Lennox International(LII) - 2022 Q1 - Quarterly Report

Part I Part I Financial Information This section covers the company's financial statements, notes, and management's discussion and analysis Item 1. Financial Statements Presents unaudited consolidated financial statements for Q1 2022, showing increased net sales and total assets, but higher cash used in operations Consolidated Financial Statements (Unaudited) Unaudited Q1 2022 statements show asset growth, increased net sales, but decreased operating income and higher cash used in operations Consolidated Balance Sheet Highlights (in millions) | Balance Sheet Item | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Current Assets | $1,437.2 | $1,175.4 | | Inventories, net | $678.9 | $510.9 | | Total Assets | $2,456.9 | $2,171.9 | | Total Current Liabilities | $859.4 | $827.1 | | Long-term debt | $1,599.5 | $1,226.5 | | Total Liabilities | $2,867.1 | $2,440.9 | | Total Stockholders' Deficit | ($410.2) | ($269.0) | Consolidated Statement of Operations Highlights (in millions, except per share data) | Metric | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Net Sales | $1,013.4 | $930.5 | | Gross Profit | $268.2 | $256.5 | | Operating Income | $111.9 | $114.1 | | Net Income | $83.6 | $84.2 | | Diluted EPS | $2.29 | $2.20 | Consolidated Statement of Cash Flows Highlights (in millions) | Cash Flow Activity | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | ($97.9) | ($17.5) | | Net cash used in investing activities | ($25.7) | ($23.8) | | Net cash provided by (used in) financing activities | $129.1 | ($45.5) | Notes to Consolidated Financial Statements (Unaudited) Notes detail segment performance, increased total debt to $1.61 billion for share repurchases, and rising warranty liabilities Segment Performance - Q1 2022 vs Q1 2021 (in millions) | Segment | Net Sales Q1 2022 | Net Sales Q1 2021 | Segment Profit Q1 2022 | Segment Profit Q1 2021 | | :--- | :--- | :--- | :--- | :--- | | Residential Heating & Cooling | $682.2 | $606.3 | $107.6 | $96.4 | | Commercial Heating & Cooling | $187.7 | $199.2 | $6.3 | $27.4 | | Refrigeration | $143.5 | $125.0 | $14.1 | $7.9 | - In February 2022, the company initiated a $200.0 million accelerated share repurchase (ASR) agreement[48][49] - As of March 31, 2022, $646 million remained available for repurchase under its authorized plans[48][49] Total Debt Obligations (in millions) | Debt Category | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Current maturities of long-term debt | $11.8 | $11.3 | | Long-term debt | $1,599.5 | $1,226.5 | | Total debt | $1,611.3 | $1,237.8 | - Total product warranty liability increased to $143.2 million as of March 31, 2022, up from $134.2 million at the end of 2021[45] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) MD&A highlights an 8.9% net sales increase in Q1 2022, offset by a 1.9% operating income decrease due to cost pressures Financial Overview & Consolidated Results Consolidated Q1 2022 results show net sales up 8.9% but operating income down 1.9%, with gross margin contracting due to higher costs Consolidated Results Summary - Q1 2022 vs Q1 2021 (in millions) | Metric | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | Net sales | $1,013.4 | $930.5 | 8.9% | | Gross profit | $268.2 | $256.5 | 4.6% | | Operating income | $111.9 | $114.1 | (1.9)% | - Gross profit margin declined by 110 bps, driven by higher costs for commodities (300 bps), components (190 bps), and freight (120 bps), partially offset by favorable pricing (600 bps)[106] - In Q1 2022, the company returned $34 million to shareholders through dividends and repurchased $200 million of common stock[103] Results by Segment Q1 2022 segment results show strong growth in Residential and Refrigeration, while Commercial experienced significant sales and profit declines Residential Heating & Cooling Performance (in millions) | Metric | Q1 2022 | Q1 2021 | % Change | | :--- | :--- | :--- | :--- | | Net sales | $682.2 | $606.3 | 12.5% | | Profit | $107.6 | $96.4 | 11.6% | Commercial Heating & Cooling Performance (in millions) | Metric | Q1 2022 | Q1 2021 | % Change | | :--- | :--- | :--- | :--- | | Net sales | $187.7 | $199.2 | (5.8)% | | Profit | $6.3 | $27.4 | (77.0)% | Refrigeration Performance (in millions) | Metric | Q1 2022 | Q1 2021 | % Change | | :--- | :--- | :--- | :--- | | Net sales | $143.5 | $125.0 | 14.8% | | Profit | $14.1 | $7.9 | 78.5% | Liquidity and Capital Resources Liquidity was impacted by increased working capital needs, leading to higher cash used in operations and a rise in total debt to $1.61 billion - Net cash used in operating activities increased to $97.9 million in Q1 2022 from $17.5 million in Q1 2021, reflecting less favorable changes in working capital[122] - Total debt stood at $1,611.3 million as of March 31, 2022, with $400.5 million available for future borrowings on the domestic credit facility[125] - The debt-to-total-capital ratio increased to 134% at March 31, 2022, from 128% at December 31, 2021[129] Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes to the company's market risk exposure have occurred since the December 31, 2021 Annual Report - There has been no material change in the company's market risk exposure since December 31, 2021[137] Item 4. Controls and Procedures Disclosure controls and procedures were effective as of March 31, 2022, with no material changes to internal control over financial reporting - Management concluded that as of March 31, 2022, the company's disclosure controls and procedures were effective in providing reasonable assurance[138] - No changes occurred in the company's internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, these controls[139] Part II Part II Other Information This section covers legal proceedings, risk factors, equity sales, and exhibits Item 1. Legal Proceedings Ongoing legal proceedings are not expected to have a material adverse effect on the company's financial position, results, or cash flows - Management is of the opinion that none of the ongoing claims or lawsuits will have a material adverse effect on the company's financial condition, results, or cash flows[140] Item 1A. Risk Factors No material changes to the company's risk factors have occurred since the December 31, 2021 Annual Report on Form 10-K - There have been no material changes to the company's risk factors from those disclosed in the 2021 Annual Report on Form 10-K[141] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds In Q1 2022, the company repurchased 650,415 shares, including an ASR, with $646.0 million remaining for future repurchases Share Repurchases in Q1 2022 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Jan 1 - Jan 31 | 105 | $276.78 | | Feb 1 - Feb 28 | 617,251 | $275.51 | | Mar 1 - Mar 31 | 33,059 | $263.59 | | Total Q1 | 650,415 | N/A | - As of March 31, 2022, approximately $646.0 million remained available for purchase under the company's share repurchase plans[142] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, debt indentures, and officer certifications - The filing includes key exhibits such as debt indentures, an employment agreement for CEO Alok Maskara, and required officer certifications (31.1, 31.2, 32.1)[143]