Lennox reported a 3% increase in revenue to $1.5 billion, 2% growth in operating profit to $355 million (30 basis points of margin compression to 23%), and flat earnings per share of $7.72 in its second quarter.
Lennox achieves more dominant share, either through organic growth (expanding its store/distribution footprint) or acquisition of further distribution.
Bears
Pricing power erodes due to insufficient product differentiation.
Lennox manufactures and distributes heating, ventilating, air conditioning, and refrigeration products for the North American replacement (75% of sales) and new construction (25% of sales) markets. Residential HVAC (home comfort solutions) accounts for 67% of sales and commercial HVAC (building climate solutions) accounts for the remaining 33% of sales. Lennox’s commercial exposure is what its peers refer to as residential and light commercial, and lacks the scale and complexity of what is referred to as an applied solution. The company goes to market with multiple brands, but Lennox is its flagship HVAC brand.