Lennox posts 12% drop in residential unit volume, cuts full-year outlook

Continuing this week’s run of HVAC earnings, Lennox on Wednesday reported a seven percent year-over-year decrease in residential sales in the second quarter, driven by a 12 percent drop in unit volume.

What’s happening: That was weaker than expected, a contrast to Carrier, which beat expectations on Tuesday, as Homepros reported; however, the pace of decline eased compared to earlier this year.

While residential market conditions “remained challenging” in the quarter, CFO Michael Quenzer said on the company’s earnings call, the 12 percent volume decline “represented a meaningful improvement from the 21 percent decline experienced in the first quarter.”

Between the lines: Lennox breaks out performance across two channels: Two-step (sales to distributors) and one-step (direct sales to contractors).

“Two-step volumes were relatively flat compared to the prior year, while one-step volumes declined in the mid-teens, driven largely by continued weakness in residential new construction, where revenues were down approximately 30 percent during the quarter,” Quenzer added.

The company lowered its full-year residential sales outlook to roughly one percent annual growth, down from about four percent.

What they’re saying: “Elevated mortgage rates, inflationary pressures, and historically low consumer confidence are constraining underlying demand,” CEO Alok Maskara said.

“We do see some underlying demand recovery that’s been delayed, but we think from our perspective, the repair versus replace trend has stabilized,” he later said. “We see [that] channel confidence, which was impacted last year because of the canister shortage, has returned fully.”
“I think our contractors are running more promotions. They’re getting more aggressive. We are, and all the other manufacturers are running more consumer-based promotions to take this [affordability issue] forward.”

In related news: Watsco, the nation’s largest HVAC distributor, on Wednesday reported a five percent year-over-year increase in second-quarter U.S. residential equipment sales — including two percent growth in unit volume and a two percent rise in average selling prices — which the company said reflects “stabilizing end-market demand” following last year’s A2L transition.