A.O. Smith Corporation

I would now like to hand the call over to Helen Gerholt.

You may begin. Good morning, everyone, and welcome to the A.O. Smith Full Year and Fourth Quarter Conference Call. I'm Helen Gerholt, Vice President, Investor Relations and Financial Planning and Analysis. Joining me today are Steve Schaefer, Chief Executive Officer, and Chuck Lauber, 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 queue, please limit yourself to one question and one 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 investor.aosmith.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 record EPS. 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 A.O. Smith team plays a vital role in building trust with our customers and upholding the values that define A.O. Smith. I am truly grateful for your ongoing passion and collaboration that has me excited for our potential together in 2026 and beyond. Now, moving on to our 2025 financial performance please turn to slide four. Our 2025 sales increased slightly as pricing benefits and higher commercial water heater and boiler volumes were offset by lower China sales. Our EPS increased 6% to a record $3.85 driven by profitability improvements in both segments. North America segment margin improved 20 basis points over 2024 adjusted segment margin, led by profitability improvement in our water treatment business, as well as mixed benefits from higher commercial sales. In our rest of 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 sales. We returned $597 million of capital to shareholders with our dividends and share repurchases. In the fourth quarter, we announced the acquisition of Leonard Val, which we completed earlier this month. This acquisition expands our water management market reach, digital capabilities, and integrated product portfolio. I welcome the Leonard Val team to the A.O. Smith family. Now, turning to our North America segment performance. North America water heater sales increased 1% in 2025 as cost and tariff-related pricing benefits and higher commercial volumes offset lower wholesale residential volumes. We project that full-year 2025 residential industry unit volumes were 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 faced some challenges in the wholesale residential channel in the fourth quarter. This part of this market is experiencing pressure from a new construction slowdown and continued 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. backed 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 America 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, full-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.