AAON's ERP Woes and the Road to Recovery: Assessing the Long-Term Value of Operational Turnarounds in Manufacturing

The recent earnings report from AAON Inc. (AAON) has sent shockwaves through the manufacturing sector, with a 22% pre-market plunge following Q2 2025 results that fell far short of expectations. Net sales dipped 0.6% year-over-year to $311.6 million, while gross margins contracted by 950 basis points to 26.6%. The culprit? A botched ERP implementation at its Longview, Texas facility, which cascaded into production bottlenecks, coil shortages, and operational chaos. Yet, buried beneath these near-term pain points lies a critical question for investors: Can a manufacturing stock like AAON recover from ERP-induced turmoil, and is the long-term value worth the risk?

The ERP Quagmire: A Common Pitfall in Manufacturing

ERP systems are supposed to streamline operations, but their implementation is notoriously fraught. AAON's case is not an outlier. Industry data reveals that nearly 50% of ERP projects in manufacturing fail on their first attempt, often due to poor change management, inadequate training, or misaligned workflows. For AAON, the Longview ERP rollout caused an 18% sales drop in its Oklahoma segment and a 22% margin collapse in its coil products division. The ripple effects were severe: production delays, higher SG&A expenses, and a 69% decline in EPS.

However, ERP failures are not always fatal. Case studies from companies like Green Rabbit (logistics) and N&N Moving Supplies (manufacturing) show that with strategic planning, phased rollouts, and strong leadership, ERP systems can unlock productivity gains within months. The key is whether the company can stabilize operations before the backlog of orders—now $1.12 billion, up 71.9% year-over-year—erodes.

AAON's Path to Recovery: A Timeline of Hope

AAON's management has outlined a recovery timeline that hinges on three pillars:
1. Production Stabilization: By July 2025, Longview's production rates had rebounded 30% from April lows, with Tulsa nearing pre-2024 levels.
2. Margin Expansion: Gross margins are projected to rise to 29%-31% in H2 2025 as ERP inefficiencies fade and price increases take effect.
3. Backlog Utilization: With a $1.12 billion backlog, the company has a clear runway to convert pent-up demand into revenue.

The CEO, Matt Tobolski, has acknowledged the pain but emphasized that the ERP system's long-term benefits—such as real-time inventory tracking and supply chain visibility—justify the short-term costs. This mirrors the experience of Cisco Systems, which completed a high-stakes ERP switch in 90 days during a holiday weekend.

Risk vs. Reward: Is AAON a Buy?

Investors must weigh AAON's operational risks against its strategic advantages. The company is capitalizing on high-growth markets like data centers (driving strong BASX-branded orders) and decarbonization (bolstered by the Inflation Reduction Act). Its $500 million credit facility and $220 million 2025 capex plan also suggest financial discipline.

Yet, the ERP recovery timeline remains uncertain. Historical data shows that 70% of ERP projects fail to meet original business goals, with recovery periods stretching 12–36 months. For AAON, the critical test will be whether production normalizes by mid-2026 and whether gross margins return to the 32%-35% range as promised.

The Investment Thesis

AAON's story is a classic case of “buy the dip” for those with a long-term horizon. The company's strong backlog, exposure to secular trends (data centers, energy efficiency), and a management team committed to fixing the ERP mess create a compelling risk-rebalance. However, investors should monitor key metrics:
- Production rates at Longview and Tulsa.
- Gross margin trends in Q3 and Q4 2025.
- Backlog conversion into revenue.

For the risk-tolerant, AAON offers a high-conviction opportunity to invest in a manufacturing turnaround. For the cautious, the stock remains a speculative bet until the ERP recovery is fully validated.

In the end, AAON's success will hinge on its ability to transform ERP chaos into operational clarity. If the company can stabilize its systems and leverage its backlog, the long-term value could justify the near-term volatility. For now, the road to recovery is paved with both risks and rewards—a reminder that in manufacturing, the most resilient stocks are those that survive the storm.