Lennox International(LII) - 2025 Q2 - Quarterly Results

Overall Performance and Outlook Second Quarter 2025 Financial Highlights Lennox reported strong second-quarter results with revenue growth of 3% to $1.5 billion, driven by favorable mix and pricing, segment profit increased by 11% to $354 million, with margin expansion of 170 basis points to 23.6%, and adjusted diluted EPS grew 14% to $7.82, though operating cash flow decreased significantly to $87 million from $184 million in the prior-year quarter, alongside a $210 million share repurchase Q2 2025 Financial Performance Overview | Financial Metric | Q2 2025 | Q2 2024 | Change | | :--- | :--- | :--- | :--- | | Revenue | $1.5 B | $1.45 B | +3% | | Segment Profit | $354 M | $318.5 M | +11% | | Segment Margin | 23.6% | 21.9% | +170 bps | | GAAP Diluted EPS | $7.82 | $6.87 | +14% | | Adjusted Diluted EPS | $7.82 | $6.83 | +14% | - The company's performance was driven by skillful navigation of turbulent external conditions, with productivity and cost actions offsetting inflation, and pricing remained aligned with the value delivered[3] - Operating cash flow decreased to $87 million from $184 million year-over-year, while the company repurchased $210 million of its shares during the quarter[8] Business Segment Performance Both business segments demonstrated revenue growth and margin expansion, with Home Comfort Solutions revenue growing 3% and a 200 basis point margin expansion, and Building Climate Solutions revenue increasing 5% with a 60 basis point margin improvement, as both segments successfully used favorable mix and pricing to offset softer sales volumes and inflationary pressures Home Comfort Solutions Home Comfort Solutions Q2 2025 Performance | Metric | Q2 2025 | Change (YoY) | | :--- | :--- | :--- | | Revenue | $1.0 B | +3% | | Segment Profit | $255 M | +12% | | Segment Margin | 25.3% | +200 bps | - Profit growth was driven by $84 million in mix/price benefits, which more than offset a $36 million decrease from lower sales volumes and $11 million in product cost inflation[9] Building Climate Solutions Building Climate Solutions Q2 2025 Performance | Metric | Q2 2025 | Change (YoY) | | :--- | :--- | :--- | | Revenue | $492 M | +5% | | Segment Profit | $123 M | +7% | | Segment Margin | 24.9% | +60 bps | - The segment's profit increase was driven by $31 million in mix/price benefits, partially offset by a $6 million decrease from lower sales volumes and other cost inflation[10] - Despite near-term challenges, the backlog remains strong and the emergency replacement growth initiative continues to gain traction[4] Full Year 2025 Guidance Reflecting strong Q2 results and continued momentum, Lennox has raised its full-year 2025 guidance, now expecting revenue to grow by approximately 3% and increasing its adjusted EPS forecast to a range of $23.25 to $24.25, while projections for capital expenditures and free cash flow remain unchanged Full Year 2025 Financial Guidance | Guidance Metric | Full Year 2025 Forecast | | :--- | :--- | | Revenue Growth | ~3% | | Adjusted EPS | $23.25 - $24.25 | | Capital Expenditures | ~$150 M | | Free Cash Flow | $650 M - $800 M | - The company continues to expect pricing actions to fully offset inflationary pressures for the year[12] Financial Statements Consolidated Statements of Operations For the three months ended June 30, 2025, net sales increased to $1.5 billion from $1.45 billion year-over-year, gross profit rose to $522.5 million, and operating income grew to $354.0 million, consequently, net income increased to $277.6 million, resulting in a diluted EPS of $7.82, up from $6.87 in the prior year Consolidated Statements of Operations (Q2 2025 vs Q2 2024) | (Amounts in millions, except per share data) | For the Three Months Ended June 30, 2025 | For the Three Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net sales | $1,500.9 | $1,451.1 | | Gross profit | $522.5 | $488.2 | | Operating income | $354.0 | $320.1 | | Net income | $277.6 | $245.9 | | Earnings per share – Diluted | $7.82 | $6.87 | Consolidated Balance Sheets As of June 30, 2025, total assets stood at $3.65 billion, an increase from $3.47 billion at year-end 2024, primarily driven by increases in accounts receivable and inventories, while total liabilities also rose to $2.75 billion, and total stockholders' equity increased to $900.5 million Consolidated Balance Sheets (As of June 30, 2025) | (Amounts in millions) | As of June 30, 2025 | As of Dec 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $49.2 | $415.1 | | Inventories, net | $1,001.9 | $704.8 | | Total current assets | $2,003.5 | $1,884.2 | | Total assets | $3,652.7 | $3,471.8 | | Total current liabilities | $1,417.9 | $1,313.3 | | Total liabilities | $2,752.2 | $2,621.6 | | Total stockholders' equity | $900.5 | $850.2 | Consolidated Statements of Cash Flows For the first six months of 2025, net cash provided by operating activities was $51.0 million, a significant decrease from $161.2 million in the same period of 2024, mainly due to increases in inventories and accounts receivable, while net cash used in financing activities was $368.2 million, driven by $294.8 million in common stock repurchases, resulting in a decrease in cash and cash equivalents to $49.2 million Consolidated Statements of Cash Flows (Six Months Ended June 30, 2025) | (Amounts in millions) | For the Six Months Ended June 30, 2025 | For the 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) | | Decrease in cash and cash equivalents | ($368.8) | ($14.3) | | Cash and cash equivalents, end of period | $49.2 | $47.6 | Non-GAAP Financial Measures Reconciliation of Non-GAAP Measures The company provides reconciliations for non-GAAP measures to enhance investor understanding, with Q2 2025 GAAP Net Income of $277.6 million being the same as Adjusted Net Income, and free cash flow for the quarter at $58.7 million, derived from $86.8 million in operating cash flow less net capital expenditures - For the three months ended June 30, 2025, there were no adjustments between GAAP Net Income and Adjusted Net Income, with both reported at $277.6 million, or $7.82 per diluted share[28] Reconciliation to Free Cash Flow (Q2 2025) | Reconciliation to Free Cash Flow (Q2 2025) | Amount (in millions) | | :--- | :--- | | Net cash provided by operating activities | $86.8 | | Purchases of property, plant and equipment | ($28.5) | | Proceeds from disposal of property, plant and equipment | $0.4 | | Free cash flow (Non-GAAP) | $58.7 | Other Information Conference Call Information A conference call to discuss the second-quarter results was scheduled for 8:30 a.m. Central Time on the day of the release, with details for participation via phone and webcast provided, along with information for accessing a replay - The earnings conference call was held at 8:30 a.m. Central Time on July 23, 2025[13] - A live webcast and replay are available on the company's investor relations website[13] Forward-Looking Statements This report contains forward-looking statements, including the 2025 full-year outlook, which are based on current management assumptions and are subject to numerous risks and uncertainties, such as market performance, competition, supply chain issues, and general economic conditions, and the company disclaims any obligation to update these statements - Statements regarding the 2025 outlook are forward-looking and subject to risks that could cause actual results to differ materially[15] - Key risks include HVACR market performance, competition, supply interruptions, and changes in legislation or economic conditions[15]