Industrials
Specialty Industrial Machinery
$9.99B
12K
A. O. Smith Corporation manufactures and markets residential and commercial gas and electric water heaters, boilers, heat pumps, tanks, and water treatment products in North America, China, Europe, and India. The company offers water heaters for residences, restaurants, hotels, office buildings, laundries, car washes, and small businesses; boilers for hospitals, schools, hotels, and other large commercial buildings, as well as homes, apartments, and condominiums; and water treatment products comprising point-of-entry water softeners, well water solutions, and whole-home water filtration products, and point-of-use carbon and reverse osmosis products for residences, restaurants, hotels, and offices. It also provides commercial water treatment and filtration product; expansion tanks, commercial solar water heating systems, swimming pool and spa heaters, and related products and parts; and electric wall-hung, gas tankless, combi-boiler, and heat pump and solar water heaters. The company offers its products under the A. O. Smith, State, Lochinvar, Hague, Water-Right, Master Water, Atlantic Filter, and Water Tec brands. It distributes its products through independent wholesale plumbing distributors, as well as to retail channels consisting of hardware and home center chains, and manufacturer representative firms; and offers Aquasana branded products directly to consumers through e-commerce channels. A. O. Smith Corporation was founded in 1874 and is headquartered in Milwaukee, Wisconsin.
Key insights and themes extracted from this filing
Net sales were $3,818.1 million in 2024, a decrease of $34.7 million compared to 2023. This was primarily driven by lower water heater volumes in North America and lower sales in China.
The gross profit margin decreased to 38.1% in 2024 from 38.5% in 2023. This decrease was primarily due to higher production costs and operational inefficiencies associated with volume volatility.
Net earnings were $533.6 million in 2024, a decrease of $23.0 million compared to $556.6 million in 2023. This was influenced by factors affecting sales and margins.
The acquisition of Pureit from Unilever for approximately $125 million expands the company's presence in South Asia's water purification market. Pureit offers a broad range of residential water purification solutions.
The company recognized $17.6 million in restructuring and impairment expenses. This includes restructuring of the water treatment business in North America and severance costs in China, indicating efforts to optimize operations.
The company is expanding its commercial water heater capacity in North America in preparation for new efficiency rules taking effect in 2026. This demonstrates a proactive approach to regulatory changes.
Selling, general, and administrative expenses increased by $11.9 million in 2024. This was primarily due to higher employee costs and increased selling and advertising expenses to support strategic initiatives.
The company has a robust cybersecurity program to assess, identify, and manage material risk from cybersecurity threats. This includes cybersecurity awareness training and periodic risk assessments.
Restructuring and impairment expenses reflect management's efforts to improve profitability. This includes right-sizing the business in China and improving the cost structure of the water treatment business in North America.
Third-party sales in China decreased six percent in local currency in 2024. This indicates that adverse economic conditions or changes in consumer behavior in China could impact the business.
The company acknowledges that changes in regulations or standards, such as those associated with climate change, could adversely affect the business. This includes new efficiency rules and national drinking water standards.
The company acknowledges that an inability to adequately maintain information systems and their security could adversely affect the business and reputation. They have experienced cybersecurity incidents in the past.
The company acknowledges that it sells its products in highly competitive and evolving markets. Competitors may have greater financial, marketing, manufacturing, research and development and distribution resources.
The company competes in each of its targeted markets based on product design, reliability, quality of products and services, advanced technologies, product performance, maintenance costs and price.
The company emphasizes the importance of responding to trends, transitioning its product portfolio, developing innovative products, and acquiring and protecting intellectual property rights for continued success.
The decrease in gross profit margin was primarily due to higher production costs and operational inefficiencies associated with volume volatility, which outpaced pricing actions.
The company is undertaking restructuring efforts in North America and China to improve its cost structure and focus on more profitable channels.
The company notes that the market prices for certain materials and components, primarily steel, can be volatile and that tariffs could potentially increase volatility in steel and other input materials.
Total expenditures for research and development in 2024 were $101.7 million, an increase from $97.5 million in 2023 and $89.0 million in 2022, demonstrating a commitment to innovation.
The company highlights its energy-efficient product offerings, including condensing commercial water heaters and boilers, residential heat pumps, and condensing tank-type and tankless water heaters.
The company recently launched the ADAPT condensing gas tankless water heater and VERITUS air source commercial heat pump water heater to align with greenhouse gas emission reduction trends across the U.S.
The Board of Directors approved adding 2,000,000 shares of Common Stock to the existing discretionary share repurchase authority in 2024 and 5,000,000 shares in 2025. This reflects a continued commitment to returning capital to shareholders.
The company increased its dividend by six percent in the fourth quarter of 2024 and has increased its dividend for 33 consecutive years, demonstrating a consistent commitment to returning value to shareholders.
Capital expenditures totaled $108.0 million in 2024, an increase from $72.6 million in 2023. This increase was primarily due to capacity expansion projects in Juarez, Mexico and McBee, South Carolina.
The company is committed to growing its business in a sustainable and socially responsible manner consistent with its Guiding Principles, as evidenced by the issuance of a sustainability report.
The company is working towards its greenhouse gas emissions intensity reduction goal of 10 percent by 2025 (2019 baseline).
The company announced a new water goal to achieve an annual water savings of 40 million gallons by 2030 (2023 baseline).
The company projects third-party sales in China to decrease between five to eight percent in local currency compared to 2024, as it expects consumer demand softness will persist in 2025.
The company projects 2025 industry residential unit volumes will be flat, and anticipates that commercial water heater industry volumes will be approximately flat in 2025.
Consumer preferences and broader trends, such as decarbonization and electrification efforts in response to climate change, may result in reduced demand for gas or fossil fuel-powered products.