Lennox — Third Quarter 2026 Earnings Summary

Financial Performance:

• Revenue reached $1.6 billion, a 10% increase year-over-year, driven by organic growth in Building Climate Solutions and contributions from completed acquisitions.
• GAAP operating income was $312 million, down 5% year-over-year, with an operating margin of 19.8% (down 320 basis points).
• Total segment profit was $323 million, down 2% year-over-year, with a total segment margin of 20.6% (down 240 basis points).
• GAAP diluted earnings per share (EPS) were $6.41, down 7% year-over-year; adjusted diluted EPS were $6.84, down 7% year-over-year.
• Net income was $221 million compared to $260 million in the prior-year quarter.
• Operating cash flow was $395 million compared to $301 million in the prior-year quarter, driven by reduced inventory levels.
• Net capital expenditure was $33 million compared to $35 million in the prior-year quarter.
• Share repurchases totaled $151 million.
• Profitability headwinds included $45 million from product cost inflation (including tariffs) and lower factory absorption, $15 million from higher fuel costs, and inflation across SG&A and distribution. These were partially offset by $13 million from higher sales volumes, $21 million from mix and price benefits, and $20 million from completed acquisitions.

Guidance and Future Outlook:

• Full-year 2026 revenue growth guidance revised to approximately 6% growth, including a 5% benefit from completed acquisitions.
• Full-year 2026 adjusted EPS guidance updated to a range of $21.00 to $21.50, down from the prior range of $23.00 to $24.00.
• Full-year 2026 free cash flow guidance updated to $700 million to $750 million.
• Management expects full-year margins to expand despite inflation and tariff pressures.
• Priorities include mitigating share challenges, advancing productivity, implementing tariff mitigation initiatives, and introducing new products in the entry-tier portfolio.

Business Segments and Product Lines:

• Home Comfort Solutions: Revenue increased 3% to $937 million. Segment profit was $176 million, down 18%, with a segment margin of 18.7% (down 490 basis points). Profit declined $40 million year-over-year, primarily due to a $12 million headwind from lower sales volumes, $32 million from product cost inflation and lower factory absorption, and $15 million from higher fuel costs. Offsets included $13 million from mix and price benefits and $6 million from completed acquisitions.
• Building Climate Solutions: Revenue increased 24% to $635 million, including 15% organic growth, fueled by strength in commercial HVAC, refrigeration, and services. Segment profit was $167 million, up 19%, with a segment margin of 26.2% (down 110 basis points). Profit growth was driven by $24 million from higher sales volumes, $8 million from mix and price benefits, and $13 million from completed acquisitions. Offsets included a $14 million headwind from product cost inflation and lower factory absorption, and $5 million from higher SG&A and distribution costs.
• Corporate and Other: Corporate expenses were $19 million, down $8 million from the prior-year quarter.

Market and Competitive Landscape:

• Residential end-markets began stabilizing in the third quarter.
• Heightened competitive pressure impacted margins and results.
• Targeted price adjustments were implemented in select market segments to defend and recapture share.
• The company faces persistent inflation on costs and tariff-related costs impacting profitability.

Risks and Challenges:

• Risks include competition in the HVACR business, the ability to successfully develop and market new products, and the ability to execute the business strategy.
• Potential risks involve declines in new construction activity, weather impacts, higher raw material prices, supply interruptions, and product liability or warranty claims.
• Risks also include changes in environmental legislation, tax legislation, trade tariffs, labor relations, cyber-attacks, and the ability to successfully integrate acquisitions.
• Specific acquisitions mentioned include Duro Dyne, Supco, and Heat Controller.

Management Commentary and Tone:

• CEO Alok Maskara stated that while Building Climate Solutions delivered strong revenue growth and residential end-markets stabilized, margins fell short of expectations due to competitive pressure and inflation.
• Management is retooling processes to more effectively pass through cost increases while accelerating productivity.
• Despite near-term challenges, management expressed confidence in the long-term resilience of the business model and strategy.

Other Key Points:

• The company completed acquisitions contributing to revenue and profit growth in the quarter.
• The 2025 financial amounts presented in the tables were adjusted to reflect an accounting method change from LIFO to FIFO that occurred in the fourth quarter of 2025.
• The company reported a gain on sale from previous dispositions of $3.8 million for the quarter.
• Restructuring charges of $8.2 million were recorded for the quarter.
• Special litigation charges of $3.0 million were recorded for the quarter.
• Acquisition costs of $3.8 million were recorded for the quarter.
• Cash and cash equivalents were $43.3 million as of September 30, 2026.
• Total debt (current maturities of long-term debt and long-term debt) stood at $1.166 billion as of September 30, 2026.