Heating and cooling solutions company AAON (NASDAQ:AAON) reported Q1 CY2025 results topping the market’s revenue expectations , with sales up 22.9% year on year to $322.1 million. Its non-GAAP profit of $0.37 per share was 57% above analysts’ consensus estimates.
Gary Fields, CEO, stated, "We had a strong first quarter. Net sales, gross margin and earnings all experienced quarter-over-quarter improvement. Production of BASX-branded equipment made solid progress as we accelerated backlog conversion, utilizing all four of our major locations, including our new facility in Memphis. The resulting net sales of BASX-branded products for the quarter were up year-over-year 374.8%. Bookings for BASX-branded equipment were also strong, driven by demand for both our air-side and liquid cooling data center equipment, with total backlog at the end of the quarter up 83.9% from a year ago and up 18.4% from the end of last year. "
Company Overview
Backed by two million square feet of lab testing space, AAON (NASDAQ:AAON) makes heating, ventilation, and air conditioning equipment for different types of buildings.
Sales Growth
A company’s long-term sales performance is one signal of its overall quality. Any business can have short-term success, but a top-tier one grows for years. Over the last five years, AAON grew its sales at an incredible 20.7% compounded annual growth rate. Its growth surpassed the average industrials company and shows its offerings resonate with customers, a great starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. AAON’s annualized revenue growth of 13.9% over the last two years is below its five-year trend, but we still think the results suggest healthy demand.
This quarter, AAON reported robust year-on-year revenue growth of 22.9%, and its $322.1 million of revenue topped Wall Street estimates by 10.9%.
Looking ahead, sell-side analysts expect revenue to grow 15.7% over the next 12 months, an improvement versus the last two years. This projection is eye-popping and implies its newer products and services will fuel better top-line performance.
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Operating Margin
AAON has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 16.8%.
Looking at the trend in its profitability, AAON’s operating margin decreased by 2.1 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.
This quarter, AAON generated an operating profit margin of 10.9%, down 7.1 percentage points year on year. Since AAON’s gross margin decreased more than its operating margin, we can assume its recent inefficiencies were driven more by weaker leverage on its cost of sales rather than increased marketing, R&D, and administrative overhead expenses.
Earnings Per Share
We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.
AAON’s EPS grew at an astounding 18.2% compounded annual growth rate over the last five years. However, this performance was lower than its 20.7% annualized revenue growth, telling us the company became less profitable on a per-share basis as it expanded.
Diving into AAON’s quality of earnings can give us a better understanding of its performance. As we mentioned earlier, AAON’s operating margin declined by 2.1 percentage points over the last five years. Its share count also grew by 5.1%, meaning the company not only became less efficient with its operating expenses but also diluted its shareholders.
Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.
For AAON, its two-year annual EPS growth of 14.7% was lower than its five-year trend. We still think its growth was good and hope it can accelerate in the future.
In Q1, AAON reported EPS at $0.37, down from $0.46 in the same quarter last year. Despite falling year on year, this print easily cleared analysts’ estimates. Over the next 12 months, Wall Street expects AAON’s full-year EPS of $1.92 to grow 26%.
Key Takeaways from AAON’s Q1 Results
We were impressed by how significantly AAON blew past analysts’ EPS expectations this quarter. We were also excited its EBITDA outperformed Wall Street’s estimates by a wide margin. Zooming out, we think this quarter featured some important positives. The stock traded up 7% to $97.51 immediately after reporting.
AAON had an encouraging quarter, but one earnings result doesn’t necessarily make the stock a buy. Let’s see if this is a good investment. When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter.
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