Lennox Reports Third-Quarter Revenue Growth Despite Profit Margin Decline

Lennox International Inc., a leader in energy-efficient building and home comfort solutions, reported third-quarter revenue of $1.6 billion, up 10% from the same period last year. The company's GAAP operating income was $312 million, with an operating margin of 19.8%. Total segment profit1 was $323 million, down 2% from the previous year, and the total segment margin declined 240 basis points to 20.6%.

In the third quarter, Building Climate Solutions continued to deliver strong revenue growth, with a 24% increase in revenue, including organic growth of 15%. The segment's margin remained strong at 26.2%, down 110 basis points from the record margins in the prior-year period. The company attributed the growth to business development across the segment. However, the segment's profitability was impacted by a $45 million headwind from product cost inflation, including tariffs, and lower factory absorption. Additional pressure came from $15 million of higher fuel costs, inflation across selling, general, and administrative (SG&A) and distribution, and ongoing investments. These headwinds were partially offset by $13 million from higher sales volumes, $21 million of mix and price benefits, and $20 million contribution from completed acquisitions.

Home Comfort Solutions revenue increased 3% in the third quarter, while segment profit was $176 million, down 18% from the prior-year quarter. The segment margin was 18.7%, down 490 basis points. Profits declined by $40 million compared to the prior-year quarter, primarily reflecting a $12 million profit headwind from lower sales volumes. Product cost inflation, including tariffs, and lower factory absorption resulted in a $32 million headwind. Profit was further impacted by $15 million of higher fuel costs, inflation across SG&A and distribution, and ongoing investments. These pressures were partially offset by $13 million of mix and price benefits and $6 million from completed acquisitions.

GAAP diluted earnings per share (EPS) were $6.41, and adjusted diluted EPS were $6.84, down 7% from the prior-year quarter. The company updated its full-year adjusted EPS guidance to a range of $21.00 to $21.50, compared to the prior range of $23.00 to $24.00. Cash flow was robust, with operating cash flow of $395 million, up from $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.

Looking ahead, priorities include mitigating share challenges, advancing productivity and tariff mitigation initiatives, and introducing new products in the entry-tier portfolio. The company expects full-year margins to expand despite inflation and tariff pressures. For full-year 2026, Lennox revised its revenue growth guidance to approximately 6%, including a 5% benefit from completed acquisitions. Free cash flow guidance was updated to a range of $700 million to $750 million.