Lennox International Reports Fourth Quarter Results
- 4Q08 adjusted EPS from continuing operations of
- Full year 2008 adjusted EPS from continuing operations of
- Full year cash from operations of
- Restructuring initiatives on track and additional measures announced
- Reaffirm 2009 adjusted EPS guidance from continuing operations; GAAP EPS
guidance from continuing operations now
For the fourth quarter, revenue was
For the full year, revenue was
"Despite difficult market conditions, Lennox posted improved EBIT margins
for both the fourth quarter and full year on strong cost controls and
operational execution," said Todd Bluedorn, Chief Executive Officer. "Our cash
generation was strong in 2008 and our free cash flow for the full year was
(Note: See attached schedules for full financial details, reconciliations of non-GAAP financial measures, and a description of adjusting items.)
FOURTH QUARTER 2008 FINANCIAL HIGHLIGHTS
Revenue: Revenue for the fourth quarter was
Gross Profit: Gross profit in the fourth quarter was
Income from Continuing Operations: For the fourth quarter, adjusted income
from continuing operations was
Adjusted income from continuing operations for the fourth quarter of 2008
excludes net after-tax charges of
$7.7 million charge from restructuring activities$6.9 million charge for impairment of an equity method investment$2.8 million charge primarily from the net change in unrealized losses on open futures contracts
FULL YEAR 2008 FINANCIAL HIGHLIGHTS
Revenue: For the full year, revenue was
Gross Profit: Gross profit for the year was
Income from Continuing Operations: Adjusted income from continuing
operations for the full year was
Adjusted income from continuing operations for 2008 excludes net after tax
charges of
$20.7 million charge from restructuring activities$9.1 million charge for impairment of an equity method investment$3.4 million charge primarily from the net change in unrealized losses on open futures contracts
Free Cash Flow and Total Debt: Cash generated from operations for the year
was
During 2008, the company returned
BUSINESS SEGMENT FINANCIAL HIGHLIGHTS
Residential Heating and Cooling
- 4Q08 revenue of
$299 million , down 15% from$354 million in the year-ago quarter; down 13% at constant currency - 4Q08 segment profit of
$27 million , down 12% from$31 million in 4Q07 - 4Q08 segment profit margin of 9.1%, up 30 basis points from 8.8% in 4Q07
- 2008 revenue of
$1.5 billion , down 11% from$1.7 billion in 2007, with and without the effect of foreign exchange - 2008 segment profit of
$146 million , down 16% from$174 million in 2007 - 2008 profit margin of 9.8%, down 60 basis points from 10.4% in 2007
Fourth quarter and full year results were impacted by lower volume, with offsets from improved pricing, improved product mix, and lower expenses from cost reduction initiatives.
Commercial Heating and Cooling
- 4Q08 revenue of
$189 million , down 16% from$224 million in the year-ago quarter; down 11% at constant currency - 4Q08 segment profit of
$20 million , down 17% from$24 million in 4Q07 - 4Q08 segment profit margin of 10.6%, down 30 basis points from 10.9% in 4Q07
- 2008 revenue of
$835 million , down 5% from$875 million in 2007; down 7% at constant currency - 2008 segment profit of
$93 million , down 8% from$101 million in 2007 - 2008 profit margin of 11.2%, down 30 basis points from 11.5% in 2007
Fourth quarter and full year results were impacted by lower volume, with offsets from improved pricing and lower expenses from cost reduction initiatives. Product mix was favorable in the fourth quarter but was relatively flat for the full year.
- 4Q08 revenue of
$145 million , down 13% from$166 million in the year-ago quarter; down 8% at constant currency - 4Q08 segment profit of
$8 million , up 11% from$7 million in 4Q07 - 4Q08 segment profit margin of 5.3%, up 110 basis points from 4.2% in 4Q07
- 2008 revenue of
$627 million , down 6% from$667 million in 2007, with and without the effect of foreign exchange - 2008 segment profit of
$20 million , down 23% from$26 million in 2007 - 2008 profit margin of 3.2%, down 70 basis points from 3.9% in 2007
Fourth quarter and full year results were impacted by lower volume, with offsets from improved pricing, favorable business mix, and lower expenses. In the fourth quarter, the company announced plans to exit from seven unprofitable service centers, which became discontinued operations.
Refrigeration
- 4Q08 revenue of
$131 million , down 17% from$158 million in the year-ago quarter; down 4% at constant currency - 4Q08 segment profit of
$11 million , down 24% from$15 million in 4Q07 - 4Q08 segment profit margin of 8.6%, down 90 basis points from 9.5% in 4Q07
- 2008 revenue of
$618 million , up 2% from$608 million in 2007; down 1% at constant currency - 2008 segment profit of
$60 million , down 2% from$62 million in 2007 - 2008 profit margin of 9.7%, down 40 basis points from 10.1% in 2007
Fourth quarter and full year results were impacted by lower volume, with offsets from improved pricing and lower expenses from cost reduction initiatives.
2009 FULL YEAR OUTLOOK
The company reaffirms its 2009 outlook originally provided on
- Revenue down 8-12%, including 5 points of negative foreign exchange impact
- Adjusted EPS from continuing operations in the range of
$2.10 to $2.50 - GAAP EPS from continuing operations in the range of
$1.91 to $2.31 , down from prior guidance of$2.05 to $2.45 - Capital expenditures of approximately
$80 million - Tax rate of 36-37%
CONFERENCE CALL INFORMATION
A conference call to discuss the company's fourth quarter results will be
held this morning at
A replay will be available from
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 including the impact of higher raw
material prices, LII's ability to implement price increases for its products
and services, and the impact of unfavorable weather and a decline in new
construction activity on 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
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Twelve Months Ended December 31, 2008 and 2007
(Unaudited, in millions, except per share data)
For the For the
Three Months Twelve Months
Ended Ended
December 31, December 31,
2008 2007 2008 2007
NET SALES $746.4 $882.8 $3,481.4 $3,735.3
COST OF GOODS SOLD 541.5 618.7 2,507.9 2,687.4
Gross profit 204.9 264.1 973.5 1,047.9
OPERATING EXPENSES:
Selling, general and
administrative expenses 157.4 194.8 724.4 773.4
Losses (gains) and other
expenses, net 2.9 (1.3) (1.9) (6.7)
Restructuring charges 11.5 11.0 30.4 25.2
Impairment of equity method
investment 6.9 - 9.1 -
Income from equity method
investments (0.6) (1.7) (8.6) (10.6)
Operational income from
continuing operations 26.8 61.3 220.1 266.6
INTEREST EXPENSE, net 3.4 2.0 13.7 6.8
OTHER (INCOME) EXPENSE, NET (0.1) 0.4 0.1 0.7
Income from continuing
operations before income
taxes
23.5 58.9 206.3 259.1
PROVISION FOR INCOME TAXES 11.7 20.0 81.2 89.5
Income from continuing
operations 11.8 38.9 125.1 169.6
DISCONTINUED OPERATIONS
Loss from discontinued
operations 2.2 0.2 3.7 0.9
Income tax benefit (0.8) (0.1) (1.4) (0.3)
Loss from discontinued
operations 1.4 0.1 2.3 0.6
Net income $10.4 $38.8 $122.8 $169.0
EARNINGS PER SHARE - BASIC:
Income from continuing
operations $0.22 $0.61 $2.21 $2.56
Loss from discontinued
operations (0.03) - (0.04) (0.01)
Net income $0.19 $0.61 $2.17 $2.55
EARNINGS PER SHARE - DILUTED:
Income from continuing
operations $0.21 $0.59 $2.15 $2.44
Loss from discontinued
operations (0.03) - (0.04) (0.01)
Net income $0.18 $0.59 $2.11 $2.43
AVERAGE SHARES OUTSTANDING:
Basic 55.3 63.4 56.7 66.4
Diluted 56.7 66.3 58.3 69.4
CASH DIVIDENDS DECLARED PER
SHARE $0.14 $0.14 $0.56 $0.53
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
SEGMENT NET SALES AND PROFIT
For the Three Months and Twelve Months Ended December 31, 2008 and 2007
(Unaudited, in millions)
For the For the
Three Months Twelve Months
Ended Ended
December 31, December 31,
2008 2007 2008 2007
Net Sales
Residential Heating &
Cooling $299.4 $354.1 $1,493.4 $1,669.6
Commercial Heating &
Cooling 189.2 224.4 835.3 875.0
Service Experts 144.5 165.7 626.6 667.1
Refrigeration 131.5 157.6 618.2 607.7
Eliminations (A) (18.2) (19.0) (92.1) (84.1)
$746.4 $882.8 $3,481.4 $3,735.3
Segment Profit (Loss) (B)
Residential Heating &
Cooling $27.3 $31.2 $145.8 $174.4
Commercial Heating &
Cooling 20.1 24.4 93.3 101.0
Service Experts 7.7 6.9 20.0 26.1
Refrigeration 11.3 14.9 60.2 61.5
Corporate and other (16.7) (20.9) (53.8) (85.0)
Eliminations (A) - 0.8 (0.6) 0.6
Subtotal that includes
segment profit and
eliminations 49.7 57.3 264.9 278.6
Reconciliation to income
from continuing
operations:
Warranty program
adjustment - (16.9) - (16.9)
Losses (gains) and other
expenses, net of gain
on sale of fixed assets 7.5 (1.3) 3.0 (6.4)
Restructuring charges 11.5 11.0 30.4 25.2
Impairment of equity
investment 6.9 - 9.1 -
Interest expense, net 3.4 2.0 13.7 6.8
Other (income) expense, net (0.1) 0.4 0.1 0.7
Less: Realized (losses)
gains on settled
futures contracts (1.9) 0.7 (0.9) 3.9
Less: Foreign currency
exchange (losses) gains (1.1) 2.5 3.2 6.2
$23.5 $58.9 $206.3 $259.1
(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 Losses (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 December 31, 2008 and 2007
(In millions, except share and per share data)
2008 2007
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $122.1 $145.5
Short-term investments 33.4 27.7
Accounts and notes receivable, net 369.6 492.0
Inventories, net 298.3 325.2
Deferred income taxes 24.2 30.9
Other assets 87.4 49.4
Total current assets 935.0 1,070.7
PROPERTY, PLANT AND EQUIPMENT, net 329.5 317.8
GOODWILL, net 232.3 262.8
DEFERRED INCOME TAXES 113.5 94.0
OTHER ASSETS 49.2 69.3
TOTAL ASSETS $1,659.5 $1,814.6
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt $6.1 $4.8
Current maturities of long-term debt 0.6 36.4
Accounts payable 234.5 289.2
Accrued expenses 331.1 352.7
Income taxes payable 3.7 1.1
Total current liabilities 576.0 684.2
LONG-TERM DEBT 413.7 166.7
POSTRETIREMENT BENEFITS, OTHER THAN PENSIONS 12.5 16.2
PENSIONS 107.7 34.8
OTHER LIABILITIES 91.0 104.2
Total liabilities 1,200.9 1,006.1
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, 84,215,904 shares and 81,897,439
shares issued for 2008 and 2007, respectively 0.8 0.8
Additional paid-in capital 805.6 760.7
Retained earnings 538.8 447.4
Accumulated other comprehensive (loss) income (98.8) 63.6
Treasury stock, at cost, 29,109,058 shares and
19,844,677 shares for 2008
and 2007, respectively (787.8) (464.0)
Total stockholders' equity 458.6 808.5
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $1,659.5 $1,814.6
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 Income From Continuing Operations to Adjusted Income
From Continuing Operations
For the Three Months Ended December 31, 2008
Net Change in
Unrealized
Losses on
Open
Futures
Contracts Impairment
and Other of Equity
As Items, Restructuring Method As
Reported Net Charges Investment Adjusted
NET SALES $746.4 $- $- $- $746.4
COST OF GOODS SOLD 541.5 - - - 541.5
Gross profit 204.9 - - - 204.9
OPERATING
EXPENSES:
Selling, general
and
administrative
expenses 157.4 - - - 157.4
Losses
(gains) and
other expenses,
net(1) 2.9 (4.5) - - (1.6)
Restructuring
charges 11.5 - (11.5) - -
Impairment of
equity method
investment 6.9 - - (6.9) -
Income from
equity method
investments (0.6) - - - (0.6)
Operational
income from
continuing
operations 26.8 4.5 11.5 6.9 49.7
INTEREST EXPENSE, net 3.4 - - - 3.4
OTHER EXPENSE, NET (0.1) - - - (0.1)
Income from
continuing
operations
before income
taxes 23.5 4.5 11.5 6.9 46.4
PROVISION FOR
INCOME TAXES 11.7 1.7 3.8 - 17.2
Income from
continuing
operations $11.8 $2.8 $7.7 $6.9 $29.2
INCOME PER SHARE
FROM CONTINUING
OPERATIONS -
DILUTED $0.21 $0.05 $0.14 $0.12 $0.52
Note: Management uses adjusted 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 losses (gains) and other expenses,
net, restructuring charges, warranty program adjustment, certain tax items
and impairment of equity method investment. Management believes that
excluding these effects is helpful in assessing the overall performance of
the Company.
(1)Losses (gains) and other expenses, net include the following:
For the Three Months Ended December 31, 2008
After-tax
Pre-tax Tax (Benefit) Loss
Loss (Gain) Provision (Gain)
Realized losses on
settled futures
contracts 1.9 (0.7) 1.2
Net change in unrealized
losses on open futures
contracts 4.6 (1.7) 2.9
Foreign currency exchange
loss 1.1 (0.4) 0.7
Gain on disposal of fixed
assets, net (4.6) 0.7 (3.9)
Other items, net (0.1) - (0.1)
Losses (gains) and other
expenses, net $2.9 $(2.1) $0.8
For the Three Months Ended December 31, 2007
Net Change in
Unrealized
Losses on
Open
Futures
Contracts
and Other Warranty
As Items, Restructuring Program As
Reported Net Charges Adjustment Adjusted
NET SALES $882.8 $- $- $- $882.8
COST OF GOODS SOLD 618.7 - - 16.9 635.6
Gross profit
(loss) 264.1 - - (16.9) 247.2
OPERATING EXPENSES:
Selling,
general and
administrative
expenses 194.8 - - - 194.8
Gains and other
expenses, net(2) (1.3) (1.9) - - (3.2)
Restructuring
charges 11.0 - (11.0) - -
Income from
equity method
investments (1.7) - - - (1.7)
Operational
income (loss)
from
continuing
operations 61.3 1.9 11.0 (16.9) 57.3
INTEREST EXPENSE, net 2.0 - - - 2.0
OTHER EXPENSE, NET 0.4 - - - 0.4
Income (loss)
from
continuing
operations
before
income taxes 58.9 1.9 11.0 (16.9) 54.9
PROVISION FOR (BENEFIT
FROM) INCOME TAXES 20.0 0.8 4.1 (6.4) 18.5
Income (loss)
from
continuing
operations $38.9 $1.1 $6.9 $(10.5) $36.4
INCOME (LOSS) PER SHARE
FROM CONTINUING
OPERATIONS - DILUTED $0.59 $0.02 $0.10 $(0.16) $0.55
(2)Gains and other expenses, net include the following:
For the Three Months Ended December 31, 2007
Pre-tax Tax After-tax
(Gain) Provision (Gain)
Loss (Benefit) Loss
Realized gains on settled
futures contracts $(0.7) $0.2 $(0.5)
Net change in unrealized
losses on open futures
contracts 2.2 (0.8) 1.4
Foreign currency exchange gain (2.5) 0.7 (1.8)
Other items, net (0.3) - (0.3)
Gains and other expenses, net $(1.3) $0.1 $(1.2)
For the Year Ended December 31, 2008
Net Change in
Unrealized
Losses on
Open
Futures
Contracts Impairment
and Other of Equity
As Items, Restructuring Method As
Reported Net Charges Investment Adjusted
NET SALES $3,481.4 $- $- $- $3,481.4
COST OF GOODS SOLD 2,507.9 - - - 2,507.9
Gross profit 973.5 - - - 973.5
OPERATING EXPENSES:
Selling, general
and
administrative
expenses 724.4 - - - 724.4
Gains and other
expenses, net(3) (1.9) (5.2) - - (7.1)
Restructuring
charges 30.4 - (30.4) - -
Impairment
of equity
method
investment 9.1 - - (9.1) -
Income from
equity method
investments (8.6) - - - (8.6)
Operational
income from
continuing
operations 220.1 5.2 30.4 9.1 264.8
INTEREST EXPENSE, net 13.7 - - - 13.7
OTHER EXPENSE, NET 0.1 - - - 0.1
Income from
continuing
operations
before income
taxes 206.3 5.2 30.4 9.1 251.0
PROVISION FOR INCOME
TAXES 81.2 1.8 9.7 - 92.7
Income from
continuing
operations $125.1 $3.4 $20.7 $9.1 $158.3
INCOME PER SHARE FROM
CONTINUING
OPERATIONS
- DILUTED $2.15 $0.05 $0.35 $0.16 $2.71
(3) Gains and other expenses, net include the following:
For the Year Ended December 31, 2008
After-tax
Pre-tax Loss Tax (Benefit) Loss
(Gain) Provision (Gain)
Realized losses on
settled futures
contracts $0.9 $(0.3) $0.6
Net change in unrealized
losses on open futures
contracts 5.1 (1.8) 3.3
Foreign currency exchange gain (3.2) (0.3) (3.5)
Gain on disposal of fixed
assets, net (4.8) 0.6 (4.2)
Other items, net 0.1 - 0.1
Gains and other expenses, net $(1.9) $(1.8) $(3.7)
For the Year Ended December 31, 2007
Net Change in
Unrealized
Losses on
Open Warranty
Futures Program
Contracts Adjustment
and Other and
As Items, Restructuring Income Tax As
Reported Net Charges Items(5) Adjusted
NET SALES $3,735.3 $- $- $- $3,735.3
COST OF GOODS SOLD 2,687.4 - - 16.9 2,704.3
Gross profit
(loss) 1,047.9 - - (16.9) 1,031.0
OPERATING EXPENSES:
Selling, general
and
administrative
expenses 773.4 - - - 773.4
Gains and
other expenses,
net(4) (6.7) (3.7) - - (10.4)
Restructuring
charges 25.2 - (25.2) - -
Income from
equity method
investments (10.6) - - - (10.6)
Operational
income
(loss) from
continuing
operations 266.6 3.7 25.2 (16.9) 278.6
INTEREST EXPENSE, net 6.8 - - - 6.8
OTHER EXPENSE, NET 0.7 - - - 0.7
Income (loss)
from
continuing
operations
before
income taxes 259.1 3.7 25.2 (16.9) 271.1
PROVISION FOR
(BENEFIT FROM)
INCOME TAXES 89.5 1.2 9.4 (3.2) 96.9
Income (loss)
from
continuing
operations $169.6 $2.5 $15.8 $(13.7) $174.2
INCOME (LOSS) PER
SHARE FROM
CONTINUING
OPERATIONS -
DILUTED $2.44 $0.04 $0.23 $(0.20) $2.51
(4)Gains and other expenses, net include the following:
For the Year Ended December 31, 2007
Pre-tax Tax After-tax
(Gain) Provision (Gain)
Loss (Benefit) Loss
Realized gains on
settled futures
contracts $(3.9) $1.3 $(2.6)
Net change in
unrealized losses
on open futures contracts 3.3 (1.2) 2.1
Foreign currency
exchange gain (6.2) 2.1 (4.1)
Gain on disposal
of fixed assets, net (0.3) 0.1 (0.2)
Other items, net 0.4 - 0.4
Gains and other
expenses, net $(6.7) $2.3 $(4.4)
(5)Warranty program adjustment and income tax items include the following:
For the Year Ended December 31, 2007
Tax
Pre-tax Provision After-tax
Gain (Benefit) Gain
Warranty program adjustment $(16.9) $6.4 $(10.5)
Change in estimated tax gain
from prior year - (3.2) (3.2)
$(16.9) $3.2 $(13.7)
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 $2.10 - $2.50
Restructuring charges (0.22)
Net change in unrealized gains on open futures
contracts 0.03
GAAP income per share from continuing operations
- Diluted $1.91 - $2.31
Free Cash Flow
For the For the
Three Months Three Months
Ended Ended
December 31, December 31,
2008 2007
Net cash provided by operating activities $43.4 $128.2
Purchase of property, plant and equipment (23.8) (24.5)
Free cash flow $19.6 $103.7
For the Year For the Year
Ended Ended
December 31, December 31,
2008 2007
Net cash provided by operating activities $183.2 $239.9
Purchase of property, plant and equipment (62.1) (70.2)
Free cash flow $121.1 $169.7
Operational Working Capital
December 31, December 31,
2008 2007
December 31, Trailing December 31, Trailing
2008 12 Mo. Avg. 2007 12 Mo. Avg.
Accounts and
Notes Receivable,
Net $369.6 $492.0
Asset
Securitization 30.0 -
Allowance for
Doubtful
Accounts 18.6 17.1
Accounts and
Notes Receivable,
Gross 418.2 $528.0 509.1 $579.8
Inventories 298.3 325.2
Excess of
Current Cost
Over Last-in,
First-out 75.8 70.4
Inventories
as Adjusted 374.1 430.7 395.6 445.1
Accounts Payable (234.5) (324.4) (289.2) (340.1)
Operating Working
Capital (a) 557.8 634.3 615.5 684.8
Net Sales, Trailing
Twelve Months (b) 3,481.4 3,481.4 3,735.3 3,735.3
Operational Working
Capital Ratio (a/b) 16.0% 18.2% 16.5% 18.3%
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.
SOURCE:
CONTACT:
+1-972-497-6670
Web Site:
http://www.lennoxinternational.com/