Lennox International(US:LII)2026-01-28 15:30Financial Data and Key Metrics Changes - Revenue decreased by 11% in Q4 2025, attributed to weak residential and commercial end markets, with full-year revenue down 3% [5][6] - Segment margin reached a record 20.4% for the full year, despite tariff impacts and inflationary pressures [5][6] - Adjusted earnings per share for Q4 was $4.45, with full-year adjusted EPS at $23.16, a 2% increase from $22.70 in the previous year [5][6] Business Line Data and Key Metrics Changes - Home Comfort Solutions (HCS) segment revenue declined by 21% in Q4, with organic volume continuing to decrease across both channels [27][29] - Building Climate Solutions (BCS) segment achieved 8% revenue growth, driven by favorable mix and pricing actions, despite lower organic sales volumes [14][60] - HCS is expected to see a mid-single-digit decline in volume for the full year, with a more significant drop in the first half due to ongoing destocking [29][30] Market Data and Key Metrics Changes - The North American HVAC industry faced significant challenges in 2025, including channel destocking and low dealer and consumer confidence [6][7] - The commercial HVAC market experienced a decline for 17 consecutive months by December 2025, but emergency replacement initiatives showed growth [6][14] - Anticipated improvements in housing due to lower mortgage interest rates are expected to positively impact the market in 2026 [7][8] Company Strategy and Development Direction - The company is focused on diversifying its portfolio and strengthening market position through strategic investments, including $300 million since 2022 [9][10] - Future investments will target customer training centers, digital technology, and automation to enhance customer experience and operational efficiency [10][11] - The self-help transformation plan is entering its final phase, emphasizing scaling operations and broadening product offerings [22][23] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism for 2026, expecting a return to revenue growth and continued EBIT margin expansion [20][21] - Key factors influencing future performance include consumer confidence, interest rates, and the completion of destocking [45][46] - The company remains committed to delivering sustained value for shareholders and believes its best days are ahead [25] Other Important Information - Free cash flow for 2025 was $640 million, exceeding prior guidance, with plans for $250 million in capital expenditures in 2026 [16][18] - The company repurchased $482 million in shares and invested $545 million in acquisitions and joint ventures during 2025 [17][18] Q&A Session Summary Question: HCS revenue in Q4 was down 21%, what were the trends? - Management confirmed that November and December were worse than October, with the surprise mainly on the residential new construction side [27] Question: How do tailwinds for 2026 align with HCS guidance? - Management indicated a mid-single-digit decline in volume for HCS, with expected growth in the second half of the year [28][30] Question: What is the outlook for inventory normalization? - Inventory levels are expected to normalize by Q2, with one-step channel destocking nearly complete and two-step expected to finish by Q2 [33][36] Question: What are the expectations for price mix trends in HCS? - Management noted a carryover effect from previous pricing initiatives, with new price increases expected to contribute to mid-single-digit growth [39][52] Question: How will operating margins trend in 2026? - The guidance implies slight EBIT margin expansion, with BCS expected to see more growth compared to HCS [87]