is digital and connected products. So it's a base that we look to grow over time.
Charles Lauber: And just to frame, I mean, about 30% of their volume or their revenue is digital and connected products. So it's a base that we look to grow over time.
Speaker #1: you. Please stand by for our next Thank question. Our next question comes from the line of Andrew Kaplowitz with City. Your line is open.
Operator: Thank you. Please stand by for our next question. Our next question comes from the line of Andrew Kaplowitz with Citi. Your line is open.
Operator: Thank you. Please stand by for our next question. Our next question comes from the line of Andrew Kaplowitz with Citi. Your line is open.
Speaker #7: Good morning, everyone.
Speaker #7: Steve, I know Good morning. that the strategic reviews I'm going in China, as you said, but restructuring does seem to be helping stabilize the margin, the business.
Speaker #7: So if, for instance, the market doesn't come back as you expect in the second half, do you have more restructuring that you can do?
Andrew Kaplowitz: Good morning, everyone.
Andrew Kaplowitz: Good morning, everyone.
Stephen Shafer: Morning.
[crosstalk] Morning.
Charles Lauber: Morning.
Morning.
Andrew Kaplowitz: Steve, I know that the strategic review is ongoing in China, as you said, but restructuring does seem to be helping, you know, stabilize the margin in the business. So if, for instance, the market doesn't come back as you expect in the second half, do you have more restructuring that you can do? How do you think about the ability to sort of maintain margin if the market is still difficult?
Andrew Kaplowitz: Steve, I know that the strategic review is ongoing in China, as you said, but restructuring does seem to be helping, you know, stabilize the margin in the business. So if, for instance, the market doesn't come back as you expect in the second half, do you have more restructuring that you can do? How do you think about the ability to sort of maintain margin if the market is still difficult?
Speaker #7: How do you think about the ability to sort of maintain margin if the market is still difficult?
Speaker #3: Yeah, over long periods of time, the answer in China is not continuing to restructure costs and not being able to grow the business. So we're doing what we think is necessary to protect the business today, and we're making, I think, smart decisions around where we do cut.
Stephen Shafer: Yeah, I mean, look, over long periods of time, right, the answer in China is not continuing to restructure and cut costs and not be able to grow the business. So, you know, we're doing what we think is necessary to protect the business today, and we're making, I think, smart decisions around where we do cut. There's a lot still to play out in terms of how the market will kind of respond, especially as we start to lap these subsidies. So we're watching that carefully. Obviously, the strategic assessments that we're doing might change kind of how we approach our business in China. That's the high-quality discussions that we're having with partners. You know, whether there's more structuring in the future, I think we'll evaluate that as we go.
Stephen Shafer: Yeah, I mean, look, over long periods of time, right, the answer in China is not continuing to restructure and cut costs and not be able to grow the business. So, you know, we're doing what we think is necessary to protect the business today, and we're making, I think, smart decisions around where we do cut. There's a lot still to play out in terms of how the market will kind of respond, especially as we start to lap these subsidies. So we're watching that carefully. Obviously, the strategic assessments that we're doing might change kind of how we approach our business in China. That's the high-quality discussions that we're having with partners. You know, whether there's more structuring in the future, I think we'll evaluate that as we go.
Yeah, I mean look oh, over long periods of time, right? The the answer in China is not continuing to restructure and cut costs and, and not be able to grow the business. So, you know, we're doing what we think is necessary to protect the business today and and we're making, I think smart decisions around where we do where we do cut. Um, there's a lot still to play out in terms of how the market will, will kind of respond, especially as we we start to laugh these subsidies. So we're watching that carefully, obviously, the Strategic assessments that we're doing might change, kind of how we approach our business in China. That's the high quality discussions that we're having with Partners, you know, whether there's more more structuring in the future, I think will evaluate that as we go. I think ultimately though, our goal is, we need to find a way for the business to be even more competitive than it has been um, going forward and eventually the market will recover. But, you know, when that is, I think is still uh, uh, obviously a big uncertainty, but we'll do what we need to do.
Speaker #3: There's a lot still to play out in terms of how the market will kind of respond, especially as we start to lap these subsidies.
To to make sure we can maintain the competitiveness of the business there financially but ultimately we need to find a strategic path forward that allows the business to grow again.
Speaker #3: So we're watching that carefully. Obviously, the strategic assessment we're doing might change kind of how we approach our business in China. That's the high-quality discussions that we're having with partners.
Speaker #3: Whether there's more structuring in the future, I think we'll evaluate that as we go. I think ultimately, though, our goal is we need to find a way for the business to be even more competitive than it has been going forward.
It's helpful. And then your boiler businesses, continue to be pretty solid and I think you have a good forecast for 26, so maybe just a little more color in the health of that market. I I know your high efficiency boilers are doing well and but it's that all mostly what this is or is it the market strength overall?
Speaker #3: And eventually, the market will recover. But when that is, I think, is still obviously a big uncertainty. But we'll do what we need to do to make sure we can maintain the competitiveness of the business there financially, but ultimately, we need to find a strategic path forward that allows the business
Stephen Shafer: I think ultimately, though, our goal is we need to find a way for the business to be even more competitive than it has been, going forward. And eventually, the market will recover, but, you know, when that is, I think is still obviously a big uncertainty. But we'll do what we need to do to make sure we can maintain the competitiveness of the business there financially. But ultimately, we need to find a strategic path forward that allows the business to grow again.
I think ultimately, though, our goal is we need to find a way for the business to be even more competitive than it has been, going forward. And eventually, the market will recover, but, you know, when that is, I think is still obviously a big uncertainty. But we'll do what we need to do to make sure we can maintain the competitiveness of the business there financially. But ultimately, we need to find a strategic path forward that allows the business to grow again.
Speaker #3: to grow again. It's
It it it's good Market but I would say we our lock and our brand, and it is the the, I think Premier brand in that Marketplace, we have great technology as we've talked about, you know, on the high efficiency. And, you know, it's a great product. So it, it's a little bit of both. It's been a, it's been a strong Market, but also, I think we're performing well and, and even taking share in that market with the the strength of our product portfolio.
Speaker #7: Helpful. And then your boiler business has continued to be pretty solid, and I think you have a good forecast for '26. So maybe just one more color on the health of that market.
Thank you.
Ladies and gentlemen, I'm Sean. No further questions in the queue.
Speaker #7: I know your high-efficiency boilers are doing well. But is that mostly what this is, or is it the market strength
I will now like to turn the call back over to Helen for closing remarks.
Andrew Kaplowitz: It's helpful. And then your boiler business has continued to be pretty solid, and I think you have a good forecast for 2026. So maybe just one more color on the health of that market. I know your high-efficiency boilers are doing well, but is that all mostly what this is, or is it the market strength overall?
Andrew Kaplowitz: It's helpful. And then your boiler business has continued to be pretty solid, and I think you have a good forecast for 2026. So maybe just one more color on the health of that market. I know your high-efficiency boilers are doing well, but is that all mostly what this is, or is it the market strength overall?
Speaker #7: Overall, it's a good market, but I would
Speaker #3: Say, our Lock & Bar brand, and it is the, I think, premier brand in that marketplace. We have great technology, as we've talked about, on the high-efficiency end.
Thank you everyone for joining us today. Let me conclude by reminding you that despite many challenges AOS Smith achieved record EPS of $3.85 in 2025, you look forward to updating you on our progress, in the quarters to come in addition please, mark your calendars to join our presentations at 2 conference or 3 conference this quarter.
Speaker #3: It's a great product. So it's a little bit of both. It's been a strong market, but also I think we're performing well. And even taking share in that market with the strength of our product portfolio.
Stephen Shafer: It's a good market, but I would say we have our Lochinvar brand, and it is the, I think, premier brand in that marketplace. We have great technology, as we've talked about, you know, on the high efficiency end. You know, it's a great product. So it's a little bit of both. It's been a strong market, but also, I think we're performing well and even taking share in that market with the strength of our product portfolio.
Stephen Shafer: It's a good market, but I would say we have our Lochinvar brand, and it is the, I think, premier brand in that marketplace. We have great technology, as we've talked about, you know, on the high efficiency end. You know, it's a great product. So it's a little bit of both. It's been a strong market, but also, I think we're performing well and even taking share in that market with the strength of our product portfolio.
City on February 19th, North Coast on March 12th, and JP Morgan on March 17th. Thank you. And enjoy the rest of your day.
Speaker #1: Thank you. Ladies and gentlemen, I'm showing no further questions in the queue. I will now like to turn the call back over to Helen for closing
Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect
Speaker #1: remarks. Thank you, everyone, for joining us
Speaker #9: today. Let me conclude by reminding you that despite many challenges, AO Smith achieved record EPS of $3.85 in 2025. We look forward to updating you on our progress in the quarters to come.
Operator: Thank you. Ladies and gentlemen, I am showing no further questions in the queue. I would now like to turn the call back over to Helen for closing remarks.
Operator: Thank you. Ladies and gentlemen, I am showing no further questions in the queue. I would now like to turn the call back over to Helen for closing remarks.
Helen Gurholt: Thank you, everyone, for joining us today. Let me conclude by reminding you that despite many challenges, A. O. Smith achieved record EPS of $3.85 in 2025. 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: Citi on 19 February, North Coast on 12 March, and J.P. Morgan on 17 March. Thank you, and enjoy the rest of your day.
Moderator: Thank you, everyone, for joining us today. Let me conclude by reminding you that despite many challenges, A. O. Smith achieved record EPS of $3.85 in 2025. 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: Citi on 19 February, North Coast on 12 March, and J.P. Morgan on 17 March. Thank you, and enjoy the rest of your day.
Speaker #9: In addition, please mark your calendars to join our presentations at two conferences this quarter. Citi on February 19th, North Coast on March 12th, and JP Morgan on March 17th.
Speaker #9: Thank you, and enjoy the rest of your day.
Operator: Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.
