Lennox Q2 2026 revenue rose 3% to $1.55B on acquisitions and 24% commercial growth, but residential volumes fell 12%, flat $7.72 EPS was helped by $30M of tariff refunds, and full-year EPS guidance was cut to $23.00-$24.00.
Revenue
$1.5B
+3.0% YoY
Net income
$269M
-1.8% YoY
Diluted EPS
$7.72
+0.1% YoY
Operating margin
23.0%
Flat earnings on the surface, a weaker quarter underneath
Lennox, the Dallas-based heating and air-conditioning maker, reported second-quarter 2026 revenue of $1,545 million, up 3%, and GAAP diluted earnings per share of $7.72, versus $7.71 a year earlier. That flat EPS figure is the headline, but it hides two very different businesses moving in opposite directions, and a one-time boost that won't repeat:
Home Comfort Solutions (residential furnaces, air conditioners and heat pumps) saw sales volumes fall 12%, as the residential market stayed soft.
Building Climate Solutions (rooftop units and refrigeration equipment for commercial buildings) grew revenue 24%, with 15% of that organic (not from acquisitions).
$30 million of tariff refunds landed in the quarter. After the U.S. Supreme Court ruled in February 2026 against tariffs imposed under the International Emergency Economic Powers Act (IEEPA), U.S. Customs began paying refunds. The refunds reduced cost of goods sold. Management called them "earlier than expected".
Management also lowered its full-year EPS guidance to $23.00–$24.00, down from $23.50–$25.00.
Key figures
Metric
Q2 2026
Q2 2025
YoY Change
Net sales
$1,545.3M
$1,500.9M
+3.0%
Gross margin
34.9%
34.5%
+40 bps
Operating income
Read 0 community reports on Lennox International, or write your own.Write a report
Source: Form 10-Q for the quarter ended June 30, 2026, and the Q2 earnings release. "bps" means basis points; 100 bps equals one percentage point. Segment margin is segment profit (operating profit before corporate costs and certain items) divided by segment sales. Adjusted EPS was also $7.72, the same as GAAP.
Where the revenue came from
Consolidated sales grew 3%. The 10-Q breaks this into three parts: +3% from "favorable mix and price", +4% from acquisitions (Duro Dyne and Supco, bought in Q4 2025), and −4% from lower volumes. "Mix and price" is the combined effect of raising prices and selling more of the higher-priced models. Take away the acquisitions and organic sales fell about 1% (3% from price/mix minus 4% from volume): price increases did not fully cover lost volume.
The two segments diverged sharply:
Home Comfort Solutions: −7% sales. Volumes fell 12%. Price/mix added 3% and acquisitions 2%, so organic sales fell about 9%. The earnings release says residential demand "improved sequentially from the first quarter" across both distribution channels. Residential new construction, however, "remained a meaningful headwind".
Building Climate Solutions: +24% sales. Volumes rose 12%, acquisitions added 9% and price/mix 3%. Management attributes the 15% organic growth to national account customers (large chains buying for many sites at once), "healthy emergency replacement activity" and growth in service offerings.
Commercial is still the smaller segment, but its share is rising fast. It made up about 39% of Q2 sales, up from 33% a year earlier.
Why margins held up, and why that is partly borrowed
Gross margin (the share of sales left after the direct cost of making the products) rose 40 bps to 34.9%. The 10-Q attributes this to +120 bps from mix and price and +40 bps from acquisitions, partly offset by −80 bps from higher product costs. Those product costs were "primarily reflecting inflation and factory under absorption, net of $30 million in tariff refunds". A further −40 bps came from freight and distribution. "Factory under-absorption" means plants running below capacity, so fixed factory costs are spread over fewer units and each unit costs more. That is the direct cost of a 12% residential volume drop.
The $30 million refund is the key detail. It equals about 1.9% of quarterly sales. Our own estimate, not a company figure: without the refund, operating income would have been about $325 million, a margin of roughly 21%. That is about 7% below last year's $349 million rather than 2% above it. Applying the quarter's 20.8% tax rate, the refund added about $0.68 to diluted EPS. On that basis, underlying EPS was roughly $7.0 against $7.71, a decline of around 9%. Management did not strip the refund out of adjusted EPS.
By segment, the residential profit bridge makes the pressure clear. Home Comfort Solutions profit fell $30 million to $222 million. Lower volumes cost $49 million, freight added $3 million and other costs $8 million. Product costs added a further $2 million net, even after absorbing $25 million of tariff refunds. Offsets were $24 million from mix/price, $5 million from acquisitions and $3 million of SG&A savings. Building Climate Solutions profit rose $35 million (+29%) to $155 million, driven by $23 million from volume, $15 million from mix/price and $11 million from acquisitions. It also received $5 million of refunds.
Below the operating line
Interest expense nearly doubled to $15 million from $8 million. The cause is borrowing on the commercial paper program ($412 million outstanding; commercial paper is short-term corporate IOUs) and the $300 million term loan taken out in October 2025. Total debt stood at $1,581 million at June 30.
Tax rate rose to 20.8% from 19.4% because of "higher income in higher tax jurisdictions".
These two items are why operating income rose 1.7% while net income fell 1.8%. Share buybacks ($132 million in the quarter) cut the diluted share count to 34.8 million from 35.5 million. That fewer shares is what kept EPS flat while net income fell.
Cash flow and capital deployment
Operating cash flow doubled to $172 million from $87 million, "driven by reduced inventory levels". Year-to-date operating cash flow was $188 million versus $51 million. Capital spending rose to $91 million in the first half from $54 million, which management tied to land and buildings for future "product innovation centers". In the first half Lennox returned $91 million in dividends and $151 million in buybacks. On July 13, 2026, after quarter-end, it closed the $205 million acquisition of Heat Controller (Comfort-Aire and Century brands), funded from cash and borrowing capacity. The deal targets small and mid-size HVAC distributors.
Takeaway: Flat EPS overstates this quarter. About $0.68 per share came from one-off tariff refunds, and residential volumes fell 12%. The real growth engine is commercial (Building Climate Solutions, +15% organic), and it is now carrying a residential business that is still shrinking.
Outlook
Management kept its 2026 revenue growth forecast at about 8%, including roughly 5 points from acquisitions, so organic growth of about 3%. It cut EPS guidance to $23.00–$24.00 from $23.50–$25.00; the midpoint falls from $24.25 to $23.50. Free cash flow guidance is unchanged at $750–$850 million. First-half diluted EPS was $11.06, so the new range implies $11.94–$12.94 for the second half. The release does not say how much of the tariff refund benefit that range assumes.
Our read: the guidance cut came despite the refund windfall, which suggests the residential weakness is running deeper than Lennox planned at the start of the year. Three things to watch in Q3:
Whether residential volume declines keep narrowing from Q2's −12%, now that the peak cooling season is over.
Whether Building Climate Solutions can hold double-digit organic growth against a tougher comparison.
How Heat Controller and the new 10%–12.5% Section 301 tariff framework affect product costs once the one-time refunds are out of the numbers.
Rising debt and interest costs also leave less room if residential demand does not recover. Net income is already falling even though operating income is growing.
A further risk: the 10-Q discloses pending antitrust litigation. The company disputes the allegations and says it cannot yet estimate any possible loss.