Three cooling makers, three unrelated quarters

Within a fortnight this summer, the three largest US-listed makers of air conditioning equipment reported results that had almost nothing in common. AAON, which engineers semi-custom rooftop units in Tulsa and, through its BasX division, builds air handlers and liquid-cooling systems for data halls, said revenue had doubled. Lennox International, which sells furnaces and heat pumps to American homeowners through independent dealers, cut its profit outlook and pushed the expected residential recovery into 2027. Trane Technologies, the $100bn maker of applied chillers and Thermo King transport refrigeration, raised guidance on record orders.

The shares behaved as though all three had reported the same bad quarter. AAON is down 37.8% since 19 May and Lennox 21.4% over the past month. Trane fell 2.7%. Because Trane is roughly 83% of the trio's combined value, the group has in fact barely moved; the damage is concentrated in two names, for two entirely different reasons.

The business is accelerating; the multiple is not

AAON's second-quarter revenue was $627m, up 101% from a year earlier — the fourth consecutive quarter of accelerating growth, from 17% to 42% to 54% to triple digits. Operating income rose 192%, and operating margin expanded to 11.0% from 7.6%. Backlog reached about $2.0bn, up 98% year on year, with the BasX book up 185%. The legacy rooftop business, sold into a soft commercial market, still grew 40%.

One line went the wrong way. Gross margin fell 223 basis points to 24.3%, and management cut full-year gross margin guidance to 25–26% from 27–28% while raising the sales guide to 55–60% growth. The cause is mechanical and disclosed: overhead at the new Memphis plant ran $18.1m in the quarter against $3m a year earlier. Strip that allocation out and the Oklahoma core segment's margin rose 60 basis points to 31.2%, with the BasX segment at 30.0%. Management expects a modest sequential lift in the third quarter and a meaningful one in the fourth, as late-2025 price increases now embedded in backlog flow through production.

Still, AAON's 24.3% gross margin is now the lowest of the three, against 34.9% at Lennox and 35.6% at Trane — an awkward fact for a company long described as earning structurally better margins than mass-market rivals.

Five sessions, two of them somebody else's

The decline was not a grind. Five days — 1 and 2 July, 28 and 29 July, and 10 August — compound to -38.7%, more than the entire move since 30 June, meaning every other session was net positive. Two of those five were peer earnings days. Carrier reported on 28 July and fell 8.9% on margin compression, even as its Americas residential orders rose about 70%; Lennox reported the next morning. AAON's own results did not arrive until 10 August.

Lennox's fall, by contrast, is one event. The company cut full-year adjusted earnings guidance to $23.00–$24.00 and moved the demand recovery to 2027. Home Comfort Solutions revenue fell 7% with unit volumes off 12%. There is a real mechanism behind it: the 30-year Treasury yield reached about 5.33% on 18 August, its highest since 2007, and financed replacement demand follows housing turnover. Less noticed, Lennox's commercial arm grew 24% and its growth guidance was raised to roughly 20%.

Trane is diverging from both. Organic bookings rose 37% to a record $12.1bn backlog, up 70% with Americas commercial HVAC orders at an all-time high, and it raised full-year guidance and its dividend. It is also arming directly at AAON's socket: its Stellar modular chiller platform is tracking $500m of revenue, coolant-distribution and LiquidStack acquisitions are ahead of plan, and capacity is being quadrupled over three years under long-term agreements with hyperscalers.

Where the prices sit

AAON trades at 13.4x trailing gross profit, against roughly 25x in May and 18.4x in early May, while trailing gross profit itself grew from $386m to $494m. Forward earnings put it at 35.8x, or 23.4x on 2027 consensus. The offsets are genuine: free cash flow yield is negative at -1.8% on $103m of year-to-date capital spending, BasX bookings were sequentially lighter than four prior quarters that ran near three times book-to-bill, and no customer above the 10% revenue threshold is named in the latest 10-Q, leaving concentration in a hyperscaler-weighted backlog unquantified.

Lennox at 8.3x trailing gross profit, down from 11.1x in February on flat gross profit, and a 5.1% free cash flow yield, has largely absorbed its own bad news. Trane's 12.8x has hardly moved in six months, and its 30.1x forward multiple sits just below the 32x that has been the standing caution on the name. AAON's trend turned down only in August; the business, so far, has not.

The setup

Where it stands — AAON's orders and operating leverage are improving while its multiple has compressed by nearly half since May. Would confirm — Third-quarter gross margin above 24.3% sequentially, with total backlog holding at or above $2.0bn. Would invalidate — BasX backlog falling sequentially, or full-year gross margin guidance cut below 25%. Watch next — AAON's third-quarter results, due early November, the first test of the promised margin recovery. Valuation — 13.4x trailing gross profit versus about 25x in May; 35.8x forward earnings, 23.4x on 2027 consensus.