Lennox International Inc.

04/29/2026 | Press release | Distributed by Public on 04/29/2026 12:27

Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"), as amended, that are based on information currently available to management as well as management's assumptions and beliefs as of the date such statements were made. All statements, other than statements of historical fact, included in this Quarterly Report on Form 10-Q constitute forward-looking statements, including but not limited to statements identified by forward-looking terminology, such as the words "may," "will," "should," "plan," "anticipate," "believe," "intend," "estimate," and "expect" and similar expressions. Such statements reflect our current views with respect to future events, based on what we believe are reasonable assumptions; however, such statements are subject to certain risks and uncertainties.
In addition to the specific uncertainties discussed elsewhere in this Quarterly Report on Form 10-Q, the risk factors set forth in Part I, "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2025, and those set forth in Part II, "Item 1A. Risk Factors" of this report, if any, may affect our performance and results of operations. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may differ materially from those in the forward-looking statements. We disclaim any intention or obligation to update or review any forward-looking statements or information, whether as a result of new information, future events or otherwise, except as required by law.
Business Overview
We operate in two reportable business segments of the HVACR industry, Home Comfort Solutions and Building Climate Solutions. For more detailed information regarding our reportable segments, see Note 2 in the Notes to the Consolidated Financial Statements.
Our fiscal quarterly periods are comprised of approximately 13 weeks, but the number of days per quarter may vary year-over-year. Our quarterly reporting periods usually end on the Saturday closest to the last day of March, June, and September. Our fourth quarter and fiscal year ends on December 31, regardless of the day of the week on which December 31 falls. For convenience, throughout this Management's Discussion and Analysis of Financial Condition and Results of Operations, the 13-week periods comprising each fiscal quarter are denoted by the last day of the respective calendar quarter.
We sell our products and services through a combination of direct sales, distributors and company-owned stores. The demand for our products and services is seasonal and can be significantly impacted by the weather. Warmer than normal summer temperatures generate demand for replacement air conditioning and refrigeration products and services, and colder than normal winter temperatures have a similar effect on heating products and services. Conversely, cooler than normal summers and warmer than normal winters depress the demand for HVACR products and services. In addition to weather, demand for our products and services is influenced by national and regional economic and demographic factors, such as interest rates, the availability of financing, regional population and employment trends, new construction, general economic conditions, and consumer spending habits and confidence. A substantial portion of the sales in each of our business segments is attributable to replacement business, with the balance comprised of new construction business.
The principal elements of cost of goods sold are components, raw materials, factory overhead, labor, estimated costs of warranty expense, and freight and distribution costs. The principal raw materials used in our manufacturing processes are steel, aluminum and copper. In recent years, pricing volatility for these commodities and related components has impacted us and the HVACR industry in general. We seek to mitigate the impact of certain commodity price volatility and tariffs through a combination of pricing actions, vendor contracts, improved production efficiency, and cost reduction initiatives. We also partially mitigate volatility in the prices of these commodities by entering into futures contracts and fixed forward contracts.
Financial Overview
Results for the first quarter of 2026 were mixed as our Home Comfort Solutions segment faced volume headwinds driven by market softness. Overall our net sales increased 6% and our segment profit was relatively flat as compared to prior year. For our Home Comfort Solutions segment, net sales decreased 10% and segment profit decreased $37 million. For our Building Climate Solutions segment, net sales increased 38% and segment profit increased $37 million.
Financial Highlights
•Net sales of $1,135 million in the first quarter of 2026 reflected a 6% increase as compared to the same period in 2025.
•Operating income in the first quarter of 2026 decreased $5 million to $163 million as lower sales volumes and higher product costs were partially offset by favorable mix and price.
•Net income for the first quarter of 2026 was $117 million.
•Diluted earnings per share was $3.35 per share in the first quarter of 2026 as compared to $3.63 per share in the same period in 2025.
•For the three months ended March 31, 2026, we returned $45 million to shareholders through dividend payments and repurchased $20 million of common stock through our share repurchase program.
Recent Developments
Throughout 2025, the U.S. government implemented new tariff measures under various authorities, including the International Emergency Economic Powers Act ("IEEPA") and Section 232 of the Trade Expansion Act of 1962 ("Section 232").
In February 2026, the U.S. Supreme Court ruled against tariffs imposed under IEEPA. The ruling did not address refunds of tariffs paid, nor did it repeal Section 232 tariffs on steel and aluminum. Following this ruling, the U.S. presidential administration imposed a temporary surcharge, known as Section 122, which applies a 10 percent global tariff on most imported products. These tariffs apply broadly to manufactured goods and component parts. Section 232 tariffs on steel and aluminum also continued to evolve, with modifications implemented in April 2026. The Company is evaluating the potential impact of all tariff actions on future material costs and sourcing decisions.
Three Months Ended March 31, 2026 Compared to Three Months Ended March 31, 2025 - Consolidated Results
The following table provides a summary of our financial results, including information presented as a percentage of net sales:
For the Three Months Ended March 31,
Dollars (in millions) Percent
Change
Fav/(Unfav) 		Percent of Sales
2026 2025 2026 2025
Net sales $ 1,135.1 $ 1,072.6 5.8 % 100.0 % 100.0 %
Cost of goods sold 783.8 731.7 (7.1) 69.1 68.2
Gross profit 351.3 340.9 3.1 30.9 31.8
Selling, general and administrative expenses 185.2 171.3 (8.1) 16.3 16.0
Losses and other expenses, net 2.2 2.8 21.4 0.2 0.3
Loss (income) from equity method investments 0.4 (1.2) (133.3) - (0.1)
Operating income $ 163.5 $ 168.0 (2.7) % 14.4 % 15.7 %
Net Sales
Net sales for the first quarter of 2026 increased 6% as compared to the same period in 2025 primarily due to a 9% increase from favorable mix and price and a 5% increase in sales volumes from completed acquisitions, which were partially offset by an 8% decrease in sales volumes.
Gross Profit
Gross profit margins in the first quarter of 2026 decreased 90 basis points ("bps") to 30.9% as compared to 31.8% in the same period in 2025. Gross margins decreased 300 bps from higher product costs, primarily related to inflationary impacts and
factory under absorption, and 40 bps from higher freight and distribution inflation and investments, which were partially offset by 250 bps from favorable mix and price.
Selling, General and Administrative Expenses
Selling, general and administrative expenses ("SG&A") increased $14 million to $185 million in the first quarter of 2026 as compared to $171 million in the same period in 2025, primarily attributable to higher discretionary and employee-related costs and the acquisition of Duro Dyne and Supco in the fourth quarter of 2025.
(Gains) losses and Other Expenses, Net
Losses (gains) and other expenses, net for the first quarter of 2026 and 2025 included the following (in millions):
For the Three Months Ended March 31,
2026 2025
Foreign currency exchange (gains) losses
$ (0.3) $ 0.8
Gain on disposal of fixed assets
(0.6) (0.1)
Environmental liabilities and special litigation charges
3.1 2.1
Losses (gains) and other expenses, net (pre-tax) $ 2.2 $ 2.8
Income from Equity Method Investments
Investments over which we do not exercise control but have significant influence are accounted for using the equity method of accounting. Income from equity method investments was de minimis in the first quarter of 2026, consistent with 2025.
Interest Expense, net
Interest expense, net increased to $15 million in the first quarter of 2026 from $6 million in the same period in 2025 primarily due to increased borrowings on our commercial paper facility and our term loan agreement entered into in October of 2025.
Income Taxes
Our effective tax rate was 20.2% for the first quarter of 2026 as compared to 19.4% in the same period in 2025. The increase in rate is primarily due to income in higher tax jurisdictions.
First Quarter of 2026 Compared to First Quarter of 2025 - Results by Segment
Home Comfort Solutions
The following table presents our Home Comfort Solutions segment's net sales and profit for the first quarter of 2026 and 2025 (dollars in millions):
For the Three Months Ended March 31,
2026 2025 Difference % Change
Net sales $ 650.0 $ 721.4 $ (71.4) (10) %
Profit $ 86.5 $ 123.9 $ (37.4) (30) %
% of net sales 13.3 % 17.2 %
Net sales decreased 10% in the first quarter of 2026 as compared to the same period in 2025 primarily due to a 21% decrease in sales volumes, which was partially offset by a 9% increase from favorable mix and price and a 2% increase in sales volumes from completed acquisitions.
Segment profit in the first quarter of 2026 decreased $37 million as compared to the same period in 2025, primarily due to lower sales volumes, resulting in a $56 million profit headwind, $23 million in product cost inflation and lower factory absorption, and $1 million in other costs. These impacts were partially offset by a $41 million benefit from favorable mix and price and $2 million from completed acquisitions.
Building Climate Solutions
The following table presents our Building Climate Solutions segment's net sales and profit for the first quarter of 2026 and 2025 (dollars in millions):
For the Three Months Ended March 31,
2026
2025
Difference % Change
Net sales $ 485.1 $ 351.2 $ 133.9 38 %
Profit $ 95.6 $ 58.8 $ 36.8 63 %
% of net sales 19.7 % 16.7 %
Net sales increased 38% in the first quarter of 2026 as compared to the same period in 2025 primarily due to a 17% increase in sales volumes, a 12% increase in sales volumes from completed acquisitions, and 9% from favorable mix and price.
Segment profit in the first quarter of 2026 increased $37 million as compared to the same period in 2025 primarily due to $24 million profit benefit from higher sales volumes and $22 million increase in favorable mix and price, and $7 million profit benefit from sales volumes from completed acquisitions, which were partially offset by $8 million in product cost inflation and lower factory absorption, and $8 million from other costs.
Liquidity and Capital Resources
Our working capital and capital expenditure requirements are generally met through internally generated funds, bank lines of credit and a commercial paper program (as described below). Working capital needs are generally greater in the first and second quarters due to the seasonal nature of our business cycle.
Statement of Cash Flows
The following table summarizes our cash flow activity for the three months ended March 31, 2026 and 2025 (in millions):
For the Three Months Ended March 31,
2026 2025
Net cash provided by (used in) operating activities $ 16.1 $ (35.8)
Net cash used in investing activities (56.6) (23.5)
Net cash provided by (used in) financing activities 57.1 (141.2)
Net Cash Provided By (Used In) Operating Activities - The change in net cash provided by operating activities for the three months ended March 31, 2026 compared to the net cash used in operating activities for the same period in 2025 is primarily due to favorable working capital changes.
Net Cash Used In Investing Activities - Capital expenditures were $56 million for the three months ended March 31, 2026 compared to $26 million in the same period of 2025. The increase in capital expenditures was primarily related to land and building purchases.
Net Cash Provided By (Used In) Financing Activities - Net cash provided by financing activities for the three months ended March 31, 2026 increased to $57 million as compared to $141 million used in during the same period of 2025. The change was primarily due to changes in net borrowings and repayments of long-term debt and repurchases of common stock through our share repurchase program. We repurchased $20 million of shares for the three months ended March 31, 2026 and returned $45 million to shareholders through dividend payments.
Debt Position
The following table details our lines of credit and financing arrangements as of March 31, 2026 (in millions):
Outstanding Borrowings
Commercial paper: $ 361.0
Current maturities of long-term debt:
Finance lease obligations $ 18.2
Total current maturities of long-term debt $ 18.2
Long-term debt:
Finance lease obligations $ 50.1
Term Loan 300.0
Senior unsecured notes 800.0
Debt issuance costs (6.0)
Total long-term debt $ 1,144.1
Total debt $ 1,523.3
Commercial Paper Program
We utilize a commercial paper program (the "Program") pursuant to which we may issue short-term, unsecured commercial paper notes (the "CP Notes") under the exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933, as amended. Amounts available under the Program may be borrowed, repaid, and re-borrowed from time to time, with the aggregate face or principal amount of the CP Notes outstanding under the Program at any time not to exceed $500.0 million. The CP Notes have maturities of up to 397 days from the date of issue and rank pari passu with all of our other unsecured and unsubordinated indebtedness. The net proceeds from issuances of the CP Notes are typically used for general corporate purposes. Our revolving credit facility serves as a liquidity backstop for the repayment of CP Notes outstanding under the Program. There are $361.0 million CP Notes outstanding under the Program as of March 31, 2026.
Credit Agreement
On May 9, 2025, we entered into an Amendment and Restatement Agreement (the "Credit Agreement") to our existing unsecured revolving credit facility with JPMorgan Chase Bank, N.A., as administrative agent, and the other lenders party thereto. The Credit Agreement decreased our total revolving commitments from $1.1 billion to $1.0 billion with an option to increase the revolving commitments by up to $350 million at our request, subject to the terms and conditions of the Credit Agreement. The Credit Agreement also extended the maturity date of the revolving commitments from July 2026 to May 2030. We had no outstanding borrowings and no amounts committed to standby letters of credit as of March 31, 2026. Subject to covenant limitations, $639.0 million was available for future borrowings after taking into consideration outstanding borrowings under our Program. Availability under the Credit Agreement is reduced by borrowings under the Program. The Credit Agreement includes a subfacility for swingline loans up to $65.0 million. Maturity of the Credit Agreement may be extended by the lenders pursuant to two one-year extension options that we may request under the Credit Agreement.
Term Loan
On October 16, 2025, we entered into a Term Credit Agreement (the "Term Credit Agreement") with Wells Fargo Bank, National Association, as administrative agent, and the other lenders party thereto. We borrowed $300.0 million pursuant to the Term Credit Agreement and used the net proceeds to repay existing borrowings under the Credit Agreement. The Term Credit Agreement matures on October 16, 2027. Loans under the Term Credit Agreement bear interest at our election at a rate per annum equal to (i) a forward-looking term rate based on the secured overnight financing rate for the applicable interest period ("Term SOFR"), plus an applicable margin ranging between 0.90% and 1.025% per annum depending on our long-term unsecured debt rating, or (ii) the highest of the Wells Fargo Bank, National Association prime rate, the Federal Funds rate plus 0.50%, and Term SOFR for a one month tenor in effect on such day plus 1.00%, plus an applicable margin ranging between 0.00% and 0.025% per annum depending on our long-term unsecured debt rating.
The Term Credit Agreement contains customary covenants and events of default that are substantially similar to the existing covenants and events of default in our Credit Agreement.
Senior Unsecured Notes
In September 2023, we issued $500.0 million of senior unsecured notes, which will mature in September 2028 (the "2028 Notes") with interest being paid semi-annually in March and September at 5.50%. In July 2020, we issued $300.0 million of senior unsecured notes, which will mature on August 1, 2027 (the "2027 Notes," and collectively with the 2028 Notes, the "Notes") with interest being paid semi-annually in February and August at 1.70% per annum. On August 1, 2025, we repaid upon maturity $300.0 million of senior unsecured notes originally issued in 2020.
In the event of a credit rating downgrade below investment grade resulting from a change of control, holders of our senior unsecured notes will have the right to require us to repurchase all or a portion of the senior unsecured notes at a repurchase price equal to 101% of the principal amount of the notes, plus accrued and unpaid interest, if any. All the Notes are guaranteed, on a senior unsecured basis, by certain of our subsidiaries that guarantee indebtedness under our Credit Agreement (the "Guarantor Subsidiaries"). The indenture governing the Notes contains covenants that, among other things, limit our ability and the ability of the Guarantor Subsidiaries to: create or incur certain liens; enter into certain sale and leaseback transactions; and enter into certain mergers, consolidations and transfers of substantially all of our assets. The indenture also contains a cross default provision which is triggered if we default on other debt of at least $75.0 million in principal which is then accelerated, and such acceleration is not rescinded within 30 days of the notice date. We are currently in compliance with all covenant requirements.
Financial Leverage
We periodically review our capital structure to ensure the appropriate levels of leverage and liquidity. We may access the capital markets, as necessary, based on business needs and to take advantage of favorable interest rate environments or other market conditions. We also evaluate our debt-to-capital and debt-to-EBITDA ratios to determine, among other considerations, the appropriate targets for capital expenditures and share repurchases under our share repurchase programs. Our debt-to-total-capital ratio increased to 56% at March 31, 2026, as compared to 54% at December 31, 2025.
As of March 31, 2026, our senior credit ratings were Baa1 with a stable outlook, and BBB with a stable outlook, by Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's Rating Group ("S&P"), respectively. The security ratings are not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the assigning rating agency. Each rating should be evaluated independently of any other rating. Our goal is to maintain investment grade ratings from Moody's and S&P to help ensure the capital markets remain available to us.
Liquidity
We believe our cash and cash equivalents of $48.2 million, future cash generated from operations and available borrowing capacity are sufficient to fund operations, planned capital expenditures, future contractual obligations, potential share repurchases and dividends, and other needs in the foreseeable future. Included in our cash and cash equivalents of $48.2 million as of March 31, 2026 was $19.3 million of cash held in foreign locations. Our cash held in foreign locations is used for investing and operating activities in those locations, and we generally do not have the need or intent to repatriate those funds to the United States. An actual repatriation in the future from our non-U.S. subsidiaries could be subject to foreign withholding taxes and U.S. state taxes.
Guarantees Related to Our Debt Obligations
Our senior unsecured notes were issued by Lennox International Inc. ("Parent") and are unconditionally guaranteed by the Guarantor Subsidiaries (and together with Lennox International Inc., the "Obligor Group"). The Guarantor Subsidiaries are 100% owned and consolidated, all guarantees are full and unconditional, and all guarantees are joint and several.
Summarized financial information is presented below for the Obligor Group on a combined basis after elimination of intercompany transactions and balances within the Obligor Group and equity in the earnings from and investments in any non-Guarantor Subsidiary. The revenue amounts presented in the summarized financial information include substantially all of our condensed consolidated revenue, and there is no intercompany revenue from the non-Guarantor Subsidiaries. This summarized financial information has been prepared and presented pursuant to Regulation S-X Rule 13-01, "Financial Disclosures about Guarantors and Issuers of Guaranteed Securities" and is not intended to present the financial position or results of operations of the Obligor Group in accordance with U.S. GAAP.
The following combined Parent and Guarantor Subsidiaries financial information is presented as of March 31, 2026 and December 31, 2025 and for the three months ended March 31, 2026 (in millions):
March 31, 2026 December 31, 2025
Current assets $ 1,853.5 $ 1,676.4
Non-current assets 1,912.0 1,824.9
Current liabilities 1,111.6 1,000.7
Non-current liabilities 1,751.1 1,689.4
Amounts due to non-Guarantor Subsidiaries (522.1) (463.7)
Three months ended March 31, 2026 For the Year Ended December 31, 2025
Net sales $ 1,050.5 $ 5,113.8
Gross profit 326.3 1,324.4
Net income 53.6 406.3
Off Balance Sheet Arrangements
We have no off-balance sheet arrangements that we believe may have a material current or future effect on our financial condition, liquidity or results of operations.
Commitments, Contingencies, and Guarantees
For information regarding our commitments, contingencies, and guarantees, see Note 4 in the Notes to the Consolidated Financial Statements.
Recent Accounting Pronouncements
There were no recent accounting pronouncements that are expected to have a material impact on our financial statements and disclosures.
Lennox International Inc. published this content on April 29, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on April 29, 2026 at 18:27 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]