Lennox International, Inc. (LII) Earnings & Analysis

Latest quarter

Lennox reported Q3 FY2026 revenue of $1.6 billion, above the $1.5 billion consensus. Adjusted earnings per share of $6.84 missed the $7.18 consensus. Revenue rose 10.2% from $1.4 billion a year earlier, while diluted earnings per share fell to $6.41 from $7.38.

The company’s filing attributed sales growth to higher volumes, favorable price and mix, and acquisitions. Home Comfort Solutions sales rose 3%, but segment profit declined as higher product costs and lower volumes outweighed benefits from price, mix and acquisitions. Building Climate Solutions sales grew 24%, with higher volumes and acquisitions contributing to an increase in segment profit.

Lennox’s gross margin fell to 31.6% from 34.1%; the filing cited higher product costs, including inflation and tariff impacts, as well as lower factory absorption. Operating margin declined to 19.8% from 23.0%. Lennox generated $362.7 million in free cash flow, compared with $265.3 million a year earlier.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

CEO Alok Maskara said Lennox adopted more dynamic residential pricing to defend and stabilize market share, but the trade-off was lower price realization while tariffs and inflation raised costs. He said residential demand remained constrained by homeowner affordability, elevated mortgage rates and consumer uncertainty.

CFO Michael Quenzer said Home Comfort Solutions organic revenue fell 1% in the third quarter, compared with a 9% decline in Q2. Direct contractor sales fell 6%, while organic sales through the two-step distribution channel rose 13%. He said comparisons benefited from the prior year’s industry destocking, but Lennox was “not yet seeing a broad recovery underlying demand.”

Quenzer said tariffs and related inflation, after productivity savings, created $47 million in cost headwinds for Home Comfort Solutions. He said a late-Q2 price increase had covered less of those costs than expected because of affordability pressures, softer demand and competition. In Building Climate Solutions, he said price increases took longer to implement under large national contracts, while competition limited pricing with local contractors.

Asked about the pricing gap, Maskara said Lennox “just couldn’t stick a mid-year price increase.” He said the company plans a price increase for 2027 and expects it to offset inflation as the year progresses. He also said a lower-tier offering was partly a response to new overseas competition. When asked about that market, he said he did not have market numbers handy.

Maskara said Lennox’s recovery plan includes more targeted pricing, productivity work, an updated entry-tier portfolio and deeper customer relationships. Quenzer said the company was accelerating productivity across manufacturing, distribution and administrative functions, including restructuring where appropriate. He also said expected capital spending would support the entry-tier launch, training facilities and innovation labs.

For the quarter ahead, Quenzer said the outlook assumed a mid-single-digit organic sales decline in Home Comfort Solutions, with the quarter starting softer amid warm weather in the Midwest.

Guidance

Lennox lowered its FY2026 adjusted EPS guidance to $21 to $21.50 from $23.00 to $24.00. Quenzer attributed the reduction primarily to lower price realization and a higher expected tax rate. Lennox now expects approximately 6% revenue growth, compared with 8% previously.

At the segment level, Lennox expects Building Climate Solutions revenue to grow approximately 23%, up from 20%, and Home Comfort Solutions revenue to decline approximately 4%, compared with its prior expectation of 1% growth. The company reduced its free cash flow guidance to $700 million to $750 million from $750 million to $850 million.