Lennox Falls 2.5% on Disappointing Q3 Results

Shares of Lennox International, Inc. (LII) fell 2.5% after the company posted disappointing third-quarter results. Despite witnessing strong demand for all of its offerings, Lennox’s production was hampered by ongoing COVID-19-related supply chain and labor problems. Shares closed at $304.29 on October 25.

Lennox engages in the design, manufacture, and marketing of heating, ventilation, air conditioning, and refrigeration products. With a market cap of $11.31 billion, shares have gained 8% over the past year. (See Insiders’ Hot Stocks on TipRanks)

The company reported adjusted earnings of $3.40 per share, down 4% year-over-year and lower than the consensus estimate of $3.71 per share.

Moreover, revenue grew modestly to $1.06 billion compared to the prior-year quarter and also failed to meet analyst estimates of $1.14 billion. The modest revenue growth was due to higher prices but lower volumes and production constraints.

Commenting on the results, Todd Bluedorn, Lennox Chairman and CEO, said, “The company had a negative impact of approximately $75 million to revenue and $25 million to operating profit from these constraints in the third quarter, and we currently expect a similar level in the fourth quarter.”

Bluedorn concluded, “Looking ahead for the company overall, demand remains strong. But global supply chain bottlenecks and shortages are not expected to be resolved soon, and Covid-19 adds more complexity to labor and production disruptions.”

Owing to the current economic environment and COVID-19-related challenges, Lennox reduced its full-year Fiscal 2021 revenue growth outlook to 13% – 15%, and adjusted earnings are forecast to be in the range of $12.10 – $12.30 per share.

In response to Lennox’s financial performance, Cowen & Co. analyst Gautam Khanna maintained a Hold rating on the stock with a price target of $325, implying 6.8% upside potential to current levels.

Khanna said, “Investors may look through soft Q3 results/Q4 guide since many of the drags are common to peers (supply chain/COVID production impacts), the calendar year 2022 (C22) has price tailwinds, demand still appears okay and the stock has de-rated since Q2 results.”

The analyst also noted that Lennox’s current CEO has announced his retirement in mid-2022, once a suitable successor is found. He believes this could prove to be a positive catalyst for LII, along with Q4 earnings and FY22 guidance.

Overall, the stock has a Moderate Sell consensus rating based on 4 Holds and 2 Sells. The average Lennox International price target of $321.33 implies 5.6% upside potential to current levels.

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