Executive Summary

Q3 2025 was a margin-resilient but top-line-soft quarter: revenue fell 5% to $1.427B while segment margin expanded 150 bps to 21.7%, driving diluted/adjusted EPS up 4% to a Q3 record $6.98 .
Results versus S&P Global consensus: EPS beat ($6.98 vs $6.84*), revenue missed ($1.43B vs $1.48B*). Management cut FY25 guidance to revenue down ~1% and adjusted EPS $22.75–$23.25 (from +3% and $23.25–$24.25), and lowered FCF guide to ~$550M .
Home Comfort Solutions (HCS) contracted on volume destocking and a weak summer; Building Climate Solutions (BCS) delivered 10% revenue growth and 330 bps margin expansion on pricing/mix, services, and factory productivity .
Management cited refrigerant transition, channel/contractor destocking, and macro softness as primary headwinds; they expect inventory normalization by Q2 next year and a return to growth in 2026, with bolt-on parts/supplies acquisitions supporting mix and cash generation .

What Went Well and What Went Wrong

What Went Well

Margin resilience and record Q3 EPS: Segment margin rose to 21.7% (+150 bps) and adjusted/diluted EPS reached $6.98, a third-quarter record, despite a 5% revenue decline .
BCS outperformance: Revenue up 10% to $514M with segment margin up 330 bps to 26.1% on favorable mix/price, services growth, and improved factory efficiency as the new Saltillo facility scaled .
Strategic M&A for parts and accessories: Closed the NSI HVAC division (Duro Dyne & Supco) to expand parts/supplies; CEO emphasized accretion and portfolio strengthening for 2026 and beyond .
Quote: “2025 is proving to be a transitional year… During these uncertain times, the Lennox team continues to respond with agility and discipline, delivering margin expansion in both segments.” — CEO Alok Maskara .

What Went Wrong

Top-line softness and HCS volume pressure: Revenue fell 5% YoY to $1.427B; HCS revenue fell 12% with unit volume down ~23% and clear trade-down/repair behavior amid a weak summer, destocking, and macro uncertainty .
Guidance cuts: FY25 revenue outlook reduced from +3% to ~-1%, adjusted EPS cut to $22.75–$23.25, and FCF guide lowered to ~$550M due to elevated inventories .
Working capital drag: Q3 operating cash flow of $300.7M was below prior year ($452.1M) and Q3 free cash flow fell to $265.3M from $411.7M as finished goods inventory remained elevated .

Financial Results

Headline P&L – Sequential (2025)

Metric	Q1 2025	Q2 2025	Q3 2025
Revenue ($USD Millions)	$1,072.6	$1,500.9	$1,426.8
Operating Income ($USD Millions)	$155.6	$354.0	$310.2
Segment Margin (%)	14.5%	23.6%	21.7%
Diluted EPS ($)	$3.37	$7.82	$6.98

Q3 YoY – Actuals

Metric	Q3 2024	Q3 2025
Revenue ($USD Millions)	$1,498.1	$1,426.8
Operating Income ($USD Millions)	$303.3	$310.2
Diluted EPS ($)	$6.68	$6.98

Q3 2025 Actual vs S&P Global Consensus

Metric	Actual	Consensus Mean*	# of Estimates*
Revenue ($USD Millions)	$1,426.8	$1,483.4*	16*
Primary EPS ($)	$6.98	$6.84*	19*

Values marked with * are retrieved from S&P Global.

Segment Performance (Q3 2025 vs Q3 2024)

Segment	Net Sales ($USD Millions)	Segment Profit ($USD Millions)	Segment Margin (%)
Home Comfort Solutions (HCS)	$912.9 (vs $1,032.8 in Q3’24)	$202.9 (vs $226.5)	22.2% (up 30 bps YoY)
Building Climate Solutions (BCS)	$513.9 (vs $465.3 in Q3’24)	$134.0 (vs $105.9)	26.1% (up 330 bps YoY)

Notes: HCS profit decline was driven by lower volumes (-$86M) and product cost inflation, partially offset by price/mix (+$85M) and lower selling/freight costs . BCS benefited from price/mix (+$33M), modest volume, and productivity gains at the new Saltillo facility .

Cash Flow & Balance Sheet KPIs

KPI	Q3 2024	Q3 2025
Net Cash from Operating Activities ($USD Millions)	$452.1	$300.7
Free Cash Flow ($USD Millions)	$411.7	$265.3
Purchases of PP&E ($USD Millions)	$41.2	$35.6
Q3 Share Repurchases ($USD Millions)	—	$37
Cash & Cash Equivalents (Sep 30, 2025) ($USD Millions)	—	$52.9
Commercial Paper (Sep 30, 2025) ($USD Millions)	—	$157.0
Long-term Debt (Sep 30, 2025) ($USD Millions)	—	$838.2

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue Growth	FY 2025	~+3%	~-1%	Lowered
Adjusted EPS	FY 2025	$23.25–$24.25	$22.75–$23.25	Lowered
Free Cash Flow	FY 2025	$650–$800M	~$550M	Lowered
Mix/Price Benefit	FY 2025	~+9% (implied)	~+9% (unchanged)	Maintained
Cost Inflation	FY 2025	~+6% (prior)	~+5%	Improved
HCS Volume Decline	FY 2025	High-single-digit decline (prior)	Mid-teens decline	Lowered
Interest Expense	FY 2025	—	~$40M	Provided
Tax Rate	FY 2025	—	~19.3%	Provided
Acquisition Amortization	FY 2025	—	~$10M, minimal EBIT impact	Provided
Capital Expenditures	FY 2025	~$150M	~$150M (implied)	Maintained
Dividend	Q4 2025	—	$1.30/share declared (paid Oct 15)	Announced

Earnings Call Themes & Trends

Topic	Previous Mentions (Q1 2025, Q2 2025)	Current Period (Q3 2025)	Trend
Refrigerant transition & destocking	Q1: Transition drove factory inefficiencies and margin pressure in BCS; HCS mix/price aided revenue . Q2: Industry still uneven; raised FY guide on pricing/mix strength .	Dealers/distributors and contractors destocking persisted; weak summer sell-through (sell-in ~-20%, sell-through ~-10%); normalization expected by Q2 next year .	Headwind persists near term; normalization in H1 next year
Tariffs & cost inflation	Q1: Tariffs weighed on costs and margins . Q2: Pricing to offset inflation; disciplined .	Cost inflation ~+5% (down from +6%) with tariff mitigation; pricing/mix still +9% for FY25 .	Moderating inflation; pricing discipline maintained
BCS emergency replacement	Q1: Investment and ramp-up impacted margins . Q2: Initiative gaining traction .	Nearly 100% growth in emergency replacement off small base; ~5% of BCS revenue; set for multi-year growth .	Structural growth vector
Factory productivity (Saltillo)	Q1: Transition inefficiencies; move-in costs .	Saltillo ramp aided BCS margins; more efficiencies expected in 2026 .	Improving
Digital/AI enablement	Limited	Launched AI support agents (7k+ techs registered; 15k+ sessions), improving field support and customer experience .	Building digital moat
Ductless JV & portfolio	Q2: Broader portfolio focus .	Ductless ~2% of HCS vs ~10% industry; Samsung JV a multi-year growth opportunity; meaningful contribution from 2026 .	Underpenetrated category with runway
R&C account rationalization	—	Rationalizing lowest 10–15% of low-margin R&C accounts; margin accretive over “multiple months” .	Margin-focused mix shift

Management Commentary

Strategic posture: “Our talented team… delivered margin expansion in both segments… The recent DuroDyne and Supco acquisition strengthens our parts and accessories portfolio, positioning us for greater success during the more normalized operating environment expected in 2026 and beyond.” — CEO Alok Maskara .
Margin narrative: “Our segment margin was 21.7%, a record for the third quarter… Adjusted EPS was a third quarter record of $6.98” — CEO .
2026 setup: “We are adjusting our full-year outlook… While 2025 remains challenging… we remain optimistic about a return to market growth in 2026.” — CFO Michael Quenzer .
Destocking timing: “If I had to guess… the destocking would probably be over by Q2 of next year… we’ll be back to normal levels by Q2 next year.” — CEO .
Ductless expansion: “Within HCS, ductless represents about 2% of sales vs ~10% industry… multi-year benefit here… customers appreciate the brand name.” — CFO .

Q&A Highlights

Channel and contractor destocking: Sell-in ~-20% and sell-through ~-10% in Q3; contractors reduced barn-held inventories as lead times improved; normalization targeted by Q2 next year .
4Q under-absorption: Sequential margin step-down driven by production pullback to right-size inventory; ~20% decremental implied in 4Q; absorption headwind to linger into Q1 next year .
Emergency replacement and share: Emergency replacement nearly doubled off a small base; ~5% of BCS revenue; positioned for multi-year growth in 2026 season .
Pricing and elasticity: OEM pricing discipline holding, with pressure more between contractors and consumers; expect annual pricing to offset inflation in 2026 with carryover benefits from tariffs/A2L mix .
Portfolio actions: Rationalizing lowest 10–15% of low-margin R&C accounts to improve profitability; acquisition amortization ~$10M; potential 2026 EPS accretion $0.30–$0.40 from parts/supplies acquisition (management framing) .

Estimates Context

Q3 2025 vs S&P Global consensus: EPS beat ($6.98 vs $6.84*), revenue miss ($1,426.8M vs $1,483.4M*), based on 19 EPS and 16 revenue estimates* .
Given the FY guide cut (revenue ~-1%, EPS $22.75–$23.25), Street models likely need to move lower on revenue/FCF and slightly on EPS; mix/price and cost actions cushion earnings, while working capital recovery is a 2026 lever .