News Release

Printer Friendly Version View printer-friendly version
<< Back
Lennox International Reports Strong Third Quarter 2007 Results
    -  $0.94 adjusted earnings per diluted share, versus $0.69 in the year
       ago quarter, growth of 36%

    -  $0.88 GAAP earnings per diluted share, versus $0.49 in the year ago
       quarter, growth of 80%

    -  Double-digit profit growth across every business segment

    -  Free cash flow of $96 million for the quarter; cash from operations of
       $116 million

    -  21 percent of the $500 million share authorization completed as of
       9/30; on track for 3Q08 completion

DALLAS, Oct. 24 /PRNewswire-FirstCall/ -- Lennox International Inc. (NYSE: LII) today reported strong financial results for the third quarter of 2007.

Revenue for the third quarter was $1,030 million, up 1% over the prior year, with foreign exchange contributing 2% to sales growth. Diluted earnings per share on an adjusted basis, a non-GAAP measure, were $0.94 compared to $0.69 in the year ago quarter. Diluted earnings per share on a GAAP basis were $0.88 compared to $0.49 in the year ago quarter.

"Led by tight operational discipline across the company, LII posted strong financial results," said Todd Bluedorn, LII CEO. "We are pleased with the quarter's double-digit earnings growth and robust cash flow, showing strong performance and execution. As we continue to monitor market trends closely, we will stay focused on cost reductions and operational efficiencies."

"With one quarter remaining in the year, we are maintaining our full year GAAP earnings per share guidance of $2.40 - $2.50, albeit, the weak residential market will likely put us at the low end of the range."

(Note: See attached schedules for full financial details, reconciliations of non-GAAP financial measures, and a description of adjusting items.)

FINANCIAL HIGHLIGHTS

Revenue: Revenue for the third quarter was $1,030 million, up 1% over the prior year, with foreign exchange contributing 2% to sales growth.

Gross Profit: Gross profit for the third quarter 2007 was $294 million, up 14% from $257 million in the year ago quarter. Gross profit margin increased to 29% compared to 25% for the year ago quarter primarily due to price increases and lower operating and manufacturing costs.

Net Income: For the third quarter of 2007, adjusted net income was $65 million, or $0.94 diluted earnings per share, compared to $50 million, or $0.69 diluted earnings per share in the third quarter of 2006. On a GAAP basis, third quarter of 2007 net income was $61 million, or $0.88 diluted earnings per share, compared to $36 million, or $0.49 diluted earnings per share in the year ago quarter.

Adjusted net income results for the third quarter of 2007 exclude net adjustments of $4 million (after tax), which includes $2 million from the facility closure and consolidation in the Hearth Products business, $1 million from the elimination of an executive position and $1 million from the net change in unrealized losses on open futures contracts.

Free Cash Flow and Total Debt: Cash generated from operations was $116 million and the company invested $20 million in capital assets, resulting in free cash flow of $96 million for the third quarter of 2007. Total debt as of September 30, 2007 was $161 million resulting in a total debt-to-capital ratio of 16%.

During the quarter, the company repurchased 3,026,100 shares, representing 21% of the $500 million authorization to repurchase shares of LII stock. The company is on track to complete the share repurchase plan by third quarter 2008.

BUSINESS SEGMENT HIGHLIGHTS

Residential Heating and Cooling

Third quarter 2007 revenue from the Residential Heating and Cooling business segment was $456 million, a decrease of 9% from $502 million in the year ago quarter. Segment profit was $64 million resulting in a segment profit margin of 14%, compared to $53 million and a segment profit margin of 11% in the year ago quarter. Results were impacted by lower volume, offset by price increases, favorable product mix, and lower expenses due to cost reduction activity.

Commercial Heating and Cooling

Revenue in the Commercial Heating and Cooling segment increased $27 million, or 12%, to $255 million for the third quarter of 2007 from $228 million in the year ago quarter. Segment profit grew 47% to $38 million for the third quarter of 2007 from $26 million for the year ago quarter. Segment profit margin increased from 11% in 2006 to 15% in 2007. Segment profit improvement was driven by price increases and favorable mix that offset higher material and operating costs.

Service Experts

Revenue in the Service Experts business segment increased $10 million, or 6%, to $184 million for the third quarter 2007 from $174 million for the year ago quarter. Segment profit increased to $9 million for the third quarter of 2007 from $7 million for the third quarter of 2006. Segment profit margin was 5% for the third quarter of 2007, up from 4% for the third quarter of 2006. The improvement in revenue and segment profit was primarily driven by a shift in product mix to service and replacement and cost-reduction efforts.

Refrigeration

Revenue in the Refrigeration business segment increased $20 million, or 15%, to $158 million for the third quarter of 2007 due in part to favorable foreign exchange. Segment profit increased to $18 million from $14 million in the year ago quarter. Segment profit margin was 11% compared to 10% in the year ago quarter. The year over year improvement was due to favorable international market conditions and cost reduction initiatives.

FULL YEAR OUTLOOK

Full year earnings per share outlook remains unchanged, albeit, due to the on-going challenges in the housing market and softer replacement market, the company anticipates ending the year at the lower end of the GAAP earnings per share range of $2.40 to $2.50.

Revenue growth is now expected to be in the range of 1% to 2%, versus previous guidance of 2% to 4%.

CONFERENCE CALL INFORMATION

A conference call to discuss the company's third quarter results will be held this morning at 9:30 a.m. (CDT). To listen, please call the conference call line at 480-248-5088 ten minutes prior to the scheduled start time and use reservation number 889974. 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 2:45 p.m. (Central) October 24, 2007 through October 31, 2007 by dialing 800-475-6701 (USA) or 320-365-3844 (International) using access code 889974. This call will also be archived on the company's web site.

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 Karen Fugate, 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 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 risks and uncertainties, see LII's publicly available filings with the Securities and Exchange Commission. LII 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 Nine Months Ended September 30, 2007 and 2006
               (Unaudited, in millions, except per share data)

                                         For the               For the
                                     Three Months Ended    Nine Months Ended
                                        September 30,         September 30,
                                     2007         2006      2007       2006

    NET SALES                     $1,029.8     $1,020.3  $2,863.1   $2,841.7
    COST OF GOODS SOLD               736.2        763.5   2,075.8    2,105.5
        Gross profit                 293.6        256.8     787.3      736.2
    OPERATING EXPENSES:
      Selling, general and
       administrative expenses       194.3        200.8     582.7      589.9
      (Gains), losses and other
       expenses, net                  (1.2)        (3.0)     (5.2)     (47.3)
      Restructuring charges            4.3          4.5      14.2       13.1
      Equity in earnings of
       unconsolidated affiliates      (2.7)        (2.5)     (8.9)      (7.5)
        Operational income            98.9         57.0     204.5      188.0
    INTEREST EXPENSE, net              1.9          1.2       4.8        3.6
    OTHER EXPENSE (INCOME), net        0.2          0.1       0.3        0.1
        Income before income taxes    96.8         55.7     199.4      184.3
    PROVISION FOR INCOME TAXES        35.6         20.1      69.3       59.4
          Net income                 $61.2        $35.6    $130.1     $124.9

    NET INCOME PER SHARE:
      Basic                          $0.92        $0.51     $1.93      $1.77
      Diluted                        $0.88        $0.49     $1.84      $1.67

    AVERAGE SHARES OUTSTANDING:
      Basic                           66.6         69.5      67.4       70.7
      Diluted                         69.8         72.9      70.7       74.6

    CASH DIVIDENDS DECLARED PER
     SHARE                           $0.13        $0.11     $0.39      $0.33



                  LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

                    SEGMENT REVENUES AND OPERATING PROFIT
    For the Three Months and Nine Months Ended September 30, 2007 and 2006
                           (Unaudited, in millions)

                                             For the            For the
                                       Three Months Ended  Nine Months Ended
                                          September 30,      September 30,
                                        2007     2006      2007     2006
    Net Sales
      Residential Heating & Cooling    $456.5   $502.4  $1,315.5  $1,464.2
      Commercial Heating & Cooling      255.1    228.0     650.6     554.1
      Service Experts                   183.9    174.0     512.0     492.8
      Refrigeration                     157.5    137.3     450.1     394.6
      Eliminations (A)                  (23.2)   (21.4)    (65.1)    (64.0)
                                     $1,029.8 $1,020.3  $2,863.1  $2,841.7

    Segment Profit (Loss) (B)
      Residential Heating & Cooling    $63.7     $53.4    $143.2    $168.7
      Commercial Heating & Cooling      37.8      25.8      76.6      53.2
      Service Experts                    9.2       7.4      18.4      10.2
      Refrigeration                     17.8      13.8      46.6      40.2
      Corporate and other              (23.4)    (21.2)    (64.2)    (66.5)
      Eliminations (A)                    --       0.5      (0.2)      0.3
        Subtotal that includes segment
         profit and eliminations       105.1      79.7     220.4     206.1
      Reconciliation to income before
       income taxes:
        (Gains), losses and other
         expenses, net                  (1.2)     (3.0)     (5.2)    (47.3)
        Restructuring charges            4.3       4.5      14.2      13.1
        Interest expense, net            1.9       1.2       4.8       3.6
        Other expense (income), net      0.2       0.1       0.3       0.1
        Less:  Realized gains on
               settled futures contracts
               not designated as cash
               flow hedges and the
               ineffective portion of
               settled cash flow
               hedges(C)                 1.5      20.2       3.2      52.3
        Less:  Foreign currency exchange
               gains (losses)(C)         1.6       1.0       3.7        --
                                       $96.8     $55.7    $199.4    $184.3

    (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 (loss) as a segment's income
         (loss) from continuing operations before income taxes included in the
         accompanying Consolidated Statements of Operations excluding (gains),
         losses and other expenses, net; restructuring charges; goodwill
         impairment; interest expense, net; and other expense (income), net;
         less (plus) realized gains (losses) on settled futures contracts not
         designated as cash flow hedges and the ineffective portion of settled
         cash flow hedges; and less (plus) foreign currency exchange gains
         (losses).

    (C)  Realized gains (losses) on settled futures contracts not designated
         as cash flow hedges, the ineffective portion of settled cash flow
         hedges and foreign currency gains (losses) are components of (Gains),
         Losses and Other Expenses, net in the accompanying Consolidated
         Statements of Operations.



                  LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

                         CONSOLIDATED BALANCE SHEETS
                As of September 30, 2007 and December 31, 2006
                (In millions, except share and per share data)

                                                    September 30, December 31,
                                                        2007         2006
                                                    (unaudited)
                                     ASSETS
    CURRENT ASSETS:
      Cash and cash equivalents                        $93.5         $144.3
      Short-term investments                            25.1             --
      Accounts and notes receivable, net               630.8          502.6
      Inventories, net                                 358.7          305.5
      Deferred income taxes                             20.1           22.2
      Other assets                                      51.1           43.8
        Total current assets                         1,179.3        1,018.4
    PROPERTY, PLANT AND EQUIPMENT, net                 306.4          288.2
    GOODWILL, net                                      262.4          239.8
    DEFERRED INCOME TAXES                              108.3          104.3
    OTHER ASSETS                                        78.4           69.1
        TOTAL ASSETS                                $1,934.8       $1,719.8

                           LIABILITIES AND STOCKHOLDERS' EQUITY
    CURRENT LIABILITIES:
      Short-term debt                                   $3.8           $1.0
      Current maturities of long-term debt              61.3           11.4
      Accounts payable                                 349.4          278.6
      Accrued expenses                                 346.4          326.3
      Income taxes payable                              25.4           33.8
        Total current liabilities                      786.3          651.1
    LONG-TERM DEBT                                      95.4           96.8
    POSTRETIREMENT BENEFITS, OTHER THAN PENSIONS        12.1           12.9
    PENSIONS                                            47.0           49.6
    OTHER LIABILITIES                                  124.3          105.0
        Total liabilities                            1,065.1          915.4

    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, 81,326,014 shares and
       76,974,791 shares issued for 2007 and 2006,
       respectively                                      0.8            0.8
      Additional paid-in capital                       750.4          706.6
      Retained earnings                                417.6          312.5
      Accumulated other comprehensive income (loss)     61.8           (5.1)
      Treasury stock, at cost, 16,883,456 shares
       and 9,818,904 shares for 2007 and 2006,
       respectively                                   (360.9)        (210.4)
        Total stockholders' equity                     869.7          804.4
        TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY  $1,934.8       $1,719.8



                  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 Net Income to Adjusted Net Income

                                 For the Three Months Ended September 30, 2007

                                           Net Change in
                                            Unrealized
                                             Losses on
                                           Open Futures
                                            Contracts
                                    As      and Other  Restructuring     As
                                 Reported   Items, Net    Charges     Adjusted

    NET SALES                   $1,029.8        $--        $--       $1,029.8
    COST OF GOODS SOLD             736.2         --         --          736.2
        Gross profit               293.6         --         --          293.6
    OPERATING EXPENSES:
      Selling, general and
       administrative expenses     194.3         --         --          194.3
      (Gains), losses and other
        expenses, net(1)            (1.2)      (1.9)        --           (3.1)
      Restructuring charges          4.3         --       (4.3)            --
      Equity in earnings of
       unconsolidated affiliates    (2.7)        --         --           (2.7)
        Operational income          98.9        1.9        4.3          105.1
    INTEREST EXPENSE, net            1.9         --         --            1.9
    OTHER EXPENSE, net               0.2         --         --            0.2
        Income before income taxes  96.8        1.9        4.3          103.0
    PROVISION FOR INCOME TAXES      35.6        0.5        1.5           37.6
          Net income               $61.2       $1.4       $2.8          $65.4


      NET INCOME PER SHARE -
       DILUTED                     $0.88      $0.02      $0.04          $0.94

    Note:  Management uses adjusted net income, which is not defined by U.S.
           GAAP, to measure the Company's operating performance and to analyze
           year-over-year changes in operating income with and without the
           effects of certain (gains), losses and other expenses, net,
           restructuring charges, and certain income tax items.  Management
           believes that excluding these effects is helpful in assessing the
           overall performance of the Company.

    (1)  (Gains), losses and other expenses, net include the following:

                                              For the Three Months Ended
                                                  September 30, 2007
                                                           Tax
                                             Pre-tax    (Benefit)   After-tax
                                           (Gain) Loss  Provision  (Gain) Loss
    Realized gains on settled futures
     contracts                                $(1.5)       $0.5      $(1.0)
    Net change in unrealized losses on
     open futures contracts                     1.4        (0.5)       0.9
    Foreign currency exchange gain             (1.6)        0.6       (1.0)
    Other items, net                            0.5          --        0.5
    (Gains), losses and other expenses, net   $(1.2)       $0.6      $(0.6)



                                For the Three Months Ended September 30, 2006
                                                             Reversal of
                                        Net Change in         Valuation
                                         Unrealized          Allowance
                                         Losses on              for
                                        Open Futures          Deferred
                                         Contracts   Restruc-   Tax
                                  As     and Other   turing    Assets,  As
                               Reported  Items, Net  Charges    Net  Adjusted

    NET SALES                $1,020.3      $--        $--      $--  $1,020.3
    COST OF GOODS SOLD          763.5       --         --       --     763.5
        Gross profit            256.8       --         --       --     256.8
    OPERATING EXPENSES:
      Selling, general and
       administrative
       expenses                 200.8       --         --       --     200.8
      (Gains), losses and
        other expenses, net(2)   (3.0)   (18.2)        --       --     (21.2)
      Restructuring charges       4.5       --       (4.5)      --        --
      Equity in earnings of
       unconsolidated
       affiliates                (2.5)      --         --       --      (2.5)
        Operational income       57.0     18.2        4.5       --      79.7
    INTEREST EXPENSE, net         1.2       --         --       --       1.2
    OTHER EXPENSE, net            0.1       --         --       --       0.1
        Income before income
         taxes                   55.7     18.2        4.5       --      78.4
    PROVISION FOR (BENEFIT FROM)
     INCOME TAXES                20.1      6.7        1.6     (0.3)     28.1
          Net income            $35.6    $11.5       $2.9     $0.3     $50.3


    NET INCOME PER SHARE -
     DILUTED                    $0.49    $0.16      $0.04      $--     $0.69

    (2)  (Gains), losses and other expenses, net include the following:


                                                For the Three Months Ended
                                                     September 30, 2006
                                             Pre-tax      Tax
                                             (Gain)    (Benefit)   After-tax
                                              Loss     Provision  (Gain) Loss
    Realized gains on settled futures
     contracts                                $(20.2)     $7.6      $(12.6)
    Net change in unrealized losses on
     open futures contracts                     18.6      (6.8)       11.8
    Foreign currency exchange gain              (1.0)      0.4        (0.6)
    Other items, net                            (0.4)      0.1        (0.3)
    (Gains), losses and other expenses, net    $(3.0)     $1.3       $(1.7)



                               For the Nine Months Ended September 30, 2007

                                        Net Change in
                                         Unrealized           Change in
                                         Losses on            Estimated
                                        Open Futures          Tax Gain
                                         Contracts   Restruc-   from
                                  As     and Other    turing   Prior     As
                               Reported  Items, Net   Charges   Year  Adjusted


    NET SALES                 $2,863.1     $--         $--   $   --  $2,863.1
    COST OF GOODS SOLD         2,075.8      --          --       --   2,075.8
        Gross profit             787.3      --          --       --     787.3
    OPERATING EXPENSES:
      Selling, general and
       administrative
       expenses                  582.7      --          --       --     582.7
      (Gains), losses and other
       expenses, net(3)           (5.2)   (1.7)         --       --      (6.9)
      Restructuring charges       14.2      --       (14.2)      --        --
      Equity in earnings of
       unconsolidated
       affiliates                 (8.9)     --          --       --      (8.9)
        Operational income       204.5     1.7        14.2       --     220.4
    INTEREST EXPENSE, net          4.8      --          --       --       4.8
    OTHER EXPENSE, net             0.3      --          --       --       0.3
        Income before income
         taxes                   199.4     1.7        14.2       --     215.3
    PROVISION FOR INCOME TAXES    69.3     0.4         5.1      3.2      78.0
          Net income (loss)     $130.1    $1.3        $9.1    $(3.2)   $137.3

    NET INCOME (LOSS) PER
     SHARE - DILUTED             $1.84   $0.02       $0.13   $(0.05)    $1.94

    (3)  (Gains), losses and other expenses, net include the following:


                                               For the Nine Months Ended
                                                  September 30, 2007

                                            Pre-tax   Tax (Benefit)  After-tax
                                          (Gain) Loss  Provision   (Gain) Loss
    Realized gains on settled futures
     contracts                                $(3.2)      $1.2        $(2.0)
    Net change in unrealized losses on
     open futures contracts                     1.1       (0.4)         0.7
    Foreign currency exchange gain             (3.7)       1.3         (2.4)
    Other items, net                            0.6         --          0.6
    (Gains), losses and other expenses, net   $(5.2)      $2.1        $(3.1)



                               For the Nine Months Ended September 30, 2006
                                                              Reversal of
                                       Net Change in         Valuation
                                         Unrealized           Allowance
                                         Losses on              for
                                        Open Futures          Deferred
                                         Contracts  Restruc-    Tax
                                 As     and Other   turing    Assets,    As
                              Reported  Items, Net  Charges     Net   Adjusted

    NET SALES                 $2,841.7     $--        $--     $--    $2,841.7
    COST OF GOODS SOLD         2,105.5      --         --      --     2,105.5
         Gross profit            736.2      --         --      --       736.2
    OPERATING EXPENSES:
      Selling, general and
       administrative
       expenses                  589.9      --         --      --       589.9
      (Gains), losses and
       other expenses, net(4)    (47.3)   (5.0)        --      --       (52.3)
      Restructuring charges       13.1      --      (13.1)     --          --
      Equity in earnings of
       unconsolidated
       affiliates                 (7.5)     --         --      --        (7.5)
        Operational income       188.0     5.0       13.1      --       206.1
    INTEREST EXPENSE, net          3.6      --         --      --         3.6
    OTHER EXPENSE, net             0.1      --         --      --         0.1
        Income before income
          taxes                  184.3     5.0       13.1      --       202.4
    PROVISION FOR INCOME TAXES    59.4     1.9        4.6     8.8        74.7

          Net income (loss)     $124.9    $3.1       $8.5   $(8.8)     $127.7

    NET INCOME (LOSS) PER
     SHARE - DILUTED             $1.67   $0.04      $0.11  $(0.11)      $1.71

    (4)  (Gains), losses and other expenses, net include the following:


                                                 For the Nine Months Ended
                                                   September 30, 2006
                                                            Tax     After-tax
                                               Pre-tax    (Benefit)   (Gain)
                                             (Gain) Loss  Provision    Loss
    Realized gains on settled futures
     contracts                                  $(52.3)    $19.7     $(32.6)
    Net change in unrealized losses on open
     futures contracts                             5.3      (2.0)       3.3
    Other items, net                              (0.3)      0.1       (0.2)
    (Gains), losses and other expenses, net     $(47.3)    $17.8     $(29.5)


         Free Cash Flow
                                          For the Three      For the Nine
                                          Months Ended       Months Ended
                                           September 30,      September 30,
                                               2007              2007
    Net cash provided by operating
     activities                               $115.8            $110.5
    Purchase of property, plant and
     equipment                                 (19.5)            (44.5)
    Free cash flow                             $96.3             $66.0



       Operational Working Capital
                                             Sept. 30,              Sept. 30,
                                               2007                   2006
                                 Sept. 30,   Trailing    Sept. 30,  Trailing
                                   2007     12 Mo. Avg.    2006    12 Mo. Avg.

    Accounts and Notes
     Receivable, Net               $630.8                 $602.7
      Allowance for Doubtful
       Accounts                      18.9                   19.8
    Accounts and Notes
     Receivable, Gross              649.7     $577.1       622.5     $563.6
    Inventories                     358.7                  348.1
      Excess of Current Cost
       Over Last-in, First-out       73.9                   59.4
    Inventories as Adjusted         432.6      439.6       407.5      375.3

    Accounts Payable               (349.4)    (340.7)     (362.2)    (335.3)

    Operating Working Capital (a)   732.9      676.0       667.8      603.6

    Net Sales, Trailing Twelve
     Months (b)                   3,736.8    3,736.8     3,722.5    3,722.5

    Operational Working Capital
     Ratio (a/b)                     19.6 %    18.1 %       17.9 %     16.2 %


    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 Lennox International Inc.

CONTACT: Karen Fugate, vice president, investor relations, of Lennox International Inc., +1-972-497-6670