Lennox (LII) Tops Q3 EPS by 50c, Revenues Beat; Raises FY20 EPS Guidance Above Consensus
Lennox (NYSE: LII) reported Q3 EPS of $3.53, $0.50 better than the analyst estimate of $3.03. Revenue for the quarter came in at $1.06 billion versus the consensus estimate of $970.11 million.
- Revenue up 2% to third-quarter record $1.06 billion, led by 13% Residential growth
- GAAP EPS from continuing operations up 16% to record $3.42
- Adjusted EPS from continuing operations up 6% to third-quarter record $3.53
- Raising 2020 guidance for adjusted revenue from a decline of 10-15% to a decline of 5-9%
- Raising 2020 guidance for GAAP EPS from continuing operations from $7.31-$8.11 to $8.35-$8.95
- Raising 2020 guidance for adjusted EPS from continuing operations from $7.90-$8.70 to $9.05-$9.65
"Lennox International posted record third-quarter revenue and profit driven by the performance of our Residential business in the quarter," said Chairman and CEO Todd Bluedorn. "Residential revenue rose 13% and set a new record for any quarter at $722 million. Revenue from replacement business was up low-double digits, and revenue from new construction was up mid-teens. Residential segment profit grew 21% to a third-quarter record $153 million, and segment margin expanded 140 basis points to a third-quarter record 21.2%. On an operational basis excluding $16 million of insurance benefit in the prior-year quarter, segment profit was up 38% and segment margin expanded 390 basis points.
"Turning to our commercial-facing businesses, both Commercial and Refrigeration continued to be more impacted than Residential from the pandemic, but the year-over-year decline moderated in the third quarter from what we saw in the second quarter this year. In Commercial, revenue and profit were down 18%. Commercial equipment revenue was down 20%, and service revenue was down low-double digits. Segment margin expanded 10 basis points to 18.7%. In the Refrigeration segment, revenue was down 14% at constant currency, with North America down high-teens and Europe down high-single digits. Refrigeration profit declined 34%, and segment margin contracted 350 basis points to 10.4%.
"We continue to face highly uncertain economic conditions in the fourth quarter and remain cautious on the potential impact from the pandemic heading into the winter season. The company remains competitively well-positioned to capitalize on market opportunities with a seasoned team experienced in managing through downturns, while continuing to invest and advance the company's position for the future. For 2020, we are raising revenue guidance from a decline of 10-15% to a decline of 5-9% for the full year. We are raising 2020 guidance for adjusted EPS from continuing operations from a range of $7.90-$8.70 to $9.05-$9.65. And we are raising free cash flow guidance from approximately $340 million to $425 million this year as the company maintains a strong balance sheet with strong cash generation."
GUIDANCE:
Lennox sees FY2020 EPS of $9.05-$9.65, versus the consensus of $8.83.
The company is updating its 2020 guidance and raising estimates for revenue and EPS from continuing operations.
- Raising guidance for adjusted revenue to be down 5-9% from the prior year compared to previous guidance to be down 10-15%.
- Raising guidance for GAAP EPS from continuing operations to $8.35-$8.95 from previous guidance of $7.31-$8.11.
- Raising guidance for adjusted EPS from continuing operations to $9.05-$9.65 from previous guidance of $7.90-$8.70.
- Corporate expense is now expected to be approximately $90 million, primarily due to higher incentive compensation, compared to prior guidance of $75 million.
- The effective tax rate is now expected to be 19-20% on an adjusted basis for the full year compared to prior guidance of 21-22%.
- Capital expenditures are now targeted to be approximately $100 million compared to previous guidance of approximately $120 million.
- Free cash flow is now expected to be approximately $425 million for the full year, up from prior guidance of approximately $340 million.
- The company's remaining 2020 stock repurchase program of $300 million currently remains on hold; the company repurchased $100 million of stock in the first quarter.
- The company's quarterly dividend plans remain unchanged at $0.77 per share, or more than $115 million in total for the year.
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