Executive Summary

Q2 2025 delivered a clean beat across EPS, revenue, and EBITDA, driven by favorable mix/price from the R454B transition and productivity improvements; adjusted EPS was $7.82 and segment margin reached 23.6% .
Revenue increased 3% year over year to $1.50B while operating income rose 11% to $354M; management raised FY25 guidance to revenue up ~3% and EPS $23.25–$24.25, citing improved cost inflation and execution momentum .
Both segments expanded margins: Home Comfort Solutions (HCS) margin to 25.3% and Building Climate Solutions (BCS) to 24.9%, with $114M of mix/price benefits offsetting volume declines and inflation .
Stock reaction catalysts: broad-based beat vs. consensus, higher full-year EPS outlook, and narrative that R454B canister constraints and destock headwinds are normalizing into 2H, positioning for sustained margin expansion and emergency replacement growth .

What Went Well and What Went Wrong

What Went Well

Record segment margin and EPS beat: Segment margin reached 23.6% and adjusted EPS $7.82, with mix/price driving $114M of profit tailwind; CEO emphasized “revenue growth and margin expansion in both segments” and raised full-year guidance .
HCS and BCS margin expansion despite inflation: HCS margin rose 200 bps to 25.3% and BCS margin improved 60 bps to 24.9% on favorable mix/price and productivity; management noted R454B adoption (~90% of refrigerant-based sales) fueling mix .
Strategic growth platforms advancing: Samsung JV and Ariston JV broaden portfolio and should contribute from 2026/2027; emergency replacement rollout (now 5–6 markets) gaining traction with inventory positioning and faster fulfillment .

What Went Wrong

Volume softness and destocking headwinds: Sales volumes declined (HCS down 9% and BCS down 3% YoY for Q2) with industry R410A destocking and R454B canister shortages weighing on sell-through .
Cash flow compression: Operating cash flow declined to $87M from $184M YoY and FCF to $58.7M from $151.9M, reflecting inventory investments for R454B transition and emergency replacement .
Tariff/inflation overhang: FY cost inflation assumption is ~6% and price/mix trimmed to ~9% (from prior ~11%); management maintained sensitivity to tariff volatility, though mitigation and surcharge withdrawal helped .

Financial Results

Consolidated Performance vs. Prior Periods

Metric	Q2 2024	Q1 2025	Q2 2025
Revenue ($USD Millions)	$1,451.1	$1,072.6	$1,500.9
Operating Income ($USD Millions)	$320.1	$155.6	$354.0
Net Income ($USD Millions)	$245.9	$120.3	$277.6
Diluted EPS ($USD)	$6.87	$3.37	$7.82
Segment Profit Margin (%)	21.9%	14.5%	23.6%
Net Cash from Operating Activities ($USD Millions)	$184.0	$(35.8)	$86.8
Free Cash Flow ($USD Millions)	$151.9	$(60.8)	$58.7

Segment Breakdown

Metric	Q2 2024	Q1 2025	Q2 2025
HCS Revenue ($USD Millions)	$982.3	$721.4	$1,009.3
HCS Segment Profit ($USD Millions)	$228.5	$116.8	$255.2
HCS Segment Margin (%)	23.3%	16.2%	25.3%
BCS Revenue ($USD Millions)	$468.8	$351.2	$491.6
BCS Segment Profit ($USD Millions)	$114.0	$53.5	$122.5
BCS Segment Margin (%)	24.3%	15.2%	24.9%

KPIs and Balance Sheet

Metric	Q2 2024	Q1 2025	Q2 2025
Net Debt / Adjusted EBITDA (x)	1.2x	0.8x	1.0x
TTM FCF Conversion (%)	81%	97%	81%
Cash and Cash Equivalents ($USD Millions)	$47.6	$217.2	$49.2
Share Repurchases ($USD Millions, quarter)	—	$85.2	$210.0

Results vs. Wall Street Consensus (S&P Global)

Metric	Consensus (Q2 2025)*	Actual (Q2 2025)
Revenue ($USD Millions)	$1,473.7*	$1,500.9
Primary EPS ($USD)	$6.87*	$7.82
EBITDA ($USD Millions)	$342.2*	$373.8*

Values retrieved from S&P Global.
Consensus counts: Revenue estimates = 15; EPS estimates = 20*.

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Adjusted EPS	FY 2025	$22.25–$23.50	$23.25–$24.25	Raised
Revenue Growth	FY 2025	~2%	~3%	Raised
Total Cost Inflation	FY 2025	~9%	~6%	Lowered
Mix/Price Benefit	FY 2025	~11%	~9%	Lowered
Volume Decline (company)	FY 2025	~down 9% (prior)	~down 6%	Improved
Interest Expense	FY 2025	~$35M	~$30M	Lowered
Tax Rate	FY 2025	~20%	~19–20%	Slightly Lower
Capex	FY 2025	~$150M	~$150M	Maintained
Free Cash Flow	FY 2025	$650M–$800M	$650M–$800M	Maintained

Earnings Call Themes & Trends

Topic	Previous Mentions (Q4’24 and Q1’25)	Current Period (Q2’25)	Trend
R454B transition & mix/price	Planning for 10% price on R454B; early adoption; factory ramp inefficiencies	~90% of refrigerant-based sales on R454B; mix/price +$114M; margins at record levels	Positive mix tailwind; normalization underway
Tariffs & inflation	FY25 inflation guide raised to ~9% in Q1; two price actions incl. surcharge	Inflation now ~6%; surcharge largely withdrawn as China tariffs moderated; interest expense guide down	Easing cost pressure; pricing discipline maintained
Emergency replacement	Pilot launch in Q4; investments in sales force	5–6 markets live; inventory positioned; expected 2H lift	Scaling, 2H growth driver
Distribution investments	Focus on margin capture as manufacturer + distributor	Continued investments causing some “other” cost but enabling service levels	Structural margin expansion path
AI/technology initiatives	Digital CX, data assets emphasized	AI-based pricing tools used to manage local pricing and elasticity	Enhanced commercial discipline
Weather/new construction	Expect destock in Q2; mild weather risk noted	Late start to summer; June/July trends improved; residential new construction remains subdued	Mixed: repair bias vs replace in near term
JVs (Samsung, Ariston)	Broaden ductless portfolio; planning	Samsung meaningful in 2026; Ariston ramps in 2027; dealer feedback positive	Medium-term growth optionality

Management Commentary

CEO: “We delivered revenue growth and margin expansion in both segments… Given our strong results and continued momentum… we are raising our full-year guidance” .
CFO: “During the quarter, approximately 90% of our refrigerant-based product sales contained the new R454B refrigerant, driving favorable product mix and contributing meaningfully to both top line and profit growth” .
CEO on pricing tools: “We… have now started using some really good tools, AI-based tools, and a lot of data to make those decisions” .
CEO on supply chain and canisters: “I sincerely hope that we won’t be talking about [R454B canister shortages] when we talk about Q3 earnings… inventory with 30 ft line length pre-charge… there are more canisters available than there were two months ago” .
CFO on margin trajectory: “For the full year, we’re projecting about a 50 basis point expansion in margin… both businesses will show margin expansion in the second half” .

Q&A Highlights

Price–cost gap and A2L costs: Productivity gains and tariff mitigation drove margin expansion; A2L manufacturing costs and pricing tracking “as expected” .
Volumes/destocking cadence: HCS volumes down ~8% in 2H; destock largely behind after Q2; canister issue improving with longer line sets .
Guidance philosophy: Raised EPS range but kept $1 spread given uncertainties; inflation held at ~6% with conservatism .
Inventory strategy: Built R454B and emergency replacement inventory to ensure availability; plan to decelerate and normalize in 2H .
Emergency replacement rollout: From pilots to 5–6 markets with inventory and trained teams; expected multi‑year tailwind .

Estimates Context

Lennox beat Wall Street consensus across key metrics: EPS $7.82 vs. $6.87*, revenue $1,500.9M vs. $1,473.7M*, and EBITDA $373.8M vs. $342.2M* for Q2 2025 .
FY25 guidance raised (EPS and revenue), alongside lower cost inflation and interest expense guides, suggests upward estimate revisions for FY EPS and margin trajectory. Values retrieved from S&P Global.*

Key Takeaways for Investors

Mix/price from R454B and ongoing productivity underpin resilient margins; segment margin at 23.6% and broadened distribution capabilities support durable ROS expansion .
Guidance upgrade with reduced cost inflation and lower interest expense increases FY EPS confidence; balance sheet leverage remains low (Net Debt/Adj. EBITDA ~1.0x) .
Near-term watch items: normalization of R454B canister availability, destocking largely behind Q2, and 2H margin expansion across both segments .
Strategic growth optionality via Samsung (ductless/VRF) and Ariston (water heaters) from 2026–2027 enhances cross‑sell and “one‑stop” positioning .
Emergency replacement initiative scaling in commercial should provide a 2H demand offset to end‑market softness, with faster cycle times and better availability as differentiators .
Cash conversion temporarily lower on inventory builds; management plans normalization in 2H with FCF guide maintained at $650–$800M .
Valuation drivers: sustained price discipline vs. moderating inflation, execution on distribution margin capture, and potential estimate upward revisions post beat/guidance raise .

Other Relevant Press Releases (Q2 Window/Context)

Lennox Reports Second Quarter Results (press release) .
Lennox Schedules Second Quarter Results (pre-release scheduling) .
Dividend increase and buyback authorization (May) referenced on call, supporting capital return narrative (related press release: Lennox Increases Quarterly Dividend and Stock Repurchase Authorization, May 22, 2025) .

Notes on non-GAAP: Adjusted net income and adjusted diluted EPS equaled GAAP in Q2 due to minimal reconciling items; free cash flow reconciled from GAAP operating cash flow .

LENNOX INTERNATIONAL INC (LII)·Q2 2025 Earnings Summary