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Lennox (LII) Trims Earnings & Revenue Guidance for 2018

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Lennox International Inc. LII has reduced its revenue as well as profit expectations for the second half of 2018 due to destruction caused by tornado at its manufacturing facility in Marshalltown, IA in July.

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 caused by tornado through 2018 and 2019.

Lower revenues 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 for 2019. The proceeds from property insurance will cover the special pre-tax charges in 2018.

Adjusted revenue growth (excluding the impact of the divestitures in refrigeration business) is now expected to be 4-6% for the year compared with prior expectation of 6-8%. Also, adjusted EPS from continuing operations is projected between $8.90 and $9.30 versus $9.95-$10.35 expected earlier.

However, the company reaffirmed its guidance for stock repurchases of $450 million for the year.

A Look at Second-Quarter Results

Lennox reported better-than-expected results in the second quarter of 2018, backed by solid contribution from Residential and Commercial businesses. Adjusted earnings of $3.67 per share increased 29.7% from the prior-year quarter. Net sales of $1,175.4 million improved 6.7% year over year. Adjusted net sales came in at $1,158.3 million, 9.3% higher than the prior-year quarter.

Notably, its Residential Heating & Cooling revenues of $716 million increased 10% year over year, backed by volume and price growth, as well as positive foreign exchange impact.

Shares of Lennox have outperformed the industry in a year’s time. Its shares have surged 35.8% compared with the industry’s rally of 27.7% in the said period, owing to its solid results.

Zacks Rank & Stocks to Consider

Currently, Lennox carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the Zacks Construction sector are NCI Building Systems, Inc. NCS, PGT Innovations, Inc. PGTI and Continental Building Products, Inc. CBPX each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

NCI Buildings’ earnings surpassed the consensus estimate in three of the trailing four quarters, with an average positive surprise of 25%.

PGTs’ 2018 earnings are expected to increase 78.7%.

Continental Building surpassed earnings estimates in three of the trailing four quarters, resulting in an average positive surprise of 14.9%.

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