Lennox International Inc. (NYSE: LII) today reported fourth quarter and full year 2015 results.
For the fourth quarter, revenue was $834 million, up 3% from the prior-year quarter. At constant currency, revenue was up 7%. Total segment profit margin was a fourth-quarter record 9.7%, up 30 basis points from the prior-year quarter. Diluted earnings per share from continuing operations on an adjusted basis was a fourth-quarter record $1.11, up 9% from $1.02 in the prior-year quarter. On a GAAP basis, diluted earnings per share from continuing operations was $0.25, compared to $1.00 in the prior-year quarter, including previously announced non-cash impairment charges in the company's Kysor/Warren refrigerated display case business.
For the full year, revenue was $3.5 billion, up 3%. At constant currency, revenue was up 7%. Total segment profit margin was a record 10.9%, up 80 basis points from the prior year. Diluted earnings per share from continuing operations on an adjusted basis was a record $5.14 compared to $4.38 in the prior year. On a GAAP basis, diluted earnings per share from continuing operations was $4.11compared to $4.28 in the prior year.
"2015 was a year of strong growth for Lennox International, led by our Residential business with revenue up 9% at constant currency and segment profit up 18%," said Chairman and CEO Todd Bluedorn. "Our Residential and Commercial businesses set new records for revenue, margin and profit for the year. In Refrigeration, we saw strong growth and margin expansion in the second half of the year, and momentum continues.
"In the fourth quarter, Residential volume and mix were negatively impacted by record warm weather in the U.S. Residential revenue was up 8% over the prior-year quarter at constant currency. Residential profit was flat, and margin was down due to negative Canadian foreign exchange, lower factory absorption than a year ago, and unfavorable mix – driven by a lower mix of furnace products and replacement business, and a higher mix of residential national accounts and new construction. In our Commercial business, we set new fourth-quarter records for revenue and profit. Commercial revenue was up 7% at constant currency, and margin expanded 70 basis points to 15.3%. In Refrigeration, revenue was up 3% at constant currency, and margin expanded 180 basis points to 8.8%.
"Looking ahead at 2016 overall, Lennox International is well positioned for another year of strong growth and profitability. The company reiterates its guidance for revenue growth of 4-8% at constant currency and EPS from continuing operations of $6.10-$6.60. With a strong balance sheet and cash generation, the company will continue to invest in the business to drive organic growth, raise the dividend with earnings growth, and repurchase stock."
FOURTH QUARTER 2015 FINANCIAL HIGHLIGHTS
Revenue: Revenue for the fourth quarter was $834 million, up 3% from the prior-year quarter. At constant currency, revenue was up 7%. Volume was up and price/mix was flat from the fourth quarter a year ago.
Gross Profit: Gross profit in the fourth quarter was $228 million, up 1% from $225 million in the prior-year quarter. Gross margin was 27.3% compared to 27.7% in the fourth quarter a year ago. Gross profit was positively impacted by higher volume and lower material costs, with partial offsets from unfavorable price/mix, negative foreign exchange, lower factory absorption, and investments in distribution expansion.
Income from Continuing Operations: For the fourth quarter, adjusted income from continuing operations was $50 million, or $1.11diluted earnings per share, compared to $47 million, or $1.02 diluted earnings per share, in the prior-year quarter. On a GAAP basis, fourth quarter income from continuing operations was $11 million, or $0.25 diluted earnings per share, compared to $46 million, or$1.00 diluted earnings per share, in the prior-year quarter.
Adjusted income from continuing operations for the fourth quarter of 2015 excludes net after-tax charges of $39.1 million, which are derived from $32.6 million of impairment charges related to the Kysor/Warren refrigerated display case business, a $3.8 million one-time inventory write-down, and $2.7 million of other items, net.
FULL YEAR 2015 FINANCIAL HIGHLIGHTS
Revenue: For the full year, revenue was $3.5 billion, up 3%. At constant currency, revenue was up 7%. Volume and price/mix were up from the prior year.
Gross Profit: Gross profit for the full year was $947 million, up 5% from $903 million in the prior year. Gross margin was 27.3%, up 50 basis points from 26.8% in the prior year. Gross profit was positively impacted by higher volume, favorable price, lower material costs, and higher productivity, with partial offsets from negative foreign exchange, unfavorable mix, the repeal of the carbon tax on refrigerant in Australia, lower factory absorption, and investments in distribution expansion.
Income from Continuing Operations: Adjusted income from continuing operations for 2015 was $234 million, or $5.14 diluted earnings per share, compared to $213 million, or $4.38 diluted earnings per share, in the prior year. On a GAAP basis, income from continuing operations for 2015 was $187 million, or $4.11 diluted earnings per share, compared to $208 million, or $4.28 diluted earnings per share, in the prior year.
Adjusted income from continuing operations for 2015 excludes net after-tax charges of $47.0 million, which are derived from $32.6 million of impairment charges related to the Kysor/Warren refrigerated display case business, $4.0 million in special legal contingency charges, $3.8 million for a one-time inventory write down, and $6.6 million of other items, net.
Free Cash Flow and Total Debt: Cash from operations for the fourth quarter was a record $224 million, compared to $161 million in the prior-year quarter. Capital expenditures were $23 million in the fourth quarter, compared to $28 million in the prior-year quarter. Free cash flow was also a record at approximately $202 million, compared to approximately $134 million in the prior-year quarter. For the full year, cash from operations was a record $331 million, compared to $185 million in the prior year. Capital expenditures were$70 million in 2015 compared to $87 million in 2014. Free cash flow was a record $261 million for the full year compared to $98 millionin the prior year. The company paid $59 million in dividends for the year. Total debt at the end of 2015 was $744 million. Total cash and cash equivalents were $39 million ending the year.
BUSINESS SEGMENT FINANCIAL HIGHLIGHTS
Residential Heating and Cooling
- 4Q15 revenue of $431 million, up 7% from 4Q14; up 8% at constant currency
- 4Q15 segment profit a fourth-quarter record $57 million, relatively flat with 4Q14
- 4Q15 segment profit margin 13.2%, down 90 basis points from 4Q14
- 2015 revenue a record $1,867 million, up 8% from 2014; up 9% at constant currency
- 2015 segment profit a record $278 million, up 18% from 2014
- 2015 segment profit margin a record 14.9%, up 130 basis points from 2014
Fourth quarter results were positively impacted by higher volume and lower material costs, with offsets from foreign exchange, unfavorable mix, strategic investments in distribution expansion, and lower factory absorption than in the prior-year quarter, which included an inventory prebuild to support a product efficiency regulatory transition. Full year results were positively impacted by higher volume, favorable price/mix, and lower material costs, with partial offsets from negative foreign exchange, higher SG&A, lower factory absorption, and strategic investments in distribution expansion.
Commercial Heating and Cooling
- 4Q15 revenue a fourth-quarter record $227 million, up 2% from 4Q14; up 7% at constant currency
- 4Q15 segment profit a fourth-quarter record $35 million, up 7% from 4Q14
- 4Q15 segment profit margin of 15.3%, up 70 basis points from 4Q14
- 2015 revenue a record $887 million, up 1% from 2014; up 6% at constant currency
- 2015 segment profit a record $130 million, up 5% from 2014
- 2015 segment profit margin a record 14.7%, up 60 basis points from 2014
Fourth quarter results were positively impacted by higher volume and lower material costs, with a partial offset from negative foreign exchange. Full year results were positively impacted by higher volume, favorable price, and lower material costs, with partial offsets from negative foreign exchange, unfavorable mix, higher SG&A, and strategic investments for growth in the VRF equipment market in North America.
Refrigeration
- 4Q15 revenue of $176 million, down 5% from 4Q14; up 3% at constant currency
- 4Q15 segment profit of $15 million, up 18% from 4Q14
- 4Q15 segment profit margin of 8.8%, up 180 basis points from 4Q14
- 2015 revenue of $713 million, down 5% from 2014; up 3% at constant currency
- 2015 segment profit of $53 million, down 5% from 2014
- 2015 segment profit margin of 7.4%, flat with 2014
Fourth quarter results were positively impacted by lower material costs and higher productivity, with partial offsets from negative foreign exchange, unfavorable mix, and higher SG&A. Full year results were positively impacted by higher volume, favorable price, lower material costs, and higher productivity, with offsets from negative foreign exchange, unfavorable mix, higher SG&A, and the repeal of the carbon tax on refrigerant in Australia.
2016 FULL-YEAR OUTLOOK
- Reiterating guidance for revenue growth of 4-8% at constant currency; the company now expects a negative 1 point impact from foreign exchange for revenue growth of 3-7% at actual currency
- Reiterating adjusted and GAAP EPS from continuing operations of $6.10-$6.60
- Reiterating an effective tax rate of 34-35% on a full-year basis
- Reiterating capital expenditures of approximately $95 million
- Reiterating plans for $200 million of stock repurchases
CONFERENCE CALL INFORMATION
A conference call to discuss the company's fourth quarter and full year 2015 results will be held this morning at 8:30 a.m. Central time. To listen, call the conference call line at 612-332-0107 at least 10 minutes prior to the scheduled start time and use reservation number 383549. The conference call will also be webcast on Lennox International's web site at www.lennoxinternational.com. A replay will be available from 11:00 a.m. Central time on February 8 through February 22, 2016, by dialing 800-475-6701 (U.S.) or 320-365-3844 (international) and using access code 383549. The call also will be archived on the company's web site.
About Lennox International
Lennox International Inc. is a global leader in the heating, air conditioning, and refrigeration markets. Lennox International stock is listed on the New York Stock Exchange and traded under the symbol "LII". The company's 2016 annual meeting of stockholders is to be held on May 12, 2016, and the record date for that meeting is March 18, 2016. Additional information on Lennox International is available at www.lennoxinternational.com or by contacting Steve Harrison, Vice President, Investor Relations, at 972-497-6670.
Forward-Looking Statements
The statements in this news release that are not historical statements, including statements regarding the 2016 full-year outlook and expected financial results for 2016, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on information currently available as well as management's assumptions and beliefs today. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from the results expressed or implied by the statements, and investors should not place undue reliance on them. Risks and uncertainties that could cause actual results to differ materially from such statements include, but are not limited to: the impact of higher raw material prices, LII's ability to implement price increases for its products and services, economic conditions in our markets, regulatory changes, the impact of unfavorable weather, and a decline in new construction activity and related demand for products and services. For information concerning these and other risks and uncertainties, see LII's publicly available filings with the Securities and Exchange Commission. LII disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
