The Factors To Watch For In Lennox's Q4 Earnings

Lennox International Inc. LII is slated to report fourth-quarter 2017 results on Feb 6, before the market opens.

The company pulled off an average positive earnings surprise of 7.56% over the preceding four quarters. Notably, Lennox International's adjusted earnings per share in third-quarter 2017 came in at $2.53 per share, beating the Zacks Consensus Estimate of $2.44.

Let's see how things are shaping up prior to this announcement.

Factors at Play

Lennox International believes its research and development projects as well as new marketing programs will continue to boost its segmental revenues. Moreover, the company noted that new investments made to widen its distribution footprint will help drive aggregate top-line results in the fourth quarter. In addition, the company predicts that favorable foreign exchange rates will bolster its revenues for full-year 2017 by nearly $5 million.  Based on such optimistic views, Lennox International raised the lower-end of its revenue growth guidance for 2017 from 4-7% to 5-7%.

We believe improving replacement, new constructions and equipment sales will continue to drive Lennox International's revenues. Notably, we notice that the Zacks Consensus Estimates for the company's Commercial Heating & Cooling and Residential Heating & Cooling segment revenues are currently pegged at $246 million and $487, respectively, for fourth-quarter 2017, higher than the corresponding tallies of $243 million and $476 million recorded in the prior-year quarter.

Lennox International also anticipates that higher volume, favorable prices, reduced sourcing and engineering-led costs, and favorable foreign exchange impact will help widen its margins. The company expects to secure $35 million savings from lower sourcing and engineering-led costs in 2017. Also, it predicts generating $6-million savings from the Mexican manufacturing operations.

However, Lennox International noted that elevated commodity costs, unfavorable mix and expenses related to the ongoing research and development, as well as retailing and distribution expansion moves might impede its margins in the quarter to be reported. Notably, the company has lowered its adjusted earnings guidance for 2017 to the $7.75-$8.05 per share range from the previously estimated guidance of $7.75-$8.15. We fear that continued productivity issues within several major facilities might also dent the company's near-term profitability.

Lennox International carries a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for the company's earnings is pegged at $1.67 for the quarter under review.

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