Lennox International (LII) Q2 2024 earnings summary

Executive summary

• Achieved sixth consecutive quarter of double-digit EPS growth, with Q2 adjusted EPS up 11% to $6.83 and GAAP EPS at $6.87; core revenue grew 8% to $1.5 billion, driven by volume, pricing, and AES acquisition.

• Operating income reached a record $320 million, up 15% year-over-year; adjusted segment profit rose 13% to $319 million.

• Announced a joint venture with Samsung to accelerate heat pump and ductless HVAC growth in North America.

• Raised full-year 2024 EPS guidance to $19.50–$20.25 and maintained free cash flow guidance at $500–$600 million.

• European operations divested in Q4 2023; all core metrics exclude these operations.

Financial highlights

• Adjusted segment margin reached a record 21.9%, up 100 bps year-over-year; gross margin improved to 33.6% and operating margin to 22.1%.

• Operating cash flow for Q2 was $184 million, down from $196 million prior year; free cash flow for Q2 was $152 million, up from $147 million.

• Net debt to adjusted EBITDA improved to 1.2x from 1.8x year-over-year; debt-to-total-capital ratio decreased to 69%.

• Return on invested capital increased to 44%, maintaining industry leadership.

• $78 million in dividends paid in the first half of 2024.

Outlook and guidance

• Full-year revenue projected to grow approximately 7%, with 2% from AES acquisition; EPS guidance raised to $19.50–$20.25.

• Free cash flow expected between $500 million and $600 million; capital expenditures forecasted at $175 million; interest expense at $50 million; tax rate at 20%.

• Component cost inflation expected to be low single digits, with $10 million ramp-up costs for Saltillo factory and $10 million for refrigerant transition in the second half.

• Liquidity is sufficient to fund operations, capex, share repurchases, and dividends.

• Cautiously optimistic outlook, focusing on regulatory transitions and market share gains.