Lennox plunges on Q4 earnings miss as channel destocking weighs
HVAC manufacturer cuts revenue by 11% and misses EPS estimates by 35% as distributors reduce inventories
Lennox International shares fell sharply on Wednesday after the HVAC manufacturer reported fourth-quarter earnings that missed analyst expectations by a wide margin, as distributor inventory reductions and soft residential construction sales weighed on results.
The Richardson, Texas-based company reported adjusted diluted earnings per share of $4.45, falling 35% short of the $6.84 consensus estimate. Revenue declined 11% year-over-year to $1.2 billion, missing analysts' $1.48 billion target by 19%. The stock was down 2.7% to $498.80 in morning trading.
The Home Comfort Solutions segment, Lennox's largest business unit, saw revenue plunge 21% to $700 million, driven primarily by "expected channel destocking and continued softness in new construction sales," according to the company's earnings release. The segment's performance reflects broader challenges facing the residential HVAC market, as distributors reduce inventory levels amid macroeconomic uncertainty.
"Broader macroeconomic uncertainty also led to a tempering of consumer and dealer activity, increasing deferred system replacements," the company stated. Lennox indicated that one-step channel inventory destocking is "nearly complete" as of the new year, while two-step inventories are anticipated to normalize by the second quarter of 2026.
Despite the quarterly shortfall, CEO Alok Maskara highlighted a significant strategic achievement: for the first time in company history, Lennox delivered annual segment margins exceeding 20% in 2025. "This is a direct reflection of the hard work and dedication of the Lennox team, and we remain confident that our strategy and recent investments position us to grow revenue and profits in 2026 as the industry normalizes," Maskara said in a statement.
Looking ahead, Lennox provided full-year 2026 guidance forecasting revenue growth of 6% to 7%, with approximately 4 percentage points of that growth coming from acquisitions. The company projects adjusted earnings per share in the range of $23.50 to $25.00, compared to full-year 2025 adjusted EPS of $23.16. Free cash flow is estimated between $750 million and $850 million.
Analysts had been bracing for weakness ahead of the report. UBS downgraded Lennox to "Neutral" from "Buy" on January 5, cutting its price target from $560 to $530. Barclays lowered its price target from $680 to $667 while maintaining an "Overweight" rating. JPMorgan, however, raised its target to $541 from $493, though kept its "Underweight" rating.
The Building Climate Solutions segment provided a bright spot, with revenue rising 8% to $495 million in the quarter, partially offsetting the weakness in residential markets. Full-year 2025 revenue totaled $5.2 billion, down 3% from the prior year, while adjusted diluted EPS increased 2% to $23.16.
The company returned significant capital to shareholders, repurchasing $150 million of stock in the fourth quarter and $482 million for the full year. Operating cash flow for the quarter was $406 million, up from $332 million in the prior-year period, though full-year operating cash flow declined to $757 million from $946 million in 2024.
The earnings miss underscores ongoing challenges in the residential construction market, where higher interest rates and economic uncertainty have pressured new home sales and renovation projects. HVAC distributors, which had built up elevated inventories following supply chain disruptions during the pandemic, have been working through those stockpiles, reducing new orders from manufacturers like Lennox.