Lennox International(US:LII)2020-04-20 20:51Financial Data and Key Metrics Changes - Company revenue for Q1 2020 was $724 million, down 8% on a GAAP basis and down 4% on an adjusted basis excluding divestitures [10] - GAAP operating income decreased to $36 million from $95 million in the prior year, with GAAP EPS from continuing operations at $0.32 compared to $1.73 previously [11] - Adjusted segment profit was $38 million, down from $99 million, with adjusted EPS from continuing operations at $0.56 compared to $1.68 in the prior year [12] Business Segment Performance Changes - Residential segment revenue decreased by 5% to $442 million, with segment profit down 62% to $33 million [30][31] - Commercial segment revenue increased by 3% to $170 million, with segment profit rising 24% to $19 million [33] - Refrigeration segment revenue was down 12% to $103 million, with segment profit down 93% to $1 million [34][35] Market Data and Key Metrics Changes - North American residential HVAC shipments are expected to decline mid-teens, a significant drop from previous expectations of mid-single-digit growth [40] - Commercial unitary shipments and Refrigeration shipments in North America are projected to decrease by 25% [41] Company Strategy and Industry Competition - The company has reset its financial expectations for 2020, now anticipating revenue to decline by 11% to 17% compared to previous guidance of 4% to 8% growth [24] - Cost reduction actions are expected to yield approximately $150 million in SG&A savings for the remainder of the year [25] - The company is maintaining its focus on key growth initiatives while pausing new store openings and share repurchase plans [68] Management's Comments on Operating Environment and Future Outlook - Management indicated that the HVAC market is expected to be negatively impacted by approximately 20% due to the pandemic [23] - The company remains confident in its ability to manage through economic downturns, drawing on past experiences [22] - There is an expectation of a shift towards repair rather than replacement in the residential business due to economic conditions [97] Other Important Information - The company plans to maintain its quarterly dividend of $0.70 per share, totaling over $150 million for the year [27] - Free cash flow is targeted at $340 million for 2020, with capital expenditures reduced from $153 million to $120 million [26][46] Q&A Session Summary Question: Can you break down the residential mid-teens decline into replacement and new construction? - Management did not provide a specific breakdown but indicated that new construction may remain stable while replacement is expected to decline [50] Question: What is the sales cadence through March and into April? - Sales have been down mid-to-high teens in early April, with a notable slowdown in dealer stocking for the summer [51] Question: How much of the $150 million cost savings is temporary versus permanent? - Approximately 20% comes from salaried headcount reductions, 40% from discretionary spending cuts, and 40% from pay actions [54] Question: What are the expectations for decremental margins? - Decremental margins in Q1 were primarily driven by unfavorable mix, but cost reductions are expected to improve margins moving forward [61] Question: How is the company managing its distribution network during this time? - The company is protecting key investments and maintaining its distribution network while pausing new store openings [68] Question: What indicators is the company watching to assess volume declines? - Management is monitoring employment numbers and consumer confidence as key indicators [120]