Lennox International (LII) Deutsche Bank’s Chicago Industrials Summit summary

Strategic achievements and growth

• Achieved 13% growth over four years, primarily driven by commercial division expansion despite divestitures and acquisitions.

• Gained share in five of six business units, with mixed results in residential (gains in replacement, losses in new construction).

• Improved margins by 500 basis points from Q2 2022 to Q2 2026, meeting and updating investor day targets.

• Investments in emergency replacement, commercial distribution, heat pumps, and partnerships (Samsung, Ariston) are expected to drive future improvements.

• Focused on profitable growth, walking away from low-margin new construction contracts and prioritizing recurring revenue from loyal contractors.

Market dynamics and guidance

• Lowered guidance with a wider range due to ongoing market uncertainties such as oil prices, inflation, and consumer sentiment.

• Residential HVAC recovery now expected in 2027, with current delays impacting near-term outlook.

• Inventory levels are slightly elevated but being managed as planned, with healthy channel inventory and destocking largely complete.

• Repair activity is up versus replacement, deferring but not eliminating future replacement demand, which is expected to rebound in two to three years.

• Affordability pressures have led to more consumer price sensitivity, increased shopping, and price compression.

Product and portfolio initiatives

• Expanded affordable product offerings and increased consumer promotions to address affordability.

• Launched new heat pump products, including mini splits and units tailored for specific markets, gaining share in replacement.

• Water heater launch exceeded expectations, supporting channel convergence between plumbing and HVAC.

• Significant investments in parts business, with acquisitions like Duro Dyne and Supco boosting parts attachment rates and a revamped distribution strategy launching next year.