Core Viewpoint - Lennox International Inc. is considered a profitable manufacturing stock, with Barclays maintaining an "Overweight" rating despite a slight reduction in the 12-month price target from $730 to $700, indicating a cooling in optimism [1][2]. Financial Performance - In Q3 2025, Lennox reported adjusted EPS of $6.98, which exceeded expectations, while revenue decreased by approximately 4.8% year-over-year to $1.43 billion [1]. Market Position and Outlook - Barclays suggests that the bottom of Lennox's cycle may not occur until early 2026, indicating that investors are focusing on the company's structural strength rather than immediate growth [2]. - The company is viewed as a "buy on beat-up" scenario due to its margin resilience despite facing volume headwinds and macroeconomic softness [2]. Company Overview - Lennox International Inc. designs, manufactures, and markets heating, ventilation, air-conditioning, and refrigeration equipment for both residential and commercial markets in the U.S., Canada, and internationally [3].

Group 1 - UBS analyst Damian Karas has lowered the price target on Lennox (LII) to $560 from $610, maintaining a Neutral rating on the shares [1] - The firm is reducing its estimates by 2%-3% due to persistent headwinds in the residential industry [1]

Core Viewpoint - Lennox International Inc reported strong earnings for Q3 but lowered its FY2025 forecast due to transitional challenges and macroeconomic conditions [1][2]. Financial Performance - The company achieved quarterly earnings of $6.98 per share, surpassing the analyst consensus estimate of $6.86 per share [1]. - Quarterly sales were reported at $1.426 billion, falling short of the analyst consensus estimate of $1.490 billion [1]. Guidance Update - Lennox adjusted its FY2025 EPS guidance from a range of $23.25-$24.25 to $22.75-$23.25, anticipating a revenue decline of 1% [1][2]. Strategic Insights - CEO Alok Maskara highlighted that 2025 is a transitional year influenced by refrigerant transitions and challenging macroeconomic conditions [2]. - The recent acquisitions of DuroDyne and Supco are expected to enhance the company's parts and accessories portfolio, positioning it for improved performance in 2026 and beyond [2]. Analyst Ratings and Price Targets - Morgan Stanley analyst Betsy Graseck maintained an Underweight rating on Lennox and reduced the price target from $535 to $475 [5]. - Barclays analyst Julian Mitchell maintained an Overweight rating while lowering the price target from $730 to $700 [5].

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Part I [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) Presents unaudited consolidated financial statements, including balance sheets, income, comprehensive income, equity, and cash flows, with detailed notes [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) Consolidated Balance Sheets (Millions) | Metric | Sep 30, 2025 (Millions) | Dec 31, 2024 (Millions) | | :-------------------------------- | :---------------------- | :---------------------- | | Total Assets | $3,524.6 | $3,471.8 | | Total Current Assets | $1,898.0 | $1,884.2 | | Cash and cash equivalents | $52.9 | $415.1 | | Inventories, net | $991.5 | $704.8 | | Total Liabilities | $2,454.5 | $2,621.6 | | Total Current Liabilities | $1,129.8 | $1,313.3 | | Current maturities of long-term debt | $16.9 | $314.5 | | Total Stockholders' Equity | $1,070.1 | $850.2 | - Cash and cash equivalents decreased significantly from **$415.1 million** at December 31, 2024, to **$52.9 million** at September 30, 2025[8](index=8&type=chunk) - Inventories, net, increased from **$704.8 million** at December 31, 2024, to **$991.5 million** at September 30, 2025[8](index=8&type=chunk) [Consolidated Statements of Operations](index=4&type=section&id=Consolidated%20Statements%20of%20Operations) Consolidated Statements of Operations (Millions) | Metric | 3 Months Ended Sep 30, 2025 (Millions) | 3 Months Ended Sep 30, 2024 (Millions) | 9 Months Ended Sep 30, 2025 (Millions) | 9 Months Ended Sep 30, 2024 (Millions) | | :-------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | | Net sales | $1,426.8 | $1,498.1 | $4,000.3 | $3,996.3 | | Gross profit | $468.6 | $488.4 | $1,319.6 | $1,316.6 | | Operating income | $310.2 | $303.3 | $819.8 | $790.2 | | Net income | $245.8 | $239.0 | $643.7 | $609.2 | | Basic EPS | $7.01 | $6.71 | $18.23 | $17.11 | | Diluted EPS | $6.98 | $6.68 | $18.15 | $17.02 | - For the three months ended September 30, 2025, net sales decreased by **4.8% YoY**, while operating income increased by **2.3% YoY** and net income increased by **2.8% YoY**[10](index=10&type=chunk) - For the nine months ended September 30, 2025, net sales remained relatively flat (**0.1% increase**) YoY, while operating income increased by **3.7% YoY** and net income increased by **5.7% YoY**[10](index=10&type=chunk) [Consolidated Statements of Comprehensive Income](index=5&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) Consolidated Statements of Comprehensive Income (Millions) | Metric | 3 Months Ended Sep 30, 2025 (Millions) | 3 Months Ended Sep 30, 2024 (Millions) | 9 Months Ended Sep 30, 2025 (Millions) | 9 Months Ended Sep 30, 2024 (Millions) | | :-------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | | Net income | $245.8 | $239.0 | $643.7 | $609.2 | | Other comprehensive (loss) income, net of tax | $(0.6) | $(9.9) | $31.7 | $(13.8) | | Comprehensive income | $245.2 | $229.1 | $675.4 | $595.4 | - Other comprehensive income (loss), net of tax, significantly improved from a loss of **$9.9 million** in Q3 2024 to a loss of **$0.6 million** in Q3 2025, and from a loss of **$13.8 million** in YTD 2024 to an income of **$31.7 million** in YTD 2025[12](index=12&type=chunk) [Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Consolidated%20Statements%20of%20Stockholders'%20Equity) Consolidated Statements of Stockholders' Equity (Millions) | Metric | Sep 30, 2025 (Millions) | Dec 31, 2024 (Millions) | | :-------------------------------- | :---------------------- | :---------------------- | | Total Stockholders' Equity | $1,070.1 | $850.2 | | Retained Earnings | $4,662.5 | $4,150.8 | | Treasury Stock, at cost | $(4,767.4) | $(4,421.1) | | Dividends paid (9 months) | $132.0 | $121.4 (9 months ended Sep 30, 2024) | - Total stockholders' equity increased from **$850.2 million** at December 31, 2024, to **$1,070.1 million** at September 30, 2025[18](index=18&type=chunk) - The company repurchased **$348.6 million** of treasury stock during the nine months ended September 30, 2025[18](index=18&type=chunk) [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Consolidated Statements of Cash Flows (Millions) | Cash Flow Activity | 9 Months Ended Sep 30, 2025 (Millions) | 9 Months Ended Sep 30, 2024 (Millions) | | :-------------------------------- | :------------------------------------- | :------------------------------------- | | Net cash provided by operating activities | $351.7 | $613.3 | | Net cash used in investing activities | $(87.6) | $(108.1) | | Net cash used in financing activities | $(627.4) | $(327.4) | | (Decrease) increase in cash and cash equivalents | $(363.3) | $177.8 | | Cash and cash equivalents, end of period | $52.9 | $243.1 | - Net cash provided by operating activities decreased significantly from **$613.3 million** in 2024 to **$351.7 million** in 2025, primarily due to less favorable changes in working capital[21](index=21&type=chunk)[125](index=125&type=chunk) - Net cash used in financing activities increased from **$327.4 million** in 2024 to **$627.4 million** in 2025, driven by changes in net borrowings/repayments of long-term debt and increased common stock repurchases[21](index=21&type=chunk)[127](index=127&type=chunk) [Notes to Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) [1. General](index=9&type=section&id=1.%20General) - The unaudited consolidated financial statements are prepared in accordance with GAAP for interim financial information and Form 10-Q instructions, containing all material adjustments for fair presentation[25](index=25&type=chunk) - The company's fiscal quarterly periods are approximately 13 weeks, with the fourth quarter and fiscal year ending on December 31[26](index=26&type=chunk) - Financial statements require estimates and assumptions about future events, which are evaluated ongoingly using historical experience and current economic environment, with actual results potentially differing significantly[27](index=27&type=chunk)[28](index=28&type=chunk) [2. Reportable Business Segments](index=10&type=section&id=2.%20Reportable%20Business%20Segments) - The company operates in two reportable segments: Home Comfort Solutions (residential HVACR in US/Canada) and Building Climate Solutions (commercial HVACR and refrigeration in US/Canada)[29](index=29&type=chunk) Segment Performance (Millions) | Segment | 3 Months Ended Sep 30, 2025 (Millions) | 3 Months Ended Sep 30, 2024 (Millions) | 9 Months Ended Sep 30, 2025 (Millions) | 9 Months Ended Sep 30, 2024 (Millions) | | :-------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | | **Net Sales:** | | | | | | Home Comfort Solutions | $912.9 | $1,032.8 | $2,643.6 | $2,689.7 | | Building Climate Solutions | $513.9 | $465.3 | $1,356.7 | $1,306.6 | | **Segment Profit (Loss):** | | | | | | Home Comfort Solutions | $202.9 | $226.5 | $574.9 | $567.1 | | Building Climate Solutions | $134.0 | $105.9 | $310.0 | $298.1 | | Corporate and Other | $(26.7) | $(29.1) | $(65.1) | $(76.6) | - Home Comfort Solutions net sales decreased **12%** for the three months and **2%** for the nine months ended September 30, 2025, while Building Climate Solutions net sales increased **10%** and **4%** respectively[33](index=33&type=chunk)[34](index=34&type=chunk) [3. Earnings Per Share](index=13&type=section&id=3.%20Earnings%20Per%20Share) - Basic EPS is calculated by dividing net income by weighted-average common shares outstanding, while diluted EPS includes the potential effect of dilutive securities[40](index=40&type=chunk) Earnings Per Share | Metric | 3 Months Ended Sep 30, 2025 | 3 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2025 | 9 Months Ended Sep 30, 2024 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income (millions) | $245.8 | $239.0 | $643.7 | $609.2 | | Weighted-average shares outstanding – basic (millions) | 35.1 | 35.6 | 35.3 | 35.6 | | Weighted-average shares outstanding – diluted (millions) | 35.2 | 35.8 | 35.5 | 35.8 | | Basic EPS | $7.01 | $6.71 | $18.23 | $17.11 | | Diluted EPS | $6.98 | $6.68 | $18.15 | $17.02 | [4. Commitments and Contingencies](index=13&type=section&id=4.%20Commitments%20and%20Contingencies) - Operating leases are recognized on the balance sheet as Right-of-use assets and lease liabilities, with a discount rate applied to minimum lease payments[42](index=42&type=chunk)[45](index=45&type=chunk) - Product warranty liabilities are estimated based on failure rates and cost experience, totaling **$165.0 million** as of September 30, 2025, up from **$158.4 million** at December 31, 2024[47](index=47&type=chunk)[48](index=48&type=chunk) - 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.%20Stock%20Repurchases) - The Board of Directors has authorized **$5.0 billion** for share repurchases, with **$1,159.5 million** remaining available as of September 30, 2025[51](index=51&type=chunk) Stock Repurchases (Millions) | Period | Shares Repurchased | Aggregate Cost (Millions) | | :-------------------------------- | :----------------- | :------------------------ | | 3 Months Ended Sep 30, 2025 | 63,000 | $36.9 | | 9 Months Ended Sep 30, 2025 | 578,665 | $332.3 | [6. Revenue Recognition](index=15&type=section&id=6.%20Revenue%20Recognition) Revenue by Segment/Geography (Millions) | Segment/Geography | 3 Months Ended Sep 30, 2025 (Millions) | 3 Months Ended Sep 30, 2024 (Millions) | 9 Months Ended Sep 30, 2025 (Millions) | 9 Months Ended Sep 30, 2024 (Millions) | | :-------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | | **Home Comfort Solutions:** | | | | | | United States | $850.1 | $971.1 | $2,458.9 | $2,520.7 | | Canada | $62.8 | $61.7 | $184.7 | $169.0 | | **Building Climate Solutions:** | | | | | | United States | $478.3 | $441.9 | $1,266.6 | $1,244.2 | | Canada | $35.6 | $23.4 | $90.1 | $62.4 | | **Consolidated Total:** | $1,426.8 | $1,498.1 | $4,000.3 | $3,996.3 | - Home Comfort Solutions' direct sales represented **75%** and **74%** of revenues for the three and nine months ended September 30, 2025, respectively[55](index=55&type=chunk) - Building Climate Solutions' equipment sales represented **80%** of revenues for both the three and nine months ended September 30, 2025[56](index=56&type=chunk) [7. Other Financial Statement Details](index=16&type=section&id=7.%20Other%20Financial%20Statement%20Details) Inventory Components (Millions) | Inventory Component | Sep 30, 2025 (Millions) | Dec 31, 2024 (Millions) | | :-------------------------- | :---------------------- | :---------------------- | | Finished goods | $723.7 | $422.6 | | Work in process | $11.3 | $11.0 | | Raw materials and parts | $414.1 | $410.7 | | Total inventories, net | $991.5 | $704.8 | - Goodwill remained stable at **$220.0 million** as of September 30, 2025, with no impairment recorded for the nine months ended September 30, 2025[60](index=60&type=chunk) - The company uses cash flow hedges (foreign exchange forward contracts and commodity futures) to mitigate commodity price and foreign currency risks, with an expected reclassification of **$11.3 million** derivative gain into earnings within the next 12 months[61](index=61&type=chunk)[63](index=63&type=chunk)[64](index=64&type=chunk) [8. Pension Benefit Plans](index=18&type=section&id=8.%20Pension%20Benefit%20Plans) Pension Benefit Cost Components (Millions) | Pension Benefit Cost Component | 3 Months Ended Sep 30, 2025 (Millions) | 3 Months Ended Sep 30, 2024 (Millions) | 9 Months Ended Sep 30, 2025 (Millions) | 9 Months Ended Sep 30, 2024 (Millions) | | :-------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | | Service cost | $0.2 | $0.4 | $0.8 | $1.2 | | Interest cost | $2.2 | $2.2 | $6.3 | $6.5 | | Expected return on plan assets | $(1.8) | $(1.9) | $(5.4) | $(5.7) | | Net periodic benefit cost | $1.1 | $1.1 | $3.2 | $3.1 | [9. Income Taxes](index=18&type=section&id=9.%20Income%20Taxes) - The effective tax rate decreased to **18.7%** for the nine months ended September 30, 2025, from **19.3%** in the prior year, primarily due to higher income in low tax jurisdictions[67](index=67&type=chunk) - The company had approximately **$4.9 million** in total gross unrecognized tax benefits as of September 30, 2025[67](index=67&type=chunk) [10. Lines of Credit and Financing Arrangements](index=19&type=section&id=10.%20Lines%20of%20Credit%20and%20Financing%20Arrangements) Debt Obligations (Millions) | Debt Obligation | Sep 30, 2025 (Millions) | Dec 31, 2024 (Millions) | | :-------------------------------- | :---------------------- | :---------------------- | | Commercial paper | $157.0 | $— | | Current maturities of long-term debt | $16.9 | $314.5 | | Long-term debt | $838.2 | $833.1 | | Total debt | $1,012.1 | $1,147.6 | - The company established a commercial paper program in October 2023, with **$157.0 million** outstanding as of September 30, 2025, at a weighted average borrowing rate of **4.30%**[70](index=70&type=chunk)[71](index=71&type=chunk) - An Amended Credit Agreement was entered into on May 9, 2025, decreasing revolving commitments to **$1.0 billion** and extending maturity to May 2030, with **$841.3 million** available for future borrowings[72](index=72&type=chunk) - The company repaid **$300.0 million** of senior unsecured notes upon maturity on August 1, 2025[78](index=78&type=chunk) [11. Comprehensive Income (Loss)](index=21&type=section&id=11.%20Comprehensive%20Income%20(Loss)) Reclassification from AOCL (Millions) | Reclassification from AOCL | 3 Months Ended Sep 30, 2025 (Millions) | 3 Months Ended Sep 30, 2024 (Millions) | 9 Months Ended Sep 30, 2025 (Millions) | 9 Months Ended Sep 30, 2024 (Millions) | | :-------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | | Gains (Losses) on Cash Flow Hedges, net of tax | $7.2 | $(0.6) | $11.8 | $(0.9) | | Defined Benefit Plan items, net of tax | $(0.4) | $(0.3) | $(1.1) | $(0.8) | | Total reclassifications from AOCL | $6.8 | $(0.9) | $10.7 | $(1.7) | - Total reclassifications from Accumulated Other Comprehensive Loss (AOCL) to Net income significantly improved from a loss of **$0.9 million** in Q3 2024 to a gain of **$6.8 million** in Q3 2025, and from a loss of **$1.7 million** in YTD 2024 to a gain of **$10.7 million** in YTD 2025[81](index=81&type=chunk) [12. Fair Value Measurements](index=21&type=section&id=12.%20Fair%20Value%20Measurements) - Derivatives are classified as Level 2 in the fair value hierarchy, valued using estimated future cash flows based on observed prices from exchange-traded derivatives, considering counterparty and company creditworthiness[83](index=83&type=chunk) - The fair value of senior unsecured notes was **$806.9 million** as of September 30, 2025, compared to **$1,093.4 million** as of December 31, 2024[85](index=85&type=chunk) [13. Subsequent Events](index=22&type=section&id=13.%20Subsequent%20Events) - On October 15, 2025, the company completed the acquisition of Duro Dyne and Supco for a net purchase price of **$546.3 million**, funded by cash on hand and available borrowing capacity[86](index=86&type=chunk) - On October 16, 2025, the company entered into a Term Credit Agreement, borrowing **$300.0 million** to repay existing borrowings under the Amended Credit Agreement, with maturity on October 16, 2027[88](index=88&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial condition, operating results, key performance drivers, segment results, liquidity, and capital resources for the specified interim periods [Business Overview](index=23&type=section&id=Business%20Overview) - The company operates in two HVACR segments: Home Comfort Solutions and Building Climate Solutions, with sales influenced by seasonal weather, economic factors, and a substantial portion from replacement business[92](index=92&type=chunk)[94](index=94&type=chunk) - Cost of goods sold is primarily driven by components, raw materials (steel, aluminum, copper), factory overhead, labor, and freight, with commodity price volatility mitigated through pricing, vendor contracts, and hedging[95](index=95&type=chunk) [Financial Overview](index=24&type=section&id=Financial%20Overview) - Third quarter 2025 results were mixed: consolidated net sales decreased **5%** to **$1.4 billion**, but segment profit increased **2%** to **$310 million**[96](index=96&type=chunk) - Home Comfort Solutions faced volume headwinds, with net sales down **12%** and segment profit down **$24 million**, while Building Climate Solutions saw net sales increase **10%** and segment profit increase **$28 million**[96](index=96&type=chunk) - The 'One Big Beautiful Bill Act' signed on July 4, 2025, is expected to result in material 2025 cash tax savings, with immaterial impacts to the effective tax rate[98](index=98&type=chunk) [Consolidated Results (Three Months Ended September 30, 2025 vs 2024)](index=24&type=section&id=Consolidated%20Results%20(Three%20Months%20Ended%20September%2030%2C%202025%20vs%202024)) Consolidated Results (Millions) | Metric | 3 Months Ended Sep 30, 2025 (Millions) | 3 Months Ended Sep 30, 2024 (Millions) | % Change | | :-------------------------------- | :------------------------------------- | :------------------------------------- | :------- | | Net sales | $1,426.8 | $1,498.1 | (4.8)% | | Gross profit | $468.6 | $488.4 | (4.1)% | | Gross profit margin | 32.8% | 32.6% | +20 bps | | Selling, general and administrative expenses | $161.6 | $184.4 | (12.4)% | | Operating income | $310.2 | $303.3 | 2.3% | | Net income | $245.8 | $239.0 | 2.8% | | Diluted EPS | $6.98 | $6.68 | 4.5% | - Net sales decreased **5%** due to a **16%** decrease in sales volumes, partially offset by an **11%** increase in mix and pricing[100](index=100&type=chunk) - Gross profit margins increased **20 basis points** to **32.8%**, driven by favorable mix and pricing (**350 bps**), partially offset by higher product costs (**200 bps**) and freight/distribution costs (**130 bps**)[101](index=101&type=chunk) - SG&A expenses decreased **$22 million**, primarily due to lower incentive compensation costs[103](index=103&type=chunk) [Segment Results (Three Months Ended September 30, 2025 vs 2024)](index=25&type=section&id=Segment%20Results%20(Three%20Months%20Ended%20September%2030%2C%202025%20vs%202024)) [Home Comfort Solutions](index=25&type=section&id=Home%20Comfort%20Solutions) Home Comfort Solutions Performance (Millions) | Metric | 3 Months Ended Sep 30, 2025 (Millions) | 3 Months Ended Sep 30, 2024 (Millions) | % Change | | :-------------------------------- | :------------------------------------- | :------------------------------------- | :------- | | Net sales | $912.9 | $1,032.8 | (12)% | | Profit | $202.9 | $226.5 | (10)% | | % of net sales | 22.2% | 21.9% | +30 bps | - Net sales decreased **12%** due to a **23%** decrease in sales volumes, partially offset by an **11%** increase in mix and pricing[107](index=107&type=chunk) - Segment profit decreased **$24 million**, primarily due to reduced sales volumes (**$86 million**), higher product costs (**$26 million**), and increased freight/distribution expenses (**$17 million**), partially offset by favorable mix/pricing (**$85 million**) and SG&A reductions (**$15 million**)[108](index=108&type=chunk) [Building Climate Solutions](index=26&type=section&id=Building%20Climate%20Solutions) Building Climate Solutions Performance (Millions) | Metric | 3 Months Ended Sep 30, 2025 (Millions) | 3 Months Ended Sep 30, 2024 (Millions) | % Change | | :-------------------------------- | :------------------------------------- | :------------------------------------- | :------- | | Net sales | $513.9 | $465.3 | 10% | | Profit | $134.0 | $105.9 | 27% | | % of net sales | 26.1% | 22.8% | +330 bps | - Net sales increased **10%** primarily due to a **10%** increase in mix and price[109](index=109&type=chunk) - Segment profit increased **$28 million**, driven by favorable mix/pricing (**$33 million**) and increased sales volumes (**$1 million**), partially offset by higher product costs (**$4 million**) and investments in distribution/selling (**$2 million**)[110](index=110&type=chunk) [Corporate and Other](index=26&type=section&id=Corporate%20and%20Other) Corporate and Other Performance (Millions) | Metric | 3 Months Ended Sep 30, 2025 (Millions) | 3 Months Ended Sep 30, 2024 (Millions) | % Change | | :-------------------------------- | :------------------------------------- | :------------------------------------- | :------- | | Loss | $(26.7) | $(29.1) | 8% (favorable) | - Segment loss decreased **$2 million**, primarily due to lower incentive compensation related costs[111](index=111&type=chunk) [Consolidated Results (Nine Months Ended September 30, 2025 vs 2024)](index=26&type=section&id=Consolidated%20Results%20(Nine%20Months%20Ended%20September%2030%2C%202025%20vs%202024)) Consolidated Results (Millions) | Metric | 9 Months Ended Sep 30, 2025 (Millions) | 9 Months Ended Sep 30, 2024 (Millions) | % Change | | :-------------------------------- | :------------------------------------- | :------------------------------------- | :------- | | Net sales | $4,000.3 | $3,996.3 | 0.1% | | Gross profit | $1,319.6 | $1,316.6 | 0.2% | | Gross profit margin | 33.0% | 32.9% | +10 bps | | Selling, general and administrative expenses | $506.2 | $523.6 | (3.3)% | | Operating income | $819.8 | $790.2 | 3.7% | - Net sales remained relatively flat, as a **9%** increase in mix and pricing was offset by a **9%** decrease in sales volumes[113](index=113&type=chunk) - Gross profit margins increased **10 basis points** to **33.0%**, driven by favorable mix and pricing (**310 bps**), partially offset by higher product costs (**180 bps**) and freight/distribution costs (**120 bps**)[113](index=113&type=chunk) - SG&A expenses decreased **$17 million**, primarily due to lower incentive compensation costs, and as a percentage of net sales, decreased **40 bps** to **12.7%**[114](index=114&type=chunk) - Interest expense, net, decreased **$8 million** due to lower interest on repaid senior unsecured notes and increased interest earned on investments, partially offset by higher commercial paper borrowings[117](index=117&type=chunk) [Segment Results (Nine Months Ended September 30, 2025 vs 2024)](index=28&type=section&id=Segment%20Results%20(Nine%20Months%20Ended%20September%2030%2C%202025%20vs%202024)) [Home Comfort Solutions](index=28&type=section&id=Home%20Comfort%20Solutions) Home Comfort Solutions Performance (Millions) | Metric | 9 Months Ended Sep 30, 2025 (Millions) | 9 Months Ended Sep 30, 2024 (Millions) | % Change | | :-------------------------------- | :------------------------------------- | :------------------------------------- | :------- | | Net sales | $2,643.6 | $2,689.7 | (2)% | | Profit | $574.9 | $567.1 | 1% | | % of net sales | 21.7% | 21.1% | +60 bps | - Net sales decreased **2%** due to a **12%** decrease in sales volumes, partially offset by a **10%** increase in mix and pricing[119](index=119&type=chunk) - Segment profit increased **$8 million**, driven by favorable mix/pricing (**$200 million**), factory efficiencies (**$16 million**), and reduced SG&A (**$12 million**), partially offset by lower sales volumes (**$122 million**), higher product costs (**$67 million**), and increased freight/distribution expenses (**$41 million**)[120](index=120&type=chunk) [Building Climate Solutions](index=28&type=section&id=Building%20Climate%20Solutions) Building Climate Solutions Performance (Millions) | Metric | 9 Months Ended Sep 30, 2025 (Millions) | 9 Months Ended Sep 30, 2024 (Millions) | % Change | | :-------------------------------- | :------------------------------------- | :------------------------------------- | :------- | | Net sales | $1,356.7 | $1,306.6 | 4% | | Profit | $310.0 | $298.1 | 4% | | % of net sales | 22.8% | 22.8% | 0 bps | - Net sales increased **4%** due to an **8%** increase in mix and pricing, partially offset by a **4%** decrease in sales volumes[121](index=121&type=chunk) - Segment profit increased **$12 million**, driven by favorable mix/pricing (**$73 million**) and factory efficiencies (**$5 million**), partially offset by higher product costs (**$28 million**), decreased sales volumes (**$18 million**), and increased SG&A (**$12 million**)[122](index=122&type=chunk) [Corporate and Other](index=29&type=section&id=Corporate%20and%20Other) Corporate and Other Performance (Millions) | Metric | 9 Months Ended Sep 30, 2025 (Millions) | 9 Months Ended Sep 30, 2024 (Millions) | % Change | | :-------------------------------- | :------------------------------------- | :------------------------------------- | :------- | | Loss | $(65.1) | $(76.6) | 15% (favorable) | - Segment loss decreased **$11 million**, primarily due to lower incentive compensation related costs[123](index=123&type=chunk) [Liquidity and Capital Resources](index=29&type=section&id=Liquidity%20and%20Capital%20Resources) - Working capital and capital expenditure requirements are met through internally generated funds, bank lines of credit, and a commercial paper program, with higher needs in Q1 and Q2 due to seasonality[124](index=124&type=chunk) - Net cash provided by operating activities decreased to **$351.7 million** for the nine months ended September 30, 2025, from **$613.3 million** in the prior year, mainly due to less favorable changes in working capital[125](index=125&type=chunk) - Net cash used in financing activities increased to **$627.4 million**, driven by **$332.3 million** in common stock repurchases and **$127 million** in dividend payments[127](index=127&type=chunk) - Total debt decreased to **$1,012.1 million** at September 30, 2025, from **$1,147.6 million** at December 31, 2024[128](index=128&type=chunk) - The debt-to-total-capital ratio decreased to **49%** at September 30, 2025, from **57%** at December 31, 2024[134](index=134&type=chunk) - The company maintains investment-grade credit ratings (Baa1 stable by Moody's, BBB stable by S&P) to ensure capital market access[135](index=135&type=chunk) - Management believes current cash, future operating cash, and available borrowing capacity are sufficient to fund foreseeable operations, capital expenditures, obligations, repurchases, and dividends[136](index=136&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=32&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Refers to the Annual Report on Form 10-K for market risk disclosures, noting no material changes since December 31, 2024 - The company's exposure to market risk has not materially changed since December 31, 2024[143](index=143&type=chunk) [Item 4. Controls and Procedures](index=33&type=section&id=Item%204.%20Controls%20and%20Procedures) Confirms effective disclosure controls and procedures, reporting no material changes in internal control over financial reporting - As of September 30, 2025, the company's disclosure controls and procedures were effective to provide reasonable assurance that required information is recorded, processed, summarized, and reported timely[144](index=144&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[145](index=145&type=chunk) Part II. Other Information [Item 1. Legal Proceedings](index=33&type=section&id=Item%201.%20Legal%20Proceedings) Details routine legal claims and lawsuits, with management believing no material adverse effect on financial position or results - Management believes that current legal claims and lawsuits will not have a material adverse effect on the company's financial position, results of operations, or cash flows[146](index=146&type=chunk) [Item 1A. Risk Factors](index=33&type=section&id=Item%201A.%20Risk%20Factors) Refers to the Annual Report on Form 10-K for risk factors, confirming no material changes since December 31, 2024 - There have been no material changes to the company's risk factors from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2024[147](index=147&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=33&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Details common stock repurchases during Q3 2025 under ongoing Share Repurchase Plans Common Stock Repurchases | Month | Total Number of Shares Purchased | Average Price Paid per Share (including fees) | | :-------------------------- | :------------------------------- | :-------------------------------------------- | | July 1 through July 31 | 23,000 | $616.11 | | August 1 through August 31 | 21,000 | $588.85 | | September 1 through September 30 | 19,000 | $547.96 | | **Total Q3 2025** | **63,000** | | - As of September 30, 2025, **$1,159.5 million** was available for repurchase under the company's Share Repurchase Plans, which have no expiration date[148](index=148&type=chunk) [Item 5. Other Information](index=34&type=section&id=Item%205.%20Other%20Information) Details the Term Credit Agreement (October 16, 2025) and confirms no Rule 10b5-1 trading arrangement changes by directors or officers - On October 16, 2025, the company entered into a Term Credit Agreement for **$300.0 million**, maturing October 16, 2027, with proceeds used to repay existing borrowings under the Amended Credit Agreement[150](index=150&type=chunk) - The Term Credit Agreement includes customary covenants and events of default similar to the Amended Credit Agreement and is guaranteed by Guarantor Subsidiaries[151](index=151&type=chunk) - No directors or officers adopted, modified, or terminated any Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement during the quarter ended September 30, 2025[152](index=152&type=chunk) [Item 6. Exhibits](index=35&type=section&id=Item%206.%20Exhibits) Lists all exhibits filed with the Form 10-Q, including organizational documents, credit agreements, and certifications - Key exhibits include the Term Credit Agreement and Guaranty Agreement dated October 16, 2025, and various certifications[155](index=155&type=chunk)

Financial Data and Key Metrics Changes - Revenue for the third quarter declined by 5% due to soft residential and commercial end markets, despite growth initiatives and share gains [5][10] - Operating cash flow was $301 million, lower than the previous year due to elevated finished goods inventory levels [6] - Adjusted EPS reached a record of $6.98, marking a 4% year-over-year increase [6][10] - Full-year revenue is now expected to decline by 1%, down from a previous guidance of 3% growth [15][16] Business Line Data and Key Metrics Changes - Home Comfort Solutions (HCS) segment revenue declined by 12%, primarily due to a 23% drop in unit sales volumes [11] - Building Climate Solutions (BCS) segment saw a 10% revenue growth with profit margins expanding by 330 basis points, despite weak end markets [6][12] Market Data and Key Metrics Changes - The residential market is experiencing a significant decline, with total sales down about 10% in sell-through and 20% in sell-in [27][29] - The company anticipates that channel inventory will normalize by Q2 of next year, with destocking trends expected to continue into the first half of next year [46][100] Company Strategy and Development Direction - The company is focusing on four growth vectors: heat pump penetration, emergency replacement share gains, higher attachment rates for parts and services, and market expansion through joint ventures [7][8] - Recent acquisitions, including Durodyne and SUPCO, are expected to enhance the attachment rates for parts and accessories, contributing to growth in 2026 [8][15] Management's Comments on Operating Environment and Future Outlook - Management acknowledges the challenges posed by destocking, higher interest rates, and shifting consumer patterns but remains optimistic about a rebound in 2026 [18][19] - The company expects to gain market share through new product introductions and joint ventures, despite ongoing economic pressures [19][22] Other Important Information - The company has repurchased approximately $350 million in shares year-to-date, with $1 billion remaining under its current authorization [14] - Free cash flow guidance for the full year has been revised to approximately $550 million, down from previous estimates [13][16] Q&A Session Summary Question: Can you put the residential volume declines into perspective? - Total sales in Q3 saw a 10% decline in sell-through and a 20% decline in sell-in, with destocking occurring on both contractor and dealer sides [27][29] Question: What are the key assumptions for fourth quarter margins? - The primary factor affecting margins is the pullback on manufacturing to right-size inventory levels, leading to reduced absorption benefits [32] Question: When will inventory levels normalize? - Destocking is expected to continue into Q2 of next year, with contractors previously holding more inventory than anticipated [40][46] Question: What is the outlook for the emergency replacement market share? - The company sees significant growth potential in emergency replacement, with nearly 100% growth on a small base in the quarter [41] Question: How will pricing be approached moving into next year? - The company expects pricing to offset inflation, similar to past trends, with a focus on maintaining pricing discipline [57][58] Question: What is the expected impact of the Durodyne and SUPCO acquisition? - The acquisition is expected to contribute approximately $0.30 to $0.40 in accretion, with strong EBITDA margins before amortization [75] Question: How does the company view the repair versus replace dynamics? - The primary reason for the shift towards repair is the hesitance of contractors to sell new products due to canister shortages, rather than misaligned incentives [49][80]

Financial Data and Key Metrics Changes - Revenue for the third quarter declined by 5% due to soft residential and commercial end markets, despite growth initiatives and share gains [5][10] - Operating cash flow was $301 million, lower than the previous year due to elevated finished goods inventory levels [6][14] - Adjusted EPS reached a record of $6.98, marking a 4% year-over-year increase [6][10] - The company adjusted its full-year outlook to reflect an anticipated sales decline of 1% and expects adjusted EPS in the range of $22.75 [7][15] Business Line Data and Key Metrics Changes - Home Comfort Solutions (HCS) segment profit margin expanded by 30 basis points, but revenues declined by 12% due to a weak summer selling season and inventory rebalancing [6][11] - Building Climate Solutions (BCS) segment saw impressive results with a 10% revenue growth and profit margins expanding by 330 basis points, driven by growth initiatives [6][12] Market Data and Key Metrics Changes - The residential market faced a 23% decline in unit sales volumes, contributing to the overall revenue decline in the HCS segment [11][15] - The BCS segment maintained volume levels through share gains in emergency replacement products despite industry shipment declines [12][15] Company Strategy and Development Direction - The company is focusing on four growth vectors: heat pump penetration, emergency replacement share gains, higher attachment rates for parts and services, and market expansion through joint ventures [7][8] - Recent acquisitions, including AES Industries, Durodyne, and SUPCO, are expected to enhance the attachment rates for parts and accessories, contributing to future growth [8][9] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenges posed by destocking, higher interest rates, and shifting consumer patterns but expressed confidence in a rebound in 2026 [18][19] - The company anticipates that channel inventory will normalize and expects lower interest rates to positively impact new and existing home sales [18][19] Other Important Information - The company is revising its full-year 2025 guidance to reflect deeper inventory destocking trends and continued macroeconomic weakness [15][16] - Free cash flow guidance for the year is adjusted to approximately $550 million, reflecting elevated inventory levels [14][15] Q&A Session Summary Question: Can you put the residential volume declines into perspective? - Management noted that total sales in Q3 saw a 10% decline in sell-through and a 20% decline in sell-in, with destocking occurring on both contractor and dealer sides [27][29] Question: What are the key assumptions for fourth quarter margins? - The primary factor affecting margins is the pullback on manufacturing to right-size inventory levels, leading to reduced absorption benefits [32] Question: When will inventory levels normalize? - Management expects destocking to continue into Q2 of next year, with inventory levels returning to normal by that time [46][48] Question: What is the outlook for the emergency replacement market share? - The company is optimistic about significant growth potential in the emergency replacement market, expecting multi-year growth [41] Question: How will pricing be approached moving into next year? - Management indicated that pricing will likely be used to offset inflation, with expectations of maintaining pricing discipline across the industry [56][58] Question: What is the expected impact of the recent acquisitions? - The acquisitions are expected to contribute approximately $0.30 - $0.40 in accretion to EPS in 2026, with strong EBITDA margins anticipated [75][76]

Core Insights - Lennox International (LII) reported revenue of $1.43 billion for the quarter ended September 2025, a year-over-year decline of 4.8% [1] - The company's EPS for the same period was $6.98, compared to $6.68 a year ago, indicating an EPS surprise of +4.33% [1] - The reported revenue fell short of the Zacks Consensus Estimate of $1.47 billion, resulting in a surprise of -2.66% [1] Financial Performance Metrics - Net Sales for Building Climate Solutions were $513.9 million, exceeding the average estimate of $488.88 million by 15 analysts, representing a year-over-year increase of +10.4% [4] - Net Sales for Home Comfort Solutions were $912.9 million, below the average estimate of $1.02 billion, reflecting a year-over-year decline of -11.6% [4] - Segment Profit for Building Climate Solutions was $134 million, surpassing the average estimate of $118.82 million [4] - Segment Profit for Home Comfort Solutions was $202.9 million, which was lower than the estimated $228.57 million [4] - The Corporate and other segment reported a loss of $-26.7 million, compared to the average estimate of $-29.29 million [4] Stock Performance - Lennox shares have returned +3.5% over the past month, outperforming the Zacks S&P 500 composite's +1.1% change [3] - The stock currently holds a Zacks Rank 4 (Sell), indicating potential underperformance relative to the broader market in the near term [3]

Financial Data and Key Metrics Changes - Revenue for Q3 2025 declined by 5% due to weak residential and commercial end markets, despite growth initiatives [5][11] - Operating cash flow was $301 million, lower than the previous year due to elevated finished goods inventory levels [6][14] - Adjusted EPS reached a record of $6.98, marking a 4% year-over-year increase [6][11] - Full-year revenue outlook adjusted to a decline of 1%, with adjusted EPS expected in the range of $22.75 to $23.25 [7][17] Business Line Data and Key Metrics Changes - Home Comfort Solutions (HCS) segment revenue declined by 12%, with a 23% drop in unit sales volumes attributed to a weak summer selling season and inventory rebalancing [6][12] - Building Climate Solutions (BCS) segment saw a 10% revenue growth and a 330 basis point expansion in profit margins, driven by share gains in emergency replacement and business development in refrigeration [6][13] Market Data and Key Metrics Changes - The residential market faced significant challenges, with total sales down approximately 10% in sell-through and 20% in sell-in [25][26] - The company anticipates that channel inventory will normalize by Q2 2026, as contractors reduce excess inventory [34][39] Company Strategy and Development Direction - The company is focusing on four growth vectors: heat pump penetration, emergency replacement share gains, higher attachment rates for parts and services, and market expansion through joint ventures [7][9] - Recent acquisitions, including Durodyne and SUPCO, are expected to enhance the parts and accessories portfolio and provide cost synergies [8][9] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenging environment due to destocking, higher interest rates, and shifting consumer patterns but expressed confidence in a rebound in 2026 [19][20] - The company expects to gain market share through new product introductions and joint ventures, despite some anticipated headwinds [20][21] Other Important Information - Free cash flow guidance for 2025 revised to approximately $550 million, reflecting elevated inventory levels [14][17] - The company has repurchased approximately $350 million in shares year-to-date, with $1 billion remaining under the current authorization [14] Q&A Session Summary Question: Can you provide more context on residential volume declines? - Total sales in Q3 saw a 10% decline in sell-through and 20% in sell-in, with destocking occurring on both contractor and dealer sides [25][26] Question: What are the expectations for fourth quarter margins? - The primary factor for margin decline in Q4 is the pullback on manufacturing to right-size inventory levels [29] Question: When will inventory levels normalize? - Destocking is expected to continue into Q2 of next year, with contractors reducing excess inventory [34][39] Question: What is the outlook for the BCS segment? - Emergency replacement market share is expected to grow significantly, with nearly 100% growth observed in the quarter [35] Question: How will pricing be approached moving into next year? - The company expects pricing to offset inflation, similar to past trends, with a focus on maintaining pricing discipline [47][48] Question: What is the expected impact of the new commercial plant on productivity? - The new Saltillo plant is expected to deliver $10 million in productivity, contributing positively to the bottom line [91]

Financial Data and Key Metrics Changes - Revenue for Q3 2025 declined by 5% due to soft residential and commercial end markets, despite growth initiatives and share gains [5][11] - Adjusted earnings per share reached a record of $6.98, reflecting a 4% year-over-year increase [6] - Segment margin was reported at 21.7%, a record for the third quarter [5] - Operating cash flow was $300 million, lower than the previous year due to elevated finished goods inventory levels [5] Business Line Data and Key Metrics Changes - Home Comfort Solutions (HCS) segment revenues declined by 12%, primarily due to a 23% drop in unit sales volumes [12][13] - Building Climate Solutions (BCS) segment saw impressive results with a 10% revenue growth and profit margins expanding by 330 basis points [6][14] - HCS segment profit margin expanded by 30 basis points due to cost actions [6] Market Data and Key Metrics Changes - The residential industry faced a weak summer selling season, impacting contractor and distributor inventory levels [6][13] - BCS maintained volume levels through share gains in emergency replacement products despite industry shipment declines [14] Company Strategy and Development Direction - The company is focusing on four growth vectors: heat pump penetration, emergency replacement share gains, higher attachment rates for parts and services, and market expansion through joint ventures [7][9] - Recent acquisitions, including AES Industries, Durodyne, and Subco, are expected to enhance parts and accessories attachment rates and provide cost synergies [8][10] - The company is committed to maintaining operational discipline and investing in digital tools and distribution network enhancements to support future growth [23][25] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenges posed by destocking, higher interest rates, and shifting consumer patterns but expressed confidence in a rebound in 2026 [20][21] - Anticipated normalization of channel inventory and recovery in new and existing home sales as interest rates decline [21][22] - The company expects to see pent-up demand as units repaired instead of replaced will eventually require replacement [88] Other Important Information - Full-year revenue is now expected to decline by 1%, a revision from previous guidance of 3% growth [17] - Free cash flow guidance for 2025 has been adjusted to approximately $550 million, reflecting elevated inventory levels [15][17] Q&A Session Summary Question: Can you provide more perspective on residential volume declines? - Total sales in Q3 saw a 10% decline in sell-through and 20% in sell-in, with destocking occurring on both contractor and dealer sides [30][31] Question: What are the key assumptions for fourth-quarter margins? - The primary factor for margin decline is the pullback on manufacturing to right-size inventory levels [35] Question: When will inventory levels normalize? - Destocking is expected to continue into Q2 of next year, with contractors reducing inventory levels due to improved lead times [41][48] Question: What is the outlook for the emergency replacement market share? - The company anticipates significant growth potential in emergency replacement, with nearly 100% growth observed in the quarter [42] Question: How will pricing be approached moving into next year? - The company expects pricing to offset inflation, similar to past trends, with a focus on maintaining pricing discipline [60] Question: What is the expected impact of the new commercial plant on efficiency? - The new Saltillo plant is expected to deliver significant productivity improvements, contributing positively to margins [124]