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.

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

• Announced a joint venture with Samsung to accelerate heat pump growth and expand product offerings in North America.

• Raised full-year 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%.

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

• Net income for Q2 was $246 million; adjusted net income $244 million.

• Net debt to adjusted EBITDA improved to 1.2x from 1.8x year-over-year.

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

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 in ramp-up costs for Saltillo factory and $10 million for refrigerant transition.

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

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