AI interpretation based on checked source excerpts. Issuer assertions and evidence limitations remain explicit.
Policy quality-scores-2: six equally weighted categories. The overall score requires full coverage. Missing inputs are not zero. Qualitative grades are sourced interpretations, not probabilities. 4/6 · 18/10/2026
Moat50
Equal-weight average of four evidence-backed rubric grades (0–4), scaled to 100.
structural advantage · 3/4 · Broad wholesale access and the exclusive Lowe’s relationship documented across multiple years establish a meaningful channel asset. Realized pricing supports its economic relevance. Comparative market leadership remains a management assertion, and neither switching costs nor relative cost superiority is demonstrated.
durability · 2/4 · The persistent exclusive retail relationship supports durability, but declining distributor counts and emerging technology competition limit confidence. No expiry or renewal terms establish how long exclusivity will persist.
customer dependency · 1/4 · Replacement demand supports category necessity, but does not demonstrate dependence on this supplier. Independent unit obligations and the absence of demonstrated switching friction leave customer dependence weak; the exclusive retail relationship establishes channel access rather than end-user lock-in.
erosion resilience · 2/4 · Realized pricing benefits demonstrate some resilience, while first-half 2026 costs and lower residential volumes outweighed those benefits. China declines are realized weakness, although their disclosed market and subsidy causes do not establish competitive share losses.
Pricing power56
Equal-weight average of four evidence-backed rubric grades (0–4), scaled to 100.
realized pricing · 3/4 · Pricing contributed to 2025 water heater sales and gross margin, with carryover benefits also reported in 2026 boilers. This is demonstrated pass-through capability. The four-to-seven-percent increases effective at second-quarter end are not treated as fully realized revenue gains.
retention · 2/4 · Assessed indirectly from replacement demand, a persistent exclusive retail relationship and continued boiler demand alongside pricing benefits. Falling wholesale coverage and pre-buy effects make the evidence mixed; no customer retention or same-brand replacement rate is inferred.
margin resilience · 2/4 · Pricing and commercial mix supported 2025 gross margin, but input costs, residential volume declines and restructuring outweighed pricing benefits in first-half 2026 North America. The historical recovery lag reinforces incomplete protection rather than an absence of pricing power.
contractual freedom · 2/4 · Some customers are contractually obligated to accept steel-linked price changes, and new price increases were implemented. This provides partial adjustment rights, while volume-linked rebates and undisclosed coverage and reset terms prevent concluding broad unilateral freedom.
Predictability—
Five consecutive annual periods are required for predictability; the accepted history is incomplete.
Financial strength90
Equal-weight grades: debt/FCF (1–8x), net debt/earnings before interest and tax (0–5x), interest service (1–12x), current ratio (0.75–2x). Earnings use reported operating income, or reported pretax profit plus reported interest expense when operating income is unavailable. Interest service uses earnings/interest expense; if unavailable, it uses reported operating cash flow/cash interest paid, without relabeling cash paid as accrued expense. Nonpositive cash flow/earnings score 0 for their service component; reported zero interest with a positive numerator scores 100. Net cash scores 100 for net leverage. Missing disclosures remain unavailable. General nonfinancial-company rubric, not a credit rating; exceptional and nonoperating gains are not normalized out. IFRS finance-cost and cash-flow classifications retain their reported scope.
- debtFcfGrade
- 100.00
- netDebtEbitGrade
- 100.00
- interestCoverageGrade
- 100.00
- currentRatioGrade
- 59.79
- Debt / FCF (x)
- 0.28
- Net debt / operating income (x)
- -0.03
- Interest coverage (x)
- 53.97
- Current ratio (x)
- 1.50
Capital allocation—
Missing annual observations required by this category.
Management56
Equal-weight average of four evidence-backed rubric grades (0–4), scaled to 100.
capital discipline · 2/4 · Operating cash flow improved through working capital management and capital expenditures were contained. Acquisition-related financing sharply increased leverage while repurchases continued, and restructuring charges indicate mixed deployment outcomes. Supplied acquisition returns and repurchase valuation evidence are insufficient to establish exceptional discipline.
incentive alignment · 3/4 · Actual CEO equity grants, three-year ROIC-linked performance cash and RSUs with a performance threshold establish substantive alignment mechanisms. The five-percent ROE floor is modest, and the passages do not establish complete executive ownership or exceptional realized pay-for-performance outcomes. These are existing arrangements, not assumed approval of the advisory vote.
execution · 2/4 · Assessed partly from indirect operating evidence: realized pricing, improved working capital cash generation and actual production relocation demonstrate execution capability. China declines, lower residential volumes and restructuring impairments make outcomes mixed. Acquired sales and pre-buy demand are not treated as underlying organic execution.
governance · 2/4 · Disclosed independent board and committee representation, related-party approval procedures and implemented Presiding Director enhancements support oversight. Dual-class voting rights and disclosed shareholder concerns over the absence of a sunset and family-trustee committee participation constrain the assessment. Proposed director elections are not treated as completed.
Evidence
O. Smith and State brands, includes approximately 800 independent wholesale plumbing distributors serving residential and commercial end markets.
Business — North American wholesale distribution · Filed 10/02/2026
In the retail channel, our customers include four of the six largest national hardware and home center chains, including a long-standing exclusive relationship with Lowe’s where we sell A.
Business — retail customers and Lowe’s exclusivity · Filed 10/02/2026
In the retail channel, our customers include four of the six largest national hardware and home center chains, including a long-standing exclusive relationship with Lowe’s where we sell A.
2022 business — retail customers and Lowe’s exclusivity · Filed 14/02/2023
We believe we are the largest manufacturer and marketer of water heaters in North America with a leading share in both the residential and commercial portions of the market.
Business — management’s North American leadership assertion · Filed 10/02/2026
Our trade name is important with respect to our products, particularly in China, India, and North America.
Business — importance of trade name · Filed 10/02/2026
In our North America segment, water heater sales increased one percent in 2025 compared to 2024 as pricing benefits and higher commercial volumes were partially offset by lower wholesale residential volumes.
2025 operating results — water heater pricing and volumes · Filed 10/02/2026
The higher gross profit margin in 2025 compared to 2024 was primarily driven by the benefits of pricing actions implemented early in 2025 to address increased input costs in North America and higher mix of commercial water heaters and boilers.
2025 operating results — pricing and mix contribution to gross margin · Filed 10/02/2026
Our boiler sales grew 21 percent and 12 percent in the second quarter and first half of 2026, respectively, due to carryover pricing benefits, a strong response to our annual seasonal pre-buy programs and pre-buy ahead of 2026 price increase.
First-half 2026 operating results — boiler pricing and pre-buy demand · Filed 30/07/2026
O. Smith and State brands, includes more than 1,000 independent wholesale plumbing distributors serving residential and commercial end markets.
2022 business — wholesale distributor count · Filed 14/02/2023
O. Smith and State brands, includes more than 900 independent wholesale plumbing distributors serving residential and commercial end markets.
2023 business — wholesale distributor count · Filed 13/02/2024
Some of our competitors may have greater financial, marketing, manufacturing, research and development and distribution resources than we have; others may invest little in technology or product development but compete on price and the rapid replication of features, benefits, and technologies, and some are increasingly expanding beyond their existing manufacturing or geographic footprints.
Risk factors — competitor resources and feature replication · Filed 10/02/2026
New technologies and new competitors have developed and continue to develop in certain markets in which we participate, such as gas tankless and heat pump technologies in North America.
Risk factors — tankless and heat pump competition · Filed 10/02/2026
■Because approximately 18 percent of our sales in 2025 were attributable to China, adverse economic conditions or changes in consumer behavior in China could impact our business Our third-party sales in China decreased twelve percent in local currency in 2025 compared to 2024.
Risk factors — realized 2025 China sales decline · Filed 10/02/2026
In our Rest of World segment, China third-party sales declined 28 percent in local currency in the second quarter of 2026 due to continued challenging market conditions including the cessation of the government appliance subsidy programs.
Second-quarter 2026 operating results — China sales decline · Filed 30/07/2026
Lower segment earnings and segment margin in the first six months of 2026 were primarily driven by the restructuring and impairment charges, increased material and input cost including steel and lower residential water heater volumes that more than offset the pricing benefits of our 2025 pricing actions and the earnings contribution from Leonard Valve.
First-half 2026 North American results — costs and volumes outweighed pricing benefits · Filed 30/07/2026
A significant portion of our North America sales is derived from the replacement of existing products.
Business — North American replacement demand · Filed 13/02/2024
Each unit sold is considered an independent, unbundled performance obligation.
Revenue recognition — independent unit performance obligations · Filed 30/07/2026
A portion of our customers are contractually obligated to accept price changes based on fluctuations in steel prices.
Business — contractual steel-price adjustments · Filed 10/02/2026
Historically, there has been a lag in our ability to recover increased material costs from customers, and that lag, could negatively impact our profitability.
Risk factors — historical lag in material-cost recovery · Filed 10/02/2026
In response to higher steel and other input costs, in April, we announced price increases of four to seven percent on most of our water heater and boiler products that went into effect at the end of the second quarter.
2026 pricing actions — announced increases effective at second-quarter end · Filed 30/07/2026
Rebates and incentives are based on pricing agreements and are tied to sales volume.
Revenue recognition — volume-linked pricing agreements and rebates · Filed 30/07/2026
(dollars in millions) Six Months Ended June 30, 2026 2025 Cash provided by operating activities $ 253.8 $ 178.3 Cash used in investing activities (471.8) (1.8) Cash provided by (used in) financing activities 223.6 (241.1) Cash provided by operations in the first six months of 2026 was $253.8 million, an increase of $75.5 million from $178.3 million in the first six months of 2025, primarily due to working capital management that more than offset lower earnings.
Liquidity — operating cash generation and working capital · Filed 30/07/2026
Capital expenditures totaled $20.5 million in the first six months of 2026 compared with $38.4 million in the same period last year.
Liquidity — actual capital expenditure · Filed 30/07/2026
Our leverage, as measured by the ratio of total debt to total capitalization, was 25.7 percent at June 30, 2026, compared with 7.7 percent at December 31, 2025.
Liquidity — debt-to-capitalization increase · Filed 30/07/2026
The increase in interest expense in the second quarter and first six months of 2026 was primarily due to higher debt levels as a result of the Leonard Valve acquisition.
Operating results — acquisition-related debt and interest · Filed 30/07/2026
During the second quarter of 2026, we repurchased 1,885,727 shares at an average price of $58.93 per share and at a total cost of $111.1 million.
Capital deployment — actual second-quarter repurchases · Filed 30/07/2026
Restructuring and impairment expense in the three and six months ended June 30, 2026 was $22.6 million, and was associated with a restructuring plan designed to increase operational efficiency and accelerate growth through footprint optimization and brand rationalization.
Operating results — restructuring and impairment expense · Filed 30/07/2026
Mr. Shafer received two grants in 2025: the first, valued at $3,120,000 during our regular grant cycle in February 2025, and a second grant valued at $1,000,000 on July 1, 2025 in recognition of his new role as president and chief executive officer.
Executive compensation — actual 2025 CEO grants · Filed 04/03/2026
The value to the executive is dependent upon return on invested capital (or ROIC) performance over a three-year vesting period.
Executive compensation — three-year ROIC performance cash · Filed 04/03/2026
Restricted stock units are time-based but have a minimum performance threshold based on average Return on Equity that must be achieved in order to vest.
Executive compensation — RSU vesting and performance threshold · Filed 04/03/2026
For 2025, the minimum average Return on Equity for restricted stock unit payouts was 5%.
Executive compensation — 2025 RSU minimum ROE threshold · Filed 04/03/2026
Key benefits of our capital structure and commitment to strong governance practices include: • Both Common stockholders and Class A Common stockholders elect directors annually; • Common stockholders vote as a separate class and currently have the power to elect four of our ten director nominees; • Nominees for election as Common Stock directors now rotate every year at the direction of the Board of Directors, provided that the nominees for election as Common Stock directors will exclude directors who are Smith family members or management and will include at least one member of each of the Audit, Personnel and Compensation, and Nominating and Governance Committees, such member not to serve more than two years consecutively; • Common stockholders benefit from our decision not to utilize the “controlled company” exemption under the New York Stock Exchange (“NYSE”) rules, thus allowing Common stockholders to receive the same corporate governance protections as other NYSE companies that are not controlled; • For more than 40 years, our chief executive officer has not been a member of the Smith family; • Only one Smith family member currently serves as a director and none of the current independent directors were known to the Smith family prior to their placement on the Board through a third-party reputable search firm; • Eight of our ten directors are independent under the SEC and NYSE rules, and only independent directors serve on our Audit, Personnel and Compensation, and Nominating and Governance Committees; and • Our Presiding Director is an independent director with well-defined roles and responsibilities.
Governance — class voting rights and board independence · Filed 04/03/2026
Stockholders were supportive of our capital structure, but certain stockholders expressed specific concerns and questions on the following topics: • Formalizing and disclosing the process for the rotation of the Common Stock directors; • Enhancement of and more robust disclosure regarding the roles and responsibilities of the Presiding Director; • The lack of a resignation policy for director nominees receiving more “withheld” votes than “for” votes in an election; • The lack of a sunset provision for our dual class stock structure, i.e., a specific time-based conversion of the Class A Common Stock into Common Stock; and • The participation of Mark Smith, a trustee of the Smith Family Voting Trust, who we classify as independent, on the Personnel and Compensation Committee and the Nominating and Governance Committee.
Stockholder engagement — dual-class and oversight concerns · Filed 04/03/2026
In 2026, as a result of our stockholder engagement efforts, we enhanced the role of our Presiding Director, whose responsibilities now include: • presiding at all meetings of the Board of Directors at which the chairman is not present, including all executive sessions of the nonmanagement and/or independent directors; • having the authority to call meetings of the nonmanagement and/or independent directors; • serving as a contact for interested parties who wish to communicate with nonmanagement directors; • approving Board of Directors meeting agendas and information sent to the Board of Directors; • approving Board of Directors meeting schedules to assure that there is sufficient time for discussion of all agenda items; and • providing feedback to management regarding meetings of the nonmanagement and/or independent directors.
Governance — implemented Presiding Director enhancements · Filed 04/03/2026
Further, the Corporate Governance Guidelines provide the procedure for review of related party transactions reportable under SEC rules, with approval by the Nominating and Governance Committee required if any such transaction involves a director, executive officer or his/her immediate family members.
Governance — related-party transaction approval procedure · Filed 04/03/2026
Our primary competitors in India are Racold, Bajaj and Havells in the water heater market and Eureka Forbes and Kent in the water treatment market.
Business — named competitors in India · Filed 10/02/2026
During that period, the Company shifted certain production activities to other facilities to mitigate the operational impact.
Commitments and contingencies — actual production relocation · Filed 30/07/2026
The Company’s Rest of World segment sales are disaggregated by China and all other Rest of World: (dollars in millions) Three Months Ended June 30, Six Months Ended June 30, 2026 2025 2026 2025 North America Water heaters and related parts $ 656.4 $ 644.4 $ 1,268.2 $ 1,269.0 Boilers, related parts, and components (1) 101.7 71.2 183.2 135.6 Water treatment products and related parts 62.4 63.4 122.5 123.1 Total North America 820.5 779.0 1,573.9 1,527.7 Rest of World China $ 152.4 $ 192.3 $ 314.8 $ 379.5 All other Rest of World 42.5 47.8 80.8 87.3 Total Rest of World 194.9 240.1 395.6 466.8 Inter-segment sales (11.1) (7.8) (19.6) (19.3) Total Net Sales $ 1,004.3 $ 1,011.3 $ 1,949.9 $ 1,975.2 (1) Includes sales of $15.9 million and $31.8 million in the three and six months ended June 30, 2026, respectively, related to the January 6, 2026 acquisition of Leonard Valve.
Revenue disaggregation — segment sales and acquired contribution · Filed 30/07/2026
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.
Business — limits of dependence on individual intellectual property rights · Filed 10/02/2026
