AI interpretation based on checked source excerpts. Issuer assertions and evidence limitations remain explicit.
Policy quality-scores-2: six equally weighted categories. The overall score requires full coverage. Missing inputs are not zero. Qualitative grades are sourced interpretations, not probabilities. 4/6 · 18/10/2026
Moat—
Insufficient evidence for every rubric criterion; no category score is inferred.
structural advantage · — · Direct distribution and intellectual-property protections exist, but protected access, superior costs and customer-valued exclusivity are not established. Distribution's low entry barriers do not resolve barriers across the entire business.
durability · — · The channel remains important, but its persistence does not demonstrate durable excess-return protection or material switching costs.
customer dependency · — · Replacement and service demand establish relevant customer needs, without demonstrating dependence on Lennox specifically.
erosion resilience · — · Favorable price/mix and resilient profitability coexist with organic-volume declines and cost pressure. With no established structural moat, these results cannot establish resilience of such a moat.
Pricing power—
Insufficient evidence for every rubric criterion; no category score is inferred.
realized pricing · 2/4 · Favorable price/mix contributed 9% to 2025 sales and 5% to first-half 2026 sales, demonstrating favorable realized commercial outcomes. The disclosures combine price with mix, while organic volumes fell 13% and 6%, respectively; neither pure price realization nor price-driven volume loss can be isolated.
retention · — · Replacement sales and a broadly stable direct-channel share provide indirect evidence of recurring market demand and channel continuity, but cannot establish repeat purchasing by the same dealers or customers. Organic-volume declines likewise cannot be attributed to customer defections.
margin resilience · 2/4 · Price/mix largely offset 2025 product and distribution cost increases. First-half 2026 gross margin nevertheless fell 20 basis points and operating margin fell from 20.1% to 19.3%. Second-quarter gross-margin recovery included $30 million of tariff refunds, limiting attribution to pricing power.
contractual freedom · — · Point-in-time order fulfillment establishes accounting treatment, not contractual freedom to reset prices. Customer price commitments, repricing rights and contractual restrictions are not supplied.
Predictability93
Five consecutive annual periods. Equal weights: nondeclining revenue frequency; revenue-growth volatility (5–40pp); positive FCF frequency; FCF-margin volatility (3–20pp). Stability indicator, not a growth forecast.
- Nondeclining revenue years (%)
- 75.00
- Revenue growth volatility (pp)
- 5.47
- Positive FCF years (%)
- 100.00
- FCF margin volatility (pp)
- 3.46
Financial strength81
Equal-weight grades: debt/FCF (1–8x), net debt/earnings before interest and tax (0–5x), interest service (1–12x), current ratio (0.75–2x). Earnings use reported operating income, or reported pretax profit plus reported interest expense when operating income is unavailable. Interest service uses earnings/interest expense; if unavailable, it uses reported operating cash flow/cash interest paid, without relabeling cash paid as accrued expense. Nonpositive cash flow/earnings score 0 for their service component; reported zero interest with a positive numerator scores 100. Net cash scores 100 for net leverage. Missing disclosures remain unavailable. General nonfinancial-company rubric, not a credit rating; exceptional and nonoperating gains are not normalized out. IFRS finance-cost and cash-flow classifications retain their reported scope.
- debtFcfGrade
- 83.24
- netDebtEbitGrade
- 74.00
- interestCoverageGrade
- 100.00
- currentRatioGrade
- 67.79
- Debt / FCF (x)
- 2.17
- Net debt / operating income (x)
- 1.30
- Interest coverage (x)
- 25.46
- Current ratio (x)
- 1.60
Capital allocation97
Three-year equal-weight indicators: pretax return on average invested capital (0–25%; equity + debt − cash, each year and its prior year), share-count growth (0–5%, lower better), share-based cost/revenue (2–20%, lower better), consolidated FCF/net income (0–1x). Return uses reported operating income or, if unavailable, EBIT calculated from reported pretax profit plus reported interest expense; exceptional/nonoperating gains are not normalized out. Share-based cost uses the reported cash-flow add-back or, if absent, separately reported recognized compensation expense; the latter never becomes an FCF adjustment. Nonpositive net income scores 0 for cash conversion; absent income/FCF stays unavailable. Nonpositive invested capital has no defined return and remains unavailable. Does not establish acquisition quality or buyback timing.
- 3-year pre-tax operating return (%)
- 57.92
- 3-year average dilution (%)
- -0.47
- 3-year average SBC / revenue (%)
- 0.57
- cashConversionGrade
- 86.57
Management63
Equal-weight average of four evidence-backed rubric grades (0–4), scaled to 100.
capital discipline · 2/4 · Lennox generated $758 million of operating cash in 2025 and reduced capital expenditures to $119 million. Acquisition spending of $545 million and subsequent acquisitions increase the need for demonstrated returns. In first-half 2026, $188.1 million of operating cash accompanied $91.2 million of capital spending, $151.3 million of repurchases, $90.5 million of dividends and net commercial-paper borrowing. Cash generation is demonstrated, but acquisition value creation and distribution funding are mixed.
incentive alignment · 3/4 · Existing long-term incentives use three-year ROIC and income-growth metrics. Actual 2025 annual payouts were below target after cash-flow and revenue shortfalls, and a completed performance-award cycle earned approximately 196% of target. Ownership guidelines and anti-hedging policies reinforce alignment. Actual executive holdings and guideline compliance are not established, precluding an exceptional grade.
execution · 2/4 · Operating evidence shows 2025 GAAP operating income essentially maintained despite declining sales, with favorable price/mix offsetting costs. First-half 2026 operating income was also broadly flat, but organic volumes and operating margin declined. Execution is assessed indirectly from reported outcomes; the passages do not quantify fulfillment improvements or prove management's claimed structural transformation.
governance · 3/4 · Existing arrangements include an independent chair, eight independent directors out of nine, fully independent key committees, majority voting and no poison pill. The auditor's unqualified internal-control opinion provides additional reporting assurance. A classified board limits annual accountability, and the unresolved antitrust complaint adds uncertainty without establishing a governance failure.
Evidence
Lennox operates a direct-to-dealer network, meaning we manufacture products and sell them directly to select, independent home service companies.
Risk factors: direct-to-dealer network · Filed 17/02/2026
For the six months ended June 30, 2026 and 2025, direct sales represented 73% and 74% of revenues, respectively, and sales to independent distributors represented the remainder.
Revenue recognition: Home Comfort Solutions distribution shares · Filed 29/07/2026
A substantial portion of the sales in each of our business segments is attributable to replacement business, with the balance comprised of new construction business.
MD&A: replacement business · Filed 29/07/2026
We also provide installation, service and preventive maintenance for HVAC national account customers in the United States and Canada; manufacture curb, curb adapters, drop box diffusers; offer HVAC recycling and salvage services; and focus on multi-family HVAC replacement for expired mechanical assets.
Revenue recognition: installation, service and replacement offerings · Filed 29/07/2026
If we are unable to continue to execute our strategy, whether due to changes in economic conditions, a failure to anticipate changing customer needs, entry of new competitors into the low-barrier distribution business, or for any other reason, our revenue could decline, which could in turn adversely impact our product pull-through and our ability to grow revenue.
Risk factors: low-barrier distribution business · Filed 17/02/2026
Net sales decreased 3% in 2025 compared to 2024 as lower sales volumes of 13% were partially offset by favorable price and mix of 9% and a 1% increase in sales volumes due to our fourth quarter acquisition of Duro Dyne and Supco.
MD&A: 2025 sales, volume and price/mix bridge · Filed 17/02/2026
Gross profit margin increased 290 bps from higher price and favorable mix, which was partially offset by 160 bps from higher products costs and 120 bps from higher freight and distribution costs.
MD&A: 2025 gross-margin bridge · Filed 17/02/2026
Year-to-Date through June 30, 2026 Compared to Year-to-Date through June 30, 2025 - Consolidated Results The following table provides a summary of our financial results, including information presented as a percentage of net sales: For the Six Months Ended June 30, Dollars (in millions) Percent Change Fav/(Unfav) Percent of Sales 2026 2025 2026 2025 Net sales $ 2,680.4 $ 2,573.5 4.2 % 100.0 % 100.0 % Cost of goods sold 1,789.6 1,715.1 (4.3) 66.8 66.6 Gross profit 890.8 858.4 3.8 33.2 33.4 Selling, general and administrative expenses 368.3 344.6 (6.9) 13.7 13.4 (Gains) losses and other expenses, net 4.6 0.1 (4,500.0) 0.2 — Income from equity method investments (0.6) (3.3) (81.8) — (0.1) Operating income $ 518.5 $ 517.0 0.3 % 19.3 % 20.1 % Net Sales Net sales increased 4% for the six months ended June 30, 2026 as compared to the same period in 2025, primarily due to a 5% increase from favorable mix and price and a 5% increase in sales volumes from completed acquisitions, which were partially offset by a 6% decrease in sales volumes.
MD&A: first-half 2026 results and sales bridge · Filed 29/07/2026
Gross margins decreased 170 bps from higher product costs, primarily reflecting inflation and factory under absorption, net of $30 million in tariff refunds, 40 bps from higher freight and distribution costs, and 20 bps from miscellaneous 24 costs, which were partially offset by 180 bps from favorable mix and price and 30 bps from completed acquisitions.
MD&A: first-half 2026 gross-margin bridge and tariff refunds · Filed 29/07/2026
Gross margins increased 120 bps from favorable mix and price and 40 bps from sales volumes from completed acquisitions, which were partially offset by 80 bps from higher product costs, primarily reflecting inflation and factory under absorption, net of $30 million in tariff refunds, and 40 bps from higher freight and distribution inflation and investments.
MD&A: second-quarter 2026 gross-margin bridge · Filed 29/07/2026
Net Cash Provided By Operating Activities - Net cash provided by operating activities decreased $188 million to $758 million in 2025 compared to $946 million in 2024.
MD&A: 2025 operating cash flow · Filed 17/02/2026
Net Cash Used In Investing Activities - Net cash used in investing activities increased $481 million from 2024 to 2025 primarily due to $545 million related to our acquisition of Duro Dyne and Supco, which was partially offset by lower capital expenditures.
MD&A: acquisition spending · Filed 17/02/2026
Capital expenditures were $119 million, $164 million and $250 million in 2025, 2024 and 2023, respectively.
MD&A: capital expenditures, 2023–2025 · Filed 17/02/2026
AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Amounts in millions) For the Six Months Ended June 30, 2026 2025 Cash flows from operating activities: Net income $ 386.2 $ 403.5 Adjustments to reconcile net income to net cash provided by operating activities: Income from equity method investments (0.6) (3.3) Provision for credit losses 2.5 0.8 Unrealized losses (gains), net on derivative contracts 3.7 (0.3) Stock-based compensation expense 12.1 14.5 Depreciation and amortization 61.8 52.4 Deferred income taxes 7.3 (8.8) Pension expense 2.0 2.1 Pension contributions (0.5) (0.6) Changes in assets and liabilities, net of effects of acquisitions and divestitures: Accounts and notes receivable (345.2) (205.9) Inventories (7.0) (300.7) Other current assets (7.8) 4.4 Accounts payable 93.5 88.2 Accrued expenses (5.0) (52.7) Income taxes payable and receivable, net (20.4) 55.2 Leases, net 4.8 4.4 Other, net 0.7 (2.2) Net cash provided by operating activities 188.1 51.0 Cash flows from investing activities: Proceeds from the disposal of property, plant and equipment 1.4 0.9 Purchases of property, plant and equipment (91.2) (54.0) Acquisitions, net of cash (0.2) — (Purchases of) proceeds from investments and other (0.1) 1.5 Net cash used in investing activities (90.1) (51.6) Cash flows from financing activities: Commercial paper borrowings 910.0 141.1 Commercial paper payments (724.0) (112.1) Payments on debt arrangements (11.5) (9.2) Payments of deferred financing costs — (1.7) Proceeds from employee stock purchases 2.6 2.6 Repurchases of common stock (151.3) (294.8) Repurchases of common stock to satisfy employee withholding tax obligations (11.4) (12.4) Cash dividends paid (90.5) (81.7) Net cash used in financing activities (76.1) (368.2) Increase (decrease) in cash, cash equivalents and restricted cash 21.9 (368.8) Effect of exchange rates on cash, cash equivalents and restricted cash equivalents (4.3) 2.9 Cash, cash equivalents and restricted cash, beginning of period 52.7 415.1 Cash, cash equivalents and restricted cash, end of period $ 70.3 $ 49.2 Supplemental disclosures of cash flow information: Interest paid $ 32.0 $ 19.6 Income taxes paid (net of refunds) $ 113.5 $ 44.0 The accompanying notes are an integral part of these consolidated financial statements.
Consolidated cash-flow statements: first-half 2026 spending, distributions and financing · Filed 29/07/2026
In July 2026, we acquired Heat Controller for approximately $205 million.
Liquidity: July 2026 acquisition · Filed 29/07/2026
Our long-term incentives generally include: (1) performance share units, which are designed to link compensation to the Company’s three-year financial performance as measured by return on invested capital and core net income growth; (2) stock appreciation rights, which are designed to incentivize NEOs to grow our business and deliver increased returns to our stockholders; and (3) restricted stock units, which are designed to support our retention efforts.
Executive compensation: long-term incentive metrics · Filed 08/04/2026
In 2025, the Company’s achievement at target for the core net income goals and falling below target for cash flow and revenue resulted in below target level payouts under our annual STI Program for all NEOs.
Compensation discussion: realized below-target 2025 annual payouts · Filed 08/04/2026
The short-term incentive payments made to the NEOs for 2025, which were approved by the Committee on February 25, 2026, and paid on March 13, 2026, are included in the 2025 Summary Compensation Table under “Non-Equity Incentive Plan Compensation.”
Compensation discussion: approval and payment dates of 2025 annual incentives · Filed 08/04/2026
In 2025, NEOs earned a payout of approximately 196% of target for the PSUs granted in December 2022.
Compensation discussion: earned payout for December 2022 performance awards · Filed 08/04/2026
The Board’s primary responsibility is the oversight of the Company’s management team, and the Board has a number of measures in place to continually enhance Board composition, efficiency, and effectiveness, demonstrated through the following: Independent Board Chair Mandatory Board Retirement age: 75 Majority Voting (with carve-out in case of contested elections) Key Committees 100% independent (Audit, Compensation, and Governance (nominating) Committees) No Directors Attended Less than 75% of Meetings Anti-Hedging and Pledging Policies Board is 89% independent (8 out of 9 directors) No Material Related-Party Transactions Regularly Scheduled Executive Sessions of non-management directors 3 Independent Board Members added in the last 2 yrs Women hold Board leadership positions (Governance (nominating) Committee & Audit Committee chairs) Succession Planning annually for key executives; CEO Succession Plan No Overboarding (directors not permitted to serve on more than four other public company boards) Stock Ownership Guidelines (5x retainer for Directors; 6x annual base salary for CEO; and 3x annual base salary for EVPs) Annual Self-Evaluation by the Board and its committees One Class of Voting Stock Individual evaluation for director nominees No Poison Pill Board Oversight The Board and its committees have oversight of important topics, as shown below, and are highly engaged in working through issues and discussing plans in both formal and informal meetings.
Governance highlights: independence, ownership guidelines and shareholder protections · Filed 08/04/2026
The size of our Board is currently fixed at nine members, divided into three classes, with each class serving a three-year term.
Election of directors: classified board · Filed 08/04/2026
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 17, 2026 expressed an unqualified opinion thereon.
Independent auditor report: internal-control opinion as of December 31, 2025 · Filed 17/02/2026
Segment Profit For the Year Ended December 31, 2025 For the Year Ended December 31, 2024 Segment Profit Home Comfort Solutions $729 $761 Building Climate Solutions 434 402 Corporate and other (105) (120) Segment profit, a non-GAAP measure $1,058 $1,043 Reconciliation to Operating Income Restructuring charges 7 — Loss (gain) on sale from previous disposition (1) 2 Acquisition costs(1) 10 — Operating Income, a GAAP measure $1,042 $1,041 (1)Recorded in Losses (gains) and other expenses, net in the Consolidated Statement of Operations.
Appendix A: 2024–2025 segment-profit and operating-income reconciliation · Filed 08/04/2026
We rely upon patent, copyright, trademark and trade secret laws and agreements to establish and maintain intellectual property rights in the products we sell.
Risk factors: intellectual-property protections · Filed 17/02/2026
Given the nature of our business, customer product orders are fulfilled at a point in time and not over a period of time.
Revenue recognition: point-in-time order fulfillment · Filed 29/07/2026
Liabilities for estimated product warranty costs are included in the following captions on the accompanying Consolidated Balance Sheets (in millions) as of: June 30, 2026 December 31, 2025 Accrued expenses $ 54.7 $ 53.1 Other liabilities 119.9 114.1 Total warranty liability $ 174.6 $ 167.2 The changes in product warranty liabilities for the six months ended June 30, 2026 were as follows (in millions): Total warranty liability as of December 31, 2025 $ 167.2 Warranty claims paid (24.7) Changes resulting from issuance of new warranties 29.0 Changes in estimates associated with pre-existing liabilities 3.5 Changes in foreign currency translation rates and other (0.4) Total warranty liability as of June 30, 2026 $ 174.6 Litigation Antitrust Class Action On March 20, 2026, seven HVAC equipment manufacturers (and certain of their affiliated companies), including the Company, were named as defendants in a complaint filed in the U.S.
Contingencies: warranty activity and antitrust complaint · Filed 29/07/2026
At this stage of the antitrust litigation, the Company cannot reasonably estimate the range of possible loss, if any, or the timing, outcome, or consequence of this litigation.
Contingencies: unresolved antitrust litigation · Filed 29/07/2026
As a result of the transition to low GWP refrigerants, customers pre-purchased R-410A equipment, which is estimated to have positively impacted revenue by $125 million.
MD&A: refrigerant-transition customer prepurchases · Filed 11/02/2025
