Lennox International (LII) 19 Oct 202020 Q3 Earnings call transcript

Ladies and gentlemen, thank you for standing by. Welcome to the Lennox International Third Quarter Conference Call. [Operator Instructions] As a reminder, this call is being recorded. I would now like to turn the conference over to Steve Harrison, Vice President of Investor Relations. Please go ahead.

morning. Good joining the review third for financial Lennox for for performance quarter us you of this International’s Thank of XXXX. today Reitmeier. here and am with CEO, and I Todd CFO, Joe Chairman Bluedorn quarter Todd key will you the will through guidance. outlook financial and points the take performance review company’s and and for Joe the additional questions everyone of and follow-ups questions ask Q&A, questions. limit during any give To to yourself please or re-queue the time to couple for a reconciliation of the measures. have necessary In release included will that this we GAAP non-GAAP we morning, the be earnings issued to measures financial the discussed comparisons prior All mentioned period. today the are year against

of You I to you website this can of statements direct at differ statements. we would will everyone better that like statements. risks making cause the from our and such results numerous course archived to our are webcast today’s The could site and webcast be operations, understanding to will These remind call, to certain find that a the actual www.lennoxinternational.com. on forward-looking give in be subject on materially replay. a conference for to call the link to uncertainties available

intention or the as and information available obligation with For Lennox disclaims of new SEC. result or a or revise update any International’s The events risks see to any otherwise. filings forward-looking company whether publicly concerning uncertainties, these statements future information,

over calendars, morning this details The I Investment format like would Please be and Todd, to of year. call will XX. date held follow. to The Committee Meeting. Annual virtual mark turn of event the Wednesday, will your more the our Before will I announce be invitations December the

CEO, over call the Bluedorn. turn Todd me to Chairman let and Now,

everyone us. Good and joining for thank you morning, Steve. Thanks,

the our quick XXXX to outlook. start overview that discuss COVID-XX by third me continues Let updated pandemic and then a quarter with impacted be on

the quarter segment in year, XX% XXX third benefit perspective, excluding of prior basis, from driven perspective, quarter up third quarter, total $XXX X% expanded basis the expanded third to a cash record double-digits. quarter is for insurance replacement quarter Segment $XXX the to residential from XX% adjusted of revenue continued and prior set insurance high business up $X.XX, the up segment up are X% quarter Overall was at On segment company was GAAP up operational was by XX%. $XXX – third an profit revenue new total was the up was $XXX residential points. $X.XX. a from quarter the rose any third prior XXX margin profit business. up for segment the On last quarter. our GAAP compared record. third the excluding for continuing mid-teens. points. Revenue EPS construction we and was income excuse new From record XXX to margin an year of XX% points a a high million. the XX.X% operational flow me, excluding third $X.XX up record. new operational raising profit new quarter revenue, XX.X%. Adjusted benefit, operating our quarter For was free in was Total $XX Residential insurance quarter, margin XX%. quarter quarter, From to the set third segment up quarter a margin of million, adjusted third third for year, X% in million. profit segment XX% operations a basis the record new billion, any basis guidance earnings low up million, record record was million Revenue strength the the a to segment in X% to about the adjusted in quarter benefit. Total benefit segment year of an that included was for of EPS up to from in year from insurance adjusted continuing operations

continues continued winter – in Strength to furnaces. share. continues market replace benefited July team rate executing growth conditions favorable strong Consumers business significantly in than advantage equipment hot and turned continue contractors running ahead continued as August. the to market to to weather to-date continues of as and and which market residential units with has of opportunities the well September and residential which October in work repair from it rate. the is multiples parts gain take Our towards growth more cooler,

points replacement revenue way, another to local was down XX% high and and regional mid-teens. down XX.X%. nearly was the commercial-facing Breaking profit National and more business and were basis equipment to businesses, Turning expected. down down XX as down was new residential to expanded construction they revenue pandemic be was In continue XXs. margin down revenue Segment segment, XX%. account revenue from our than commercial heavily impacted the high-teens

On revenue down the service was was low double-digits. double-digits. revenue national VRF side, service down Linux accounts low

third While commercial to in currently down gradual backlog reflecting down business and quarter, was equipment improvement the overall see equipment in signs order with continue commercial rates the of we as well. XX% revenue relative mid-teens improvement year-over-year

won XX. new total count win bringing quarter, to future Our national in commercial for team third new decision customers Commercial continues XX business the year-to-date the to growth.

Building addition, Air and combines an line initiative In building initiative our IAQ innovative is This provide air services commercial Better has of improving group spaces. called industry leading customers. comprehensive commercial commercial launched product focused solutions indoor to our to quality that on

comprehensive and indoor solution ongoing indoor a to systems plan ensure We are quality maintenance identify the air helping business quality effectiveness. evaluate HVAC building and building air to tailored that owners for recommend

currency. factory was Refrigeration as due XXX negative less Segment North segment, and was revenue mix the our XX% down was as inefficiencies than and constant single-digits. by COVID-XX. Europe in basis XX.X%. well America down down with Turning to Refrigeration contracts at at U.S. profitability XX% points impacted down to business the quarter was profit to segment high Europe margin was high-teens down

in program. order improvement. strong the performance, from the I this signs year, SG&A commercial compensation backlog and about A talking strong we reinstituting commissions on for we have Earlier performance and of compensation. salary are pay business, $XXX SG&A quick third enacted Due seeing update performance-based temporary to am of reflecting what savings our volume the up with operational Several restored relative end-markets million of our rates savings year. increase related and in reduction, paying quarter SG&A year-over-year improved we sales this costs. examples are cost Refrigeration As improvement a and the

from XX% from be EPS planning remaining is are $XX from free adjusted to spending, to from Revenue headcount $XXX now savings flow. now now wrap in expected SG&A are Adjusted to XX% continuing and and paying on to cash our to is the this we raising X% revenue, To reduction of for with million We updated approximately year. coming $X.XX expected down XXXX, that XX% be guidance up return year, cash incentives with full and operations is discretionary million. flow for EPS free $X.XX X% the be expected XXXX.

through continuing with has continue look impact future. in XXXX while momentum on into and face winter fourth but heading forward to managing strong a quarter in into Lennox team, seasoned the potential XXXX. from to in the We economic We accounting conditions advanced invest downturns, the experience closing highly pandemic the for remain season, cautious to uncertain the

Joe. to Now, over

and volume, million, was everyone. record costs. cooling higher margin the foreign quarter record third of difference over of was $XXX productivity and a lower over was cost, good revenue. residential higher XX% segments $XXX mix benefit, up Residential I was with up profit with basis up exchange of the to benefit. insurance in from lower the as a prior Segment and material XXX higher reported benefit. neutral up offsets and favorable Thank included and and year-over-year for product and $XX million, heating XX.X%, points XX% you, a In by provide other revenue and included some price, details was profit insurance as quarter Todd million was was prior XX%. the selling price X% was quarter, financial starting tariffs. expenses up third quarter impacted Segment will freight the Volume and insurance heating combined Partial and which on comments and reported cooling. record third factory morning incentive additional quarter business quarter and residential the distribution primarily that

price our flat heating and and to Turning commercial and down. down was was XX%. down $XXX million, commercial and revenue was mix cooling XX%. X% down mix combined business, Price Volume

and primarily Volume lower neutral and was margin ticked up to cost, million, profit profit basis distribution exchange Segment SG&A In $XXX offsets revenue XX.X%. volume was Partial mix. price revenue. lower lower factory expense XX.X%, efficiency unfavorable lower was driven down segment due up was impacted Foreign Refrigeration to million, by and included material was favorable down lower down by third lower $XX COVID-XX and basis unfavorable volume and the by mix on $XX material to a mix. margin profit impacted primarily lower costs, had combined revenue. XXX favorable foreign Segment COVID-XX X% factory and included foreign SF&A Segment segment exchange. was XX down Refrigeration, Segment points was cost price, XX%. impact was favorable productivity, the XX%. down points. exchange offsets million, profit XX%, higher lower XX%. expense. X% was pandemic quarter Partial Commercial pandemic and

manufacturing million in prior charge quarter $XX quarter quarter, a the results September. the quarter. million was compared third had incentive of were pandemic, SG&A net compared and quarter in performance incurred dollars prior related the And free facility in financial compensation $XXX personal to for third down after-tax that compensation. The X%. million quarter in damage $XX X.X. $XXX $X.X flow of million benefits quarter. in included quarter in $XXX operations protective company to year disasters Corporate million recoveries the true-ups Cash, end XXXX August to the insurance of due charges special is quarter of of company the other year X% year from million quarter. the million net the high-wind items, as cash tax debt the at third company’s we the loss in net million from $XXX of Regarding ended for at benefit was for Iowa, triggered million the $XXX months, with expenses Total in of million, the to company in the third million million COVID-XX third a excess SG&A up $XX first generated billion an cleaning equipment Overall, for were paid $XX company’s $XX natural a and and to million cash quarter. $X.XX from $X.X equivalents various items cash totaling deep year year $X.X compared $X.X share-based the from the million $XX at compared were expenses investments prior in facility year-to-date. to million quarter $X.X and a million and prior X the approximately the expenditures prior the ratio in Capital debt EBITDA was approximately dividends the to for short-term end quarter, the In

Q&A, for will points guidance before over Now, to and current turn review I I our XXXX. it market assumptions

For shipments for now the approximately and year. to unitary this North shipments XX% flat refrigeration expect this to overall, now be residential expect American industry We down both year. we HVAC commercial roughly be the industry shipments

to from we a outlook guidance company’s X% decline the XXXX of to for to year-to-date decline at XX% year. quarter, our X% the for the fourth Looking are performance XX% revenue and of raising a

our $X.XX raising of a $X.XX EPS are range operations to $X.XX to continuing from from range year. guidance $X.XX GAAP for a to We the for new of

from to a for EPS operations guidance continuing $X.XX of adjusted to $X.XX to our for year. raising range of are $X.XX a the from $X.XX We range new

new guidance we of takes from are tax the various lead for benefit $XX for and year. $XX our of XX% to is XX% to now be approximately prior commodities prior million the year of rate expense not a benefit. pension range million be benefits be We our corporate compared the $XX engineering tax prior We effective prior million. tax for free timing XXXX, full the between $XX of $XXX to to Capital to and of $XX expense And now expected $XXX to $XX be guidance prior approximately slow to XX% year to from the for of guidance back prior of compared be an of We expect for for that the spending business construction interest guidance expected primarily mix Looking at due And basis million guidance headwind this to expect $XX on million prior cash effective guidance of XXXX on reductions expect certain higher XX% now as to year timing compensation compared are to from the $XX $XXX to guidance in a a a now the million compared to range. year-to-date. million approximately adjusted for rate in now $XX construction million replacement a some We of financial cost XXXX. flow for million performance. flat. of guidance expenditures XX% to were expect year the due to puts million of mix an million the and to full compared of we Earlier $XXX approximately new updating has expect for benefit the this sourcing Residential now XXXX related expense and benefit. are XX% year. to and expected the outperformed is million million company’s expectations

the the million For Residential is to weighted after for still million a of points expected tariffs factory The to to the be headwind. freight still our planned first productivity still $XX remaining benefit $XX year. neutral be full to share the is benefit. XX for between $XXX million XX stock into price to year. diluted plans a we expect on count remain quarter our $XX million same, We and that and hold repurchase in was million for $XXX be be continue expected still to shares be the that guidance a expect the year to stock million is repurchasing going expected average are million

let’s that, with go Now, to Q&A.

I Mitchell Instructions] of line go [Operator And with first Barclays. will go Please Julian ahead. to

morning. good Hi,

Hey, Julian.

much even this at out? you the first you high-end year? health of that that of than now, because in question the the just your year, flattish thoughts resi sort just there the sort top implies uncertainty the are heard is market sort at the step on entering into market of QX that’s specific the worse say wondered year to I Maybe of And calling on guidance and down normal. a in Is the of any of latest you next looking that, a assessments Hi. line, maybe fundamentals on midpoint related next are sequentially or environment just anything

Yes.

of On point, you record but looking uncertainty strong a in also are it’s fourth the I first such for year-over-year, the we quarter, it both combination third it’s a a had if mean, third quarter us. sequentially, quarter at

was by XX% so weather hot residential Our revenue helped. that driven up

And part so I it. that’s of think

from are we make flat we terms that’s the the markets. in to strong XXXX residential we market There the of quarter? perspective In think I pandemic. in I points, to I lots looking something remain is called would – to on continue moving XXXX, Two remember, into year. one an the demand that pulled markets, on going And is of folks but pieces, of be overall, to get year-over-year important third calling wondering, bullish market for did be middle some flat pulled are get the understand the into this

and their is a the pandemic, days into the unless behavior they And or a houses there pandemic, X just homeowner, unit. there unit. catastrophic and one have failure, people no anyone a the to into in the a Second coming wants when their replace one to replacing replace X spending unit of no not they is wants house even especially residential is

like be being not proximate but and a sort and the there no they now break than let’s pulling coming are are them breaks cause No it these financial during in were replace are to saying demand. So, is when they being has They they for now repaired crisis, replacing and summer. not one that’s it of forward they it choice. rather next have when replaced

that the we this growth market. of mid we as years the in to talked have single-digit shows pandemic couple the there remain middle it another we of be and this for is resiliency of confident so before And of think flat

remain the market we so in And for XXXX. confident resi

outlook savings million you. Thank in the then year? P&L my you sort much of now on margin back revenue just exactly, clarify again? could into out the that thinking the the perhaps $XX residential second has for reverse what And to or of next question how are growth And come that operating as leverage you look returned line

the much incentives, $XX paying our guide year. now I look the take at XX% only so is this way the because of think on out I into million. it $XX came new P&L is that it think And about when million, then SG&A, back you

that’s year. XX% that incentives the next paying back will So, bounce

make million, that’s is headcount, we balance control the for whatever how and So, depends to $X.X that’s the XX% our of the goal target performing of incremental million, math next those. and what it, or year. XX% is, want in And of investments business. minus is the it the that discretion our is $X on we But plus market XX% be margins will having sort the

previously, year. a $XXX off million risk meaningful it So, in table now guide a with us bouncing think back that lot way. with to incentives, on is was more our comes I tied It next for the paying

you. thank Great,

you. Thank

is go Our William Merkel next ahead. with Blair. from question Ryan Please

good Hey, morning, guys.

Hi, Ryan.

dive just good Hey, commercial a some little more performance end-market morning. us to of into you Can the detail? give

somewhat have on we call. I the it think caught out up

just gets market what than the sort regional people we our that’s through local replacement seen have that have business would and things. planned We expected as the the sell deferred behaves national accounts and more way

QX in so it was planned replacement versus year down our but was a XXs XX%. over ago, And mid down

so at in more BestBuy, Emergency in many right more And is goes XX%ish are only playing in starts and on near me, down mentioned new playing construction we call in on new then second And the but that new backlog Lowe’s, saw comfortable business backlog the getting doing down pretty second comfortable direction. the mid-teens going that things were line some in was as quarter, quarter direction. again that customers right replacement And the large gets people comp third easier continue our XX%, is so that the in after are markets of the flights quarter current replacement are and year. the year, that when be environment in think about the quarter. backlog lot is down one way, are XX% the right companies the we down trend our after order, and the well, will who down go getting to still then But Depot, heading the we the when mid-teens heading the order lining we built, to a spending. the think silver down down is look one XX% because be in construction like and direction. replacements of you So next the Home the being all as being excuse full other

way whether XXXX the the commercial quickly. of you market after hit financial we down back XXX on XXXX. hard up And back crisis about the would it’s the such downturn world a unitary downturn, goes unitary hard the of or looks look history market when commercial we comes that when so sort the would think market, And which expect commercial that now be

how secondly, is business mentioned outlook you that’s Okay, then the today And what initiatives, you coming big about and IAQ just is commercial talk your that then for quarters? helpful. can

the quality think our is builders air circulation purification, indoor relationships And are talked air leader think in store residential it commercial Yes, quantify about And ventilation a UV it, owner. leveraging an in the mean, in industry to have the control. both to Build Air our market. air and and we facilitator capabilities indoor quality talked and like and heard building a as equipment humidity Better initiative and And lights, quality we air we with we I as about indoor our in markets tend again, way off not win business. about as I you I

industry, Our talked then and building we as noted our better air by our residential there. air reports is in and equipment the advantages consumer pure the and best about opportunities

Great, thanks, Todd.

Thanks.

question with line Markets. go next ahead. Capital Please the Jeff Hammond is KeyBanc of from Our

Hey, good morning, guys.

Hi, Jeff.

before things want just Cleveland your have that question over I actual comfort many changing Pittsburgh point I in to personally consistent decades. so remains that the out great XXXX, the

was coming. that knew I

Okay, go ahead.

inventories you channel Okay. about to managed direct are in independent distribution versus channel your versus about maybe talk the speak build the at and maybe how sales your is how talk furnace distribution about just and the business think they just thinking Can how then quarter based side? and in cooling you

up performances consistent. The relatively plus They were businesses Yes. minus XX%. both or were of the

business outperformed numbers raised So, note around and HARDI valid comfort then one one or the to read the Lennox questions numbers thought the similar business, there Lennox that’s that for the wasn’t to Lennox that sign we being I great and out, sell our a versus good XX%, sell And dealers sell, business you whatever other. the being our the business. take XX%, the our in so I that of to exact i.e., sellout one sell-through and was directly AHRI very our performs number to allied

also allied did business Our well.

low normal there summer. direct want [indiscernible] coming phrase your out what And that question of I to – is or question happens right are to is inventories is however which of short then the a you of now, dealers. hot is think memories answer such that

the our did many summer, which trouble they they so so delivering. that in make getting with their product right up we cooling are furnaces full to see trouble bars had had and want now on people Then furnaces. competitors sure loading are as And because

about you businesses? think what’s there, And facilities COVID the unique think mentioned other the trend the you was said there? I versus Okay. And up maybe then on differentiating order backlog what’s there just I then refrigeration, disruption

and Yes, European in business in we both got our our Tifton, it Georgia business.

areas the a country. on in for map, of the COVID it you Tifton, hardest look at hit Georgia was If in one

absenteeism exposed having impact on we so our there impacted factories backlog you in then a as commercial, in refrigeration more both to for of retail the When actually, locations our some the are businesses shutdown has had that a been a one given that vaccine. largest cold and buying refrigeration, verticals the been buying softer habits that’s preparing of are at storage chain people also of home in that’s up to cold support also our look bit and we building strong bit than are different spot is productivity. and maybe you and then and food and at so And relatively consumer know a for and

we storage have in seen helped so us. And strength cold and that’s

Okay, thanks the color. for

Thanks.

to next And line the Joe Please ahead. Sachs. Ritchie Goldman go go for with

everyone. Thanks. Good morning,

Hey, morning. good

up I Maybe furnace, you the then Hey, wondering whether am picking from am And told are how strong the little any manufacturing I to just Todd. any guys as think you may is like as switching curious just us furnace the trend, am just there there curious kind to bit commenting has you issues monthly perspective, been was HVAC went? problem of a on a how deliver rest sales? try the obviously, Python just if quarter are just what on occur, HVAC that July type of have you just resi over I given

got away from then July in selling we The on significantly, the during I as were hot saw about sort summer of but was double-digits, mid-teens single-digits as earnings and July August low more quarter line season. and up call up months trend talked the up September high second

both better demand in positioned and meet furnace are demand. to anyone cooling as the industry or We than well

So, think in we shape. are we good

our are orders have you And of of or well competitors meet I all better furnaces. are some pronounced to once have think more industry it position at to we think competitors the think the from you issues. anyone as I good but seeing some again, trying than in if independent maybe our that, as get may and we distributors in large gets upcoming

about mentioned but is great. to about price am and this the how costs price quarter And getting copper saw know one then you early, about dynamics on but think to too in XXXX little is resi I follow-on you a the good just up mix Okay, as it’s a probably think lot, my trying think resi, you back. I

any into dynamics just heading given increase XXXX just on the So, commodity have seen we comments costs? in the

Yes. about as of about the uncertainty the in will ever. thinking bit I about the by talked is question following little the remodel end-markets now earlier of out year, of caused much when as is pieces. moving with think talk demand There years XXXX we understanding again being little And you that’s I broaden maybe and almost lots failing just more October a sort of repeat clear XXXX bit but broadly, I a obviously are always out of that and a resiliency walk another market the that. couple or residential of the it’s that and all home we there

remains think So, we constructions strong. and mid single-digits next residential new year for

after to order. copper, us but we in but all expect we XX% we that our that said commodities XXXX. to for just as steel, With year, most For matter we it’s and rebound XX% earlier, headwind Directly done your to being down I more on moving also heat commodity business, this talked expect the us. – next there, work have have year, now steel, do aluminum commercial some aluminum some I would important across and exchangers and to is uncertainty always in would most historically mention, refrigeration, question aluminum copper are our that’s

you sound still like is the And terminology, X it if years ago nicely think I or but so President will, aluminum matters significantly has X more, it matters, less behaving and that did behaved copper with than while better.

talk And point at And a some out. freight of be the shaken so current then we still time of expect expect some although little headwind, we bit headwind would to we increase to year. about, we given has expect that price if we commodity next are year. expect we back reduction like shortly. to takeout announcing get as the price bounce always, just a going a here compensation every But be year this And do we

sourcing raising number about going $XX to We million $XX year. benefit from and engineering are cost talked to that this We reductions. from million

done really much of have the productivity we our for gain. we that any target And magnitude not million factory million as get because productivity decade of $XX depending because market then there. of of X.X order to back the disruptions share point Factory will the year. COVID, on after of $XX that’s of all having always, so And on last issue, track

the I material have and dissimilar a a of So continued gain, send years, the be will signal quantified factory of markets think next to share haven’t we setup productivity. productivity and those, I for then that prior saw costs to not year where lot it’s but commodities know we priced and setup offset

Thanks. color. Appreciate the

Our line go Credit next Suisse. ahead. John the with question is from Walsh of Please

Hi, good morning.

Good morning

finer question million we commodities in combined relative you the QX. on there, sourcings discussion commodity took were a just where we to and $XX that just Maybe had up

Just of how falls year-to-date? realized QX how of been through much has kind the much versus in that

be year, guide diligently through of go tamper scrambling am increase to find, we year. honest through you, think that Maybe are to the down where with think can’t as that we starts, I sort go not the the sure can cost continues to think people the I material of commodities the commodities, John. I we I reduction sort as

million continue of I guess to raise just year-to-date MCR, will million, balance think for we $XX confidence I and is commodities I say if execute So, $XX the are then that around would year. the to the had

on bit you your to talked kind for a factory and my one then I share kind and normal And But back your I market been have right, it, had I questions that thank fulfill comes as so able online that. gains. orders just of guess two just next might little mind. XXXX year. about to maybe understand just you not arguably about Great, they talked disruption of of competitors, you mean,

perspective gain does make the to to been arguably that more pulled how just would normal So, look of And you ‘XX that this question, that but there. kind way it we share is harder wouldn’t that market I benefit just has that about get then on summer we maybe from not your it would year, just from like were or breakage getting? because replacement we it? on replacement We sheltering next see that depends think work-from-home into to think a Lennox right this pull-forward get ‘XX guess needed

when the have majority set is talk I home, people about time. second how they they XX thermostats John, that’s by I think think the not when that. to think go constant to to their I timer, don’t come don’t XX raise work you, and of they it sort are people first on it they thermostats I I set don’t back. when just gone And remains XX. XX, their over mean and others And get That will then works. think of a set I it when XX as people then it, answer maybe then question to that heard what and they even

units sudden So spike a I don’t doesn’t drive up have of that – in acceleration all of where terms of of use usage a huge breakage.

and market hot a And me, flat and XXXX, say in so year-over-year I flat just that the forward show summer. it’s back step doesn’t pull to is

it. forward pull were show hesitant doesn’t I don’t that spend people people the was? think summer Remind what hot to question breaks, I is but – the money that and first pulled rather unit don’t were had because flat than shows is repaired they the forward, to there me think me market anything home. at when to, replace unit was they unless the So,

market I April of end ability Just get mean, its gains, of I to on share the right? know kind your normal

now have personal it it. and won’t Yes, on to that tornado maybe assumed assumption we one there would be never to just sort give privilege because everyone taken hang lost we when able of is observe that that from get back of an me others, to we we it

I think things. couple a of

were chance supply We dealers been dealers other the we constrained the we thought environment units to to who who it, supply to the our had. think had to were arms I cognizant on We we we best of to arms thought haven’t weren’t of end anybody. selling the selling business those keeping sellers. we

sold already to. in converting are ones we over are of with and We sort the and the conversations those

lot more we but lot of not hang-on then going the whole may to attack to of also we on that it. to it, And to share. we a gain – are hang all are we on we are get, a So,

confident we and I So, significant will are share will year am this – we gaining we that I confident share. gain remain

Great. Thank you. color. really helpful That’s

Yes.

Deepa Please line Raghavan Securities. one of from with next Fargo And the Wells go ahead.

morning Good all. Hi.

Good morning, Deepa.

think getting resume provide up Looks on variable when costs can your cash loosen of buybacks? thoughts starting you Todd, you you and the share strong can like to on are you some your given comfortable outlook.

So, will buybacks in return it XXXX? be normal for assume us to

Yes. more model. put in your I it direct be will

but up the of for XXXX. some will a here stock We be the for normal fourth program December are back guide not repurchase uncertainty, we we to XXXX, getting in to give going quarter when more it start

thanks. Great, we like all incrementally I seems don’t that gets better. – these do you you you and I think how price more about if headwinds. XXXX? rollbacks in in know costs Can to leverage are volume-driven have normal more out more going mean, much have –

able So, for dynamics leverage you should costs just not all be that to should should about below trend I them impact elsewhere? price volume-driven given take to your those think be slightly or probably or

gross margin variable around XX%. Our is

a direction drops then other normal year, incrementals, of we through doing it and the volume SG&A XX% in a spending goes are down. things sort So then either obviously where and

so driving up about third but building are the making with out end is normal that’s productivity, we XX% XX%. how into business that, the that distribution, volume we investments And incremental leverage

Todd. Got it. Thank very much, you

we Please And with next, Gautam go Khanna will Cowen. to ahead. go

great Hey, results. morning thanks. Good and

Thanks, Gautam.

I had questions. of couple a

pricing maybe opportunity of resi. the could wondering was for I First, you the magnitude frame if

than going be You year mentioned increases, better framework just you net announce ‘XX are any normal, price a realization should that? for some to

always second will be. Yes, I will final to the announce be number quarter mean for what we what I hope going am the is we going publicly what announce with

we do frankly, yes, think get marketplace absenteeism market be in and believe it’s is price we SG&A our So, can having That raise to about for I and impacting rate dynamically business, the leads to both the announce When do challenge really but to the side constrained but after price spoke before. there having our year, year entire the expect did to the cost about we our as we added did on manage business it, be time demand and is reasons. when up suppliers wasn’t going little in quite refrigeration the One, we the season. we couple been our in as has when we will We you cost to price, we think into right the sort then of you what next happened go a COVID to structure. XXXX factories meeting of as – industry we whole manage are think a be talked of margins to we middle about we up. bit because in to and raise price have talked will own looking commodities. a of

on for why going our all I on same pass to in So, to are price those fact, know I need are see competitors reasons – and think we us. the our

Thanks. sense. you just customers that? expand opportunity with engagement revenue upon can level it much That a And you the cycle, of bigger makes IAQ drive anything also about could does talk like

at I opportunity is, in what maybe billions I play where don’t maybe phrase in on unitary, its billions know least more – and and mean I of don’t the – right we residential. dollars clear-eyed of and I IAQ. Yes, billions think

air $XXX it’s less I component maybe residential think quality showing you $X,XXX of if $XXX. percentage. commercial, units, is indoor your a On are or

don’t think the overall it ticket. So, drives I

it have I to it customers be wanted in steer customers happens expertise for who you think handle those what is to and want their want able questions. to you to who knowledge and have

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you much, very guys. Thank

Thanks.

Bank. ahead. And go next, to we’ll Please DeBlase with go Deutsche Nicole

morning, thanks. Yes, guys. Good

Good morning, Nicole.

ground embed We covered doesn’t a guidance, something it I here. whole than on I a flow cash four lot quarter. really of flow getting more bit the guess am $XX million. of a lot the free to little cash free But in

capital So, factor just that the I guessing on there. – is kind am biggest thoughts swing of working

have about you we what that thoughts any should So, XQ? expect for

time summer payables off expected season we be the summer saw going hot to that on working But given of inventory December. in markets sequence we year. selling capital. burn point inventory, the I that a the to and down is and are off of and the of QX different given selling we production answer. then way, be burn levels burning season was next basis the driving are the while the different year-over-year But and quarter about talk is at what down, see That’s we of and this typically know year receivables, By a in they in inventory. we this off will inflation

– the we quarter third had typically we This see that’s big the why so you quarter. And cash have quarter. quarter, year, big cash fourth in

so what’s detail some then provide quantified on you could just and think commercial, Got sense. one a more And Todd? just backlog it. seeing makes going in I you characterized refrigeration, totally within of with are Okay, you order what you refrigeration, on around bit

the we refrigeration. mean, I and Yes, in up all rates backlog stand, on our X, year-over-year, X, order is are where a basis right now X-week up

the So, good. are trend lines

America In business relatively refrigeration sell in as And both. earlier, And business is project it’s business, other where from storage. back about think I our I through being quarter. then sell mentioned the large down of has that there that, through distribution bounced its we we and – is been half significantly North wholesalers business our strong. business or distribution second has cold

France a are a over-concerned for X Spain about Our months, and again, trend the little, direction. business in there. strong. trending last But or at in line the Europe – little on the what are and obviously, right the our business we been But and and lockdowns Europe also COVID order rates X has is

materialize? is slowdown about headlines And or could what in that – just being and have what concerned you actually reading seen any the Europe

things see to starting down. We slow are

Got it.

thanks. I pass will on. Okay, it

Thanks.

to will Please Nigel we Coe ahead. Wolfe Research. with And go go

more sourcing address I just a am commodities what are headwind. year margins, high-single digits and low-double insurance on just remain that that the mainly freight your actually margins? than you think seeing incremental can Is of Good everyone. sort maintain ex just Thanks. a curious, then, in isn’t – surprised were quarter. turning on benefit you you utilization? if you within And – residential into freight benefit. I XX% you it’s volumes you maybe exceptionally last mentioned can above morning, strong I the XQ And of more digit, prior you am think then expected commentary volume-related? margins now the just Can maybe ‘XX, Obviously, even the

that have Freight tailwind this two, remains over Freight year, were freight in we we did and we year part invested we have in managed – management like like NCR are of on the last or managing ago. XX aggressive years we

to have measure sophisticated it. And pretty now have a tools we the We so, team.

on of a a headwind productivity next year. a happening overall our And it’s rate, year and of the and think I bit with what’s so, part expect regardless of to be tailwind this just we side,

think peak I because a current aggressive in we of had volume, had reduction and you see out done sort the SG&A tornado. in where we we invested of In environment, terms had cost of residential the margins, stores

since basis, we ongoing of talk about an residentials on incrementals. XX% business, think I XX% our

what should I remains you think SG&A. think because plus minus we think it XX%, are investing I or don’t residential. in that’s about

in and XXXX. investing back are We stores to start we will up in

I the we ongoing another And feeds the will so, then on you miss an headwind, have Did basis. if anything? that And will, was question? investment there engine

one. actually think that I covered you

you Just on comments, obviously wanted buyback year a more be normal touch would on the buybacks. ‘XX back to mentioned

the Is million? are normal rate. would Todd, sort would I air there be $XXX be to pocket to the $XXX XXX ‘XX buybacks, the run catch-up you, XXX for any on million, from we of back think or

to right, it way sort on about X, our peg go the we that’s think debt-to-EBITDA run can think your own, is and of I want the to above is model point. you don’t

pay and in will And will we CapEx, will do we we left, And we acquisitions, the but invest then share don’t. with dividends so, what’s business buyback.

do I this And question. that’s don’t there But we of that formula. we maybe it’s think so, but a do bit direct start $XXX we more, going peg little all I and think all what to model that $XXX down if to million year I a think million, you come will or do. to we

lot. Okay, thanks a

Thanks.

question Please final line Our ahead. Steve JPMorgan. be will the go from of Tusa with

it is going? Hey, how

Steve. Hey, Good.

talk or but revert rate? – to what’s if a there to guys politics, tax you like – is that to kind where the the On if right you does that back buy-in, what’s forward go if of level, there of it XX% not number, wave blue that long-term the rate, tax kind I guys XX% of of to was, certain is you know – and on have maybe a kind is kind evaluated? kind this of view Does the revert

‘XX, But – But we back normal to so As some We will we more XX% take year. adjust we got had rate what to for we And script, to done items whatever it in XX% this tax goes Joe rate knows. discrete down. year that allowed think accordingly. be and XX%, is us we XX%, the next then we who is that, it beyond mentioned this is as will to year. seeing react are it going

was we out up a of year kind year? housing there really going and this know are of out Just echo boom chart. there, you pandemic, you had in push to this couple year normal years being that so cycle of kind discussion, so And a back a kind guys this are into the had ended despite wasn’t pull I chart of resi saying of that or

kind still the So, this something thinking boom that I still ‘XX of is that swing that mean, of peaked think it is factor changes or I kind the we way profile? echo is life. perspective that cycle? a that happened this XX-year mean, peak year useful there X, in housing year about that’s from are an in that to

and warm we I and XXXX I market. have a other broadly pandemic. we summer, each year think offset a would answer And had I is had think flat they this we also

the basis, numbers, a it right AHRI out. comment pandemic I the been am up the if would through you I about all X%. We a but to down. memory, if it’s I think we when look this hadn’t we the flat that’s from hot shakes we from doing market think would market didn’t And down a – when I So, And had have think close is, August at think summer, have year-to-date been think more. have

Right.

call. So, that’s our

summer I model we that. of and have a pretty more. we forward, we – if I couple look at worst. summer, it, think when will everything And consistent. mid years Steve, yes, still disagree, else been single-digit growth, think hot But terms maybe In market maybe a cold we know do we we it another the better; I have of know going it’s

echo it? Is boom play driving analysis still that or something in else is there

No, still it’s play. in

then Okay. last… And one

doesn’t saying say another I would – this no don’t think couple the Hot pandemic but pulled anything forward. in pulled If I are way, people make sense. got all it because market. any sort of summer of is there it’s year, years flat

to talk flow, of kind around that’s basis on And in the guys? right? reaffirm, what again, couple is GAAP have absolutely. free normalized a years, just a you cash conversion, you bit conversion of the here bounced you when rate on one one Right, last just for about last And then

a note, read I said it is. It XX%.

year longer are obviously but cash you if generate because net. capital, strong a and one, to closer cash that’s performed it’s wise, obviously EBIT deflate number, we I a and you think – our XXX%. having And at you if we look horizon, working flow XXX%, this that’s

we So, did.

And over were we building so were years a will generate so, But have we business of Mexico, in of a headwind we in capital, working moving net where the lots pieces. it’s inflated that income. and headwind perspective, years where then tornado, longer we have XXX% more

[indiscernible] it’s talking Alright, XXX% clear, be that be appreciate I to it. so if that would on think on a about a guys. be Thanks to more adjusted, I just to so cool. GAAP clear was Yes, close one. lot, basis,

market strong XXXX for remained To and joining to everyone improve. today. and commercial closing Lennox executing team market quarter with markets And and taking forward us thanks look fourth well is to the advantage and XXXX. wrap The refrigeration momentum Thanks. opportunities gains. up, residential the strong of into entering everyone. share again, continued We Thanks,

conclude that your participation. does Ladies Thank and your gentlemen, you for conference.

may You disconnect. now