LII · Q2 2025 Earnings
CautiousLennox International
Reported July 23, 2025
30-second summary
Lennox put up $1.5B revenue (+3% YoY) and $7.82 EPS in Q2 with $114M of mix/price benefits papering over volume declines in both segments. Management raised the FY25 adjusted EPS range to $23.25–$24.25 and now sees full-year volume down 6% vs. a prior expectation of down 9%, while holding FCF guidance at $650M–$800M. The print is about pricing discipline and A2L mix lift carrying the year — not demand — and management was explicit that R454B canister shortages cost them some of the 2024 residential share gain.
Headline numbers
EPS
Q2 FY2025
$7.82
Revenue
Q2 FY2025
$1.50B
+3.0% YoY
Gross margin
Q2 FY2025
34.8%
Free cash flow
Q2 FY2025
$0.06B
Operating margin
Q2 FY2025
23.6%
Key financials
Q2 FY2025| Metric | Q2 FY2025 | YoY |
|---|---|---|
| Revenue | $1.50B | +3.0% |
| EPS | $7.82 | — |
| Gross margin | 34.8% | — |
| Operating margin | 23.6% | — |
| Free cash flow | $0.06B | — |
Guidance
Prior quarter data unavailable — comparison not possible.
Segment KPIs
Q2 FY2025| Segment | Q2 FY2025 | YoY |
|---|---|---|
| Home Comfort Solutions | $1.009B | +3.0% |
| Building Climate Solutions | $0.492B | +5.0% |
Other KPIs
Q2 FY2025| Segment | Q2 FY2025 |
|---|---|
| Home Comfort Solutions Segment Margin | 25.3% |
| Building Climate Solutions Segment Margin | 24.9% |
| Mix/Price Benefits | $114 million |
| Segment Profit | $354 million |
| Operating Cash Flow | $87 million |
Management tone
The R410A-to-R454B transition has flipped in framing from internal execution risk to an external supply constraint that hit dealer confidence: "While the transition was well executed by Lennox, dealer confidence has been impacted by concerns around R454B canister availability...the availability of R454B canisters is expected to continue improving." Management is now explicitly attributing the give-back of 2024 share gains to canister shortages rather than competitive losses — a defensible narrative but one that puts the burden on canister supply normalizing in H2.
Residential weakness is being reframed from a demand problem to a mix problem. The new language — "we are beginning to see that more homeowners are choosing repair versus replace and trading down as inflation and government incentives continue to influence some consumer behavior" — is a softer framing than prior "new construction remains subdued" language, but the underlying message is that the consumer is stretched. The fact that consumers are now getting "two to three quotes" instead of "one to two" historically is a real datapoint on price sensitivity, even as management argues there is no material elasticity yet.
On BCS, the tone moved from acknowledging "industry shipment volumes down double digits" to "early signs of demand stabilization." Management was careful to qualify this as "bouncing along the bottom" before an expected uptick in late H2 — not a recovery call, but a bottoming call. The 5% YoY revenue growth in BCS this quarter, against double-digit industry volume declines, is being held up as proof of pricing power and share defense.
Final CEO line — "our best days are ahead of us" — is unusually forward-leaning for a print where volumes declined 6% and the FY revenue growth guide is just 3%. Read this as conviction in the Samsung (2026) and Ariston (2027) growth vectors, not as a call on the 2025 cycle.
Recurring themes management leaned on this quarter:
Risks management surfaced:
Q&A highlights
Jeff Hammond · KeyBank Capital Markets
Asked about A2L manufacturing costs, tariff impacts in 2Q versus 2H, and second half volume and price-mix assumptions
Management stated A2L costs and prices are in line with expectations; margin expansion driven by factory productivity and headcount retrenchment, not pricing. Tariffs increasing in 2H are built into guidance. HCS volumes expected down 8% in 2H (vs. down 6% YTD) with price-mix up 10%; BCS volumes down 4% in 2H (vs. down 6% YTD) with price-mix up 6-7%.
Julian Mitchell · Barclays
Questioned full-year margin expansion rate (50-60 bps), moving parts between Q3-Q4, and whether Q2 represents normalized performance given A2L cycle maturity
Management confirmed ~50 bps margin expansion for full year (50 bps H1, 50 bps H2); HCS margins up more than 50 bps, BCS closer to flat. Q2 represents more normalized performance versus Q1 which was impacted by A2L inefficiencies and manufacturing air pockets. Both segments show 2H margin expansion.
Damian Carras · UBS
Sought dealer feedback on Ariston water heater partnership and market share expectations on residential side
Early dealer feedback very positive; 50% of current dealers already sell water heaters. Launch in Q1 2026, meaningful growth starting 2027. No specific numbers yet but long-term sees convergence opportunity, especially with 2029 heat pump mandate. On market share, expects to give back some of 2024 gains; may have given back some in Q2 due to R454B canister shortages; not banking on keeping all share gains.
Ryan Merkle · William Blair
Asked about BCS volume guide reduction to mid-single digits and meaning of 'commercial nearing a bottom'
BCS industry volume continued declining through Q2 (expected to bottom by end-Q1). Now seeing stabilization signs, expecting to 'bounce along the bottom' before uptick in late 2H. Volume guide lowered from previous expectations. No weather blame per company policy, but acknowledged late summer start with May very soft, improving end-June into early-July.
Stephen Volkman · Jefferies
Questioned whether price or mix was the stronger driver of price-mix gains; asked about price pushback from affordability concerns
Mix was very strong, continuing to achieve expected 10% increase for 454B; price also strong. R454B canister shortage impacted dealer confidence and their ability to sell replace-vs-repair to consumers. Some consumer trade-down observed but not unusual. More consumers getting multiple quotes but no significant price elasticity impact. Remains a necessary purchase.
What to watch into next quarter
R454B canister availability — management says supply is "expected to continue improving"; watch whether HCS volume decline narrows from down 6% YTD or worsens to the down-8% H2 outlook. The canister story is the linchpin of the residential share narrative.
HCS margin trajectory — Q2 segment margin of 25.3% needs to hold or expand into H2 to support the FY EPS raise. Watch for sequential margin in Q3 above 25%.
BCS volume bottoming call — management said industry should "bounce along the bottom" before a late-H2 uptick. Watch BCS revenue YoY in Q3; another print at +5% or better against double-digit industry declines validates the share-defense story.
Price/mix split — $114M Q2 mix/price benefit was the entire growth engine. Track whether the ~10% A2L mix lift annualizes or starts to fade as the mix tailwind laps into 2026.
FCF execution — H1 OCF was light at $87M against a $650–800M FY range. Watch inventory drawdown and working capital conversion in Q3 to confirm the back-half-loaded cash flow guide is credible.
Tariff pass-through — guidance includes higher H2 tariff costs; watch for any surcharge or incremental price action commentary in Q3 that signals erosion of the pricing umbrella.
Sources
- Lennox International Q2 2025 press release (SEC EDGAR): https://www.sec.gov/Archives/edgar/data/1069202/000106920225000029/lii-2025630xexx991pressrel.htm
- Q&A commentary references derived from supplied analyst exchange extraction; no full earnings call transcript was available at the time of writing.
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