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Lennox (LII) Beats on Q2 Earnings Estimates, Raises Outlook

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Lennox International, Inc. LII reported better-than-expected results in the second quarter of 2018, backed by solid contribution from Residential and Commercial businesses.

 

Earnings/Revenues

 

Quarterly adjusted earnings came in at $3.67 per share, beating the Zacks Consensus Estimate of $3.56. The bottom line also increased 29.7% from prior-year quarter.

 

Net sales during the reported quarter came in at $1,175.4 million, beating the Zacks Consensus Estimate of $1,133 million by 3.7%. Also, the reported figure improved 6.7% year over year. Adjusted net sales came in at $1,158.3 million, 9.3% higher than the prior-year quarter.

 

Lennox International, Inc. Price, Consensus and EPS Surprise

 

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

Segmental Details

 

Residential Heating & Cooling revenues came in at $716 million, increasing 10% year over year. The upswing primarily stemmed from volume and price growth, as well as positive foreign exchange impact.

 

Commercial Heating & Cooling revenues came in at $292 million, up 13% year over year. This uptick was backed by strong North American HVAC equipment and National account services revenues.

 

However, Refrigeration business (excluding non-core businesses in Australia, Asia and South America) sales increased 2% year over year to $150 million. Notably, the company closed the sale of its Australia and Asia business to Beijer Ref during the quarter. 

 

Moreover, Lennox International completed the sale of the Sydney area real estate associated with its former operation in Australia.

 

Costs/Margins

 

Cost of goods sold during the quarter was $813.8 million, up 6.9% year over year. 

 

Adjusted gross profit margin was 30.8%, down 70 basis points year over year. This decline was mainly due to higher commodity and freight costs, as well as distribution investments.

 

Selling, general and administrative expenses during the quarter totaled $161.4 million compared with $168.5 million reported in the year-ago quarter. 

 

Balance Sheet/Cash Flow

 

The company had cash and cash equivalents of $39.4 million as of the quarter end compared with $68.2 million reported on Dec 31, 2017. Long-term debt was $1,319 million, higher than  $970.5 million recorded at the end of 2017.

 

In the first six months of 2018, Lennox International used $35 million cash in operating activities compared with $48.3 million in the year-ago period. 

 

Capital expenditures during the reported quarter were $21 million, higher than $19 million in prior-year quarter.

 

2018 Guidance

 

Lennox International intends to boost its near-term competency on the back of ongoing growth-based investments. The company remains on track to increase shareholders’ returns in the near future.

 

This Zacks Rank #2 (Buy) company projects adjusted top-line growth for full-year 2018 at 6-8%, higher than the prior guided range of 4-8%. The company increased its adjusted earrings guidance to the range of $9.95-$10.35 per share from its prior expectation of $9.75-$10.35 for the year.

 

The company maintained its effective tax rate guidance of 22-24% on an adjusted basis for the full year. It also reiterated its capital expenditure projection of approximately $100 million.

 

Meanwhile, Lennox International hiked 2018 stock repurchase guidance to $450 million from $350 million.

 

Other Stocks to Consider

 

Other top-ranked stocks in the Zacks Construction sector include Boise Cascade Company BCC, Lennar Corporation LEN and Comfort Systems USA, Inc. FIX.

 

Currently, Boise Cascade sports a Zacks Rank #1 (Strong Buy). The company’s earnings per share (EPS) is expected to increase 84.3% in 2018. You can see the complete list of today’s Zacks #1 Rank stocks here.

 

Lennar also carries a Zacks Rank #1. The company’s current year EPS is expected to grow 37.5%.

 

Comfort Systems holds a Zacks Rank #2. The company’s EPS is estimated to be up 43.7% this year. 

 

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