Q1 HVAC and Water Systems Earnings: AAON (NASDAQ:AAON) Earns Top Marks

The end of the earnings season is always a good time to take a step back and see who shined (and who not so much). Let’s take a look at how hvac and water systems stocks fared in Q1, starting with AAON (NASDAQ:AAON).

Many HVAC and water systems companies sell essential, non-discretionary infrastructure for buildings. Since the useful lives of these water heaters and vents are fairly standard, these companies have a portion of predictable replacement revenue. In the last decade, trends in energy efficiency and clean water are driving innovation that is leading to incremental demand. On the other hand, new installations for these companies are at the whim of residential and commercial construction volumes, which tend to be cyclical and can be impacted heavily by economic factors such as interest rates.

The 9 hvac and water systems stocks we track reported a satisfactory Q1. As a group, revenues beat analysts’ consensus estimates by 2.1% while next quarter’s revenue guidance was 0.6% below.

In light of this news, share prices of the companies have held steady as they are up 3.1% on average since the latest earnings results.

Best Q1: AAON (NASDAQ:AAON)

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.

AAON reported revenues of $322.1 million, up 22.9% year on year. This print exceeded analysts’ expectations by 10.9%. Overall, it was an incredible quarter for the company with an impressive beat of analysts’ EPS estimates and a solid beat of analysts’ EBITDA 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. "

AAON achieved the biggest analyst estimates beat and fastest revenue growth of the whole group. Investor expectations, however, were likely higher than Wall Street’s published projections, leaving some wishing for even better results (analysts’ consensus estimates are those published by big banks and advisory firms, not the investors who make buy and sell decisions). The stock is down 19.7% since reporting and currently trades at $73.14.

We think AAON is a good business, but is it a buy today? Read our full report here, it’s free.

Trane Technologies (NYSE:TT)

With low-pressure heating systems as its first product, Trane (NYSE:TT) designs, manufactures, and sells HVAC and refrigeration systems, the former to commercial and residential building customers and the latter to commercial truck manufacturers.

Trane Technologies reported revenues of $4.69 billion, up 11.2% year on year, outperforming analysts’ expectations by 5%. The business had an exceptional quarter with a solid beat of analysts’ EBITDA estimates.

The market seems happy with the results as the stock is up 22.2% since reporting. It currently trades at $432.29.

Is now the time to buy Trane Technologies? Access our full analysis of the earnings results here, it’s free.

Weakest Q1: Advanced Drainage (NYSE:WMS)

Originally started as a farm water drainage company, Advanced Drainage Systems (NYSE:WMS) provides clean water management solutions to communities across America.

Advanced Drainage reported revenues of $615.8 million, down 5.8% year on year, falling short of analysts’ expectations by 6.8%. It was a disappointing quarter as it posted a miss of analysts’ Infiltrators revenue estimates and full-year revenue guidance missing analysts’ expectations significantly.

Advanced Drainage delivered the weakest performance against analyst estimates, slowest revenue growth, and weakest full-year guidance update in the group. As expected, the stock is down 7.1% since the results and currently trades at $113.06.

Read our full analysis of Advanced Drainage’s results here.

Zurn Elkay (NYSE:ZWS)

Claiming to have saved more than 30 billion gallons of water, Zurn Elkay (NYSE:ZWS) provides water management solutions to various industries.

Zurn Elkay reported revenues of $388.8 million, up 4% year on year. This result surpassed analysts’ expectations by 1.4%. Aside from that, it was a mixed quarter as it also recorded a solid beat of analysts’ adjusted operating income estimates but a significant miss of analysts’ organic revenue estimates.

The stock is up 17.3% since reporting and currently trades at $36.51.

Read our full, actionable report on Zurn Elkay here, it’s free.

Lennox (NYSE:LII)

Based in Texas and founded over a century ago, Lennox (NYSE:LII) is a climate control solutions company offering heating, ventilation, air conditioning, and refrigeration (HVACR) goods.

Lennox reported revenues of $1.07 billion, up 2.4% year on year. This number beat analysts’ expectations by 4.6%. Overall, it was a very strong quarter as it also recorded a solid beat of analysts’ organic revenue estimates and a decent beat of analysts’ EPS estimates.

The stock is up 1.5% since reporting and currently trades at $567.49.

Read our full, actionable report on Lennox here, it’s free.

Market Update

In response to the Fed’s rate hikes in 2022 and 2023, inflation has been gradually trending down from its post-pandemic peak, trending closer to the Fed’s 2% target. Despite higher borrowing costs, the economy has avoided flashing recessionary signals. This is the much-desired soft landing that many investors hoped for. The recent rate cuts (0.5% in September and 0.25% in November 2024) have bolstered the stock market, making 2024 a strong year for equities. Donald Trump’s presidential win in November sparked additional market gains, sending indices to record highs in the days following his victory. However, debates continue over possible tariffs and corporate tax adjustments, raising questions about economic stability in 2025.

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