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Lennox International (LII)
Q2 2013 Earnings Call
July 22, 2013 9:30 am ET
Steve L. Harrison - Vice President of Investor Relations
Todd M. Bluedorn - Chairman and Chief Executive Officer
Joseph William Reitmeier - Chief Financial Officer and Executive Vice President
Aditya Satghare - Lazard Capital Markets LLC, Research Division
Richard Michael Kwas - Wells Fargo Securities, LLC, Research Division
Jeffrey D. Hammond - KeyBanc Capital Markets Inc., Research Division
Keith B. Hughes - SunTrust Robinson Humphrey, Inc., Research Division
Robert Wertheimer - Vertical Research Partners, LLC
Glenn Wortman - Sidoti & Company, LLC
Charles Stephen Tusa - JP Morgan Chase & Co, Research Division
Joshua C. Pokrzywinski - MKM Partners LLC, Research Division
Walter S. Liptak - Global Hunter Securities, LLC, Research Division
Previous Statements by LII
» Lennox International Management Discusses Q1 2013 Results - Earnings Call Transcript
» Lennox's CEO Discusses Q4 2012 Results - Earnings Call Transcript
» Lennox International's CEO Discusses Q3 2012 Results- Earnings Call Transcript
Steve L. Harrison
Good morning. Thank you for joining us for this review of Lennox International's financial performance for the second quarter of 2013.
I'm here today with Chairman and CEO, Todd Bluedorn; and CFO, Joe Reitmeier. Todd will review key points on the quarter, and Joe will take you through the company's financial performance and outlook. Financial results in prior periods have been revised to reflect sold businesses and discontinued operations.
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.
We 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. The company 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 Chairman and CEO, Todd Bluedorn.
Todd M. Bluedorn
Thanks, Steve. Good morning, and thank you all for joining us. We continue to see strong momentum from our strategic initiatives and operational execution in the second quarter as the company set records for total segment profit and operating margin. In the end market, environment is still 25% to 30% below peak shipment levels for the industry. For the company overall, second quarter revenue was up 9% from the prior year quarter and total segment profit margin expanded 200 basis points to a record 11.6%.
Adjusted EPS from continuing operations was a record $1.31, up 34%, and GAAP EPS from continuing operations was a record $1.26, up 31%. The company's growth continue to be led by our Residential business with revenue up 16% in the second quarter, driven by both Replacement business and new construction.
Residential profit was up 58%. Despite weather being cooler across the U.S. than in the second quarter last year, Replacement business revenue was up 17%. In addition to our market share gain initiatives, we are seeing strong growth in Replacement business as the market benefits from stabilization in unemployment and a general improvement in consumer confidence, home values and existing home sales. Replacement accounts for more than 75% of our Residential business.
We also continued to capitalize on growth in Residential new construction with revenue up 13%. This is a traditional strength for Lennox, and we continue to be well-positioned in this market with more than half of the top 50 builders using Lennox, many on an exclusive basis.
In addition to capturing price across our Residential business, we also benefited from an improved product mix as Replacement business grew even faster than the new construction in the second quarter. 14-plus SEER shipments were up 4 points to 36% of cooling product shipments in the quarter, the first increase in this measure for a second quarter since 2010. With minimum efficiency of 13 SEER equipment shipments, our 22 equipment continued to trend down.
In our Commercial business, revenue and profit were up 4%. Growth was led by North America commercial equipment and services while Europe remains soft and was down in the quarter. Our Lennox National Accounts service business was especially strong on the growth of national-wide services.
In Refrigeration, profit was up 22% in the second quarter. Revenue was flat on the timing of National Account businesses in North America and soft economic conditions in Europe, while growth was strong at South America and Asia Pacific. South America revenue was up more than 20%. In Asia Pacific, Australia revenue was up high single-digits as we continue to expand refrigerant sales in our wholesale business there. And China revenue was up more than 30%.
Before I turn it over to Joe, let me update you on a couple of our strategic initiatives. In Residential, we added 12 more Lennox PartsPlus stores to our distribution network in the second quarter and are on track with plans to add a total of 28 of these wholesale stores this year. We now have 127 PartsPlus stores, and they continue to be one of the keys to the success we're seeing in our Residential business. Within these stores, about 3/4 of the sales are HVAC equipment and 1/4 of sales are parts and supplies.