Resideo’s Spin-Off: A Cleaner Story, But Slower Growth and Cost Pressures Test the Bull Case

Q2 beat aside, stand-alone guidance signals ~3% growth, with OEM security and input cost inflation weighing on margins.

REZI · Earnings Call · 2026-08-12

A Pivotal Quarter

Resideo’s second quarter marked a clear inflection point. The company completed the spin-off of ADI Global Distribution on August 3, and management used the call to frame Q2 on both consolidated and stand-alone bases. The headline numbers were strong: “we exceeded the high end of the second quarter outlook ranges for all metrics” — Thomas Surran, Chief Executive Officer · 2026-08-12. Consolidated revenue hit a record, and the P&S segment posted its 13th consecutive quarter of gross margin expansion. But the shine came off when management issued its stand-alone 2026 outlook, implying P&S revenue growth of roughly 3%—down from the ~5% pace they had signaled just 90 days earlier. Analysts immediately pressed on the deceleration. Tom Surran defended the guide: “The Products & Solutions segment continued its strong operational execution despite soft housing trends and inflationary input costs” — Thomas Surran, Chief Executive Officer · 2026-08-12. The market, however, has voted with its feet: the stock is down ~46% in the last three months, reflecting concerns about growth and margins.

The OEM Security Cloud

The most notable new detail on the call was a large OEM security customer that is pivoting toward vertical integration. Management expects $40–50 million less revenue in the second half versus a year ago. Surran described the relationship as healthy but noted, “they're pursuing vertical integration” — Thomas Surran, Chief Executive Officer · 2026-08-12. This is a low-margin, private-label business that is already baked into medium-term targets. OEM security is the keyword that topped the company's Q2 trajectory, and it’s now the clearest headwind for the back half. The stair-step impact was outlined:

This clearly is going to have an impact Q3 somewhat Q4 more so. And then as we go into kind of Q1 of next year, it will kind of be a little more like the Q3 level and then by Q2, we would expect it to kind of plateau.
Thomas Surran, Chief Executive Officer · 2026-08-12

Input Cost Inflation and the Margin Squeeze

The other big storyline is cost pressure. Memory, metals, printed circuit boards, and freight are all moving higher. On the call, Surran highlighted “memory costs going up 4x, metal costs going up 35%” — Thomas Surran, Chief Executive Officer · 2026-08-12. The company took pricing actions in Q2, but the lag means Q3 gross margin will be hit hardest. This is a continuation of a recurring theme–in May, management had sounded reassuring about supply: “we feel comfortable that we have received the allocations we need to be able to execute in 2026” — Thomas Surran, Executive, Products & Solutions team leader · 2026-05-12. Now, Input costs have surged to the forefront of investor concerns. Management also noted they do not expect material tariff refunds for the remainder of 2026, unlike the $27 million favorable impact in Q2.

Deleveraging and the Stand-Alone Story

The spin-off resets the balance sheet: the company paid down $900 million of Term Loan B debt on August 3, with another ~$200 million expected. The stand-alone revenue guidance of $2.9–2.95 billion and EBITDA of $605–625 million implies a higher-margin, cash-generative pure-play. Yet the consolidated Q2 revenue of $1.9B will be as good as it gets for a while, as the growth algorithm shifts. The stock’s drawdown suggests the market is skeptical that the NPI pipeline and cost actions can offset the twin headwinds of OEM security and input cost inflation. Time will tell.