Resideo's third-quarter earnings reflect continued weakness in residential security installations as the company redirects investment from OEM manufacturing toward higher-margin branded products.
Resideo Technologies (NYSE: REZI) is redirecting investment from its OEM security business toward higher-margin branded products, a strategic shift unfolding as sluggish existing-home sales continue to weigh on residential security installations.
The company reported flat year-over-year revenue in its general security distribution channel during the third quarter of 2026, while OEM security revenue declined $17 million to $33 million. Management attributed the OEM decline to an intentional reduction in emphasis on that business rather than solely to weakening market demand.
The developments highlight Resideo’s changing competitive approach to the security market following the August spin-off of ADI Global Distribution, with the company placing greater emphasis on products sold under its own brands rather than equipment manufactured for other suppliers.
Housing market continues to pressure security demand
Resideo reported total third-quarter revenue of $727 million, an increase of 3% year over year. Revenue across its core sales channels, excluding OEM security, increased 6%, or $41 million, while gross margin reached 40.4%.
Security distribution remained a weak spot.
“Revenue from the general security distribution channel was flat year-over-year, in line with the continued soft market for security installations, which are typically highly correlated with the resale of existing homes,” said Thomas Surran, Resideo’s chief executive officer.
Performance in other professional distribution channels was stronger. Electrical distribution achieved double-digit percentage revenue growth, supported by record volume and competitive conversions, while HVAC distribution recorded mid-single-digit growth.
The company completed the spin-off of ADI on Aug. 3, leaving Resideo operating as a stand-alone building technologies manufacturer. Its third-quarter financial results reflect continuing operations, with ADI treated as a discontinued operation.
OEM security takes a back seat to branded products
OEM security revenue totaled $33 million during the quarter, down $17 million from a year earlier. Management said the decline was consistent with previously communicated expectations for reduced volumes.
Surran characterized OEM security as noncore and said the company has redirected operating investments toward its branded security portfolio.
He cited two reasons for the decision: OEM products manufactured by Resideo compete against its own branded offerings, and OEM sales generate lower margins.
“First, when we act as an outside design manufacturer for OEM security customers, the products we design and make for them are used to compete against ourselves in the general market,” Surran said.
The strategy reflects management’s preference for competing directly in the security marketplace rather than supplying equipment that other companies sell under their own brands.
“We believe selling a branded product in the general security marketplace where we can provide innovation and drive value is healthier for Resideo over the long term,” Surran said.
New security products planned around FORTIQ
Resideo plans to announce a series of security products integrated with its next-generation FORTIQ software platform during the fourth quarter.
Management did not identify the products, describe their capabilities or provide specific commercial availability dates.
The company also expects to engage with professional installers and other industry partners at its CONNECT 2026 User Conference (Nov. 19-22), which Surran said was oversubscribed because of record demand.
Across its broader operations, Resideo continues to allocate approximately 5% of total revenue to research and development, supporting new product introductions and efforts to accelerate development.
Surran described the company’s broader strategy as one that links product innovation, revenue growth and operational efficiency, with improved profitability providing resources for further investment.
“Our strategy is built around a powerful self-reinforcing cycle, investing in innovation to drive revenue growth, expanding margins through differentiated product design, continuously improving operational efficiency and reinvesting the benefits back into our innovation engine,” he said.
Inflation pressures and fourth-quarter outlook
Resideo reported third-quarter stand-alone adjusted EBITDA of $154 million, up approximately 5% year over year, supported by higher gross profit and controlled operating expense growth.
Chief Financial Officer Shane Harrison said product input inflation created an approximately $13 million year-over-year cost headwind, partially offset by $3 million in benefits from price increases implemented in June.
The company expects to realize the full benefit of those increases during the fourth quarter, although continued inflation is projected to produce a low-single-digit-million-dollar cost headwind.
Resideo is also pursuing operational improvements, including reducing its product SKU count and plans to exit three underutilized manufacturing facilities, including operations in Scotland.
For the fourth quarter, management forecasts companywide revenue of $710 million to $730 million and stand-alone adjusted EBITDA of $145 million to $155 million.
Excluding OEM security, Resideo expects fourth-quarter revenue growth ranging from flat to low single digits, reflecting four fewer sales days, foreign exchange pressures and SKU rationalization.
The company projects full-year revenue of $2.927 billion to $2.947 billion and stand-alone adjusted EBITDA of $614 million to $624 million.
The outlook also reflects a continued reduction in OEM security activity. Resideo expects fourth-quarter OEM security revenue of approximately $25 million, representing a projected $30 million year-over-year decline, as the company prepares to announce its next generation of branded security products before year-end.
(Editor’s note: This article was produced with the assistance of generative AI using Resideo's publicly available earnings call transcript as source material. The content was reviewed, edited and verified by the SecurityInfoWatch editorial team to ensure accuracy, context and adherence to our editorial standards.)
