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AAON (AAON) is trading lower despite delivering a large beat on the top and bottom lines in its Q2 report this morning. Adjusted EPS increased 214% yr/yr to $0.69, while revenue surged 101% to a fourth consecutive quarterly record of $627 mln, fueled by strong demand for its data center cooling solutions and increased production throughput. AAON also raised its FY26 revenue guidance to 55-60% yr/yr growth, up from 40-45%. However, it lowered FY26 gross-margin guidance to 25-26% from 27-28%, reflecting near-term costs associated with scaling production to meet robust demand.

• BASX: Growth was led by BASX, where BASX-branded sales surged 216.2% yr/yr and segment revenue increased 61% sequentially and 220.7% yr/yr to $218.0 mln on robust data center demand and higher production. Liquid-cooling sales totaled $126.6 mln, while segment gross margin expanded 210 bps to 30.0%.
• Oklahoma & Coil Products: AAON Oklahoma revenue increased 42% yr/yr to $262.3 mln, while gross margin fell to 24.3% from 28.9% as $18.1 mln of unabsorbed Memphis costs created 690 bps of pressure. Excluding Memphis, margin expanded roughly 70 bps. Coil Products revenue surged 151% to $146.7 mln, while gross margin declined to 16.0% on inflation, outsourcing, freight, and price-cost timing.
• Margins: Overall gross margin contracted 230 bps yr/yr to 24.3%, reflecting the Memphis ramp, outsourcing, and temporary cost absorption tied to rapid growth. AAON has added more than 1 mln sq. ft. of manufacturing capacity since 2024 and increased data center capacity 4x. Adjusted EBITDA margin was 15.0%, compared with 14.9% last year.
• Demand & backlog: Total backlog nearly doubled yr/yr to $1.97 bln, while it declined 7.4% sequentially, reflecting increased production throughput. BASX backlog rose 185% yr/yr to $1.43 bln, with TTM book-to-bill around 2x, while AAON-branded backlog increased 9% yr/yr and 6% sequentially to $0.54 bln. Demand for both data center air-side and liquid-cooling solutions remains robust.

Briefing.com Analyst Insight

AAON's Q2 results demonstrate the strength of its data center opportunity, with BASX-branded sales more than tripling yr/yr. The strength was not limited to data centers, as AAON-branded sales increased 39% yr/yr and production volumes grew more than 30% against roughly flat industry volumes, supporting continued share gains in a soft commercial HVAC market. The main caveat is the cost required to support this growth, with the Memphis ramp, outsourcing, and temporary cost absorption pressuring consolidated gross margin and prompting a lower FY26 margin outlook. Importantly, BASX gross margin still expanded to 30.0%, while AAON Oklahoma gross margin excluding Memphis improved roughly 70 bps, suggesting the pressure is more tied to the rapid capacity ramp than weaker underlying economics. With backlog near $2 bln and BASX TTM book-to-bill around 2x, it will be important for AAON to continue converting robust demand into growth as its expanded capacity ramps.