Heating and cooling solutions company AAON (NASDAQ: AAON) missed Wall Street’s revenue expectations in Q2 CY2025, with sales flat year on year at $311.6 million. Next quarter’s revenue guidance of $335.4 million underwhelmed, coming in 14.3% below analysts’ estimates. Its non-GAAP profit of $0.22 per share was 32.5% below analysts’ consensus estimates.

Is now the time to buy AAON? Find out by accessing our full research report, it’s free.

"Our second quarter results fell short of our expectations and do not reflect the high standards we set for ourselves as an organization," said CEO Matt Tobolski.

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.

Revenue Growth

A company’s long-term performance is an indicator of its overall quality. Any business can have short-term success, but a top-tier one grows for years. Thankfully, AAON’s 20.3% annualized revenue growth over the last five years was incredible. 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 9.6% over the last two years is below its five-year trend, but we still think the results suggest healthy demand.

We can better understand the company’s revenue dynamics by analyzing its backlog, or the value of its outstanding orders that have not yet been executed or delivered. AAON’s backlog reached $1.12 billion in the latest quarter and averaged 71.9% year-on-year growth over the last two years. Because this number is better than its revenue growth, we can see the company accumulated more orders than it could fulfill and deferred revenue to the future. This could imply elevated demand for AAON’s products and services but raises concerns about capacity constraints.

This quarter, AAON missed Wall Street’s estimates and reported a rather uninspiring 0.6% year-on-year revenue decline, generating $311.6 million of revenue. Company management is currently guiding for a 2.5% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 19.4% 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 spur better top-line performance.

Today’s young investors won’t have read the timeless lessons in Gorilla Game: Picking Winners In High Technology because it was written more than 20 years ago when Microsoft and Apple were first establishing their supremacy. But if we apply the same principles, then enterprise software stocks leveraging their own generative AI capabilities may well be the Gorillas of the future. So, in that spirit, we are excited to present our Special Free Report on a profitable, fast-growing enterprise software stock that is already riding the automation wave and looking to catch the generative AI next.

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 16.1%.

Looking at the trend in its profitability, AAON’s operating margin decreased by 5.2 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.

In Q2, AAON generated an operating margin profit margin of 7.6%, down 14.1 percentage points year on year. Since AAON’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, R&D, and administrative overhead increased.

Earnings Per Share

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

AAON’s EPS grew at a solid 11.2% compounded annual growth rate over the last five years. However, this performance was lower than its 20.3% annualized revenue growth, telling us the company became less profitable on a per-share basis as it expanded.

We can take a deeper look into AAON’s earnings to better understand the drivers of its performance. As we mentioned earlier, AAON’s operating margin declined by 5.2 percentage points over the last five years. Its share count also grew by 4.8%, 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 more recent period because it can provide insight into an emerging theme or development for the business.

For AAON, its two-year annual EPS declines of 8.3% mark a reversal from its (seemingly) healthy five-year trend. We hope AAON can return to earnings growth in the future.

In Q2, AAON reported adjusted EPS at $0.22, down from $0.62 in the same quarter last year. This print missed analysts’ estimates, but we care more about long-term adjusted EPS growth than short-term movements. Over the next 12 months, Wall Street expects AAON’s full-year EPS of $1.52 to grow 58.1%.

Key Takeaways from AAON’s Q2 Results

We struggled to find many positives in these results. Its revenue guidance for next quarter missed and its revenue fell short of Wall Street’s estimates. Overall, this was a softer quarter. The stock traded down 15.6% to $68 immediately following the results.

The latest quarter from AAON’s wasn’t that good. One earnings report doesn’t define a company’s quality, though, so let’s explore whether the stock is a buy at the current price. When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.