A. O. Smith Corporation AOS has failed to impress investors with its recent operational performance due to weakness in the Rest of the World segment, supply-chain challenges and forex woes.

Based in Milwaukee, WI, A. O. Smith is engaged in manufacturing commercial and residential water heating equipment and water treatment products. The company specializes in offering innovative and energy-efficient solutions and products, which are developed and sold globally.

In the past year, this Zacks Rank #4 (Sell) company’s shares have lost 24.8% compared with the industry’s 17.7% decline.

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Let’s discuss the factors, which are likely to continue taking a toll on this company.

Business Weakness: As its fortunes are closely tied to the construction market, the ongoing challenges in the Chinese real estate market are a concern for A. O. Smith. Lower volumes of water heaters and water treatment products in the region are concerning for the Rest of the World segment. A decline in orders for residential and commercial water heater products in the North America segment is denting the company’s performance as well. In the fourth quarter, the North America segment’s sales declined 7% year over year as higher boiler and water treatment volumes were offset by lower volumes of residential and commercial water heaters.

Supply-Chain Constraint: A. O. Smith’s operation can be impacted due to supply-chain disruptions. The company utilizes a variety of raw materials, including steel, copper, aluminum and various engineered electrical components in its businesses and has to depend on others for the uninterrupted supply of raw materials at reasonable rates. The persistence of supply-chain constraints for specifically engineered components may inflate costs and delay the delivery of products to its customers.

Forex Woes: A. O. Smith has a significant presence in Asian countries like China and India. Since its products are priced in the local currencies of these countries, any increase in the value of the U.S. dollar relative to the local currencies would impact its revenues and profitability. For example, adverse foreign currency movements lowered the Rest of the World segment’s revenues by $13 million in 2024 and $44 million in 2023.

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Some better-ranked companies are discussed below.

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A. O. Smith Corporation (AOS) : Free Stock Analysis Report

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Allegion PLC (ALLE) : Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

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