Lennox International Inc.

Lennox reported second-quarter revenue of $1.5 billion, up 3% year over year. Total segment profit rose 2% to $355 million, and adjusted EPS was flat at $7.72. In Home Comfort Solutions, revenue fell 7% as unit volume declined 12%, partly offset by 3% favorable mix and pricing and 2% from acquisitions; residential new construction revenue was down approximately 30%. In Building Climate Solutions, revenue increased 24% and organic sales rose 12%. The company updated full-year adjusted EPS guidance to $23 to $24, kept revenue growth outlook at approximately 8%, raised Building Climate Solutions revenue growth outlook to approximately 20% from 16%, lowered Home Comfort Solutions revenue growth outlook to approximately 1% from 4%, and reaffirmed free cash flow guidance of $750 million to $850 million. It also lowered capex guidance to approximately $225 million from $250 million.

Alok Maskara said the quarter showed the strength of Lennox’s direct-to-dealer model, talent, and actions taken to manage a difficult operating environment. He emphasized that residential weakness is being driven by temporary affordability, weather, sentiment, and construction headwinds, while commercial demand and emergency replacement are improving. He was upbeat on the company’s portfolio balance, long-term demand outlook, and recent bolt-on acquisition strategy, saying the business is investing for growth and that the most meaningful residential recovery has shifted into 2027.

Michael Quenzer highlighted a mixed environment: residential remained challenged, while commercial execution and acquisitions supported results. He cited cost inflation, factory absorption pressure from lower residential production, about $10 million of factory absorption headwinds in HCS, about $25 million of tariff refunds in HCS, and about $5 million of tariff refunds in BCS. He said cash generation was strong, with 92% trailing 12-month free cash flow conversion and net debt to adjusted EBITDA at 1.3x, and noted approximately $130 million of share repurchases in Q2. He also said full-year EPS guidance was cut because of lower expected residential volume, productivity was reduced to about $60 million from $75 million, interest expense is now expected to be about $70 million, M&A amortization about $25 million, and free cash flow remains unchanged at $750 million to $850 million.

Analysts focused heavily on the residential one-step decline, pricing, and the outlook for margins. Management said most of the decline came from residential new construction and lower-margin business they chose to walk away from, while replacement market share has been ticking up. On guidance, management said the HCS volume outlook now implies high-single-digit declines for the year, inflation stays at 5%, most tariff refunds were recognized in Q2, and second-half HCS margins should improve versus the first half but may still be slightly negative year over year because of M&A and price-cost effects. They also said channel inventory is now normalized, with no more destocking, and that BCS remains strong with share gains in emergency replacement and national accounts.