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What's in Store for Lennox International's (LII) Q3 Earnings?

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Lennox International Inc. LII is slated to announce third-quarter 2018 results on Oct 22, before the opening bell.

In the last reported quarter, the company delivered a positive earnings surprise of 3.09%. In fact, the company topped the consensus mark in each of the trailing four quarters, with the average being 3.31%.

Let’s see how things are shaping up for this announcement.

Factors at Play

Destruction caused by tornado at the company’s manufacturing facility in Marshalltown, IA in July has compelled Lennox International to slash its full-year expectation, as revealed in August. The company expects revenues and profits to be negatively impacted by approximately $100 million and $55 million, respectively, in the second half of 2018. Meanwhile, special pre-tax charges are estimated to be approximately $80 million in 2018, which includes site clean-up costs, asset write-offs and factory-inefficiency expenses.

However, business interruption and property insurance proceeds are expected to offset the negative impact of tornado through 2018 and 2019.

Lower revenues in the Residential segment are likely to impact its earnings per share from continuing operations by approximately $1.05 in 2018. However, the bottom line will be positively impacted by $1.05 in 2019. The proceeds from property insurance will cover the special pre-tax charges in 2018.

Adjusted revenue growth (excluding the impact of divestitures in the refrigeration business) is expected to be 4-6% for the year. Also, adjusted EPS from continuing operations is projected between $8.90 and $9.30. The company reaffirmed its guidance for stock repurchases of $450 million for the year.

Although the destruction caused by tornado might have weighed on the company’s results in the second half of 2018, strong underlying demand fundamentals in the company’s core residential and commercial HVAC markets and pricing power are encouraging. Moreover, new investments for the expansion of its distribution footprint, research and development projects, as well as recent marketing programs are expected to have benefited the company’s segmental revenues in the third quarter. We believe improving replacement, solid residential construction (primarily new constructions) and equipment sales will continue to drive Lennox International’s revenues.

Segment Details: Notably, we notice that the Zacks Consensus Estimate for third-quarter 2018 revenues for the company’s Residential Heating & Cooling (accounting for 60.9% of total revenues), and Commercial Heating & Cooling segments is currently pegged at $623 million and $284 million, respectively, higher than the corresponding tallies of $591 million and $269 million recorded in the prior-year quarter.

Meanwhile, the Zacks Consensus Estimate for third-quarter 2018 revenues for the company’s Refrigeration segment stands at $148 million, lower than the year-ago tally of $192 million.

Overall, higher volumes, lower corporate taxes, SG&A leverage and strong price realization will aid Lennox International to boost its bottom line. However, rising steel, copper and aluminum costs, unfavorable mix, as well as ongoing growth-based investments might impede its bottom-line growth in the near term.

Overall, for the third quarter, the Zacks Consensus Estimate for earnings stands at $2.91, reflecting a 15% year-over-year increase. Meanwhile, the consensus estimate for revenues is pegged at $1.06 billion, implying 0.6% growth.

Lennox International, Inc. Price and EPS Surprise


Lennox International, Inc. Price and EPS Surprise | Lennox International, Inc. Quote

What Does the Zacks Model Unveil?

Our proven model shows that Lennox International is unlikely to beat earnings estimates in the to-be-reported quarter. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen.

Lennox International has an Earnings ESP of -3.14% and a Zacks Rank #3, which make surprise prediction difficult. You may uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks to Consider

Here are some companies in the Construction sector, which according to our model, have the right combination of elements to post an earnings beat in their respective quarters to be reported:

Rayonier Inc. RYN has an Earnings ESP of +16.67% and carries a Zacks Rank #3. The company is slated to report quarterly numbers on Oct 31.

KBR, Inc. KBR has an Earnings ESP of +0.65% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

The company is expected to report quarterly results on Oct 30.

Jacobs Engineering Group Inc. JEC has an Earnings ESP of +5.25% and holds a Zacks Rank #3. The company is expected to report quarterly numbers on Nov 20.

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