LII · Q2 2026 Earnings

Cautious

Lennox International

Reported July 29, 2026

30-second summary

Lennox delivered Q2 FY2026 revenue of $1.545B (+3% YoY, missing the $1.56B consensus by 1%) and EPS of $7.72 (a 0.3% beat vs. $7.70), with Building Climate Solutions up 24% (+15% organic) more than offsetting Home Comfort Solutions down 7%. Management lowered and narrowed FY2026 EPS guidance to $23.00–$24.00 from $23.50–$25.00 — a $0.75 midpoint cut — while reaffirming ~8% revenue growth and raising the acquisition contribution to 5% from 4%, which implicitly lowers organic growth from ~4% to ~3%. The framework the Q1 FY2026 call set up — pricing ramp in H2 offsetting tariff inflation to hold the EPS range — did not hold; the lower bound of that ramp is now the new midpoint.

Headline numbers

EPS

Q2 FY2026

$7.72

+0.3% vs est.

Revenue

Q2 FY2026

$1.54B

+3.0% YoY

-1.0% vs est.

Gross margin

Q2 FY2026

34.9%

Free cash flow

Q2 FY2026

$0.14B

Operating margin

Q2 FY2026

23.0%

Key financials

Q2 FY2026

Metric	Q2 FY2026	Q2 FY2025	YoY	Q1 FY2026	QoQ
Revenue	$1.54B	$1.50B	+3.0%	$1.14B	+36.1%
EPS	$7.72	$7.82	-1.3%	$3.35	+130.4%
Gross margin	34.9%	34.8%	+10bps	30.9%	+400bps
Operating margin	23.0%	23.6%	-60bps	14.4%	+860bps
Free cash flow	$0.14B	$0.06B	+132.2%	$-0.04B	+454.0%

Guidance

EPS guidance narrowed downward by $0.75 midpoint despite reaffirmed revenue growth and raised acquisition contribution; organic growth implicitly lowered.

Guidance is issued for the full year only, refreshed each quarter. Prior and new below are the same FY updated this quarter.

Changes to prior guidance

Metric	Period	Prior guide	New guide	Δ	Result
EPS	FY 2026	$23.50 to $25.00	$23.00 to $24.00	low end -$0.50, high end -$1.00	Lowered
Acquisition contribution to revenue growth	FY 2026	4%	5%	+1 percentage point	Raised

Reaffirmed unchanged this quarter: Revenue growth (approximately 8%), Free Cash Flow ($750 million to $850 million)

Segment KPIs

Q2 FY2026

Segment	Q2 FY2026	Q2 FY2025	YoY
Home Comfort Solutions	$0.936B	$1.009B	-7.2%
Building Climate Solutions	$0.61B	$0.492B	+24.0%

Other KPIs

Q2 FY2026

Segment	Q2 FY2026	Q2 FY2025	YoY
Home Comfort Solutions Segment Margin	23.7%	25.3%	—
Building Climate Solutions Segment Margin	25.5%	24.9%	—
Total Segment Profit	$355 million	—	—
Operating Cash Flow	$172 million	$87 million	—
Building Climate Solutions Organic Revenue Growth	15%	—	—
Acquisition Contribution to Revenue Growth	5% (full year guidance)	—	—

Management tone

Narrative arc: Q3 FY2025 "transitional year, destocking through Q2 FY2026" → Q4 FY2025 "industry normalizes, M&A carries the recovery" → Q1 FY2026 "operational discipline against tariff inflation" → Q2 FY2026 "reset the EPS range, lean harder on M&A"

Three quarters ago the recovery narrative was framed as destocking normalizing by Q2 FY2026 — that timeline landed on the revenue side, with HCS revenue decline narrowing to -7% from Q1 FY2026's -10% and HCS segment margin snapping back to 23.7% sequentially. But the EPS guidance cut this quarter tells you the operational win didn't translate to earnings, and HCS margin is still down 130bps YoY. The press release language of "Strong momentum in Building Climate Solutions, and contributions from acquisitions mitigated continued softness in residential end market" is the tell: three quarters ago residential softness was framed as cyclical destocking with a clear end date; this quarter it is framed as an ongoing condition being mitigated by other segments and by M&A. That is a durability admission.

The acquisition contribution raise is the most consequential quiet shift. In Q4 FY2025 M&A was 4pp of a 6–7pp headline growth guide, framed as the recovery engine while organic recovered. In Q1 FY2026 organic was explicitly disclosed at ~4% — a positive datapoint. This quarter the acquisition line moved to 5pp while headline stayed at 8%, implicitly cutting organic by a point without press-release acknowledgment. That is the pattern of a company whose organic momentum is softening while M&A carries the aggregate line — and it is the second consecutive quarter where the EPS range has failed to expand alongside the revenue framework.

Management's macro framing shifted from Q1 FY2026's "macro uncertainties persist" to Q2 FY2026's "improving commercial market conditions." Commercial is improving — BCS organic +15% confirms that. But the same press release also uses "continued softness in residential end market," which is a more definitive framing than any prior quarter has offered. The tone is bifurcating in a way that is honest but unresolved: commercial keeps compounding, residential doesn't recover on the schedule the Q1 FY2026 call implied. The EPS cut is what happens when the residential side of that bifurcation is more persistent than the commercial side is powerful.

Answers to last quarter's watch list

HCS Q2 margin trajectory — Q2 FY2026 HCS margin came in at 23.7%, well above the 15% risk floor but down 130bps YoY from ~25.0% on lower volumes and absorption pressure. The QoQ absorption headwind cleared on management's Q1 FY2026 timeline, but the YoY margin compression is a real result the watch list did not fully anticipate. Status: Partially resolved

Pricing realization in late Q2 — The press release confirms $39M of consolidated mix/price benefits and notes pricing "largely offset" tariff and inflation pressures in HCS, with an earlier-than-expected $30M tariff refund providing additional benefit. Directionally on track, but the EPS cut suggests price/cost economics are running weaker than the Q1 FY2026 framework assumed. Status: Continue monitoring

BCS organic deceleration — BCS organic came in at +15%, meeting the watch threshold but sitting right at the line — decelerated meaningfully from Q1 FY2026's +26%. The full-year organic guide of ~16% now looks tight; H2 comps get harder. The inflection is intact but Q1 FY2026 momentum did not sustain at that level. Status: Continue monitoring

FCF cash conversion run-rate — Q2 FY2026 FCF of $137M vs. Q1 FY2026's -$38.7M brings 1H to ~$98M. The FY guide of $750–850M implies ~$675M midpoint required across Q3–Q4. That is a demanding run-rate but not unusual for Lennox's seasonality; the guide was reaffirmed unchanged. Status: Continue monitoring

Tariff mitigation progress — The press release discloses $30M of tariff refunds in the quarter ($25M HCS, $5M BCS) net against $11M of product cost inflation and factory under-absorption. Mitigation is showing up in the numbers, but the FY EPS cut of $0.75 midpoint indicates the net tariff-plus-inflation position is still worse than the Q1 FY2026 framework assumed. Status: Continue monitoring

What to watch into next quarter

Organic growth trajectory — organic implicitly cut from ~4% to ~3% in the FY guide this quarter. Watch whether Q3 FY2026 disclosure formalizes organic below 3% or holds the line; another walk-down would confirm underlying demand is softer than the M&A-augmented headline suggests.

EPS range integrity — the range was cut $0.75 at the midpoint this quarter without an explicit macro or one-time driver. Watch whether Q3 FY2026 delivers within the new $23.00–$24.00 range or forces a second cut; two cuts in a row would be a credibility event.

BCS organic against harder comps — organic decelerated from +26% in Q1 FY2026 to +15% in Q2 FY2026. Watch whether Q3 FY2026 BCS organic holds double-digits or steps down further as the comp base normalizes.

H2 FCF conversion — 1H FCF of ~$98M against an FY guide midpoint of $800M implies ~$700M of H2 FCF. Watch Q3 FY2026 operating cash flow above $300M as a checkpoint; a soft Q3 print would put a second FCF cut in play.

HCS revenue inflection — HCS narrowed from -10% (Q1 FY2026) to -7% (Q2 FY2026). By our math, the reaffirmed ~8% total FY growth combined with BCS running strong implies HCS needs to turn positive in H2 to hold the framework — management did not disclose an HCS-specific FY revenue target. Watch whether Q3 FY2026 HCS turns positive or stays negative.

Explicit tariff cost quantification — with the EPS cut in hand, watch the Q3 FY2026 call for management to quantify gross tariff cost impact vs. mitigation more fully than the $30M refund line. Absent that disclosure, the FY2027 setup carries unmeasured carryover pressure.

Sources

Lennox International Q2 FY2026 press release (SEC EDGAR): https://www.sec.gov/Archives/edgar/data/1069202/000106920226000085/lii-20260630xexx991pressre.htm

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