Industrial process heating solutions provider Thermon (NYSE:THR) missed Wall Street’s revenue expectations in Q2 CY2025, with sales falling 5.4% year on year to $108.9 million. The company’s full-year revenue guidance of $515 million at the midpoint came in 0.6% below analysts’ estimates. Its non-GAAP profit of $0.36 per share was in line with analysts’ consensus estimates.
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Thermon (THR) Q2 CY2025 Highlights:
- Revenue: $108.9 million vs analyst estimates of $122.5 million (5.4% year-on-year decline, 11.1% miss)
- Adjusted EPS: $0.36 vs analyst estimates of $0.36 (in line)
- Adjusted EBITDA: $21.24 million vs analyst estimates of $22.03 million (19.5% margin, 3.6% miss)
- The company reconfirmed its revenue guidance for the full year of $515 million at the midpoint
- Management reiterated its full-year Adjusted EPS guidance of $1.88 at the midpoint
- EBITDA guidance for the full year is $109 million at the midpoint, above analyst estimates of $108 million
- Operating Margin: 10.8%, down from 13.8% in the same quarter last year
- Free Cash Flow Margin: 7.6%, similar to the same quarter last year
- Market Capitalization: $918.6 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.
Revenue 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 many enduring ones grow for years. Regrettably, Thermon’s sales grew at a mediocre 7.1% compounded annual growth rate over the last five years. This wasn’t a great result compared to the rest of the industrials sector, but there are still things to like about Thermon.
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 recent performance shows its demand has slowed as its annualized revenue growth of 4.3% over the last two years was below its five-year trend. 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. 
This quarter, Thermon missed Wall Street’s estimates and reported a rather uninspiring 5.4% year-on-year revenue decline, generating $108.9 million of revenue.
Looking ahead, sell-side analysts expect revenue to grow 3.2% over the next 12 months, similar to its two-year rate. This projection doesn't excite us and suggests its products and services will face some demand challenges. At least the company is tracking well in other measures of financial health.
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Operating Margin
Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.
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 14%. 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 9 percentage points over the last five years, as its sales growth gave it operating leverage.
This quarter, Thermon generated an operating margin profit margin of 10.8%, down 3 percentage points year on year. Since Thermon’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, R&D, and administrative overhead increased.
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 31.7% compounded annual growth rate over the last five years, higher than its 7.1% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
Diving into the nuances of Thermon’s earnings can give us a better understanding of its performance. As we mentioned earlier, Thermon’s operating margin declined this quarter but expanded by 9 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; interest expenses and taxes 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 4.3% 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 Q2, Thermon reported adjusted EPS at $0.36, down from $0.38 in the same quarter last year. This print was close to analysts’ estimates. We also like to analyze expected EPS growth based on Wall Street analysts’ consensus projections, but there is insufficient data.
Key Takeaways from Thermon’s Q2 Results
It was good to see Thermon provide full-year EBITDA guidance that slightly beat analysts’ expectations. On the other hand, its revenue missed and its EBITDA fell short of Wall Street’s estimates. Overall, this was a weaker quarter. The stock traded down 12.3% to $24.92 immediately following the results.
Thermon didn’t show it’s best hand this quarter, but does that create an opportunity to buy the stock right now? We think that the latest quarter is only one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.