LENNOX INTERNATIONAL INC. DALLAS, July 20, 2015 /PRNewswire/ -- Lennox International Inc. (NYSE: LII) today reported financial results for the second quarter of 2015. Financial results reflect sold businesses in discontinued operations.
Revenue for the second quarter was $993 million, up 3% from the prior-year quarter including the negative impact from foreign exchange. At constant currency, revenue was up 6% on growth across all three business segments. Adjusted earnings per share from continuing operations was a record $1.84, up 22% from the prior-year quarter. On a GAAP basis, earnings per share from continuing operations was a record $1.79, up 19% from the prior-year quarter.
"Lennox International posted record profits in the second quarter with margin expansion across all three of our businesses," said Chairman and CEO Todd Bluedorn. "Total segment profit margin for the company expanded 120 basis points from the prior-year quarter to a record 13.5%. In our Residential business, we hit record revenue, margin and profit levels. Residential revenue was up 6% at constant currency, and margin expanded 190 basis points to 18.0%. In Commercial, segment profit reached new highs while revenue and margin set second-quarter records. Commercial revenue was up 10% at constant currency, and margin expanded 80 basis points to 17.0%. North America national account business resumed growth as expected, with revenue up high single-digits, and we continued to see success in non-national account business with mid-teens revenue growth. In Refrigeration, revenue was up 4% at constant currency, driven by high single-digit growth in North America. Refrigeration margin ticked up 10 basis points to 7.2%, including headwinds from negative foreign exchange and the mid-2014 repeal of the carbon tax on refrigerant in Australia.
"Looking ahead for the company overall, we now expect revenue growth of 4-7% at constant currency and adjusted EPS from continuing operations of $5.25-$5.50 for the full year. The company remains focused on driving our operational initiatives for higher profitability and is well-positioned to capitalize on end market growth and market share gains. With a strong balance sheet and cash generation, we will continue to invest in the business for future growth as well as return cash to shareholders through dividends and stock repurchases."
FINANCIAL HIGHLIGHTS
Revenue: Revenue for the second quarter was $993 million, up 3% from the prior-year quarter. At constant currency, revenue was up 6%. Volume and price/mix were up on a revenue basis from the prior-year quarter.
Gross Profit: Gross profit in the second quarter was $283 million, up 8% from $263 million in the prior-year quarter. Gross margin was 28.6%, up 130 basis points from 27.3% in the prior-year quarter. Gross profit was positively impacted by higher volume, favorable price, and lower material costs, with partial offsets from unfavorable foreign exchange, negative mix, lower Australian refrigerant profitability, and investments in distribution expansion.
Income from Continuing Operations: Adjusted income from continuing operations in the second quarter was $83.9 million, or $1.84 per share, compared to $74.9 million, or $1.51 per share, in the prior-year quarter. Adjusted earnings from continuing operations for the second quarter of 2015 excludes $2.3 million in after-tax charges: $1.3 million for restructuring activities and $1.0 million, net, for other items.
On a GAAP basis, income from continuing operations for the second quarter was $81.6 million, or $1.79 per share, compared to $74.6 million, or $1.50 per share, in the prior-year quarter.
Free Cash Flow and Total Debt: Net cash from operations in the second quarter was $70 million compared to $52 million in the prior-year quarter. The company invested $15 million in capital assets in the second quarter compared to $24 million in the second quarter a year ago. Free cash flow was $55 million compared to $28 million in the prior-year quarter. Total debt at the end of the second quarter was $1,056 million. Total cash and cash equivalents were $48 million at the end of the quarter. The company paid $14 million in dividends in the second quarter. In May 2015, the company announced a 20% increase in its dividend to $0.36 per share on a quarterly basis. The company's previously announced $450 million accelerated stock repurchase program continues and is still expected to be completed in the second half of 2015.
BUSINESS SEGMENT HIGHLIGHTS
Residential Heating & Cooling
Second quarter 2015 revenue in the Residential Heating & Cooling business segment was a record $555 million, up 5% from the prior-year quarter. At constant currency, revenue was up 6%. Segment profit was a record $100 million, up 18% from the prior-year quarter. Segment profit margin was a record 18.0%, up 190 basis points from the prior-year quarter. Results were primarily impacted by higher volume, favorable price/mix, and lower material costs, with partial offsets from unfavorable foreign exchange and investments in SG&A and distribution expansion.
Commercial Heating & Cooling
Revenue in the Commercial Heating & Cooling business segment was a second-quarter record $254 million, up 5% from the prior-year quarter. At constant currency, revenue was up 10%. Segment profit was a record $43 million, up 10% from the prior-year quarter. Segment profit margin was a second-quarter record 17.0%, up 80 basis points from the prior-year quarter. Results were primarily impacted by higher volume and lower material costs, with partial offsets from unfavorable mix, unfavorable foreign exchange, and higher SG&A, including investments to support distribution expansion and growth in the VRF market.
Refrigeration
Revenue in the Refrigeration business segment was $184 million in the second quarter, down 4%. At constant currency, revenue was up 4%. Segment profit was $13 million compared to $14 million in the prior-year quarter. Segment profit margin was 7.2%, up 10 basis points from the prior-year quarter. Results were primarily impacted by higher volume, higher factory productivity, and lower material costs, with partial offsets from lower Australian refrigerant profitability, unfavorable mix in North America supermarket business, and unfavorable foreign exchange.
FULL-YEAR OUTLOOK
For 2015, the company is updating guidance for revenue and adjusted EPS from continuing operations.
-- Updating revenue growth guidance at constant currency from 4-8% to 4-7%.
-- Still expecting a negative 3 point impact on revenue from foreign
exchange on a full-year basis; updating revenue growth guidance at
actual currency from 1-5% to 1-4%.
-- Narrowing adjusted EPS from continuing operations guidance from
$5.20-$5.60 to $5.25-$5.50.
-- Updating GAAP EPS from continuing operations guidance from $5.14-$5.54
to $5.14-$5.39.
-- Reiterating effective tax rate guidance of 34-35% on a full-year basis.
-- Lowering capital expenditure guidance from approximately $85 million to
$80 million.
CONFERENCE CALL INFORMATION
A conference call to discuss the company's second quarter results will be held this morning at 8:30 a.m. Central time. To listen, please call the conference call line at 612-288-0329 at least 10 minutes prior to the scheduled start time and use reservation number 364132. The conference call will also be webcast on Lennox International's web site at www.lennoxinternational.com. A replay will be available from 11:00 a.m. Central time on July 20 through July 27, 2015 by dialing 800-475-6701 (U.S.) or 320-365-3844 (international) and using access code 364132. The call will also be archived on the company's web site.
Lennox International Inc. is a global leader in the heating, air conditioning, and refrigeration markets. Lennox International is listed on the New York Stock Exchange under the symbol "LII". Additional information is available at: www.lennoxinternational.com or by contacting Steve Harrison, Vice President, Investor Relations, at 972-497-6670.
The statements in this news release that are not historical statements, including statements regarding the 2015 full-year outlook and expected financial results for 2015, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from the results expressed or implied by the statements. Risks and uncertainties that could cause actual results to differ materially from such statements include, but are not limited to: the impact of higher raw material prices, LII's ability to implement price increases for its products and services, changes in foreign exchange rates, economic conditions in our markets, the consequences of regulatory changes such as the repeal of the carbon tax in Australia, the impact of unfavorable weather, and a decline in new construction activity and related demand for products and services. For information concerning these and other risks and uncertainties, see LII's publicly available filings with the Securities and Exchange Commission. LII disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
(Amounts in millions,
except per share data) For the Three Months Ended June 30, For the Six Months Ended June 30,
----------------------------------- ---------------------------------
2015 2014 2015 2014
---- ---- ---- ----
Net sales $992.5 $960.7 $1,678.3 $1,656.1
Cost of goods sold 709.1 698.1 1,231.9 1,225.4
----- ----- ------- -------
Gross profit 283.4 262.6 446.4 430.7
Operating Expenses:
Selling, general and
administrative
expenses 152.9 148.9 286.2 284.5
Losses (gains) and
other expenses, net 3.3 (1.0) 8.9 1.4
Restructuring charges 1.8 0.2 2.1 0.3
Income from equity
method investments (5.5) (4.6) (8.8) (8.5)
---- ---- ---- ----
Operational income from
continuing operations 130.9 119.1 158.0 153.0
Interest expense, net 6.4 3.7 12.2 7.0
Other expense (income),
net - - - -
--- --- --- ---
Income from continuing
operations before
income taxes 124.5 115.4 145.8 146.0
Provision for income
taxes 42.9 40.8 50.2 51.5
---- ---- ---- ----
Income from continuing
operations 81.6 74.6 95.6 94.5
Discontinued Operations:
Loss from discontinued
operations before
income taxes (0.7) (1.1) (0.8) (1.1)
Benefit from income
taxes (0.3) (0.4) (0.3) (0.4)
---- ---- ---- ----
Loss from discontinued
operations (0.4) (0.7) (0.5) (0.7)
---- ---- ---- ----
Net income $81.2 $73.9 $95.1 $93.8
===== ===== ===== =====
Earnings per share - Basic:
Income from continuing
operations $1.81 $1.53 $2.13 $1.93
Loss from discontinued
operations (0.01) (0.02) (0.01) (0.01)
----- ----- ----- -----
Net income $1.80 $1.51 $2.12 $1.92
===== ===== ===== =====
Earnings per share - Diluted:
Income from continuing
operations $1.79 $1.50 $2.10 $1.90
Loss from discontinued
operations (0.01) (0.01) (0.01) (0.01)
----- ----- ----- -----
Net income $1.78 $1.49 $2.09 $1.89
===== ===== ===== =====
Weighted Average Number
of Shares Outstanding
-Basic 45.0 48.8 44.9 48.9
Weighted Average Number
of Shares Outstanding
-Diluted 45.6 49.6 45.6 49.7
Cash dividends declared
per share $0.36 $0.30 $0.66 $0.54
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
Segment Net Sales and Profit (Loss)
(Unaudited)
(Amounts in millions) For the Three Months Ended June 30, For the Six Months Ended June 30,
----------------------------------- ---------------------------------
2015 2014 2015 2014
---- ---- ---- ----
Net sales
Residential Heating &
Cooling $555.1 $527.7 $917.7 $869.8
Commercial Heating &
Cooling 253.6 241.0 413.5 414.0
Refrigeration 183.8 192.0 347.1 372.3
$992.5 $960.7 $1,678.3 $1,656.1
====== ====== ======== ========
Segment Profit (Loss) (1)
Residential Heating &
Cooling $99.9 $85.0 $131.2 $109.4
Commercial Heating &
Cooling 43.0 39.0 50.7 49.2
Refrigeration 13.3 13.7 17.2 25.8
Corporate and other (22.0) (19.2) (33.7) (30.6)
----- ----- ----- -----
Subtotal that includes
segment profit and
eliminations 134.2 118.5 165.4 153.8
Reconciliation to Income from
continuing operations before income
taxes:
Special product
quality adjustments (1.1) (0.4) (1.4) (0.3)
Items in Losses
(gains) and other
expenses, net that
are excluded from
segment profit (loss)
(1) 2.6 (0.4) 6.7 0.8
Restructuring charges 1.8 0.2 2.1 0.3
Interest expense, net 6.4 3.7 12.2 7.0
Other expense
(income), net - - - -
--- --- --- ---
Income from continuing
operations before
income taxes $124.5 $115.4 $145.8 $146.0
====== ====== ====== ======
(1) The Company
defines segment
profit and loss
as a segment's
income or loss
from continuing
operations
before income
taxes included
in the
accompanying
Consolidated
Statements of
Operations,
excluding:
-- Special product
quality
adjustments;
-- The following
items in Losses
(gains) and
other expenses,
net:
-Net change in unrealized gains
and/or losses on unsettled
futures contracts,
-Special legal contingency
charges,
- Asbestos-related litigation,
- Contractor tax payments,
- Environmental liabilities, and
- Other items, net;
-- Restructuring
charges;
-- Goodwill, long-
lived asset, and
equity method
investment
impairments;
-- Interest
expense, net;
and
-- Other expense,
net.
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Amounts in millions,
except shares and par
values) As of June 30, 2015 As of December 31, 2014
------------------- -----------------------
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $47.5 $37.5
Accounts and notes
receivable, net of
allowances of $7.5 and
$7.9 in 2015 and 2014,
respectively 609.3 421.4
Inventories, net 540.7 463.3
Deferred income taxes, net 31.6 32.5
Other assets 57.6 59.3
---- ----
Total current assets 1,286.7 1,014.0
Property, plant and
equipment, net of
accumulated depreciation
of $668.7 and $654.1 in
2015 and 2014,
respectively 352.1 358.6
Goodwill 204.5 209.4
Deferred income taxes 95.0 97.5
Other assets, net 88.0 84.8
---- ----
Total assets $2,026.3 $1,764.3
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term debt $226.1 $226.6
Current maturities of long-
term debt 16.3 24.0
Accounts payable 404.3 324.3
Accrued expenses 241.6 239.0
Income taxes payable 10.4 13.4
---- ----
Total current liabilities 898.7 827.3
Long-term debt 813.2 675.0
Post-retirement benefits,
other than pensions 3.4 4.5
Pensions 133.2 129.9
Other liabilities 121.5 118.6
----- -----
Total liabilities 1,970.0 1,755.3
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par
value, 25,000,000 shares
authorized, no shares
issued or outstanding - -
Common stock, $.01 par
value, 200,000,000 shares
authorized, 87,170,197
shares issued 0.9 0.9
Additional paid-in capital 848.1 824.9
Retained earnings 1,087.3 1,022.1
Accumulated other
comprehensive loss (178.9) (153.5)
Treasury stock, at cost,
42,149,601 shares and
42,535,126 shares in 2015
and 2014, respectively (1,701.7) (1,686.0)
Noncontrolling interests 0.6 0.6
--- ---
Total stockholders' equity 56.3 9.0
---- ---
Total liabilities and
stockholders' equity $2,026.3 $1,764.3
======== ========
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
(Amounts in For the Six Months Ended June
millions) 30,
------------------------------
2015 2014
---- ----
Cash flows from operating
activities:
Net income $95.1 $93.8
Net loss from
discontinued
operations 0.5 0.7
Adjustments to reconcile net
income to net cash provided by
operating activities:
Income from
equity method
investments (8.8) (8.5)
Dividends from
affiliates 3.4 1.7
Restructuring
expenses, net
of cash paid 1.2 -
Provision for
bad debts 1.6 1.3
Unrealized
losses on
derivative
contracts 0.3 (0.1)
Stock-based
compensation
expense 10.8 10.7
Depreciation
and
amortization 30.6 30.0
Deferred income
taxes (0.9) 0.6
Other items,
net 0.2 0.3
Changes in assets and
liabilities, net of effects of
divestitures:
Accounts and
notes
receivable (199.2) (168.2)
Inventories (85.3) (133.0)
Other current
assets (0.1) (4.2)
Accounts
payable 87.3 114.3
Accrued
expenses 6.7 3.4
Income taxes
payable and
receivable (1.4) (6.0)
Other 6.2 (9.5)
Net cash used
in
discontinued
operations (0.5) (0.7)
---- ----
Net cash used
in operating
activities (52.3) (73.4)
Cash flows from investing
activities:
Purchases of
property,
plant and
equipment (33.0) (41.2)
Net cash used
in investing
activities (33.0) (41.2)
Cash flows from financing
activities:
Short-term
borrowings,
net 0.4 (0.6)
Asset
securitization
borrowings 40.0 20.0
Asset
securitization
payments (40.0) -
Long-term debt
payments (23.0) (0.9)
Borrowings from
credit
facility 999.0 1,018.5
Payments on
credit
facility (845.5) (832.5)
Proceeds from
employee stock
purchases 1.1 1.0
Repurchases of
common stock - (50.0)
Repurchases of
common stock
to satisfy
employee
withholding
tax
obligations (21.8) (10.8)
Excess tax
benefits
related to
share-based
payments 17.3 4.0
Cash dividends
paid (26.9) (23.6)
----- -----
Net cash
provided by
financing
activities 100.6 125.1
Increase
(decrease) in
cash and cash
equivalents 15.3 10.5
Effect of
exchange rates
on cash and
cash
equivalents (5.3) 1.1
Cash and cash
equivalents,
beginning of
period 37.5 38.0
---- ----
Cash and cash
equivalents,
end of period $47.5 $49.6
===== =====
Supplemental disclosures of
cash flow information:
Interest paid $12.3 $7.8
===== ====
Income taxes
paid (net of
refunds) $34.4 $52.3
===== =====
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
Reconciliation to U.S. GAAP (Generally Accepted Accounting
Principles) Measures
(Unaudited, in millions, except per share and ratio data)
Use of Non-GAAP
Financial
Measures
To supplement the Company's consolidated financial statements and
segment net sales and profit presented in accordance with U.S. GAAP,
additional non-GAAP financial measures are provided and reconciled
in the following tables. In addition to these non-GAAP measures,
the Company also provides rates of revenue change at constant
currency on a consolidated and segment basis. The Company believes
that these non-GAAP financial measures, when considered together
with the GAAP financial measures, provide information that is useful
to investors in understanding period-over-period operating
results. The Company believes that these non-GAAP financial
measures enhance the ability of investors to analyze the Company's
Reconciliation of Income from Continuing Operations, a GAAP measure, to Adjusted Income from Continuing Operations, a Non-GAAP measure
For the Three Months Ended June 30, For the Six Months Ended June 30,
----------------------------------- ---------------------------------
2015 2014 2015 2014
---- ---- ---- ----
Income from
continuing
operations, a GAAP
measure $81.6 $74.6 $95.6 $94.5
Restructuring
charges, after tax 1.3 0.5 1.5 0.6
Special product
quality
adjustments, after
tax (b) (0.8) (0.2) (0.9) (0.2)
Special legal
contingency
charges, after tax
(a) 0.5 (0.1) 2.6 0.1
Asbestos-related
litigation, after
tax (a) 0.3 0.2 0.3 0.4
Net change in
unrealized losses
(gains) on
unsettled future
contracts, after
tax(a) 0.1 (0.5) - (0.1)
Environmental
liabilities, after
tax (a) (0.2) - 0.4 -
Contractor Tax
Payments (a) 1.1 - 1.1 -
Other items, net,
after tax (a) - 0.4 - 0.5
Adjusted income from
continuing
operations, a non-
GAAP measure $83.9 $74.9 $100.6 $95.8
===== ===== ====== =====
Income per share
from continuing
operations -
diluted, a GAAP
measure $1.79 $1.50 $2.10 $1.90
Restructuring
charges, after tax 0.03 0.01 0.03 0.01
Special product
quality
adjustments, after
tax (b) (0.02) - (0.02) -
Special legal
contingency
charges, after tax
(a) 0.01 - 0.06 -
Asbestos-related
litigation, after
tax (a) 0.01 - 0.01 0.01
Net change in
unrealized losses
(gains) on
unsettled future
contracts, after
tax(a) - (0.01) - -
Environmental
liabilities, after
tax (a) - - 0.01 -
Contractor Tax
Payments (a) 0.02 - 0.02 -
Other items, net,
after tax (a) - 0.01 - 0.01
Adjusted earnings
per share from
continuing
operations -
diluted, a non-
GAAP measure $1.84 $1.51 $2.21 $1.93
===== ===== ===== =====
(a) Recorded in Losses (gains) and other expenses, net in the Consolidated Statements of Operations
(b) Recorded in Cost of goods sold in the Consolidated Statements of Operations
For the Three Months Ended June 30, For the Six Months Ended June 30,
----------------------------------- ---------------------------------
2015 2014 2015 2014
---- ---- ---- ----
Components of Losses (gains) and
other expenses, net (pre-tax):
Realized losses on
settled future
contracts (a) $0.3 $0.3 $0.7 $0.6
Foreign currency
exchange losses
(gains) (a) 0.4 (0.8) 1.5 0.1
Loss on disposal of
fixed assets (a) - (0.1) - (0.1)
Net change in
unrealized losses
(gains) on
unsettled futures
contracts (b) 0.1 (0.8) - (0.2)
Special legal
contingency charges
(b) 0.7 (0.2) 4.1 0.2
Asbestos-related
litigation (b) 0.4 0.4 0.6 0.6
Environmental
liabilities (b) (0.2) - 0.4 -
Contractor Tax
Payments (b) 1.6 - 1.6 -
Other items, net (b) - 0.2 - 0.2
Losses (gains) and
other expenses, net
(pre-tax) $3.3 $(1.0) $8.9 $1.4
==== ===== ==== ====
(a) Included in both segment profit (loss) and Adjusted income from continuing operations
(b) Excluded from both segment profit (loss) and Adjusted income from continuing operations
Reconciliation of Estimated Adjusted Income per Share from Continuing Operations - Diluted, a Non-GAAP measure, to Income per Share from Continuing Operations - Diluted, a GAAP measure
For the Year Ended
December 31, 2015
ESTIMATED
---------
Adjusted income per share from continuing operations - diluted, a Non-GAAP measure $5.25 - $5.50
Restructuring charges and other items (0.11)
Income per share from continuing operations - diluted, a GAAP measure $5.14 - $5.39
=============
Reconciliation of Net Cash Provided by Operating Activities, a GAAP measure, to Free Cash Flow, a Non-GAAP measure (dollars in millions)
For the Three Months Ended June 30, For the Six Months Ended June 30,
----------------------------------- ---------------------------------
2015 2014 2015 2014
Net cash provided
by operating
activities, a
GAAP measure $69.9 $51.6 $(52.3) $(73.4)
Purchases of
property, plant
and equipment (15.0) (23.9) (33.0) (41.2)
Free cash flow, a
Non-GAAP
measure $54.9 $27.7 $(85.3) $(114.6)
===== ===== ====== =======
Calculation of Debt to EBITDA
Ratio (dollars in millions): Trailing
Twelve
Months to
June 30, 2015
-------------
Adjusted EBIT (a) $352.4
Depreciation and amortization
expense (b) 61.4
EBITDA (a + b) $413.8
------
Total debt at June 30, 2015 (c) $1,055.6
--------
Total Debt to EBITDA ratio ((c /
(a + b)) 2.6
===
Reconciliation of Adjusted EBIT, a Non-GAAP measure, to Income From Continuing Operations Before Income Taxes, a GAAP measure (dollars in millions)
Trailing
Twelve
Months to
June 30, 2015
-------------
Adjusted EBIT per above, a Non-GAAP measure $352.4
Special product quality adjustments (2.5)
Items in Losses (gains) and other expenses, net that are excluded from segment profit 10.6
Restructuring charges 3.7
Interest expense, net 22.3
Special inventory write down 1.0
Other expenses, net (0.1)
Income from continuing operations before income taxes, a GAAP measure $317.4
======
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SOURCE Lennox International Inc.
