Lennox Reports Third Quarter Results and Raises Full Year Guidance
Q3 Highlights(All comparisons are year-over-year, unless otherwise noted)(Prior-year adjusted results and core revenue exclude European operations that were divested in the 4Q 2023)
Revenue $1.5 billion, Core revenue up 15%, including 2% growth from acquisitions
GAAP Operating Income $303 million, Adjusted segment profit up 21% to $303 million
GAAP diluted EPS $6.68, Adjusted diluted EPS up 24% to $6.68
Net cash from operations was $452 million, Free cash flow was $412 million, up 50%
Raising FY guidance to 10% revenue growth, EPS to $20.75-$21.00 and cash flow to $575 - $650 million
Highlights from recent press announcements:
Company announced CLO, John Torres, has elected to retire and is being succeeded by Monica Brown, effective January 1, 2025.
DALLAS, Oct. 23, 2024 /PRNewswire/ -- Lennox (NYSE:LII), a leader in energy-efficient climate-control solutions, today reported third quarter financial results with $1.5 billion of revenue, a record $303 million of operating income and $6.68 GAAP diluted earnings per share.
Core revenue grew 15% to $1.5 billion. Adjusted segment profit rose 21% to $303 million. Adjusted segment margin was up 90 basis points to a record 20.2%. Adjusted diluted earnings per share rose 24% to $6.68.
"The Lennox team is proud to deliver another exceptional quarter driven by the effective execution of our transformation plan," said Chief Executive Officer, Alok Maskara. "We also successfully operationalized the Samsung Lennox joint venture, started production at our new Saltillo commercial factory, and integrated AES ahead of schedule. Our low GWP transition plan and products are strengthening our competitive edge, and we are well-positioned to capture market share in the years ahead. This gives us confidence to raise our full year guidance once again."
"In addition to the impressive third quarter results, we announced this morning that Monica Brown will be appointed Chief Legal Officer of Lennox, effective January 1, 2025, given the planned retirement of John Torres, our current Chief Legal Officer, in February 2025. I want to thank John for his invaluable counsel and leadership at Lennox and congratulate Monica on her new role," Maskara continued.
The Home Comfort Solutions segment generated 15% revenue growth in the third quarter, driven by impressive sales volume and continued focus on pricing. Sales volume benefited from industry R-410A availability challenges and restocking of depleted industry inventories. The segment maintained steady margin expansion, effectively offsetting the impact of inflation and ongoing investments.
The Business Climate Solutions segment revenue grew 15% this quarter. The AES business continues to perform well, contributing 6% revenue growth to the segment. The integration of the AES acquisition was successfully completed ahead of schedule. Segment profit margin continues to be impacted by ongoing investments to ramp up our new factory in Saltillo, Mexico.
THIRD QUARTER 2024 FINANCIAL HIGHLIGHTS(All comparisons are year-over-year, unless otherwise noted)
Revenue: $1.5 billion was up 10% and up 15% for core operations, with organic revenue up 13% driven by favorable sales volume as well as price/mix benefits.
Operating Income: $303 million, up 62%, with operating profit margin of 20.2%, up 650 basis points.
Adjusted Segment Profit: $303 million, up 21%, and adjusted segment profit margin of 20.2%, up 90 basis points. Profit growth was driven by $47 million in organic and inorganic sales volume, and $43 million of price/mix benefits. This was partially offset by inflation and new factory expenses, SG&A, and distribution investments.
Net Income: $239 million, or $6.68 per share, compared to $130 million, or $3.65 per share, in the prior-year quarter.
Adjusted Net Income: $239 million, or $6.68 per share, compared to $192 million, or $5.37 per share, in the prior-year quarter.
Cash Flow: Operating cash flow was $452 million compared to $313 million in the prior-year quarter. Capital expenditures were $41 million compared to $40 million in the prior-year quarter. This quarter the company repurchased $13 million in shares.
Home Comfort Solutions: Business segment revenue was $1.0 billion, up 15%. Segment profit was $227 million, up 25%, and segment margin was 21.9%, up 170 basis points. Segment profit increased $45 million compared to the prior-year quarter. The increase was attributed to $35 million in sales volume and $33 million in price/mix benefits. This was partially offset by a $23 million impact from inflation and investments in distribution and selling.
Building Climate Solutions: Business segment revenue was $465 million, up 15%. Organic revenue was $442 million, up 9%. Segment profit was $106 million, up $9 million or 9%, and segment margin decreased 120 basis points to 22.8%. This profit improvement was driven by a $12 million increase in organic and inorganic sales volume and $10 million in price/mix improvement. This was offset by $10 million of expense related to the new factory ramp-up and manufacturing inefficiencies at existing facilities, in addition to $3 million of inflationary wage impacts.
Corporate and Other: Corporate expenses were $29 million, an increase of $2 million versus the prior-year quarter adjusted amount.
FULL YEAR 2024 GUIDANCEFor full year 2024, we are increasing revenue guidance to approximately 10%, with 2% of benefit from the AES acquisition.
Earnings per share revised range is $20.75 to $21.00 versus the prior range of $19.50 to $20.25.
Free Cash Flow is estimated to be within the range of $575 million to $650 million compared to the prior range of $500 million to $600 million.
CONFERENCE CALL INFORMATIONA conference call to discuss the company's third quarter results and 2024 outlook will be held this morning at 8:30 a.m. Central Time. To participate in the earnings conference, please call 800-245-3047 (U.S.) or +1 203-518-9765 (international) at least 10 minutes prior to the scheduled start time and use conference ID LIIQ324. The conference call also will be webcast live on the company's investor relations web site at investor.lennox.com. A replay of the conference call will be available until October 30, 2024, by calling toll-free 800-925-9940 (U.S.) or +1 402-220-5394 (international). The call will also be archived on the company's investor relations website at investor.lennox.com.
ABOUT LENNOXLennox (NYSE: LII) is a leader in energy-efficient climate-control solutions. Dedicated to sustainability and creating comfortable and healthier environments for our residential and commercial customers while reducing their carbon footprint, we lead the field in innovation with our cooling, heating, indoor air quality, and refrigeration systems. Additional information on Lennox is available at Lennox.com or by contacting
FORWARD-LOOKING STATEMENTS & NON-GAAP FINANCIAL MEASURESThe statements in this document that are not historical statements, including statements regarding the 2024 full-year outlook and expected consolidated and segment financial results, as well as financial targets for future years, 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 risks that the North American unitary HVAC and refrigeration markets perform worse than current assumptions. Additional risks include but are not limited to competition in the HVACR business; our ability to successfully develop and market new products or execute our business strategy; our ability to meet and anticipate customer demands; our ability to continue to license or enforce our intellectual property rights; our ability to attract, motivate, develop, and retain our employees, as well as labor relations problems; a decline in new construction activity and related demand for our products and services; the impact of weather on our business; the impact of higher raw material prices and significant supply interruptions; changes in environmental and climate-related legislation or government regulations or policies; changes in tax legislation; the impact of new or increased trade tariffs; warranty, intellectual property infringement, product liability and other claims; litigation risks; general economic conditions in the United States and abroad; extraordinary events beyond our control; foreign currency fluctuations and changes in local government regulation associated with our international operations; cyber attacks and other disruptions or misuse of information systems; our ability to successfully realize, complete and integrate acquisitions; and impairment of the value of our goodwill.
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.
A reconciliation of non-GAAP financial measures appearing in this document to financial measures prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP) are included in the Annex to this document.
This document includes forward-looking statements regarding core revenue, segment profit, adjusted segment profit, adjusted net income, adjusted diluted earnings per share, free cash flow, and Debt to EBITDA, which are non-GAAP financial measures. These non-GAAP financial measures are derived by excluding certain amounts from the corresponding financial measures determined in accordance with GAAP. The determination of the amounts excluded is a matter of management judgment and depends upon, among other factors, the nature of the underlying expense or income amounts recognized in a given period and the high variability of certain amounts, such as unusual gains and losses, the ultimate outcome of pending litigation, fluctuations in foreign currency exchange rates, changes in environmental liabilities, the impact and timing of potential acquisitions and divestitures, future restructuring costs, and other structural changes or their probable significance. Core revenue, adjusted segment profit, and adjusted diluted earnings per share exclude net sales and profit/(loss) from our European portfolio, which was sold in 4Q 2023. We are unable to present a quantitative reconciliation of the aforementioned forward-looking non-GAAP financial measures to their most directly comparable forward-looking GAAP financial measures because such information is not available, and management cannot reliably predict the necessary components of such GAAP measures without unreasonable effort or expense. The unavailable information could have a significant impact on LII's full year GAAP financial results.
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
(Amounts in millions, except per share data)
For the Three Months Ended September 30,
For the Nine Months Ended September 30,
2024
2023
2024
2023
Net sales
$ 1,498.1
$ 1,366.3
$ 3,996.3
$ 3,827.1
Cost of goods sold
1,009.7
937.8
2,679.7
2,634.1
Gross profit
488.4
428.5
1,316.6
1,193.0
Operating Expenses:
Selling, general and administrative expenses
184.4
178.9
523.6
527.6
Losses and other expenses, net
3.1
3.5
10.5
5.2
Restructuring charges
—
0.3
—
0.2
Gain on sale from previous dispositions
—
—
(1.6)
—
Impairment on assets held for sale
—
63.2
—
63.2
Income from equity method investments
(2.4)
(4.2)
(6.1)
(8.0)
Operating income
303.3
186.8
790.2
604.8
Pension settlements
0.1
0.3
0.4
0.4
Interest expense, net
8.9
11.2
33.2
40.4
Other expense (income), net
0.4
0.1
1.5
(0.1)
Income before income taxes
293.9
175.2
755.1
564.1
Provision for income taxes
54.9
44.8
145.9
118.5
Net income
$ 239.0
$ 130.4
$ 609.2
$ 445.6
Earnings per share, Basic:
$ 6.71
$ 3.67
$ 17.11
$ 12.55
Earnings per share, Diluted:
$ 6.68
$ 3.65
$ 17.02
$ 12.51
Weighted Average Number of Shares Outstanding - Basic
35.6
35.5
35.6
35.5
Weighted Average Number of Shares Outstanding - Diluted
35.8
35.7
35.8
35.6
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
Segment Net Sales and Profit (Loss)
(Unaudited)
(Amounts in millions)
For the Three Months Ended September 30,
For the Nine Months Ended September 30,
2024
2023
2024
