AAON Q2 Deep Dive: ERP Challenges Weigh on Results, Data Center Strength Remains

Heating and cooling solutions company AAON (NASDAQ:AAON) fell short of the market’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.

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StockStory’s Take

AAON’s second quarter was marked by operational headwinds that drove financial results below Wall Street’s expectations and triggered a negative reaction from investors. Management attributed the underperformance primarily to disruptions from the new enterprise resource planning (ERP) system rollout, which slowed production at key facilities and created supply chain bottlenecks. CEO Matthew Tobolski acknowledged, “Our second quarter results that we reported this morning fall short of our expectations and do not reflect the high standard we set for ourselves as an organization.” Additional pressures included higher costs from the new Memphis facility and a national sales meeting, further straining margins.

Looking ahead, AAON’s outlook is shaped by its efforts to stabilize production and capitalize on strong demand in its data center and national account segments. Management expects margin recovery as ERP-related disruptions ease and recent price increases begin to flow through results. Tobolski said, “We expect production levels at both our Tulsa and Longview facilities to continue to improve from July levels. As production stabilizes and scales, we also anticipate a corresponding improvement in gross margins.” The company also anticipates growth in its BasX brand, particularly as its Memphis site ramps up, though ongoing ERP implementation and market conditions remain risks.

Key Insights from Management’s Remarks

Management attributed the quarter’s underperformance to production inefficiencies from the ERP rollout and noted that BasX data center demand remained a key offsetting strength.

• ERP rollout disruptions: The implementation of a new ERP system at the Longview facility led to a prolonged production slowdown, particularly affecting AAON-branded equipment and creating supply chain ripple effects in Tulsa due to coil shortages.
• BasX data center momentum: BasX-branded product sales, especially in the data center market, grew significantly, with data center sales up 127% in Q2. Management highlighted a strategic partnership with Applied Digital to supply advanced cooling solutions for AI-driven data centers.
• National account strategy gains: Orders from national accounts for AAON-branded products rose by 163% year over year, representing 35% of AAON-branded orders in the first half, up from 20%. Management credited focused internal investments for this traction.
• Alpha Class heat pump growth: The high-performance Alpha Class lineup saw Q2 sales increase 8% and bookings surge 61%, underscoring increasing adoption in a soft nonresidential construction market.
• Memphis facility ramp-up: The newly acquired Memphis site incurred costs with minimal offsetting sales, but management views it as a key contributor for BasX-branded growth in the coming quarters as capacity expands.

Drivers of Future Performance

AAON’s forward guidance is driven by expectations of production recovery, margin improvement from price actions, and continued strength in data center demand.

• Production ramp and margin recovery: Management expects production at Tulsa and Longview to increase throughout the remainder of the year, which should improve margins as ERP-induced inefficiencies subside and price increases begin to positively impact revenue and gross profit.
• Data center and BasX expansion: The BasX brand is projected to see continued robust demand, especially as the Memphis facility comes online and supports large-scale projects like the Applied Digital partnership, though ramping new capacity may create temporary cost pressures.
• Macro and ERP-related risks: The company cited ongoing ERP implementation as a source of operational risk and acknowledged that nonresidential construction markets remain subdued. Management believes backlog is favorably priced, but ongoing volatility in supply chains and interest rates could affect execution.

Catalysts in Upcoming Quarters

Our analysts will be monitoring (1) the pace of production stabilization and ERP system integration at both Tulsa and Longview, (2) the successful ramp-up and cost absorption at the Memphis facility to support BasX growth, and (3) the conversion of backlog into higher-margin sales as price increases and tariffs flow through. Additionally, we will watch for continued strength in national account orders and the execution of large data center projects.

AAON currently trades at $72.21, down from $80.54 just before the earnings. At this price, is it a buy or sell? The answer lies in our full research report (it’s free).

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