Lennox International Reports Fourth-Quarter Earnings Per Share of $0.27 And
Full-Year 2003 Earnings Per Share of $1.28
Full-Year 2003 Earnings Per Share of $1.28
DALLAS, Feb. 4 /PRNewswire-FirstCall/ -- Lennox International Inc. (NYSE: LII) today announced fourth quarter and full-year 2003 earnings.
(Logo: http://www.newscom.com/cgi-bin/prnh/20020304/DAM053LOGO )
LII's sales for the fourth quarter of 2003 increased 11% to $779 million. In constant currencies, sales were up 6%. Operating income was $30 million, up from $13 million last year, with operating margin more than doubling to 3.9%. Net income was $16 million, or $0.27 per diluted share, compared with $5 million, or $0.08 per diluted share in the year-ago period. Foreign exchange rates benefited earnings per share in the fourth quarter by $0.04.
Sales for full-year 2003 were $3.1 billion, up 7% from 2002, when adjusted for heat transfer revenue of $129 million included in the prior-year's sales - - essentially all of which is now part of LII's joint venture with Outokumpu and no longer reported by LII. Foreign exchange rates benefited revenue by 3%. Sales outside the U.S. and Canada accounted for 13% of total LII revenue. Operating income for the year grew 19% to $150 million, with operating margins expanding 70 basis points to 4.9% of sales. Before the cumulative effect of an accounting change in 2002, net income increased 31% in 2003 to $77 million, and diluted earnings per share rose from $1.00 to $1.28 on the same basis.
LII also generated very strong free cash flow of $113 million in 2003. Free cash flow consists of cash from operations of $55 million, less capital expenditures of $41 million, and excludes a $99 million reduction in the balance of the company's asset securitization program. Over the past three years, LII has used its cash flow to reduce total debt by $328 million. In 2003, operational working capital improved to 18.9% of sales from 19.6% the prior year.
"2003 was a very successful year for LII, with financial performance that exceeded our previous guidance," said Bob Schjerven, chief executive officer. "As we sharpened our focus on our three core businesses, we achieved a substantial improvement in our profitability, generated strong free cash flow and finished the year with a stronger balance sheet. Our businesses are well positioned for profitable growth and we are optimistic about 2004."
For 2004, the company said it expects diluted earnings per share will be in the range of $1.38 to $1.48, an 8% to 16% improvement over this year's result. Cash flow is expected to continue to be strong, with cash flow from operations less capital expenditures, excluding the impact of changes in the asset securitization program balance, approaching net income.
Fourth Quarter Segment Performance
Heating & Cooling revenue rose 14% in the fourth quarter of 2003 to $455 million. In constant currencies, sales were up 11%. Segment operating income increased 71% to $57 million, reflecting higher sales volumes and improved factory performance. Operating margins for the quarter rose to 12.6% from 8.4% in 2002.
Outperforming its market, the Residential Heating & Cooling segment increased revenue by 14% during the quarter to $323 million, driven by growth at LII's Lennox Industries and Armstrong units, as well as the company's hearth products business. Adjusting for foreign exchange, sales were up 11%. Operating income increased to $44 million from $28 million last year, with operating margins expanding to 13.5% from 9.7%.
Revenue in the Commercial Heating & Cooling segment was up 15%, or 10% adjusted for foreign exchange, to $132 million. Strong growth was achieved in national accounts and through the company's dedicated commercial sales districts. While demand in Europe remains soft, LII's European sales increased modestly. Segment operating income more than doubled to $14 million from $6 million last year, and operating margins improved to 10.4% from 5.2%.
Service Experts revenue rose 4% to $244 million. Adjusted for currency fluctuations, sales declined 1%. The segment posted an operating loss of $10 million for the quarter, compared with a loss of $2 million in the previous year. Although Service Experts maintained top-line sales, price-driven margin erosion continued, and labor inefficiencies further reduced profitability. Inventory valuations, percent-of-completion contract adjustments, bad debt expenses, and severance -- all primarily in the company's Canadian operations -- negatively affected segment earnings. The company has made a change in the leadership of the Canadian region and is moving ahead on the deployment of the STARS IT system in Canada to facilitate the consolidation of back-office accounting functions and improve the tracking of key business metrics.
"While our manufacturing businesses are indeed running well, the performance of Service Experts remains unacceptable," Schjerven said. "We have already moved to address specific issues in our Canadian operations. But with weak results throughout 2003 and no improvement evident in the fourth quarter, we are taking a more aggressive posture on turning Service Experts around."
The company will take action to refocus Service Experts on its original strategy, concentrating on profitable service, repair, and replacement opportunities in metropolitan markets. The company is in the process of closing four centers that were predominantly focused on longer-duration commercial new construction contracts and do not fit the original business strategy. These four centers incurred a combined operating loss of $4 million in 2003.
"Our actions to move Service Experts to improved profitability will continue in 2004 and we will update our progress no later than our first quarter report in April of this year," Schjerven said. "We are committed to taking whatever actions are necessary to realize Service Experts' potential."
Refrigeration segment revenue rose 14%, but was down 1% in constant currencies. Sales growth in Europe and North America was offset by a decline in the Asia Pacific region. Segment operating income was $7 million, down from $9 million from last year. Operating margins declined to 7.2% from 9.5% in fourth quarter 2002. End-market demand remained sluggish, and price concessions necessary to maintain domestic sales volumes pressured margins.
Conference call scheduled
LII has scheduled a conference call to discuss financial results for the fourth quarter and full-year 2003 on Thursday, February 5 at 9:30 a.m. (CST). 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 717620. The number of connections for this call is limited to 200. This conference call will also be webcast on Lennox International'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. February 5 through February 12 by dialing 800-475-6701, access code 717620. 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, 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 Twelve Months Ended December 31, 2003 and 2002
(In millions, except per share data)
For the For the
Three Months Ended Twelve Months Ended
December 31, December 31,
2003 2002 2003 2002
NET SALES $779.2 $704.4 $3,087.3 $3,025.8
COST OF GOODS SOLD 525.3 483.5 2,064.9 2,074.1
Gross profit 253.9 220.9 1,022.4 951.7
OPERATING EXPENSES:
Selling, general and
administrative expense 223.8 207.9 870.6 826.2
(Gains) losses and
other expenses --- 1.0 1.9 (7.9)
Restructurings --- (0.8) --- 7.8
Income from operations 30.1 12.8 149.9 125.6
INTEREST EXPENSE, net 6.9 6.8 28.7 31.8
OTHER INCOME (1.3) (0.3) (2.5) (0.9)
Income before income
taxes and cumulative
effect of accounting
change 24.5 6.3 123.7 94.7
PROVISION FOR INCOME TAXES 8.3 1.3 46.9 35.9
Income before
cumulative effect of
accounting change 16.2 5.0 76.8 58.8
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE --- --- --- (249.2)
Net income (loss) $ 16.2 $ 5.0 $ 76.8 $ (190.4)
INCOME PER SHARE BEFORE
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE:
Basic $ 0.28 $ 0.09 $ 1.32 $ 1.03
Diluted $ 0.27 $ 0.08 $ 1.28 $ 1.00
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE PER SHARE:
Basic $ --- $ --- $ --- $ (4.35)
Diluted $ --- $ --- $ --- $ (4.23)
NET INCOME (LOSS) PER SHARE:
Basic $ 0.28 $ 0.09 $ 1.32 $ (3.32)
Diluted $ 0.27 $ 0.08 $ 1.28 $ (3.23)
AVERAGE SHARES:
Basic 58.9 57.8 58.4 57.3
Diluted 61.2 59.2 60.2 58.9
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
SEGMENT REVENUES AND OPERATING PROFIT For the Three Months and Twelve Months Ended December 31, 2003 and 2002
(In millions)
For the For the
Three Months Ended Twelve Months Ended
December 31, December 31,
2003 2002 2003 2002
Net Sales
Residential $323.2 $284.0 $1,362.0 $1,249.1
Commercial 132.0 114.3 508.6 442.4
Heating and Cooling 455.2 398.3 1,870.6 1,691.5
Service Experts 244.1 235.7 935.8 943.8
Refrigeration 102.9 90.6 387.2 363.8
Corporate and other (A) --- 1.1 --- 129.3
Eliminations (23.0) (21.3) (106.3) (102.6)
$779.2 $704.4 $3,087.3 $3,025.8
Segment Profit (Loss) (B)
Residential $ 43.7 $ 27.6 $ 154.4 $ 113.1
Commercial 13.7 6.0 39.6 19.1
Heating and Cooling 57.4 33.6 194.0 132.2
Service Experts (10.3) (2.1) (7.1) 24.1
Refrigeration 7.4 8.6 34.2 34.6
Corporate and other (A) (26.0) (26.9) (70.7) (64.5)
Eliminations 1.6 (0.2) 1.4 (0.9)
Segment Profit 30.1 13.0 151.8 125.5
Reconciliation to Income
before Income Taxes:
(Gains) losses and
other expenses --- 1.0 1.9 (7.9)
Restructurings --- (0.8) --- 7.8
Interest Expense, net 6.9 6.8 28.7 31.8
Other (1.3) (0.3) (2.5) (0.9)
24.5 $6.3 $123.7 $94.7
(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 $(0.4) million and
$(2.2) million for the three months and twelve months ended
December 31, 2003, respectively. The historical net sales were $1.1
million and $129.3 million for the three months and twelve months
ended December 31, 2002, respectively. The results of operations
were $(0.9) million and $(3.7) million for the three months and
twelve months ended December 31, 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 December 31, 2003 and December 31, 2002
(In millions, except share data)
ASSETS
December 31, December 31,
2003 2002
CURRENT ASSETS:
Cash and cash equivalents $ 76.9 $ 76.4
Accounts and notes receivable, net 465.7 307.3
Inventories 230.4 219.7
Deferred income taxes 33.7 33.3
Other assets 43.7 38.4
Total current assets 850.4 675.1
PROPERTY, PLANT AND EQUIPMENT, net 234.4 231.0
GOODWILL, net 449.4 420.8
DEFERRED INCOME TAXES 59.5 74.4
OTHER ASSETS 139.4 112.1
TOTAL ASSETS $1,733.1 $1,513.4
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt $ 3.7 $ 9.3
Current maturities of long-term debt 21.4 13.9
Accounts payable 260.6 247.6
Accrued expenses 289.0 253.9
Income taxes payable 38.0 12.8
Total current liabilities 612.7 537.5
LONG-TERM DEBT 337.3 356.7
POSTRETIREMENT BENEFITS, OTHER THAN PENSIONS 13.8 13.5
PENSIONS 94.1 85.4
OTHER LIABILITIES 79.4 75.8
Total liabilities 1,137.3 1,068.9
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, 64,364,149
shares and 63,039,254 shares issued for
2003 and 2002, respectively 0.6 0.6
Additional paid-in capital 421.8 404.7
Retained earnings 225.9 171.3
Accumulated other comprehensive loss (2.7) (79.6)
Deferred compensation (18.7) (21.8)
Treasury stock, at cost, 3,043,916 and
3,009,656 shares for 2003 and 2002,
respectively (31.1) (30.7)
Total stockholders' equity 595.8 444.5
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,733.1 $1,513.4
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
Reconciliation to U.S. GAAP (Generally Accepted Accounting Principles)
Measures
(In millions, except ratio data)
Free Cash Flow
For the For the
Three Months Twelve Months
Ended December 31, Ended December 31,
2003 2002 2003 2002
Net Cash Provided by
Operating Activities $ 37.5 $ 54.2 $ 55.4 $167.9
Purchases of Property, Plant
and Equipment (19.0) (2.8) (41.2) (22.7)
Change in Asset Securitization 86.0 60.8 99.0 44.1
Cash Restructuring Charges --- (0.7) --- 1.2
Free Cash Flow $104.5 $111.5 $113.2 $190.5
Operational Working Capital
Dec. 31, December 31, Dec. 31, December 31,
2003 2002
2003 Trailing 12 2002 Trailing 12
Mo. Avg. Mo. Avg.
Accounts and Notes
Receivable, Net $465.7 $307.3
Allowance for Doubtful
Accounts 19.2 23.1
Asset Securitization --- 99.0
Accounts and Notes Receivable,
Gross 484.9 $515.8 429.4 $527.0
Inventories 230.4 219.7
Excess of current Cost Over
Last-in, First-out 47.6 47.2
Inventories Adjusted 278.0 306.3 266.9 324.5
Accounts Payable (260.6) (238.5) (247.6) (259.9)
Operational Working Capital (A) 502.3 583.6 448.7 591.6
Net Sales, Trailing Twelve
Months (B) 3,087.3 3,087.3 3,025.8 3,025.8
Operational Working Cap.
Ratio (A/B) 16.3% 18.9% 14.8% 19.6%
Note: Management uses free cash flow and operational working capital,
which are not defined by US 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.
SOURCE Lennox International Inc.