Company Reports

Lennox reported a 3% increase in revenue to $1.5 billion, 2% growth in operating profit to $355 million (30 basis points of margin compression to 23%), and flat earnings per share of $7.72 in its second quarter.

Lennox offers a variety of HVAC solutions, led by its flagship Lennox brand, serving global residential, light commercial, and more-complex applied commercial markets. Owing to the high quality of its products and the significant efficiency gains achieved by its customers, the company has significant share in residential and light commercial markets, which we estimate in the low to mid-teens. Lennox is unusual among its residential HVAC peers for pursuing a distribution strategy heavily reliant on company-owned direct distribution, whereas peers lean heavily on independent third-party distributors. The company maintains a footprint of over 200 of its own stores, offering both direct retail and distribution to contractors and end customers. It operates an asset-light model, so it is a highly cash-generative business that can fund its product development, growth initiatives, and generous shareholder remuneration policies.

Lennox offers a variety of HVAC solutions, led by its flagship Lennox brand, serving global residential, light commercial, and more complex, applied commercial markets. Owing to the high quality of its products and the significant efficiency gains achieved by its customers, the company has significant share in residential and light commercial markets, which we estimate in the low to mid-teens. Lennox is unusual among its residential HVAC peers for pursuing a distribution strategy heavily reliant on company-owned direct distribution, whereas peers lean heavily on independent third-party distributors. The company maintains a footprint of over 200 of its own stores, offering both direct retail and distribution to contractors and end customers. The company operates an asset-light model, so it is a highly cash-generative business that can fund its product development, growth initiatives, and generous shareholder remuneration policies.

Lennox's first-quarter revenue grew 6% to $1.1 billion, driven overwhelmingly by growth in the commercial-centric building climate solutions segment and acquisitions. Operating margin compressed 130 basis points to 14.4%, mainly due to operating deleverage and broad-based cost inflation.

We are relaunching coverage of Lennox, a premium player in North American residential and light commercial HVAC markets, with an estimated market share in the low-mid teens.

Lennox offers a variety of HVAC solutions, led by its flagship Lennox brand, serving global residential, light commercial, and more complex, “applied” commercial markets. Owing to the high quality of its products and the significant efficiency gains achieved by its customers, the company has significant market share in residential and light commercial markets, which we estimate in the low-mid teens. Lennox is somewhat unique among residential HVAC peers for pursuing a distribution strategy heavily reliant on company-owned direct distribution, which is a stark contrast to its peers that lean heavily on independent third-party distributors. The company maintains a footprint of over 200 of its own stores, offering both direct retail and distribution to contractors and end customers. The company operates an asset-light model, so it is a highly cash generative business that can fund its product development, growth initiatives, and generous shareholder remuneration policies. While Lennox is most often associated with residential end markets, the company has a meaningful and rapidly growing presence in the light commercial space, serving customers like retailers, schools, and medical facilities. Lennox maintains a national accounts business where it can leverage its distribution network to service and support larger customers with multi-site needs. This strategy would seemingly have meaningful competitive advantages over independent distributors and has likely contributed to the company’s growth and margin expansion in its building climate solutions segment.

We will discontinue analyst coverage of Lennox on or about Nov. 7.

Over the last two decades, Lennox's expanding distribution network and product portfolio have enabled it to gain market share. Meanwhile, low-cost manufacturing, product sourcing, and more cost-efficient product designs have helped reduce its cost base. All the while, Lennox has maintained its premium brand standing that supports pricing power. These initiatives have led to impressive margin expansion, with adjusted operating margin rising from about 8% during the last sales peak in 2007 to over 19% in 2024.

According to the Air-Conditioning, Heating, and Refrigeration Institute, US shipments of air conditioners and heat pumps declined year over year by 22% in June and 27% in July. HVAC manufacturers have confirmed weakening demand.

Lennox announced that it will acquire the heating, ventilation, and air-conditioning division of NSI Industries, a privately held company owned by Sentinel Capital Partners, for $550 million, or roughly 10 times EBITDA. Management expects the deal to close during the fourth quarter of 2025.

Lennox has capitalized on its efforts to gain market share and improve its cost structure against a backdrop of solid end-market growth. Its margin expansion story has been remarkable, with adjusted operating margins rising from about 8% during the last sales peak in 2007 to over 19% in 2024. We think its expanding distribution network and product portfolio have helped Lennox gain market share, while low-cost manufacturing and product sourcing and more cost-efficient product designs helped reduce its cost base. All the while, Lennox has maintained it premium brand standing that supports pricing power.

Lennox's second-quarter revenue increased 3% year over year to $1.5 billion and segment profit margin expanded 170 basis points to 23.6%. A greater sales mix of new-refrigerant (R-454B) products and price increases more than offset lower volumes from channel destocking and soft end markets.

Lennox has capitalized on its efforts to gain market share and improve its cost structure against a backdrop of solid end-market growth. Its margin expansion story has been remarkable, with adjusted operating margins rising from about 8% during the last sales peak in 2007 to over 19% in 2024. We think its expanding distribution network and product portfolio have helped Lennox gain market share, while low-cost manufacturing and product sourcing and more cost-efficient product designs helped reduce its cost base. All the while, Lennox has maintained it premium brand standing that supports pricing power.

Lennox has capitalized on its efforts to gain market share and improve its cost structure against a backdrop of solid end-market growth. Its margin expansion story has been remarkable, with adjusted operating margins rising from about 8% during the last sales peak in 2007 to over 19% in 2024. We think its expanding distribution network and product portfolio have helped Lennox gain market share, while low-cost manufacturing and product sourcing and more cost-efficient product designs helped reduce its cost base. All the while, Lennox has maintained it premium brand standing that supports pricing power.

Lennox will form a joint venture with Italy-based Ariston Group to sell Lennox-branded residential water heaters in North America. This is a new product category for Lennox, but Ariston has been in North America since 2016.

Lennox has capitalized on its efforts to gain market share and improve its cost structure against a backdrop of solid end-market growth. Its margin expansion story has been remarkable, with adjusted operating margins rising from about 8% during the last sales peak in 2007 to over 19% in 2024. We think its expanding distribution network and product portfolio have helped Lennox gain market share, while low-cost manufacturing and product sourcing and more cost-efficient product designs helped reduce its cost base. All the while, Lennox has maintained it premium brand standing that supports pricing power.

Lennox's first-quarter results gave investors some insight into the progress of the new refrigerant rollout as well as the early effects of tariffs. Total revenue grew 2% year over year, but segment profit margin narrowed 140 basis points to 14.5%.

On April 2, President Trump announced sweeping tariffs, featuring a minimum 10% tariff on all US imports and higher tariff rates for select countries. Goods imported from Canada and Mexico that comply with the United States-Mexico-Canada Agreement remain exempt from tariffs.

Lennox reported excellent fourth-quarter results with core revenue growing a whopping 22% year over year. But that outsize growth came on the back of pre-buy activity ahead of regulatory changes. Facing a challenging sales comparison in 2025, management's full-year guidance was disappointing.

Lennox has capitalized on its efforts to gain market share and improve its cost structure against a backdrop of improving end-market demand. Its margin expansion story has been remarkable, with adjusted operating margins rising from about 8% during the last sales peak in 2007 to over 19% in 2024. We think its expanding distribution network and product portfolio have helped Lennox gain market share, while low-cost manufacturing and product sourcing and more cost-efficient product designs helped reduce its cost base. All the while, Lennox has maintained it premium brand standing that supports pricing power.