Core Insights - Lennox International Inc. (LII) is a leading player in the HVACR solutions market with a market cap of $19.3 billion, offering a variety of climate control products under well-known brands [1] - The company is set to release its fiscal Q3 2025 earnings on October 22, with analysts expecting an EPS of $7.26, reflecting an 8.7% increase from the previous year [2] - For fiscal 2025, LII is projected to achieve an EPS of $23.92, a 5.9% rise from fiscal 2024, with further growth anticipated in fiscal 2026 [3] Financial Performance - In Q2 2025, LII reported a revenue increase of 3% to $1.5 billion and an operating income rise of 11% to $354 million, resulting in an EPS of $7.82, surpassing analyst expectations [5] - Management has raised the full-year 2025 guidance, forecasting a revenue growth of 3% and an adjusted EPS range of $23.25 to $24.25 [6] Stock Performance and Analyst Ratings - LII stock has seen a decline of 6.6% over the past 52 weeks, underperforming compared to the S&P 500 Index's 17.2% return and the Industrial Select Sector SPDR Fund's 14.5% gain [4] - The consensus rating for LII stock is cautious, with an overall "Hold" rating from analysts; the average price target is $652.27, indicating a potential upside of 17.6% [6]

Group 1 - Lennox International (NYSE: LII) was previously rated as a Buy, with the stock performing well until midsummer before experiencing a pullback [1] - The recent correction in Lennox's stock price is attributed to challenging industry conditions [1] Group 2 - The focus is on GARP (Growth at Reasonable Price) opportunities within the industrial, consumer, and technology sectors [1]

Competitive Advantages - The company has identified two main competitive advantages that position it favorably in the HVAC market [1] - The first advantage is the direct-to-contractor channel, which allows the company to operate as both a manufacturer and distributor, enhancing profitability through dual margins [2] - The company has made significant investments to improve its distribution capabilities, which is crucial for connecting with contractors [3]

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]

Core Insights - Lennox is accelerating its digital transformation by investing in AI-powered tools to enhance customer experience [1][5] - The company has launched two AI agents: one for HVAC technicians and dealers, and another for homeowners [2][6] Group 1: Technical Support AI Agent - The Technical Support AI agent assists dealers and HVAC technicians in troubleshooting, servicing, and repairing Lennox equipment more efficiently, recognizing over 250 error codes [3][5] - Since its launch, the agent has logged over 15,000 sessions, with a weekly average of 760 sessions, and has received positive feedback 96% of the time from more than 7,000 registered technicians [5] - The tool is available in English, Spanish, and French, and can be accessed via SMS, ensuring support even with limited internet access [4] Group 2: Consumer Support AI Agent - Lennox has introduced a dedicated AI agent on its website to assist homeowners in finding local dealers, registering products, accessing warranty information, and troubleshooting smart thermostats [6] - This tool aims to streamline access to essential information, allowing homeowners to resolve basic support needs quickly and independently [6] Group 3: Overall Strategy and Impact - The investments in AI-driven support solutions are designed to improve service speed, reduce downtime, and enhance the overall customer experience [7] - The Chief Technology Officer emphasized that these tools provide instant access to information, significantly saving time in the field for technicians and dealers [5]

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)