Industrial process heating solutions provider Thermon (NYSE:THR) fell short of the market’s revenue expectations in Q4 CY2024, with sales falling 1.5% year on year to $134.4 million. On the other hand, the company’s full-year revenue guidance of $505 million at the midpoint came in 0.9% above analysts’ estimates. Its non-GAAP profit of $0.56 per share was in line with analysts’ consensus estimates.
Revenue: $134.4 million vs analyst estimates of $138.9 million (1.5% year-on-year decline, 3.3% miss)
Adjusted EPS: $0.56 vs analyst estimates of $0.55 (in line)
Adjusted EBITDA: $31.77 million vs analyst estimates of $31.83 million (23.6% margin, in line)
The company slightly lifted its revenue guidance for the full year to $505 million at the midpoint from $502.5 million
Management reiterated its full-year Adjusted EPS guidance of $1.83 at the midpoint
EBITDA guidance for the full year is $107.5 million at the midpoint, in line with analyst expectations
Operating Margin: 20.6%, up from 17.8% in the same quarter last year
Free Cash Flow Margin: 6.3%, down from 16.2% in the same quarter last year
Market Capitalization: $907.8 million
Company Overview
Creating the first packaged tracing systems, Thermon (NYSE:THR) is a leading provider of engineered industrial process heating solutions for process industries.
Electrical Systems
Like many equipment and component manufacturers, electrical systems companies are buoyed by secular trends such as connectivity and industrial automation. More specific pockets of strong demand include Internet of Things (IoT) connectivity and the 5G telecom upgrade cycle, which can benefit companies whose cables and conduits fit those needs. But like the broader industrials sector, these companies are also at the whim of economic cycles. Interest rates, for example, can greatly impact projects that drive demand for these products.
Sales Growth
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Unfortunately, Thermon’s 3.7% annualized revenue growth over the last five years was sluggish. This fell short of our benchmark for the industrials sector, but there are still things to like about Thermon.
Thermon Quarterly Revenue
Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Thermon’s annualized revenue growth of 8.1% over the last two years is above its five-year trend, suggesting some bright spots.
Thermon Year-On-Year Revenue Growth
This quarter, Thermon missed Wall Street’s estimates and reported a rather uninspiring 1.5% year-on-year revenue decline, generating $134.4 million of revenue.
Looking ahead, sell-side analysts expect revenue to grow 8.7% over the next 12 months, similar to its two-year rate. This projection is above the sector average and indicates its newer products and services will help maintain its recent top-line performance.
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Operating Margin
Thermon has been an efficient company over the last five years. It was one of the more profitable businesses in the industrials sector, boasting an average operating margin of 12.9%. This result isn’t surprising as its high gross margin gives it a favorable starting point.
Looking at the trend in its profitability, Thermon’s operating margin rose by 10.1 percentage points over the last five years, showing its efficiency has meaningfully improved.
Thermon Trailing 12-Month Operating Margin (GAAP)
In Q4, Thermon generated an operating profit margin of 20.6%, up 2.8 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.
Earnings Per Share
We track the long-term change 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 is profitable.
Thermon’s EPS grew at a solid 9.9% compounded annual growth rate over the last five years, higher than its 3.7% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
Thermon Trailing 12-Month EPS (Non-GAAP)
Diving into Thermon’s quality of earnings can give us a better understanding of its performance. As we mentioned earlier, Thermon’s operating margin expanded by 10.1 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 analyze EPS over a shorter period to see if we are missing a change in the business.
For Thermon, its two-year annual EPS growth of 7% was lower than its five-year trend. This wasn’t great, but at least the company was successful in other measures of financial health.
In Q4, Thermon reported EPS at $0.56, down from $0.59 in the same quarter last year. Despite falling year on year, this print beat analysts’ estimates by 1.4%. Over the next 12 months, Wall Street expects Thermon’s full-year EPS of $1.67 to grow 18%.
Key Takeaways from Thermon’s Q4 Results
It was good to see Thermon raise its full-year revenue guidance even though this quarter's sales missed analysts' estimates. The better-than-expected outlook sent the stock up 2.8% to $27.70 immediately following the results.
