LENNOX INTERNATIONAL (LII)·Q4 2025 Earnings Summary

Lennox Misses on Both Lines as Residential HVAC Slump Deepens; Stock Falls 7%

January 28, 2026 · by Fintool AI Agent

Lennox International (LII) broke its 8-quarter EPS beat streak with a double miss in Q4 2025, as the residential HVAC market continued to face channel destocking headwinds. Revenue of $1.20B missed consensus by 5.9%, while adjusted EPS of $4.45 fell 6.5% short of the $4.76 estimate . The stock dropped over 7% in after-hours trading.

Did Lennox Beat Earnings?

No — Lennox missed on both revenue and EPS for the first time in over two years.

Q4 revenue declined 11% year-over-year, while adjusted EPS fell 22% from $5.72 in the prior-year quarter . The company cited unfavorable sales volumes as the primary driver, with the Home Comfort Solutions segment bearing the brunt of the decline .

What Drove the Miss?

The residential segment collapse drove the shortfall. Home Comfort Solutions revenue plunged 21% to $700M, dragging overall results below expectations .

Key headwinds included:

• Channel destocking: Both one-step and two-step channels underwent destocking in Q4, "more than we expected"
• Weak new construction: Residential new construction "performed worse than we expected" — the primary source of downside surprise
• Deteriorating trends: November and December were worse than October's trajectory
• Manufacturing under-absorption: $29M in product cost headwinds from lower production volumes
• Difficult comps: Q4 2024 benefited from pre-R-454B stocking activity

Building Climate Solutions was the bright spot, delivering 8% revenue growth to $495M and expanding margins 50 basis points to 23.1% . The commercial segment benefited from steady parts and services demand, favorable mix, and improved factory productivity.

What Changed From Last Quarter?

The sequential revenue decline was more severe than typical seasonality due to accelerated destocking in Q4. Management noted the one-step channel is now "nearly complete" with destocking, while two-step inventories should normalize by Q2 2026 .

What Did Management Guide?

FY 2026 Guidance :

Segment-Level Guidance

Key Guidance Components :

• Organic volumes: Down low single digits, net of ~1 point of growth initiatives (parts, commercial ER, Samsung ductless)
• Price/mix: Mid-single digit contribution from 2026 price increases and R-454B carryover
• M&A: Mid-single digit revenue growth from recent acquisitions
• Operating expenses: $35M additional investment in customer experience, ERP upgrades, and training centers
• Interest expense: ~$65M reflecting recent M&A activity

Quarterly Cadence

Management was clear that Q1 will be the toughest quarter :

"We would expect Q1 to be down. We would expect first half to be down and the second half to be up overall. But yeah, we don't expect a great first quarter right now." — CEO Alok Maskara

CFO Michael Quenzer added context on absorption headwinds: "If you think about $10-$15 million of absorption, that can have a pretty big impact within the decremental. But we think as you get through Q1, that absorption goes away."

Full Year 2025 Performance

Despite the Q4 weakness, FY 2025 marked a milestone for Lennox — the company achieved annual margins above 20% for the first time in its history .

The margin expansion came from disciplined cost control and favorable mix, offsetting $255M in volume declines and $80M in product cost inflation .

How Did the Stock React?

LII shares initially dropped but have since recovered from the worst of the post-earnings selloff. The stock opened at $484.32, down from the prior close of $498.80, reflecting initial disappointment with the miss. Intraday trading saw a wide range from $473.92 to $506.09 as investors digested the guidance and Q&A commentary.

The recovery from the day's lows suggests investors found comfort in management's detailed guidance breakdown and the near-complete destocking in the one-step channel. The stock remains down ~27% from its 52-week high of $689.44.

Capital Allocation

Lennox maintained its shareholder-friendly capital allocation in Q4 :

• Share repurchases: $150M in Q4, $482M for FY 2025
• Dividends: $173M paid in FY 2025
• Acquisitions: $545M deployed (net of cash)
• Capex: $118M for FY 2025

Operating cash flow was strong at $406M in Q4, up from $332M in the prior-year quarter, as inventory levels normalized .

Accounting Change Note

Lennox transitioned from LIFO to FIFO inventory accounting effective Q4 2025. All prior-year comparisons in the results have been restated to reflect this change .

Q&A Highlights: What Analysts Asked

Channel Destocking Timeline

Q: When will destocking be complete? (Ryan Merkel, William Blair)

Management provided specific timelines :

• One-step channel: Nearly complete, finishing in Q1 2026
• Two-step channel: Expected to complete by end of Q2 2026

"70% of our business is one-step, so I think the way we look at it, one-step is gonna be flattish to maybe slightly up, two-step is gonna be down." — CEO Alok Maskara

Repair vs. Replace Dynamics

Q: Is repair vs. replace stabilizing or getting worse? (Jeff Sprague, Vertical Research)

Management indicated stabilization based on dealer feedback :

"What we have seen in our own one-step channel is that the confidence of dealer has come back, and people are now looking at 2026 as a fresh start with all R-454B." — CEO Alok Maskara

CFO Quenzer added: "We expect the input costs there to be up significantly more than systems are. Starting this year and into the next few years, the R-410A gas is gonna be up, the cost of the technician complexity is gonna continue to go up. So we expect that equation within the repair versus replace to lean more toward a system replace over the next year or two."

Decremental Management

Q: How are you managing decrementals in a down market? (Deane Dray, RBC)

The company contained Q4 decrementals to ~25%, well below the typical 35% benchmark :

"We managed two main things within that. First, it's the price cost equation to make sure we're positive on that. And two, as we saw end markets deteriorate in the second half of 2025, both HCS and BCS took some cost actions." — CFO Michael Quenzer

CEO Maskara explained the approach: "We have every year a strategic planning process, and during that, we have ABC cost items that we would pull if markets go down. Last year was a year we had to pull all ABC and maybe some BID items as well, given how steep the volume decline was."

Parts & Accessories Strategy

Q: Update on NSI acquisition and parts strategy? (Brett Linzey, Mizuho)

The company sees significant runway in this area :

"We had about $500 million of legacy parts and accessories within our existing business, and joining that with that existing parts and accessory business is going to help us really get that attachment rate into the 20%-25% of our sales. Currently, it's only about 15% in the HCS segment." — CFO Michael Quenzer

Self-Help Transformation Plan

Management outlined a three-phase transformation that is now entering its expansion phase :

"Our confidence in the outlook is reinforced by the strategic investments made over the past several years. Since 2022, we have deployed an incremental $300 million to broaden our capabilities, streamline our operations, and strengthen our competitive position." — CEO Alok Maskara

Lennox will host an Investor Day on March 4, 2026 where updated long-term targets will be shared .

Key Risks & Concerns

1. Residential market uncertainty: Consumer and dealer hesitancy shows no clear resolution timeline
2. Channel inventory overhang: Two-step channel destocking expected to continue through Q2 2026
3. New construction weakness: Housing starts remain soft, pressuring equipment demand — management noted it "performed worse than we expected" in Q4
4. Acquisition integration: 4% of guided 2026 revenue growth depends on successful acquisition integration
5. Q1 absorption headwinds: $10-15M in absorption costs expected as production ramps for Q2 demand

The Bottom Line

Lennox's Q4 miss snaps an impressive beat streak and highlights the depth of the residential HVAC downturn. While the Building Climate Solutions segment continues to perform well and the company achieved record margins in FY 2025, the Home Comfort segment's 21% revenue decline signals that channel destocking and consumer hesitancy remain significant headwinds. The key question for 2026 is whether the one-step channel recovery (70% of HCS business) can offset continued two-step weakness through Q2. Management's detailed guidance and candid Q&A commentary — particularly around destocking timelines and dealer confidence returning — helped the stock recover from its session lows. With an Investor Day on March 4, investors will be watching for updated long-term targets that could provide a more constructive catalyst.

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Related: LII Company Profile | Q3 2025 Earnings | Latest Transcript