LENNOX INTERNATIONAL INC. DALLAS, April 24, 2017 /PRNewswire/ -- Lennox International Inc. (NYSE: LII) today reported financial results for the first quarter of 2017. All comparisons are to the prior-year period.
For the first quarter, revenue was a first-quarter record $793 million, up 11%. Foreign exchange was neutral to revenue. GAAP operating income was up 39% to a first-quarter record $61 million. GAAP earnings per share from continuing operations was up 79% to a first-quarter record $1.00, including a $0.17 benefit from recent GAAP accounting requirements regarding excess tax benefits from share-based compensation against $0.07 in charges for special items. On an adjusted basis, total segment profit increased 39% to a first-quarter record $65 million, and margin expanded 170 basis points to a first-quarter record 8.2%. Adjusted EPS from continuing operations rose 50% to a first-quarter record $0.90.
"Lennox International posted strong revenue growth and margin expansion in a record first quarter, despite some headwind from weather," said Chairman and CEO Todd Bluedorn. "The company hit new first-quarter highs for revenue, total segment profit and margin, as well as earnings per share. Growth in the quarter included the benefit of five more days, or 6% more days, this year than in the first quarter last year. This balances out on a full-year basis with the fourth quarter having 6% fewer days than a year ago.
"In our Residential business, revenue was up 11% to a new first-quarter high. Segment margin was relatively flat in our seasonally smallest quarter on investments in distribution expansion, information technology, research and development, and other SG&A investments. With warmer weather than last year, Residential mix was not as favorable as expected due to faster growth in new construction than replacement business. We continue to expect strong margin expansion for 2017 overall as we head into our seasonally largest quarters.
"In Commercial, revenue, margin and profit all set new first-quarter records. Commercial revenue was up 15%, led by more than 20% growth in North America equipment. Commercial profit rose 35% as segment margin expanded 150 basis points to 9.8%. In Refrigeration, revenue was up 6%, and profit rose 57% as segment margin expanded 250 basis points to 7.9%.
"Looking ahead for the company overall, we are reiterating guidance for revenue and adjusted EPS from continuing operations for 2017. While early, the company is off to a strong start, and we continue to expect another record year as we enter our largest seasonal period. We remain focused on capitalizing on end market growth, capturing additional market share with our strategic initiatives, and driving higher profitability."
FINANCIAL HIGHLIGHTS
Revenue: Revenue for the first quarter was $793 million, up 11% from the prior-year quarter. Foreign exchange was neutral to revenue. Volume and price/mix were up on a revenue basis from the prior-year quarter.
Gross Profit: Gross profit in the first quarter was $211 million, up 15%. Gross margin was 26.6%, up 90 basis points. Gross profit was positively impacted by higher volume and lower material costs, with a partial offset from investments in distribution expansion.
Income from Continuing Operations: On a GAAP basis, income from continuing operations for the first quarter was $43.5 million, or $1.00 per share, compared to $24.9 million, or $0.56 per share, in the prior-year quarter.
Adjusted income from continuing operations in the first quarter was $38.9 million, or $0.90 per share, compared to $27.0 million, or $0.60 per share, in the prior-year quarter. Adjusted earnings from continuing operations for the first quarter of 2017 excludes a benefit of $4.6 million, net of special after-tax charges: a $7.4 million benefit for excess tax benefits from share-based compensation, a charge of $1.1 million for asbestos-related litigation, $0.9 million for special legal contingency charges, and $0.8 million in charges for other items.
Free Cash Flow and Total Debt: Net cash from operations in the first quarter was ($108) million compared to ($102) million in the prior-year quarter. Capital expenditures were $25 million in the first quarter compared to $24 million in the first quarter a year ago. Free cash flow was approximately ($133) million compared to ($126) million in the prior-year quarter. Total debt at the end of the first quarter was $1,103 million. Total cash and cash equivalents were $49 million at the end of the quarter. The company paid $19 million in dividends and $75 million for stock repurchases in the first quarter.
BUSINESS SEGMENT HIGHLIGHTS
Residential Heating & Cooling
Revenue in the Residential Heating & Cooling business segment was a first-quarter record $420 million, up 11%. Foreign exchange was neutral on a revenue basis. Segment profit was a first-quarter record $43 million, up 11%. Segment profit margin was 10.1% compared to 10.2% in the prior-year quarter. Results were impacted by higher volume, lower material costs, and favorable foreign exchange, with offsets from investments in distribution expansion, information technology, research and development, and other SG&A investments.
Commercial Heating & Cooling
Revenue in the Commercial Heating & Cooling business segment was a first-quarter record $196 million, up 15%. Foreign exchange was neutral on a revenue basis. Segment profit was a first-quarter record $19 million, up 35%. Segment profit margin was a first-quarter record 9.8%, up 150 basis points. Results were impacted by higher volume and lower material costs, with a partial offset from SG&A investments.
Refrigeration
Revenue in the Refrigeration business segment was $178 million, up 6%. At constant currency, revenue was up 5%. Segment profit was $14 million, up 57%. Segment profit margin was 7.9%, up 250 basis points. Results were impacted by higher volume, lower material costs, and favorable mix, with a partial offset from SG&A investments.
FULL-YEAR OUTLOOK
For 2017, the company is raising guidance for GAAP EPS from continuing operations and reiterating all other guidance points.
-- Reiterating 2017 guidance for revenue growth of 3-7%, with a minimal
impact from foreign exchange.
-- Raising 2017 guidance for GAAP EPS from continuing operations from
$7.55-$8.15 to $7.65-$8.25, incorporating the $0.17 first-quarter
benefit from recent GAAP accounting requirements regarding excess tax
benefits from share-based compensation against $0.07 in charges for
special items.
-- Reiterating 2017 guidance for adjusted EPS from continuing operations of
$7.55-$8.15.
-- Reiterating 2017 corporate expenses of approximately $85 million.
-- Reiterating an effective tax rate of approximately 32% on an adjusted
basis for the full year.
-- Reiterating 2017 capital expenditures of approximately $100 million.
-- Reiterating guidance for a weighted average diluted share count of 42-43
million shares on a full-year basis, including plans for $250 million of
stock repurchases for 2017 in total.
CONFERENCE CALL INFORMATION
A conference call to discuss the company's first quarter results will be held this morning at 8:30 a.m. Central time. To listen, call the conference call line at 612-332-0107 at least 10 minutes prior to the scheduled start time and use reservation number 421542. The conference call also will 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 April 24 through May 8, 2017 by dialing 800-475-6701 (U.S.) or 320-365-3844 (international) and using access code 421542. The call also will be archived on the company's website.
About Lennox International
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.
Forward-Looking Statements
The statements in this news release that are not historical statements, including statements regarding the 2017 full-year outlook and expected financial results for 2017, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on information currently available as well as management's assumptions and beliefs today. 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, and investors should not place undue reliance on them. 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, 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, except as required by law.
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
(Amounts in For the Three Months Ended March
millions, except 31,
per share data)
2017 2016
---- ----
Net sales $793.4 $715.2
Cost of goods sold 582.5 531.6
----- -----
Gross profit 210.9 183.6
Operating Expenses:
Selling, general
and
administrative
expenses 152.4 140.4
Losses and other
expenses, net 3.1 4.3
Restructuring
charges (gains) 0.1 (0.2)
Income from equity
method
investments (5.5) (4.6)
---- ----
Operating income 60.8 43.7
Interest expense,
net 7.4 5.8
Income from
continuing
operations before
income taxes 53.4 37.9
Provision for
income taxes 9.9 13.0
--- ----
Income from
continuing
operations 43.5 24.9
Discontinued Operations:
Loss from
discontinued
operations before
income taxes - -
Benefit from
income taxes - -
--- ---
Loss from
discontinued
operations - -
--- ---
Net income $43.5 $24.9
===== =====
Earnings per share - Basic:
Income from
continuing
operations $1.02 $0.57
Loss from
discontinued
operations - -
--- ---
Net income $1.02 $0.57
===== =====
Earnings per share - Diluted:
Income from
continuing
operations $1.00 $0.56
Loss from
discontinued
operations - -
--- ---
Net income $1.00 $0.56
===== =====
Weighted Average
Number of Shares
Outstanding -
Basic 42.8 44.0
Weighted Average
Number of Shares
Outstanding -
Diluted 43.5 44.7
Cash dividends
declared per
share $0.43 $0.36
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
Segment Net Sales and Profit (Loss)
(Unaudited)
(Amounts in
millions) For the Three Months Ended March 31,
2017 2016
---- ----
Net sales
Residential
Heating &
Cooling $419.8 $377.3
Commercial
Heating &
Cooling 195.5 170.3
Refrigeration 178.1 167.6
$793.4 $715.2
====== ======
Segment Profit (Loss) (1)
Residential
Heating &
Cooling $42.5 $38.3
Commercial
Heating &
Cooling 19.1 14.2
Refrigeration 14.1 9.0
Corporate and
other (11.0) (14.8)
----- -----
Total segment
profit 64.7 46.7
Reconciliation to Operating
income:
Special
product
quality
adjustments - (0.4)
Items in
Losses and
other
expenses, net
that are
excluded from
segment
profit (loss)
(1) 3.8 3.6
Restructuring
charges
(gains) 0.1 (0.2)
Operating
income $60.8 $43.7
===== =====
(1) The Company
defines segment
profit and loss
as a segment's
operating
income 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 losses
(gains) on unsettled futures
contracts,
-- Special legal contingency
charges,
-- Asbestos-related litigation,
-- Contractor tax payments,
-- Environmental liabilities,
-- Acquisition costs,
-- Other items, net; and,
-- Restructuring
charges
(gains).
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Amounts in millions,
except shares and par
values) As of March 31, As of December 31,
2017 2016
---- ----
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $48.8 $50.2
Accounts and notes
receivable, net of
allowances of $6.0 and
$6.7 in 2017 and 2016,
respectively 513.4 469.8
Inventories, net 522.8 418.5
Other assets 101.4 67.4
----- ----
Total current assets 1,186.4 1,005.9
Property, plant and
equipment, net of
accumulated depreciation
of $734.1 and $717.2 in
2017 and 2016,
respectively 365.6 361.4
Goodwill 197.6 195.1
Deferred income taxes 134.0 136.7
Other assets, net 67.0 61.2
---- ----
Total assets $1,950.6 $1,760.3
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term debt $201.6 $52.4
Current maturities of long-
term debt 207.6 200.1
Accounts payable 401.0 361.2
Accrued expenses 224.8 265.9
Income taxes payable 2.5 9.0
--- ---
Total current liabilities 1,037.5 888.6
Long-term debt 693.9 615.7
Post-retirement benefits,
other than pensions 2.4 2.8
Pensions 88.3 87.5
Other liabilities 129.5 127.7
----- -----
Total liabilities 1,951.6 1,722.3
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 1,034.1 1,046.2
Retained earnings 1,378.1 1,353.0
Accumulated other
comprehensive loss (176.5) (195.1)
Treasury stock, at cost,
44,436,331 shares and
44,195,250 shares as of
March 31,2017 and December
31,2016, respectively (2,238.0) (2,167.4)
Noncontrolling interests 0.4 0.4
--- ---
Total stockholders' equity (1.0) 38.0
---- ----
Total liabilities and
stockholders' equity $1,950.6 $1,760.3
======== ========
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
(Amounts in
millions) For the Three Months Ended
March 31,
2017 2016
---- ----
Cash flows from operating
activities:
Net income $43.5 $24.9
Adjustments to reconcile net
income to net cash used in
operating activities:
Income from equity
method investments (5.5) (4.6)
Restructuring
gains, net of cash
paid - (0.5)
Provision for bad
debts 1.1 1.3
Unrealized gains on
derivative
contracts (0.5) (0.5)
Stock-based
compensation
expense 4.9 6.3
Depreciation and
amortization 15.7 14.2
Deferred income
taxes (1.1) (0.5)
Other items, net 0.1 0.1
Changes in assets and
liabilities, net of effects of
divestitures:
Accounts and notes
receivable (40.9) (44.5)
Inventories (101.2) (95.5)
Other current
assets (4.3) (6.2)
Accounts payable 47.3 67.9
Accrued expenses (41.7) (28.0)
Income taxes
payable and
receivable (28.0) (37.6)
Other 3.0 1.6
Net cash used in
operating
activities (107.6) (101.6)
Cash flows from investing
activities:
Proceeds from the
disposal of
property, plant
and equipment 0.1 -
Purchases of
property, plant
and equipment (24.9) (23.8)
----- -----
Net cash used in
investing
activities (24.8) (23.8)
Cash flows from financing
activities:
Short-term
borrowings, net (0.8) (0.4)
Asset
securitization
borrowings 150.0 -
Asset
securitization
payments - (20.0)
Long-term debt
payments (0.2) (0.3)
Borrowings from
credit facility 583.0 770.5
Payments on credit
facility (497.5) (392.0)
Proceeds from
employee stock
purchases 0.7 0.6
Repurchases of
common stock (75.0) (200.0)
Repurchases of
common stock to
satisfy employee
withholding tax
obligations (13.3) (16.8)
Cash dividends paid (18.5) (16.1)
----- -----
Net cash provided
by financing
activities 128.4 125.5
(Decrease) increase
in cash and cash
equivalents (4.0) 0.1
Effect of exchange
rates on cash and
cash equivalents 2.6 1.6
Cash and cash
equivalents,
beginning of
period 50.2 38.9
---- ----
Cash and cash
equivalents, end
of period $48.8 $40.6
===== =====
Supplemental disclosures of cash
flow information:
Interest paid $2.4 $3.3
==== ====
Income taxes paid
(net of refunds) $36.7 $51.2
===== =====
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 if different than the reported measures. 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 March 31,
2017 2016
Pre-Tax Tax Impact (e) After Tax Pre-Tax Tax Impact (e) After Tax
------- ------------- --------- ------- -------------- ---------
Income from
continuing
operations, a GAAP
measure $53.4 $(9.9) $43.5 $37.9 $(13.0) $24.9
Restructuring
charges 0.1 - 0.1 (0.2) 0.1 (0.1)
Special product
quality adjustments
(b) - - - (0.4) 0.1 (0.3)
Special legal
contingency charges
(a) 0.9 - 0.9 1.7 (0.5) 1.2
Asbestos-related
litigation (a) 1.7 (0.6) 1.1 0.8 (0.3) 0.5
Net change in
unrealized losses
(gains) on
unsettled future
contracts (a) 0.7 (0.3) 0.4 (0.5) 0.2 (0.3)
Environmental
liabilities(a) 0.5 (0.2) 0.3 0.7 (0.2) 0.5
Excess tax benefits
from share-based
compensation (c) - (7.4) (7.4) - - -
Contractor tax
payments (a) - - - 0.5 (0.2) 0.3
Other items, net (a) - - - 0.4 (0.1) 0.3
Adjusted income from
continuing
operations, a non-
GAAP measure $57.3 $(18.4) $38.9 $40.9 $(13.9) $27.0
===== ====== ===== ===== ====== =====
Earnings per share from
continuing operations -diluted,
a GAAP measure $1.00 $0.56
Restructuring charges - (0.01)
Special product quality
adjustments (b) - (0.01)
Special legal contingency
charges(a) 0.02 0.03
Asbestos-related litigation(a) 0.03 0.01
Net change in unrealized losses
(gains) on unsettled future
contracts (a) 0.01 (0.01)
Environmental liabilities (a) 0.01 0.01
Excess tax benefits from share-
based compensation (c) (0.17) -
Contractor tax payments (a) - 0.01
Other items, net (a) - 0.01
Change in share counts from
share-based compensation (d) - -
Adjusted earnings per share from
continuing operations -
diluted, a non-GAAP measure $0.90 $0.60
===== =====
(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
(c) Recorded in Provision for
income taxes in the Consolidated
Statements of Operations
(d) The impact of excess tax
benefits from the change in share-
based compensation also impacts
our diluted share counts. The
reconciliation of average
outstanding diluted shares on a
GAAP and non-GAAP basis is
included in this document.
(e) Tax impact based on the
applicable tax rate relevant to
the location and nature of the
adjustment.
For the Three Months Ended
March 31,
2017 2016
---- ----
Components of Losses and
other expenses, net (pre-
tax):
Realized (gains) losses on
settled future contracts
(a) $(0.4) $0.5
Foreign currency exchange
(gains) losses (a) (0.2) 0.2
Gains on disposal of fixed
assets (a) (0.1) -
Net change in unrealized
losses (gains) on unsettled
futures contracts (b) 0.7 (0.5)
Special legal contingency
charges (b) 0.9 1.7
Asbestos-related litigation
(b) 1.7 0.8
Environmental liabilities
(b) 0.5 0.7
Contractor tax payments (b) - 0.5
Acquisition costs (b) - 0.4
Other items, net (b) - -
--- ---
Losses and other expenses,
net (pre-tax) $3.1 $4.3
==== ====
(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 Earnings per Share from Continuing Operations - Diluted, a GAAP measure, to Estimated Adjusted Earnings
per Share from Continuing Operations - Diluted, a Non-GAAP measure
For the Year Ended
December 31, 2017
ESTIMATED
---------
Earnings per share from continuing operations - diluted, a GAAP measure $7.65 - $8.25
Excess tax benefits from share-based compensation and other items (0.10)
Adjusted Earnings per share from continuing operations - diluted, a Non-
GAAP measure $7.55 - $8.15
=============
Reconciliation of Average Shares Outstanding - Diluted, a GAAP measure, to Adjusted Average Shares Outstanding - Diluted,
a Non-GAAP measure (shares in millions):
For the Three Months Ended
March 31,
2017 2016
---- ----
Average shares outstanding
-diluted, a GAAP measure 43.5 44.7
Impact on diluted shares
from excess tax benefits
from share-based
compensation (0.2) -
Adjusted average shares
outstanding - diluted, a
Non- GAAP measure 43.3 44.7
==== ====
Reconciliation of Net Cash Used in Operating Activities, a GAAP measure, to Free Cash Flow, a Non-GAAP measure (dollars in
millions)
For the Three Months Ended
March 31,
2017 2016
Net cash used in operating
activities, a GAAP measure $(107.6) $(101.6)
Purchases of property,
plant and equipment (24.9) (23.8)
Proceeds from the disposal
of property, plant and
equipment 0.1 -
--- ---
Free cash flow, a Non-GAAP
measure $(132.4) $(125.4)
======= =======
Calculation of Debt to
EBITDA Ratio (dollars in
millions): Trailing
Twelve
Months to
March 31, 2017
--------------
Adjusted EBIT (a) $487.6
Depreciation and
amortization expense (b) 59.7
EBITDA (a + b) $547.3
------
Total debt at March 31,
2017 (c) $1,103.1
--------
Total Debt to EBITDA ratio
((c /(a + b)) 2.0
===
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
March 31, 2017
--------------
Adjusted EBIT per above, a Non-GAAP measure $487.6
Items in Losses (gains) and other expenses, net that are excluded from
segment profit 7.6
Restructuring charges 2.1
Interest expense, net 28.6
Pension Settlement 31.4
Other expenses, net (0.3)
Income from continuing operations before income taxes, a GAAP measure $418.2
======
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SOURCE Lennox International Inc.
