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. 

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