The United States relies on air conditioning far more than most countries worldwide. This dependence stems primarily from the diverse climates experienced across the American mainland.

This climate-driven demand has led to substantial growth in residential air conditioning adoption, with usage rates climbing from 77% in 2001 to nearly 90% in 2020. While centralized systems dominate the market—utilized in 66% of homes—the remaining households rely on a mix of window, wall, split, and portable units to meet cooling needs.

Today’s air conditioning market is valued at $99 billion and is projected to reach $183 billion by 2033 as both residential and commercial segments invest further in smart infrastructure and cooling solutions.

With demand expected to grow as customers increasingly seek to regulate temperature and air quality in their homes, air conditioning and HVAC providers stand to capture significant revenue from this expanding market, especially as equipment installation and maintenance can cost thousands of dollars depending on complexity, home size, and customer preference.

Lennox International (LII) is a company that’s well-positioned to take advantage of this growing demand.

This 130-year-old company is a leader in HVAC solutions, servicing both residential and commercial customers.

Lennox’s residential segment offers a wide range of products, ranging from air conditioners, heat pumps, and furnaces to complex HVAC systems for home use.  

Meanwhile, its commercial unit provides industrial-use HVAC solutions to buildings, restaurants, retail, and even schools. This also includes maintenance, replacement of old units, and handling of custom cooling systems. 

The company’s consumer segment generates nearly 70% of its revenues, with the remaining 30% coming from its commercial unit.

Most of Lennox’s consumer sales are derived from replacements as the company benefits from brand loyalty and the convenience of replacing old units with a similar one. This helps the company secure consistent revenue streams from households for decades once a unit is first installed.

Lennox operates more than 200 company-owned stores technicians can directly buy from, eliminating third parties which leads to higher margins. 

Another factor that has contributed to Lennox’s business is energy regulation. Energy efficiency mandates are forcing owners to upgrade to high-efficiency HVAC units.

With all of these taken into account, Lennox has seen its profitability improve over the past decade thanks to a favorable market environment. Its Uniform return on assets (“ROA”) has improved from just 9% in 2010 to 20% in 2020. Since then, returns have steadily climbed by another 5%.