Lennox International (LII) Goldman Sachs Industrials and Materials Conference summary

Strategic Priorities and Transformation

• Focus on improving customer experience, accelerating innovation, and enhancing distribution efficiency.

• Three-phase transformation plan underway, with phase one nearly complete and phase two focused on growth acceleration.

• Investments in residential distribution, commercial emergency replacement markets, and a new factory are expected to drive growth.

• Commitment to strong free cash flow and disciplined capital deployment, including bolt-on acquisitions and share repurchases.

• Emphasizes integrity, respect, excellence, accountability, and sustainability as core values guiding operations.

Financial Performance and Outlook

• Achieved $5.1B in core revenue and $920M in operating cash flow for TTM Q3 2024, with 18.9% adjusted segment profit margin.

• Margins increased from 14% to about 19% over two years, with aspirations for double-digit growth.

• Adjusted EPS reached $20.61, up 22% YoY; core revenue grew 9% YoY and margin improved by 160 bps.

• Free cash flow conversion targeted at 90%, with $2.5 billion expected over the next three years.

• Targets $5.4B–$6.0B in revenue and 19%–21% return on sales by 2026.

Product Innovation and Market Positioning

• Key innovation areas include indoor air quality, controls, and heat pumps, all with higher margins and recurring revenues.

• New product introductions take 12-18 months to impact margins, with significant benefits expected beyond 2026.

• Samsung joint venture aims to boost presence in mini splits and VRF, leveraging Samsung's brand and technology.

• Direct-to-dealer model provides structural advantage, supporting market share gains during regulatory transitions.

• Heat pump market share is a strategic focus, with a five-year plan to close the gap with peers, especially in the southern U.S.