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China’s domestic water heater shipments trended well above expectations in the second quarter, rising 10% year-over-year in May and 7% in April, according to industry data cited by UBS research analyst Damian Karas. This brings quarter-to-date growth to 9%, a sharp contrast to A.O. Smith’s (NYSE:AOS) 2025 guidance, which projects a 5%-8% decline in organic sales for China.
The upside surprise suggests the Chinese water-heater market is gaining traction, helped by consumer stimulus and government appliance trade-in incentives, Karas said in a July 8 note to clients.
Year-to-date, domestic water-heater volumes are now up 5%, with the potential for further gains as year-over-year comparisons ease in the second half.
While China’s housing market remains a challenge (residential completions fell 22% in May), consumer goods retail sales rose 6% year-over-year, indicating some demand resilience.
A.O. Smith (NYSE:AOS), which derives nearly half of its China revenue from water heaters, has underperformed the broader market in recent quarters, though that gap narrowed in Q1.
If current trends hold, Karas said the company could benefit from both stronger China volumes and pre-buy activity in North America, where distributors are reportedly ordering ahead of planned price increases. OEM pricing has held steady, according to recent UBS channel checks.
Given these positive developments, UBS estimates that A.O. Smith (NYSE:AOS) will raise the lower end of its full-year EPS guidance. The bank’s Q2 earnings estimate of $1.01 a share is about 3% ahead of the consensus forecast of $0.98.