AOS, A. O. Smith Corporation
We offer electric, natural gas and liquid propane tank-type models as well as tankless, heat pump and solar tank units.
Read top to bottom, the owner's questions in the order an owner asks them: what the business is, whether the record holds, whether it survives and is any good, and what you would be paying. New to the questions? Start with the Method.
The business in brief
read the 10-K →What this business is and what moves its needle, read from the numbers in its filings. The quantitative detail is in the sections below; the verdict is left to you.
- What it is
- Revenue is North America (77%) and Rest of World (23%).
- What moves the needle
- How hard the assets work, and what the inputs cost. What decides it: utilization, how much of the capex merely keeps the assets running, and what a downturn does to a heavy fixed-cost base.
- Is it a good business?
- Return on capital has run high across the record (median 28%, above 15% in 10 of 10 years). Owner earnings agree: roughly 13% of revenue reaches owners as cash, consistently. High, durable returns can mark a moat, but whether this one is real pricing power or an accounting artifact is the judgment the 10-K is for.
Every line here is arithmetic from the company's own filings, not a model's opinion, and each figure appears in full in the sections below.
Where the money comes from
read the 10-K →North America is 77% of revenue, so this is largely a single-segment business.
- North America77%$3.0B
- Rest of World23%$866M
From the segment footnote of the company's own 10-K. Shares are of total revenue; the profit bar shows each segment's share of segment operating profit, before unallocated corporate costs.
The record, 2016–2025
realized figures from each filing, no estimates| 2016’16 | 2017’17 | 2018’18 | 2019’19 | 2020’20 | 2021’21 | 2022’22 | 2023’23 | 2024’24 | 2025’25 | TTMTTMMar 2026 | |
|---|---|---|---|---|---|---|---|---|---|---|---|
| RevenueRevenue | $2.7B | $3.0B | $3.2B | $3.0B | $2.9B | $3.5B | $3.8B | $3.9B | $3.8B | $3.8B | $3.8B |
| Operating marginOp. mgn | 19.2% | 19.3% | 19.2% | 17.7% | 17.4% | 19.3% | 9.6% | 19.3% | 18.5% | 19.0% | 18.5% |
| Net incomeNet inc. | $327M | $297M | $444M | $370M | $345M | $487M | $236M | $557M | $534M | $546M | $528M |
| EPS (diluted)EPS | $1.85 | $1.70 | $2.58 | $2.22 | $2.12 | $3.02 | $1.51 | $3.69 | $3.63 | $3.85 | $3.79 |
| Owner earningsOwner earn. | $366M | $232M | $364M | $392M | $505M | $566M | $321M | $598M | $474M | $546M | $648M |
| ROICROIC | 24% | 19% | 29% | 26% | 28% | 33% | 21% | 35% | 29% | 30% | 23% |
| CapexCapex | $81M | $94M | $85M | $64M | $57M | $75M | $70M | $73M | $108M | $71M | $60M |
| Capex / revenueCapex/rev | 3.0% | 3.1% | 2.7% | 2.2% | 2.0% | 2.1% | 1.9% | 1.9% | 2.8% | 1.8% | 1.6% |
| Capex vs depreciationCapex/dep | 1.24× | 1.34× | 1.18× | 0.82× | 0.71× | 0.96× | 0.91× | 0.93× | 1.37× | 0.83× | 0.68× |
| Total debtDebt | $324M | $410M | $221M | $284M | $113M | $197M | $345M | $127M | $193M | $155M | $616M |
| Cash & investmentsCash+inv | $755M | $820M | $645M | $551M | $690M | $631M | $482M | $363M | $276M | $193M | $204M |
| Net debt / (cash)Net debt | ($431M) | ($410M) | ($424M) | ($267M) | ($576M) | ($435M) | ($137M) | ($236M) | ($83M) | ($38M) | $412M |
Owner’s Scorecard
Will it survive?
- Can it pay its interest? 54.0×ComfortableOperating income $729M ÷ interest expense $14M
Operating profit covers interest with the kind of margin Graham wanted for a defensive holding. Necessary, not sufficient, it says solvent, not cheap.
- ConservativeTotal debt $155M ÷ operating income $729M
Years of operating profit it would take to repay all debt. A first read, not a credit rating: it's gross debt (not netted against cash) over EBIT (not EBITDA), and a cyclical year distorts it.
- Debt, net of cash +$38MNet cashCash $175M + ST investments $19M − debt $155M
Cash and short-term investments exceed every dollar of debt by $38M, on net the company owes nothing, and can act from strength when others can't. Net debt is the leverage figure that matters; the gross ratio above ignores the cash already set against it. Strategic or illiquid investments aren't counted here.
- Not enough data
The filing data didn't include the inputs for this check.
Is it a good business?
- ExceptionalNOPAT $557M ÷ invested capital $1.8B (debt + equity − cash)
The rate the business earns on the money tied up in it, Buffett's north star, because over time a stock tracks the ROIC beneath it. Above ~15% sustained hints at a moat; below ~8% the company may destroy value as it grows. Asset-light businesses (R&D expensed, little capital) read artificially high, pair this with Owner Earnings.
- SolidOwner Earnings $546M = operating cash $617M − capex $71M
What an owner could take out without starving the business. That's 14% of revenue. Honest caveat: capex here blends maintenance and growth, so steady-state Owner Earnings may run higher (see capex vs. depreciation).
- Cash-backedCash from ops $617M ÷ net income $546M
How much of reported profit showed up as operating cash. Above 1× is reassuring; well below suggests earnings lean on accruals. One year is noisy, growth and working-capital swings distort it, and this is operating cash, not free cash. Watch the multi-year trend.
How is the cash used?
- Returns most of itDividends + buybacks $597M ÷ Owner Earnings $546M
Of $546M Owner Earnings, $597M (109%) went back to shareholders, $196M dividends, $401M buybacks. Returning most of it signals a mature cash machine; reinvesting most could mean a long runway, or empire-building. The split doesn't say which; the return earned on it (see ROIC) does.
- Investing or harvesting? 0.83×MaintainingCapex $71M ÷ depreciation $85M
Descriptive, not a grade. Above ~1× means investing faster than assets wear out (growth, or, sustained for years, today's earnings carrying less depreciation than tomorrow's will). Below means spending less than it's wearing out (efficiency, or a melting asset base). The ratio won't tell you which; the filings will.
Durability & moat, 2016–2025
A moat is a high return that doesn’t fade, reinvested at high returns. Here is what the record says, judgments, not another chart of the numbers.
- Profitable years 10 of 10
Never lost money over the record, the earnings stability Graham insisted on.
- Return on capital ≥ 15% 10 of 10 yrs
A moat shows up as a high return on invested capital that holds year after year, not one good vintage.
- Operating margin 19% (FY2016) → 19% (FY2025)
Margins held roughly steady across the record.
- Reinvestment, incremental ROIC returns capital
The capital base barely grew: this business returns cash through dividends and buybacks rather than reinvesting. Judge it on the cash returned, not on compounding.
- Owner earnings growth +6%/yr
Free cash to owners grew about 6% a year over the record.
- Worst year 2022 · 9.6% op. margin
Stayed profitable even in its hardest year, the resilience that survives recessions.
- Share count −2.4%/yr
The share count is shrinking, buybacks are quietly growing your slice of the business.
- Dividend record rising
Paid and raised the dividend across the record, the continuity Graham prized.
Solvent is not the same as cheap; growing is not the same as good. These are vital signs, not a verdict, the judgment is yours, and the filing is one click away.
How the cash was used, 2016–2025
Over the record, the business generated $5.1B of operating cash, and how management split it is, as Buffett insists, the job that matters most. Here it reads as a mature cash machine, most of what it earns goes straight back to owners.
- Reinvested$778M · 15%
- Dividends$1.5B · 30%
- Buybacks$2.6B · 51%
- Retained (debt / cash)$223M · 4%
It reinvested $778M (15%) back into the business and returned $4.1B (81%) to owners, $1.5B in dividends, $2.6B in buybacks. Total debt rose $292M across the span.
Buybacks are gross of stock issued to employees; net of that, the real return to owners is lower (see Management & pay). And the mix alone doesn't grade management, what matters is the return earned on the dollars reinvested (see incremental ROIC in the durability report).
Graham’s defensive-investor test
5 of 6 metGraham gave the defensive investor seven numerical criteria in The Intelligent Investor. Here they are, run mechanically on the filings, his framework, not our verdict. Meeting them is a floor of safety, not a reason to buy; missing one is no veto, since many fine modern businesses fail his strictest liquidity tests by design. The worth is in seeing exactly where a company stands against the canon, every number sourced.
- Adequate size PassRevenue ≥ $2B · $3.8B
Big enough to weather a storm. Graham's 1972 floor was ~$100M of sales (≈ $700M today); we use a $2B revenue line as a conservative modern stand-in.
- Strong liquidity MissCurrent ratio ≥ 2× · 1.50×
Current assets at least twice current liabilities, near-term bills covered without touching the business. Strict by design: many cash-rich modern firms run leaner and miss it, holding their cushion in longer-dated securities.
- Conservative debt PassDebt ≤ working capital · $155M vs $429M WC
Graham's rule that borrowings not exceed net current assets. Capital-heavy and buyback-heavy firms routinely fail it, read it next to interest coverage, not alone.
- Earnings stability PassA profit every year (10-yr record) · no losses
Graham wanted earnings in each of the past ten years, the stability a defensive owner leans on.
- Dividend record PassUninterrupted dividends · paid every year (10)
An unbroken dividend was Graham's mark of durability. He wanted twenty years; the filings show about ten, and a single suspension breaks the streak. Non-payers, many fine modern compounders, fall outside his defensive net by design.
- Earnings growth PassEarnings +33% over the record · +53%
At least a third more earnings than a decade ago, averaging three years at each end. Net income (not per-share), so stock splits don't distort it, buybacks and dilution show up in the share-count line instead.
- Moderate price —P/E ≤ 15 and P/E × P/B ≤ 22.5 · decided by the price
Graham's valuation gate, the wall he kept between a sound business and a sound investment. Earnings are $3.85/share and book value $13.09/share. Enter a price in “What the price implies” just below for the P/E, P/B, and whether it clears. But this is the rule Buffett outgrew: there's no hard P/E law, and a wonderful business can deserve a far richer multiple if the thesis holds, treat it as the bargain-hunter's floor, not a verdict on the price.
Graham would be the first to say a checklist is a starting point, not an answer. These are his defensive, bargain-hunter's tests, the cigar-butt lens. Buffett and Munger grew past it, paying fair prices for wonderful businesses; that lens lives in the moat and owner-earnings work above, and both still matter. Clearing Graham’s tests earns a closer look; failing them earns harder questions, not a dismissal.
What the price implies
reverse-DCFA price is the one input we don't pull, you bring it. Type today's close (read it off any broker or quote site) and see the owner-earnings growth you'd have to believe to justify it, set beside what A. O. Smith Corporation has actually delivered. Nothing is stored; the number stays in your browser.
Enter a price above to run it.
Graham capped the multiple at 15×; Buffett and Munger let that rule go, a wonderful business can deserve 50× if the thesis holds. Read it as the bargain-hunter's floor, not a ceiling on good sense.
The discount rate is your interest rate, what a dollar years from now is worth today, anchored to the long-term Treasury yield (~4–5% today, plus whatever premium you want for risk). Drag it toward the risk-free rate and watch how much growth the price suddenly “needs”: interest rates are gravity on valuations.
Owner earnings $648M on 139M diluted shares; net debt $412M. This is a lens, not a price target, it says what you'd have to believe, not what the company is worth, and it runs on one year of (noisy) owner earnings at assumptions you can see and change.
What the filing emphasizes, FY2025
read the 10-K →Each year a 10-K must name what could go wrong, in the company's own words. Here are the ones Graham and Buffett would stop on, each set against the figure from the same filings that bears on it, anchored to a period you can find in the record above. We point; the judgment is yours.
- Customer concentrationRisk Factors
Who the revenue leans on. When one buyer is a large slice of sales, that buyer holds the pricing power, and its troubles become the company's.
“A material loss, cancellation, reduction, or delay in purchases by one or more of our largest customers could harm our business Sales to our five largest customers represented approximately 41 percent of our sales in 2025.”
From the recordRevenue exposed (TTM)$3.8B - Pricing power & competitionRisk Factors
Whether the company sets its price or takes it. Durable pricing power is the surest mark of a moat; price competition is the surest mark there isn't one.
“Because we participate in markets that are highly competitive, our revenues and earnings could decline as we respond to competition We sell all of our products in highly competitive and evolving markets.”
From the recordOperating margin18.5% (TTM), near a 10-yr high - Supplier & input dependenceRisk Factors
A choke point upstream. A sole or limited supplier can dictate terms, and a single shortage can stop the line.
“In some cases, we are dependent on a limited number of suppliers for some of the raw materials and components we require in the manufacturing of our products.”
From the recordGross-margin cushion (TTM)39% - Concentrated dependenceBusiness
What the whole business leans on, a product, a platform, a partner. Concentration cuts both ways, and the filing is where management has to admit it.
“Although we believe our trademarks, trade names, patents, trade secrets, and licenses to constitute a valuable asset in the aggregate, we do not regard our business as being materially dependent on any single trademark, trade name, patent, trade secret, license or any group of related such rights.”
From the recordOwner-earnings margin at stake (TTM)17% - Debt terms & refinancingMD&A
The fine print behind the debt. Covenants and near-term maturities decide who is really in control when a year goes badly.
“The renewed facility requires us to maintain two financial covenants, a leverage ratio test and an interest coverage test, and we were in compliance with the covenants as of December 31, 2025, and expect to be in compliance for the foreseeable future.”
From the recordBalance sheet (TTM)+$38M net cash · interest covered 54.0× - Litigation & contingenciesRisk Factors
Claims an owner inherits. Most disclosure is boilerplate; this fires only on an actual matter, a named suit, a settlement, a contingency, a number.
“Our results of operations may be negatively impacted by product liability lawsuits and claims Our products expose us to potential product liability risks that are inherent in the design, manufacture, sale and use of our products.”
A judgment, not a number, weigh it against the filing yourself. - Regulation & policyMD&A
Rules that can rewrite the economics, tariffs, antitrust, data, export controls.
“In response to higher steel and other input costs, including tariffs, we announced price increases on most of our water heater and boiler products in the first half of 2025.”
A judgment, not a number, weigh it against the filing yourself.
What changed, FY2025 vs FY2024
read the 10-K →Most of a 10-K is boilerplate carried over verbatim; the signal is in what's new. These lines appear this year and weren't there last, figure updates filtered out, so only the language shift remains.
- “These positive factors outweighed the impact of decreased volumes in China, lower residential water heater sales in North America, and an unfavorable currency translation of approximately $7 million due to the depreciation of foreign currencies compared to the U.S. dollar.”
- “Higher segment earnings and segment margin in 2025 compared to 2024 were primarily driven by pricing benefits, higher boiler and commercial water heater volumes that more than offset lower residential water heater volumes and higher input costs, including tariffs.”
- “Our net sales decrease in 2024 was due to lower volumes of our residential water treatment and water heater products in China that were partially offset by incremental sales of approximately $53 million related to our 2024 acquisition of Pureit.”
- “In our Rest of World segment, China third-party sales declined 12 percent in local currency in 2025 due to continued weak consumer demand and the cessation of the government appliance subsidy programs in the second half of the year.”
- “The announcement might also cause uncertainty among employees, customers, suppliers, and investors that could have a material adverse effect on our financial position, results of operations and cash flows.”
Classic text analysis over the filing itself, no model wrote a word of this, and every quote is the company's own.
Peers, Appliances
The same industry, side by side on owner economics, compare, don't rank by a single number.● marks best in the group.
| Company | Revenue | Gross margin | Op. margin | ROIC | Owner earn. margin |
|---|---|---|---|---|---|
| NXPINXP Semiconductors N.v. | $12.3B | 55% | 24.8% | 13% | 20% |
| ADIAnalog Devices Inc | $11.0B | 61% | 26.6% | 6% | 39% |
| MRVLMarvell Technology, Inc | $8.2B | 51% | 16.1% | 7% | 17% |
| ONON Semiconductor Corporation | $6.0B | 33% | 1.4% | 1% | 24% |
| MCHPMicrochip Technology Incorporated | $4.7B | 58% | 10.4% | 4% | 18% |
| SWKSSkyworks Solutions, Inc. | $4.1B | 41% | 12.2% | 8% | 27% |
| AOSA. O. Smith Corporation | $3.8B | 39% | 19.0% | 30% | 14% |
| MPWRMonolithic Power Systems Inc | $2.8B | 55% | 26.1% | 24% | 24% |