Lennox Home Margin Drops To 18.7% From 23.6% As Price Cuts And Tariff Costs Bite
Lennox's residential unit earned $40 million less on 3% higher sales while the company spent $150.0 million on buybacks and leaned on short-term debt.
Lennox's residential heating and cooling unit earned $40 million less in the third quarter than a year earlier even as its sales rose 3%, and its margin fell to 18.7% from 23.6%. The HVAC maker's 10-Q, filed Wednesday, shows the company kept repurchasing stock while commercial paper climbed and $300.0 million of notes moved into current debt.
Price cuts, tariffs and a thinner margin
Lennox International designs, makes and sells heating, ventilation, air conditioning and refrigeration equipment. Its Home Comfort Solutions segment sells furnaces, air conditioners and heat pumps; Building Climate Solutions covers light commercial and refrigeration gear.
Home Comfort segment profit was $175.7 million against $215.3 million a year earlier, on sales of $937.2 million. The company's earnings release says targeted price adjustments in select markets were made to defend and recapture share, and that those moves, inflation and tariff costs weighed on profit. The 10-Q breaks out the damage: $32 million from higher product costs including tariffs and lower factory absorption, $12 million from lower volume and $15 million from fuel, distribution and other cost inflation, offset by $13 million from mix and price and $6 million from acquisitions.
Companywide, gross margin fell 250 basis points (2.5 percentage points) to 31.6% from 34.1%. Product costs took 300 basis points, while mix and price added 80. Diluted earnings per share were $6.41 against $7.38 a year earlier.
CEO Alok Maskara said margins and results "fell short of our expectations," citing "heightened competitive pressure" and persistent inflation. The company cut its full-year adjusted earnings guidance to $21.00 to $21.50 from $23.00 to $24.00.
Commercial strength, rising tax rate
Building Climate Solutions offset part of the hit: sales rose 24% to $635.3 million and segment profit rose $26 million to $166.5 million, with margin at 26.2%.
The effective tax rate was 24.6% in the third quarter, up from 20.8% in the second quarter and from 18.1% a year earlier, which the filing attributes to higher income in higher-tax jurisdictions. Interest expense rose to $18 million from $11 million on heavier commercial paper and a term loan taken out in October 2025.
The prior quarterly filing had shown Home Comfort sales down 7%. The 10-Q also notes $25 million of tariff refunds helped nine-month Home Comfort profit.
Buybacks against short-term borrowing
Lennox repurchased $150.0 million of stock in the quarter, and its equity statement shows $151.6 million of treasury stock purchases, against $43.3 million of cash at September 30. Commercial paper outstanding stood at $455.1 million, and $300.0 million of senior notes due August 1, 2027 are now current maturities.
The July purchase of Heat Controller cost $215.3 million in cash and added $88.2 million of goodwill. Through September 30, the business brought in $29.5 million in revenue and $1.2 million in Home Comfort profit. The purchase price allocation is preliminary.
Heat Controller's final working capital adjustment is due in the fourth quarter of 2026.
Sources
- 10-Q Filing — Lennox International (LII) — SEC EDGAR
- 10-Q Filing — Lennox International (LII), Q2 FY2026 filed 2026-07-29 (comparison basis) — SEC EDGAR
- Earnings release (8-K Item 2.02, lii-20260930xexx991pressre.htm) — Lennox International, filed 2026-10-28 — SEC EDGAR
- Lennox (LII) Q3 Earnings: How Key Metrics Compare to Wall Street Estimates — Yahoo Finance
- Lennox Reports 2026 Third Quarter Earnings Results – Company Announcement - FT.com — Financial Times
- Lennox Non-GAAP EPS of $6.84 misses by $0.52, revenue of $1.6B beats by $20M, lowers FY guidance (LII:NYSE) | Seeking Alpha — seekingalpha.com
- Lennox Says Higher Costs Are Weighing on Residential HVAC Business — MarketWatch
- Lennox: Q3 Earnings Snapshot – WTOP News — wtop.com
