Lennox Beats Q3 Earnings, Misses Revs - Analyst Blog

Diversified machinery company, Lennox International, Inc. ( LII ), reported mixed third-quarter 2013 results with adjusted earnings per share of $1.30. The figure increased 34.0% year over year led by increased revenues and margins. Earnings also beat the Zacks Consensus Estimate of $1.26 per share by 3.2%.


On a constant currency basis, revenues in the reported period grew 8% year over year to $868.0 million, as a result of better volumes and price/mix. Foreign currency transactions negatively impacted revenues by 1%. However, revenues missed the Zacks Consensus Estimate of $875.0 million.


Lennox's gross profit margin in the quarter was 27.4%, up 210 basis points (bps) year over year, due to lower material costs, better volumes and favorable price/mix. Selling, general and administrative (SG&A) expenses represented 15.8% of sales at $136.9 million. Adjusted income from continuing operations in the quarter reached $65.5 million, increasing 31.8% year over year.

Segment Details

Residential Heating & Cooling segment generated revenues of $433.9 million, increasing 12.3% year over year. The rise was brought about by better volumes and favorable price mix along with lower material costs, thus improving the operating profit margin of the segment by 330 bps to 13.1%.

Commercial Heating & Cooling segment's sales improved 8.8% year over year to $239.1 million, resulting from better volumes and lower material costs as well. The margins, however, were negatively impacted by higher SG&A costs and distribution expansion investments. Operating profit margin increased 160 bps to 16.4%.

Revenues from the Refrigeration segment came in at $195.0 million declining 4.3% year over year. Results were negatively impacted by lower volumes combined with higher SG&A costs, which were partially offset by lower material costs. Operating profit margin was flat at 12.3%.

Financial Update

Exiting the third quarter, Lennox's cash and cash equivalents were $37.8 million, against $45.3 million at the close of the preceding quarter. Long-term debt decreased to $266.2 million from $410.8 million at the end of second-quarter 2013.

Cash flow from operations amounted to $153.3 million in the quarter, against cash generation of $75.0 million in the third quarter of 2012. Capital expenditure incurred in the third quarter increased to $17.6 million, compared with $11.6 million in the year-ago quarter.

Moreover, in the reported quarter, Lennox paid dividends totaling $12.0 million and repurchased $33.0 million worth of shares.


Based on the current performance of the business, Lennox's management maintained the revenue guidance while increasing the lower end of expected earnings per share for the year 2013. Sales in the year 2013 are expected to grow by 6% to 8%. Also, adjusted earnings per share for the year are currently expected to be in the range of $3.50-$3.75 against $3.45-$3.75 expected earlier.

Lennox also reiterated its tax rate guidance to be 34%-35% for the full year. Capital expenditures guidance for the year is maintained at $60.0 million along with stock repurchase plans now worth $125.0 million in 2013.

Other Stocks to Consider

Lennox currently carries a Zacks Rank #4 (Sell). Other stocks worth a watch in the industry include Shiloh Industries Inc. ( SHLO ), Armstrong World Industries, Inc. ( AWI ) and Masco Corp. ( MAS ). While Shiloh Industries carries a Zacks Rank #1 (Strong Buy), Armstrong World Industries and Masco Corp. carry a Zacks Rank #2 (Buy).

ARMSTRONG WORLD (AWI): Free Stock Analysis Report

LENNOX INTL INC (LII): Free Stock Analysis Report

MASCO (MAS): Free Stock Analysis Report


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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