Lennox's Commercial Business Is Recovering Nicely

Over the last decade, Lennox has capitalized on its efforts to gain market share and cut costs against a backdrop of improving end-market demand. Its margin expansion story has been remarkable, with adjusted operating margins rising from about 8% during the last sales peak in 2007 to about 15% in 2019 before the pandemic (excluding an insurance recovery benefit and adjusting for divestitures of lower-margin refrigeration businesses). We think its expanding distribution network and product portfolio have helped Lennox gain market share, while low-cost manufacturing and product sourcing and more cost-efficient product designs helped reduce its cost base.