A.O. Smith (AOS) is down after reporting first-quarter 2026 results that showed softer revenue and profit and, more importantly, a lowered full-year 2026 outlook. The company posted Q1 2026 net sales of $945.6 million (down 2% year over year) and diluted EPS of $0.85 (down 11%), then reduced its 2026 diluted EPS guidance to $3.60–$3.90 and adjusted EPS guidance to $3.70–$4.00.

The quarter’s weak spot was outside North America, where results were hit by continued challenges in China. Rest of World sales declined to $200.7 million (down 11%), with China sales down 17% in local currency and segment margin falling to 6.2% from 8.7%, pushing investors to reprice the durability of the company’s growth and profitability assumptions for 2026.

North America sales increased 1% to $753.4 million, helped by the Leonard Valve acquisition and pricing. However, lower residential water heater volumes plus weather-related production and shipping constraints weighed on performance, limiting the segment’s ability to cushion the overseas weakness.

Management also flagged uncertainty tied to North American regulatory changes and said it expects about $20 million of restructuring and impairment expenses in Q2 2026 related to its North America water treatment business (excluded from adjusted EPS). While operating cash flow improved to $129.4 million and free cash flow rose to $118.9 million, the market reaction is being driven primarily by the lower 2026 outlook and the China-driven reset to expectations.