Lennox International, Inc.

Welcome to the Linux 2026 second quarter earnings call. All lines are in a listen-only mode, and there will be a question and answer session at the end of the presentation. You may enter the queue to ask a question by pressing star 1 on your phone. To exit the queue, press star 2. As a reminder, this call is being recorded. I will now turn the call over to Chelsey Pulcheon from Linux Investor Relations. Chelsey, please go ahead.

Thank you, Madison. Good morning, everyone. Thank you for joining us as we share our 2026 second quarter results. Joining me today is CEO Alok Maskara and CFO Michael Quenzer. Each will share their prepared remarks before we move to the Q&A session. According to slide two, a reminder that during today's call, we will be making certain forward-looking statements which are subject to numerous risks and uncertainties as outlined on this page. Thank you for joining us today. Please turn to slide 3 as I turn the call over to our CEO, Alok Maskara.

Thank you, Chelsey. Good morning, everyone, and thank you for joining us today. Please turn to slide 3. The second quarter demonstrated the strength of our direct-to-dealer business model, our dedicated talent, and productive actions taken to manage the current operating environment. I want to thank our employees for improving our customer experience through enhanced digital and distribution capabilities I also want to thank our customers and channel partners for navigating a dynamic market environment alongside us. Lenox delivered a solid second quarter. Revenue increased 3% to $1.5 billion, total segment profit increased 2% to $355 million, and adjusted earnings per share were flat at $7.72. Within Home Comfort Solutions, year-over-year quarterly performance improves sequentially, though the pace of end-market recovery remains muted. Elevated mortgage rates, inflationary pressures, and historically low consumer confidence are constraining underlying demand. Looking ahead, channel confidence is continuing to grow and consumer confidence is starting to rebound, which supports our positive long-term outlook for the market. Building Climate Solutions once again performed exceptionally well. We are seeing signs of progress across commercial end markets, momentum in emergency replacement, and strong execution in the field to gain share and grow margins. Taking together, the results from the two segments demonstrate the value of our portfolio and the balance it provides across market cycles. Our long-term demand outlook remains unchanged, even though the residential demand recovery has been slower than anticipated. As a result, we now expect the most meaningful recovery benefits to extend into 2027 rather than occur in the back half of this year. While we are reducing our earnings outlook, several key elements of our 2026 financial framework such as revenue and free cash conversion have not changed. Our balance sheet remains healthy and we remain on track with our inventory reduction plans. Their combined strength and the industry's long-term outlook provides us with the confidence to continue investing in the business, advancing strategic initiatives and strengthening our competitive position. Now, please turn to slide four. Let me spend a minute on our recently completed acquisition of the Comfort Air, Century and Coast Air brands. This acquisition is an excellent example of a disciplined bolt-on M&A approach. The acquisition expands our reach into small and mid-sized distributed channels and broadens our product offering, allowing us to further accelerate growth. It also sharpens our focus on customer experience by enabling one order, one invoice, and one shipment to our distribution and contractor partners for most HVACR equipment, accessories, and Parts. Finally, we see meaningful opportunities to drive margin improvement through product integration, logistics synergies, and streamline SG&A through the application of the Lenox Unified Management System and expect the business to be accretive to our EPS in 2027. This strategic bolt-on acquisition along with Zero9 and Subco acquisition completed in 2025 and the AES acquisition completed in 2023 reinforced our disciplined capital deployment strategy. Now, let's turn to slide five and discuss the current demand environment and how we are positioning the business for growth acceleration. The factors affecting residential demands today, including affordability pressures, weather variability, We continue to invest in innovative heat pumps, and our direct-to-delay model to make it easier for customers to work with Linux. Leveraging our successful acquisitions, we are expanding our parts, accessories and service offerings, thus creating additional touchpoints with customers. At the same time, we are leaning into initiatives that strengthen our long-term competitive position, including distribution network optimization and partnerships like Samsung and Ariston Rather than getting weighed down by short-term market fluctuations, we are executing our strategy and investing in the capabilities that matter most when demand returns. With that, I will turn it over to Michael to review our financials.

Thank you, Alok. Good morning, everyone. Please turn to slide six. The quarter reflected a mixed operating environment across the portfolios. Residential demand is still challenging, while strong commercial execution and contributions from recent acquisitions help support overall performance. We continue to navigate cost inflation and factory absorption pressures associated with lower residential production levels. These headwinds were partially offset by pricing actions and the timing of certain tariff refunds. Cash generation and a disciplined focus on working capital management supported strong cash flow performance during the quarter. To get to that backdrop, let's turn to Home Comfort Solutions on slide 7. Residential market conditions remain challenging during the second quarter, although year-over-year demand trends improved compared to the first quarter. Compared to the prior year period, revenue declined 7%, driven primarily by a 12% decline in unit volumes. Favorable mix in pricing contributed 3% growth, while acquisitions added another 2%, partially offsetting the volume decline. While volumes were down year over year again, this represented a meaningful improvement from the 21% decline experienced in the first quarter. Performance varied across channels. Two-step bonds were relatively slack compared to the prior year, while one-step bonds declined in the mid-teens, driven largely by continued weakness and residential new construction, where revenues were down approximately 30% during the quarter. Seventh profit declined $30 million. Lower sales bonds created approximately $50 million of EBIT headwinds during the quarter. Fixed in price were favorable and mostly offset cost pressures, including ongoing inflation and approximately $10 million of factory absorption headwinds as we aligned inventory levels with market demand. Product costs also benefited from approximately $25 million of tariff-free funds that we had originally expected later in the year. Let's move to slide 8 and discuss our building climate solution segment. While with strong growth in the first quarter, Building Climate Solutions maintained its momentum in the second quarter, supported by improving commercial end markets and continued execution on our growth initiatives. Revenue increased 24%, with organic sales up 12%. Growth was driven by success with national account customers and an increase in emergency replacement activity. Our service business also grew as customers increasingly leveraged our combined equipment and service capabilities. Mix in price contributed 3%, while acquisitions added 9%, primarily from Duradyne. Segment profit also increased, benefiting from higher volumes and favorable mix in price. Product costs reflected inflationary and production cost pressures and were partially offset by approximately $5 million of tariff refunds. Within other costs, Duradyne contributed approximately $11 billion of M&A accretion, offset in part by investments in customer-facing digital capabilities and innovation. Now let's turn to slide nine to review cash flow and capital deployment. We generated $172 million of operating cash flow in the second quarter and delivered 92% trailing 12-month free cash flow conversion, reflecting disciplined work and capital execution and progress on inventory reduction. While inventory dollars were flat to December due to inflation and tariff-related cost increases, unit inventory levels continued to decline, and we remained on track to achieve our full-year inventory reduction implied in our full-year free cash flow guidance. Our balance sheet is strong, with net debt to adjusted EBITDA 1.3 times at quarter end. During Q2, we repurchased approximately 130 million of shares and After quarter-end, we completed the acquisition of the Comfort Air and Century brands using approximately $200 million of debt. We are also refining our full-year capital expenditure outlook to approximately $225 million, down from $250 million. The change reflects project timing, but our key investment priorities are unchanged. With that, let's turn to slide 10 and discuss our updated financial guidance. As Alok outlined, We are updating our full year adjusted EPS guidance range to $23 to $24. While our overall revenue growth outlook holds at approximately 8%, the composition of that growth has evolved since our prior guidance. At the segment level, we now expect home comfort solutions revenue growth of approximately 1% compared to our prior expectation of 4%. Building climate solutions revenue growth is now expected to be approximately 20%. Thank you for joining us today. It's more than offset by lower expected residential volumes. We now expect approximately $60 billion of productivity versus our prior expectation of $75 million, reflecting ongoing absorption headwinds from lower residential volumes and the delayed timing of some material cost reduction initiatives as resources were shifted to tariff mitigation. Interest expense is expected to increase to approximately $70 million and emanate amortization to approximately $25 million all in the Comfort Air and Century Brand acquisition. Importantly, our free cash flow outlook remains unchanged at $750 million to $850 million, reflecting confidence in our inventory reduction plans and working capital execution. Other guidance assumptions, including inflation, investments, tax rate, and share count, have not changed. While residential demand is still below our expectations, Thanks Michael.

As we close, I want to re-emphasize that while current market conditions are dynamic, I believe the long-term growth trajectory of the industry is very attractive. What gives me confidence is the performance of our portfolio, the durability of our cash generation, and our ability to continue investing towards growth. We are committed to innovation and operational excellence while continuing to allocate capital to expand our capabilities and improve our customer offerings. Most importantly, the dedication of our employees and the values that define our culture continue to drive excellence at Linux. Our fundamentals are strong, our strategy is clear, and our best days are still ahead of us. Thank you. We are happy to answer your questions now. Madison, let's go to Q&A.

Thank you. If you'd like to ask a question, press star 1 on your keypad. To leave the queue at any time, press star 2. Once again, that is star 1 to ask a question, and we'll pause for just a moment to allow everyone a chance to join the queue. Thank you. And we will take our first question from Ryan Merkel with William Blair. Please go ahead.

Hey, everyone. Thanks for the questions. Wanted to start on the resi revenues. The down 12% for the one step is surprising. What are the key issues, Alok, and then any steps you're taking to improve the results?

Sure. Ryan, the majority of the decline was due to residential new construction. When we talked earlier about we walk away from really low margin business, and a large portion of that impact is being created due to seasonality. That doesn't mask that the underlying sell-through also remains weak, but is improving both sequentially and as we look at this going forward. So that's a really kind of look at the negative 12%. We have internally done a lot of analysis and feel confident that that starts improving because we lapped some of the residential low margin loss in the second half and the comps get easier even on the overall

Got it. Okay. That's helpful. And then on the guidance cut, it sounds like you had included the refunds from tariffs in the guide, so just confirm that for us. And then, you know, it looks like Rezzy, you're going to have weaker margins in the second half. Is that just the fixed cost absorption on the lower volumes, or is there anything else in there that's pressuring the margins?

That's correct. On the tariff guidance, we had built an inflation assumption of 5%. That includes the net impact of all increases within the 232 tariffs that we saw earlier in the year and the IEPA refunds that we expected initially in the second half of the year that we've now gotten most of in the second quarter now.

And there's nothing else based on the second question, Ryan. It is just simply impact of lower volume and the absorption impact related to that.

Okay, got it. All right, thanks. Pass it on.

Thank you. And we'll move next to Tommy Mull with Stevens. Please go ahead.

Good morning, and thank you for taking my questions.

Hi, Tommy.

Alok, first question for you on the one-step trends for Resi. noted that there's the new construction headwind. Some of that relates to low-margin business you've walked away from. I'm more interested on the replacement side there. What's your view on how market share has progressed? Have you seen any evolution or pressure there?

On replacement, we have seen small market share gain. While in new construction, we have seen a significant loss, as we talked about. and we continue to build our distribution network efficiencies, continue investing in the sales team but we are pleased with our market share position in the replacement which is actually picked up over the past four months.

Related question for you on pricing. Alok, specific to Resi, it seems like there have been some different strategies here today. Some have raised and then lowered depending on differing tariff assumptions. Others have been slower to move. Just characterize for us what the Linux strategy has been there and what you've seen across the market. There's just been a lot of volatility on that point.

Sure. Putting referential new construction aside, because that's a different story, we continue to see higher inflation being offset by pricing action across the wide spectrum. We continue to remain focused and Blue Price Competitively. A large portion of the 232 tariff pricing is going to get into effect on 1st July, which is consistent with how some of the other competitors have done. And we feel good about where we are in the replacement side of the business on the residential portion. And obviously, we continue monitoring it. We want to be fair with our channel. Some of the early arrival of tariff refunds also impacted how we thought about pricing and how we were going to take this going forward. So we were able to delay some of the pricing actions because of the arrival of the time.

Thank you, Alok. I'll turn it back.

Thank you. We'll move next to Noah Kay with Oppenheimer. Please go ahead.

Good morning. Thanks for taking the questions. I guess just to make sure that we've got it then on the revised guide, two points. One, so I think you contemplated resi volumes down mid-single digits for the year, just that sort of shift now to down high single digit, down 10. Can you give us a finer point on that? And the guidance on inflation expectations remaining unchanged with the 232 partial reprieve, were there an offset to some of that goodness to keep the inflation guide intact?

Sure. I'll give you a little bit of insight on that. So within the HDF volume guide, it now is high single digits. We expect most of the balance of year growth to happen within the indirect channel as you have a favorable comp year over year. On the direct channel, we expect balance of year to be down kind of low single digits or so within the direct channel and the balance of the year. and then within the inflation, we still expect to be 5%. There's a little bit of benefit that we saw with the adjustment to the 232s, but then we continue to see inflation on commodities, fuel, memory. Those mostly offset that benefit.

Okay, thanks. And then when we look at the two segments, you know, and the demand trends juxtaposed, I mean, really, it is seemingly a tale of two markets. It feels a little unusual to have such bifurcation, but can you talk a little bit about You know, you mentioned some nice, you know, wins, you know, clearly national accounts, emergency replacement, but how much of this is sort of underlying versus Linux share gains?

You know, I think there is significant lack of share gain that I want to give credit to the team. As we build a new factory, we are focused a lot more on emergency replacement, and that's clearly playing out as we expected, maybe slightly better than we expected. At the same time, the extra capacity is helping us bring back the national accounts. But also from an end market perspective, remember this is the end market that was from the HRI data down continuously for like 17, 18 months in a row. And now it's finally turning around the corner. But I would say among the improvement, large portion is share gain, and then there's definitely a benefit of the market not declining anymore and showing some signs of life.

Helpful. Thank you, Alok.

Thank you. And we will move next to Jeff Hammond with KeyBank Capital Markets. Please go ahead.

Hey, good morning, guys. So just back, it looks like you're, you know, HCS, you're bringing down five points on a core basis. Like, is that just all sell-through demand weakness? Or is like this RNC... walk away a bigger number or is there some other nuance in there? And then just my second one would be just repair, replace. A lot of people are saying it's normalizing exiting A2L and this canister issue and just what do you see in there?

Sure. So the answer to the first is it is all one step. Two step, we continue to see good growth and we are forecasting the lack of destocking leading to Good growth in the second half as well. One step, the RNC loss is within the one step. That's why those two numbers overlap. I would say the large part of the decline in Q2 in one step was driven by RNC. That's a heavy quarter for RNC, as you know. And then even our reduction in the second half is primarily due to that. Now, we do see the underlying demand recovery that's been delayed, but We think from our perspective, the repair versus replace trend has stabilized. We see the channel confidence, which was impacted last year because of canister shortage, has returned fully. And we all know that the consumer confidence is sort of bouncing along based on the offer and the prices. But a short answer to your question, Jeff, is that a large portion of the one-step decline is residential new construction, low-margin business that we walked away from.

Yeah, but I guess my question is, is that walkaway number bigger now than you thought or you knew that was there and your revisions really all, you know, underline replacement weaker?

It is bigger than what we had originally looked at. That market remains extremely competitive and the margins were there but just not acceptable. So it is a little more than what we had originally thought and talked about. Okay.

Appreciate it. Thanks.

Thank you. And we'll move next to Jeff Sprague with Vertical Research. Please go ahead.

Hey, thanks. Good morning. I just wanted to get some insight into how to think about sort of margins for HCS into the back half. So we got some absorption issues, right, but we're walking away from lower margin business. I guess you have some time for price to catch up a bit. So can you just give us some insight on how you think margins progress over the balance of the year in HCS? Maybe relative to, you know, what we posted here in Q2 or relative to last year, certainly be helpful.

Yeah, Jeff, we expect the margin headwind year over here in the second half to be better than the first half, even after you adjust for some of the The tariff refund is mostly driven by the volume growth that we expect now of low single-digit balance in years to get the 35% incrementals on that. Also, we had a much heavier first-half absorption headwind, and then we're going to pick up a point or two of price in the second half versus the first half. It's some of the new pricing initiatives that Alok mentioned starting in July coming in. So better margin performance in the second half as the volumes start to come back.

And Jeff, to your earlier point, I want to add that our product mix is positive right now because of walking away from loss-making accounts. That's just masked by the other factors that Michael mentioned because of all the noise around absorption and the pieces. But the underlying mix is positive for us given our decision to not compete on those lower margin, negative margin accounts.

Is it Are you overly optimistic to think that HCS margins are up on a year-over-year basis in the back half?

Well, you're going to get some headwind from the M&A that's a bit dilutive. Price-cost is a bit dilutive. The volumes are created, so all of that still might lean to slightly negative.

No, I think the overall question is we think it's pretty balanced, Jeff. We don't think it's optimistic, nor do we think it's super conservative. We're trying to put a very balanced picture forward.

Right, but something around sort of flattish, the slightly down margins in the back half, I think, is what you're indicating. If I read that right. Yeah, that's basically within the guide, that's approximately.

Within the range, yeah.

And what do you actually think industry volumes were in Q2?

The June AHRI data and everything else that we looked at continues to show us a continual difference between sell-in and sell-through. That's obviously going to become a much longer conversation, Jeff. But we think the sell-in has obviously improved substantially, and we see that in our numbers. And I think the sell-through, we still have to get more data and see how everybody comes through. And I think that still remains under pressure.

and maybe last one, do we still have a little bit more work to do on channel inventory as it relates to Lennox and some related absorption headwinds from that in the back half?

No, I think we're pretty complete on that, yeah. The channel inventory is pretty normalized and there's no more restocking.

Okay, great. Thanks, guys. I'll leave it there.

Thank you. and we will move next to Steve Volkman with Jefferies. Please go ahead.

Great. Good morning, guys. Thanks for taking the question. Maybe just to put a sharp point on it, the one step down 12%, are you willing to sort of say what you think the walkaway business was of that 12%?

No, we're not willing to kind of go into that level of account details or where it was, but we can just tell you The vast majority of that 12% was referential new construction.

Okay. All right. Worth a shot. But look, I think on previous calls, we've talked a little bit about sort of affordability and inflation in the end market and maybe some demand destruction. And I think your view was that the most likely source of kind of give there was going to be in the installer margin. and I think that was two or three quarters ago we had that conversation. So I'm curious if you're starting to see any sort of price normalization to the consumer that might sort of address this affordability issue.

We are and I think it's obviously the problem is synonymous with the repair versus replace. So consumers when they demand destruction by cooking they still have to repair it and We do see movement there. I think our contractors are running more promotions. They're getting more aggressive. We are, and all of the manufacturers are running more consumer-based promotions to take this forward. So, yes, I think we are all very aware of that, and all the channels and the manufacturers are doing our part to increase affordability and make sure promotional dollars get applied to consumer purchase.

Okay. Appreciate it, Asadhan.

Thank you. And we will move next to Chris Snyder with Morgan Stanley. Please go ahead.

Thank you. I wanted to follow up on some of the HCS margin discussion. I guess if we adjust out $25 million from Q2 operating profit, it seems like it takes that 23.7 to like a 21.0. So maybe just like, is that right? And then It seems like almost every year segment margins decline sequentially into both Q3 and Q4. And I guess the question is, like, should we be running sequential declines off that 21% number? I couldn't really follow all of the communication before. Thank you.

Yeah, let me start by that thing. You know, we wanted to give you the target viewpoint number for the sake of transparency, and that's how we are as a company. I don't think it's fair to exclude the tariff refunds at one time because remember, our overall impact of tariff, pricing, all of that continues in the second half. A lot of our pricing actions are going into effect in the beginning of Q3. So when we give you the numbers for sake of transparency, I don't think it's fair to take it out fully because pricing would have offset portions of that if it hadn't come through. In the margins of Q2, Q3, yes, Q2 is typically the highest margin, but I think today and this year is not the normal environment, given lots of changes around pricing dynamics, tariffs, inflation, Michael mentioned all those pieces. So we feel very comfortable for the full second half guide as we have given, but it's difficult to break it down between Q3 and Q4 at this stage for you guys.

Thank you. I appreciate that. And I wasn't really commenting on, you know, whether or not it's appropriate to leave it in EPS. I was just kind of more trying to figure out what, like, the true underlying margin was in Q2 as we build into the back half. Like, so is it fair to run the declines off the 23.7 or the 21.0, if that question makes sense?

Yeah, I would focus more on just our guide points that we expect volume second half to be up low single digits. You get 35% incrementals on that. Price-cost neutral, more price coming in. I think that's what I would focus on the second half, and that's what we're focused on delivering.

Thank you. I appreciate that. And then if I could also just follow up on the second half. It seems to me like you guys are calling for HCS revenue in Q3 just to be – on the mid to high single digits above Q2. Is that right? And the question I have is, I think the only year where HCS, the revenue increased sequentially into Q3 was Q3-24, which was, of course, the start of the refrigerant build. So I just kind of want to make sure I have that sequential top line movement right on HCS. Thank you.

We don't give quarterly guidance. What I'll say is keep looking back to the second half of it. We expect Q3 year-over-year better than the Q2 year-over-year, Q4 year-over-year better than Q3, so we continue to see it improve year-over-year as we go through the balance of the year with the volumes up, low single digits balance of the year, mostly around the indirect channel.

Thank you.

Thank you. And we'll move next to Nicole DeBlase of Deutsche Bank. Please go ahead.

Yeah, thanks. Good morning, guys. Hi, Nicole. Hello. I guess I do have a few nitpicky ones since we've been through a lot in Q&A already. I guess first, under absorption, I feel like you guys were kind of implying that you had seen most of that headwind in the first half, but that maybe there could be a little bit in the second half. Can you just give us a sense if under absorption is still a headwind in second half?

Yeah, there's a small headwind within the guide now. We reduced some of that cost productivity for that additional absorption, mostly related to Now that we have lower sales bonds, we still want to hit our inventory reduction targets within the free cash flow. So a little bit of absorption headwind went into the second half in our new guidance.

Okay, understood. Thanks, Michael. And then BCS, the incrementals here have obviously been pretty good, high 20s in the first half. Are you guys expecting that high 20s to kind of continue in the second half within your guidance framework?

Overall, we continue to see volume growth there, get 35% incremental, so we're focused on price-cost neutral in that side of the business as well.

Yeah, and you know, you're very pleased with BCS performance. I mean, the three businesses within BCS, the services business, the reputation business, and the rooftop business, all continue to do very well. And that's the result of great execution and good supporting market dynamic. So we believe that we are now at the cusp of ACS reaching similar performance We've done it on the call around market dynamics.

Got it. Thanks, Alok. I'll pass it on.

Thank you. And we will move next to Nigel Koh with Wolf. Please go ahead.

Yeah, thanks. Good morning, everyone. Look, it definitely bears mentioning DCS was fantastic, but understandably there's a lot of focus here on HCS. I just want to make sure I understand the moving pieces on the guide change for HCS. The plus 1% now includes the acquisition of heat controller. So did I hear right, that's two points to HCS, and now we have about four points M&A coming in there, so the core is down three. Is that right?

That's correct. So within the guide, you picked up two points within M&A. for the ACS revenue guidance, and then you lost five for volume. So you went from four positive to one positive.

Okay. Okay. And there's a bit more M&A. Okay, great. And then just taking a step back, you know, you've had a very, you know, transparent strategy of high grading the customer base, you know, firing lower margin customers, you know, Pushing Price. You know, where are we in that process? Are we more or less complete in that process at this point or is there still some ways to go? And maybe, Mike, could you just maybe just clarify, you know, is there any more IEPA refunds in the second half guide? Thanks.

Sure. So let me take the first one. I would say we are nearly complete on the lower margin. And some of it was just driven by highly competitive RFP processes where we didn't want to go into negative margins. But at this stage, like, you know, some of that volume went to be faster than we thought. And our offsetting growth in the AOR side is coming through just a little slower than we expected. I think that's what you're seeing in Q2. It's like the perfect storm of, you know, we lost the R&C business a little sooner and the share gain in AOR was a little slower than we expected. But net-net, we feel good about where we are to protect our margins and make smart business choices. So we don't fall victim of taking $100 bills to every unit that is being shipped out to some of these accounts. So we don't want to do that again. We have done that in the past. So we feel good about where we are. And I'll let Michael answer the IPA question.

So on the refunds, we recognize 100% of our expected refunds that we think we did, that we're entitled to within the quarter. And we've also received a lot of the cash flow already related to the gain on those refunds.

Great. Thank you.

Thank you. And we will move next to Dean Dre with RBC Capital Markets. Please go ahead.

Thank you. Good morning, everyone. Hey, sorry to circle back on the walk away business, but just to be really interested in hearing Alok, did you change your return requirements this quarter in any way? And I would suspect not, but just maybe some color there in terms of how much of the price competition surprised you.

Yeah, no, we didn't change our return requirements, Dean. I think our return requirements have been pretty steady over the past four to five years. And yes, I was surprised by the price competition in residential new construction. At the end of the day, our focus is going to remain on our valued replacement customers, our valued new construction customers, where there's appreciation for the value that we provide versus commodity-type business. So I think we feel good about where we are, but we do understand there's short-term repercussions for that, and we're going to work through that and appropriately adjust our cost structure and our sales force accordingly.

Good. That's helpful. And then it sounded like there was some good news on the emergency replacement business and the reentry there. And have you gained share? Any update would be helpful.

Yes, we have definitely gained share. Within emergency replacement, our core contractor business in commercial, our referential dealers, and working through distribution, all C have gained and we are pleased with the progress there. The new factory is doing very well and the freed up capacity in Stuttgart is also helping us strengthen and gain share in the key account business. So we feel good about that strategy and the results there are, as you can see in the P&L and otherwise, just working out as we expected and slightly better than we expected.

Good to hear. Thank you.

Thank you. And we will move next to Brett Lindsey with Mizuho. Please go ahead.

Hey, good morning all. Just a follow-up on the emergency replacement there. So you called it out as a growth driver. Sounds like you're taking some share. I guess from a margin perspective, historically I know ER was above segment margins. Where are we in that ramp process? Is it accretive to segment margins now or do you still need more scale and and uptake in that business. Any thoughts on the future profitability there?

Overall, it's an attractive business. The margins are in line with some of our large national account business. We like that business and we have opportunities to continue to expand those margins as we work on our distribution excellence within that channel. It's a really good business and many years of growth opportunities still in front of us.

I don't remember it being better than the segment average, but we've always said it's kind of in line with segment averages. Okay, no, that's helpful.

And then on the tariff mitigation, sounds like you shifted some resources there, which did delay some of the material cost reduction initiatives and led to that productivity cut. When do you think those deferred cost-out initiatives resume, and are they volume-dependent, and that's really the driver of that, or is it just timing and maybe there's an opportunity to recapture some of that $15 million here in the coming months and quarters?

It's mostly timing dependent. I mean, there's obviously a small, small element of volume, but it's mostly timing dependent as we move resources. I wish I could tell you that we can get all in 2027, and we will if there are no more changes to the tariff and the tariff rules. The continuous evolution of tariff rules and tariff changes in Mexico and Canada, that's taken up a lot of our engineering and other resources to mitigate that. Assuming it's the one thing, we get it all next year. Okay, all makes sense. Thanks a lot. Best of luck. Okay.

Thank you. Since there are no further questions, this will conclude Linux's 2026 second quarter earnings call. You may disconnect your line.