LENNOX INTERNATIONAL INC Q2 2026 earnings call

Lennox delivered a solid but bifurcated second quarter of 2026, with revenue up 3% to $1.5 billion, total segment profit up 2% to $355 million, and adjusted (and GAAP) diluted EPS flat at $7.72 (net income $269 million, an operating margin around 23%). The story was a tale of two markets: Building Climate Solutions (commercial) grew revenue 24% (organic up 12%) on national-account wins, emergency-replacement momentum, and service growth, with large Lennox share gains as that end market finally turned after 17-18 months of AHRI declines. Home Comfort Solutions (residential), by contrast, saw revenue fall 7% on a 12% unit-volume decline, led by a ~30% drop in residential new construction where Lennox walked away from more low-margin business than expected; the volume shortfall drove roughly $50 million of EBIT headwind plus about $10 million of factory absorption, partly cushioned by ~$25 million of pulled-forward IEEPA tariff refunds. As a result, management reduced full-year adjusted EPS guidance to $23-$24 and now expects the most meaningful residential recovery to extend into 2027, while holding overall revenue growth at ~8% (HCS trimmed to ~1%, BCS raised to ~20%), cutting productivity to ~$60 million (from $75 million) as engineering resources shifted to tariff mitigation, and maintaining free cash flow guidance of $750-$850 million. The balance sheet remained strong at 1.3x net leverage with $172 million of operating cash flow, 92% free-cash-flow conversion, ~$130 million of buybacks, capex trimmed to ~$225 million, and the completed ~$200 million Comfort-Aire/Century/Coast Air bolt-on acquisition (EPS-accretive in 2027). Management framed residential pressures (affordability, low consumer confidence, a replace-to-repair shift) as temporary, with channel inventory normalized and the long-term demand outlook unchanged.

• Building Climate Solutions (commercial) delivered another exceptional quarter, with revenue up 24% (organic sales up 12%) on national-account wins, emergency-replacement momentum, and service growth.
• Total segment profit rose 2% to $355 million and revenue grew 3% to $1.5 billion, demonstrating the balance of Lennox's residential and commercial portfolio across market cycles.
• Cash generation was strong, with $172 million of operating cash flow, 92% trailing-12-month free cash flow conversion, and a healthy balance sheet at 1.3x net debt to adjusted EBITDA.
• The company continued disciplined bolt-on M&A, completing the Comfort-Aire, Century, and Coast Air brands acquisition (~$200 million) to expand into the small/mid-size distributor channel and broaden its product offering.
• Management maintained its full-year free cash flow guidance of $750-$850 million and overall ~8% revenue growth, and repurchased ~$130 million of shares during the quarter.
• Emergency replacement and national-account share gains are ramping as expected (or slightly better), with a new factory and freed-up capacity supporting continued commercial outperformance.

• Lennox reduced its full-year adjusted EPS guidance to $23-$24, as the most meaningful residential recovery benefits are now expected to extend into 2027 rather than the back half of 2026.
• Home Comfort Solutions (residential) revenue fell 7% on a 12% unit-volume decline, with residential new construction revenue down ~30% and one-step volumes down mid-teens.
• Lower residential volumes created roughly $50 million of EBIT headwind plus ~$10 million of factory-absorption pressure, and the walk-away from low-margin new-construction business was larger than originally expected.
• Full-year productivity guidance was cut to ~$60 million from ~$75 million, reflecting absorption headwinds and delayed material-cost-reduction initiatives as engineering resources shifted to tariff mitigation.
• Elevated mortgage rates, inflation, and historically low consumer confidence continue to constrain underlying residential demand and drive a temporary shift from replace to repair.