Industrial process heating solutions provider Thermon (NYSE:THR) met Wall Street’s revenue expectations in Q1 CY2025, with sales up 5% year on year to $134.1 million. On the other hand, the company’s full-year revenue guidance of $515 million at the midpoint came in 4.1% below analysts’ estimates. Its non-GAAP profit of $0.56 per share was 10.9% above analysts’ consensus estimates.
Revenue: $134.1 million vs analyst estimates of $133.6 million (5% year-on-year growth, in line)
Adjusted EPS: $0.56 vs analyst estimates of $0.51 (10.9% beat)
Adjusted EBITDA: $30.49 million vs analyst estimates of $28.78 million (22.7% margin, 5.9% beat)
Management’s revenue guidance for the upcoming financial year 2026 is $515 million at the midpoint, missing analyst estimates by 4.1% and implying 3.4% growth (vs 1% in FY2025)
Adjusted EPS guidance for the upcoming financial year 2026 is $1.88 at the midpoint, missing analyst estimates by 6.7%
EBITDA guidance for the upcoming financial year 2026 is $109 million at the midpoint, below analyst estimates of $117.2 million
Operating Margin: 17.3%, up from 13.4% in the same quarter last year
Free Cash Flow Margin: 21.6%, down from 26.8% in the same quarter last year
Market Capitalization: $981.1 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.
Sales Growth
A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, Thermon grew its sales at a tepid 5.4% compounded annual growth rate. This wasn’t a great result compared to the rest of 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 6.3% over the last two years aligns with its five-year trend, suggesting its demand was consistently weak. We also note many other Electrical Systems businesses have faced declining sales because of cyclical headwinds. While Thermon grew slower than we’d like, it did do better than its peers.
Thermon Year-On-Year Revenue Growth
This quarter, Thermon grew its revenue by 5% year on year, and its $134.1 million of revenue was in line with Wall Street’s estimates.
Looking ahead, sell-side analysts expect revenue to grow 8.5% over the next 12 months, an improvement versus the last two years. This projection is above average for the sector and indicates its newer products and services will fuel better top-line performance.
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Operating Margin
Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
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 13.4%. 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 11.1 percentage points over the last five years, as its sales growth gave it operating leverage.
Thermon Trailing 12-Month Operating Margin (GAAP)
This quarter, Thermon generated an operating profit margin of 17.3%, up 3.8 percentage points year on year. The increase was encouraging, and because its operating margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, R&D, and administrative overhead.
Earnings Per Share
Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.
Thermon’s EPS grew at an astounding 20.8% compounded annual growth rate over the last five years, higher than its 5.4% 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)
We can take a deeper look into Thermon’s earnings quality to better understand the drivers of its performance. As we mentioned earlier, Thermon’s operating margin expanded by 11.1 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 more recent period because it can provide insight into an emerging theme or development for the business.
For Thermon, its two-year annual EPS growth of 9.8% 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 Q1, Thermon reported EPS at $0.56, up from $0.35 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Thermon’s full-year EPS of $1.88 to grow 8.2%.
Key Takeaways from Thermon’s Q1 Results
We enjoyed seeing Thermon beat analysts’ EBITDA expectations this quarter. We were also happy its EPS outperformed Wall Street’s estimates. On the other hand, its full-year revenue guidance missed and its full-year EBITDA guidance fell short of Wall Street’s estimates. Overall, this was a softer quarter. The stock traded down 3.2% to $28.12 immediately after reporting.
