Analyst Note| Brian Bernard, CFA, CPA |
Narrow-moat Lennox International's third-quarter results were adversely affected by supply chain and other pandemic-related disruptions, which lowered the firm's revenue and operating income by $75 million and $25 million, respectively. Compared with the prior-year third quarter, revenue rose modestly (0.5%) but segment operating margin compressed 120 basis points to 15.5% and adjusted EPS declined 4% to $3.40. Management estimates that adjusted EPS would've been $0.55 higher if not for these disruptions. Inflation has been an issue, too, and the company continues to raise prices to help mitigate these headwinds. Lennox's strong brand equity affords the firm good pricing power, so we'd also expect to see solid price realization in 2022, especially as the demand backdrop should remain generally favorable.