Spring 2018 Analyst Presentation

Spring 2018 Analyst Presentation

Forward Looking Statements 2 This presentation contains statements that we believe are forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward looking statements generally can be identified by the use of words such as may, will, expect, intend, estimate, anticipate, believe, continue, guidance or words of similar meaning. All forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those anticipated as of the date of this presentation. Important factors that could cause actual results to differ materially from these expectations include, among other things, the following: a further slowdown in the growth rate of the Chinese economy or a decline in the growth rate of consumer spending in China; potential weakening in the high efficiency boiler market segment in the U. S.; significant volatility in raw material prices; our inability to implement or maintain pricing actions; potential weakening in U. S. residential or commercial construction or instability in our replacement markets; foreign currency fluctuations; inability to successfully integrate or achieve our strategic objectives resulting from future acquisitions; competitive pressures on our businesses; the impact of potential information technology or data security breaches; changes in government regulations or regulatory requirements; the impact from U.S. Tax Reform and projections for effective tax rates and one time expenses under the new law; and adverse developments in general economic, political and business conditions in the key regions of the world. Forward looking statements included in this presentation are made only as of the date of this presentation, and the company is under no obligation to update these statements to reflect subsequent events or circumstances. All subsequent written and oral forward looking statements attributed to the company, or persons acting on its behalf, are qualified entirely by these cautionary statements. This presentation contains certain non GAAP financial measures as that term is defined by the SEC. Non GAAP financial measures are generally identified by Adjusted (Adj.) or Non GAAP.

Investment Case Manufacturer of residential and commercial water heaters, boilers and water treatment products Market share leader in major businesses Stable/growing North American replacement market; operating leverage as new construction recovers Strong balance sheet and cash flow to support future growth & share repurchase Strength of our premium brand, distribution, manufacturing and innovation provide clear market advantage in China Organic growth of 8 percent for next several years 3

Sales & Adjusted Operating Margin* Sales in millions $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $500 Sales Adj EBIT Margin 20% 15% 10% 5% NOTE 2010 through 2014 adjusted for non-operating pension costs and certain nonrecurring items $0 2010 2011 2012 2013 2014 2015 2016 2017 0% * excludes corporate expenses 4

Adjusted EBITDA: 21 Percent CAGR $600 $500 $400 $300 $200 $158 $197 $270 $333 $374 $473 $535 $601 Adjusted EBITDA 2010 10.6% of Sales 2017 20.1% of Sales NOTE 2010 through 2014 adjusted for non-operating pension costs and certain nonrecurring items $100 5 $0 2010 2011 2012 2013 2014 2015 2016 2017

Adjusted Earnings Per Share: 26 Percent CAGR $2.50 $2.00 $1.50 $1.00 $0.50 $0.43 $0.54 $0.78 $1.03 $1.22 $1.58 $1.85 $2.17 NOTE 2010 through 2014 adjusted for nonoperating pension costs and certain non recurring items; 2017 adjusted for U.S. Tax Reform expense $0.00 2010 2011 2012 2013 2014 2015 2016 2017 6

Segment Revenue NA Boilers growing 10% Water heaters growing North America 64% Rest of World 36% ROW China/India = 95% Europe/Middle East = 5% 7 2017 full year

U.S. Water Heater Market Segment Residential Market 50% 40% 30% AHRI data + tankless: AOS actual shipments and AOS estimates of competitors shipments 20% 10% 0% 2016 market share data 8 Other

U.S. Residential Water Heater Market Segment Wholesale Retail Wholesale channel is ~55% of the market Large Regional Distributors Retail channel is ~45% of the market 9 A. O. Smith's Customers 2017 9.2 mm Units

Water Heaters Strong Replacement Sales U. S. Residential Water Heaters 10,000 Peak housing starts: 2.1 million thousands of units 8,000 6,000 4,000 2,000 0 New Construction Replacement Note: Includes tankless 10

U.S. Water Heater Market Segment 60% 50% 40% Commercial Gas Market* 2016 market share data AHRI data: AOS actual shipments and AOS estimate of competitors' shipments 11 30% 20% 10% 0% Other *Commercial gas water heater segment as defined by AHRI, total 2016 commercial units as reported by AHRI = 97,000 units

Energy Efficient Cyclone Game changing energy efficient commercial product launched in 1997 and recently upgraded Up to 96% thermal efficiency dramatically lowers operating costs offering short payback Represents 63% of AOS commercial gas water heater revenues 12

U.S. Commercial Gas Market: Energy Efficient Units more than Doubled in Six Years to 45 percent of units sold in 2016 100,000 Commercial Gas Industry Units 80,000 60,000 40,000 20,000 2009: 19,000 units 2016: 43,950 units (45% of total) >90% Efficiency <90% Efficiency 13 2009 2010 2011 2012 2013 2014 2015 2016 Source: AHRI Industry Data

Lochinvar End Markets Boilers 58% Water Heating 42% 14 2/3 commercial end markets; 1/3 residential end markets

Trend to Higher Efficiency, Condensing Boilers 43 percent of units sold in 2015 North American Commercial Boiler Volume (Units) 100,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Actual Forecast 15 Non Condensing Commercial Boilers Source: BRG Building Solutions Condensing Commercial Boilers

Boiler Sales Dollars* Condensing vs. Non Condensing Condensing Non Condensing 2 0 0 4 92% 8% Non Condensing 86% Condensing 14% 2 0 1 7 16 *Residential Boilers & Commercial Boilers

China Exceeds $1 B; now 34% of Sales & Growing US$ millions 1,000 800 600 400 China China sales have grown 21% (CAGR) over the last 10 years 200 0 17

AOS China Built on: Premium Brand Extensive Distribution and Service Network Innovative New Products & World Class Manufacturing Local Management Team and Organizational Development Nanjing 18

Fifteen Year Water Heater Market Share Trend Market Share 19 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Leading residential brands measured in currency; Tier One Market: GFK - CMM data sampling several thousand largest retail stores, December 2017 A.O.Smith Haier Midea Macro Wanhe Rinnai Noritz Ariston Sakura Siemens

Market Share by Price Category Electric Market Share Gas Market Share Value Market Share 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% Others Siemens Ariston Midea Haier A.O.Smith Value Market Share 90.00% 80.00% 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% Others Haier Ariston Wanhe Macro Sakura Noritz Rinnai A.O.Smith 10.00% 0.00% >=400 300-400 200-300 <200 Retail Price(USD) 0.00% >=400 300-400 200-300 <200 Retail Price(USD) 20 Data Source: CMM Retail Survey December 2017-150 Best Selling Models

Broad Distribution Channel Over 9,000 retail counters in China 30% of outlets in Tier 1 cities; 70% in Tier 2/3 cities Percentage of Sales 21 100% 80% 60% 40% 20% 0% 36% 33% 35% 35% 36% 23% 21% 20% 29% 30% 33% 10% 22% 26% 25% 25% 30% 26% 24% 54% 45% 38% 37% 31% 1% 3% 8% 18% 23% 23% 2007 2010 2012 2013 2014 2015 2016 2017 Regional Stores AOS Specialty Stores Suning/Guomei E-Commerce

Product Line developed in China Residential & Commercial Heat Pump Gas & Electric Commercial Pressurized Solar Air Purifier Water Purifier Combi Boiler Wall hung Electric Gas Tankless 22

23 Professional Team of Local Management

Mega Trends China Significant growth in AOS target demographic A. O. Smith customer demographic continues to grow rapidly Growth of 10 times during this decade 2010: 18 mm households 2020: 200 mm households 24 Source: McKinsey Insights China December 2015

China Consumers Prefer Foreign Brands Lower: Annual income <$20,000 / year Higher: Annual income >= $20,000 / year 25 SOURCE: McKinsey Annual Chinese Consumer Survey (2012)

Different Water Treatment Technologies Rust Removal Pore Size 5000 nm Carbon Active Carbon - improves taste (for good incoming water areas as in the US and Europe) Sediment & Colloids Pore Size 1000 nm MF Micro-Filtration - removes sediment and colloids (can correct basic water pollution problem) Bacterium & Organics Heavy Metals, Virus & Salts Pore Size 50 nm Pore Size 0.2 nm RO UF Ultra-Filtration - removes bacterium, large organics and other pollutants resulting from water transport) Reverse Osmosis - the ultimate filtration technology; removes nearly all substances, particularly most heavy metals prevalent in China and India water supply 26

Data:CMM 27 100% 80% 60% 40% 20% 0% Reverse Osmosis Is Gaining Market Share CMM Water Treatment Market by Technology 8.4% 7.8% 2.7% 5.3% 5.0% 3.0% 4.0% 5.3% 7.0% 7.7% 8.0% 5.9% 20.7% 24.9% 31.4% 44.3% 59.0% 72.4% 81.1% 67.6% 64.1% 55.5% 40.2% 27.0% 15.5% 10.0% 2010 2011 2012 2013 2014 2015 2016 Ultra Filtration Reverse Osmomsis Carbon NanoFiltration Others

Side Stream Membrane Technology Unique patented design Increases RO membrane life - industry leading three year life Reduces waste water up to 50 percent - 1 gallon clean to 1 gallon waste Provides market place differentiation 28

Tankless water treatment enabled by side stream membrane technology Provides immediate clean water Minimizes risk of post RO membrane contamination No storage tank needed Leverages membrane rolling capabilities to produce hi-flow RO products Constant flow rates up to 0.9 gallons per minute China Water Treatment Sales 29 $ in Millions $250 $200 $150 $100 $50 $ 2010 2011 2012 2013 2014 2015 2016 2017

Major Brands CMM Market Share By Value Water Purifier 50.0% 45.0% 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 2011 2012 2013 2014 2015 2016 2017 A. O. Smith Midea Qinyuan Angel Litree 3M Haier Ecowater 30 Data Source: CMM GFK December 2017

Air purifiers the market need is clearly visible Bird s Nest Beijing: PM 2.5 PM 2.5 45 453 A healthy day A very unhealthy day 31

China Air Purifier Market Growth Opportunity Unit sales per 1000 Urban Households for China and its neighbors Annual Air Purifier Sales Volume (units per 1000 Urban households) Projection by Euromonitor Unit Sales per 1000 urban households 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 China Japan South Korea Taiwan Singapore China s air pollution may drive urban penetration closer to Japanese levels 6% household penetration overall; 21% penetration in top 23 ( first tier ) cities 32 Source: Euromonitor, January 2016; Note: For calculating penetration rate for China: assumed no replacement in the period

China Mega Trends Driving Growth We are positioned to reach consumers using the internet Internet A. O. Smith is a strong foreign brand Middle and affluent class trade up and value foreign brands Our Premium Consumer brand is positioned for the middle and affluent classes Middle and affluent classes are growing 33 A. O. Smith has manufacturing capacity and channel footprint to capitalize Urbanization in China projected to drive 29% of all global growth!

Mega Trends India Significant growth in AOS target demographic Millions of households, percent, 2000 prices A. O. Smith target demographic: upper middle class 34 SOURCE: India Urbanization Econometric Model Updated 2010

Building Distribution A cities (pop >1.5 Mn) Distribution in 25 out of 25 cities B Class cities (pop.5 to 1.5) Mn) Distribution in 63 of 68 Class C cities (pop.1 to.5 Mn) Distribution 316 of 400 NATIONAL RETAILERS Headquarters and Manufacturing (Bengaluru) Major Distribution Locations REGIONAL RETAILERS 35

Business Model In India Similar to China Attractive Growth Demographics Leveraging Global Capabilities with Products Designed for the Indian Market Building Brand & Expanding our Distribution Introducing New Product Categories with Water Treatment Local Management 36

Acquisition Strategy Acquisition Strategy 37

Growth Strategy: Acquisitions Geography Geographic Growth China India High Growth GDP markets Core Expand/ Grow the Core New Products & New Technologies Water Heating Water Treatment Adjacencies 38 Adjacencies Water-themed platforms for growth New technologies beyond water for China

Investment Criteria Value creation opportunities ROIC in excess of cost of capital by third year Meet risk adjusted IRR hurdle rates Margin accretion with growth rates higher than U.S. GDP Accretive to earnings in the first year 39

A. O. Smith s Capital Allocation Options Organic growth (capital expenditures) Acquisitions $410 million net cash 20 percent leverage ratio (debt/total capital) Return cash to shareholders: $260 million projected in 2018 Dividends Increased 29 percent in first quarter 2018 Share repurchase Expect to repurchase approximately $135 million* in 2018 on a 10b5-1 plan and opportunistically in the open market 40 * subject to price, alternative investments and working capital requirements

Growth Strategy: Organic Growth High Growth: 36% of sales growing 14% (China, India & NA water treatment) 5.0% Boilers: 6% of sales growing 10% 0.6% NA water heaters: 58% of sales growing ~4% 2.4% Total annual sales growth 41 8.0%

China Growth Model Water Heater Market Growth 42 Fast Growing Ancillary Products Approx 15% growth Market Share Gains & Average Selling Price Increases

Growth and Stability Offense Organic growth of 8% High growth businesses growing approximately 14 percent Boilers growing 10% Call option on NA new construction Significant cash and borrowing capacity for value creating acquisitions and share buyback Defense NA water heaters and boilers ~85% replacement Market share leader in NA, China Strong balance sheet; net cash position approximately $410 million Small exposure to Europe ($50 million in revenues) 43

INVESTOR CONTACT Vice President, Investor Relations and Treasurer Direct: 414 359 4130 Email: packerman@aosmith.com 44

45 APPENDIX

Full Year Results $ in millions 2017 2016 change % chg. Sales $2,996.7 $2,685.9 $310.8 12% Net Earnings 296.5 326.5 U.S. tax reform related tax expense 81.8 Adjusted Net Earnings $ 378.3 $ 326.5 $ 51.8 16% 46

Full Year Adjusted EPS $ in millions 2017 2016 change % chg. EPS $ 1.70 $ 1.85 U.S. tax reform related tax expense 0.47 Adjusted Net Earnings $ 2.17 $ 1.85 $ 0.32 17% 47

Full Year Sales $ in millions 2017 2016 change % chg. North America $ 1,904.8 $ 1,743.2 $ 161.6 9% Rest of World 1,116.3 965.6 $ 150.7 16% Intersegment (24.4) (22.9) $ (1.5) Total $ 2,996.7 $ 2,685.9 $ 310.8 12% 48

Full Year Earnings $ in millions, except percentages 2017 2016 change % chg. North America $ 428.6 $ 385.9 $ 42.7 11% Rest of World 149.3 129.1 20.2 16% Total Segment Earnings 577.9 515.0 $ 62.9 12% Corporate (47.0) (45.2) (1.8) 4% Interest Expense (10.1) (7.3) (2.8) 38% Pre tax Earnings 520.8 462.5 58.3 13% Tax Provision (224.3) (136.0) U.S. tax reform related tax expense 81.8 Adjusted Earnings $ 378.3 $ 326.5 $ 51.8 16% 49 Segment Margin North America 22.5% 22.1% Rest of World 13.4% 13.4%

Adjusted Earnings and Adjusted EPS The following is a reconciliation of net earnings per share (EPS) to adjusted earnings (non GAAP) and adjusted EPS (non GAAP): Three Months Ended December 31, 2017 2016 (dollars in millions except per share data) Year Ended December 31, 2017 2016 Net Earnings (GAAP) $ 22.7 $ 82.7 $ 296.5 $ 326.5 U.S. Tax Reform income tax expense 81.8 81.8 Adjusted Earnings $ 104.5 $ 82.7 $ 378.3 $ 326.5 Diluted EPS (GAAP) $ 0.13 $ 0.47 $ 1.70 $ 1.85 U.S. Tax Reform income tax expense per share 0.47 0.47 Adjusted EPS $ 0.60 $ 0.47 $ 2.17 $ 1.85 50

Cash Flow from Operations ($ in millions) 500 400 300 200 100 $326 $447 Highlights Operating cash provided by operations of $326 million Debt to capital ratio of 20% Cash balance: $820 million Net cash position: $410 million Acquisition: $45 million Voluntary contribution to pension plan of $30 million 51 0 2017 2016 Stock repurchase: 2.5 million shares totaling approximately $139 million

2018 EPS Guidance and 2017 Adjusted EPS 2018 Guidance 2017 Diluted EPS $2.50 to $2.58 $2.17* 52 $3.00 $2.50 $2.00 $1.50 $1.00 $0.50 $0.00 $0.34 $0.43 $0.54 $0.78 $1.03 $1.22 $1.58 $1.85 $2.13 $2.54 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Midpoint Note: 2009 through 2014 and 2017 are adjusted EPS and all years are adjusted for stock splits * Excludes $.47 per share related to U.S. tax reform As of January 30, 2018

2018 Assumptions ($ in millions) 2018 Projections Operating Cash Flow between $475 and $500 Capital Expenditures approx $100 Depreciation and Amortization approx $80 Corporate/Other Expense approx $49 Effective Tax Rate between 22 and 22.5% Stock Repurchase approx $135 * Share Count Diluted approx 173 million 53 *subject to acquisitions, cash flow and working capital needs As of January 30, 2018

2018 Outlook 54 Tailwinds U.S. residential water heater industry volumes increase 250,000 to 300,000 units, including tankless; Boiler revenue growth of approximately ten percent Smaller expected losses in India than in 2017; water heater business to breakeven Headwinds Steel prices rising into 2018 U.S. commercial water heater industry volumes down 5,000 due to electric regulatory change-related pre-buy in Q4 2017 China 13 percent sales growth following 18 percent growth in 2017 New China water treatment plant incremental costs of approximately $5 million

2018 Outlook (continued) Revenue growth between 8.5 and 9.5 percent in USD EPS between $2.50 and $2.58 North America segment margin expected to be 22 to 22.50 percent Rest of World segment margin expected to expand 30 to 40 basis points from 2017 55

Corporate Responsibility and Sustainability Aligns with our Values A. O. Smith will preserve its good name A. O. Smith will be a good citizen Environmental Impacts Social Contribution Ethics and Compliance A. O. Smith will emphasize innovation Diverse & Safe Workforce A. O. Smith will be a good place to work Product Responsibility 56

Products Efficiency, Conservation and Innovation Energy Efficiency We believe our global product portfolio is the most efficient in the industry Our electric residential water heaters achieve efficiency factors of.95 or above Our highly efficient Cyclone condensing commercial water heaters represent 24% of commercial units sold Conservation Our patented Reverse Osmosis (RO) membrane wastes 50 percent less water than traditional RO and represents over 90 percent of A. O. Smith branded water treatment sales 83 percent of Lochinvar branded boilers achieve over 90 percent thermal efficiency 57 55 percent of our China products exceed government efficiency standards

Manufacturing Plants Reducing Energy Usage, Water Consumption and Environmental Impacts 58 Chairman s Green Star award established in 2009 annual competition given to the plant which demonstrates the largest social, economic and environmental benefit over a three year period Johnson City, TN - plant certified Leadership in Energy and Environmental Design (LEED) Silver since 2011 and certified Energy Star Ashland City, TN - largest water heater plant in the world reduced electricity usage by 9 percent as a result of a plant-wide lighting project in 2011 and reduced water usage by 36 percent as a result of an enhanced parts washing process implemented in 2014 Nanjing, China implemented an innovative pre-treatment process as an alternative to phosphorus pre-treating, reducing chemical discharges and improving corrosion resistance of our water heater tanks

People Doing Business Safely, with Integrity and Supporting Communities Established in 1954, the President s Safety Award annually recognizes the plant with best record for workplace safety Established in 1955, the A. O. Smith Foundation supports our communities Guiding Principles established in 1999 describes our code of conduct and values Values Recognition Program established in 1995 recognizes employee contributions to community involvement 59