LENNOX INTERNATIONAL INC. DALLAS, Oct. 19, 2015 /PRNewswire/ -- Lennox International Inc. (NYSE: LII) today reported financial results for the third quarter of 2015. Financial results reflect sold businesses in discontinued operations.
Revenue for the third quarter was $955 million, up 6% from the prior-year quarter including the negative impact from foreign exchange. At constant currency, revenue was up 11%. Adjusted earnings per share from continuing operations was a third-quarter record $1.82, up 26% from the prior-year quarter. On a GAAP basis, earnings per share from continuing operations was a third-quarter record $1.76, up 28% from the prior-year quarter.
"Lennox International realized strong revenue growth at constant currency and significant margin expansion across all three of our businesses in the third quarter," said Chairman and CEO Todd Bluedorn. "For the company overall, total segment profit set a third-quarter record, and profit margin expanded 140 basis points from the prior-year quarter to a record level of 13.7%. Our Residential business set third-quarter records for revenue, margin and profit as strong business momentum continued. Residential revenue was up 13% at constant currency, and margin expanded 240 basis points to 17.4%. In Commercial, segment profit and margin set new highs on 8% revenue growth at constant currency. North America and Europe both saw high single-digit revenue growth at constant currency. Commercial segment margin expanded 70 basis points to 18.2%. In Refrigeration, revenue was up 8% at constant currency, with double-digit growth in North America and Europe. Refrigeration margin expanded 220 basis points from the prior-year quarter to 10.7%.
"Looking ahead for the company overall, we now expect revenue growth of 5-7% at constant currency for the full year. We are narrowing 2015 guidance for adjusted EPS from continuing operations to $5.25-$5.40. The company is well-positioned for continued momentum in the fourth quarter and as we look ahead to 2016. We remain focused on capitalizing on end market growth, capturing additional market share, and driving operational initiatives for higher profitability."
FINANCIAL HIGHLIGHTS
Revenue: Revenue for the third quarter was $955 million, up 6% from the prior-year quarter. At constant currency, revenue was up 11%. Volume and price/mix were up on a revenue basis from the prior-year quarter.
Gross Profit: Gross profit in the third quarter was $273 million, up 11% from $247 million in the prior-year quarter. Gross margin was 28.6%, up 110 basis points from 27.5% in the prior-year quarter. Gross profit was positively impacted by higher volume, favorable price, lower material costs, and higher productivity, with partial offsets from negative mix, unfavorable foreign exchange, and investments in distribution expansion.
Income from Continuing Operations: Adjusted income from continuing operations in the third quarter was $83.2 million, or $1.82 per share, compared to $70.3 million, or $1.44 per share, in the prior-year quarter. Adjusted earnings from continuing operations for the third quarter of 2015 excludes $2.9 million in after-tax charges: $0.8 million for special legal contingency charges, $0.7 million related to contractor tax payments in a non-U.S. subsidiary, $0.5 million for the net change in unrealized losses on unsettled future contracts, and $0.9 million, net, for other items.
On a GAAP basis, income from continuing operations for the third quarter was $80.3 million, or $1.76 per share, compared to $67.5 million, or $1.38 per share, in the prior-year quarter.
Free Cash Flow and Total Debt: Net cash from operations in the third quarter was $159 million compared to $97 million in the prior-year quarter. Capital expenditures were $14 million in the third quarter compared to $19 million in the third quarter a year ago. Free cash flow was $145 million compared to $78 million in the prior-year quarter. Total debt at the end of the third quarter was $918 million. Total cash and cash equivalents were $35 million at the end of the quarter. The company paid $16 million in dividends in the third quarter. The company's previously announced $450 million accelerated stock repurchase program continues and will be completed in the fourth quarter of 2015.
BUSINESS SEGMENT HIGHLIGHTS
Residential Heating & Cooling
Revenue in the Residential Heating & Cooling business segment was a third-quarter record $518 million, up 12% from the prior-year quarter. At constant currency, revenue was up 13%. Segment profit was a third-quarter record $90 million, up 30% from the prior-year quarter. Segment profit margin was a third-quarter record 17.4%, up 240 basis points from the prior-year quarter. Results were impacted by higher volume, favorable price/mix, lower material costs, and higher productivity, 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 $247 million in the third quarter, up 2% from the prior-year quarter. At constant currency, revenue was up 8%. Segment profit was a record $45 million, up 6% from the prior-year quarter. Segment profit margin was a record 18.2%, up 70 basis points from the prior-year quarter. Results were impacted by higher volume, favorable price, and lower material costs, with partial offsets from unfavorable mix, unfavorable foreign exchange, and investments in SG&A.
Refrigeration
Revenue in the Refrigeration business segment was $190 million in the third quarter, down 2%. At constant currency, revenue was up 8%. Segment profit was $20 million, up 23% from the prior-year quarter. Segment profit margin was 10.7%, up 220 basis points from the prior-year quarter. Results were impacted by higher volume, favorable price, lower material costs, lower SG&A and higher productivity, with partial offsets from unfavorable mix in North America supermarket business and unfavorable foreign exchange.
FULL-YEAR OUTLOOK
For 2015, the company is narrowing guidance for revenue and adjusted EPS from continuing operations.
-- Narrowing revenue growth guidance at constant currency from 4-7% to
5-7%.
-- Still expecting a negative 3 point impact on revenue from foreign
exchange on a full-year basis, equating to revenue growth guidance of
2-4% at actual currency versus the prior guidance range of 1-4%.
-- Narrowing adjusted EPS from continuing operations guidance from
$5.25-$5.50 to $5.25-$5.40.
-- Updating GAAP EPS from continuing operations guidance from $5.14-$5.39
to $5.08-$5.23.
-- Reiterating effective tax rate guidance of 34-35% on a full-year basis.
-- Reiterating capital expenditure guidance of approximately $80 million.
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, call the conference call line at 612-288-0340 at least 10 minutes prior to the scheduled start time and use reservation number 370024. 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 19 through October 26, 2015 by dialing 800-475-6701 (U.S.) or 320-365-3844 (international) and using access code 370024. 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 and traded 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, 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,
------------- -------------
2015 2014 2015 2014
---- ---- ---- ----
Net sales $955.0 $898.4 $2,633.3 $2,554.6
Cost of goods sold 681.6 651.3 1,913.5 1,876.7
----- ----- ------- -------
Gross profit 273.4 247.1 719.8 677.9
Operating Expenses:
Selling, general and
administrative expenses 143.8 140.9 430.0 425.5
Losses (gains) and other
expenses, net 6.0 2.1 14.9 3.5
Restructuring charges (0.4) 1.0 1.8 1.3
Income from equity
method investments (3.0) (3.5) (11.8) (12.0)
---- ---- ----- -----
Operational income from
continuing operations 127.0 106.6 284.9 259.6
Interest expense, net 5.7 4.0 17.9 11.0
Other expense (income),
net (0.7) - (0.7) -
---- --- ---- ---
Income from continuing
operations before
income taxes 122.0 102.6 267.7 248.6
Provision for income
taxes 41.7 35.1 91.9 86.6
---- ---- ---- ----
Income from continuing
operations 80.3 67.5 175.8 162.0
Discontinued Operations:
Loss from discontinued
operations before
income taxes - (0.2) (0.9) (1.3)
Benefit from income
taxes - (0.1) (0.4) (0.5)
--- ---- ---- ----
Loss from discontinued
operations - (0.1) (0.5) (0.8)
--- ---- ---- ----
Net income $80.3 $67.4 $175.3 $161.2
===== ===== ====== ======
Earnings per share - Basic:
Income from continuing
operations $1.78 $1.40 $3.92 $3.33
Loss from discontinued
operations - - (0.01) (0.02)
--- --- ----- -----
Net income $1.78 $1.40 $3.91 $3.31
===== ===== ===== =====
Earnings per share - Diluted:
Income from continuing
operations $1.76 $1.38 $3.86 $3.27
Loss from discontinued
operations - - (0.01) (0.01)
--- --- ----- -----
Net income $1.76 $1.38 $3.85 $3.26
===== ===== ===== =====
Weighted Average Number
of Shares Outstanding -
Basic 45.0 48.3 44.9 48.7
Weighted Average Number
of Shares Outstanding -
Diluted 45.6 49.0 45.6 49.5
Cash dividends declared
per share $0.36 $0.30 $1.02 $0.84
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,
------------- -------------
2015 2014 2015 2014
---- ---- ---- ----
Net sales
Residential Heating &
Cooling $517.9 $462.6 $1,435.6 $1,332.5
Commercial Heating &
Cooling 246.8 241.6 660.3 655.6
Refrigeration 190.3 194.2 537.4 566.5
$955.0 $898.4 $2,633.3 $2,554.6
====== ====== ======== ========
Segment Profit (Loss) (1)
Residential Heating &
Cooling $90.1 $69.4 $221.3 $178.8
Commercial Heating &
Cooling 44.8 42.2 95.5 91.3
Refrigeration 20.3 16.5 37.5 42.3
Corporate and other (24.0) (17.5) (57.4) (47.8)
----- ----- ----- -----
Subtotal that includes
segment profit and
eliminations 131.2 110.6 296.9 264.6
Reconciliation to Income from
continuing operations before income
taxes:
Special product quality
adjustments 0.7 0.2 (0.6) (0.1)
Items in Losses (gains)
and other expenses,
net that are excluded
from segment profit
(loss) (1) 3.9 1.8 10.8 2.8
Restructuring charges (0.4) 1.0 1.8 1.3
Interest expense, net 5.7 4.0 17.9 11.0
Special inventory write
down - 1.0 - 1.0
Other expense (income),
net (0.7) - (0.7) -
---- --- ---- ---
Income from continuing
operations before
income taxes $122.0 $102.6 $267.7 $248.6
====== ====== ====== ======
(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 September 30, As of December 31,
2015 2014
---- ----
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $35.1 $37.5
Accounts and notes
receivable, net of
allowances of $7.3 and $7.9
in 2015 and 2014,
respectively 537.7 421.4
Inventories, net 488.3 463.3
Deferred income taxes, net 31.9 32.5
Other assets 58.9 59.3
---- ----
Total current assets 1,151.9 1,014.0
Property, plant and
equipment, net of
accumulated depreciation of
$677.9 and $654.1 in 2015
and 2014, respectively 345.3 358.6
Goodwill 199.8 209.4
Deferred income taxes 97.9 97.5
Other assets, net 86.6 84.8
---- ----
Total assets $1,881.5 $1,764.3
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term debt $226.3 $226.6
Current maturities of long-
term debt 23.7 24.0
Accounts payable 337.7 324.3
Accrued expenses 251.9 239.0
Income taxes payable 13.8 13.4
---- ----
Total current liabilities 853.4 827.3
Long-term debt 668.0 675.0
Post-retirement benefits,
other than pensions 2.9 4.5
Pensions 134.2 129.9
Other liabilities 125.5 118.6
----- -----
Total liabilities 1,784.0 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 857.3 824.9
Retained earnings 1,151.5 1,022.1
Accumulated other
comprehensive loss (209.8) (153.5)
Treasury stock, at cost,
42,120,067 shares and
42,535,126 shares in 2015
and 2014, respectively (1,702.9) (1,686.0)
Noncontrolling interests 0.5 0.6
--- ---
Total stockholders' equity 97.5 9.0
---- ---
Total liabilities and
stockholders' equity $1,881.5 $1,764.3
======== ========
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
(Amounts in
millions) For the Nine Months Ended
September 30,
-------------
2015 2014
---- ----
Cash flows from operating
activities:
Net income $175.3 $161.2
Net loss from
discontinued
operations 0.5 0.8
Adjustments to reconcile net
income to net cash used in
operating activities:
Income from
equity method
investments (11.8) (12.0)
Dividends from
affiliates 7.4 6.1
Restructuring
expenses, net
of cash paid (0.2) (0.1)
Provision for
bad debts 2.1 2.8
Unrealized
losses on
derivative
contracts 1.3 0.1
Stock-based
compensation
expense 18.5 17.3
Depreciation
and
amortization 46.6 45.2
Deferred
income taxes (0.2) 1.4
Other items,
net 0.3 0.3
Changes in assets and
liabilities, net of effects
of divestitures:
Accounts and
notes
receivable (135.9) (104.0)
Inventories (41.0) (127.6)
Other current
assets (2.8) (6.2)
Accounts
payable 23.4 51.0
Accrued
expenses 15.1 18.2
Income taxes
payable and
receivable (0.9) (21.1)
Other 9.7 (9.1)
Net cash used
in
discontinued
operations (0.5) (0.8)
---- ----
Net cash
provided by
operating
activities 106.9 23.5
Cash flows from investing
activities:
Proceeds from
the disposal
of property,
plant and
equipment - 0.2
Purchases of
property,
plant and
equipment (47.0) (59.9)
Net cash used
in investing
activities (47.0) (59.7)
Cash flows from financing
activities:
Short-term
borrowings,
net 0.8 3.4
Asset
securitization
borrowings 40.0 60.0
Asset
securitization
payments (40.0) -
Long-term
debt payments (23.5) (1.7)
Borrowings
from credit
facility 1,401.0 1,483.0
Payments on
credit
facility (1,385.0) (1,351.0)
Proceeds from
employee
stock
purchases 1.8 1.5
Repurchases of
common stock - (100.3)
Repurchases of
common stock
to satisfy
employee
withholding
tax
obligations (23.5) (12.3)
Excess tax
benefits
related to
share-based
payments 18.6 5.3
Cash dividends
paid (43.1) (38.2)
----- -----
Net cash (used
in) provided
by financing
activities (52.9) 49.7
Increase
(decrease) in
cash and cash
equivalents 7.0 13.5
Effect of
exchange
rates on cash
and cash
equivalents (9.4) (3.4)
Cash and cash
equivalents,
beginning of
period 37.5 38.0
---- ----
Cash and cash
equivalents,
end of period $35.1 $48.1
===== =====
Supplemental disclosures of
cash flow information:
Interest paid $15.9 $9.5
===== ====
Income taxes
paid (net of
refunds) $73.4 $100.4
===== ======
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 Ended For the Nine Months Ended
September 30, September 30,
------------- -------------
2015 2014 2015 2014
---- ---- ---- ----
Income from
continuing
operations, a GAAP
measure $80.3 $67.5 $175.8 $162.0
Restructuring
charges, after tax (0.3) 0.8 1.2 1.4
Special product
quality adjustments,
after tax (b) 0.5 0.1 (0.4) (0.1)
Special legal
contingency charges,
after tax (a) 0.8 0.3 3.4 0.4
Asbestos-related
litigation, after
tax (a) 0.3 0.2 0.7 0.6
Net change in
unrealized losses
(gains) on unsettled
future contracts,
after tax(a) 0.5 0.2 0.5 0.1
Inventory write down,
after tax (b) - 0.8 - 0.8
Environmental
liabilities, after
tax (a) 0.3 0.4 0.6 0.4
Contractor Tax
Payments (a) 0.7 - 1.8 -
Other items, net,
after tax (a) 0.1 - 0.1 0.5
Adjusted income from
continuing
operations, a non-
GAAP measure $83.2 $70.3 $183.7 $166.1
===== ===== ====== ======
Income per share from
continuing
operations -
diluted, a GAAP
measure $1.76 $1.38 $3.86 $3.27
Restructuring
charges, after tax (0.01) 0.02 0.02 0.03
Special product
quality adjustments,
after tax (b) 0.01 - - -
Special legal
contingency charges,
after tax (a) 0.02 0.01 0.08 0.01
Asbestos-related
litigation, after
tax (a) 0.01 - 0.02 0.01
Net change in
unrealized losses
(gains) on unsettled
future contracts,
after tax(a) 0.01 - 0.01 -
Inventory write down,
after tax (b) - 0.02 - 0.02
Environmental
liabilities, after
tax (a) 0.01 0.01 0.02 0.01
Contractor tax
payments (a) 0.01 - 0.03 -
Other items, net,
after tax (a) - - - 0.01
Adjusted earnings per
share from
continuing
operations -
diluted, a non-GAAP
measure $1.82 $1.44 $4.04 $3.36
===== ===== ===== =====
(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 For the Nine Months Ended
September 30, September 30,
------------- -------------
2015 2014 2015 2014
---- ---- ---- ----
Components of Losses (gains) and
other expenses, net (pre-tax):
Realized losses on
settled future
contracts (a) $0.6 $0.1 $1.3 $0.6
Foreign currency
exchange losses
(gains) (a) 1.4 0.1 2.7 0.1
Loss on disposal of
fixed assets (a) 0.1 0.1 0.1 -
Net change in
unrealized losses
(gains) on unsettled
futures contracts
(b) 0.8 0.2 0.9 0.1
Special legal
contingency charges
(b) 1.3 0.5 5.5 0.7
Asbestos-related
litigation (b) 0.4 0.4 1.0 1.0
Environmental
liabilities (b) 0.3 0.7 0.7 0.7
Contractor Tax
Payments (b) 0.8 - 2.4 -
Other items, net (b) 0.3 - 0.3 0.3
Losses (gains) and
other expenses, net
(pre-tax) $6.0 $2.1 $14.9 $3.5
==== ==== ===== ====
(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 - $5.40
Restructuring charges and other items (0.17)
Income per share from continuing operations - diluted, a GAAP measure $5.08 - $5.23
=============
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,
------------- -------------
2015 2014 2015 2014
Net cash provided
by operating
activities, a
GAAP measure $159.1 $96.9 $106.9 $23.5
Purchases of
property, plant
and equipment (13.9) (18.7) (47.0) (59.9)
Proceeds from the
disposal of
property, plant
and equipment - 0.2 - 0.2
--- --- --- ---
Free cash flow, a
Non-GAAP
measure $145.2 $78.4 $59.9 $(36.2)
====== ===== ===== ======
Calculation of Debt to EBITDA
Ratio (dollars in millions): Trailing
Twelve
Months to
September 30,
2015
----
Adjusted EBIT (a) $373.1
Depreciation and amortization
expense (b) 62.2
EBITDA (a + b) $435.3
------
Total debt at September 30, 2015
(c) 918.0
-----
Total Debt to EBITDA ratio ((c /
(a + b)) 2.1
===
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,
2015
----
Adjusted EBIT per above, a Non-GAAP measure $373.1
Special product quality adjustments (1.9)
Items in Losses (gains) and other expenses, net that are excluded from segment profit 4.9
Restructuring charges 2.4
Interest expense, net 24.0
Special inventory write down -
Other expenses, net (0.2)
Income from continuing operations before income taxes, a GAAP measure $343.9
======
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SOURCE Lennox International Inc.
