Lennox International(LII) - 2022 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported record revenue of $1.37 billion, up 10% year-over-year, and up 11% at constant currency [20] - GAAP operating income reached a record $227 million, up 5%, while total segment profit rose 4% to a new record of $230 million [21] - Adjusted EPS was a record $5, up 9%, with GAAP EPS at $4.96, also up 10% [21] Business Segment Data and Key Metrics Changes - Residential segment revenue was a record $978 million, up 17%, with price up 13% and volume up 5% [22] - Commercial segment revenue decreased to $220 million, down 13%, with volume down 22% and segment profit down 62% to $17 million [24] - Refrigeration segment revenue was $169 million, up 14%, with profit rising 73% to $23 million [26][27] Market Data and Key Metrics Changes - The company anticipates low-single-digit shipment growth in the North American Residential market and mid-single-digit growth in the North American Commercial unitary and Refrigeration markets [28] - Order rates and backlog in the Refrigeration segment remained strong, particularly in North America, despite geopolitical challenges affecting European operations [27] Company Strategy and Development Direction - The company is focused on innovation and ESG, having completed the Department of Energy's Cold Climate Heat Pump Challenge [13][14] - A disciplined capital allocation strategy was highlighted, with $100 million in stock repurchases and $33 million in dividends paid during the quarter [12] - The company is committed to expanding its manufacturing capabilities and exploring bolt-on opportunities for growth within the HVACR sector [81][84] Management's Comments on Operating Environment and Future Outlook - Management acknowledged potential economic slowdowns but noted strong demand continues to exceed supply capabilities [37][38] - Commodity inflation is easing, and ongoing productivity initiatives are expected to positively impact the business as supply chains normalize [39] - The company is prepared for potential declines in residential new construction but has contingency plans in place [37] Other Important Information - The company raised its full-year revenue growth guidance to 10% to 15% from a prior range of 7% to 11% [28] - The effective tax rate is expected to remain between 18% to 20% for the full year [33] Q&A Session Summary Question: Thoughts on commercial business margin improvement - Management indicated that while they are seeing sequential improvements, it is too early to provide specific margin exit rates for the commercial segment [46][47] Question: Earnings weighting between Q3 and Q4 - Management suggested that pricing and cost dynamics would mirror the earnings split, with a return to more normal seasonality expected [48][50] Question: Supply chain headwinds and labor updates - Management confirmed that labor issues are under control, but component availability remains a significant challenge [56][58] Question: SEER change impact on pricing - Management stated they are fully prepared for the SEER change and expect to capture the full value in pricing, with no significant stock-up anticipated [61][62] Question: Long-term financial guidance - Management affirmed their commitment to mid-single-digit sales growth and 30% incrementals, with no changes expected [68] Question: Commodity cost impacts - Management noted that benefits from easing commodity costs are likely to be realized in 2023 due to existing inventory and hedging strategies [69][70] Question: Share gain strategies - Management emphasized restoring manufacturing capabilities and expanding dealer networks as key strategies for regaining market share [86][88]