Diversified machinery company, Lennox International, Inc. ( LII ) reported impressive second-quarter 2014 results. The company's adjusted earnings per share from continuing operations came in at $1.51, up 15% from $1.31 recorded in the year-ago quarter. The results were in line with the Zacks Consensus Estimate.
On a GAAP-basis, earnings per share were $1.50, up 19% from $1.26 per share reported in the year-ago quarter.
Lennox International's net sales increased 5% year over year to $961 million, lagging the Zacks Consensus Estimate of $964 million. On a constant currency basis, top-line growth was 6%, driven by higher volumes and price/mix impacts.
Lennox International reports its top-line results under three heads - Residential Heating & Cooling, Commercial Heating & Cooling, and Refrigeration. The second-quarter results of these segments are briefly discussed below.
The Residential Heating & Cooling segment generated net sales of $528 million, representing nearly 55% of total net sales. Compared with the year-ago quarter, the segment's net sales were up 11% due to favorable price/mix and volume gains.
Net sales from the Commercial Heating & Cooling segment were up 5% year over year to $241 million, accounting for 25.0% of total net sales.
The Refrigeration segment produced net sales of $192 million, down 7% year over year and comprising 20% of total net sales.
Lennox International's cost of goods sold in the second quarter went up 5.9% year over year and represented 72.7% of total revenue, relatively flat year over year. Gross margin was 27.3%.
Selling, general and administrative expenses, as a percentage of total revenue, stood at 15.5%, down 110 basis points year over year.
Balance Sheet/Cash Flow
Exiting second-quarter 2014, Lennox International had cash and cash equivalents of $49.6 million versus $39.0 million recorded in the preceding quarter. Long-term debt increased 6.6% sequentially to $419.8 million.
In the six months ended Jun 30, 2014, the company used cash amounting to $73.4 million for its operating activities, as compared with nearly $88.3 million used in the year-ago comparable period. Spending on purchase of property, plant and equipments increased 76.1% year over year to $41.2 million, in the first half of 2014.
In the second quarter, Lennox International increased its dividends by 25% to 30 cents per share. Also, the company repurchased $50 million worth of shares.
Lennox International has raised the guidance for 2014. Total revenue is presently expected to grow in the 5−7% range compared with the previous 2−6% range, including a 1% negative impact from foreign currency translations. Expected adjusted earnings per share is narrowed to a range of $4.30−$4.50 from the earlier estimate of $4.20−$4.60. On a GAAP-basis, earnings per share expectations are reduced to a range of $4.27−$4.47, from the previous projection of $4.18−$4.58.
Effective tax rate is maintained in a range of 34−35% and corporate expense is estimated at approximately $70 million. The company intends to spend $90 million as capital expenditure and repurchase shares worth $150 million.
Lennox International currently has a $4.3 billion market capitalization and carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry include CommScope Holding Company, Inc. ( COMM ), Comfort Systems USA Inc. ( FIX ) and Equinix, Inc. ( EQIX ). While CommScope Holding sports a Zacks Rank #1 (Strong Buy), Comfort Systems and Equinix hold a Zacks Rank #2 (Buy).
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