Log in
E-mail
Password
Show password
Remember
Forgot password ?
Become a member for free
Sign up
Sign up
New member
Sign up for FREE
New customer
Discover our services
Settings
Settings
Dynamic quotes 
OFFON

LENNOX INTERNATIONAL INC.

(LII)
  Report
SummaryQuotesChartsNewsRatingsCalendarCompanyFinancialsConsensusRevisions 
SummaryMost relevantAll NewsAnalyst Reco.Other languagesPress ReleasesOfficial PublicationsSector news

LENNOX INTERNATIONAL : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

07/26/2021 | 02:04pm EDT
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, that are based
on information currently available to management as well as management's
assumptions and beliefs as of the date such statements were made. All
statements, other than statements of historical fact, included in this Quarterly
Report on Form 10-Q constitute forward-looking statements, including but not
limited to statements identified by forward-looking terminology, such as the
words "may," "will," "should," "plan," "anticipate," "believe," "intend,"
"estimate" and "expect" and similar expressions. Such statements reflect our
current views with respect to future events, based on what we believe are
reasonable assumptions; however, such statements are subject to certain risks
and uncertainties.

In addition to the specific uncertainties discussed elsewhere in this Quarterly
Report on Form 10-Q, the risk factors set forth in Part I, "Item 1A. Risk
Factors" in our Annual Report on Form 10-K for the year ended December 31, 2020,
and those set forth in Part II, "Item 1A. Risk Factors" of this report, if any,
may affect our performance and results of operations. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may differ materially from those in the
forward-looking statements. We disclaim any intention or obligation to update or
review any forward-looking statements or information, whether as a result of new
information, future events or otherwise, except as required by law.

Business Overview


We operate in three reportable business segments of the heating, ventilation,
air conditioning and refrigeration ("HVACR") industry. Our reportable segments
are Residential Heating & Cooling, Commercial Heating & Cooling, and
Refrigeration. For additional information regarding our reportable segments, see
Note 2 in the Notes to the Consolidated Financial Statements.

Our fiscal quarterly periods are comprised of approximately 13 weeks, but the
number of days per quarter may vary year-over-year. Our quarterly reporting
periods usually end on the Saturday closest to the last day of March, June and
September. Our fourth quarter and fiscal year ends on December 31, regardless of
the day of the week on which December 31 falls. For convenience, throughout this
Management's Discussion and Analysis of Financial Condition and Results of
Operations, the 13-week periods comprising each fiscal quarter are denoted by
the last day of the respective calendar quarter.

We sell our products and services through a combination of direct sales,
distributors and company-owned parts and supplies stores. The demand for our
products and services is seasonal and significantly impacted by the weather.
Warmer than normal summer temperatures generate demand for replacement air
conditioning and refrigeration products and services, and colder than normal
winter temperatures have a similar effect on heating products and services.
Conversely, cooler than normal summers and warmer than normal winters depress
the demand for HVACR products and services. In addition to weather, demand for
our products and services is influenced by national and regional economic and
demographic factors, such as interest rates, the availability of financing,
regional population and employment trends, new construction, general economic
conditions, and consumer spending habits and confidence. A substantial portion
of the sales in each of our business segments is attributable to replacement
business, with the balance comprised of new construction business.

The principal elements of cost of goods sold are components, raw materials,
factory overhead, labor, estimated warranty costs, and freight and distribution
costs. The principal raw materials used in our manufacturing processes are
steel, copper and aluminum. In recent years, pricing volatility for these
commodities and related components, including the impact of imposed tariffs on
the import of certain of our raw materials and components, has impacted us and
the HVACR industry in general. We seek to mitigate the impact of volatility in
commodity prices through a combination of price increases, commodity contracts,
improved production efficiency and cost reduction initiatives. We also partially
mitigate volatility in the prices of these commodities by entering into futures
contracts and fixed forward contracts.

Impact of COVID-19 Pandemic


A novel strain of coronavirus ("COVID-19") has surfaced and spread around the
world, including to the United States. In March 2020, the World Health
Organization declared COVID-19 a pandemic. Currently the COVID-19 pandemic has
disrupted our business operations and caused a significant unfavorable impact on
our results of operations in 2020. The COVID-19 pandemic is creating supply
chain disruptions and higher employee absenteeism in our factories and
distribution locations.

As the COVID-19 pandemic continues, health concern risks remain. We cannot
predict whether any of our manufacturing, operational or distribution facilities
will experience disruptions, or how long such disruptions would last. It also
remains
                                       21
--------------------------------------------------------------------------------

unclear how various national, state, and local governments will react if the
distribution of vaccines is slower than expected or new variants of the virus
become more dominant. If the COVID-19 pandemic worsens or the pandemic continues
longer than presently expected, COVID 19 could impact our results of operations,
financial position and cash flows.

Financial Overview


Results for the second quarter of 2021 were driven by year over year sales and
profit increases across all of our business segments. The Residential Heating &
Cooling segment saw a 30% increase in net sales and a $62 million increase in
segment profit. The Commercial Heating & Cooling segment had a 34% increase in
net sales and a $10 million increase in segment profit. The Refrigeration
segment had a 37% increase in net sales and a $5 million increase in segment
profit.

Financial Highlights

•Net sales increased $298 million to $1,239 million in the second quarter of
2021 driven by net volume increases and favorable price and mix.
•Operating income in the second quarter of 2021 increased $80 million to $216
million primarily driven by higher net sales and an improved gross margin
percentage partially offset by higher SG&A costs.
•Net income for the second quarter of 2021 increased $70 million to $170
million.
•Diluted earnings per share from continuing operations were $4.51 per share in
the second quarter of 2021 compared to $2.62 per share in the second quarter of
2020.
•For the six months ended June 30, 2021, we returned $59 million to shareholders
through dividend payments and repurchased $400 million of common stock through
our share repurchase program.


Second Quarter of 2021 Compared to Second Quarter of 2020 - Consolidated Results

The following table provides a summary of our financial results, including information presented as a percentage of net sales:

                                                                                 For the Three Months Ended June 30,

                                                      Dollars (in millions)                  Percent                      Percent of Sales
                                                                                             Change
                                                      2021               2020              Fav/(Unfav)                2021                 2020
Net sales                                         $  1,239.0$ 941.3                      31.6  %             100.0  %             100.0  %
Cost of goods sold                                     855.8            665.6                     (28.6)                69.1                 70.7
Gross profit                                           383.2            275.7                      39.0                 30.9                 29.3
Selling, general and administrative expenses           167.8            129.5                     (29.6)                13.5                 13.8
Losses (gains) and other expenses, net                   2.3              3.6                      36.1                  0.2                  0.4
Restructuring charges                                    1.2             10.0                      88.0                  0.1                  1.1

Loss from natural disasters, net of insurance
recoveries                                                 -              1.0                     100.0                    -                  0.1
Income from equity method investments                   (4.1)            (4.4)                     (6.8)                (0.3)                (0.5)
Operating income                                  $    216.0$ 136.0                      58.8  %              17.4  %              14.4  %



Net Sales

Net sales increased 32% in the second quarter of 2021 compared to the second
quarter of 2020 driven by higher sales volumes of 27%, favorable combined price
and mix of 3% and favorable foreign currency of 2%.

Gross Profit


Gross profit margin in the second quarter of 2021 increased 160 basis points
("bps") to 30.9% compared to 29.3% in the second quarter of 2020. We saw margin
increases of 260 bps from favorable price and mix, and 90 bps from factory
productivity, which were partially offset by 120 bps from higher commodity
costs, 40 bps from higher other product costs, 10 bps from higher product
warranty costs, 10 bps from higher tariff costs, and 10 bps from higher freight
and distribution costs.



                                       22
--------------------------------------------------------------------------------

Selling, General and Administrative Expenses


Selling, general and administrative expenses ("SG&A") increased $38 million to
$168 million in the second quarter of 2021 compared to $130 million in the
second quarter of 2020 due to higher incentive compensation and other employee
costs. As a percentage of net sales, SG&A decreased 30 bps to 13.5%.
Losses (gains) and Other Expenses, Net

Losses (gains) losses and other expenses, net for the second quarter of 2021 and 2020 included the following (in millions):

                                                                       For the Three Months Ended June
                                                                                     30,
                                                                           2021                 2020
Realized (gains) losses on settled futures contracts                  $       (0.4)$     0.1
Foreign currency exchange gains                                               (1.3)              (2.1)
Gain on disposal of fixed assets                                              (0.2)              (0.2)
Other operating income                                                        (0.2)              (1.2)

Net change in unrealized losses (gains) on unsettled futures contracts

                                                                      0.1                0.8
Special legal contingency charges                                              0.7                0.7
Asbestos-related litigation                                                    1.7                1.2
Environmental liabilities                                                      0.8                1.1
Charges incurred related to COVID-19 pandemic                                  0.5                3.4
Other items, net                                                               0.6               (0.2)
Losses (gains) and other expenses, net (pre-tax)                      $     

2.3 $ 3.6




The net change in unrealized (gains) losses on unsettled futures contracts was
due to changes in commodity prices relative to the unsettled futures contract
prices. For more information on our futures contracts, see Note 7 in the Notes
to the Consolidated Financial Statements. For more information on special legal
contingency charges and asbestos-related litigation, see Note 4 in the Notes to
the Consolidated Financial Statements. The environmental liabilities related to
estimated remediation costs for contamination at some of our facilities.

Restructuring Charges

Restructuring charges were $1 million in the second quarter of 2021 compared to $10 million in the second quarter of 2020. Restructuring charges related to ongoing cost reduction actions taken in prior periods.

Gains and Losses related to Natural Disasters

The insignificant charges recorded during 2020 were for continuing costs incurred related to natural disasters that occurred in prior years.

Income from Equity Method Investments


We participate in two joint ventures that are engaged in the manufacture and
sale of compressors, unit coolers and condensing units. We exert significant
influence over these affiliates based upon our ownership, but do not control
them due to venture partner participation. Accordingly, these joint ventures
have been accounted for under the equity method and their financial position and
results of operations are not consolidated. Income from equity method
investments of $4 million in the second quarter of 2021 was down slightly
compared to the second quarter of 2020.

Interest Expense, net

Interest expense, net was down $1 million to $6 million in the second quarter of 2021 from $7 million in the second quarter of 2020 due to lower borrowing costs.

                                       23
--------------------------------------------------------------------------------

Income Taxes

Our effective tax rate was 18.6% for the second quarter of 2021 compared to 21.4% for the second quarter of 2020. The rate decreased primarily due to an increase in excess tax benefits from stock based compensation.

We expect our annual effective tax rate in 2021 to be approximately 20%, after excluding the impacts of excess tax benefits recorded under ASU No. 2016-09.

Second Quarter of 2021 Compared to Second Quarter of 2020 - Results by Segment

Residential Heating & Cooling


The following table presents our Residential Heating & Cooling segment's net
sales and profit for the second quarter of 2021 and 2020 (dollars in millions):
                                                 For the Three Months Ended June
                                                               30,
                                                     2021                2020             Difference             % Change
Net sales                                       $    838.0$  644.8$     193.2                    30.0  %
Profit                                          $    189.7$  127.3$      62.4                    49.0  %
% of net sales                                        22.6    %           19.7  %


Net sales increased 30% in the second quarter of 2021 compared to the second
quarter of 2020. Sales volume was 27% higher, price and mix combined improved 2%
and foreign currency improved 1%.

Segment profit in the second quarter of 2021 compared to 2020 increased $62
million primarily due to $54 million from higher volume, $18 million from
favorable price, $13 million of higher factory productivity, $4 million of
favorable foreign currency, $2 million of sourcing and engineering-led cost
reductions, and $1 million of favorable freight and distribution expense.
Partially offsetting these increases were $13 million of higher commodity costs
and tariffs, $13 million of higher SG&A, $2 million from unfavorable mix and $2
million of higher product costs and warranties.

Commercial Heating & Cooling


The following table presents our Commercial Heating & Cooling segment's net
sales and profit for the second quarter of 2021 and 2020 (dollars in millions):
                                                 For the Three Months Ended June
                                                               30,
                                                     2021                2020             Difference             % Change
Net sales                                       $    252.8$  188.3$      64.5                    34.3  %
Profit                                          $     45.3$   35.6$       9.7                    27.2  %
% of net sales                                        17.9    %           18.9  %



Net sales increased 34% in the second quarter of 2021 compared to the second
quarter of 2020. Sales volume was 29% higher, price and mix combined improved
4%, and foreign currency improved 1%.

Segment profit in the second quarter of 2021 compared to 2020 increased $10
million primarily due to $19 million from higher volume and $4 million from
favorable mix. Partially offsetting these increases were $4 million of higher
SG&A, $3 million of higher other product costs, $2 million of factory
inefficiencies, $2 million of higher material costs and tariffs, $1 million of
sourcing and engineering-led cost increases and $1 million of higher freight and
distribution expense.



                                       24
--------------------------------------------------------------------------------

Refrigeration

The following table presents our Refrigeration segment's net sales and profit for the second quarter of 2021 and 2020 (dollars in millions):

                                                For the Three Months Ended June
                                                              30,
                                                    2021                2020             Difference             % Change
Net sales                                      $    148.2$  108.2$      40.0                    37.0  %
Profit                                         $     13.5$    8.9$       4.6                    51.7  %
% of net sales                                        9.1    %            8.2  %



Net sales increased 37% in the second quarter of 2021 compared to the second
quarter of 2020. Sales volume was 30% higher, foreign currency was 5% favorable,
and combined price and mix improved 2%.
Segment profit in the second quarter of 2021 compared to 2020 increased $5
million compared to 2020 primarily due to $11 million from higher volume, $2
million from favorable price, and $1 million of sourcing and engineering-led
cost reductions. Partially offsetting these increases were $6 million from
higher SG&A, $1 million of higher freight and distribution expense, $1 million
from higher commodity costs, and $1 million from unfavorable foreign currency
exchange.

Corporate and Other

Corporate and other expenses increased $8 million to $27 million in the second
quarter of 2021 compared to 2020 primarily due to $6 million of increased
variable compensation costs associated with performance and $2 million of higher
employee costs.


Year-to-Date through June 30, 2021 Compared to Year-to-Date through June 30, 2020 - Consolidated Results

The following table provides a summary of our financial results, including information presented as a percentage of net sales:

For the Six Months Ended June 30,


                                                       Dollars (in millions)                 Percent                     Percent of Sales
                                                                                              Change
                                                      2021                2020             Fav/(Unfav)               2021                 2020
Net sales                                         $  2,169.4$ 1,665.1                30.3                   100.0  %             100.0  %
Cost of goods sold                                   1,529.7            1,223.7               (25.0)                   70.5                 73.5
Gross profit                                           639.7              441.4                44.9                    29.5                 26.5
Selling, general and administrative expenses           313.2              260.8               (20.1)                   14.4                 15.7
Losses (gains) and other expenses, net                   2.6                2.3               (13.0)                    0.1                  0.1
Restructuring charges                                    1.3               10.5                87.6                     0.1                  0.6

Loss (gain) from natural disasters, net of
insurance recoveries                                       -                2.7              (100.0)                      -                  0.2
Income from equity method investments                   (7.4)              (7.2)                2.8                    (0.3)                (0.4)
Operating income                                  $    330.0$   172.3                91.5                    15.2  %              10.3  %



Net Sales

Net sales increased 30% in the six months ended June 30, 2021 compared to the
six months ended June 30, 2020 due to higher sales volumes of 26%, favorable
combined price and mix of 3%, and a 1% increase due to foreign currency.
Gross Profit

Gross profit margins for the six months ended June 30, 2021 increased 300 bps to
29.5% compared to 26.5% for the six months ended June 30, 2020. We saw margin
increases of 280 bps from favorable price and mix, 100 bps from factory
productivity, and 40 bps from sourcing and engineering-led cost reductions which
were partially offset by 80 bps from higher
                                       25
--------------------------------------------------------------------------------

commodity costs and 40 bps from higher other product costs.

Selling, General and Administrative Expenses


SG&A increased $52 million to $313 million for the six months ended June 30,
2021 compared to $261 million for the six months ended June 30, 2020 primarily
due to higher incentive compensation costs and higher other employee related
costs. As a percentage of net sales, SG&A decreased 130 bps to 14.4% from 15.7%.

Losses (gains) and Other Expenses, Net

Losses (gains) and other expenses, net for the six months ended June 30, 2021 and 2020 included the following (in millions):

Six Months Ended June 30,

                                                                               2021                 2020
Realized (gains) losses on settled futures contracts                    $          (0.6)         $    0.2
Foreign currency exchange gains                                                    (1.6)             (2.6)
Gain on disposal of fixed assets                                                   (0.5)             (0.1)
Other operating income                                                             (0.6)             (1.3)

Net change in unrealized (gains) losses on unsettled futures contracts

        (0.2)              1.4
Special legal contingency charges                                                   0.9               0.7
Asbestos-related litigation                                                         2.8              (0.5)
Environmental liabilities                                                           1.5               1.3
Charges incurred related to COVID-19 pandemic                                       1.1               3.4
Other items, net                                                                   (0.2)             (0.2)
Losses (gains) and other expenses, net (pre-tax)                        $   

2.6 $ 2.3




The net change in unrealized losses on unsettled futures contracts was due to
changes in commodity prices relative to the unsettled futures contract prices.
For more information on our futures contracts, see Note 7 in the Notes to the
Consolidated Financial Statements. For more information on special legal
contingency charges and asbestos-related litigation, see Note 4 in the Notes to
the Consolidated Financial Statements. The environmental liabilities related to
estimated remediation costs for contamination at some of our facilities.

Restructuring Charges


Restructuring charges were $1 million in the first six months of 2021 and $11
million for the six months ended June 30, 2020. Charges in prior years related
to several cost reduction actions taken in response to the economic impact of
the COVID-19 pandemic on our business.

Gains and Losses related to Natural Disasters

The insignificant charges recorded during 2020 were for continuing costs incurred related to natural disasters that occurred in prior years.

Income from Equity Method Investments


Income from equity method investments of $7 million for the six months ended
June 30, 2021 was consistent with the amount for the six months ended June 30,
2020.

Interest Expense, net

Interest expense, net was down $3 million for the six months ended June 30, 2021
compared to the six months ended June 30, 2020 primarily due to lower borrowing
costs.

                                       26
--------------------------------------------------------------------------------

Income Taxes


Our effective tax rate decreased to 19.3% for the six months ended June 30, 2021
compared to 26.8% for the six months ended June 30, 2020 primarily due to higher
excess tax benefits from stock-based compensation and the recording of a
valuation allowance on certain foreign deferred tax assets recorded in the first
quarter of 2020.

Year-to-Date through June 30, 2021 Compared to Year-to-Date through June 30, 2020 - Results by Segment

Residential Heating & Cooling


The following table presents our Residential Heating & Cooling segment's net
sales and profit for the six months ended June 30, 2021 and 2020 (dollars in
millions):

                        Six Months Ended June 30,
                        2021                   2020         Difference       % Change
Net sales         $    1,444.2$ 1,086.9$     357.3         32.9  %
Profit            $      286.1$   159.8$     126.3         79.0  %
% of net sales            19.8   %              14.7  %

Net sales increased 33% in the six months ended June 30, 2021 compared to the six months ended June 30, 2020. Sales volume was 29% higher, price and mix combined improved 3%, and foreign currency improved 1%.


Segment profit in the first six months of 2021 compared to 2020 increased $126
million primarily due to $100 million from higher volume, $25 million from
favorable price and mix, $23 million of higher factory productivity, $7 million
of sourcing and engineering-led cost reductions, $5 million of favorable
currency exchange and $4 million of favorable freight and distribution expense.
Partially offsetting these increases were $16 million from higher commodity
costs and tariffs, $16 million of higher SG&A, and $6 million of higher warranty
and other product costs.

Commercial Heating & Cooling


The following table presents our Commercial Heating & Cooling segment's net
sales and profit for the six months ended June 30, 2021 and 2020 (dollars in
millions):

                         Six Months Ended June 30,
                        2021                      2020        Difference       % Change
Net sales         $      452.0$ 366.7$      85.3         23.3  %
Profit            $       72.6$  54.3$      18.3         33.7  %
% of net sales            16.1   %                14.8  %



Net sales increased 23% in the six months ended June 30, 2021 compared to the
six months ended June 30, 2020. Sales volume was 22% higher and price and mix
combined improved 1%.
Segment profit in the first six months of 2021 compared to 2020 increased $18
million primarily due to $27 million from higher volume and $3 million from
favorable price and mix. Partially offsetting these improvements were $4 million
of higher other product costs, $3 million of higher SG&A, $3 million of factory
inefficiencies, $1 million of higher material costs and tariffs, and $1 million
of higher freight and distribution expense.




                                       27
--------------------------------------------------------------------------------

Refrigeration

The following table presents our Refrigeration segment's net sales and profit for the six months ended June 30, 2021 and 2020 (dollars in millions):

                         Six Months Ended June 30,
                        2021                      2020        Difference       % Change
Net sales         $      273.2$ 211.5$      61.7         29.2  %
Profit            $       21.4$   9.6$      11.8        122.9  %
% of net sales             7.8   %                 4.5  %



Net sales increased 29% for the six months ended June 30, 2021 compared to the
six months ended June 30, 2020. Sales volume was 23% higher, foreign currency
improved 4% and combined price and mix was 2% higher.

Segment profit in the first six months of 2021 compared to 2020 increased $12
million primarily due to $16 million from higher volume, $5 million from
favorable price and mix, $2 million from sourcing and engineering-led cost
reductions, and $1 million of higher factory productivity. Partially offsetting
these increases were $8 million of higher SG&A, $1 million of higher commodity
costs, $1 million of higher freight and distribution expense, $1 million of
higher other product costs, and $1 million of unfavorable foreign currency
exchange

Corporate and Other


Corporate and other expenses increased $10 million in the six months ended June
30, 2021 compared to the six months ended June 30, 2020 primarily due to higher
incentive compensation costs.

Liquidity and Capital Resources

Our working capital and capital expenditure requirements are generally met through internally generated funds, bank lines of credit and an asset securitization arrangement. Working capital needs are generally greater in the first and second quarters due to the seasonal nature of our business cycle.

© Edgar Online, source Glimpses

All news about LENNOX INTERNATIONAL INC.
09/16LENNOX INTERNATIONAL : Keeps Quarterly Cash Dividend at $0.92 a Share, Payable O..
MT
09/16LENNOX INTERNATIONAL : Declares Quarterly Dividend
PR
09/10LENNOX INTERNATIONAL : to Present at Morgan Stanley Conference
PR
09/09INSIDER SELL : Lennox International
MT
08/16LENNOX INTERNATIONAL : Insider at Lennox International (LII) Makes Significant S..
MT
08/13INSIDER TRENDS : Lennox International Insider Extends 90-Day Selling Trend
MT
08/05INSIDER TRENDS : Insider at Lennox International Exercises Options Derivative Se..
MT
08/04INSIDER TRENDS : Lennox International Insider Exercises Options Derivative Secur..
MT
07/29LENNOX INTERNATIONAL : Insider at Lennox International (LII) Makes Significant S..
MT
07/28INSIDER TRENDS : Lennox International Insider Continues 90-Day Selling Trend
MT
More news
Analyst Recommendations on LENNOX INTERNATIONAL INC.
More recommendations