Lennox’s first quarter results were marked by ongoing transitions in its product lineup and significant external cost pressures. While revenue and non-GAAP earnings per share both exceeded Wall Street expectations, the market responded negatively, reflecting concerns over margin compression and supply chain challenges. Management attributed the 140 basis point decline in operating margin primarily to higher input costs from new tariffs and inefficiencies tied to the regulatory shift to low-global warming potential (GWP) refrigerants. CEO Alok Maskara explained, “BSC margins were impacted due to short-term inefficiencies related to the manufacturing transition and new factory start-up,” highlighting that much of the margin pressure was expected and internal in nature.
Is now the time to buy LII? Find out in our full research report (it’s free).
Lennox (LII) Q1 CY2025 Highlights:
- Revenue: $1.07 billion vs analyst estimates of $1.03 billion (2.4% year-on-year growth, 4.6% beat)
- Adjusted EPS: $3.37 vs analyst estimates of $3.25 (3.6% beat)
- Management slightly raised its full-year Adjusted EPS guidance to $22.88 at the midpoint
- Operating Margin: 14.5%, down from 15.9% in the same quarter last year
- Organic Revenue rose 2.4% year on year (4.2% in the same quarter last year)
- Market Capitalization: $19.3 billion
While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.
Our Top 5 Analyst Questions Lennox’s Q1 Earnings Call
- Ryan Merkel (William Blair) asked about commercial order delays and whether the worst was over. CEO Alok Maskara responded that order rates had improved and most inefficiencies were likely a one-time event, though some challenges may persist into the second quarter.
- Tommy Moll (Stephens) pressed on the rationale for lowering volume assumptions and the timing of price increases. Maskara clarified that the company had not yet seen a slowdown, but built conservatism into the outlook due to macroeconomic uncertainty and tariff impacts.
- Joe O’Dea (Wells Fargo) inquired about the inflation guidance increase and how pricing would respond if tariffs changed. CFO Quenzer explained that recent surcharges could be rolled back if tariff rates were reduced, and that much of the inflation was driven by Chinese component costs.
- Julian Mitchell (Barclays) questioned the operating margin trajectory and how volume and pricing changes would balance out. Management reiterated that margin improvement would be driven by internal operational fixes, and that tariff-related price increases were expected to roughly offset volume declines.
- Steve Tusa (JPMorgan) sought clarification on the impact of refrigerant shortages and whether recent price hikes from suppliers would affect volumes. Maskara stated Lennox had no supply issues for production, and the shortages were limited to service canisters, not expected to impact overall demand.
Catalysts in Upcoming Quarters
In the coming quarters, the StockStory team will monitor (1) the effectiveness of tariff mitigation efforts and the potential for any easing in trade policy, (2) the pace at which manufacturing inefficiencies are resolved as new product lines and factories mature, and (3) signs of demand stabilization or recovery in both Home Comfort and Building Climate Solutions segments, particularly as the emergency replacement business expands. The adoption rate of new digital and supply chain initiatives will also be a key area of focus.
Lennox currently trades at $543.96, down from $558.85 just before the earnings. Is there an opportunity in the stock?The answer lies in our full research report (it’s free).
High-Quality Stocks for All Market Conditions
The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.
While the crowd speculates what might happen next, we’re homing in on the companies that can succeed regardless of the political or macroeconomic environment. Put yourself in the driver’s seat and build a durable portfolio by checking out our Top 9 Market-Beating Stocks. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today.
