Lennox International Reports Fourth Quarter Results
For the fourth quarter, revenue was $733 million, down 1% from the prior year, including a 5 point positive impact from foreign exchange. Segment profit margin was up 40 basis points to 7.1%. Diluted earnings per share from continuing operations on an adjusted basis, a non-GAAP measure, was $0.58, up 12% from $0.52 in the year-ago quarter. Diluted earnings per share from continuing operations on a GAAP basis was $0.17 compared to $0.21 in the year-ago quarter.
For the full year, revenue was $2.8 billion, down 17% from the prior year, including a negative 1 point impact from foreign exchange. Segment profit margin was down 190 basis points to 5.8%. Diluted earnings per share from continuing operations on an adjusted basis, a non-GAAP measure, was $1.77 compared to $2.69 in the prior year. Diluted earnings per share from continuing operations on a GAAP basis was $1.09 compared to $2.12 in the prior year.
"End markets continued to show improvement in the fourth quarter, with our residential HVAC end markets seeing strong growth," said Todd Bluedorn, Chief Executive Officer. "The commercial HVAC and refrigeration markets were still down from a year ago, but the rate of decline continued to slow in the fourth quarter. Overall for the company, our continued strong focus on productivity drove our margin expansion and 12% adjusted EPS growth in the quarter. For 2010, we reiterate the outlook provided in December and expect adjusted EPS from continuing operations of $1.85 to $2.25 for the full year."
FOURTH QUARTER 2009 FINANCIAL HIGHLIGHTS
Revenue: Revenue for the fourth quarter was $733 million, down 1% from the prior year. At constant currency, revenue was down 6%.
Gross Profit: Gross profit in the fourth quarter was $205 million, up 3%, and gross margin was 28.0%, up 100 basis points. Excluding an $18 million pre-tax charge in the fourth quarter for a vendor-supplied materials quality issue, gross margin would have been 30.5%, up 350 basis points. Gross margin increased primarily due to lower sourcing and commodity costs, and productivity initiatives.
Income from Continuing Operations: For the fourth quarter, adjusted income from continuing operations was $33 million, or $0.58 diluted earnings per share, compared to $29 million, or $0.52 diluted earnings per share from continuing operations in the fourth quarter of 2008. On a GAAP basis, fourth quarter 2009 income from continuing operations was $10 million, or $0.17 diluted earnings per share, compared to $12 million, or $0.21 diluted earnings per share, in the fourth quarter of 2008.
Adjusted income from continuing operations for the fourth quarter of 2009 excludes net after-tax charges of $23.2 million, which are derived from:
- $11.3 million charge for a vendor-supplied materials quality issue
- $10.9 million charge for restructuring activities
- $1.3 million net charge related to the sale of a non-core European HVAC business
- $0.5 million for the net change in unrealized gains on open future contracts
- $0.2 million charge for other items
FULL YEAR 2009 FINANCIAL HIGHLIGHTS
Revenue: For the full year, revenue was $2.8 billion, down 17% from the prior year. At constant currency, revenue was down 16%.
Gross Profit: Gross profit for the full year was $793 million, down 15%, and gross margin was 27.9%, up 70 basis points. Excluding an $18 million pre-tax charge in the fourth quarter for a vendor-supplied materials quality issue, 2009 gross margin would have been 28.5%, up 130 basis points. Gross margin increased primarily due to lower sourcing and commodity costs, productivity initiatives, and improved price and mix.
Income from Continuing Operations: Adjusted income from continuing operations for 2009 was $100 million, or $1.77 diluted earnings per share, compared to $157 million, or $2.69 diluted earnings per share in the prior year. On a GAAP basis, income from continuing operations for 2009 was $62 million, or $1.09 diluted earnings per share, compared to $124 million, or $2.12 diluted earnings per share in the prior year.
Adjusted income from continuing operations for 2009 excludes net after-tax charges of $38.5 million, which are derived from:
- $30.0 million charge for restructuring activities
- $11.3 million charge for a vendor-supplied materials quality issue
- $4.5 million for the net change in unrealized gains on open future contracts
- $1.3 million net charge related to the sale of a non-core European HVAC business
- $0.4 million charge for other items
Free Cash Flow and Total Debt: Cash generated from operations for the year was $225 million. The company invested approximately $58 million in capital assets, resulting in free cash flow of $167 million, up 38% from the prior year. Total debt as of December 31, 2009 was $232 million, down $189 million from a year ago. Total cash and cash equivalents were $124 million ending the year.
BUSINESS SEGMENT FINANCIAL HIGHLIGHTS
Residential Heating and Cooling
- 4Q09 revenue of $321 million, up 7% from $299 million in the prior-year quarter; up 5% at constant currency
- 4Q09 segment profit of $38 million, up 40% from $27 million in 4Q08
- 4Q09 segment profit margin of 11.9%, up 280 basis points from 9.1% in 4Q08
- 2009 revenue of $1,293 million, down 13% from $1,493 million in 2008, with no impact from foreign exchange
- 2009 segment profit of $112 million, down 23% from $146 million in 2008
- 2009 profit margin of 8.6%, down 120 basis points from 9.8% in 2008
Fourth quarter results were positively impacted by higher volume, foreign exchange, lower sourcing and commodity costs, and productivity initiatives. The Hearth business within Residential continued to be down significantly. Full year results were negatively impacted by lower volume, with offsets from price, mix, lower sourcing and commodity costs, and productivity initiatives.
Commercial Heating and Cooling
- 4Q09 revenue of $146 million, down 23% from $189 million in the prior-year quarter; down 26% at constant currency
- 4Q09 segment profit of $11 million, down 46% from $20 million in 4Q08
- 4Q09 segment profit margin of 7.5%, down 310 basis points from 10.6% in 4Q08
- 2009 revenue of $595 million, down 29% from $835 million in 2008; down 26% at constant currency
- 2009 segment profit of $49 million, down 47% from $93 million in 2008
- 2009 profit margin of 8.3%, down 290 basis points from 11.2% in 2008
Fourth quarter results were negatively impacted by lower volume, with offsets from mix, foreign exchange, lower sourcing and commodity costs, and productivity initiatives. Full year results were negatively impacted by volume, with offsets from mix, price, lower sourcing and commodity costs, and productivity initiatives.
Service Experts (Continuing Operations)
- 4Q09 revenue of $146 million, up 7% from $136 million in the prior-year quarter; up 3% at constant currency
- 4Q09 segment profit of $7 million, down 10% from $8 million in 4Q08
- 4Q09 segment profit margin of 4.8%, down 100 basis points from 5.8% in 4Q08
- 2009 revenue of $535 million, down 9% from $586 million in 2008; down 8% at constant currency
- 2009 segment profit of $17 million, down 10% from $18 million in 2008
- 2009 profit margin of 3.1%, down 10 basis points from 3.2% in 2008
Fourth quarter results were positively impacted by higher volume and mix. Segment margin was down primarily due to the timing of expenses between the third and fourth quarter of 2009. Segment margin was up in the second half of 2009 versus the same period in the prior year. Full year 2009 results were negatively impacted by volume, with offsets from mix and productivity initiatives. In discontinued operations, the company exited the business of 5 unprofitable service centers in 2009.
Refrigeration
- 4Q09 revenue of $143 million, up 9% from $131 million in the prior-year quarter; down 7% at constant currency
- 4Q09 segment profit of $16 million, up 42% from $11 million in 4Q08
- 4Q09 segment profit margin of 11.2%, up 260 basis points from 8.6% in 4Q08
- 2009 revenue of $513 million, down 17% from $618 million in 2008; down 14% at constant currency
- 2009 segment profit of $49 million, down 19% from $60 million in 2008
- 2009 profit margin of 9.5%, down 20 basis points from 9.7% in 2008
Fourth quarter results were positively impacted by foreign exchange, price, lower sourcing and commodity costs, and productivity initiatives, with an offset from volume. Full year results were negatively impacted by volume, with offsets from price, mix, lower sourcing and commodity costs, and productivity initiatives.
2010 FULL YEAR OUTLOOK
The company reiterates its 2010 outlook originally provided on December 16, 2009:
- Revenue up 3-7%, including 2 points of positive foreign exchange impact
- Adjusted EPS from continuing operations of $1.85 to $2.25
- GAAP EPS from continuing operations of $1.75 to $2.15
- Capital expenditures of approximately $75 million
- Tax rate of 35-36%
CONFERENCE CALL INFORMATION
A conference call to discuss the company's fourth quarter results will be held this morning at 9:00 a.m. (Central). To listen, please call the conference call line at 612-288-0337 at least 10 minutes prior to the scheduled start time and use reservation number 142810. This conference call will also be webcast on Lennox International's web site at http://www.lennoxinternational.com.
A replay will be available from 12:00 p.m. (Central) February 4 through February 11, 2010, by dialing 800-475-6701 (U.S.) or 320-365-3844 (International) and using access code 142810. 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.
The statements in this news release that are not historical statements, including statements regarding expected financial results for 2010, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to numerous risks and uncertainties, many of which are beyond LII's control, which could cause actual results to differ materially from the results expressed or implied by the statements. 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, the impact of unfavorable weather, and a decline in new construction activity in the 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.
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in millions, except per share data)
For the Three For the Twelve
Months Ended Months Ended
December 31, December 31,
------------- --------------
2009 2008 2009 2008
---- ---- ---- ----
NET SALES $733.5 $738.3 $2,847.5 $3,441.1
COST OF GOODS SOLD 528.4 538.9 2,054.1 2,506.6
----- ----- ------- -------
Gross profit 205.1 199.4 793.4 934.5
OPERATING EXPENSES:
Selling, general and administrative
expenses 172.4 151.8 650.2 686.9
(Gains) losses and other expenses, net (4.4) 2.9 (6.6) (1.9)
Restructuring charges 14.1 11.5 41.5 30.4
Impairment of assets 6.4 6.9 6.4 9.1
Income from equity method investments (1.7) (0.6) (7.3) (8.6)
---- ---- ---- ----
Operational income from
continuing operations 18.3 26.9 109.2 218.6
INTEREST EXPENSE, net 2.1 3.5 8.2 14.2
OTHER EXPENSE, net - (0.1) 0.1 0.1
--- ---- --- ---
Income from continuing
operations before income
taxes 16.2 23.5 100.9 204.3
PROVISION FOR INCOME TAXES 6.3 11.6 39.1 80.5
--- ---- ---- ----
Income from continuing
operations $9.9 $11.9 $61.8 $123.8
DISCONTINUED OPERATIONS:
Loss from discontinued operations 2.9 2.3 13.1 1.8
Income tax expense (benefit) 0.5 (0.8) (2.4) (0.8)
--- ---- ---- ----
Loss from discontinued
operations 3.4 1.5 10.7 1.0
--- --- ---- ---
Net income $6.5 $10.4 $51.1 $122.8
==== ===== ===== ======
EARNINGS PER SHARE - BASIC:
Income from continuing operations $0.18 $0.22 $1.11 $2.18
Loss from discontinued operations (0.06) (0.03) (0.19) (0.01)
----- ----- ----- -----
Net income $0.12 $0.19 $0.92 $2.17
===== ===== ===== =====
EARNINGS PER SHARE - DILUTED:
Income from continuing operations $0.17 $0.21 $1.09 $2.12
Loss from discontinued operations (0.06) (0.03) (0.19) (0.01)
----- ----- ----- -----
Net income $0.11 $0.18 $0.90 $2.11
===== ===== ===== =====
AVERAGE SHARES OUTSTANDING:
Basic 56.1 55.3 55.6 56.7
Diluted 57.3 56.7 56.6 58.3
CASH DIVIDENDS DECLARED PER SHARE $0.14 $0.14 $0.56 $0.56
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
SEGMENT NET SALES AND PROFIT
(Unaudited, in millions)
For the Three For the Twelve
Months Ended Months Ended
December 31, December 31,
------------ ---------------
2009 2008 2009 2008
---- ---- ---- ----
Net Sales
Residential Heating & Cooling $320.7 $299.4 $1,293.5 $1,493.4
Commercial Heating & Cooling 146.0 189.2 594.6 835.3
Service Experts 146.5 136.4 535.4 586.3
Refrigeration 143.3 131.5 512.7 618.2
Eliminations (A) (23.0) (18.2) (88.7) (92.1)
----- ----- ----- -----
$733.5 $738.3 $2,847.5 $3,441.1
====== ====== ======== ========
Segment Profit (Loss) (B)
Residential Heating & Cooling $38.2 $27.3 $111.7 $145.8
Commercial Heating & Cooling 10.9 20.1 49.3 93.3
Service Experts 7.1 7.9 16.6 18.5
Refrigeration 16.0 11.3 48.9 60.2
Corporate and other (20.5) (16.7) (62.5) (53.8)
Eliminations (A) 0.7 (0.1) 0.5 (0.7)
--- ---- --- ----
Subtotal that includes segment
profit and eliminations 52.4 49.8 164.5 263.3
Reconciliation to income from
continuing operations before
income taxes:
Special product quality adjustment 18.3 - 18.3 -
Items in (gains) losses and other
expenses, net that are excluded
from segment profit (C) (4.7) 4.5 (10.9) 5.2
Restructuring charges 14.1 11.5 41.5 30.4
Impairment of assets 6.4 6.9 6.4 9.1
Interest expense, net 2.1 3.5 8.2 14.2
Other expense, net - (0.1) 0.1 0.1
--- ---- --- ---
Income from continuing
operations before income taxes $16.2 $23.5 $100.9 $204.3
===== ===== ====== ======
(A) Eliminations consist of intercompany sales between business segments,
such as products sold to Service Experts by the Residential Heating &
Cooling segment.
(B) 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 adjustment.
- Items within Gains and/or losses and other expenses, net that are
noted in (C).
- Restructuring charges.
- Goodwill and equity method investment impairments.
- Interest expense, net.
- Other expense, net.
(C) Items in Gains and/or losses and other expenses, net that are excluded
from segment profit are net change in unrealized gains on open future
contracts, discount fee on accounts sold, realized gain on marketable
securities, and other items.
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions, except share and per share data)
As of As of
December 31, December 31,
2009 2008
------------ -----------
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $124.3 $122.1
Short-term investments - 33.4
Accounts and notes receivable, net 357.0 363.4
Inventories, net 250.2 297.3
Deferred income taxes 34.9 24.2
Other assets 67.5 94.8
---- ----
Total current assets 833.9 935.2
PROPERTY, PLANT AND EQUIPMENT, net 329.6 329.4
GOODWILL 257.4 232.3
DEFERRED INCOME TAXES 74.6 113.5
OTHER ASSETS, net 48.4 49.1
---- ----
TOTAL ASSETS $1,543.9 $1,659.5
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt $2.2 $6.1
Current maturities of long-term debt 35.5 0.6
Accounts payable 238.2 234.1
Accrued expenses 317.9 331.5
Income taxes payable - 3.7
--- ---
Total current liabilities 593.8 576.0
LONG-TERM DEBT 193.8 413.7
POSTRETIREMENT BENEFITS, OTHER THAN PENSIONS 13.4 12.5
PENSIONS 66.7 107.7
OTHER LIABILITIES 71.8 91.0
---- ----
Total liabilities 939.5 1,200.9
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, 85,567,485 shares and
84,215,904 shares issued for 2009 and 2008,
respectively 0.9 0.8
Additional paid-in capital 839.1 805.6
Retained earnings 558.6 538.8
Accumulated other comprehensive loss (0.8) (98.8)
Treasury stock, at cost, 29,292,512 shares
and 29,109,058 shares for 2009 and 2008,
respectively (793.4) (787.8)
------ ------
Total stockholders' equity 604.4 458.6
----- -----
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,543.9 $1,659.5
======== ========
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
Reconciliation to U.S. GAAP (Generally Accepted Accounting
Principles) Measures
(Unaudited, in millions, except per share and ratio data)
Reconciliation of Income From Continuing Operations to Adjusted
Income From Continuing Operations
For The Three For The Twelve
Months Ended Months Ended
December 31, December 31,
------------ ------------
2009 2008 2009 2008
---- ---- ---- ----
Income from continuing operations, a
GAAP measure $9.9 $11.9 $61.8 $123.8
Restructuring charges, after tax 10.9 7.7 30.0 20.7
Net change in unrealized (gains)
losses on open future contracts,
after tax (a) (0.5) 3.0 (4.5) 3.2
Gain on sale of entity, after tax (a) (3.0) - (3.0) -
Impairment of assets, after tax 4.3 6.9 4.3 9.1
Special product quality adjustment,
after tax (b) 11.3 - 11.3 -
Other items, after tax (a) 0.2 (0.1) 0.4 0.2
--- ---- --- ---
Adjusted income from continuing
operations, a non-GAAP measure $33.1 $29.4 $100.3 $157.0
===== ===== ====== ======
Earnings (loss) per share ("EPS") from
continuing operations - diluted, a
GAAP measure $0.17 $0.21 $1.09 $2.12
Restructuring charges 0.19 0.14 0.53 0.35
Net change in unrealized (gains)
losses on open future contracts (a) (0.01) 0.05 (0.08) 0.06
Gain on sale of entity (a) (0.05) - (0.05) -
Impairment of assets 0.08 0.12 0.08 0.16
Special product quality adjustment (b) 0.20 - 0.20 -
Other items (a) - - - -
--- --- --- ---
Adjusted EPS from continuing operations -
diluted, a non-GAAP measure $0.58 $0.52 $1.77 $2.69
===== ===== ===== =====
(a) Recorded in (Gains) losses 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 For The Twelve
Months Ended Months Ended
December 31, December 31,
------------ ------------
Components of (Gains) losses and other
expenses, net (pre-tax): 2009 2008 2009 2008
-------------------------------------- ---- ---- ---- ----
Realized losses on settled future
contracts (a) - 1.9 3.7 0.9
Foreign currency exchange (gain)
loss (a) (0.2) 1.1 0.7 (3.2)
Loss (gain) on disposal of fixed
assets (a) 0.5 (4.6) (0.1) (4.8)
Discount fee on accounts sold (b) - - 0.3 -
Realized gain on marketable securities (b) - - (0.3) -
Net change in unrealized (gains) losses
on open futures contracts (c) (0.7) 4.6 (7.1) 5.1
Gain on sale of entity (c) (4.1) - (4.1) -
Other items, net (c) 0.1 (0.1) 0.3 0.1
--- ---- --- ---
(Gains) losses and other expenses
net (pre-tax) $(4.4) $2.9 $(6.6) $(1.9)
===== ==== ===== =====
(a) Included in segment profit and adjusted income from
continuing operations
(b) Included in adjusted income from continuing operations but
excluded from segment profit
(c) Excluded from segment profit and adjusted income from
continuing operations
Reconciliation of Estimated Adjusted to GAAP Income per Share from
Continuing Operations - Diluted
For the
Year Ended
December 31,
2010
ESTIMATED
-----------
Adjusted income per share from continuing operations
- diluted $1.85 - $2.25
Restructuring charges (0.10)
-----
GAAP income per share from continuing operations
- diluted $1.75 - $2.15
=============
Free Cash Flow
For the Three For the Twelve
Months Ended Months Ended
December 31, December 31,
------------- --------------
2009 2008 2009 2008
---- ---- ---- ----
Net cash provided by operating
activities $12.2 $43.4 $225.5 $183.2
Purchase of property, plant and
equipment (24.9) (23.8) (58.8) (62.1)
----- ----- ----- -----
Free cash flow $(12.7) $19.6 $166.7 $121.1
====== ===== ====== ======
Operational Working Capital
December 31, December 31,
2009 2008
December 31, Trailing December 31, Trailing
2009 12 Mo. Avg. 2008 12 Mo. Avg.
------------ ----------- ------------ -----------
Accounts and Notes
Receivable, Net $357.0 $363.4
Asset Securitization - 30.0
Allowance for
Doubtful Accounts 15.6 17.9
---- ----
Accounts and Notes
Receivable, Gross 372.6 $409.3 411.3 $519.0
Inventories 250.2 297.3
Excess of Current
Cost Over Last-in,
First-out 71.7 75.8
---- ----
Inventories as Adjusted 321.9 363.8 373.1 429.1
Accounts Payable (238.2) (254.0) (234.1) (323.1)
------ ------ ------ ------
Operating Working
Capital (a) 456.3 519.1 550.3 625.0
===== ===== ===== =====
Net Sales, Trailing
Twelve Months (b) 2,847.5 2,847.5 3,441.1 3,441.1
------- ------- ------- -------
Operational Working
Capital Ratio (a/b) 16.0% 18.2% 16.0% 18.2%
==== ==== ==== ====
Note: Management uses free cash flow and operational working capital,
which are not defined by U.S. GAAP, to measure the Company's operating
performance. Free cash flow and operational working capital are also two
of several measures used to determine incentive compensation for certain
employees
Debt to Earnings Before Interest, Taxes, Depreciation and Amortization
Expense ("EBITDA") Ratio
Trailing
Twelve
Months to
December 31,
2009
------------
Earnings before interest and taxes ("EBIT") (a) $164.5
Depreciation and amortization expense ("DA") (b) 52.9
----
EBITDA (EBIT excluding DA) (a + b) $217.4
======
Total debt at December 31, 2009 (c) $231.5
======
Total debt to EBITDA ratio ((c / (a + b)) 1.1
===
Reconciliation of EBIT to income from continuing
operations before income taxes:
EBIT per above (non-GAAP) $164.5
Special product quality adjustment 18.3
Items in (gains) losses and other expenses, net
that are excluded from segment profit (10.9)
Impairment of assets 6.4
Restructuring charges 41.5
Other expenses, net 0.1
Interest expense, net 8.2
---
Income from continuing operations before
income taxes (GAAP) $100.9
======
SOURCE Lennox International Inc.