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1. Company Snapshot

1.a. Company Description

Lennox International Inc., together with its subsidiaries, designs, manufactures, and markets a range of products for the heating, ventilation, air conditioning, and refrigeration markets in the United States, Canada, and internationally.It operates through three segments: Residential Heating & Cooling, Commercial Heating & Cooling, and Refrigeration.The Residential Heating & Cooling segment provides furnaces, air conditioners, heat pumps, packaged heating and cooling systems, indoor air quality equipment and accessories, comfort control products, and replacement parts and supplies for residential replacement and new construction markets.


The Commercial Heating & Cooling segment offers unitary heating and air conditioning equipment, applied systems, controls, installation and service of commercial heating and cooling equipment, and variable refrigerant flow commercial products for light commercial markets.The Refrigeration segment offers condensing units, unit coolers, fluid coolers, air cooled condensers, air handlers, and refrigeration rack systems for preserving food and other perishables in supermarkets, convenience stores, restaurants, warehouses, and distribution centers, as well as for data centers, machine tooling, and other cooling applications; and compressor racks and industrial process chillers.The company sells its products and services through direct sales, distributors, and company-owned parts and supplies stores.


Lennox International Inc.was founded in 1895 and is headquartered in Richardson, Texas.

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1.b. Last Insights on LII

Lennox International's recent performance was negatively impacted by a 5% decline in revenue to $1.4 billion, primarily due to temporary headwinds such as R410a inventory destocking and housing softness. Despite a 2% increase in segment profit, the company's guidance for 2025 was lowered, citing a challenging market environment. Analysts have cut their forecasts following the Q3 earnings release, which beat estimates but showed a cautious outlook. The company's decision to maintain a quarterly dividend of $1.30 per share may provide some stability for investors.

1.c. Company Highlights

2. Lennox International's Q3 Earnings: Resilient Margins Amidst Challenging Environment

Lennox International Inc. reported its 2025 third-quarter results, with revenue declining 5% due to soft residential and commercial end markets. Despite this, the company maintained resilient margins, with a segment margin at a record 21.7% for the third quarter. Operating cash flow was $301 million, and adjusted earnings per share was a third-quarter record of $6.98, a 4% year-over-year increase, beating analyst estimates of $6.69.

Publication Date: Oct -23

📋 Highlights
  • Record Segment Margin:: Achieved 21.7% segment margin, a record for Q3 2025 despite 5% revenue decline.
  • Adjusted EPS Growth:: Adjusted earnings per share hit a third-quarter record of $6.98, up 4% year-over-year.
  • Segment Divergence:: BCS segment revenue grew 10%, while HCS revenue fell 12%, reflecting shifting market dynamics.
  • Inventory-Related Guidance Cut:: Free cash flow guidance reduced to $550 million due to $300 million in excess inventory, expected to normalize by Q2 2026.
  • 2026 Growth Outlook:: Anticipates inventory normalization, lower interest rates, and 100% growth in emergency replacement market to drive recovery.

Segment Performance

The Home Comfort Solutions (HCS) segment experienced a 12% revenue decline, while the Building Climate Solutions (BCS) segment gained momentum with 10% revenue growth. The company acquired Durodyne and Subco, which will help accelerate the attachment of parts and accessories across both HCS and BCS segments. The emergency replacement market is showing significant growth, nearly 100% in the quarter, and is expected to continue growing.

Outlook and Guidance

Lennox International Inc. adjusted its full-year outlook to reflect an anticipated sales decline of 1% and expects adjusted earnings per share in the range of $22.75. The company revised its free cash flow guidance to approximately $550 million due to elevated inventory levels. The company expects 2026 to bring channel inventory normalization, lower interest rates, and a recovery in new and existing home sales.

Valuation and Growth Prospects

With a P/E Ratio of 20.69 and an EV/EBITDA of 15.4, the company's valuation appears reasonable considering its strong ROIC of 34.9% and ROE of 91.62%. Analysts estimate next year's revenue growth at 7.4%, which, combined with the company's strategic direction and expected growth in the emergency replacement market, suggests potential for sustained value creation for shareholders.

Operational Highlights

The company's inventory levels are high, mostly in the direct-to-contractor level, and are expected to return to normal by Q2 of next year. The company expects pricing to offset inflation in 2026 and is rationalizing low-margin RNC accounts, which account for 25% of sales, with plans to focus on the highest-returning business.

Future Growth Drivers

The Samsung JV is expected to add half a point to a point of growth, while the Ariston JV will contribute to growth in 2027. The ductless product, which represents 2% of sales, is expected to drive multiyear growth, given its current small market share compared to the industry's 10%. The company's new factory in Saltillo is fully operational, with expected efficiencies from labor arbitrage and no startup inefficiencies.

3. NewsRoom

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Lennox International Inc. (LII) Presents at Goldman Sachs Industrials and Materials Conference 2025 Transcript

Dec -03

Source: seekingalpha.com

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Lennox Donates Over 400 Heating and Cooling Units to Homeowners and Nonprofits in Need Across North America

Nov -19

Source: prnewswire.com

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Campbell & CO Investment Adviser LLC Acquires Shares of 423 Lennox International, Inc. $LII

Nov -18

Source: defenseworld.net

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These Analysts Cut Their Forecasts On Lennox International Following Q3 Earnings

Oct -23

Source: benzinga.com

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Lennox International Inc. (LII) Q3 2025 Earnings Call Transcript

Oct -22

Source: seekingalpha.com

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Here's What Key Metrics Tell Us About Lennox (LII) Q3 Earnings

Oct -22

Source: zacks.com

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Lennox International (LII) Beats Q3 Earnings Estimates

Oct -22

Source: zacks.com

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Lennox Reports Third Quarter Results

Oct -22

Source: prnewswire.com

4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (5.73%)

6. Segments

Home Comfort Solutions

Expected Growth: 5.5%

Lennox International Inc.'s Home Comfort Solutions segment growth of 5.5% is driven by increasing demand for energy-efficient HVAC systems, rising homeownership rates, and growing consumer spending on home improvement. Additionally, the company's focus on innovative products, strategic acquisitions, and expanding distribution channels also contribute to the segment's growth.

Building Climate Solutions

Expected Growth: 6.2%

Lennox International's Building Climate Solutions segment growth of 6.2% is driven by increasing demand for energy-efficient HVAC systems, government incentives for sustainable infrastructure, and rising adoption of smart building technologies. Additionally, the company's strategic acquisitions and investments in digitalization and innovation are contributing to its growth momentum.

Corporate and Other

Expected Growth: 5.8%

The 5.8% growth in Corporate and Other segment of Lennox International Inc. is driven by strategic investments in digital transformation, operational efficiency initiatives, and a favorable mix of higher-margin businesses. Additionally, the company's focus on innovation, cost savings, and effective capital allocation have contributed to this growth.

7. Detailed Products

Heating and Cooling Systems

Lennox International Inc. offers a wide range of heating and cooling systems, including air conditioners, heat pumps, furnaces, and boilers, designed to provide comfort and efficiency to residential and commercial customers.

Indoor Air Quality Solutions

Lennox's indoor air quality solutions include air purifiers, humidifiers, and ventilation systems, designed to improve indoor air quality and promote healthier living.

Commercial HVAC Systems

Lennox provides commercial HVAC systems, including rooftop units, split systems, and chillers, designed to meet the unique needs of commercial buildings and institutions.

Refrigeration Systems

Lennox offers refrigeration systems, including walk-in coolers, freezers, and refrigeration units, designed for the foodservice and retail industries.

Building Automation Systems

Lennox's building automation systems integrate HVAC, lighting, and security systems, providing a single, intuitive interface for building management.

8. Lennox International Inc.'s Porter Forces

Forces Ranking

Threat Of Substitutes

The threat of substitutes for Lennox International Inc. is medium due to the presence of alternative heating and cooling solutions, but the company's strong brand reputation and product offerings mitigate this threat.

Bargaining Power Of Customers

The bargaining power of customers is low for Lennox International Inc. due to the company's strong distribution network and customer relationships, which reduce the negotiating power of individual customers.

Bargaining Power Of Suppliers

The bargaining power of suppliers is medium for Lennox International Inc. due to the presence of multiple suppliers for raw materials, but the company's large scale of operations and long-term contracts mitigate this power.

Threat Of New Entrants

The threat of new entrants is low for Lennox International Inc. due to the high barriers to entry in the heating and cooling industry, including significant capital requirements and regulatory hurdles.

Intensity Of Rivalry

The intensity of rivalry is high for Lennox International Inc. due to the presence of several established competitors in the heating and cooling industry, leading to intense competition for market share.

9. SWOT Analysis

Strength

Weaknesses

Opportunities

Threats

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

Value
Debt Weight 82.34%
Debt Cost 4.58%
Equity Weight 17.66%
Equity Cost 9.12%
WACC 5.38%
Leverage 466.18%

11. Quality Control: Lennox International Inc. passed 5 out of 9 key points

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

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Armstrong World Industries

A-Score: 5.9/10

Value: 2.2

Growth: 5.9

Quality: 8.0

Yield: 2.0

Momentum: 8.5

Volatility: 9.0

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Beacon Roofing Supply

A-Score: 5.0/10

Value: 5.6

Growth: 7.3

Quality: 3.3

Yield: 0.0

Momentum: 8.0

Volatility: 6.0

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Simpson Manufacturing Co

A-Score: 4.9/10

Value: 3.1

Growth: 7.9

Quality: 7.5

Yield: 1.0

Momentum: 3.0

Volatility: 6.7

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Installed Building Products

A-Score: 4.8/10

Value: 2.9

Growth: 9.0

Quality: 5.6

Yield: 2.0

Momentum: 5.0

Volatility: 4.0

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Lennox International

A-Score: 4.7/10

Value: 2.5

Growth: 7.7

Quality: 6.7

Yield: 2.0

Momentum: 3.0

Volatility: 6.3

1-Year Total Return ->

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Builders FirstSource

A-Score: 4.4/10

Value: 5.7

Growth: 8.4

Quality: 6.2

Yield: 0.0

Momentum: 1.5

Volatility: 4.3

1-Year Total Return ->

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Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

511.63$

Current Price

511.63$

Potential

-0.00%

Expected Cash-Flows