Lennox Q1 Earnings Beat Ests, Lags on Rev - Analyst Blog

Diversified machinery company, Lennox International, Inc. LII reported impressive first-quarter 2014 results. The company's adjusted earnings per share from continuing operations in the quarter were 42 cents, up 27.3% from 33 cents reported in the year-ago quarter. The bottom-line result also surpassed the Zacks Consensus Estimate of 41 cents by 2.4%.  

Earnings per share, including one-time charges in the quarter, were 40 cents, up from 31 cents reported in the year-ago quarter.

Revenue

Lennox International's net sales in the reported quarter increased 4.0% year over year to $695.4 million. On a constant currency basis, top-line growth was 6%, driven by higher volumes and price/mix impacts. However, net sales lagged the Zacks Consensus Estimate of $697 million.

Lennox International reports its top-line results under three heads — Residential Heating & Cooling, Commercial Heating & Cooling and Refrigeration. First-quarter results of these segments are discussed below.

The Residential Heating & Cooling segment generated net sales of $342.1 million, representing nearly 49.2% of total net sales in the quarter. Compared with the year-ago quarter, the segment's net sales were up 8.8% or 10% on a constant currency basis due to favourable price/mix and volume gains.

Net sales from the Commercial Heating & Cooling segment were up 6.1% year over year to $173.0 million and accounted for 24.9% of total net sales.

The Refrigeration segment generated net sales of $180.3 million in the quarter, up 25.9% year over year. The segment's sales accounted for 25.9% of total net sales in the quarter.

Costs/Margins

Lennox International's cost of goods sold in first-quarter 2014 went up 4.1% year over year and represented 75.8% of total revenue, relatively flat year over year. Gross margin in the quarter was 24.2%.

Selling, general and administrative expenses, as a percentage of total revenue, stood at 19.5%, down 80 basis points year over year.

Balance Sheet/Cash Flow

Exiting first-quarter 2014, Lennox International's cash and cash equivalents were $39.0 million versus $38.0 million recorded in the preceding quarter. Long-term debt increased 69.0% sequentially to $394.0 million.

Lennox International used cash amounting to $125.0 million for its operating activities versus nearly $137.0 million used in the year-ago quarter. Spending on purchase of property, plant and equipments increased 43.0% year over year to $17.3 million.

In first-quarter 2014, Lennox International paid cash dividends of $11.8 million.

Outlook

Lennox International maintained its guidance for 2014. Total revenue is expected to grow in the 2−6% range, including a 1% negative impact from foreign currency translations. On a constant currency basis, revenue is expected to grow within the 3−7% range. Adjusted earnings per share are predicted in the $4.20−$4.60 range.

The effective tax rate is anticipated within a range of 34−35% and corporate expense is estimated to be approximately $70 million. The company intends to spend $90 million as capital expenditure and repurchase shares worth $150 million.      

Lennox International currently has a $4.2 billion market capitalization and carries a Zacks Rank #3 (Hold). Other stocks worth considering in the industry include Nortek Inc. NTK, CommScope Holding Company, Inc. COMM, and Broadwind Energy, Inc. BWEN, all of which carry a Zacks Rank #2 (Buy).