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Heating and cooling solutions company AAON (NASDAQ:AAON) reported Q2 CY2024 results exceeding Wall Street analysts' expectations, with revenue up 10.4% year on year to $313.6 million. It made a GAAP profit of $0.62 per share, improving from its profit of $0.55 per share in the same quarter last year.
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AAON (AAON) Q2 CY2024 Highlights:
- Revenue: $313.6 million vs analyst estimates of $283.8 million (10.5% beat)
- EPS: $0.62 vs analyst estimates of $0.52 (20.4% beat)
- Gross Margin (GAAP): 36.1%, up from 33.1% in the same quarter last year
- Free Cash Flow of $4.85 million, down 91.6% from the previous quarter
- Market Capitalization: $7.16 billion
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.
HVAC and Water SystemsTraditionally, home construction materials companies have built economic moats with expertise in specialized areas, brand recognition, and strong relationships with contractors. More recently, advances to address labor availability and job site productivity have spurred innovation that is driving incremental demand. However, these companies are at the whim of residential construction volumes, which tend to be cyclical and can be impacted heavily by economic factors such as interest rates. Additionally, the costs of raw materials can be driven by a myriad of worldwide factors and greatly influence the profitability of home construction materials companies.
Sales GrowthExamining a company's long-term performance can provide clues about its business quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, AAON grew its sales at an incredible 20.6% compounded annual growth rate. This is a great starting point for our analysis because it shows AAON's offerings resonate with customers.
Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. AAON's annualized revenue growth of 33.9% over the last two years is above its five-year trend, suggesting its demand was strong and recently accelerated.
This quarter, AAON reported robust year-on-year revenue growth of 10.4%, and its $313.6 million of revenue exceeded Wall Street's estimates by 10.5%. Looking ahead, Wall Street expects sales to grow 9.1% over the next 12 months, a deceleration from this quarter.
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 17.6%.
Looking at the trend in its profitability, AAON's annual operating margin rose by 2.9 percentage points over the last five years, as its sales growth gave it operating leverage.
This quarter, AAON generated an operating profit margin of 21.4%, up 2 percentage points year on year. Since its gross margin expanded more than its operating margin, we can infer that leverage on its cost of sales was the primary driver behind the recently higher efficiency.
EPSWe track the long-term growth 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 was profitable.
AAON's EPS grew at an astounding 30.5% compounded annual growth rate over the last five years, higher than its 20.6% annualized revenue growth. This tells us the company became more profitable 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 expanded by 2.9 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; taxes and interest expenses can also affect EPS but don't tell us as much about a company's fundamentals.
Like with revenue, we also analyze EPS over a more recent period because it can give insight into an emerging theme or development for the business. For AAON, its two-year annual EPS growth of 79.7% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.
In Q2, AAON reported EPS at $0.62, up from $0.55 in the same quarter last year. This print easily cleared analysts' estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects AAON to grow its earnings. Analysts are projecting its EPS of $2.22 in the last year to climb by 11.6% to $2.48.
Key Takeaways from AAON's Q2 Results We were impressed by how significantly AAON blew past analysts' revenue expectations this quarter. We were also excited its EPS outperformed Wall Street's estimates. Zooming out, we think this was an impressive quarter that should delight shareholders. The stock traded up 5.1% to $91.25 immediately following the results.
