Lennox International(US:LII)2022-04-25 18:14Financial Data and Key Metrics Changes - Company revenue for Q1 2022 reached a record $1.01 billion, up 9% year-over-year. GAAP operating income was $112 million, down 2%, while GAAP EPS was a record $2.29, up 4%. Total segment profit was $115 million, down 1%, with a total segment margin of 11.3%, down 110 basis points. Adjusted EPS was a record $2.36, up 4% [10][11][22]. Business Line Data and Key Metrics Changes - Residential Business: Revenue increased 11% to a record $682 million, with segment profit up 12% to $108 million. Segment margin decreased 10 basis points to 15.8% [11][24]. - Refrigeration Business: Revenue grew 15% to $144 million, with segment profit rising 78% to $14 million. Segment margin expanded 350 basis points to 9.8% [12][27]. - Commercial Business: Revenue decreased 6%, with segment profit down 77% to $6 million. Segment margin contracted 1040 basis points to 3.4% [13][26]. Market Data and Key Metrics Changes - North American refrigeration revenue grew over 20%, while European refrigeration revenue saw low single-digit growth. European HVAC revenue increased high single digits as reported [12][27]. Company Strategy and Development Direction - The company is focused on driving growth and profitability, with plans for $400 million in stock repurchases in 2022. The new CEO, Alok Maskara, is expected to lead the company in maximizing shareholder value while maintaining the existing performance culture [8][22][71]. Management's Comments on Operating Environment and Future Outlook - Management acknowledged ongoing challenges in the commercial business due to labor constraints and supply chain disruptions. They expect improvements in profitability by the end of Q2 2022 as production increases and labor issues are addressed [42][20]. The company raised its revenue growth guidance for 2022 from 5%-10% to 7%-11% and reiterated EPS guidance of $13.50 to $14.50 [22][31]. Other Important Information - The company captured $85 million in price increases in Q1, with expectations to capture approximately $335 million for the full year, up from prior guidance of $235 million [21][32]. Q&A Session Summary Question: Challenges in Commercial business and margin recovery timeline - Management indicated that recovery in margins will take time, likely improving by the end of Q2 as production increases and labor issues are resolved [41][42]. Question: Sustainability of strong performance in Residential business - Management expressed confidence in continued strength in Residential demand, with strong order rates and backlog [43]. Question: Earnings seasonality and margin expectations - Management expects a closer to 50/50 split in earnings between the first and second halves of the year, with overall margins expected to improve [46][47]. Question: Inventory dynamics in the market - Management noted that distributors are hoarding inventory due to fears of supply shortages, while dealers maintain normal inventory levels [49]. Question: Structural changes in Commercial business - Management is considering a multi-location manufacturing strategy to enhance capacity and flexibility in the Commercial business [57]. Question: Changes under new leadership - Management emphasized that the new CEO will take time to learn the business and will focus on maintaining the existing high-performance culture while exploring opportunities for growth [71][72]. Question: Labor inflation and hiring strategies - Management has raised wages significantly in Arkansas to attract a broader pool of talent, with early signs of success in hiring more experienced workers [114][115]. Question: Pricing contributions by segment - Pricing contributions are expected to be higher in the Residential segment compared to the overall company average, with Commercial expected to be slightly below average due to ongoing challenges [80]. Question: Impact of furnace and heat pump sales on mix - Management confirmed that sales of higher-margin products like furnaces positively impact the mix in Residential [105]. Question: Strategic direction under new CEO - Management indicated that while the new CEO has the freedom to explore strategic changes, any significant shifts will be based on creating shareholder value [119].