Lennox International's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Lennox International Inc. (LII)

Q1 2012 Earnings Call

April 24, 2012 9:30 am ET

Executives

Steve Harrison - VP, IR

Todd Bluedorn - CEO

Bob Hau - CFO

Analysts

Jeff Hammond - KeyBanc Capital Markets

Josh Pokrzywinski - MKM Partners

Adam Samuelson - Goldman Sachs

Keith Hughes - SunTrust

Rich Kwas - Wells Fargo Securities

Rob Wertheimer - Vertical Research Partners

Steve Tusa - JPMorgan

Presentation

Operator

Welcome to the Lennox International Q1 2012 earnings conference call. (Operator Instructions) I would now like to turn the conference over to Steve Harrison, Vice President of Investor Relations.

Steve Harrison

Good morning. Thank you for joining us for this review of Lennox International's financial performance for the first quarter of 2012. I'm here today with Todd Bluedorn, CEO; and Bob Hau, CFO. Todd will review the key points on the quarter and Bob will take you through the company's financial performance.

In the earnings release we issued this morning, we have included the necessary reconciliation of the financial metrics that will be discussed to GAAP measures. You can find a direct link to the webcast of today's conference call on our website at www.lennoxinternational.com. We will archive the webcast on that site and make it available for replay.

I would like to remind everyone that in the course of this call to give you a better understanding of our operations, we will be making certain forward-looking statements. 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 International's publicly available filings with the SEC. 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.

Now, let me turn the call over to CEO Todd Bluedorn.

Todd Bluedorn

Thanks Steve. Good morning and thank you everyone for joining us. Let me take it through a few key points on the first quarter and then Bob will discuss the financial results more detail and the outlook.

Total company revenue in the quarter was up 2%, led by 7% growth in our residential business. Volume and price mix were both up for the company overall. We continue to closely manage cost with SG&A down 3% from the prior-year quarter. Total segment profit margin was up 50 basis points. Adjusted EPS from continuing operations was $0.01 versus a $0.04 loss in the prior-year quarter. This is adjusted for discontinued operations from the planned sale of our Hearth business.

First quarter 2012 adjusted EPS from continuing operations had a $0.03 benefit from the movement of the Hearth business to discontinued operations. First quarter 2011 had a $0.07 benefit from this move. So Hearth had not been moved to discontinued operations, we would have reported a $0.02 loss for adjusted EPS on continuing operations versus the $0.11 loss in the prior-year quarter.

On our website we have posted revised 2011 quarterly and annual earning statements, which show the effect of the removal of the Hearth business on the company's 2011 results. On a GAAP basis for the first quarter of 2012, the loss per share from continuing operations was $0.01 versus a loss of $0.06 in prior-year quarter.

Residential business had strong execution in the first quarter, driving 7% revenue growth and 230 basis points of margin expansion in the business. Residential segment profit was up 150%. Revenue from residential new construction HVAC equipment was up more than 40% in the quarter. Revenue from replacement equipment was up high-single digits.

The first quarter got up to a relatively slow start in January and February due to warm weather, but then seasonally warm weather in March led to an early start to the cooling season and a strong finish to the first quarter.

Our 22 shipments were up a couple of points from the first quarter of last year and were high-single digits as a percent of total cooling shipments. As we enter the summer months, we're still planning for R-22 to be about 25% of the cooling product shipment, up about 5 points from last summer. We still expect R-22 to be a mix headwind to operating profit of about $50 million in 2012.

Overall, it was a nice quarter for residential, but looking ahead some cautions are in order. The first quarter is a very seasonally light period for us and the industry, and start to draw conclusions as the business transitions more to cooling products for the key summer selling season. April is off to a solid start and it seem warm weather in some key regions, but the critical months are May and especially June for the second quarter overall.

Turning to our commercial business, revenue was flat in constant currency with segment margin up 10 basis points. As we mentioned in last earnings call, the timing of growth in our national account business in 2012 would be beyond the first quarter. Backlog and order rates look good and we continue to expect a solid year in our commercial business.

On the national account front, we signed up nine new accounts on top of the 20 last year to bring our total to 104 new national accounts won since the start of 2007. In Europe, revenue was up low-single digits at constant currency.

Turning to service experts, revenue was down 13% on weakness in the residential business. Commercial service revenue saw strong growth and continued success with national account customers. Refrigeration revenue was up 6% in the first quarter about half of that rate on an organic basis.

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