Question-and-Answer SessionThere's a lot of -- or maybe several players in the U.S. resi and light commercial HVAC market. And sometimes from us on the outside looking in, it's difficult to identify the differentiation at the business level. So I guess, why do you guys think Lennox is positioned to win?Alok MaskaraCEO, President & Director Sure. Yes, I think that's a great question to start off the discussion here, especially for those of you that aren't that familiar with Lennox. So there's really 2 main c ...

Summary of Lennox International FY Conference Call (September 11, 2025) Company Overview - **Company**: Lennox International (NYSE:LII) - **Industry**: Residential and light commercial HVAC (Heating, Ventilation, and Air Conditioning) Key Points and Arguments Competitive Advantages - **Direct-to-Contractor Distribution Model**: This model allows Lennox to operate as both a manufacturer and distributor, enhancing profitability through dual margins [3][4] - **Focus on Contractor Support**: Emphasis on fulfillment rates, technical support, and training for contractors to improve their efficiency and market share [4][5] Market Dynamics - **Sell-Through vs. Sell-In**: 75% of sales are direct to contractors (sell-through), while 25% are sell-in. The company has noted volatility in sell-in due to various market pressures [11][12] - **Temporary Market Inflection**: Current challenges are seen as temporary, with expectations of a return to disciplined growth in the long term [12][14] Product Innovation and Technology - **Investment in R&D**: All R&D efforts are focused on HVAC, leading to superior product efficiency across various categories [6][7] - **AI Integration**: AI is being used to enhance customer experience on e-commerce platforms and improve technician support through apps [27][28] M&A Strategy - **Acquisition of NSI Industries**: This acquisition aims to enhance Lennox's parts and accessories offerings, which currently represent 20% of sales, with a goal to reach 40% [29][30] - **Future M&A Plans**: The company intends to pursue further acquisitions in the aftermarket to bolster its distribution capabilities [33] Market Challenges - **Regulatory Changes and Tariffs**: The company is navigating challenges related to tariffs and regulatory changes affecting inventory and pricing strategies [11][41] - **Consumer Sentiment**: Homeowners are currently hesitant due to economic uncertainty, but the company believes that HVAC systems are essential, leading to eventual replacements [16][52] Growth Outlook - **Positive Trajectory in Light Commercial**: The company is seeing recovery in share and growth in emergency replacement initiatives, supported by new factory capacity [18][21] - **Ductless and Water Heater Opportunities**: The company anticipates significant growth in ductless systems and plans to launch water heaters, which are expected to converge with HVAC technologies in the future [47][48] Pricing Strategy - **Rational Pricing Environment**: The industry has maintained rational pricing despite cost pressures, with expectations for price increases in the upcoming year [45][46] Dealer Relationships - **Long-Term Relationships**: The company emphasizes the importance of long-term relationships with dealers, which helps maintain market share and stability [10][53] Additional Important Insights - **Technological Integration**: The company is working on integrating various products into a unified app for easier management by dealers and homeowners [24][25] - **Market Sentiment**: Dealers express confidence in the long-term necessity of HVAC systems despite current market challenges [53][54]

The Technical Support AI agent helps dealers and HVAC technicians troubleshoot, service, and repair Lennox equipment more efficiently. Trained on Lennox data and built with a conversational interface, the tool offers on- demand access to essential support functions including warranty lookups, repair parts finder, error code explanations, and step-by-step troubleshooting. It currently recognizes and interprets more than 250 error codes and provides guidance for common service issues. Available in English, Sp ...

Core Insights - Lennox has achieved a significant milestone by becoming the first manufacturer to complete laboratory validation for its commercial cold climate heat pump rooftop unit in the 15-25 tons category as part of the U.S. Department of Energy's Commercial Building HVAC Technology Challenge [2][4][6] - This accomplishment enhances Lennox's portfolio of high-efficiency HVAC solutions, particularly for cold climates, addressing long-standing defrost limitations and improving overall performance and reliability [5][6] Company Achievements - The cold climate heat pump rooftop unit was developed by Lennox's Texas Product Development and Research laboratory, meeting and often exceeding the stringent performance requirements set by the challenge [6] - The successful validation reflects years of focused research and development aimed at overcoming cold-climate challenges, ensuring consistent comfort even in severe conditions [6] - Lennox plans to install the validated prototype in a U.S. commercial building later this year to further assess its performance, efficiency, and comfort under extreme winter conditions [6] Industry Context - Commercial building space conditioning accounts for approximately 40% of commercial energy use in the United States, highlighting the importance of energy-efficient solutions in this sector [5] - Lennox is one of eight manufacturers participating in the Commercial Building HVAC Technology Challenge, indicating a competitive landscape focused on innovation and sustainability in HVAC technology [6]

Core Insights - The acquisition of Duro Dyne and Supco enhances Lennox's ability to provide comprehensive lifecycle solutions for HVAC customers, reinforcing its position as a one-stop partner in the industry [1] - Duro Dyne is recognized as a leading manufacturer of critical HVAC/R components, while Supco specializes in high-performing, technician-focused HVAC/R parts, thus expanding Lennox's product offerings [1] - The acquisition is anticipated to close in the fourth quarter of 2025, pending regulatory approvals [2] Company Overview - Lennox is a leader in energy-efficient climate-control solutions, focusing on sustainability and creating comfortable environments for both residential and commercial customers [3] - The company emphasizes innovation in cooling, heating, indoor air quality, and refrigeration systems [3]

Core Viewpoint - Lennox International (LII) has shown a recent downtrend, losing 8.3% over the past week, but a hammer chart pattern suggests a potential trend reversal as buying interest may be emerging to counteract selling pressure [1][2]. Technical Analysis - The hammer chart pattern indicates a possible bottoming out, with reduced selling pressure, suggesting that bulls may be regaining control [2][5]. - A hammer pattern forms when there is a small candle body with a long lower wick, indicating that the stock opened lower, made a new low, but closed near or above the opening price, reflecting buying interest [4][5]. - The effectiveness of the hammer pattern is enhanced when used alongside other bullish indicators, as its strength is dependent on its placement on the chart [6]. Fundamental Analysis - There has been a notable upward trend in earnings estimate revisions for LII, which is a bullish indicator correlated with stock price movements [7]. - The consensus EPS estimate for LII has increased by 5.2% over the last 30 days, indicating strong agreement among analysts regarding the company's potential for better earnings [8]. - LII holds a Zacks Rank of 2 (Buy), placing it in the top 20% of over 4,000 ranked stocks, which typically outperform the market [9][10].

Core Viewpoint - Lennox International reported strong Q2 2025 results, exceeding analyst expectations in earnings per share and revenue, leading to an upward revision of full-year guidance [1][10]. Financial Performance - Non-GAAP earnings per share reached $7.82, surpassing the estimate of $6.86 and showing a 14% increase from Q2 2024 [2][5]. - GAAP revenue was $1.50 billion, exceeding the estimate of $1,471.07 million and reflecting a 3% year-over-year growth [2][5]. - Segment profit increased to $354 million, an 11% rise compared to Q2 2024, with operating margin improving by 1.5 percentage points to 23.6% [2][6]. - Free cash flow (Non-GAAP) fell to $58.7 million, down 61% from $151.9 million in Q2 2024 [2][8]. Business Overview - Lennox International specializes in climate control solutions, manufacturing and selling HVAC systems, including air conditioners, furnaces, and refrigeration equipment [3]. Key Success Factors - The company focuses on innovation in refrigerant technologies, adapting to regulations, and expanding distribution channels [4]. - Strategic acquisitions and workforce investments are also emphasized to drive growth and support margin expansion [4]. Operational Insights - The company experienced a decline in overall sales volume in both Home Comfort Solutions and Building Climate Solutions segments, but price increases and a favorable product mix mitigated this impact [5][6]. - The introduction of low-GWP R-454B refrigerant products contributed positively to profitability [7]. - The company has been proactive in addressing rising material costs through price adjustments, with management reporting "mid-single-digit" realization rates [9]. Future Outlook - Management raised the full-year 2025 revenue growth forecast to approximately 3%, up from 2%, and adjusted earnings per share guidance to $23.25 to $24.25 [10]. - Free cash flow guidance remains unchanged at $650 million to $800 million for FY2025 [10]. - Key watchpoints include the ability to sustain price increases amid cost pressures and potential impacts from tariff changes or shifts in consumer activity [10].

[Part I Financial Information](index=2&type=section&id=Part%20I%20Financial%20Information) [Item 1. Financial Statements](index=2&type=section&id=Item%201%2E%20Financial%20Statements) This section presents unaudited consolidated financial statements, including balance sheets, income, equity, and cash flows, with detailed notes [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) Consolidated Balance Sheet Highlights (Amounts in millions) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :------------------ | | Total assets | $3,652.7 | $3,471.8 | | Total liabilities | $2,752.2 | $2,621.6 | | Total stockholders' equity | $900.5 | $850.2 | [Consolidated Statements of Operations](index=4&type=section&id=Consolidated%20Statements%20of%20Operations) Consolidated Statements of Operations Highlights (Amounts in millions, except per share data) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net sales | $1,500.9 | $1,451.1 | $2,573.5 | $2,498.2 | | Gross profit | $522.5 | $488.2 | $851.0 | $828.2 | | Operating income | $354.0 | $320.1 | $509.6 | $486.9 | | Net income | $277.6 | $245.9 | $397.9 | $370.2 | | Earnings per share – Basic | $7.86 | $6.91 | $11.24 | $10.40 | | Earnings per share – Diluted | $7.82 | $6.87 | $11.18 | $10.34 | [Consolidated Statements of Comprehensive Income](index=5&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) Consolidated Statements of Comprehensive Income Highlights (Amounts in millions) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $277.6 | $245.9 | $397.9 | $370.2 | | Other comprehensive income (loss), net of tax | $19.2 | $(2.9) | $32.3 | $(3.9) | | Comprehensive income | $296.8 | $243.0 | $430.2 | $366.3 | [Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Consolidated%20Statements%20of%20Stockholders%27%20Equity) Changes in Stockholders' Equity (Amounts in millions) | Metric | Three Months Ended June 30, 2025 | Six Months Ended June 30, 2025 | | :------------------------------------- | :------------------------------- | :----------------------------- | | Balance as of March 31, 2025 | $852.5 | N/A | | Net income | $277.6 | $397.9 | | Dividends paid | $(45.8) | $(86.6) | | Treasury stock purchases | $(212.7) | $(310.4) | | Balance as of June 30, 2025 | $900.5 | $900.5 | [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Consolidated Statements of Cash Flows Highlights (Amounts in millions) | Cash Flow Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $51.0 | $161.2 | | Net cash used in investing activities | $(51.6) | $(57.2) | | Net cash used in financing activities | $(368.2) | $(118.3) | | Cash and cash equivalents, end of period | $49.2 | $47.6 | [Notes to Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) [1. General](index=9&type=section&id=1%2E%20General) - The unaudited consolidated financial statements are prepared in accordance with GAAP for interim financial information and include all material adjustments for a **fair presentation**[26](index=26&type=chunk) - The preparation of financial statements requires management to make estimates and assumptions about future events, which are evaluated on an ongoing basis and may differ significantly from actual results[28](index=28&type=chunk)[29](index=29&type=chunk) [2. Reportable Business Segments](index=10&type=section&id=2%2E%20Reportable%20Business%20Segments) - The company operates in **two reportable business segments**: Home Comfort Solutions (residential HVACR) and Building Climate Solutions (commercial HVACR and refrigeration systems), primarily serving the United States and Canada[30](index=30&type=chunk) Segment Net Sales and Profit (Amounts in millions) | Segment | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Home Comfort Solutions Net Sales | $1,009.3 | $982.3 | $1,730.7 | $1,656.9 | | Home Comfort Solutions Profit | $255.2 | $228.5 | $372.0 | $340.6 | | Building Climate Solutions Net Sales | $491.6 | $468.8 | $842.8 | $841.3 | | Building Climate Solutions Profit | $122.5 | $114.0 | $176.0 | $192.2 | Total Assets by Segment (Amounts in millions) | Segment | June 30, 2025 | December 31, 2024 | | :------------------------ | :------------ | :---------------- | | Home Comfort Solutions | $1,989.3 | $1,626.0 | | Building Climate Solutions | $1,249.1 | $1,052.6 | | Corporate and Other | $414.3 | $793.2 | | Total assets | $3,652.7 | $3,471.8 | [3. Earnings Per Share](index=13&type=section&id=3%2E%20Earnings%20Per%20Share) Earnings Per Share (Amounts in millions, except per share data) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Earnings per share – Basic | $7.86 | $6.91 | $11.24 | $10.40 | | Earnings per share – Diluted | $7.82 | $6.87 | $11.18 | $10.34 | [4. Commitments and Contingencies](index=13&type=section&id=4%2E%20Commitments%20and%20Contingencies) Total Warranty Liability (Amounts in millions) | Metric | June 30, 2025 | December 31, 2024 | | :------------------------ | :------------ | :---------------- | | Total warranty liability | $164.1 | $158.4 | - The company is involved in various claims and lawsuits, but management believes none will have a **material adverse effect** on financial condition, results of operations, or cash flows[49](index=49&type=chunk)[50](index=50&type=chunk) [5. Stock Repurchases](index=15&type=section&id=5%2E%20Stock%20Repurchases) - The Board of Directors has authorized a total of **$5.0 billion** for share repurchases under the Share Repurchase Plans, including a **$1.0 billion** authorization in May 2025[51](index=51&type=chunk) Common Stock Repurchases (Amounts in millions, except shares) | Period | Shares Repurchased | Aggregate Cost | | :------------------------ | :----------------- | :------------- | | Three months ended June 30, 2025 | 371,133 | $209.6 | | Six months ended June 30, 2025 | 515,665 | $295.4 | - As of June 30, 2025, **$1,196.5 million** was available for repurchase under the Share Repurchase Plans[51](index=51&type=chunk) [6. Revenue Recognition](index=15&type=section&id=6%2E%20Revenue%20Recognition) Consolidated Net Sales by Primary Geographic Markets (Amounts in millions) | Geographic Market | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | United States | $1,396.6 | $1,368.5 | $2,397.2 | $2,351.9 | | Canada | $104.3 | $82.6 | $176.3 | $146.3 | | Total | $1,500.9 | $1,451.1 | $2,573.5 | $2,498.2 | - For Home Comfort Solutions, direct sales represented **74% of revenues** for the three and six months ended June 30, 2025[55](index=55&type=chunk) - For Building Climate Solutions, equipment sales represented **81%** and **80% of revenues** for the three and six months ended June 30, 2025, respectively, with the remainder from service business[56](index=56&type=chunk) [7. Other Financial Statement Details](index=16&type=section&id=7%2E%20Other%20Financial%20Statement%20Details) Inventories, Net (Amounts in millions) | Component | June 30, 2025 | December 31, 2024 | | :---------------------- | :------------ | :---------------- | | Finished goods | $692.5 | $422.6 | | Work in process | $13.3 | $11.0 | | Raw materials and parts | $445.7 | $410.7 | | Total inventories, net | $1,001.9 | $704.8 | - Goodwill remained stable at **$220.0 million** as of June 30, 2025, with **no impairment recorded** for the periods presented[59](index=59&type=chunk) - The company uses cash flow hedges for commodity price risk (futures contracts) and foreign currency risk (forward contracts), but is not currently hedged against interest rate risk[60](index=60&type=chunk)[61](index=61&type=chunk)[62](index=62&type=chunk) [8. Pension Benefit Plans](index=18&type=section&id=8%2E%20Pension%20Benefit%20Plans) Net Periodic Benefit Cost for Pension Benefits (Amounts in millions) | Component | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net periodic benefit cost | $1.0 | $1.2 | $2.1 | $2.0 | [9. Income Taxes](index=18&type=section&id=9%2E%20Income%20Taxes) - The effective tax rate decreased to **19.5% for Q2 2025** (from 19.9% in Q2 2024) and to **19.4% for YTD June 30, 2025** (from 19.7% in YTD June 30, 2024), primarily due to higher income in low tax jurisdictions[66](index=66&type=chunk)[102](index=102&type=chunk)[115](index=115&type=chunk) - As of June 30, 2025, the company had **$4.9 million** in total gross unrecognized tax benefits[66](index=66&type=chunk) [10. Lines of Credit and Financing Arrangements](index=19&type=section&id=10%2E%20Lines%20of%20Credit%20and%20Financing%20Arrangements) Outstanding Debt Obligations (Amounts in millions) | Debt Type | June 30, 2025 | December 31, 2024 | | :------------------------ | :------------ | :---------------- | | Commercial paper | $29.0 | $— | | Current maturities of long-term debt | $316.4 | $314.5 | | Long-term debt | $835.7 | $833.1 | | Total debt | $1,181.1 | $1,147.6 | - The commercial paper program has a limit of **$500.0 million**, with **$29.0 million outstanding** as of June 30, 2025[69](index=69&type=chunk) - The Amended Credit Agreement, entered into on May 9, 2025, decreased revolving commitments to **$1.0 billion** and extended the maturity to May 2030, with **$969.3 million available** for future borrowings[71](index=71&type=chunk) - The company has senior unsecured notes maturing in **August 2025 ($300.0 million)**, **August 2027 ($300.0 million)**, and **September 2028 ($500.0 million)**[78](index=78&type=chunk) - The company is currently in **compliance with all covenant requirements** under its debt agreements[77](index=77&type=chunk)[79](index=79&type=chunk) [11. Comprehensive Income (Loss)](index=21&type=section&id=11%2E%20Comprehensive%20Income%20%28Loss%29) Reclassifications from AOCL to Net Income (Amounts in millions) | Item | Three Months Ended June 30, 2025 | Six Months Ended June 30, 2025 | | :------------------------------------ | :------------------------------- | :----------------------------- | | Net of tax (Cash Flow Hedges) | $2.6 | $4.6 | | Net of tax (Defined Benefit Plan items) | $(0.3) | $(0.7) | | Total reclassifications from AOCL | $2.3 | $3.9 | Changes in AOCL by Component (Net of Tax) for Six Months Ended June 30, 2025 (Amounts in millions) | Component | Balance as of Dec 31, 2024 | Net other comprehensive income | Balance as of June 30, 2025 | | :-------------------------------------- | :------------------------- | :----------------------------- | :-------------------------- | | Gains (Losses) on Cash Flow Hedges | $(1.5) | $12.2 | $10.7 | | Defined Benefit Pension Plan Items | $(45.7) | $0.0 | $(45.7) | | Foreign Currency Translation Adjustments | $(46.9) | $20.1 | $(26.8) | | Total AOCL | $(93.7) | $32.3 | $(61.4) | [12. Fair Value Measurements](index=21&type=section&id=12%2E%20Fair%20Value%20Measurements) - Derivatives are classified as **Level 2** and valued using estimated future cash flows based on observed prices from exchange-traded derivatives, considering counterparty and company creditworthiness[82](index=82&type=chunk) Fair Value of Senior Unsecured Notes (Amounts in millions) | Metric | June 30, 2025 | December 31, 2024 | | :------------------------ | :------------ | :---------------- | | Senior unsecured notes | $1,111.6 | $1,093.4 | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=Item%202%2E%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management analyzes financial condition and results for Q2 and YTD 2025 vs 2024, covering business, segment performance, and liquidity [Business Overview](index=23&type=section&id=Business%20Overview) - The company operates in **two HVACR segments**: Home Comfort Solutions and Building Climate Solutions, with demand influenced by weather, economic factors, and new construction[88](index=88&type=chunk)[90](index=90&type=chunk) - Cost of goods sold is primarily driven by components, raw materials (steel, aluminum, copper), factory overhead, labor, and freight; the company mitigates commodity price volatility through pricing actions, vendor contracts, efficiency, and hedging[91](index=91&type=chunk) [Financial Overview](index=24&type=section&id=Financial%20Overview) - Second quarter 2025 results were driven by year-over-year net sales and profit increases in both Home Comfort Solutions (**net sales +3%**, **segment profit +$27M**) and Building Climate Solutions (**net sales +5%**, **segment profit +$9M**)[92](index=92&type=chunk) - For 2025, the company expects additional pricing gains to offset tariffs and potential volume declines while preserving profit margins[94](index=94&type=chunk) [Recent Developments](index=24&type=section&id=Recent%20Developments) - The 'One Big Beautiful Bill Act' was signed into law on July 4, 2025, and the company is evaluating its potential effects on financial position, results of operations, and cash flows[95](index=95&type=chunk) [Three Months Ended June 30, 2025 Compared to Three Months Ended June 30, 2024 - Consolidated Results](index=24&type=section&id=Three%20Months%20Ended%20June%2030%2C%202025%20Compared%20to%20Three%20Months%20Ended%20June%2030%2C%202024%20-%20Consolidated%20Results) Consolidated Financial Results (Three Months Ended June 30, 2025 vs 2024) (Amounts in millions) | Metric | 2025 | 2024 | Change (%) | | :-------------------------------------- | :-------- | :-------- | :--------- | | Net sales | $1,500.9 | $1,451.1 | 3.4% | | Gross profit | $522.5 | $488.2 | 7.0% | | Operating income | $354.0 | $320.1 | 10.6% | | Net income | $277.6 | $245.9 | 12.9% | | Diluted earnings per share | $7.82 | $6.87 | 13.8% | - Net sales increased **3%** due to an **11% increase in mix and price**, partially offset by an **8% decrease in sales volumes**[97](index=97&type=chunk) - Gross profit margins increased **120 basis points to 34.8%**, driven by favorable mix and price (**350 bps**), partially offset by higher freight and distribution costs (**130 bps**) and higher product costs (**100 bps**)[98](index=98&type=chunk) - Selling, general and administrative expenses increased **$4 million to $173 million**, primarily due to higher employee-related costs[99](index=99&type=chunk) - Interest expense, net decreased to **$8 million** from $13 million, primarily due to lower borrowings[101](index=101&type=chunk) [Second Quarter of 2025 Compared to Second Quarter of 2024 - Results by Segment](index=25&type=section&id=Second%20Quarter%20of%202025%20Compared%20to%20Second%20Quarter%20of%202024%20-%20Results%20by%20Segment) Segment Performance (Three Months Ended June 30, 2025 vs 2024) (Amounts in millions) | Segment | Net Sales 2025 | Net Sales 2024 | Net Sales % Change | Profit 2025 | Profit 2024 | Profit % Change | | :------------------------ | :------------- | :------------- | :----------------- | :---------- | :---------- | :-------------- | | Home Comfort Solutions | $1,009.3 | $982.3 | 3% | $255.2 | $228.5 | 12% | | Building Climate Solutions | $491.6 | $468.8 | 5% | $122.5 | $114.0 | 7% | | Corporate and Other | $— | $— | —% | $(23.7) | $(24.0) | 1% | - Home Comfort Solutions' net sales increased **3%** due to a **12% increase in mix and price**, partially offset by a **9% decrease in sales volumes**; Profit increased **12%** due to favorable mix/price and factory efficiencies, partially offset by decreased sales volumes, higher product costs, and freight/distribution costs[103](index=103&type=chunk)[104](index=104&type=chunk)[105](index=105&type=chunk) - Building Climate Solutions' net sales increased **5%** due to an **8% increase in mix and price**, partially offset by a **3% decrease in sales volumes**; Profit increased **7%** due to favorable mix/price and factory efficiencies, partially offset by higher product costs, distribution/selling expenses, and decreased sales volumes[106](index=106&type=chunk)[107](index=107&type=chunk) [Year-to-Date through June 30, 2025 Compared to Year-to-Date through June 30, 2024 - Consolidated Results](index=26&type=section&id=Year-to-Date%20through%20June%2030%2C%202025%20Compared%20to%20Year-to-Date%20through%20June%2030%2C%202024%20-%20Consolidated%20Results) Consolidated Financial Results (Six Months Ended June 30, 2025 vs 2024) (Amounts in millions) | Metric | 2025 | 2024 | Change (%) | | :-------------------------------------- | :-------- | :-------- | :--------- | | Net sales | $2,573.5 | $2,498.2 | 3.0% | | Gross profit | $851.0 | $828.2 | 2.8% | | Operating income | $509.6 | $486.9 | 4.7% | - Net sales increased **3%** due to a **9% increase in mix and price**, partially offset by a **6% decrease in sales volumes**[110](index=110&type=chunk) - Gross profit margins decreased **10 basis points to 33.1%**, primarily due to higher product costs (**170 bps**) and freight/distribution costs (**120 bps**), partially offset by favorable mix and price (**280 bps**)[110](index=110&type=chunk) - Selling, general and administrative expenses increased **$5 million to $345 million**, but decreased **20 basis points** as a percentage of net sales to **13.4%**[111](index=111&type=chunk) - Interest expense, net decreased **$10 million to $14 million**, primarily due to lower borrowings[114](index=114&type=chunk) [Year-to-Date through June 30, 2025 Compared to Year-to-Date through June 30, 2024 - Results by Segment](index=28&type=section&id=Year-to-Date%20through%20June%2030%2C%202025%20Compared%20to%20Year-to-Date%20through%20June%2030%2C%202024%20-%20Results%20by%20Segment) Segment Performance (Six Months Ended June 30, 2025 vs 2024) (Amounts in millions) | Segment | Net Sales 2025 | Net Sales 2024 | Net Sales % Change | Profit 2025 | Profit 2024 | Profit % Change | | :------------------------ | :------------- | :------------- | :----------------- | :---------- | :---------- | :-------------- | | Home Comfort Solutions | $1,730.7 | $1,656.9 | 4% | $372.0 | $340.6 | 9% | | Building Climate Solutions | $842.8 | $841.3 | —% | $176.0 | $192.2 | (8)% | | Corporate and Other | $— | $— | —% | $(38.4) | $(47.5) | 19% | - Home Comfort Solutions' net sales increased **4%** due to a **10% increase in mix and price**, partially offset by a **6% decrease in sales volumes**; Profit increased **9%** due to favorable mix/price and factory efficiencies, partially offset by higher product costs, decreased sales volumes, and higher freight/distribution costs[116](index=116&type=chunk)[117](index=117&type=chunk) - Building Climate Solutions' net sales remained **flat** due to a **6% increase in mix and price** offset by a **6% decrease in sales volumes**; Profit decreased **8%** due to decreased sales volumes, higher product costs, and increased distribution/selling expenses, partially offset by favorable mix and price[118](index=118&type=chunk)[119](index=119&type=chunk) - Corporate and Other segment loss decreased **$9 million**, primarily due to higher employee-related costs and miscellaneous items[120](index=120&type=chunk) [Liquidity and Capital Resources](index=29&type=section&id=Liquidity%20and%20Capital%20Resources) Cash Flow Activity (Six Months Ended June 30, 2025 vs 2024) (Amounts in millions) | Cash Flow Activity | 2025 | 2024 | | :----------------------------- | :-------- | :-------- | | Net cash provided by operating activities | $51.0 | $161.2 | | Net cash used in investing activities | $(51.6) | $(57.2) | | Net cash used in financing activities | $(368.2) | $(118.3) | - Net cash provided by operating activities decreased primarily due to **less favorable changes in working capital**[122](index=122&type=chunk) - Net cash used in financing activities increased significantly to **$368 million** (from $118 million provided in 2024), primarily due to changes in net borrowings/repayments of long-term debt and **$295.4 million** in common stock repurchases[124](index=124&type=chunk) - The company's debt-to-total-capital ratio remained **unchanged at 57%** as of June 30, 2025, and it maintains investment grade credit ratings from Moody's (**Baa2 POS outlook**) and S&P (**BBB stable outlook**)[131](index=131&type=chunk)[132](index=132&type=chunk) - Management believes current cash, future operating cash flows, and available borrowing capacity are **sufficient to fund operations**, capital expenditures, contractual obligations, share repurchases, dividends, and the upcoming **$300.0 million** senior unsecured notes maturity in August 2025[133](index=133&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=31&type=section&id=Item%203%2E%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section refers to the Annual Report on Form 10-K for market risk disclosures, noting no material changes since December 31, 2024 - There have been **no material changes** to the company's exposure to market risk since December 31, 2024[137](index=137&type=chunk) [Item 4. Controls and Procedures](index=32&type=section&id=Item%204%2E%20Controls%20and%20Procedures) This section evaluates disclosure controls and procedures, reporting on any changes in internal control over financial reporting - As of June 30, 2025, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were **effective** to provide reasonable assurance of timely and accurate information disclosure[138](index=138&type=chunk) - There were **no changes in internal control over financial reporting** that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[139](index=139&type=chunk) [Part II Other Information](index=32&type=section&id=Part%20II%20Other%20Information) [Item 1. Legal Proceedings](index=32&type=section&id=Item%201%2E%20Legal%20Proceedings) This section reviews ongoing legal claims and lawsuits, assessing their potential financial impact on the company - Management believes that none of the current claims or lawsuits will have a **material adverse effect**, individually or in the aggregate, on the company's financial position, results of operations, or cash flows[140](index=140&type=chunk) [Item 1A. Risk Factors](index=32&type=section&id=Item%201A%2E%20Risk%20Factors) This section refers to the Annual Report on Form 10-K for comprehensive risk factors, with no material changes reported - There have been **no material changes** to the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2024[141](index=141&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=32&type=section&id=Item%202%2E%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details common stock repurchase activities during Q2 2025 under publicly announced share repurchase plans Common Stock Repurchases (Second Quarter 2025) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :------------------------ | :------------------------------- | :--------------------------- | | April 1 through April 30 | 52,000 | $539.55 | | May 1 through May 31 | 300,157 | $569.81 | | June 1 through June 30 | 18,976 | $554.85 | | Total | 371,133 | N/A | - As of June 30, 2025, approximately **$1,196.5 million** remained available for repurchase under the company's share repurchase plans, which have no expiration date[142](index=142&type=chunk) [Item 5. Other Information](index=33&type=section&id=Item%205%2E%20Other%20Information) This section reports on Rule 10b5-1 trading arrangements involving the company's directors and officers - During the quarter ended June 30, 2025, **none of the company's directors or officers adopted, modified, or terminated any Rule 10b5-1 trading arrangement** or non-Rule 10b5-1 trading arrangement[143](index=143&type=chunk) [Item 6. Exhibits](index=34&type=section&id=Item%206%2E%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including corporate documents, debt agreements, and certifications - Exhibits include the Restated Certificate of Incorporation, Amended and Restated Bylaws, various Indentures and Supplemental Indentures related to senior unsecured notes, the Amended and Restated Credit Agreement, and certifications by executive officers[147](index=147&type=chunk)

Financial Data and Key Metrics Changes - Revenue for the second quarter grew by 3% compared to the previous year, with a segment margin reaching a record 23.6%, an increase of 170 basis points [6][11] - Adjusted earnings per share (EPS) for the second quarter was $7.82, with operating cash flow reported at $87 million [6][11] - The full-year adjusted EPS outlook has been raised to a range of $23.25 to $24.25, reflecting strong execution in a challenging environment [8][20] Business Line Data and Key Metrics Changes - Home Comfort Solutions (HCS) segment saw a 3% revenue increase driven by favorable product mix and pricing, despite a decline in sales volume due to inventory destocking and market conditions [12][13] - Building Climate Solutions (BCS) segment achieved a 5% revenue increase, supported by emergency replacement products, although overall market demand remained weak [15][16] Market Data and Key Metrics Changes - The company noted softness in new construction demand and industry-wide refrigerant canister shortages impacting sales [6][7] - The transition to low GWP refrigerants is ongoing, with approximately 90% of refrigerant-based product sales now utilizing the new R454B refrigerant [12][21] Company Strategy and Development Direction - The company is focused on executing its transformation strategy introduced in 2022, with an emphasis on digital customer experience, ductless technology, and expanding its product portfolio through strategic partnerships [25][26] - Joint ventures with Samsung and Ariston are expected to enhance product offerings and customer experience, with significant contributions anticipated starting in 2026 and 2027 respectively [9][10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate ongoing challenges, citing improved factory productivity and a strong operational execution [23][24] - The outlook for the second half of the year is cautiously optimistic, with expectations of stabilization in demand and continued margin expansion [20][21] Other Important Information - The company has authorized an additional $1 billion in share repurchases and increased its quarterly dividend by approximately 15% [16][17] - Inventory levels are expected to normalize in the second half of the year, following temporary investments to support the transition to new products [16][92] Q&A Session Summary Question: Can you discuss the price and cost dynamics, particularly regarding A2L manufacturing costs and tariffs? - Management indicated that both cost and price are in line with expectations, with productivity improvements driving margin expansion [30][34] Question: What are the volume assumptions for the second half? - Volume guidance for HCS is expected to decline by about 8%, while BCS is projected to decline by about 4% [35][36] Question: Can you confirm the margin outlook for the full year? - The company is projecting about a 50 basis point expansion in margins for the full year, with both segments expected to show margin improvement [40][41] Question: What are the expectations regarding the Ariston partnership and market share? - Early feedback from dealers on the water heater business has been positive, with meaningful growth expected starting in 2027 [54][57] Question: How is the company managing inventory and what is the outlook for the second half? - The company plans to reduce inventory levels to normal by the end of the year, with a focus on balancing supply and demand [92][93]

Group 1 - Lennox International reported revenue of $1.5 billion for the quarter ended June 2025, reflecting a 3.4% increase year-over-year [1] - The company's EPS was $7.82, up from $6.83 in the same quarter last year, indicating a strong performance [1] - Revenue exceeded the Zacks Consensus Estimate of $1.48 billion by 1.35%, and EPS surpassed the consensus estimate of $6.90 by 13.33% [1] Group 2 - Key metrics indicate that Lennox's shares have returned +8.9% over the past month, outperforming the Zacks S&P 500 composite's +5.9% [3] - The stock currently holds a Zacks Rank 3 (Hold), suggesting it may perform in line with the broader market in the near term [3] Group 3 - Net Sales for Building Climate Solutions were reported at $491.6 million, exceeding the average estimate of $477 million by analysts, representing a 4.9% year-over-year increase [4] - Net Sales for Home Comfort Solutions matched the estimated $1.01 billion, showing a 2.8% increase compared to the previous year [4] - Segment Profit for Building Climate Solutions was $122.5 million, surpassing the average estimate of $111.22 million, while Home Comfort Solutions reported a profit of $255.2 million against an estimate of $232.77 million [4]