Revenue up 8% to record $1.1 billion, led by 14% Residential growth
– Record GAAP EPS from continuing operations of $2.71, up 8%
– Record adjusted EPS from continuing operations of $2.83, up 12%
– Raising low end of 2017 revenue growth guidance from 3-7% to 4-7%
– Narrowing 2017 GAAP EPS from continuing operations guidance from $7.65-$8.25 to $7.73-$8.13
– Raising low end of 2017 adjusted EPS from continuing operations guidance from $7.55-$8.15 to $7.75-$8.15
– $175 million of stock repurchases year-to-date, and $75 million more planned for second half of 2017
DALLAS — Lennox International Inc. (NYSE: LII) today reported financial results for the second quarter of 2017. All comparisons are to the prior-year period.
For the second quarter, revenue was up 8% to a record $1.102 billion. Foreign exchange was neutral to revenue. GAAP operating income was a record $175 million, up 9%. GAAP earnings per share from continuing operations was a record $2.71, up 8%. On an adjusted basis, total segment profit increased 14% to a record $183 million, and total segment margin expanded 80 basis points to a record 16.6%. Adjusted EPS from continuing operations rose 12% to a record $2.83.
“Lennox International posted strong revenue and profit growth in a record quarter for the company,” said Chairman and CEO Todd Bluedorn. “The company hit new all-time highs for revenue, total segment margin and profit, and earnings per share.
“In our Residential business, revenue was up 14% on strength in both replacement and new construction business. Segment margin expanded 130 basis points to 21.5%, and segment profit rose 21%. Our Residential business set new all-time highs for revenue, segment margin and profit. In our Commercial business, we have seen lumpy customer demand and mix in the first half of the year. After a record first quarter with strong growth in revenue, margin, and profit, Commercial revenue was up 3% at constant currency in the second quarter, with segment margin of 17.3% down 140 basis points and segment profit down 6% from the record second quarter a year ago. Looking ahead at the second half of the year, we expect Commercial revenue, margin and profit to be up from the prior-year period. In Refrigeration, second-quarter revenue was down 1%, driven by a decline in Europe. Revenue was up in North America, South America, Australia, and Asia. Refrigeration margin expanded 30 basis points to 11.4%, and segment profit rose 1%.
“Looking ahead for the company overall, we continue to expect strong growth for a year of record revenue and profit, led by the strength in our Residential business. Given the company’s first-half performance and outlook for the second half, we are raising the low end of our 2017 guidance for revenue and adjusted EPS from continuing operations, and we plan $75 million more of stock repurchases in the second half of the year.”
FINANCIAL HIGHLIGHTS
Revenue: Revenue for the second quarter was $1.102 billion, up 8%. Foreign exchange was neutral to revenue. Volume was up, and price/mix was flat on a revenue basis.
Gross Profit: Gross profit in the second quarter was $341 million, up 8%. Gross margin was flat at 30.9%. Gross profit was positively impacted by higher volume, favorable price/mix, and sourcing and engineering-led cost reductions, with offsets from higher commodity costs, investments in distribution expansion, and foreign exchange.
Income from Continuing Operations: On a GAAP basis, income from continuing operations for the second quarter was $116.4 million, or $2.71 per share, compared to $111.2 million, or $2.52 per share, in the prior-year quarter.
Adjusted income from continuing operations in the second quarter was $121.0 million, or $2.83 per share, compared to $111.5 million, or $2.53 per share, in the prior-year quarter. Adjusted earnings from continuing operations for the second quarter of 2017 excludes net after-tax charges of $4.6 million: $3.4 million for special product quality adjustments, $1.0 million of special legal contingency charges, a total of $0.9 million for other items, and a benefit of $0.7 million for excess tax benefits from share-based compensation.
Free Cash Flow and Total Debt: Net cash from operations in the second quarter was $59 million compared to $76 million in the prior-year quarter. Capital expenditures were $18 million in the second quarter of 2017, flat with the second quarter of 2016. Free cash flow was $41 million compared to $58 million in the prior-year quarter. Total debt at the end of the second quarter was $1.189 billion. Total cash and cash equivalents were $61 million at the end of June. In the second quarter, the company paid $18 million in dividends and $100 million for stock repurchases.
BUSINESS SEGMENT HIGHLIGHTS
Residential Heating & Cooling
Revenue in the Residential Heating & Cooling business segment rose 14% to a record $654 million. Foreign exchange was neutral on a revenue basis. Segment profit was up 21% to a record $141 million. Segment profit margin expanded 130 basis points to a record 21.5%. Results were impacted by higher volume, favorable price/mix, sourcing and engineering-led cost reductions, and favorable warranty and other product costs. Partial offsets included investments in research and development, information technology, and other SG&A, investments in distribution expansion, higher commodity costs, and unfavorable foreign exchange.
Commercial Heating & Cooling
Revenue in the Commercial Heating & Cooling business segment was a record $259 million, up 2%. At constant currency, revenue was up 3%. Segment margin was down 140 basis points to 17.3%, and segment profit declined 6% to $45 million. Results were impacted by unfavorable mix, higher commodity costs, investments in research and development, information technology, and other SG&A. Partial offsets included higher volume, sourcing and engineering-led cost reductions, and favorable price.
Refrigeration
Revenue in the Refrigeration business segment was $190 million, down 1%. Foreign exchange was neutral on a revenue basis. Segment margin expanded 30 basis points to 11.4%, and segment profit rose 1% to $22 million. Results were impacted by favorable price/mix and sourcing and engineering-led cost reductions, with partial offsets from factory productivity, investments in research and development, information technology, and other SG&A.
FULL-YEAR OUTLOOK
For 2017, the company is raising the low end of guidance for revenue and adjusted EPS from continuing operations.
CONFERENCE CALL INFORMATION
A conference call to discuss the company’s second quarter results will be held this morning at 8:30 a.m. Central time. To listen, call the conference call line at 612-332-1210 at least 10 minutes prior to the scheduled start time and use reservation number 426825. 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 July 24 through August 7, 2017by dialing 800-475-6701 (U.S.) or 320-365-3844 (international) and using access code 426825. 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, expected consolidated and segment financial results for 2017, and expected share repurchases, 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 |
For the Six Months Ended |
|||||||||||||
2017 |
2016 |
2017 |
2016 |
||||||||||||
Net sales |
$ |
1,102.1 |
$ |
1,019.2 |
$ |
1,895.6 |
$ |
1,734.4 |
|||||||
Cost of goods sold |
761.3 |
704.2 |
1,343.8 |
1,235.8 |
|||||||||||
Gross profit |
340.8 |
315.0 |
551.8 |
498.6 |
|||||||||||
Operating Expenses: |
|||||||||||||||
Selling, general and administrative expenses |
168.5 |
159.4 |
320.9 |
299.7 |
|||||||||||
Losses and other expenses, net |
2.3 |
0.4 |
5.4 |
4.7 |
|||||||||||
Restructuring charges |
0.1 |
0.8 |
0.2 |
0.6 |
|||||||||||
Income from equity method investments |
(5.5) |
(6.3) |
(10.9) |
(10.8) |
|||||||||||
Operating income |
175.4 |
160.7 |
236.2 |
204.4 |
|||||||||||
Interest expense, net |
8.2 |
6.8 |
15.7 |
12.7 |
|||||||||||
Other income, net |
(0.1) |
(0.2) |
(0.1) |
(0.3) |
|||||||||||
Income from continuing operations before income taxes |
167.3 |
154.1 |
220.6 |
192.0 |
|||||||||||
Provision for income taxes |
50.9 |
42.9 |
60.7 |
55.9 |
|||||||||||
Income from continuing operations |
116.4 |
111.2 |
159.9 |
136.1 |
|||||||||||
Discontinued Operations: |
|||||||||||||||
Loss from discontinued operations before income taxes |
(1.5) |
(0.8) |
(1.5) |
(0.8) |
|||||||||||
Benefit from income taxes |
(0.6) |
(0.3) |
(0.6) |
(0.3) |
|||||||||||
Loss from discontinued operations |
(0.9) |
(0.5) |
(0.9) |
(0.5) |
|||||||||||
Net income |
$ |
115.5 |
$ |
110.7 |
$ |
159.0 |
$ |
135.6 |
|||||||
Earnings per share – Basic: |
|||||||||||||||
Income from continuing operations |
$ |
2.75 |
$ |
2.55 |
$ |
3.76 |
$ |
3.11 |
|||||||
Loss from discontinued operations |
(0.02) |
(0.01) |
(0.02) |
(0.01) |
|||||||||||
Net income |
$ |
2.73 |
$ |
2.54 |
$ |
3.74 |
$ |
3.10 |
|||||||
Earnings per share – Diluted: |
|||||||||||||||
Income from continuing operations |
$ |
2.71 |
$ |
2.52 |
$ |
3.70 |
$ |
3.07 |
|||||||
Loss from discontinued operations |
(0.02) |
(0.01) |
(0.02) |
(0.01) |
|||||||||||
Net income |
$ |
2.69 |
$ |
2.51 |
$ |
3.68 |
$ |
3.06 |
|||||||
Weighted Average Number of Shares Outstanding – Basic |
42.3 |
43.6 |
42.6 |
43.8 |
|||||||||||
Weighted Average Number of Shares Outstanding – Diluted |
42.9 |
44.1 |
43.2 |
44.4 |
|||||||||||
Cash dividends declared per share |
$ |
0.51 |
$ |
0.43 |
$ |
0.94 |
$ |
0.79 |
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
Segment Net Sales and Profit (Loss)
(Unaudited)
|
|||||||||||||||
(Amounts in millions) |
For the Three Months Ended |
For the Six Months Ended |
|||||||||||||
2017 |
2016 |
2017 |
2016 |
||||||||||||
Net sales |
|||||||||||||||
Residential Heating & Cooling |
$ |
653.5 |
$ |
574.5 |
$ |
1,073.3 |
$ |
951.8 |
|||||||
Commercial Heating & Cooling |
258.6 |
252.9 |
454.1 |
423.3 |
|||||||||||
Refrigeration |
190.0 |
191.8 |
368.2 |
359.3 |
|||||||||||
$ |
1,102.1 |
$ |
1,019.2 |
$ |
1,895.6 |
$ |
1,734.4 |
||||||||
Segment Profit (Loss) (1) |
|||||||||||||||
Residential Heating & Cooling |
$ |
140.5 |
$ |
115.9 |
$ |
182.9 |
$ |
154.1 |
|||||||
Categories:Uncategorized
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