Lennox Residential HVAC Revenue Improves in Q3

HCS segment profit declined 18% to $176 million, while segment margin decreased 490 basis points to 18.7%. 

“In the third quarter, Building Climate Solutions continued to deliver strong revenue growth and residential end-markets began stabilizing,” said Alok Maskara, CEO of Lennox. “However, our margins and results fell short of our expectations, reflecting heightened competitive pressure, and the impact of persistent inflation on our costs.” 

On the company’s earnings call, Maskara said underlying residential demand remains constrained by homeowner affordability, elevated mortgage rates, and broader consumer uncertainty. Lennox said HCS organic revenue declined 1% during the quarter, compared with a 9% decline in the second quarter. 

The results follow Lennox’s second-quarter forecast for residential performance to improve sequentially during the second half of 2026. At the time, the company said it expected the most meaningful residential market recovery to extend into 2027. 

Residential Revenue Improves 

In the second quarter, HCS revenue declined 7%, driven largely by a 12% decline in unit volume. That followed a first quarter in which residential volumes declined 21%, and revenue fell 10%. 

Residential new construction was a particular source of weakness in the second quarter, when revenue from that market declined approximately 30%. Lennox said at the time that some of the decline reflected its decision to move away from lower-margin new-construction business. 

During the third quarter, Lennox implemented more targeted pricing by region and customer segment as it worked to defend and recapture residential market share. The company said direct-to-contractor sales declined 6%, improving from a 12% decline in the second quarter. Two-step organic sales increased 13%, aided by the comparison with distributor destocking in the prior year. 

Affordability concerns are also influencing Lennox’s product strategy. The company is refreshing its entry-tier residential portfolio with products that include additional side-discharge offerings.  

Maskara said Lennox is working toward a four-tier portfolio — entry level, good, better, and best — that provides lower-priced options for customers facing affordability constraints. 

Lennox plans a broader launch of its entry-tier portfolio in the first quarter of 2027. 

Higher costs continued to affect residential profitability. Lennox attributed a $32 million HCS profit headwind to higher product costs from inflation, including tariff-related impacts, and lower factory absorption. Reduced sales volumes created another $12 million headwind, while higher fuel costs, inflation across selling, general and administrative expenses and distribution, and ongoing investments reduced profit by another $15 million. 

Those pressures were partially offset by $13 million in mix and price benefits and $6 million from completed acquisitions. 

Commercial Growth Continues 

Building Climate Solutions (BCS) revenue increased 24% to $635 million, the same year-over-year growth rate reported in the second quarter. 

Organic BCS revenue increased 15%, with Lennox reporting continued strength across commercial HVAC, refrigeration, and services. 

Segment profit increased 19% to $167 million, while segment margin declined 110 basis points to 26.2%. 

Higher sales volumes contributed $24 million to BCS profit, while favorable mix and pricing contributed $8 million and completed acquisitions added $13 million. Those gains were partially offset by a $14 million impact from higher product costs due to inflation, including tariff-related impacts, and $5 million in other costs. 

Lennox Lowers Full-Year Outlook 

Overall Lennox revenue increased 10% to $1.6 billion during the third quarter. Operating income declined 5% to $312 million, and adjusted diluted earnings per share declined 7% to $6.84. 

Lennox revised its full-year outlook following the quarter. 

The company now projects approximately 6% revenue growth for 2026, compared with its previous forecast of approximately 8%. Completed acquisitions are expected to contribute about 5% to full-year revenue growth. 

For the full year, Lennox calls for an approximately 4% decline in HCS revenue, compared with its previous forecast for 1% growth. BCS revenue is projected to increase approximately 23%, up from the previous forecast of 20%. 

Adjusted earnings-per-share guidance was reduced to between $21 and $21.50, compared with the previous range of $23 to $24. Free cash flow guidance was lowered to between $700 million and $750 million. 

Looking toward 2027, Lennox expects inflationary pressures from tariffs, components, and commodities to continue. The company said pricing will remain responsive to competitive conditions, while productivity will play a larger role in addressing the gap between prices and costs. 

Lennox expects its recovery plan to drive sales, EBIT, and EPS growth in 2027, with momentum building as the year progresses. 

“Importantly, our plan does not depend on a significant market recovery,” Maskara said.