Lennox International Earnings Call Nuggets: Share Gains & Momentum and Replacement

Lennox International (NYSE:LII) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.

Share Gains & Momentum

Jeffrey Hammond – KeyBanc Capital Markets: Looks like your guidance raises is maybe reflecting more share gains in the market, looks like your market assumptions are unchanged.

Todd M. Bluedorn – Chairman and CEO, Lennox International: I think that’s one way to think about it. I think the other way to think about it is sort of cutting a little bit off the low end just reflects. We had a solid first quarter and sort of took some of the risk off the table from the first quarter.

EXCLUSIVE OFFER! Take Advantage of the Tax Relief 50% Off Sale for a Limited Time. CLICK HERE for your Weekly Stock Cheat Sheets NOW!

Jeffrey Hammond – KeyBanc Capital Markets: But it does seem like your share momentum continues. I mean, how are you thinking about the sustainability of some of the share gains you’ve been seeing?

Todd M. Bluedorn – Chairman and CEO, Lennox International: I think we’re winning. I think we gained share last year and we’re off to a good start this year. I think when you are gaining share because of things like building out distribution as part of a multiyear strategy and winning because of your vitality index is over 40% on a multiyear basis, I think those are sustainable share growth. So, it’s not that we’re winning with sort of (1G whiz trick), we’re building at sort of in the trenches with distribution and sustainable product it manages, I think you can continue to win for a while that way.

Jeffrey Hammond – KeyBanc Capital Markets: Then on price cost. We’re seeing some deflation in some of your important inputs and pricing seems to be sticking. Why not raise that assumption?

Todd M. Bluedorn – Chairman and CEO, Lennox International: At this point in time we’re 75% hedged in copper for the balance of the year. So, a lot of our input costs are pretty much locked in. I’m also cognizant that, if copper was a roller coaster, we’d be up and down to the point where I was ready to throw up to the side. So, I mean, it’s down in the last two or three weeks, but it could just easily be up in the next month or two again. So, I think it’s maybe the first point. We’re hedged out for most of the year.

Jeffrey Hammond – KeyBanc Capital Markets: Then finally, just a couple questions on Refrigeration. One, it looks like this Australian business kind of drove the quarter, how sustainable was that? And then, on of your competitors talked about a headwind from a large national retailers and I’m wondering if you have any kind of similar impact and how to think about that?

EXCLUSIVE OFFER! Take Advantage of the Tax Relief 50% Off Sale for a Limited Time. CLICK HERE for your Weekly Stock Cheat Sheets NOW!

Todd M. Bluedorn – Chairman and CEO, Lennox International: I sort of take them in two pieces. Let me talk a little bit about Australia. We first talked a little bit about this on the fourth quarter call about some growth initiatives in Asia Pacific, and we have a wholesale business there for Americans sort of equivalent of United Refrigeration, that’s our Australia business wholesale refrigeration, and we’ve been making investments to expand our operation there especially to grow our refrigerant sales. In the last year, we made purchases of low cost refrigerant and invested in decanting equipment and made ourselves vertically integrated in the sense of having a refrigerant putting it into the jugs and then sound there that there are wholesale distribution network. Order of magnitude to benefit for the quarter was sort of about $5 million or so, and you have to remember that Southern Hemisphere sales are sort of the peak of the summer season. That’s the thing about it as a high level mark, but it’s an ongoing initiatives. We continue to make investments to grow that operation, so I think we’re going to continue to have good news there. In terms of your question about national accounts or sort of a big retailer, maybe I sort of broaden the answer of you and just talk about lower seeing the national accounts. On the Refrigeration side, we have seen some softness. You heard what we talked about in the script of sort of down in North America. We’ve seen some push-outs from super market customers who are more sensitive to the macro economic uncertainty and since consumer sentiment, but we’re feeling – for the balance of the year we’re feeling better about order intake and backlog than what we saw in the first quarter. And our North American commercial HVAC business, we had a solid quarter, have a solid start to the year and orders and backlog look pretty good entering Q2.

Replacement

Keith Hughes – SunTrust Robinson Humphrey: Just wanted to dig in more in your comments on replacement residential, HVAC. It appears though in the comments that there might be some share gain going on there, what do you think the overall state of that market is as we start heading into the season in terms of potential growth?

EXCLUSIVE OFFER! Take Advantage of the Tax Relief 50% Off Sale for a Limited Time. CLICK HERE for your Weekly Stock Cheat Sheets NOW!

Todd M. Bluedorn – Chairman and CEO, Lennox International: I think it maybe a couple of points about share gain. I mean I said on the call or in the script that we are up low double-digits in replacement for the quarter. We’ve had bad quarter to offset, I’ll say when we have good quarters, I mean it’s dangerous obviously if you look at share gain in one quarter. So I’d sort of the make horizon over the last 18 months and there I think we are clearly gaining share. There is lots of uncertainty in replacement market Keith and that’s why we didn’t really raise our market guidance we are still seeing low single digits maybe if it comes mid-single-digits as we get into the summer and see things start to flow. While we had a good first quarter, we’re cognizant that it’s our lightest quarter and some of that while we sell through in first quarter and we had a cold winter compared to warm winter last year which helped drive furnace sales in the quarter, air conditioning to a large degree we are just getting ready for the summer season. We’re going to have to see what they do with consumers as the weather starts to warm up.

Keith Hughes – SunTrust Robinson Humphrey: Also in Residential, you mentioned price was up, mix was down. Specific to the mix where you stand on the dry ship and are you seeing mix within the R410A refrigerant down – products down as well?

Todd M. Bluedorn – Chairman and CEO, Lennox International: Where we really see R22 dry charge effect is when we get into the summer months. So it’s sort of hard to see much right now. The mix pressure that we felt in the quarter, what we talked about back in December when we gave guidance which is what we saw, which is one RNC outgrew – residential new construction outgrew add-on and replacement we on average make lower margins there, because its more entry level product. And there continues to be sort of trade down within our brands and within our SEER levels within the add-on or replacement markets. So it’s sort of the pressure on the consumer.

A Closer Look: Lennox International Earnings Cheat Sheet>>