Smith A O (AOS) Q2 FY26 earnings call: guidance and Q&A

Given weak industry data and unchanged macro, what gives confidence in residential water heater demand stabilization in the coming months?

Management explained that prior years had stronger H1 pull-forward due to price increases, making H2 comps easier this year. H1 2026 volume was 51% vs. 52-53% in prior years, implying less pull-forward impact.

“Yes, Bryan, when we kind of look at the way the industry rolls out, just recall that in '24 and in '25, we really had also price increases in the first half of the year, pulling volume into the first half, so some of the comps that we're seeing industry data, kind of through May are comping against a pretty strong front half of the year. The way we have the year laid out, the last couple of years, has been in the 52%, 53% in the front half. And this year, we have it about 51% in the front half. So we don't have quite as much pull forward in the overall outlook, and we have a little easier comps as we go into the back half of the year.”

asked by Bryan Blair · answered by Stephen Shafer

Can you provide more data on North American margin expectations for Q3 and Q4, considering price/cost dynamics?

Q2 price/cost was slightly positive. New pricing (4-7%) will be realized mid-Q3. Steel and other input costs (tariffs) are expected to rise in H2, making H2 price/cost more neutral. Q3 margins are expected to be similar to Q1 due to demand pull-forward and partial price realization, with Q4 seeing the full price benefit.

“I would say, generally, in the second quarter, our price cost relationship was slightly positive. And overall, we're taking pricing actions in our water heating at 4% to 7%. They're expected to begin to be realized midway through the third quarter. So we expect to see more of a contribution of that price, as we move into the second half. But at the same time, we're also -- if you go back to my prepared remarks, you see a ramp-up in some of our cost that is expected to increase, particularly steel in the back half of the year.”

asked by Bryan Blair · answered by Carrie Anderson

Discuss market share comments and stabilization in residential, and differences/trends in wholesale vs. retail channels.

Retail is gaining share, with big box retailers targeting small pros. Wholesale is lumpy. The company made a concerted effort to win back wholesale share and is pleased with stabilization. New entrants find it difficult due to the need for full product breadth, scale, relationships, and technology.

“I've talked about in the past kind of market share specifically on the wholesale side. We're very pleased with sort of how we perform in retail with our retail partners. But on the wholesale side, it can be a little bit lumpy as there are some channel movements, and there are some actions that are taken either by us or competitors. And so we see that kind of right up and down a little bit. But what we look to really do is make sure that we have a stable share performance, and with the end of last year, we kind of had a concerted effort to go back and win back a little bit of share that we felt like maybe we had lost in that wholesale channel.”

asked by Michael Halloran · answered by Stephen Shafer

Can you talk about the dynamics around the delayed price increases and confidence in their market acceptance now?

The price increases were delayed by approximately one month to remain competitive with other market participants. Management expects them to go forward as planned, as everyone in the market is implementing pricing.

“Yes. I mean, it was roughly a month that it was pushed back, and it really was because we wanted to remain competitive with some of the other market participants that came out with pricing, but everybody is in the market with pricing. We expect it to go forward as planned.”

asked by Nathan Jones · answered by Charles Lauber

Can you size the dollars on the pre-buy pulled into Q2 from Q3? Also, discuss competitive and promotional activity in the wholesale channel, including new competitors.

Management did not quantify pre-buy dollars but reiterated H1 2026 volume at 51% vs. 52-53% in prior years, implying less pull-forward impact. Wholesale is a competitive space, especially without meaningful growth. New entrants face challenges due to the need for a full product portfolio, scale, relationships, and technology.

“We generally don't sign that, but I think within my prepared remarks, we did want to make sure that we gave you a little bit more commentary around the phasing of the year because there was some pull forward demand in the third quarter into the second quarter. So I think my comments around the shape of the second half was specifically those comments on the third quarter can help you kind of think through that in terms of thinking through the dynamics in the third quarter, inclusive of some higher steel costs that we expect in the half -- in the second half of the year, tariff dynamics as well as the pricing that we expect to have full traction in the back half of the quarter.”

asked by Scott Graham · answered by Carrie Anderson

Update on the strategic thinking for the North America water treatment business, 10 years after Aquasana, and its potential to move the needle.

Management views water treatment as an attractive, innovative space with megatrends. They have learned significantly over the past decade. Current actions (refining, focusing, prioritizing) aim to make it more scalable, profitable, and a bigger contributor. They still see it as an attractive space with greater clarity on future direction.

“I'd say when we decided 10 years ago to step into the water treatment space, a lot of work was done to understand the landscape, understand the megatrends, Trying to understand where the world was going around interest and understanding of water cleanliness, how regulatory frameworks were going to impact that. So we view it as an attractive space.”

asked by Ryan Connors · answered by Stephen Shafer

How does the convergence of HVAC and plumbing trades impact A. O. Smith, is it an opportunity or a risk, and is it part of the wholesale shift?

Management views this as a longer-term trend. Plumbers and HVAC technicians have different skill sets and replacement cycles, so it's not currently driving a big impact on water heater OEMs. It creates future opportunities, and the company is actively involved in understanding these dynamics as a thought leader.

“When I talk about shift in wholesale, it's a little bit more, I'd say, kind of near-term dynamics related to kind of housing starts and how they're serving the pros and how the retail side of the channel serving the pros. So that's a little bit more of kind of what we're seeing right here and now. I think that the topic you're talking about is how are the trades coming together with the HVAC world, what does that mean for the wholesalers who serve those spaces, what does that mean for OEMs, manufacturers. I think that's a longer-term trend.”

asked by Ryan Connors · answered by Stephen Shafer