Lennox International Reports Third Quarter Results - Revenue up 3% at constant currency, led by 9% Residential growth

- Adjusted EPS from continuing operations of $0.97, up 23%

- GAAP EPS from continuing operations of $0.97, up 47%

- 2012 guidance for adjusted EPS from continuing operations increased from $2.35-$2.65 to a range of $2.60-$2.80 adjusted for the Service Experts move to discontinued operations

- Repurchased $35 million of stock in the quarter and raised dividend 11%

DALLAS, Oct. 22, 2012 /PRNewswire/ -- Lennox International Inc. (NYSE: LII) today reported financial results for the third quarter of 2012. Financial results presented have been adjusted for discontinued operations related to the company's previously announced plans to divest the Service Experts business.

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Revenue for the third quarter was $810 million, up 1% from the prior-year quarter. At constant currency, revenue was up 3%. Adjusted earnings per share from continuing operations was $0.97, up 23% from $0.79 in the prior-year quarter. On a GAAP basis, earnings per share from continuing operations was $0.97, up 47% from $0.66 in the prior-year quarter.

"Our Residential business continued its strong growth in both replacement and new construction markets in the third quarter, with revenue up 9% and profit up 20%," said Chairman and CEO Todd Bluedorn. "In our Commercial business, profit was up 5% on 1% revenue growth at constant currency – with North America down low single digits on the timing of national account business and Europe up high single digits. In Refrigeration, revenue was down 6% at constant currency, also impacted by the timing of national account business in North America as well as some slowing in Europe – our other regions saw nice growth. Strong execution on operational initiatives drove 22% profit growth in Refrigeration. Overall for the company, revenue was up 3% at constant currency in the quarter, with total segment profit up 19%. Looking ahead, we expect our momentum in Residential to continue. Backlog and order rates in our Commercial and Refrigeration businesses look solid overall, and we expect an improved national account environment in the fourth quarter. For the full year, our guidance for adjusted EPS from continuing operations is now $2.60-$2.80, with the midpoint up 20% from $2.25 last year."

FINANCIAL HIGHLIGHTS

Revenue: Revenue for the third quarter was $810 million, up 1% from the prior-year quarter. At constant currency, revenue was up 3%. Volume and price were up, and mix was down from the prior-year quarter.

Gross Profit: Gross profit for the third quarter was $205 million, up 10% from the prior-year quarter. Gross margin was 25.3%, up 200 basis points from 23.3% in the prior-year quarter. For gross margin, lower material costs and productivity initiatives were favorable, price/mix was neutral, and currency was unfavorable.

Income from Continuing Operations: Adjusted income from continuing operations in the third quarter was $49.7 million, or $0.97 earnings per share, compared to $41.9 million, or $0.79 earnings per share, in the prior-year quarter. Adjusted income from continuing operations for the third quarter of 2012 excludes an after-tax charge of $0.3 million for restructuring activities, $0.9 million after-tax for the net change in unrealized gains on open future contracts, and an after-tax charge of $0.6 million for a special product quality adjustment and other items, net.  

On a GAAP basis, income from continuing operations for the third quarter was $49.7 million, or $0.97 earnings per share, compared to $34.9 million, or $0.66 earnings per share, in the prior-year quarter.

Loss from Discontinued Operations: The loss from discontinued operations in the third quarter of 2012 was $20.3 million after-tax, or $0.40 loss per share, compared to a loss of $1.1 million after-tax, or $0.02 loss per share, in the third quarter of 2011. The Service Experts business was placed in discontinued operations in the third quarter of 2012 due to the previously announced plans to divest the business. On an operating basis, Service Experts lost $5.9 million pre-tax, or $0.08 loss per share, in the third quarter of 2012, compared to a profit of $3.0 million pre-tax, or $0.04 earnings per share, in the prior-year quarter.

(Revised 2011-2012 quarterly and 2007-2011 annual earnings statements that show the effect of the move of the Service Experts business to discontinued operations and the move of the Lennox National Account Services business to the Commercial Heating & Cooling segment are available at www.lennoxinternational.com.)

Free Cash Flow and Total Debt: Cash from operations in the third quarter was $75 million compared to $140 million in the prior-year quarter. The company invested $12 million in capital assets in the third quarter. Free cash flow was $63 million, compared to $132 million in the prior-year quarter. Year-to-date through September, free cash flow was $36 million compared to ($28) million in the prior-year period. Total debt at the end of the third quarter was $481 million. Total cash and cash equivalents were $49 million at the end of the quarter. The company repurchased $35 million of stock in the third quarter and paid $9 million in dividends. In the quarter, the company announced an 11% increase in its quarterly dividend to $0.20 per share.  

BUSINESS SEGMENT HIGHLIGHTS

Residential Heating & Cooling

Third quarter 2012 revenue in the Residential Heating & Cooling business segment was $386 million, up 9% from the prior-year quarter. Currency was neutral to revenue growth. Segment profit was $38 million, up 20% from the prior-year quarter. Segment profit margin was 9.8%, up 100 basis points. Results were primarily impacted by higher volume, lower material costs, and productivity initiatives, with offsets from lower price/mix, higher SG&A expenses, and investments in distribution.

Commercial Heating & Cooling

Revenue in the Commercial Heating & Cooling business segment was $220 million in the third quarter, down 2% from the prior-year quarter. At constant currency, revenue was up 1%. Segment profit was $33 million, up 5% from the prior-year quarter. Segment profit margin was 14.8%, up 90 basis points. Results were primarily impacted by favorable price/mix, lower material costs, and productivity initiatives, with an offset from higher SG&A expenses.

Refrigeration

Revenue in the Refrigeration business segment was $204 million in the third quarter, down 9% from the prior-year quarter. At constant currency, revenue was down 6%. Segment profit was $25 million, up 22% from the prior-year quarter. Segment profit margin was 12.3%, up 310 basis points from the prior-year quarter. Results were primarily impacted by favorable price/mix, lower material costs, and productivity initiatives, with offsets from lower volume and higher SG&A expenses.

FULL-YEAR OUTLOOK

The company is updating its 2012 guidance ranges for revenue and EPS from continuing operations based on year-to-date performance and market view, and to incorporate the impact of Service Experts moving to discontinued operations.

  • Raising guidance for revenue growth at constant currency from 3-6% to a range of 5-7%. The company continues to assume a negative 1 point impact from foreign exchange on a full-year basis, resulting in revenue growth guidance of 4-6% at actual currency.
  • Raising adjusted EPS from continuing operations guidance from $2.35-$2.65 to a range of $2.60-$2.80.
  • Raising GAAP EPS from continuing operations guidance from $2.30-$2.60 to a range of $2.55-$2.75.
  • Reiterating tax rate guidance of 33-34% for the full year.
  • Reiterating average diluted share count guidance of approximately 51 million shares for the full year, including a minimum of $50 million of stock repurchases in 2012.
  • 2012 capital expenditure guidance remains approximately $55 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 612-332-0634 at least 10 minutes prior to the scheduled start time and use reservation number 265737. This conference call will also be webcast on Lennox International's web site at http://www.lennoxinternational.com.

A replay will be available from 11:00 a.m. Central time on October 22 through October 29, 2012 by dialing 800-475-6701 (U.S.) or 320-365-3844 (international) and using access code 265737. This 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: http://www.lennoxinternational.com or by contacting Steve Harrison, Vice President, Investor Relations, at 972-497-6670.