Lennox International Reports First Quarter Results

April 22, 2009
  • Adjusted loss per share from continuing operations of $0.23 and GAAP loss per share from continuing operations of $0.33 in seasonally lowest quarter

  • Generated $16 million in cash from operations and $6 million in free cash flow

  • In weak global market environment, re-setting 2009 revenue guidance from down 8-12% to down 15-19%

  • Re-setting 2009 adjusted EPS from continuing operations guidance from $2.10-$2.50 to $1.65-$2.05; GAAP guidance now $1.38-$1.78

  • Additional cost reduction and operational efficiency measures in progress

DALLAS, April 22 /PRNewswire-FirstCall/ -- Lennox International Inc. (NYSE: LII) today reported financial results for the first quarter of 2009.

Revenue for the first quarter was $585 million, 23% below the prior-year quarter. Excluding the negative impact of foreign exchange, revenue would have been down 18%. Diluted loss per share from continuing operations on an adjusted basis, a non-GAAP measure, was $0.23, compared to $0.11 earnings per share in the year-ago quarter. Diluted loss per share from continuing operations on a GAAP basis was $0.33, compared to $0.11 earnings per share in the year-ago quarter.

"End markets were weak in the first quarter, compounding the effects of our seasonally lightest quarter," said Todd Bluedorn, Chief Executive Officer. "However, cash generation and free cash flow remained strong with a $49 million improvement from a year ago as the company continued to focus on working capital improvements. Our balance sheet and liquidity remain solid, and we continue to invest for the future. Looking ahead, we are entering stronger seasonal periods, although we expect end markets conditions to remain difficult in 2009 and are re-setting our revenue and earnings guidance accordingly. The company is executing on additional operational efficiency and cost reduction initiatives, including a $55 million cut in SG&A and a further 12% salaried headcount reduction in 2009, as we continue to position Lennox to emerge from this economic downturn with strong earnings leverage as end markets recover."

(Note: See attached schedules for financial details, reconciliations of non-GAAP financial measures, and a description of adjusting items.)

FINANCIAL HIGHLIGHTS

Revenue: Revenue for the first quarter was $585 million, 23% below the prior year. Excluding the negative impact of foreign exchange, revenue would have been down 18%. Lower volume across all business segments impacted revenue growth, with offsets from improved price and mix from the year-ago quarter.

Gross Profit: Gross profit for the first quarter was $139 million, down 28% from $194 million in the year-ago quarter. Gross margin was 23.7% compared to 25.3% in the year-ago quarter, primarily due to lower volume.

Loss from Continuing Operations: Adjusted loss from continuing operations in the first quarter was $12.4 million, or $0.23 diluted loss per share, compared to adjusted income of $6.7 million, or $0.11 diluted earnings per share in the first quarter of 2008. On a GAAP basis, loss from continuing operations for the first quarter of 2009 was $18.2 million, or $0.33 diluted loss per share, compared to income of $6.7 million, or $0.11 diluted earnings per share in the prior-year quarter.

Adjusted loss from continuing operations for the first quarter of 2009 excludes the following items (after-tax):

  • $7.5 million charge from restructuring activities.
  • $1.7 million gain from the net change in unrealized gains on open futures contracts.

Free Cash Flow and Total Debt: Net cash provided by operations in the first quarter was $16 million compared to a usage of $33 million in the prior-year quarter. The company invested $10 million in capital assets resulting in free cash flow of $6 million for the quarter, compared to a usage of $42 million in cash in the year-ago quarter. Total debt at the end of March 2009 was $405 million. Total cash, cash equivalents and short-term investments were $134 million, and the current ratio was 1.6.

BUSINESS SEGMENT HIGHLIGHTS

Residential Heating & Cooling

First quarter 2009 revenue from the Residential Heating & Cooling business segment was $246 million, a decrease of 25% from $329 million in the year-ago quarter. Excluding the negative effect of foreign exchange, revenue was down 23%. Segment loss was $5 million and segment loss margin was 1.9%, compared to segment profit of $13 million and segment profit margin of 4.0% a year ago. Results were impacted primarily by lower volume, with offsets from cost reductions and favorable product pricing and mix.

Commercial Heating & Cooling

Revenue in the Commercial Heating & Cooling business segment was $132 million, down 20% from $165 million in the year-ago quarter. Excluding the negative effect of foreign exchange, revenue was down 16%. Total segment profit was $2 million and segment profit margin was 1.5%, compared to segment profit of $6 million and segment profit margin of 3.8% in the year-ago quarter. Results were impacted by lower volume, with offsets from cost reductions and improved product pricing and mix.

Service Experts

Revenue in the Service Experts business segment was $109 million in the first quarter, down 21% from $137 million in the year-ago quarter. Excluding the negative impact of foreign exchange, revenue was down 17%. Segment loss was $8 million and segment loss margin was 7.2%, compared to segment loss of $7 million and segment loss margin of 5.0% in the year-ago quarter. Results were impacted by lower residential volume, with offsets from ongoing cost reductions and operational efficiency initiatives.

Refrigeration

Revenue in the Refrigeration business segment was $114 million in the first quarter, down 27% from $155 million in the prior-year quarter. Excluding the negative impact of foreign exchange, revenue was down 14%. Segment profit was $6 million and segment profit margin was 5.7%, compared to segment profit of $15 million and segment profit margin of 9.6% in the first quarter a year ago. Results were impacted by lower volume, especially in international markets, with offsets from gains in supermarket replacement business, cost reductions, and overall product pricing versus a year ago.

FULL-YEAR OUTLOOK

Faced with weaker end markets and economic conditions globally, the company is re-setting its financial guidance for 2009.

  • Reducing 2009 revenue guidance to a range of down 15-19%, including a negative 4 point impact from foreign exchange, versus the previous range of down 8-12%, including a negative 5 point impact from foreign exchange.
  • Reducing 2009 adjusted EPS guidance from continuing operations to a range of $1.65-$2.05 versus the previous range of $2.10-$2.50.
  • GAAP earnings per share guidance from continuing operations for 2009 is now $1.38-$1.78 versus the previous target of $1.91-$2.31, reflecting the full-year impact of $5.4 million after tax of additional restructuring charges from projects announced in the first quarter.
  • Corporate expense guidance remains approximately $60 million for 2009.
  • Lowering 2009 capital spending guidance to approximately $75 million compared to previous guidance of $80 million.

CONFERENCE CALL INFORMATION

A conference call to discuss the company's first quarter results will be held this morning at 8:00 a.m. (Central). To listen, please call the conference call line at 612-332-0802 at least 10 minutes prior to the scheduled start time and use reservation number 994559. This conference call will also be webcast on Lennox International's web site at http://www.lennoxinternational.com.

A replay will be available from 10:30 a.m. (Central) on April 22 through April 29 by dialing 800-475-6701 (US) or 320-365-3844 (International) and using access code 994559. This call will also be archived on the company's web site.

Through its subsidiaries, 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 2009, 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. These risks and uncertainties 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 that could cause actual results to differ materially from such statements. 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
               For the Quarters Ended March 31, 2009 and 2008
              (Unaudited, in millions, except per share data)

                                                            For the
                                                         Quarters Ended
                                                           March 31,
                                                         --------------
                                                      2009           2008
                                                     -----          -----

    NET SALES                                       $585.4         $764.5
    COST OF GOODS SOLD                               446.7          570.8
                                                     -----          -----
           Gross profit                              138.7          193.7
    OPERATING EXPENSES:
      Selling, general and
       administrative expenses                       156.8          184.0
      Gains and other expenses, net                   (0.8)          (3.4)
      Restructuring charges                           11.2            2.8
      Income from equity method
       investments                                    (1.3)          (3.1)
                                                      ----           ----
           Operational (loss) income from
            continuing operations                    (27.2)          13.4
    INTEREST EXPENSE, net                              1.7            2.7
                                                       ---            ---
           (Loss) income from continuing
             operations before income taxes          (28.9)          10.7
    (BENEFIT FROM) PROVISION FOR
     INCOME TAXES                                    (10.7)           4.0
                                                     -----            ---
           (Loss) income from continuing
            operations                               (18.2)           6.7
    DISCONTINUED OPERATIONS:
      (Income) loss from discontinued
       operations                                     (0.2)           0.7
      Income tax provision (benefit)                   0.1           (0.3)
                                                       ---           ----
         (Income) loss from discontinued
          operations                                  (0.1)           0.4
                                                      ----            ---
           Net (loss) income                        $(18.1)          $6.3
                                                    ======           ====

    (LOSS) EARNINGS PER SHARE - BASIC:
      (Loss) income from continuing
       operations                                   $(0.33)         $0.11
      Income (loss) from discontinued
       operations                                        -          (0.01)
                                                       ---          -----
           Net (loss) income                        $(0.33)         $0.10
                                                    ======          =====

    (LOSS) EARNINGS PER SHARE -
     DILUTED:
      (Loss) income from continuing
       operations                                   $(0.33)         $0.11
      Income (loss) from discontinued
       operations                                        -          (0.01)
                                                       ---          -----
           Net (loss) income                        $(0.33)         $0.10
                                                    ======           ====

    AVERAGE SHARES OUTSTANDING:
      Basic                                           55.2           60.3
      Diluted                                         55.2           62.7

    CASH DIVIDENDS DECLARED PER SHARE                $0.14          $0.14


                LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

                     SEGMENT NET SALES AND (LOSS) PROFIT
              For the Quarters Ended March 31, 2009 and 2008
                         (Unaudited, in millions)

                                                             For the
                                                         Quarters Ended
                                                             March 31,
                                                         ---------------
                                                        2009          2008
                                                       -----         -----
    Net Sales
      Residential Heating & Cooling                   $246.3        $329.2
      Commercial Heating & Cooling                     131.5         165.2
      Service Experts                                  109.2         137.5
      Refrigeration                                    113.7         154.8
      Eliminations (A)                                 (15.3)        (22.2)
                                                       -----         -----
                                                      $585.4        $764.5
                                                      ======        ======

    Segment (Loss) Profit (B)
      Residential Heating & Cooling                    $(4.8)        $13.2
      Commercial Heating & Cooling                       2.0           6.2
      Service Experts                                   (7.9)         (6.9)
      Refrigeration                                      6.5          14.8
      Corporate and other                              (13.9)        (12.2)
      Eliminations (A)                                  (0.4)         (1.7)
                                                        ----          ----
      Subtotal that includes segment (loss) profit
       and eliminations                                (18.5)         13.4
      Reconciliation to (loss) income from
       continuing operations before income taxes:
        Gains and other expenses, net of gain on sale
         of fixed assets                                (0.8)         (3.3)
        Restructuring charges                           11.2           2.8
        Interest expense, net                            1.7           2.7

        Less: Realized (losses) gains on settled
         futures contracts                              (1.9)          0.4
        Less: Foreign currency exchange gains            0.2           0.1
                                                         ---           ---
                                                      $(28.9)        $10.7
                                                      ======         =====


    (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:
                -- Gains and/or losses and other expenses, net except for
                   gains and/or losses on the sale of fixed assets.
                -- Restructuring charges.
                -- Goodwill and equity method investment impairments.
                -- Interest expense, net.
                -- Other expense, net.
                Less amounts included in Gains and Other Expenses, net:
                   -- Realized gains and/or losses on settled futures
                      contracts.
                   -- Foreign currency exchange gains and/or losses.



                  LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

                        CONSOLIDATED BALANCE SHEETS
                 As of March 31, 2009 and December 31, 2008
               (In millions, except share and per share data)

                                                   March 31,   December 31,
                                                     2009         2008
                                                  -----------  ------------
                                                  (Unaudited)
                               ASSETS
    CURRENT ASSETS:
      Cash and cash equivalents                     $101.9       $122.1
      Short-term investments                          32.3         33.4
      Accounts and notes receivable, net             334.5        369.6
      Inventories, net                               321.1        298.3
      Deferred income taxes                           18.5         24.2
      Other assets                                    80.4         87.4
                                                      ----         ----
          Total current assets                       888.7        935.0
    PROPERTY, PLANT AND EQUIPMENT, net               324.3        329.5
    GOODWILL, net                                    229.4        232.3
    DEFERRED INCOME TAXES                            105.0        113.5
    OTHER ASSETS                                      51.2         49.2
                                                      ----         ----
          TOTAL ASSETS                            $1,598.6     $1,659.5
                                                  ========     ========

                   LIABILITIES AND STOCKHOLDERS' EQUITY
    CURRENT LIABILITIES:
      Short-term debt                                 $8.3         $6.1
      Current maturities of long-term debt             0.4          0.6
      Accounts payable                               258.2        234.5
      Accrued expenses                               291.9        331.1
      Income taxes payable                               -          3.7
                                                       ---          ---
          Total current liabilities                  558.8        576.0
    LONG-TERM DEBT                                   396.4        413.7
    POSTRETIREMENT BENEFITS, OTHER THAN
     PENSIONS                                         12.3         12.5
    PENSIONS                                         110.8        107.7
    OTHER LIABILITIES                                 88.3         91.0
                                                      ----         ----
          Total liabilities                        1,166.6      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,
       84,856,990 shares and 84,215,904
       shares issued for 2009
       and 2008, respectively                          0.8          0.8
      Additional paid-in capital                     808.0        805.6
      Retained earnings                              512.9        538.8
      Accumulated other comprehensive
       loss                                          (99.3)       (98.8)
      Treasury stock, at cost, 29,210,131
       shares and 29,109,058 shares for
       2009 and 2008, respectively                  (790.4)      (787.8)
                                                    ------       ------
          Total stockholders' equity                 432.0        458.6
                                                     -----        -----
          TOTAL LIABILITIES AND STOCKHOLDERS'
           EQUITY                                 $1,598.6     $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 Loss From Continuing Operations to Adjusted Loss From
                              Continuing Operations

                                  For the Quarter Ended March 31, 2009
                                  ------------------------------------
                                        Net Change
                                           in
                                       Unrealized
                                        Gains on
                                          Open
                               As        Futures     Restructuring      As
                            Reported    Contracts      Charges       Adjusted
                            --------   ----------    ------------   ---------

    NET SALES                 $585.4            $-             $-     $585.4
    COST OF GOODS SOLD         446.7             -              -      446.7
                               -----           ---            ---      -----
            Gross profit       138.7             -              -      138.7
    OPERATING EXPENSES:
        Selling, general
         and administrative
         expenses              156.8             -              -      156.8

        (Gains) losses and
         other expenses,
         net (1)                (0.8)          2.7              -        1.9
        Restructuring charges   11.2             -          (11.2)         -
        Income from equity
         method investments     (1.3)            -              -       (1.3)
                               -----           ---            ---      -----
            Operational
             (loss) income
             from continuing
             operations        (27.2)         (2.7)          11.2      (18.7)
    INTEREST EXPENSE, net        1.7             -              -        1.7
                                 ---           ---            ---        ---
            (Loss) income
             from continuing
             operations before
             income taxes      (28.9)         (2.7)          11.2      (20.4)
    (BENEFIT FROM)
     PROVISION FOR
      INCOME TAXES             (10.7)         (1.0)           3.7       (8.0)
                               ------         -----           ---       -----
            (Loss) income
             from continuing
             operations       $(18.2)        $(1.7)          $7.5     $(12.4)
                             =======        ======           ====    =======

    (LOSS) EARNINGS
     PER SHARE FROM
     CONTINUING OPERATIONS
     - DILUTED                $(0.33)       $(0.04)         $0.14     $(0.23)
                             =======       =======          =====    =======

    Note:  Management uses adjusted (loss) income from continuing operations,
    which is not defined by U.S. GAAP, to measure the Company's operating
    performance and to analyze period-over-period changes in operating income
    with and without the effects of certain (gains) losses and other expenses,
    net and restructuring charges.  Management believes that excluding these
    effects is helpful in assessing the overall performance of the Company.


    (1) (Gains) losses and other expenses, net include the following:

                                  For the Quarter Ended March 31, 2009
                                  ------------------------------------
                                  Pre-tax       Tax (Benefit)     After-tax
                                 Loss (Gain)     Provision       Loss (Gain)
                                 -----------     ---------       ----------
    Realized losses on settled
     futures contracts                 $1.9         $(0.7)          $1.2
    Net change in unrealized
     gains on open futures
     contracts                         (2.7)          1.0           (1.7)
    Foreign currency exchange
     gain                              (0.2)          0.1           (0.1)
    Discount fee on accounts
     sold                               0.2          (0.1)           0.1
                                        ---         -----            ---
    (Gains) losses and other
     expenses, net                    $(0.8)         $0.3          $(0.5)
                                     ======        ======          =====



                                    For the Quarter Ended March 31, 2008
                                    ------------------------------------
                                       Net Change
                                           in
                                       Unrealized
                                        Gains on
                                          Open
                               As        Futures     Restructuring      As
                            Reported    Contracts      Charges       Adjusted
                            --------    ----------     -------       ---------

    NET SALES                 $764.5           $-        $-           $764.5
    COST OF GOODS SOLD         570.8            -         -            570.8
                               -----          ---       ---            -----
             Gross profit      193.7            -         -            193.7
    OPERATING EXPENSES:
        Selling, general
         and administrative
         expenses              184.0            -         -            184.0
        (Gains) losses
         and other
         expenses, net (2)      (3.4)         2.8         -             (0.6)
        Restructuring charges    2.8            -      (2.8)               -
        Income from equity
         method investments     (3.1)           -         -             (3.1)
                                ----          ---       ---             ----
             Operational
              income (loss)
              from continuing
              operations        13.4         (2.8)      2.8             13.4
    INTEREST EXPENSE, net        2.7            -         -              2.7
                                 ---          ---       ---              ---
             Income (loss)
              from continuing
              operations before
              income taxes      10.7         (2.8)      2.8             10.7
    PROVISION FOR
     (BENEFIT FROM)
     INCOME TAXES                4.0         (1.0)      1.0              4.0
                                 ---         ----       ---              ---
             Income (loss)
              from continuing
              operations        $6.7        $(1.8)     $1.8             $6.7
                                ====        =====      ====             ====

    EARNINGS (LOSS)
     PER SHARE FROM
     CONTINUING OPERATIONS
     - DILUTED                 $0.11       $(0.03)    $0.03            $0.11
                               =====       ======     =====            =====


    (2) (Gains) losses and other expenses, net include the following:

                                      For the Quarter Ended March 31, 2008
                                      ------------------------------------
                                     Pre-tax        Tax          After-tax
                                      Gain       Provision          Gain
                                      ----       ---------          ----
    Realized gains on settled
     futures contracts                $(0.4)         $0.2          $(0.2)
    Net change in unrealized
     gains on open futures
     contracts                         (2.8)          1.0           (1.8)
    Gain on disposal of fixed
     assets, net                       (0.1)            -           (0.1)
    Foreign currency exchange
     gain                              (0.1)            -           (0.1)
                                      -----           ---          -----
    (Gains) losses and other
     expenses, net                    $(3.4)         $1.2          $(2.2)
                                     ======        ======         ======


    Reconciliation of Estimated Adjusted to GAAP Income per Share from
    Continuing Operations - Diluted

                                                           For the Year
                                                             Ended
                                                           December 31,
                                                              2009
                                                            ESTIMATED
                                                            ---------
    Adjusted income per share from continuing operations
     - diluted                                             $1.65 - $2.05
    Restructuring charges                                     (0.33)
    Net change in unrealized gains on open futures
     contracts                                                 0.06
                                                               ----
    GAAP income per share from continuing operations -
     Diluted                                               $1.38 - $1.78
                                                           =============


    Free Cash Flow
                                         For the Quarter     For the Quarter
                                             Ended               Ended
                                         March 31, 2009      March 31, 2008
                                         --------------      --------------
    Net cash provided by (used in)
     operating activities                     $16.3             $(32.6)
    Purchase of property, plant and
     equipment                                 (9.9)              (9.8)
                                              -----              -----
    Free cash flow                             $6.4             $(42.4)
                                               ====            =======



    Operational Working Capital
                                              March 31,             March 31,
                                                2009                 2008
                                              Trailing              Trailing
                                    March 31,   12 Mo.    March 31,  12 Mo.
                                       2009      Avg.      2008       Avg.
                                    --------- ---------   --------- --------
    Accounts and Notes
     Receivable, Net                  $334.5              $490.4
      Asset Securitization              30.0                   -
      Allowance for Doubtful Accounts   19.3                19.1
                                        ----                ----
    Accounts and Notes
     Receivable, Gross                 383.8    $497.6     509.5    $578.9

    Inventories                        321.1               379.1
      Excess of Current
       Cost Over Last-in,
       First-out                        75.1                73.0
                                        ----                ----
    Inventories as Adjusted            396.2     419.7     452.1     442.4

    Accounts Payable                 (258.2)   (308.3)   (329.9)   (336.7)
                                     ------    ------    ------    ------
    Operating Working
     Capital (a)                       521.8     609.0     631.7     684.6
                                       =====     =====     =====     =====
    Net Sales, Trailing
     Twelve Months (b)               3,302.3   3,302.3   3,711.4   3,711.4
                                     -------   -------   -------   -------
    Operational Working
     Capital Ratio (a/b)               15.8%     18.4%     17.0%     18.4%
                                       =====     =====     =====     =====

    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
                                                       March 31, 2009
                                                      ---------------
    Earnings before interest and taxes ("EBIT") (a)         $233.0
    Depreciation and amortization expense ("DA") (b)          50.7
                                                            ------
    EBITDA (EBIT excluding DA) (a + b)                      $283.7
                                                            ======
    Total debt at March 31, 2009 (c)                        $405.1
                                                            ======
    Total debt to EBITDA ratio ((c / (a + b))                  1.4
                                                            ======

    Reconciliation of EBIT to income from continuing
     operations before income taxes:
    EBIT per above (non-GAAP)                               $233.0
    Losses and other expenses, net of gain on sale of
     fixed assets                                              5.5
    Impairment of equity method investment                     9.1
    Restructuring charges                                     38.8
    Other expense, net                                         0.1
    Interest expense, net                                     12.7
                                                            ------
       Subtotal                                              166.8
    Less:  Realized losses on settled futures contracts       (3.2)
    Less:  Foreign currency exchange gains                     3.3
                                                            ------
       Income from continuing operations before
        income taxes (GAAP)                                 $166.7
                                                            ======

SOURCE: Lennox International Inc.

CONTACT:
Steve Harrison, Vice President, Investor Relations of Lennox International Inc.
+1-972-497-6670

Web Site:
http://www.lennoxinternational.com/