Lennox International Reports First Quarter Earnings; Announces Plans For Retail Segment
DALLAS, April 24 /PRNewswire Interactive News Release/ -- Lennox International Inc. (NYSE: LII) announced earnings for first quarter 2001 today, in line with guidance issued on March 19, 2001. Total company sales for first quarter 2001 were flat versus last year at $716 million. Company- wide sales, after adjusting for currency fluctuations, grew 2.0%. Revenues outside of the U.S. and Canada, represented 14% of total corporate sales.
The company reported an operating loss of $4.0 million in the first quarter, versus operating income of $23.5 million the previous year. EBITDA in the first quarter was $17.1 million, compared with $44.1 million a year ago.
Net loss for the first quarter was $10.2 million versus net income of $5.7 million in 2000. Diluted earnings per share were ($0.18), again in line with previously issued guidance, compared with $0.10 last year.
"The downturn that hit the domestic economy depressed demand in most of our end markets, compounding what is typically a weak quarter for us," said Bob Schjerven, chief executive officer. "The Air Conditioning and Refrigeration Institute (ARI) recently reported that factory shipments of unitary air conditioners and heat pumps were down 13% for the first two months of the year. We have also seen some slowdowns in orders for commercial refrigeration equipment and heat transfer products. Despite widespread industry softness, we are confident our market positions are strong, with improved market shares in most segments."
Lennox continues to focus on free cash flow, with emphasis on working capital management and capital spending. Free cash flow in the first quarter was ($26.4) million. "Given the seasonal nature of our business, Lennox typically uses cash in the first half of the year and generates cash in the second half," Schjerven said.
Results and plans for retail business segment
Revenues in the retail segment grew 14% to $222 million, achieved by the acquisition of Service Experts in late January 2000. The segment reported an operating loss of $10.0 million.
"We are clearly not satisfied with the performance of our retail operations and are disappointed we did not see a sequential improvement in operating profitability from last quarter," Schjerven said. "We are firmly committed to improving retail's profitability and realizing the earnings power we are convinced is inherent in its operations. That's why we are taking immediate measures to significantly restructure this business."
After a thorough review of retail center operations, Lennox has identified 38 centers that require action. Ten of these centers will be sold or closed, while the remaining 28 will be merged into other company-owned service centers or repositioned. Lennox expects the sales, closures, and mergers will be completed in the second quarter of 2001.
The company expects to take a pre-tax restructuring charge of approximately $38 million. The net cash impact of the restructuring is a projected outflow of $7 million, the majority of which will occur in second quarter 2001. As a result of this restructuring, Lennox anticipates a reduction of $50 million in retail revenues for the full-year 2001. The company also anticipates that operating margins for the year in the retail segment, excluding the one-time charge, will be improved over the level achieved in 2000.
Other initiatives already in place -- including efforts to optimize labor utilization, center level SG&A expenses, product mix, and pricing structures through the operations accountability program -- have resulted in strong operating performance at many centers. "Twenty-five percent of our retail centers have double-digit operating profitability as a percentage of sales over the past 12 months," Schjerven said. He noted Lennox also continues to improve its financial control of the retail business by implementing STARS, an integrated information system. STARS has been implemented in 126 centers, with the company on track to have over 90% of all U.S. centers on STARS by the end of third quarter 2001.
Schjerven also reaffirmed Lennox's commitment to its retail business. "As we have said all along, the retail strategy makes sense," he said. "It provides access to very large revenue and profit streams and brings us closer to our end customer. We believe the restructuring will get us back on track to build our retail operations into a business that provides sustained, long-term shareholder value."
Highlights for other business segments
North American residential: Despite a difficult selling environment, revenues declined by a modest 3% from the previous year to $282 million, with market share gains in the core residential heating, ventilation, and air conditioning (HVAC) segment. Segment operating income for the quarter decreased 40.7% to $12.3 million from $20.8 million last year, with operating margins declining to 4.4% from 7.1% in 2000. The margin decline was attributed to lower volumes, production inefficiencies in the company's hearth products operations, and start-up costs associated with manufacturing operations in Orangeburg, South Carolina.
Worldwide commercial air conditioning: Revenues declined by 2% to $93 million, but were up 1.0% when adjusted for currency. The segment operating loss was $1.8 million, compared with a loss of $3.1 million the previous year. Operating margins were (1.9%), a 130 basis point improvement from 2000. The improvement was largely a result of the introduction of the cost-effective Value Series product and the company's consequent ability to improve margins on the L Series product line.
Worldwide commercial refrigeration: Segment revenues declined by 7% to $85 million, but were flat when adjusted for currency exchange. Segment operating income was $6.2 million compared with $7.1 million last year, the decline driven entirely by currency fluctuations.
Worldwide heat transfer: Sales decreased 11% to $58 million. Adjusted for foreign exchange, sales were down 8%. Segment operating income decreased to $1.8 million due to volume declines, with operating margins for the quarter at 3.1% versus 7.5% in 2000.
Business outlook
Reinforcing guidance provided earlier, Lennox reported no acquisitions were planned for 2001 and that the company is focused on realizing the potential in the business portfolio it has assembled. Total corporate revenue growth is expected to be in the low single digits and full year earnings per share, before restructuring charges, are expected to be up by more than 10%.
The company reported it is also on track to generate $80 to $90 million in free cash flow for the year before restructuring charges, and plans to use the cash generated to retire long-term debt.
"First quarter 2001 was a difficult quarter for Lennox International," said CEO Schjerven. "However, we are confident we have assembled a strong portfolio of businesses and are focused on addressing the issues under our control to improve their profitability."
Lennox International Inc. has scheduled a conference call to discuss financial results for the first quarter 2001 on Wednesday, April 25 at 9:30 a.m. Central time. All interested parties are invited to listen as Bob Schjerven, CEO and Rick Smith, CFO comment on the company's results. To listen, please call the conference call line at 847-413-3156 ten minutes prior to the scheduled start time and use reservation number 581396. The number of connections for this call is limited to 200.
This conference call will also be broadcast live on the Internet by PR Newswire and can be accessed at http://www.videonewswire.com/LENNOX/042501/. A link to the broadcast can also be found on the company's web site at http://www.lennoxinternational.com. If you are unable to participate in this conference call, a replay will be available through May 2, 2001 on the Internet or by dialing 800-475-6701, access code 581396.
A Fortune 500 company operating in over 70 countries, Lennox International Inc. is a global leader in the heating, ventilation, 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 Bill Moltner, Director, Investor Relations, at 972-497-6670.
This news release contains forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. These statements are
subject to numerous risks and uncertainties that could cause actual results to
differ materially from such statements. For information concerning these
risks and uncertainties, see Lennox' publicly available filings with the
Securities and Exchange Commission. Lennox disclaims any intention or
obligation to update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise.
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended March 31, 2001 and 2000
(Unaudited, in thousands, except per share data)
For the
Three Months Ended
March 31,
2001 2000
NET SALES $715,966 $716,324
COST OF GOODS SOLD 502,381 487,561
Gross Profit 213,585 228,763
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE 217,556 205,280
(Loss) income from operations (3,971) 23,483
INTEREST EXPENSE, net 12,777 12,750
OTHER 663 229
MINORITY INTEREST 107 (546)
(Loss) income before income taxes (17,518) 11,050
(BENEFIT) PROVISION FOR INCOME TAXES (7,270) 5,310
Net (loss) income $(10,248) $ 5,740
REPORTED (LOSS) EARNINGS PER SHARE
Basic $ (0.18) $ 0.10
Diluted $ (0.18) $ 0.10
For the
Three Months Ended
March 31,
Net Sales 2001 2000
North American residential $282,025 $291,780
North American retail 222,424 194,528
Commercial air conditioning 93,378 95,084
Commercial refrigeration 85,089 91,672
Heat transfer 58,275 65,447
Eliminations (25,225) (22,187)
$715,966 $716,324
For the
Three Months Ended
March 31,
(Loss) Income from Operations 2001 2000
North American residential $12,306 $20,765
North American retail (9,973) 5,426
Commercial air conditioning (1,817) (3,053)
Commercial refrigeration 6,221 7,050
Heat transfer 1,788 4,934
Corporate and other (11,003) (9,905)
Eliminations (1,493) (1,734)
$(3,971) $23,483
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of March 31, 2001 and December 31, 2000
(In thousands, except share data)
ASSETS
March 31, December 31,
2001 2000
CURRENT ASSETS:
Cash and cash equivalents $ 25,489 $ 40,633
Accounts and notes receivable, net 360,822 399,136
Inventories 374,156 359,531
Deferred income taxes 48,113 47,063
Other assets 62,020 54,847
Total current assets 870,600 901,210
PROPERTY, PLANT AND EQUIPMENT, net 335,888 354,172
GOODWILL, net 726,269 739,468
OTHER ASSETS 57,769 60,181
TOTAL ASSETS $1,990,526 $2,055,031
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt $ 31,404 $ 31,467
Current maturities of long-term debt 29,336 31,450
Accounts payable 257,408 260,208
Accrued expenses 251,206 242,347
Income taxes payable 13,486 24,448
Total current liabilities 582,840 589,920
LONG-TERM DEBT 610,162 627,550
DEFERRED INCOME TAXES 1,058 941
POSTRETIREMENT BENEFITS, OTHER THAN PENSIONS 14,265 14,284
OTHER LIABILITIES 77,241 77,221
Total liabilities 1,285,566 1,309,916
MINORITY INTEREST 1,965 2,058
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,
60,524,220 shares and 60,368,599 shares
issued for 2001 and 2000, respectively 605 604
Additional paid-in capital 372,585 372,690
Retained earnings 431,796 447,377
Accumulated other comprehensive loss (65,659) (37,074)
Deferred compensation (5,910) (6,457)
Treasury stock, at cost, 2,980,846 and
3,332,784 shares for 2001 and 2000,
respectively (30,422) (34,083)
Total stockholders' equity 702,995 743,057
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,990,526 $2,055,031
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SOURCE Lennox International Inc.
Web site: http: //www.lennoxinternational.com
Company News On-Call: http: //www.prnewswire.com/comp/140632.html or fax, 800-758-5804, ext. 140632
CONTACT: Bill Moltner, Director, Investor Relations of Lennox International Inc., 972-497-6670
Audio: http: //www.videonewswire.com/LENNOX/042501