Water heating and treatment solutions company A.O. Smith (NYSE: AOS) missed Wall Street’s revenue expectations in Q4 CY2025, with sales flat year on year at $912.5 million. The company’s full-year revenue guidance of $3.96 billion at the midpoint came in 1.3% below analysts’ estimates. Its GAAP profit of $0.90 per share was 6.4% above analysts’ consensus estimates.

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Company Overview

Credited with the invention of the glass-lined water heater, A.O. Smith (NYSE: AOS) manufactures water heating and treatment products for various industries.

Revenue Growth

A company’s long-term sales performance is one signal of its overall quality. Any business can have short-term success, but a top-tier one grows for years. Unfortunately, A. O. Smith’s 5.8% annualized revenue growth over the last five years was tepid. This was below our standard for the industrials sector and is a rough starting point for our analysis.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. A. O. Smith’s recent performance shows its demand has slowed as its revenue was flat over the last two years.

This quarter, A. O. Smith’s $912.5 million of revenue was flat year on year, falling short of Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 5% over the next 12 months. While this projection implies its newer products and services will spur better top-line performance, it is still below the sector average.

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Operating Margin

A. O. Smith has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 18.1%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Looking at the trend in its profitability, A. O. Smith’s operating margin rose by 1.8 percentage points over the last five years, as its sales growth gave it operating leverage.

In Q4, A. O. Smith generated an operating margin profit margin of 18%, up 2.8 percentage points year on year. The increase was encouraging, and because its operating margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, R&D, and administrative overhead.

Earnings Per Share

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

A. O. Smith’s EPS grew at a remarkable 12.7% compounded annual growth rate over the last five years, higher than its 5.8% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Diving into A. O. Smith’s quality of earnings can give us a better understanding of its performance. As we mentioned earlier, A. O. Smith’s operating margin expanded by 1.8 percentage points over the last five years. On top of that, its share count shrank by 14.1%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For A. O. Smith, its two-year annual EPS growth of 2.2% was lower than its five-year trend. We hope its growth can accelerate in the future.

In Q4, A. O. Smith reported EPS of $0.90, up from $0.75 in the same quarter last year. This print beat analysts’ estimates by 6.4%. Over the next 12 months, Wall Street expects A. O. Smith’s full-year EPS of $3.85 to grow 8.5%.

Key Takeaways from A. O. Smith’s Q4 Results

We were impressed by how significantly A. O. Smith blew past analysts’ EBITDA expectations this quarter. We were also glad its EPS outperformed Wall Street’s estimates. On the other hand, its revenue missed and its full-year revenue guidance fell slightly short of Wall Street’s estimates. Overall, this was a softer quarter. The stock traded down 2.3% to $67.93 immediately following the results.

The latest quarter from A. O. Smith’s wasn’t that good. One earnings report doesn’t define a company’s quality, though, so let’s explore whether the stock is a buy at the current price. We think that the latest quarter is only one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here (it’s free).