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October 23, 2025 • 3 min read
Lennox International (LII), a major player in the heating, ventilation, and air conditioning (HVAC) industry, recently released its financial results for the third quarter of 2025. While many investors focus on the headline numbers, a deeper dive into the company's 10-Q filing with the SEC reveals a fascinating story of divergence between its core business lines. Let's break down what the numbers tell us.
At first glance, the quarter seems modest. Consolidated net sales dipped by 5% to $1.43 billion compared to the same period last year. However, this headline number masks a significant split in performance between the company's two main divisions.
Home Comfort Solutions, which provides furnaces and air conditioners for the residential market, saw its sales fall by a sharp 12% to $913 million. This slowdown likely reflects broader trends in the residential construction and replacement markets.
In stark contrast, the Building Climate Solutions segment, catering to commercial clients with products like rooftop units and refrigeration systems, experienced a robust 10% increase in sales, reaching $514 million. More impressively, the segment's profit surged by 27%, indicating strong demand and pricing power in the commercial space.
This divergence is the central story of the quarter: strength in the commercial business successfully offset weakness on the residential side.
Despite the overall drop in revenue, Lennox managed to grow its bottom line. Operating income rose by 2.3% to $310 million, and diluted earnings per share (EPS) climbed to $6.98 from $6.68 last year.
How did they achieve this? The answer lies in disciplined cost management. Selling, General, and Administrative (SG&A) expenses were cut by over 12% to $162 million. This operational efficiency was the key driver that allowed profits to grow even as sales declined. Aggressive share repurchases also helped, with the company buying back $332 million of its stock in the first nine months of the year, reducing the number of shares outstanding and boosting EPS.
This flow diagram provides a visual breakdown of how Lennox generated its revenue and managed expenses during the quarter.
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You may notice a small "Unallocated" cost category in the diagram. This represents corporate-level costs of about $1.1 million that are not assigned to a specific business segment.
While profitability improved, the company's cash flow tells a more nuanced story. For the first nine months of 2025, cash from operations was $352 million, a significant decrease from $613 million in the prior year.
A look at the balance sheet reveals the primary reason: a substantial increase in inventory. Inventories grew from $705 million at the end of 2024 to $992 million by the end of September 2025. This buildup ties up a significant amount of cash. While it could be in preparation for future demand, it's a key metric for investors to monitor in the coming quarters.
Lennox International's third quarter was a masterclass in navigating a mixed market. The strong performance of its commercial segment highlights its diversified business model, while impressive cost controls protected and even enhanced profitability. However, the slowdown in the residential market and the significant inventory buildup are important challenges. The company's ability to manage its working capital and adapt to the diverging fortunes of its key markets will be crucial for its continued success.
Last updated: October 23, 2025