Lennox International Reports 19% Increase in Second Quarter 2003 Net Income;
Sixth Straight Quarter of Operating Profitability Improvement
Sixth Straight Quarter of Operating Profitability Improvement
DALLAS, July 22 /PRNewswire-FirstCall/ -- Lennox International Inc. (NYSE: LII) announced second quarter 2003 diluted earnings per share (EPS) of $0.51 versus $0.43 for the same quarter in 2002.
(Logo: http://www.newscom.com/cgi-bin/prnh/20020304/DAM053LOGO )
Sales decreased 1% to $819 million from $828 million in last year's second quarter. In constant currencies and adjusting for the loss of $49 million in heat transfer revenues -- most of which are now part of the company's joint venture with Outokumpu and no longer reported by LII -- total sales were up 2%. Sales outside the U.S. and Canada generated 13% of total LII revenues.
Quarterly operating income was $56 million, up 10% from last year's $51 million. The second quarter 2002 included $1 million in pre-tax restructuring charges related to programs announced in 2001, while a pre-tax charge of $0.1 million for gains, losses and other expenses was recorded in the second quarter 2003. Adjusting for these items, operating income increased 7% year-over-year, the company's sixth straight quarter of year- over-year improvement in operating profitability.
Net income was $30 million, up 19% from $26 million in the same period last year. Diluted earnings per share were $0.51 compared with $0.43 in second quarter 2002. When adjusted for gains, losses and other expenses, and restructuring charges, net income grew 12%. On the same basis EPS increased to $0.50 in second quarter 2003, versus $0.45 the prior year.
As of June 30, 2003, LII's total debt was $390 million, down $121 million from a year ago. Total debt to capitalization was 42.2%, comparing very favorably with 53.2% a year ago. Free cash flow in the second quarter was a usage of $21 million, bringing the year-to-date figure to a usage of $73 million. Due to the seasonal nature of many of the company's businesses, it is typical for LII to use free cash flow in the first half of the year and generate free cash flow in the second half. Operational working capital ratio improved significantly to 19.2% from 21.1% last year. At the end of second quarter, inventories were down 10%, or $29 million, from 2002.
"I'm very pleased to report our sixth straight quarter of year-over-year improvement in operating performance, despite difficult market conditions," said Bob Schjerven, chief executive officer. "And our progress was not limited to the profitability reported on our income statement and the strengthening of our balance sheet. We continue to execute the initiatives necessary to position Lennox International for profitable growth."
The tables following the text in this news release provide description and financial detail, and reconcile the information provided to U.S. Generally Accepted Accounting Principles (GAAP) measures.
Business segment highlights:
Heating & Cooling: LII's Heating & Cooling business revenues rose 10% to $509 million, despite reduced industry shipments and unfavorable weather in many key markets. Adjusting for fluctuations in exchange rates, sales were up 7%. Segment operating income increased 32% to $55 million from $42 million last year and operating margins expanded 180 basis points to 10.8% from 9.0% last year.
Residential heating & cooling revenues grew 8% in the second quarter to $377 million, with sales up 7% adjusting for foreign exchange. Sales increases were achieved by all of the company's home comfort equipment brands, including hearth products. Segment operating income increased 27% for the quarter to $46 million from $36 million last year. Operating margins expanded 180 basis points to 12.2% through higher volumes; a favorable mix of recently introduced, higher margin premium product; and improved hearth products performance. This improvement continued to be partially offset by margin pressure in LII's residential new construction business.
Commercial heating & cooling revenues rose 15% to $132 million, up 8% when adjusted for currency fluctuations. Segment operating profit jumped 59% to $9 million, with operating margins increasing to 6.9% from 5.0% last year. Higher volumes, increased factory productivity, and the benefits of paring back underperforming international operations more than offset expenses associated with closing a plant in Europe. Production at that plant ceased at the end of the second quarter, with volume relocated to other LII facilities.
Service Experts: Revenues declined 3% to $243 million, or 5% adjusting for currency exchange. As with the first quarter 2003, the sales decline was attributable entirely to the company's commercial new construction business. Year-over-year sales in the service and replacement businesses and in the residential new construction business grew modestly for the second straight quarter. Lower margins in the new construction businesses, higher insurance expenses, and increased investment in advertising reduced segment operating profit to $8 million from $16 million last year. Operating margins for the quarter were 3.1%, compared with 6.3% last year.
"While the market environment for Service Experts is extremely challenging -- especially given soft end market demand for replacement sales and stiff price competition in the new construction sector -- we continue to implement key initiatives to improve profitability," Schjerven said. "We continue to see the profit and growth potential of this business, and we're confident the actions we have underway, including the new management announced two weeks ago, are beginning to pay off in improved performance."
Refrigeration: Demand for commercial refrigeration products from retail customers, notably supermarkets, was depressed in both domestic and international markets. In this difficult environment, segment revenues were up 5% at $97 million, down 3% when adjusted for currency exchange. Segment operating income was flat at $9 million, with operating margins declining 50 basis points to 9.2%. Improved factory performance and diligent cost control partially offset the impact of lower foreign exchange-adjusted revenues.
Business outlook
With no clear evidence of a sustained commercial market recovery in the back half of the year, and assuming normalized weather patterns, the company continues to expect revenues to be relatively flat for full-year 2003.
"We're very pleased with the operating improvements we realized in the first half of this year in our heating & cooling and refrigeration businesses, and we're confident this trend will continue," said Bob Schjerven. "Combining that success with our anticipation of a modest improvement in Service Experts profitability in the last half of the year, we are very confident in reaffirming our guidance for full-year 2003 EPS in the range of $1.10 to $1.20." The company continues to expect free cash flow will be approximately equal to net income for the full year.
A conference call to discuss the company's second quarter 2003 results will be held on Wednesday, July 23 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 operating results.
To listen, please call the conference call line at 612-326-1019 ten minutes prior to the scheduled start time and use reservation number 690588. The number of connections for this call is limited to 200.
This conference call will be broadcast live on the Internet and can be accessed at http://www.firstcallevents.com/service/ajwz384302093gf12.html . 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 from 1:00 p.m. July 23 through July 30, 2003 by dialing 800-475-6701, access code 690588. This call will also be archived on the company's web site.
A Fortune 500 company operating in over 100 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, Vice President, 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 OPERATIONS
For the Three Months and Six Months Ended June 30, 2003 and 2002
(Unaudited, in millions, except per share data)
For the For the
Three Months Ended Six Months Ended
June 30, June 30,
2003 2002 2003 2002
NET SALES $819.2 $828.3 $1,469.0 $1,502.6
COST OF GOODS SOLD 541.0 560.1 978.2 1,027.9
Gross profit 278.2 268.2 490.8 474.7
OPERATING EXPENSES:
Selling, general
and administrative
expense 221.8 215.6 423.0 412.6
(Gains) losses and
other expenses 0.1 --- 0.9 ---
Restructurings --- 1.2 --- 1.9
Income from
operations 56.3 51.4 66.9 60.2
INTEREST EXPENSE, net 7.9 8.3 14.9 16.1
OTHER INCOME (1.5) (0.5) (2.1) (0.5)
MINORITY INTEREST 0.1 0.1 0.2 0.1
Income before income
taxes and cumulative
effect of accounting
change 49.8 43.5 53.9 44.5
PROVISION FOR INCOME
TAXES 19.4 17.9 21.0 18.3
Income before
cumulative effect of
accounting change 30.4 25.6 32.9 26.2
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE --- --- --- (249.2)
Net income (loss) $30.4 $25.6 $32.9 $(223.0)
INCOME PER SHARE BEFORE
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE:
Basic $0.52 $0.45 $0.57 $0.46
Diluted $0.51 $0.43 $0.55 $0.45
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE
PER SHARE:
Basic $--- $--- $--- $(4.38)
Diluted $--- $--- $--- $(4.27)
NET INCOME (LOSS) PER
SHARE:
Basic $0.52 $0.45 $0.57 $(3.92)
Diluted $0.51 $0.43 $0.55 $(3.82)
AVERAGE SHARES (In
Millions):
Basic 58.2 57.1 58.1 57.0
Diluted 59.9 59.0 59.6 58.4
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
SEGMENT REVENUES AND OPERATING PROFIT
For the Three Months and Six Months Ended June 30, 2003 and 2002
(Unaudited, in millions)
For the For the
Three Months Ended Six Months Ended
June 30, June 30,
2003 2002 2003 2002
Net Sales
Residential $376.8 $348.7 $671.1 $622.6
Commercial 132.1 115.0 224.9 201.8
Heating and
Cooling 508.9 463.7 896.0 824.4
Service Experts 243.3 251.5 440.4 456.5
Refrigeration 97.3 92.4 187.5 180.3
Corporate and
other (A) --- 49.2 --- 95.1
Eliminations (30.3) (28.5) (54.9) (53.7)
$819.2 $828.3 $1,469.0 $1,502.6
Segment Profit
(Loss) (B)
Residential $45.9 $36.1 $68.5 $51.6
Commercial 9.2 5.8 8.4 5.6
Heating and
Cooling 55.1 41.9 76.9 57.2
Service Experts 7.6 15.9 2.9 13.1
Refrigeration 9.0 9.0 17.3 17.2
Corporate and
other (A) (15.5) (13.9) (28.3) (24.6)
Eliminations 0.2 (0.3) (1.0) (0.8)
Segment Profit 56.4 52.6 67.8 62.1
Reconciliation to
Income before Income
Taxes:
(Gains) losses and
other expenses 0.1 --- 0.9 ---
Restructurings --- 1.2 --- 1.9
Interest Expense,
net 7.9 8.3 14.9 16.1
Minority Interest
and Other (1.4) (0.4) (1.9) (0.4)
$49.8 $43.5 $53.9 $44.5
(A) In the third quarter of 2002, the Company formed joint ventures with
Outokumpu Oyj by selling to Outokumpu Oyj a 55% interest in the
Company's heat transfer business segment for approximately
$55 million in cash and notes. The Company accounts for its
remaining 45% interest using the equity method of accounting and
includes such amounts in the Corporate and other segment. The
historical net sales, results of operations and total assets of the
Corporate and other segment have been restated to include the
portions of the heat transfer business segment that was sold to
Outokumpu Oyj. The results of operations of the heat transfer
business segment now presented in the Corporate and other segment
were $(0.5) million and $(1.4) million for the three months and six
months ended June 30, 2003, respectively. The historical net sales
and results of operations were $49.2 million and $(0.3) million for
the three months ended June 30, 2002 and $95.1 million and
$(1.1) million for the six months ended June 30, 2002, respectively.
(B) Segment profit is based upon income from operations included in the
accompanying consolidated statements of operations excluding
restructuring charges and other operating gains, losses and expenses.
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of June 30, 2003 and December 31, 2002
(In millions, except share data)
ASSETS
June 30, December 31,
2003 2002
(unaudited)
CURRENT ASSETS:
Cash and cash equivalents $64.7 $76.4
Accounts and notes receivable, net 388.9 307.3
Inventories 272.2 219.7
Deferred income taxes 33.9 33.3
Other assets 55.3 38.4
Total current assets 815.0 675.1
PROPERTY, PLANT AND EQUIPMENT, net 222.5 231.0
GOODWILL, net 439.4 420.8
DEFERRED INCOME TAXES 79.1 82.7
OTHER ASSETS 126.8 112.1
TOTAL ASSETS $1,682.8 $1,521.7
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt $13.5 $9.3
Current maturities of long-term debt 13.2 13.9
Accounts payable 257.2 247.6
Accrued expenses 274.4 253.9
Income taxes payable 41.2 12.8
Total current liabilities 599.5 537.5
LONG-TERM DEBT 362.9 356.7
POSTRETIREMENT BENEFITS, OTHER THAN PENSIONS 14.5 13.5
PENSIONS 89.2 85.4
OTHER LIABILITIES 82.4 74.2
Total liabilities 1,148.5 1,067.3
MINORITY INTEREST 1.9 1.6
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, 63,268,200 shares and
63,039,254 shares issued for 2003 and 2002,
respectively 0.6 0.6
Additional paid-in capital 407.3 404.7
Retained earnings 193.1 171.3
Accumulated other comprehensive loss (26.6) (79.6)
Deferred compensation (10.9) (13.5)
Treasury stock, at cost, 3,043,916 and
3,009,656 shares for 2003 and 2002,
respectively (31.1) (30.7)
Total stockholders' equity 532.4 452.8
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,682.8 $1,521.7
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
Reconciliation to U.S. GAAP (Generally Accepted Accounting Principles)
Measures
(Unaudited, in millions, except per share and ratio data)
Pro Forma Operating Income
For the Three Months For the Six Months
Ended June 30, Ended June 30,
2003 2002 2003 2002
Operating Income, as
Reported $56.3 $51.4 $66.9 $60.2
(Gains) Losses and
Other Expenses 0.1 --- 0.9 ---
Restructurings --- 1.2 --- 1.9
Pro Forma Operating
Income $56.4 $52.6 $67.8 $62.1
Pro Forma Net Income and
Pro Forma Diluted EPS
(Earnings per Share)
For the Three Months Ended June 30,
2003 2002
2003 Diluted EPS 2002 Diluted EPS
Net Income, as Reported $30.4 $0.51 $25.6 $0.43
(Gains) Losses and
Other Expenses* (0.6) (0.01) --- ---
Restructurings* --- --- 1.0 0.02
Pro Forma Net Income $29.8 $0.50 $26.6 $0.45
For the Six Months Ended June 30,
2003 2002
2003 Diluted EPS 2002 Diluted EPS
Net Income (Loss),
as Reported $32.9 $0.55 $(223.0) $(3.82)
(Gains) Losses and
Other Expenses* (0.1) --- --- ---
Restructurings* --- --- 1.4 0.02
Cumulative Effect of
Accounting Change* --- --- 249.2 4.27
Pro Forma Net Income $32.8 $0.55 $27.6 $0.47
* Net of Income Tax
Free Cash Flow
For the Three Months For the Six Months
Ended June 30, Ended June 30,
2003 2002 2003 2002
Net Cash Used in
Operating Activities $23.1 $45.9 $(7.4) $39.4
Purchases of Property,
Plant and Equipment (5.1) (8.3) (10.3) (13.0)
Change in Asset
Securitization (39.1) (37.1) (55.2) (18.8)
Cash Restructuring
Charges --- --- --- 1.9
Free Cash Flow $(21.1) $0.5 $(72.9) $9.5
Operational Working
Capital
As of June 30, 2003 As of June 30, 2002
June 30, Trailing Twelve June 30, Trailing Twelve
2003 Months Avg 2002 Months Avg
Accounts and Notes
Receivable, Net $388.9 $408.9
Allowance for Doubtful
Accounts 21.7 23.2
Asset Securitization 154.2 161.9
Accounts and Notes
Receivable, Gross 564.8 $510.5 594.0 $539.1
Inventories 272.2 301.0
Excess of Current
Cost Over Last-in,
First-out 48.2 47.0
Inventories Adjusted 320.4 309.4 348.0 355.1
Accounts Payable (257.2) (245.2) (311.5) (248.5)
Operational Working
Capital (A) 628.0 574.7 630.5 645.7
Net Sales - Trailing
Twelve Months (B) 2,992.2 2,992.2 3,054.7 3,054.7
Operational Working
Capital Ratio (A / B) 21.0% 19.2% 20.6% 21.1%
SOURCE Lennox International Inc.