REZI Q2 Deep Dive: Product Demand, Tariff Mitigation, and ADI Spin-Off Shape Results

Home automation and security solutions provider Resideo Technologies (NYSE:REZI) beat Wall Street’s revenue expectations in Q2 CY2025, with sales up 22.3% year on year to $1.94 billion. The company expects next quarter’s revenue to be around $1.88 billion, close to analysts’ estimates. Its non-GAAP profit of $0.66 per share was 24.5% above analysts’ consensus estimates.

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StockStory’s Take

Resideo’s second quarter saw a positive market reaction as the company delivered results ahead of Wall Street expectations, driven by strong demand for new products and effective execution in both its ADI distribution and Products & Solutions segments. Management attributed the performance to higher volumes in commercial security, fire, and professional audio/video products, as well as robust sales of Honeywell Home FocusPRO thermostats and First Alert smoke detectors. CEO Jay Geldmacher highlighted, “Demand for our new products, including the Honeywell Home FocusPRO thermostats and First Alert connected detectors continues to be strong.”

Looking forward, Resideo’s updated outlook reflects expectations for continued momentum from recent product launches, further integration benefits from the Snap One acquisition, and anticipated margin improvements following the termination of the Honeywell indemnification agreement. Management pointed to an ongoing pipeline of new product introductions in air, comfort, security, and water categories, while also noting that tariff mitigation actions and manufacturing efficiency will remain central to profitability. CFO Mike Carlet stated, "Adjusted EBITDA is expected to benefit by $35 million in each of the third and fourth quarters related to the terminated indemnification agreement."

Key Insights from Management’s Remarks

Management credited the quarter’s outperformance to robust product demand, successful Snap One integration, and margin expansion, while navigating ongoing macro and tariff challenges.

• Strong retail and channel growth: The Products & Solutions segment saw record retail sales, particularly from the new Honeywell Home FocusPRO thermostats and First Alert SC5 smoke detectors. These products, developed with partners like Google, helped drive growth across electrical distribution and retail channels, with notable traction in professional markets.
• Snap One integration progress: ADI’s integration of Snap One advanced ahead of schedule, contributing to higher margins and a broader product suite. The company accelerated cross-selling Snap One’s exclusive brands to ADI’s customer base, adding nearly 200 new SKUs and expanding e-commerce presence.
• Commercial segment momentum: Organic growth in ADI was primarily led by commercial security, fire, professional audio/video, and data communication categories. Top integrator customers delivered double-digit growth, reflecting share gains and successful project wins.
• Margin expansion drivers: Both business segments benefited from gross margin improvements. ADI’s margin gains stemmed from higher volumes of exclusive brands, effective tariff price pass-through, and favorable inventory dynamics, while Products & Solutions achieved its ninth consecutive quarter of gross margin expansion through factory efficiency and product mix.
• Tariff mitigation and market agility: Management cited effective tariff mitigation through price increases and supplier negotiations, with USMCA-compliant goods from Mexico exempt from tariffs. The team also responded with supply chain adjustments, helping offset macroeconomic pressures and maintain strong customer relationships.

Drivers of Future Performance

Resideo’s outlook is anchored by new product launches, Snap One integration benefits, and operational efficiencies, while tariff and macroeconomic risks remain in focus.

• Product innovation pipeline: Management expects a steady rollout of new products in air, comfort, security, and water categories to drive continued revenue growth and expand market share, particularly as prior launches like the SC5 detector show sustained demand.
• Margin improvement opportunities: The elimination of recurring payments to Honeywell is anticipated to benefit adjusted EBITDA, while ongoing manufacturing improvements and a shift toward higher-margin products are expected to support long-term gross margin targets in the 45–50% range.
• Tariff and market headwinds: The company remains alert to potential impacts from U.S. tariff policy changes and a dynamic macroeconomic environment. Management believes its current mitigation strategies—including supplier negotiations and price increases—will remain effective, but acknowledges that housing and security markets may still face volatility.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will closely track (1) the launch and adoption rates of upcoming products in air, comfort, security, and water segments, (2) the realization of anticipated margin gains following the Honeywell indemnification agreement termination, and (3) progress toward the planned spin-off of the ADI business. Additional focus will be on how effectively Resideo manages tariff risks and navigates shifting demand in key end markets.

Resideo currently trades at $31.28, up from $26.26 just before the earnings. Is there an opportunity in the stock?Find out in our full research report (it’s free).

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