Spring 2017 Analyst Presentation Forward Looking Statements

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 ofthis 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; 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” .

2 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 (in local currency) for next several years

3 Sales & Adjusted Operating Margin*

$3,000 20% Sales Adj EBIT Margin $2,500 15% $2,000 NOTE

$1,500 10% 2010 through 2014 adjusted Sales in millions for non-operating pension $1,000 costs and certain non- recurring items 5% $500

$0 0% 2010 2011 2012 2013 2014 2015 2016 * excludes corporate expenses 4 Adjusted EBITDA Growth

$600 Adjusted EBITDA $588 2010 10.6% of Sales $535 2017* 20.1% of Sales NOTE $500 $473 2010 through 2014 adjusted $400 $374 for non-operating pension $333 costs and certain non- recurring items $300 $270 $197 $200 $158 * Analyst consensus

$100 As of April 27, 2017

$0 2010 2011 2012 2013 2014 2015 2016 2017* 5 Adjusted Earnings Per Share

$2.25 $2.06 $1.85 NOTE $1.75 $1.58 2010 through 2014 $1.22 $1.25 $1.03 adjusted for non‐ operating pension costs $0.78 and certain non‐recurring $0.75 $0.54 $0.43 items

$0.25

2010 2011 2012 2013 2014 2015 2016 2017 As of April 27, 2017 ‐$0.25 Guidance Mid‐point

6 Segment Revenue

NA • Water heaters growing • Lochinvar growing at least 8% North America 65%

Rest of World 35%

ROW • China/India = 94% • Europe/Middle East = 6%

2016 full year 7 U.S. Water Heater Market Segment

Residential Market

50% AHRI data + tankless: AOS actual shipments 40% and AOS estimates of competitors’ shipments 30%

20%

10% 2016 market share data 0% Other 8 U.S. Residential Water Heater Market Segment

Wholesale Retail

Retail Wholesale channel channel is is “~50%” of the “~50%” market of the Large Regional Distributors market

A. O. Smith's 2016 – 8.7 mm Units Customers 9 Water Heaters ‐ Strong Replacement Sales

Peak housing U. S. Residential Water Heaters starts: 2.1 million 10,000

8,000 New Construction 6,000 Replacement 4,000 thousands of units

2,000 Note: Includes tankless 0

10 U.S. Water Heater Market Segment

Commercial Gas Market* 2016 market share data AHRI data: 60% AOS actual shipments and AOS estimate of competitors' 50% shipments 40%

30%

20% *Commercial gas water heater 10% segment as defined by AHRI, total 2016 commercial units as 0% reported by AHRI = 97,000 units Other 11 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 47% of AOS commercial 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

2016: 80,000 43,950 units >90% Efficiency 2009: (45% of total) 60,000 19,000 units

<90% Efficiency 40,000

20,000 Commercial Units Gas Industry

‐ Source: AHRI Industry Data 2009 2010 2011 2012 2013 2014 2015 2016 13 Lochinvar End Markets

Hydronic Space Heating 49%

Parts/Other 9%

Water Heating 42%

2/3 commercial end markets; 1/3 residential end markets 14 Trend to Higher Efficiency, Condensing Boilers – 43 percent of units sold in 2015

North American Commercial Boiler Volume (Units) 100,000 Actual Forecast 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0

Non‐Condensing Commercial Boilers Condensing Commercial Boilers 15 Source: BRG Building Solutions Lochinvar Branded Sales Dollars Condensing vs. Non‐Condensing*

Condensing Non‐Condensing

8% 2 8% 2 0 0 0 1 92% 92% 4 Non‐Condensing Condensing 6

*Residential Boilers & Commercial Boilers 16 China now 33% of Sales & Growing

900 800 China 700 China sales have 600 grown 22% (CAGR) 500 over the last 10 years 400 US$ millions US$ 300 200 100 0

17 AOS China Built on:

. Premium Brand . Extensive Distribution and Service Network Nanjing . Innovative New Products & World Class Manufacturing . Local Management Team and Organizational Development

18 Ten‐Year + Market Share Trend

30.00% A.O.Smith

25.00% Haier Midea 20.00% Macro Wanhe 15.00% Rinnai

Market Share 10.00% Noritz Ariston 5.00% Sakura Siemens 0.00% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Leading residential brands measured in currency; Tier One Market: GFK - CMM data 19 sampling several thousand largest retail stores, December 2016 Market Share by Price Category

Electric Market Share Gas Market Share

Others Others 50.00% Siemens 80.00% Haier 45.00% Ariston Ariston Midea 70.00% 40.00% Wanhe Haier 60.00% Macro 35.00% A.O.Smith Sakura 30.00% 50.00% Noritz Rinnai 25.00% 40.00% A.O.Smith 20.00% 30.00%

Value Market Share Value Market 15.00% Value Market Share Value Market 20.00% 10.00% 5.00% 10.00%

0.00% 0.00% ＞=400 300-400 200-300 ＜200 ＞=400 300-400 200-300 ＜200 Retail Price(USD) Retail Price(USD) 20 Data Source: CMM Retail Survey December 2016-150 Best Selling Models Broad Distribution Channel

. Over 9,000 outlets in China . 30% of outlets in Tier 1 cities; 70% in Tier 2/3 cities

100% 23% 21% 36% 33% 35% 35% 36% 80%

29% 30% 60% 10% 22% 26% 25% 25%

40% 26% 30% 54% Percentage of Sales of Percentage 45% 37% 31% Regional Stores 20% 38% AOS Specialty Stores 18% 23% Suning/Guomei 1% 3% 8% 0% E-Commerce 21 2007 2010 2012 2013 2014 2015 2016 Product Line developed in China

Residential & Gas & Electric CommercialHea Commercial t Pump

Air Pressurized Purifier Solar

Water Purifier

Combi Wall‐hung Gas Boiler Electric Tankless

22 Professional Team of Local Management

23 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: 180 mm households

Source: McKinsey Insights China – April 2012

24 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) A. O. Smith Branded Water Treatment Systems China Water Treatment Market . Leverage the A. O. Smith brand in our existing water heater channels – Over 6,500 retail stores . Reverse osmosis main focus . Product development focused at customer needs and technical improvements . Fast growing, highly fragmented market – Industry studies we have seen indicate over 30% CAGR during next five years Data: CMM 26 Different Water Treatment Technologies

Pore Size Rust Removal Active Carbon - improves taste (for good 5000 nm Carbon incoming water areas as in the US and Europe)

Pore Size Sediment & Colloids Micro-Filtration - removes sediment and colloids 1000 nm MF (can correct basic water pollution problem)

Pore Size Ultra-Filtration - removes bacterium, large Bacterium & Organics 50 nm UF organics and other pollutants resulting from water transport) Pore Size Reverse Osmosis - the ultimate filtration Heavy Metals, Virus & Salts 0.2 nm RO technology; removes nearly all substances, particularly most heavy metals prevalent in China and India water supply

27 Reverse Osmosis Is Gaining Market Share

CMM Water Treatment Market by Technology 100% 5.0% 4.0% 3.0% 8.4% 7.8% 2.7% 5.3% 5.3% 7.0% 7.7% 8.0% 5.9% 80% 20.7% 24.9% 31.4% 44.3% 60% 59.0% 72.4% 81.1% 40% 67.6% 64.1% 55.5% 20% 40.2% 27.0% 15.5% 10.0% 0% Data:CMM 2010 2011 2012 2013 2014 2015 2016

28 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

29 Tankless water treatment – enabled by side‐stream membrane technology

. Provides immediate freshwater . 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

A. O. Smith Branded Water Treatment Sales $150

$100

$50 $ in Millions $‐ 2010 2011 2012 2013 2014 2015 2016 30 Major Brands CMM Market Share By Value Water Purifier

50.0% A. O. Smith 45.0% 40.0% Midea 35.0% Qinyuan

30.0% Angel 25.0% Litree 20.0% 15.0% 3M 10.0% Haier 5.0% Echowater 0.0% 2011 2012 2013 2014 2015 2016

31 Data Source: CMM‐GFK December ‐2016 Air purifiers ‐ the market need is clearly visible

Bird’s Nest – Beijing:

PM 2.5 PM 2.5 45 453

A very A healthy unhealthy day day

32 China Air Purifier Market Growth Opportunity Unit sales per 1000 Urban Households for China and its neighbors

Annual Air Purifier Sales Volume Projection by (units per 1000 Urban households) Euromonitor

80.0

70.0 China’s air pollution 60.0 may drive urban 50.0 China penetration closer to 40.0 Japan South Korea Japanese levels 30.0 Taiwan Singapore 20.0

10.0

Unit Sales per 1000 urban households 0.0 6% household penetration overall; 21% penetration in top 23 (‘first tier’) cities

Source: Euromonitor, January 2016; Note: For calculating penetration rate for China: assumed no rep 33

lacement in the period China Mega Trends Driving Growth

. We are positioned to reach Internet consumers using the internet

Middle and affluent class trade up and value . A. O. Smith is a strong foreign brands foreign brand

Middle and affluent classes are growing . Our Premium Consumer brand is positioned for the middle and affluent classes

Urbanization in China projected to drive 29% of all . A. O. Smith has manufacturing global growth! capacity and channel footprint to capitalize 34 Mega Trends ‐ India

Significant growth in AOS target demographic

A. O. Smith target demographic: Millions of households, upper middle class percent, 2000 prices

SOURCE: India Urbanization Econometric Model Updated 2010 35 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

REGIONAL RETAILERS

Headquarters and Manufacturing (Bengaluru) Major Distribution Locations 36 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

37 Acquisition Strategy

Acquisition Strategy

38 Growth Strategy: Acquisitions

Geographic Growth . China Geography . India . High Growth GDP markets

Expand/ Grow the Core . New Products & New Technologies Core . Water Heating . Water Treatment

Adjacencies

Adjacencies . Water-themed platforms for growth . New technologies beyond water for China 39 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

40 A. O. Smith’s Capital Allocation Options

. Organic growth (capital expenditures) . Acquisitions – $353 million net cash – 19 percent leverage ratio (debt/total capital) . Return cash to shareholders: $230 to $300 million projected in 2017 – Dividends . Increased 17 percent in first quarter 2017 – Share repurchase . Expect to repurchase approximately $135 million* in 2017 on a 10b5-1 plan with the option to repurchase up to $65 million opportunistically

41 * subject to price, alternative investments and working capital requirements Aquasana Acquisition Highlights

. $87 million purchase price – Two times sales – Expect to return our cost of capital by 2019 . Access to ~$2 billion U.S. residential water treatment market – Fragmented – No clear leader . Aquasana revenue CAGR ~17 percent last three years – Leader in direct-to-consumer – Premium brand . $25 to $30 million in revenue synergies in three years – Product cross selling: China to U.S. and U.S. to China Clearly fits our strategy . Replacement filters ~ 35 percent of revenues 42 Growth Strategy: Organic Growth

China: 32% of sales growing 15% in local currency

• 4.8%

Lochinvar brands: 11% of sales growing 8%

• 0.9%

NA water heaters: 57% of sales growing 4%

• 2.3%

Total annual sales growth

• 8.0% 43 China Growth Model

Water Heater Market Growth

Approx 15% growth in local currency Market Fast Share Gains Growing & Average Ancillary Selling Price Products Increases 44 Growth and Stability

Offense Defense . Organic growth of 8% . NA water heaters and boilers ~85% • China growing approximately 15 percent in replacement local currency . Market share leader in NA, China • Lochinvar branded products growing at least . Strong balance sheet; net cash position 8% approximately $430 million . Call option on NA new construction . Small exposure to Europe ($50 million in . Significant cash and borrowing capacity revenues) for “value creating” acquisitions and share buyback

45 INVESTOR CONTACT

Vice President, Investor Relations and Treasurer

Direct: 414‐359‐4130 Email: [email protected]

46 APPENDIX

47 First Quarter Results

$ in millions 2017 2016 change % chg.

Sales$ 740.0 $ 636.9 $ 103.1 16%

Net Earnings$ 87.7 $ 73.5 $ 14.2 19%

Earnings per Share$ 0.50 $ 0.41 $ 0.09 22%

48 First Quarter Sales

$ in millions 2017 2016 change % chg.

North America$ 487.3 $ 423.9 $ 63.4 15%

Rest of World 259.5 217.4$ 42.1 19%

Intersegment (6.8) (4.4) $ (2.4)

Total$ 740.0 $ 636.9 $ 103.1 16%

49 First Quarter Earnings

$ in millions, except percentages 2017 2016 change % chg. North America$ 104.2 $ 91.9 $ 12.3 13% Rest of World 32.5 26.9 5.6 21% Inter-segment (0.1) (0.1) -0% Total Operating 136.6 118.7 17.9 15%

Corporate (14.0) (13.4) (0.6) -4% Interest Expense (2.2) (1.7) (0.5) -29% Pre-tax Earnings 120.4 103.6 16.8 16% Income Tax Expense (32.7) (30.1) (2.6) -9% Earnings$ 87.7 $ 73.5$ 14.2 19% Operating Margin North America 21.4% 21.7% 50 Rest of World 12.5% 12.4% Cash Flow from Operations

($ in millions) Highlights 40 . Operating cash used by operations 30 $27 of $11 million 20 . Debt to capital ratio of 19% 10 . Cash balance: $722 million 0 . Net cash position: $353 million ‐10 . Stock repurchase: 606,850 shares $(11) totaling $30 million ‐20 2017 2016 51 2017 EPS Guidance and 2016 EPS

2017 2016 Guidance

$2.50 Diluted EPS $2.03 to $2.09 $1.85 $2.06 $2.00 $1.85 $1.58 $1.50 $1.22 $1.03 $1.00 $0.78 $0.43 $0.54 $0.50 $0.34 $0.00 2009 2010 2011 2012 2013 2014 2015 2016 2017 midpoint Note: 2009 through 2014 are adjusted EPS and all years are adjusted for 2 for 1 stock split 52 As of April 27, 2017 2017 Assumptions

($ in millions) 2017 Projections

Operating Cash Flow approx $375 Capital Expenditures approx $100 Depreciation and Amortization approx $70 Expenses related to ERP Implementation approx $17.5 Corporate/Other Expense approx $47 Effective Tax Rate 28.75 to 29% Stock Repurchase approx $135 * Share Count ‐ Diluted approx 174 million

*subject to acquisitions, cash flow and working capital needs 53 As of April 27, 2017 2017 Outlook

. Revenue growth between 10.5 to 11.5 percent in local currency terms; 9 to 10 percent in USD . Aquasana sales incrementally add nearly $40 million . Depreciation assumed for the CNY against the USD, resulting in five percent headwind to average rate in 2016 . North America . U.S. residential water heater industry volumes increase approximately 200,000 units; U.S. commercial water heater industry volumes up modestly . Lochinvar-branded product sales growth of over 8 percent . Steel prices remain volatile . Operating margin expected to be between 21.50 and 22 percent . Rest of World . China over 15 percent local currency sales growth . Smaller losses in India than in 2016 . Approaching breakeven of air purification products 54 . Operating margin at least 14 percent Corporate Responsibility and Sustainability – Aligns with our Values

A. O. Smith will preserve its good name

Ethics and Compliance Social Contribution Diverse & Safe Workforce

A. O. Smith will be a good place to work

A. O. Smith will be a good citizen Product Responsibility Environmental Impacts A. O. Smith will emphasize innovation

55 Products – Efficiency, Conservation and Innovation

Energy Efficiency Conservation . We believe our global product portfolio is the most . Our patented Reverse Osmosis efficient in the industry (RO) membrane wastes 50 percent . Our electric residential water heaters achieve less water than traditional RO and efficiency factors of .95 or above represents over 90 percent of A. O. Smith branded water treatment . Our highly efficient Cyclone condensing commercial sales water heaters represent 24% of commercial units sold . 83 percent of Lochinvar branded boilers achieve over 90 percent thermal efficiency . 55 percent of our China products exceed government efficiency standards 56 Manufacturing Plants – Reducing Energy Usage, Water Consumption and Environmental Impacts

. 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

57 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

58