Lennox International Reports Third Quarter Earnings
DALLAS, Oct. 24 /PRNewswire/ -- Lennox International Inc. (NYSE: LII) announced earnings for third quarter 2000 today. Total company sales for third quarter 2000 increased 28% to $858 million, up from $669 million in third quarter 1999. Company-wide organic sales, after adjusting for sales to company-owned dealers and currency fluctuations, declined 3%. Revenues outside of the U.S. and Canada, adjusted for currency fluctuations, declined by 1% in the quarter, representing 12% of total corporate sales.
"Our North American residential products and retail business segments, which account for over two-thirds of our corporate revenues, were significantly influenced by unfavorable weather in the northeast, midwest, and much of Canada," said John Norris, chairman and CEO. "Also, operational and integration issues in our retail and hearth products operations further reduced our Q3 results. As we indicated in our last conference call, we have put in place aggressive cost control measures to help offset the impact."
Quarterly operating income for the consolidated company declined by 35% from $55 million in third quarter 1999 to $36 million. EBITDA in third quarter was $58 million, a 16% decrease from EBITDA in the same period a year ago.
Net income for the third quarter declined 55% to $12 million from $27 million in 1999, due in part to higher interest expenses of almost $5 million from increased borrowing to fund acquisitions. Diluted earnings per share, before one-time pre-tax charges of $5.1 million associated with closing two small commercial air conditioning operations in Latin America, were $0.27. The pro forma calculation, assuming a January 1 initial public offering (IPO), shows earnings per share at $0.61 for the same quarter last year.
Business segments highlights
North American residential: Revenues declined 6% in the third quarter to $308 million. Segment operating income for the quarter decreased 45% to $23.7 million from $42.8 million last year, with operating margins declining to 7.7% from 13.0% in third quarter 1999. "Unfavorable weather reduced the stress on existing air-conditioning equipment, which depressed equipment sales and reduced demand for profitable add-on air conditioning in those markets where air conditioning is a discretionary purchase," said Clyde Wyant, CFO. Over 50% of the company's residential equipment sales are concentrated in areas which experienced an unusually cool summer, he said. Also contributing to the margin decline were soft sales in the company's hearth products business due to declining housing starts and delays in realizing synergies from the individual hearth operations that were acquired in the past 24 months.
North American retail: Revenues were $289 million. Over 40% of retail revenues come from regions that had unusually cool summers, which resulted in decreased demand for equipment repair service. Segment operating income was $11.8 million for the quarter, with operating margins of 4.1%. "The dramatic growth we have achieved through acquisition in the past 12 months distorts year-over-year comparisons," Wyant said.
Worldwide commercial air conditioning: Revenue increased by 7% to $136 million. Adjusting for currency exchange, sales in the quarter grew 11% year-over-year. Segment operating income was $6.0 million, a 17% gain over last year's $5.1 million. Operating margins were up to 4.4% from 4.0% in 1999's third quarter. "Domestic performance was particularly strong, achieving organic growth of 15% in the quarter and a 200 basis point improvement in operating margins, more than offsetting weaknesses in our European operations," Wyant noted.
Worldwide commercial refrigeration: "Over half of our worldwide commercial refrigeration revenues come from outside the U.S. and Canada, making it the business segment most impacted by currency fluctuations," said Wyant. Segment revenue declined by 6% to $89 million, but was flat when adjusted for foreign exchange. Segment operating income was $9.2 million compared with $9.9 million last year. When adjusted for foreign exchange, operating income increased 8% to $10.7 million, with operating margins expanding to 11.3% from 10.5%. "The margin improvement was primarily driven by continued improvement in the profitability of our domestic refrigeration business," Wyant explained.
Worldwide heat transfer: Sales increased 1% to $62 million. Adjusted for foreign exchange, sales were up 4%. Segment operating income increased 24% to $3.5 million, with operating margins for the quarter expanding 100 basis points to 5.7% in 2000.
Outlook
"With the growth in distributor inventories that has resulted from the unfavorable weather, we believe we will feel the effects of the weather-related industry slowdown through the rest of 2000 and possibly into the early part of 2001," said Bob Schjerven, COO. "As mentioned in our previous conference call, our diluted EPS for the full year 2000 could be as low as $1.05."
Schjerven noted that focus in 2001 will be on improving the profitability of acquired businesses, rather than sales growth. "We project softness in many of our end markets and anticipate that our total corporate revenue growth will be in the low single digits," he said. "We anticipate EPS growth in 2001 will be in excess of 25%. However, we project the bulk of the improvement will be in the second half of the year due to the seasonality of our business, lagging effects of this year's industry slowdown, and our timetable for realizing operating improvements in our acquired businesses." Schjerven noted the company anticipates earnings in the first quarter of 2001 could be break-even, and year-over-year quarterly EPS comparisons will not be favorable until the second quarter of 2001
Focus on free cash flow generation has been increased, Schjerven said. "We expect free cash flow to be approximately $100 million in 2001," he noted. He said Lennox will mainly use the cash generated next year to retire long-term debt, reducing interest expenses and deleveraging the balance sheet.
"Lennox is focused on executing programs to realize the improvements that will bring our profitability and cash flow up to satisfactory levels," said CEO Norris. "We are dealing aggressively with the issues under our control, and look forward to improvement in 2001."
Lennox International has scheduled a conference call to discuss financial results for the third quarter of 2000 at 9:30 Central Time on Wednesday, October 25. All interested parties are invited to listen to this call. To listen, please call the conference call line at 612-332-0632 or 612-332-0637 ten minutes prior to the scheduled start time and use reservation number 543261. The number of connections for this call is limited to 200.
This conference call will also be broadcast on the Internet. A link to a live broadcast of the call on the Internet can be found on the company's web site at http://www.lennoxinternational.com, or the call can be accessed through Vcall's web site at http://www.vcall.com. A replay of the call will be available on the Internet through November 1.
Selling heating, ventilation, air conditioning, and refrigeration equipment in over 70 countries, Lennox International Inc. is a global leader in climate control solutions. Lennox operates in five key business segments: North American residential, North American retail, worldwide commercial refrigeration, worldwide commercial air conditioning, and worldwide heat transfer. Lennox International stock is traded on the New York Stock Exchange under the symbol "LII". Additional information is available at: 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 and Nine Months Ended September 30, 2000 and 1999
(Unaudited, in thousands, except per share data)
For the For the
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
NET SALES $857,618 $669,053 $2,468,142 $1,749,953
COST OF GOODS SOLD 583,613 456,611 1,667,042 1,199,611
Gross Profit 274,005 212,442 801,100 550,342
OPERATING EXPENSES:
Selling, general
and administrative 238,276 157,813 672,164 429,015
Income from
operations 35,729 54,629 128,936 121,327
INTEREST EXPENSE, net 13,968 9,093 41,960 24,193
OTHER 497 378 1,243 (403)
MINORITY INTEREST 88 832 (427) 212
Income before income
taxes 21,176 44,326 86,160 97,325
PROVISION FOR INCOME
TAXES 8,790 17,042 35,757 39,840
Net income $ 12,386 $ 27,284 $50,403 $57,485
REPORTED EARNINGS PER
SHARE(A):
Basic $0.22 $0.65 $0.90 $1.52
Diluted $0.22 $0.64 $0.89 $1.48
DILUTED EARNINGS PER
SHARE BEFORE
RESTRUCTURING (B) $0.27 $0.64 $0.94 $1.48
PRO FORMA EARNINGS PER
SHARE (C):
Diluted $0.22 $0.61 $0.89 $1.34
(A) 8,088,490 additional shares issued in Lennox IPO August 3, 1999
(B) Excludes restructuring charges ($5.1 million pre-tax, $2.8 million
after-tax)
(C) Pro forma EPS assumes IPO occurred January 1, each fiscal year.
(Interest expense, income tax, and number of shares have been
adjusted.)
For the For the
Three Months ended Nine Months Ended
September 30, September 30,
Net Sales 2000 1999 2000 1999
North American
residential $308,370 $328,173 $954,040 $917,257
North American retail 288,817 66,067 772,283 109,788
Commercial air
conditioning 136,368 127,922 354,390 337,985
Commercial
refrigeration 88,795 94,176 273,975 238,351
Heat transfer 61,640 60,847 191,421 164,206
Eliminations (26,372) (8,132) (77,967) (17,634)
$857,618 $669,053 $2,468,142 $1,749,953
For the For the
Three Months Ended Nine Months Ended
September 30, September 30,
Income (Loss) from
Operations 2000 1999 2000 1999
North American
residential $23,663 $42,824 $86,631 $105,812
North American retail 11,822 3,698 36,482 6,174
Commercial air
conditioning 6,015 5,138 7,695 6,285
Commercial
refrigeration 9,216 9,925 24,711 19,095
Heat transfer 3,525 2,851 12,792 10,308
Corporate and
other (A) (16,283) (8,075) (34,223) (23,802)
Eliminations (2,229) (1,732) (5,152) (2,545)
$35,729 $54,629 $128,936 $121,327
(A) Includes $5.1 million for closing operations in Mexico and Argentina.
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of September 30, 2000 and December 31, 1999
(In thousands, except share data)
ASSETS
September 30, December 31,
2000 1999
(unaudited)
CURRENT ASSETS:
Cash and cash
equivalents $45,473 $29,174
Accounts and notes
receivable, net 475,360 443,107
Inventories 380,427 345,424
Deferred income
taxes 36,551 25,367
Other assets 43,783 44,526
Total current
assets 981,594 887,598
INVESTMENTS IN JOINT
VENTURES 12,264 12,434
PROPERTY, PLANT AND
EQUIPMENT, net 355,642 329,966
GOODWILL, net 676,618 394,252
OTHER ASSETS 53,697 59,423
TOTAL ASSETS $2,079,815 $1,683,673
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt $30,645 $22,219
Current maturities
of long-term debt 37,763 34,554
Accounts payable 241,597 196,143
Accrued expenses 258,155 200,221
Income taxes payable 8,406 9,859
Total current
liabilities 576,566 462,996
LONG-TERM DEBT 670,233 520,276
DEFERRED INCOME TAXES 500 928
POSTRETIREMENT
BENEFITS, OTHER THAN
PENSIONS 14,725 15,125
OTHER LIABILITIES 73,377 72,377
Total
liabilities 1,335,401 1,071,702
MINORITY INTEREST 2,010 14,075
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,
59,719,869 shares and
46,161,607 shares
issued for 2000 and
1999, respectively 597 462
Additional paid-in
capital 367,442 215,523
Retained earnings 443,993 409,851
Accumulated other
comprehensive loss (41,928) (12,706)
Deferred
compensation (3,400) (2,848)
Treasury stock, at
cost, 2,474,784 and
1,172,200 shares
for 2000 and 1999
respectively (24,300) (12,386)
Total stockholders'
equity 742,404 597,896
TOTAL LIABILITIES
AND
STOCKHOLDERS'
EQUITY $2,079,815 $1,683,673
SOURCE Lennox International Inc.
Web site: http: //www.vcall.com 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