Lennox Q2 2025 slides: profit surges 11% as margins expand despite volume challenges

Lennox International Inc (NYSE:LII) shares jumped 4.05% in pre-market trading following the company’s Q2 2025 earnings presentation on July 23, which revealed substantial profit growth despite modest revenue gains. The HVAC manufacturer reported strong margin expansion and raised its full-year guidance while navigating industry-wide challenges including refrigerant transitions and inflationary pressures.

Quarterly Performance Highlights

Lennox delivered $1.5 billion in revenue for Q2 2025, representing a 3% year-over-year increase. More impressively, segment profit climbed 11% to $354 million, with segment profit margin expanding 170 basis points to 23.6%. Adjusted earnings per share reached $7.82, up 14% compared to the same period last year.

As shown in the following financial highlights chart:

The company’s performance reflects a significant improvement from Q1 2025, when Lennox reported 2% revenue growth but experienced a 140 basis point decrease in segment margins. This quarter’s results demonstrate the company’s ability to successfully navigate pricing challenges while improving profitability.

Operating cash flow was $87 million, down $97 million year-over-year, while the company maintained a strong balance sheet with Net Debt/Adjusted EBITDA of 1.0x, an improvement of 0.2x from the previous year.

A detailed breakdown of the company’s performance shows that while overall volumes declined 8%, favorable mix and pricing contributed 11% to revenue growth:

Segment Analysis

Lennox’s Home Comfort Solutions segment, which represents approximately two-thirds of total revenue, grew 3% year-over-year to $1.009 billion. Despite a 9% volume decline attributed to R410A destocking and softness in residential new construction, the segment achieved a 12% increase from favorable mix and pricing. Segment profit increased to $255 million, up from $229 million in the prior year.

The Building Climate Solutions segment demonstrated stronger revenue growth of 5%, reaching $492 million. This segment also experienced volume challenges (-3%) but benefited from an 8% boost from mix and pricing. Segment profit grew to $123 million from $114 million in Q2 2024.

The company noted that emergency replacement demand remains strong, partially offsetting weakness in other market segments.

Strategic Initiatives

A key focus of Lennox’s presentation was its expansion into complementary product categories through strategic joint ventures. The company has formed partnerships with Samsung (KS:005930) for mini-split systems and with Ariston Group for water heaters, both representing significant growth opportunities.

As illustrated in the following slide, these partnerships target substantial market opportunities:

The Samsung joint venture, announced May 28, 2024, leverages the fact that approximately 75% of HVAC dealers already sell mini-splits. Similarly, the Ariston Group partnership announced May 27, 2025, addresses the water heater market, where roughly 50% of HVAC dealers already participate.

Lennox is also navigating the industry-wide transition to lower Global Warming Potential (GWP) refrigerants, shifting from R410A to R454B. This transition has created temporary challenges, including canister shortages and dealer uncertainty, but positions the company for long-term regulatory compliance.

The company outlined its positioning for the second half of 2025:

Financial Outlook & Guidance

Based on strong first-half performance, Lennox raised its full-year adjusted EPS guidance to $23.25-$24.25, up from the previous range of $22.25-$23.50 provided after Q1 results. The company projects total revenue growth of approximately 3% for 2025.

The updated guidance accounts for several factors, including:

Lennox expects continued inflation of approximately 6% and plans to offset this through productivity improvements and cost actions of around $75 million. The company anticipates free cash flow between $650 million and $800 million for the full year, with cash flow conversion improving to approximately 90%.

The company highlighted its investment appeal through five key pillars:

Market Context

Lennox’s strong Q2 performance comes after a challenging first quarter that saw the stock drop 5.24% despite beating earnings expectations. The current pre-market gain of 4.05%, with shares trading at $645.07, suggests investors are responding positively to the company’s improved profitability and raised guidance.

The HVAC manufacturer continues to face headwinds including inflation, tariff pressures, and the complex transition to new refrigerants. However, management’s ability to expand margins while navigating these challenges appears to be resonating with investors, as the company continues to execute on its strategic initiatives while maintaining disciplined capital deployment.

Full presentation:

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