Resideo (REZI) said its five-year growth plan remains intact despite accelerating revenue declines from its OEM security business, which the company is phasing out through 2028.
At the Jefferies Global Industrials Conference on Thursday, Sept. 10, executives said the company expects OEM-related revenue to fall roughly $45 million in the second half of 2026, with about one-third hitting the third quarter and two-thirds in the fourth. Gross margin impact from the exit is estimated at $10 million for the half. Revenue from the account, which was running at $170 million to $180 million at the start of the year, is projected to land between $100 million and $120 million by mid-2027, representing a cumulative decline of up to $70 million since January 2026. Additional headwinds of about $15 million in Q1 2027 and $10 million in Q2 are also factored into guidance.
CEO Tom Surran emphasized that Resideo will not transition the OEM relationship into an original-design-manufacturer arrangement. "Our brands are worth too much," he said, noting the company's differentiated product development. The OEM account carries roughly 20% gross margins and similar operating expenses, well below Resideo's current run rate.
Gross margins have expanded to the high 30s—Surran cited 39% to 40%—from the mid-to-upper 30s three years ago. Management reaffirmed investor-day guidance calling for 400 basis points of gross margin expansion over the five-year horizon. Inflationary input costs, particularly for RAM, metals, petroleum, and printed circuit boards, are expected to create about a $10 million headwind in Q3 2026 from the gap between cost increases and pricing actions. That gap is projected to narrow to less than $2 million in Q4, though pricing carries a 60-to-90-day notification lag. Guidance models a conservative 1% annual price increase.
Resideo targets 4% to 6% compound annual top-line growth over the plan period, with roughly 80% of revenue driven by repair-and-remodel activity and 20% from new residential construction. The company produces about 15 million thermostats and 24 million smoke detectors annually, and views a proposed $2 billion European safety market—triggered by upcoming regulatory changes—as an untapped opportunity. R&D spending remains around 5% of revenue.
The balance sheet carries $3.9 billion in total debt with a debt-to-equity ratio of 1.55. Management reiterated a net leverage target of approximately 2.0 times within 24 months, per the Investor Day target. Shares traded near a 52-week low of $18.82, down roughly 25% over the past year, with a P/E ratio of 7.6.
