LENNOX INTERNATIONAL INC. DALLAS, April 18, 2016 /PRNewswire/ -- Lennox International Inc. (NYSE: LII) today reported financial results for the first quarter of 2016.
Revenue for the first quarter was $715 million, up 4% from the prior-year quarter including the negative impact from foreign exchange. At constant currency, revenue was up 6%. Adjusted earnings per share from continuing operations was a first-quarter record $0.60, up 62% from the prior-year quarter. On a GAAP basis, earnings per share from continuing operations was a first-quarter record $0.56, up 81% from the prior-year quarter.
"Lennox International realized strong revenue growth and margin expansion across all three of our businesses in the first quarter," said Chairman and CEO Todd Bluedorn. "For the company overall, total segment profit rose 50% from the prior-year quarter to a new first-quarter high, and profit margin expanded 200 basis points to a first-quarter record of 6.5%. In our Residential business, segment profit was up 23% on 5% revenue growth at constant currency. Residential margin rose 160 basis points to a first-quarter record of 10.2%. In our Commercial business, segment profit rose 84% to a new first-quarter high. Commercial revenue was up 8% at constant currency, and segment margin expanded 350 basis points to a new first-quarter high of 8.3%. In Refrigeration, revenue was up 6% at constant currency, led by double-digit growth in North America. Refrigeration profit rose 125% as segment margin expanded 300 basis points to 5.4%.
"Looking ahead for the company overall, it is early in the year and the largest seasonal quarters are still in front of us, but 2016 is off to a strong start, and we continue to expect another record year. While our underlying business expectations for the full year remain consistent with previous adjusted EPS from continuing operations guidance of $6.10-$6.60, we are raising guidance to $6.30-$6.80 to reflect a new full-year effective tax rate of approximately 32% versus prior guidance of 34-35%. We are reiterating guidance for revenue growth of 4-8% at constant currency for the year. The company is well-positioned for continued momentum in 2016, and 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 first quarter was $715 million, up 4% from the prior-year quarter. At constant currency, revenue was up 6%. Volume was up, and price/mix was flat on a revenue basis from the prior-year quarter.
Gross Profit: Gross profit in the first quarter was $184 million, up 13% from $163 million in the prior-year quarter. Gross margin was 25.7%, up 190 basis points from 23.8% in the prior-year quarter. Gross profit was positively impacted by higher volume, lower material costs, and higher productivity, with partial offsets from negative price/mix and unfavorable foreign exchange.
Income from Continuing Operations: Adjusted income from continuing operations in the first quarter was $27.0 million, or $0.60 per share, compared to $16.8 million, or $0.37 per share, in the prior-year quarter. Adjusted earnings from continuing operations for the first quarter of 2016 excludes $2.1 million in after-tax charges: $1.2 million for special legal contingency charges and $0.9 million, net, for other items.
On a GAAP basis, income from continuing operations for the first quarter was $24.9 million, or $0.56 per share, compared to $14.0 million, or $0.31 per share, in the prior-year quarter.
Free Cash Flow and Total Debt: Net cash from operations in the first quarter was ($113) million compared to ($122) million in the prior-year quarter. Capital expenditures were $24 million in the first quarter compared to $18 million in the first quarter a year ago. Free cash flow was ($137) million compared to ($140) million in the prior-year quarter. Total debt at the end of the first quarter was $1,099 million. Total cash and cash equivalents were $41 million at the end of the quarter. The company paid $16 million in dividends in the first quarter. The company's previously announced $200 million accelerated stock repurchase program continues and will be completed in the second quarter of 2016.
BUSINESS SEGMENT HIGHLIGHTS
Residential Heating & Cooling
Revenue in the Residential Heating & Cooling business segment was $377 million, up 4% from the prior-year quarter. At constant currency, revenue was up 5%. Segment profit was $38 million, up 23% from the prior-year quarter. Segment profit margin was a first-quarter record 10.2%, up 160 basis points from the prior-year quarter. Results were impacted by higher volume, lower material costs, lower freight costs, and higher productivity, with partial offsets from unfavorable price/mix, foreign exchange and investments in SG&A and distribution expansion.
Commercial Heating & Cooling
Revenue in the Commercial Heating & Cooling business segment was $170 million in the first quarter, up 7% from the prior-year quarter. At constant currency, revenue was up 8%. Segment profit was a first-quarter record $14 million, up 84% from the prior-year quarter. Segment profit margin was a first-quarter record 8.3%, up 350 basis points from the prior-year quarter. Results were impacted by higher volume, favorable price/mix, lower material costs, and lower freight and distribution costs, with partial offsets from unfavorable foreign exchange and higher SG&A.
Refrigeration
Revenue in the Refrigeration business segment was $168 million in the first quarter, up 3%. At constant currency, revenue was up 6%. Segment profit was $9 million, up 125% from the prior-year quarter. Segment profit margin was 5.4%, up 300 basis points from the prior-year quarter. Results were impacted by higher volume, lower material costs, lower freight and distribution costs, and higher productivity, with a partial offset from unfavorable price/mix.
FULL-YEAR OUTLOOK
For 2016, the company is reiterating guidance for revenue growth and raising guidance for EPS from continuing operations.
-- Reiterating guidance for revenue growth at constant currency of 4-8%;
the company still expects a negative 1 point impact on revenue from
foreign exchange on a full-year basis, equating to revenue growth
guidance of 3-7% at actual currency.
-- Raising adjusted EPS from continuing operations guidance from a range of
$6.10-$6.60 to $6.30-$6.80, reflecting a new full-year effective tax
rate of approximately 32% compared to prior guidance of 34-35%.
-- Updating guidance for GAAP EPS from continuing operations from a range
of $6.10-$6.60 to $6.26-$6.76.
-- Updating fully diluted share count guidance from 44-45 million shares to
approximately 44 million shares on a full-year basis.
-- Reiterating capital expenditure guidance of approximately $95 million.
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 390891. 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 18 through May 2, 2016 by dialing 800-475-6701 (U.S.) or 320-365-3844 (international) and using access code 390891. The call also will be archived on the company's web site.
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 2016 full-year outlook and expected financial results for 2016, 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
millions,
except per
share data) For the Three Months Ended March 31,
------------------------------------
2016 2015
---- ----
Net sales $715.2 $685.8
Cost of goods
sold 531.6 522.8
----- -----
Gross profit 183.6 163.0
Operating Expenses:
Selling,
general and
administrative
expenses 140.4 133.4
Losses and
other
expenses, net 4.3 5.6
Restructuring
(gains)
charges (0.2) 0.3
Income from
equity method
investments (4.6) (3.3)
---- ----
Operational
income from
continuing
operations 43.7 27.0
Interest
expense, net 5.8 5.7
Other expense
(income), net - -
--- ---
Income from
continuing
operations
before income
taxes 37.9 21.3
Provision for
income taxes 13.0 7.3
---- ---
Income from
continuing
operations 24.9 14.0
Discontinued Operations:
Loss from
discontinued
operations
before income
taxes - (0.2)
Benefit from
income taxes - (0.1)
--- ----
Loss from
discontinued
operations - (0.1)
--- ----
Net income $24.9 $13.9
===== =====
Earnings per share - Basic:
Income from
continuing
operations $0.57 $0.31
Loss from
discontinued
operations - -
--- ---
Net income $0.57 $0.31
===== =====
Earnings per share - Diluted:
Income from
continuing
operations $0.56 $0.31
Loss from
discontinued
operations - -
--- ---
Net income $0.56 $0.31
===== =====
Weighted
Average Number
of Shares
Outstanding -
Basic 44.0 44.7
Weighted
Average Number
of Shares
Outstanding -
Diluted 44.7 45.5
Cash dividends
declared per
share $0.36 $0.30
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
Segment Net Sales and Profit (Loss)
(Unaudited)
(Amounts in
millions) For the Three Months Ended March 31,
------------------------------------
2016 2015
---- ----
Net sales
Residential
Heating &
Cooling $377.3 $362.5
Commercial
Heating &
Cooling 170.3 159.9
Refrigeration 167.6 163.4
$715.2 $685.8
====== ======
Segment Profit (Loss) (1)
Residential
Heating &
Cooling $38.3 $31.2
Commercial
Heating &
Cooling 14.2 7.7
Refrigeration 9.0 4.0
Corporate and
other (14.8) (11.7)
----- -----
Total segment
profit 46.7 31.2
Reconciliation to Income from
continuing operations before
income taxes:
Special
product
quality
adjustments (0.4) (0.2)
Items in
Losses
(gains) and
other
expenses, net
that are
excluded from
segment
profit (loss)
(1) 3.6 4.1
Restructuring
charges (0.2) 0.3
Interest
expense, net 5.8 5.7
---
Income from
continuing
operations
before income
taxes $37.9 $21.3
===== =====
((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 March 31, As of December 31,
2016 2015
---- ----
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $40.6 $38.9
Accounts and notes
receivable, net of
allowances of $6.5 and
$6.3 in 2016 and 2015,
respectively 469.8 422.8
Inventories, net 518.1 418.8
Other assets 93.1 57.7
---- ----
Total current assets 1,121.6 938.2
Property, plant and
equipment, net of
accumulated depreciation
of $691.0 and $682.9 in
2016 and 2015,
respectively 338.5 339.6
Goodwill 197.0 195.1
Deferred income taxes 140.5 145.7
Other assets, net 63.4 58.8
---- ----
Total assets $1,861.0 $1,677.4
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term debt $184.0 $204.1
Current maturities of long-
term debt 30.9 31.0
Accounts payable 378.3 320.1
Accrued expenses 209.4 242.6
Income taxes payable 0.6 26.0
--- ----
Total current liabilities 803.2 823.8
Long-term debt 884.5 506.0
Post-retirement benefits,
other than pensions 3.4 4.1
Pensions 121.9 120.8
Other liabilities 121.3 121.1
----- -----
Total liabilities 1,934.3 1,575.8
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 966.9 1,002.4
Retained earnings 1,155.8 1,146.7
Accumulated other
comprehensive loss (190.7) (204.7)
Treasury stock, at cost,
43,571,220 shares and
42,491,910 shares as of
March 31, 2016 and
December 31, 2015,
respectively (2,006.7) (1,844.1)
Noncontrolling interests 0.5 0.4
--- ---
Total stockholders' equity (73.3) 101.6
----- -----
Total liabilities and
stockholders' equity $1,861.0 $1,677.4
======== ========
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
(Amounts in
millions) For the Three Months Ended
March 31,
---------
2016 2015
---- ----
Cash flows from operating
activities:
Net income $24.9 $13.9
Net loss from
discontinued
operations - 0.1
Adjustments to reconcile net
income to net cash used in
operating activities:
Income from
equity method
investments (4.6) (3.3)
Restructuring
expenses, net of
cash paid (0.5) (0.1)
Provision for bad
debts 1.3 0.9
Unrealized
(gains) losses
on derivative
contracts (0.5) 0.2
Stock-based
compensation
expense 6.3 3.5
Depreciation and
amortization 14.2 15.5
Deferred income
taxes (0.5) (1.1)
Other items, net 0.1 0.1
Changes in assets and
liabilities, net of effects of
divestitures:
Accounts and
notes receivable (44.5) (40.1)
Inventories (95.5) (78.5)
Other current
assets (6.2) 1.0
Accounts payable 67.9 29.6
Accrued expenses (28.0) (29.0)
Income taxes
payable and
receivable (49.4) (40.1)
Other 1.6 5.3
Net cash used in
discontinued
operations - (0.1)
--- ----
Net cash used in
operating
activities (113.4) (122.2)
Cash flows from investing
activities:
Purchases of
property, plant
and equipment (23.8) (18.0)
----- -----
Net cash used in
investing
activities (23.8) (18.0)
Cash flows from financing
activities:
Short-term
borrowings, net (0.4) (0.2)
Asset
securitization
payments (20.0) (40.0)
Long-term debt
payments (0.3) -
Borrowings from
credit facility 770.5 580.5
Payments on
credit facility (392.0) (379.0)
Proceeds from
employee stock
purchases 0.6 0.6
Repurchases of
common stock (200.0) -
Repurchases of
common stock to
satisfy employee
withholding tax
obligations (16.8) (20.5)
Excess tax
benefits related
to share-based
payments 11.8 16.0
Cash dividends
paid (16.1) (13.4)
----- -----
Net cash provided
by financing
activities 137.3 144.0
Increase in cash
and cash
equivalents 0.1 3.8
Effect of
exchange rates
on cash and cash
equivalents 1.6 (4.6)
Cash and cash
equivalents,
beginning of
period 38.9 37.5
---- ----
Cash and cash
equivalents, end
of period $40.6 $36.7
===== =====
Supplemental disclosures of cash
flow information:
Interest paid $3.3 $3.1
==== ====
Income taxes paid
(net of refunds) $51.2 $32.2
===== =====
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. 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,
---------------------------------
2016 2015
---- ----
Income from
continuing
operations, a GAAP
measure $24.9 $14.0
Restructuring
charges, after tax (0.1) 0.2
Special product
quality adjustments,
after tax (b) (0.3) (0.1)
Special legal
contingency charges,
after tax (a) 1.2 2.2
Asbestos-related
litigation, after
tax (a) 0.5 0.1
Net change in
unrealized losses
(gains) on unsettled
future contracts,
after tax(a) (0.3) (0.1)
Environmental
liabilities, after
tax (a) 0.5 0.5
Contractor tax
payments (a) 0.3 -
Other items, net,
after tax (a) 0.3 -
Adjusted income from
continuing
operations, a non-
GAAP measure $27.0 $16.8
===== =====
Income per share from
continuing
operations -
diluted, a GAAP
measure $0.56 $0.31
Restructuring
charges, after tax (0.01) -
Special product
quality adjustments,
after tax (b) (0.01) -
Special legal
contingency charges,
after tax (a) 0.03 0.05
Asbestos-related
litigation, after
tax (a) 0.01 -
Net change in
unrealized losses
(gains) on unsettled
future contracts,
after tax(a) (0.01) -
Environmental
liabilities, after
tax (a) 0.01 0.01
Contractor tax
payments. after tax
(a) 0.01 -
Other items, net,
after tax (a) 0.01 -
Adjusted earnings per
share from
continuing
operations -
diluted, a non-GAAP
measure $0.60 $0.37
===== =====
(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 March
31,
---------------------------------
2016 2015
---- ----
Components of Losses and other
expenses, net (pre-tax):
Realized losses on
settled future
contracts (a) $0.5 $0.4
Foreign currency
exchange losses
(gains) (a) 0.2 1.1
Net change in
unrealized losses
(gains) on unsettled
futures contracts
(b) (0.5) (0.1)
Special legal
contingency charges
(b) 1.7 3.4
Asbestos-related
litigation (b) 0.8 0.1
Environmental
liabilities (b) 0.7 0.7
Contractor tax
payments (b) 0.5 -
Acquisition costs (b) 0.4 -
Losses and other
expenses, net (pre-
tax) $4.3 $5.6
==== ====
(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, 2016
ESTIMATED
---------
Adjusted income per share from continuing operations - diluted, a Non-GAAP measure $6.30 - $6.80
Special loss contingencies and other items (0.04)
Income per share from continuing operations - diluted, a GAAP measure $6.26 - $6.76
=============
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 March 31,
2016 2015
---- ----
Net cash provided by operating activities, a GAAP measure $(113.4) $(122.2)
Purchases of property, plant and equipment (23.8) (18.0)
----- -----
Free cash flow, a Non-GAAP measure $(137.2) $(140.2)
======= =======
Calculation of Debt to EBITDA Ratio (dollars in millions): Trailing
Twelve
Months to
March 31, 2016
--------------
Adjusted EBIT (a) $393.1
Depreciation and amortization expense (b) 61.5
EBITDA (a + b) $454.6
------
Total debt at March 31, 2016 (c) 1,099.4
-------
Total Debt to EBITDA ratio ((c / (a + b)) 2.4
===
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, 2016
--------------
Adjusted EBIT per above, a Non-GAAP measure $393.1
Special product quality adjustments (2.3)
Items in Losses (gains) and other expenses, net that are excluded from segment profit 15.2
Restructuring charges 2.7
Interest expense, net 23.6
Special inventory write down 5.6
Goodwill impairment 5.5
Asset impairment 44.5
Other expenses, net (0.8)
Income from continuing operations before income taxes, a GAAP measure $299.1
======
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SOURCE Lennox International Inc.
