LENNOX INTERNATIONAL INC. DALLAS, Oct. 20, 2014 /PRNewswire/ -- Lennox International Inc. (NYSE: LII) today reported financial results for the third quarter of 2014. Financial results in prior periods have been revised to reflect sold businesses in discontinued operations.
Revenue for the third quarter was $898 million, up 4% from the prior-year quarter. Foreign exchange was neutral to revenue growth. Adjusted earnings per share from continuing operations was a third-quarter record $1.44, up 11% from $1.30 in the prior-year quarter. On a GAAP basis, earnings per share from continuing operations was a third-quarter record $1.38, up 6% from $1.30 in the prior-year quarter.
"Led by our Residential and Commercial businesses, the company's 12.3% total segment margin set a third-quarter record, expanding 40 basis points over the prior-year quarter," said Chairman and CEO Todd Bluedorn. "Our Residential business was negatively impacted by cooler summer weather than last year, but revenue still grew 7%. Residential margin and profit set third-quarter records. Segment margin expanded 190 basis points to 15.0%, and profit rose 22%. Commercial revenue was up 1%, facing headwinds from the timing of national account business between the third and fourth quarters, the cooler summer in North America, and a soft market environment in Europe. Commercial margin and profit set record levels. Segment margin expanded 110 basis points to 17.5%, and profit rose 8%. In Refrigeration, revenue was down 1% at constant currency and margin declined 380 basis points from the prior-year quarter to 8.5%. As expected, business was negatively impacted by the July repeal of the carbon tax in Australia. North America refrigeration revenue was flat in the third quarter. We continue to expect improvement in that business on the ramp up of new national account business in the fourth quarter and into 2015.
"Looking ahead for the company overall, we reiterate our revenue and adjusted EPS guidance for 2014 and maintain our outlook for a year of strong growth and record profitability. With our solid balance sheet and view on the company's strong market position and prospects, we have repurchased $100 million of stock year-to-date and are announcing plans for a new $450 million accelerated share repurchase program in October."
FINANCIAL HIGHLIGHTS
Revenue: Revenue for the third quarter was $898 million, up 4% from the prior-year quarter. Foreign exchange was neutral to revenue growth. Volume and price were up, and mix was down from the prior-year quarter.
Gross Profit: Gross profit for the third quarter was $247 million, up 4% from the prior-year quarter. Gross margin was 27.5%, up 10 basis points from 27.4% in the prior-year quarter. Gross profit was favorably impacted by higher volume, lower material costs and favorable price, partially offset by negative mix, Australian refrigerant profitability, foreign exchange, and investments in distribution expansion.
Income from Continuing Operations: Adjusted income from continuing operations in the third quarter was $70.3 million, or $1.44 per share, compared to $65.5 million, or $1.30 per share, in the prior-year quarter. Adjusted earnings from continuing operations for the third quarter of 2014 excludes $2.8 million in after-tax charges: $0.8 million for restructuring activities, $0.8 million for a special inventory write-down, $0.4 million for environmental liabilities, $0.3 million for a special legal contingency, $0.2 million for asbestos-related litigation, $0.2 million for the net change in unrealized losses on unsettled future contracts, and $0.1 million for special product quality adjustments.
On a GAAP basis, income from continuing operations for the third quarter was $67.5 million, or $1.38 per share, compared to $65.8 million, or $1.30 per share, in the prior-year quarter.
Free Cash Flow and Total Debt: Net cash from operations in the third quarter was $97 million compared to $153 million in the prior-year quarter. The company invested $19 million in capital assets in the third quarter, up from $18 million in the third quarter a year ago. Free cash flow was $78 million, compared to approximately $136 million in the prior-year quarter. Total debt at the end of the third quarter was $596 million. Total cash and cash equivalents were $48 million at the end of the quarter. The company paid $15 million in dividends and repurchased $50 million of stock through its stock repurchase program in the third quarter.
BUSINESS SEGMENT HIGHLIGHTS
Residential Heating & Cooling
Third quarter 2014 revenue in the Residential Heating & Cooling business segment was $463 million, up 7% from the prior-year quarter. Foreign exchange was neutral. Segment profit was a third-quarter record $69 million, up 22% from the prior-year quarter. Segment profit margin was a third-quarter record 15.0%, 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 higher SG&A and investments in distribution expansion.
Commercial Heating & Cooling
Revenue in the Commercial Heating & Cooling business segment was $242 million, up 1% from the prior-year quarter. Foreign exchange was neutral. Segment profit was a record $42 million, up 8% from the prior-year quarter. Segment profit margin was a record 17.5%, up 110 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 investments for future growth.
Refrigeration
Revenue in the Refrigeration business segment was $194 million in the third quarter, flat with the prior-year quarter. Foreign exchange had a positive 1 point impact on revenue. Segment profit was $17 million, down 31% from $24 million in the prior-year quarter. Segment profit margin was 8.5%, down 380 basis points from the prior-year quarter. Results were primarily impacted by unfavorable mix and Australian refrigerant profitability, with a partial offset from favorable price.
FULL-YEAR OUTLOOK
For 2014, the company reiterates revenue and adjusted EPS from continuing operations guidance.
-- Reiterating revenue growth guidance of 5-7% for the full year; 1 point
of negative impact from foreign exchange is still expected.
-- Reiterating adjusted EPS from continuing operations guidance of
$4.30-$4.50.
-- Updating GAAP EPS from continuing operations guidance from $4.27-$4.47
to $4.21-$4.41.
-- Reiterating corporate expense guidance of approximately $70 million in
2014.
-- Reiterating effective tax rate guidance of 34-35% on a full-year basis.
-- Reiterating capital expenditure guidance of approximately $90 million in
2014.
-- Announcing plans for a new $450 million accelerated share repurchase
program in October.
CONFERENCE CALL INFORMATION
A conference call to discuss the company's third quarter results will be held this morning at 8:30 a.m. Central time. To listen, please call the conference call line at 612-288-0337 at least 10 minutes prior to the scheduled start time and use reservation number 338428. 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 October 20 through October 27, 2014 by dialing 800-475-6701 (U.S.) or 320-365-3844 (international) and using access code 338428. 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 stock is traded 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 2014 full-year outlook and expected financial results for 2014, 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, economic conditions in our markets, 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 For the Nine Months Ended
September 30, September 30,
------------- -------------
2014 2013 2014 2013
---- ---- ---- ----
Net sales $898.4 $868.0 $2,554.6 $2,449.5
Cost of goods sold 651.3 630.6 1,876.7 1,796.1
----- ----- ------- -------
Gross profit 247.1 237.4 677.9 653.4
Operating Expenses:
Selling, general and
administrative
expenses 140.9 136.9 425.5 424.0
Losses (gains) and
other expenses, net 2.1 (0.3) 3.5 2.8
Restructuring charges 1.0 0.3 1.3 3.2
Income from equity
method investments (3.5) (3.3) (12.0) (10.7)
---- ---- ----- -----
Operational income from
continuing operations 106.6 103.8 259.6 234.1
Interest expense, net 4.0 3.8 11.0 10.8
Other expense (income),
net - - - (0.1)
--- --- --- ----
Income from continuing
operations before
income taxes 102.6 100.0 248.6 223.4
Provision for income
taxes 35.1 34.2 86.6 77.5
---- ---- ---- ----
Income from continuing
operations 67.5 65.8 162.0 145.9
Discontinued Operations:
Loss from discontinued
operations before
income taxes (0.2) (2.3) (1.3) (15.7)
Benefit from income
taxes (0.1) (0.8) (0.5) (6.4)
---- ---- ---- ----
Loss from discontinued
operations (0.1) (1.5) (0.8) (9.3)
---- ---- ---- ----
Net income $67.4 $64.3 $161.2 $136.6
===== ===== ====== ======
Earnings per share - Basic:
Income from continuing
operations $1.40 $1.32 $3.33 $2.92
Loss from discontinued
operations - (0.03) (0.02) (0.19)
--- ----- ----- -----
Net income $1.40 $1.29 $3.31 $2.73
===== ===== ===== =====
Earnings per share - Diluted:
Income from continuing
operations $1.38 $1.30 $3.27 $2.87
Loss from discontinued
operations - (0.03) (0.01) (0.18)
--- ----- ----- -----
Net income $1.38 $1.27 $3.26 $2.69
===== ===== ===== =====
Weighted Average Number
of Shares Outstanding
-Basic 48.3 49.7 48.7 50.0
Weighted Average Number
of Shares Outstanding
-Diluted 49.0 50.5 49.5 50.8
Cash dividends declared
per share $0.30 $0.24 $0.84 $0.68
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
Segment Net Sales and Profit (Loss)
(Unaudited)
(Amounts in millions) For the Three Months Ended For the Nine Months Ended
September 30, September 30,
------------- -------------
2014 2013 2014 2013
---- ---- ---- ----
Net Sales
Residential Heating &
Cooling $462.6 $433.9 $1,332.5 $1,224.5
Commercial Heating &
Cooling 241.6 239.1 655.6 631.8
Refrigeration 194.2 195.0 566.5 593.2
$898.4 $868.0 $2,554.6 $2,449.5
====== ====== ======== ========
Segment Profit (Loss) (1)
Residential Heating &
Cooling $69.4 $57.0 $178.8 $143.7
Commercial Heating &
Cooling 42.2 39.2 91.3 84.8
Refrigeration 16.5 23.9 42.3 66.5
Corporate and other (17.5) (16.6) (47.8) (56.2)
----- ----- ----- -----
Subtotal that
includes segment
profit and
eliminations 110.6 103.5 264.6 238.8
Reconciliation to income from
continuing operations before
income taxes:
Special product
quality adjustments 0.2 (0.4) (0.1) (0.5)
Items in Losses
(gains) and other
expenses, net that
are excluded from
segment profit
(loss) (1) 1.8 (0.2) 2.8 2.0
Restructuring charges 1.0 0.3 1.3 3.2
Interest expense, net 4.0 3.8 11.0 10.8
Special inventory
write down 1.0 - 1.0 -
Other expense
(income), net - - - (0.1)
--- --- --- ----
Income from
continuing
operations before
income taxes $102.6 $100.0 $248.6 $223.4
====== ====== ====== ======
(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,
? Environmental liabilities, and
? Other items, net;
-- Restructuring charges;
-- Goodwill, long-lived asset, and equity method
investment impairments;
-- Interest expense, net;
-- Special inventory write down; and
-- Other expense, net.
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Amounts in millions,
except shares and par
values) As of September 30, As of December 31,
2014 2013
---- ----
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $48.1 $38.0
Accounts and notes
receivable, net of
allowances of $9.6 and
$9.8 in 2014 and 2013,
respectively 501.5 408.1
Inventories, net 501.5 378.8
Deferred income taxes, net 23.8 24.5
Other assets 61.6 53.0
---- ----
Total current assets 1,136.5 902.4
Property, plant and
equipment, net of
accumulated depreciation
of $648.9 and $617.3 in
2014 and 2013,
respectively 350.5 335.5
Goodwill 214.1 216.8
Deferred income taxes 86.2 88.5
Other assets, net 89.2 83.5
---- ----
Total assets $1,876.5 $1,626.7
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term debt $229.0 $165.9
Current maturities of long-
term debt 1.3 1.3
Accounts payable 333.1 283.1
Accrued expenses 248.7 232.1
Income taxes payable 12.8 31.6
---- ----
Total current liabilities 824.9 714.0
Long-term debt 365.7 233.2
Post-retirement benefits,
other than pensions 2.7 4.6
Pensions 60.6 70.0
Other liabilities 120.9 119.2
----- -----
Total liabilities 1,374.8 1,141.0
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 950.2 912.7
Retained earnings 990.9 870.5
Accumulated other
comprehensive loss (76.9) (61.1)
Treasury stock, at cost,
39,136,472 shares and
38,066,794 shares in 2014
and 2013, respectively (1,364.2) (1,238.1)
Noncontrolling interests 0.8 0.8
--- ---
Total stockholders' equity 501.7 485.7
----- -----
Total liabilities and
stockholders' equity $1,876.5 $1,626.7
======== ========
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
(Amounts in millions) For the Nine Months Ended
September 30,
-------------
2014 2013
---- ----
Cash flows from operating activities:
Net income $161.2 $136.6
Net loss from
discontinued operations 0.8 9.3
Adjustments to reconcile net income
to net cash provided by operating
activities:
Income from equity method
investments (12.0) (10.7)
Dividends from affiliates 6.1 9.1
Restructuring expenses,
net of cash paid (0.1) (1.2)
Provision for bad debts 2.8 2.7
Unrealized losses on
derivative contracts 0.1 0.7
Stock-based compensation
expense 17.3 20.5
Depreciation and
amortization 45.2 43.1
Deferred income taxes 1.4 0.1
Other items, net 0.3 13.5
Changes in assets and liabilities,
net of effects of divestitures:
Accounts and notes
receivable (104.0) (125.3)
Inventories (127.6) (76.4)
Other current assets (6.2) (13.7)
Accounts payable 51.0 29.4
Accrued expenses 18.2 20.8
Income taxes payable and
receivable (21.1) 12.9
Other (9.1) 6.8
Net cash used in
discontinued operations (0.8) (13.2)
---- -----
Net cash provided by
operating activities 23.5 65.0
Cash flows from investing activities:
Proceeds from the
disposal of property,
plant and equipment 0.2 0.1
Purchases of property,
plant and equipment (59.9) (41.0)
Net proceeds from sale of
business - 8.1
Net cash used in
discontinued operations - (0.1)
--- ----
Net cash used in
investing activities (59.7) (32.9)
Cash flows from financing activities:
Short-term borrowings,
net 3.4 3.8
Asset securitization
borrowings 60.0 330.0
Asset securitization
payments - (200.0)
Long-term debt payments (1.7) (0.7)
Borrowings from revolving
credit facility 1,483.0 998.0
Payments on revolving
credit facility (1,351.0) (1,083.5)
Proceeds from employee
stock purchases 1.5 1.3
Repurchases of common
stock (100.3) (66.0)
Repurchases of common
stock to satisfy
employee withholding tax
obligations (12.3) (7.7)
Excess tax benefits
related to share-based
payments 5.3 4.7
Cash dividends paid (38.2) (22.1)
----- -----
Net cash provided by
(used in) financing
activities 49.7 (42.2)
Increase (decrease) in
cash and cash
equivalents 13.5 (10.1)
Effect of exchange rates
on cash and cash
equivalents (3.4) (3.9)
Cash and cash
equivalents, beginning
of period 38.0 51.8
---- ----
Cash and cash
equivalents, end of
period $48.1 $37.8
===== =====
Supplemental disclosures of cash flow
information:
Interest paid $9.5 $9.4
==== ====
Income taxes paid (net of
refunds) $100.4 $53.6
====== =====
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 business trends and operating performance.
Reconciliation of Income from Continuing Operations, a GAAP measure, to Adjusted Income from Continuing Operations, a Non-GAAP measure
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
2014 2013 2014 2013
---- ---- ---- ----
Income from
continuing
operations, a GAAP
measure $67.5 $65.8 $162.0 $145.9
Restructuring
charges, after tax 0.8 0.2 1.4 2.1
Special product
quality
adjustments, after
tax (b) 0.1 (0.3) (0.1) (0.4)
Special legal
contingency
charges, after tax
(a) 0.3 0.5 0.4 0.7
Asbestos-related
litigation, after
tax (a) 0.2 - 0.6 -
Net change in
unrealized losses
(gains) on
unsettled future
contracts, after
tax(a) 0.2 (0.7) 0.1 0.4
Special inventory
write down, after
tax (b) 0.8 - 0.8 -
Environmental
liabilities, after
tax (a) 0.4 - 0.4 -
Other items, net,
after tax (a) - - 0.5 0.3
Adjusted income from
continuing
operations, a non-
GAAP measure $70.3 $65.5 $166.1 $149.0
===== ===== ====== ======
Income per share
from continuing
operations -
diluted, a GAAP
measure $1.38 $1.30 $3.27 $2.87
Restructuring
charges, after tax 0.02 - 0.03 0.04
Special product
quality
adjustments, after
tax (b) - - - (0.01)
Special legal
contingency
charges, after tax
(a) 0.01 0.01 0.01 0.01
Asbestos-related
litigation, after
tax (a) - - 0.01 -
Net change in
unrealized losses
(gains) on
unsettled future
contracts, after
tax(a) - (0.01) - 0.01
Special inventory
write down, after
tax (b) 0.02 - 0.02 -
Environmental
liabilities, after
tax (a) 0.01 - 0.01 -
Other items, net,
after tax (a) - - 0.01 0.01
Adjusted earnings
per share from
continuing
operations -
diluted, a non-
GAAP measure $1.44 $1.30 $3.36 $2.93
===== ===== ===== =====
(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 For the Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
2014 2013 2014 2013
---- ---- ---- ----
Components of Losses (gains)
and other expenses, net (pre-
tax):
Realized losses on
settled future
contracts (a) $0.1 $0.4 $0.6 $0.8
Foreign currency
exchange losses
(gains) (a) 0.1 (0.5) 0.1 -
Loss on disposal of
fixed assets (a) 0.1 - - -
Net change in
unrealized losses
(gains) on
unsettled futures
contracts (b) 0.2 (1.1) 0.1 0.7
Special legal
contingency charges
(b) 0.5 0.8 0.7 1.0
Asbestos-related
litigation (b) 0.4 - 1.0 -
Environmental
liabilities (b) 0.7 - 0.7 -
Other items, net (b) - 0.1 0.3 0.3
Losses (gains) and
other expenses, net
(pre-tax) $2.1 $(0.3) $3.5 $2.8
==== ===== ==== ====
(a) Included in segment profit (loss) and Adjusted income from continuing operations
(b) Excluded from 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,
2014
ESTIMATED
---------
Adjusted income per share from continuing operations - diluted, a Non-GAAP measure $4.30 - $4.50
Restructuring charges and other items (0.09)
Income per share from continuing operations - diluted, a GAAP measure $4.21 - $4.41
============
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 For the Nine Months Ended
September 30, September 30,
------------- -------------
2014 2013 2014 2013
Net cash provided by
operating
activities, a GAAP
measure $96.9 $153.3 $23.5 $65.0
Purchases of
property, plant and
equipment (18.7) (17.6) (59.9) (41.0)
Proceeds from the
disposal of
property, plant and
equipment 0.2 0.1 0.2 0.1
--- --- --- ---
Free cash flow, a
Non-GAAP measure $78.4 $135.8 $(36.2) $24.1
===== ====== ====== =====
Calculation of Debt to EBITDA Ratio (dollars in millions): Trailing
Twelve
Months to
September
30, 2014
----------
Adjusted EBIT (a) $326.2
Depreciation and amortization expense (b) 61.0
EBITDA (a + b) $387.2
------
Total debt at September 30, 2014 (c) $596.0
--- ------
Total Debt to EBITDA ratio ((c / (a + b)) 1.5
===
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
September
30, 2014
----------
Adjusted EBIT per above, a Non-GAAP measure $326.2
Special product quality adjustments (2.0)
Items in Losses (gains) and other expenses, net that are excluded from segment profit 9.4
Restructuring charges 3.1
Interest expense, net 14.8
Special inventory write down 1.0
Other expenses, net 0.5
Income from continuing operations before income taxes, a GAAP measure $299.4
=== ======
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SOURCE Lennox International Inc.
