Lennox International (LII) 27 Apr 232023 Q1 Earnings call transcript

Welcome to the Lennox First Quarter 2023 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded. I would now like to turn the conference over to Chelsey Pulcheon from Lennox Investor Relations team. Chelsey, please go ahead.

Thank you, Britney. thank results. joining and first for everyone earnings quarter morning, you us for Lennox’s Good here with am VP I today of Reitmeier, CFO, Finance, and Joe Michael Quenzer. CEO, Alok Maskara; Joe highlights the company’s discuss financial our fiscal and on performance you will Alok quarterly quarter and through will for the XXXX guidance. view take will Q&A session we Alok, Joe that, After with have a and Michael.

forward-looking as numerous details. to X, reminder noted. Please are our we against on making Speakers certain be underlying call, risks page. business relevant additional that that trends. non-GAAP the will otherwise to subject uncertainties refer comparisons also today’s Turning statements, during measures a refer are unless to SEC certain outlined indicators on Slide to of this period for filings mentioned and which and may adjusted performance our be All to consider prior may today available financial website year management

non-GAAP reconciliation today’s to A The included release, today’s www.lennoxinternational.com. and this today’s of the earnings all on press the filings presentation. release, in available link website presentation our earnings of and call for archived appendix at slides in GAAP measures webcast is are SEC

turn Maskara. me over let CEO, call Alok Now, our to the

in to to regulations. our record efficiency the share quarterly America. direct share, effort These minimum we meet and opportunity our the pride in fuel product exceptional will Thank this factors start our Lennox continue North margin, appreciation HVACR thank and share. for successful team’s digital deliver transition new great want levels products Allow per best expansion This foreseeable also for our enabled loyalty and reflects quarter, solutions advanced our Good our while company’s margin employees has and service all and relationships to including whose customers quarter customer dealers and the me you, portfolio take performance as Chelsey. their earnings improve this take We I to expand delivering product by welcome to everyone. for to us of strong future. morning to sharing gain seamlessly my hard to work our energy leadership, gain platforms.

where Now I messages. to Slide four key X, highlight to please want turn

proud quarter with record is report to Lennox First, results. another financial

quarter First grew core revenues X%. XXXX

expanded to in points, margin Our XXX resulting adjusted our increasing basis EPS, XX% $X.XX.

free is typical the seasonality cash $XXX which our Our of business. this quarter usage million, was given

Second, we segment. of the with are pleased business recovery pace in commercial margin our

outpaced as benefit Our profits increases. cost stabilized and more than inflationary year last doubled to operations and price manufacturing compared mix the of

help to succeed dealers to we efficiency on the January effect XXXX. customers continue and during minimum X, transition regulations our went Third, the that new into

improved design share. track position during a us to successful regulatory inventory gain superior levels conjunction put in service and of changes, strong Our executing record in with has

previously results, quarterly full guidance. strong the year with comfortable given Fourth, financial our issued remain we

We movements increases. and commodity pricing, execute continue countermeasures, end price monitor to closely additional in market sentiments, including track

We optimizing are outlook. lead and our sales inventory times given improved levels, current also

destocking our Now beginning end In anticipate in expected. residential of this we we second had to our on the market, current turn of X experiencing half year. conditions. distribution the market Slide through as end for are destocking to please continue just X-step channel view the the We

QX. was direct-to-dealer in Volume our channel in flat

in are in XXXX. housing by we driven However, new year, starts expecting softness later fewer the

but will The still factory due industry year times remains for grow may has this our for that shortage housing closely We year. to no commercial common starts. full also for the single improved stabilized. repair monitoring replacement are have improvement in confidence by encouraged strong, in by situation are impact the volumes. We There In high we backlog change of mid-single-digit extended decline the sales outlook the commercial residential decisions, a is the consumer versus components. commercial, in lead new is our time recent and unit lead digits our as any changes believe equipment that

the recent we the and but On that offset and transitioning monitoring higher inflation will copper efficiency commodities levels. such XX in price are price have become success year. this on increase June effective positive, material gain to a steel as residential standards our versus in well service share inflation inventory we improved our cost given seamlessly are Overall, the to implemented positioned are we with cost balance, minimum we price to new targeted

In by by productivity. driving strengthening addition, more investments and those our go-to-market organization are we offsetting SG&A back-office adding field resources

Slide growth pricing in to expand margins, turn Lennox. profitable we please accelerate X. and excellence at investing to our To Now are

there past to the but few offset inflation to price, our us drive opportunity benefits significant price remains from with to for years, both and Over we refine greater pricing a mix. managed strategy have

company-wide over scrutiny engaging contract ensure are applications. analytics, business to have signing price authority talent. have pricing and developing We strengthening internal appropriate our experts on pricing, key and by redirected outside new Recently, we increasing infrastructure development and our channels our revised account higher-margin further

auditing all to netting. We the our steps to take expand rebate process also and price necessary plan increase

ours Another with to key our optimize priority to larger accounts that serve can win-win to our work establish of partnerships. we so cost is

regaining goals. exceed provide excellence meet in advantage. the long-term Later long-term pricing our increasing or step In our margin I thus, update summary, our important we an are competitive goals. margin an And Lennox on know our is we presentation, to focus that towards will

now, over to to through hand Joe performance. the But financial go call first quarter who Reitmeier, our going will for I’m

Thank you, everyone. to turn Good Slide Alok. morning, Please X.

core $XX $XX and X% up distribution a Both of company and Commercial European million operations sales Looking the and price at record expenses. offsets experienced cost Residential Total volume our and and was Lennox posted offset the segments our from prior revenue inflation XX% $XXX the for million headwinds. million, growth, volume quarter compared investments lower with exceeded excludes year. $XX and or prior to inflationary in more mix segment for adjusted strong SG&A Price increased volume versus $XX effects year. but revenue, and than mix profit favorable which million profit product partial product by million declines, overall, execution

adjusted margin with In driven $X million segment. points, Total margin by $XX to first of timing Commercial expenses of most XX.X%, million performance up to expansion the quarter, the compensation increased due XXX the in corporate basis our expenses. incentive was

income Moving starting on cash on flow to X. performance, net and Slide

per record record $X.XX, XX% also The GAAP first by levels revenue and rising share achieved to $X.XX. but adjusted share with XX% EPS earnings only quarter not segment and profit marked earnings of growing per to

we in quarter. $XX The to included and to use million a cash rate, a in quarter, Our priority, of company prior a tax XXXX million million first operations shares year. Working $XX.X compared in of $XX.X for outstanding the of net an year achieve cash the $XX used to million Capital quarter expenditures target. million our remain optimization to track capital diluted prior were XX.X% increase $XX income on year. prior million the were adjusted compared $XX flow is and compared approximately

will the and approximately at cash in million quarter. our end was use year increased paid was company end factory the for as investments be $X.XX million growth prior quarter, at quarter. capacity free and In used of and the to the this of Total business. of million short-term cash compared higher Capital $XX billion we our of $XXX ratio were a the X.X. including quarter, $XXX We in $XX flow million fund investments debt-to-EBITDA commercial the year equivalents the dividends. debt a Cash, new

destocking. X% flat prior Moving unfavorable quarter to the price, mix favorable exchange. remaining and business XX% to through up which revenue. our XX% of revenue distributors of X%, Residential about digits. X, total were with result expected The segments, of X% delivered low go foreign year represent Total record dealer where was teens, volume our Slide of sales direct fourth revenue sales, segment on starting declines favorable Residential mid-single where and revenues offset our revenue X% the down segment were were to goes as industry

standard administrative our these where record. made rose $XX and segment investments mix. to new of a continued to volumes from of quarter growth. on fuel XX inflationary to points Partially million million, headwinds gains gains offsetting expenses, cost margin products inflation $XX efficiency million basis minimum we’ve offset distribution Residential and selling drove favorable more expanded were lower as and than XX.X% X% pricing Segment product profit first $XXX

beginning X Turning to business, the results segment in first call, Slide Commercial of the our operations. American in quarter commercial XXXX, our earnings refrigeration our North in as include last announced will

XX.X%. of Corporate European the was price segment Our X%. Other XX% were XX%. expanded was and up European $XXX Commercial divestiture points the quarter, basis be profit margin businesses. reported and was we operations complete up in down XXX Revenue and volume segment million will the until in to segment up Combined XXX% our mix and

new HVAC profit sales but we main our In recovery profit order to robust and backlog. the mix the production with price volumes. the early growth continue customers commercial where year. in successfully products limit Demand a efficiency the transitioned output pleased industry-wide our supply from with chain to are to were solid quarter, first challenges favorable minimum standard, segment We remains in and contributors the constrained

with challenges customers chain commercial are the supply While lead persist, are industry. our shortening and times competitive to

XXXX XX, Slide full review to our year let’s Turning guidance.

unchanged. outlook conference on provided Our call remains our last

reminder, As I points. guidance reiterate will a a few

is per $XX.XX share. the range revenue and core per year to million within a targeted expect a flow million. earnings Free between be for per X% up to full range to We of flat $XXX $XX.XX of cash to share of share $XXX

XXXX. net component with commercial from $XXX now transition material a effect material planning cost net in from cost in reduction XXXX initiatives, includes associated The investment And of be million in is million second savings million. million commodity $XX to benefits. the Price headwind be XXXX. expenditures along driven investments of SEER million with factory $XXX are inflation We a $XX capital $XX including headwind expect now by we to transition to cost million, benefit, price to in is that cost refrigerant expected take related $XXX of cost and

Corporate targeted still $XX expenses million. at are

manage finally, the tightly to million drive million average to XX repurchase full million diluted We growth initiatives weighted of to this necessary XX shares, support year $XXX between while to be we $XXX expect And still plans and the to count to manage SG&A will the in incorporates businesses for investments our share continuing which year. stock productivity. million

Alok. it to Slide With turn turn XX, I’ll that, and to back let’s

for initiatives to Page key Day on our to long-term during turn targets. the XX Please deliver Joe. reviewed Investor on an last Thanks, year’s update

recap, to success. are $X is will with superior HVACR long-term XX% ensure over market, an direct-to-dealer model on XX% deliver to ROS our America our business revenues portfolio that As of target technology North billion. believe focus We a XXXX and our laser-like

imperatives XXXX meet or to self-help page of strategic We our on are executing outlined exceed this right-hand side X the goals.

brand our increasing First, growth share experience be achieved drive will and capacity. gain optimizing improving by our to go-to-market by customer by acceleration effectiveness growth

we was call recovery, increase productivity resilient commercial margins will excellence, and Second, today. in pricing the through earlier which highlighted

system. balanced Third, execution have introduced operating to maintain a score consistency, we card

are We lean a and focused to healthy we to sheet chain, dual-source implementing on are processes supply like HVACR. M&A XX% pipeline cash Fourth, to are a inventory and a XXX% planning. transitioning sales building American conversion we our commitment bolt-on balance while and reconfirming North digital

in talent leadership enhance we to pump technology and the regulatory core reinforcing out winning support our rolling across in by are heat core behaviors climate investing guiding our we and and our Fifth, frequent finally, business high-performance functions. through values. AI/ML adoption all our Fixed will culture transitions digital by

I with value successfully and self-help aligned are that employees scheme implement like creation. plan. succession to working this would we ensuring thank hard are planning undertaking to addition, our In again, our transformation remains Once who compensation

resiliency prepared in with replacement advantage. sustainable economic focused company of Lennox believe why we even We disciplined direct-to-dealer HVACR provides opportunity. a I of with is competitive has strong is the operate on allocation. robust our unique the that XX, periods of high-growth an energy-efficient, network, LII demand investment which friendly narrowly I environmentally uncertainty. attractive have execution capital The And with end us a markets North creates history solutions. during would a Page summarize to close remarks, American in leader To reasons a like attractive industry

first and to that continue at us. of about even year best future our As excited ahead Lennox’s I Lennox, complete my more I’m days believe are

now. questions you. and to take let’s Q&A. Joe, Thank I be go your Michael will happy to Britney,

our Instructions] Joe we’ll Fargo. And from [Operator take question Wells with O’Dea first

is line open. Your now

everyone. morning good Hi,

morning, Joe. Good

quarter on certainly start and is weave margins, talk sort versus that those that you from coming margins some progress the consider to non-repeat here bit the kind sort maybe a Anything can supply expecting you’re you through forward the go some thinking of improve how little Just of faster, of sequentially? the that continuing that, you of would that continuing progress chain about there. improve in were encouraging about into to just commercial to

Yes.

with We commercial, that the we in had are on talked a first coming of the reset pleased the Joe, think this earlier we So year. about progress. there’s quarter

Given saw that had repriced be accounts many P&L. key sea you loudly addition. in our with change that our And the new and to of the product reflected

So that’s we over ago, what little $XXX consistent improvement. about talked delivered the expected. had past already have a We a few EBIT over year of $XXX that under And with we also quarters, million in $XX million. almost

good So are little journey. thing. we yes, expected, a a We where that remain we of on and ahead that’s

we improving, think more what about, margins And originally expect the get we QX, than had continue high going than to still given And we to performance supply through forward. million and that. nothing still chains I faster trajectory there strong, would going to halfway remaining no, expect with unusual we are was year, $XXX are we in growth hold. this to that we demand talked just single-digit with expect

Great. kind bit Thank sort quarter, the direct-to-dealer about distributor trends? And curious side, those framework at the thinking sort we to gave of talk outlined. for on that, first sort about think your to all you’re for on then your year about quarter, about of just year, sort resi think you you. you if And little second a generally, expectations the some of And color full of can that? the for on how of how you should varying then talk versus but the the able about

Sure.

pretty end So the from I it. right, From our perspective at because not holding consumer, think season well. end we look mean the as me units start we warm about we our that’s through. motor, and demand in consumer with let to the in was a driven. know, great how – this I that a seems you a was that declines, had destocking heating talk direct-to-dealer had drive perspective. coming parts unseasonably that, business, And few we on country. our of It quite Despite flat largely was two-step be

our obviously up steady. perspective, declines see There’s don’t pretty replacement but demand consumer end a is the in from So growth any healthy. because we the coming slowdown business remains holding

For year, the I think impact of of year, get slowed On decline and that’s because will the going to new rest I in better. demand expect That direct our a declines last residential now. two-step, Joe, mostly construction. the

destocking in think a we that we us. in that we will saw QX, and gets destocking I QX, see probably less QX So will see as little to behind no

May, overall, we revenue April, together. outlook us in look the in year full these as only We’re decline mid-single-digit in But all for with bigger to are months combined growth unit April. us than confident of X% X% factors remain for at June we

I you. appreciate it. Thank

Joe. Thanks,

our take We DeBlase with will question next Nicole Deutsche Bank. from

Your line is open.

morning, Good guys. Thanks. Yes.

Hi, Nicole.

possible step-up in usually this commercial from quarter. Maybe just to going to see I since obviously so you commercial the really It’s step-up of Would mean, just we that a think you third then strong? back a margins, kind XQ was strong seasonal it’s a I say XQ could respect margins XQ in see increase? that quarter. question, smaller Joe’s Thank And to hard to the with and seasonally gauge you. in

only were Yes. but QX business XX% I the a And overall, was good, we to XX%. business. at we long-term, listen, be for ROS that mean, expect commercial, a

I there’s But and seasonality transition to inefficiencies completed don’t no we QX see CEO the remember, why predict I quarter, want improvement won’t as that of related Because QX. quarter. to I we trend reason mean this still those. So had also typical have room I hold would level some don’t or for this our QX, try think for we us. accurately precision.

closer I stay So spot think at a to in at a we’re to few I – tuned. good XX%. end starting you expect mean, and do years

Thanks. especially through talked And the that That’s to question, phase in Obviously, clear. does today? a year, new really actions then you on price/cost. about really, the price How just the that Thanks. benefit quarter. margins given second

Yes.

year. that the into On we new a are the commercial, actions residential going this we talked So price on had reset about side.

benefit because the start levels increases. So price obviously, that we see same, but going saw more – difficult the had done we we I think the remain comps price significant to you will through cost

the I June emphasis effect comps XX. and levels where difficult, price and remains that’s that do to we the where side, and have pricing So talked a new we of residential on as get putting is but effort goes year-over-year basis we our in increase lot the think where that’s into this more on a focus, about are the

Thanks so much, Alok.

Moll from take Tommy Inc. We will next with Stephens, question our

open. now is line Your

And morning. thanks for Good questions. taking my

Tommy. Hi,

related insight the can I down and in strategy, on wanted resi that decision? couple what to a – Or to excellence involves? the price extent that central what driving local other us that was increase around appreciated specifically in versus announced there, the decision-making to to Thanks. pricing items today? factor there And that on bring us We was some on you midyear you just the on you optimizing provided drill of the

as had good many through we years a went have and control think into because Those the we went inflation, more command we as to. tornado managing. were territory and went ago really through more we’re managers. Historically, we that crisis significant I we COVID of

have good We really branch leaders.

have We really folks. good

we And act act outlets need just XXX as although intelligence. we had a like our manufacturer, field distributor. because distributor good have We to more accordingly, a does a

more more [indiscernible], say to we input, things pricing versus at looking doing centrally. to decisions give want are local we as more at So looking

region behaving our you look And our have a set intelligence more lot force little field strategy every to a centrally, obviously, but differently. local want at so and market

typical different for in be and Florida do us comment So to account may very going was Dakota. to because need sure we differences. pricing in than to make optimize South that thing those appropriately that’s for the pretty that North it, we’re And a was we pricing

context there. Thanks, Alok, appreciate I the

As contribution look robust wanted imply a versus at the trajectory residential the the growth to does was profit there, think some year full quite this quarter. year-over-year. But follow-up, profitability about I side, we if which guidance your in commercial

articulated, Given is this the profit the or side? the about all to think not substantially year the residential way come volume should all headwinds growth assume we Or right commercial should that on that you’ve of it? that

a had Listen, No, I residential think between and will be balance it a Commercial start. good commercial.

lots residential with of I has inventory the think for the coming down. level mixing price, with with the room improvement

optimistic and that to where comps are residential, easy look year, on started did I’m driving So QX Commercial to we at compared last hard. in have Tommy we that.

are think I residential. as commercial would also to year a be profit change than between sea for the little The balanced two overall slower benefit increase those commercial, we going is finishing of in that this sold have sitting finished happen good a And bit because inventory quite as didn’t in products a much inventory. SEER around. residential, as of we QX lower we

improving putting all optimistic rest think we equally of the I together, are the it So about year. for residential

turn will back. it I Alok. Appreciated,

Thanks.

question will our Hammond Jeff next from KeyBanc. take We with

open. is line Your

Hey, good morning, guys.

Jeff. Hi,

want first, of guess, to see you – to price. multiple get and pushback you these – are what’s consumer increase kind the fatigue feedback, talk you’re I to starting of increases? any start informing June another kind any or price then to from back XX. And just as on the I on come this starting contractors from just on contractors see

started I go costs to just steel up. listen, where we Yes. you we we companies, keep saw also you benchmark back would did on mean I what up good pricing too, And did significantly. up. is stand. mean been going like a expect Copper has

a where price June areas of And the price brute-force we years, for I I have versus of in would we the sophisticated sort doing increases. increase. increase couple opportunities. price we So past that’s what think increases were because call targeted think price is We greater targeted

to sure in a market that is balance. our and we offset And with and competitive and working So the lot the of that. make remain our teams through own the analytics fully inflation capture adequate go

the analytics and pricing thing confident industry details remain level. of behind and support we Jeff, the do lot a it, it’s to but So, right

is remember the the equipment portion, versus than small the of in our favors the than your labor XX of repair or cost less no pays only of parts because And is replacement, going are more pullback part equipment. On I has sees fact, seen gone have spare up expensive, and price and second replacement or question, we dynamics, what to repairs a up units the given of still hard the in are repair consumer half cost that more mean very there. of cost XX

So we we anything will are and the changes, seen think haven’t aligned with we with getting feedback, XX,XXX any dealers, their remain Well, if closely consistent industry. and we obviously, adjust changes. and they I keep

at commercial guide this Okay. in have res, then a kind the we as of kind just you resiliency, of ahead. moving seems Great. look And you at is it, precluded confidence like seems running point? from the it of lot still What like

Yes, conservative. year right to call remain way made get into year. Jeff, just think, is with gauging seasonally a I were front We the and want peak Cautious it. the I the underlying really markets, are on confident it think, we of the again, once again, once or first and to season us lot got characterize we’ve full a wanted and before the approach to but optimism, didn’t fourth just – we of – still lites, quarters in

Okay, thanks, guys.

Thanks, Jeff.

Barclays. question Mitchell take will We Julian next from our with

Your is open. now line

there on some of a forth of commercial for fully from in retail people Hi, good kind the so margin I months. Maybe recent of us and of like Maybe top in pace piece But those the market the things remind kind margins top being. office good and excitement the for maybe around commercial sort of verticals understand morning. of exposures leave commercial line, the market time the I’ll terms in main of lot concern on line, on end performance. out just obviously, end

sort shift end sort give how of could business? commercial market again, you in kind of breakout for the bookings of could all behaviors? flavor side? have provide the any the you or at any on Any So seen And customer on on color orders you

the healthy. Michael. is Yes, side, backlog the Hey, this still Julien, on commercial is

most We’re seeing of demand verticals. our good across

is XX% construction XX%, kind business. of New of that

but We’re is the not definitely into QX. backlog credit reaching yet, any going healthy still issues – seeing

we’re extended are it some But factory. bit pullback on the times not of because lead a really a from looks So Backlogs perspective, seeing healthy. still demand the demand of little a the yet. in

Thanks very I could any color vertical much. anything commercial splits, And more know, like Michael, on give you sort education versus don’t of that? applications,

Yes.

seeing the some on We’re good education. demand

when of and predominantly that’s the season, a the and So do season, summer schools are though out replacement we in can get work.

So it’s schools our more of while, just now, the kind are had dynamic QX of a more QX. good QX we’re channels. seeing than backlog of demand a executing we’ve across still for most Right and that quite

performing, replacement upside the where in the should second we Yes. of the continue segment paying first And reengage how customers. Juliane. things, of half still we have tremendous off I underlying year. remain Once a of is And additional the as But think, strategy, us strong runway, particularly for again, national more account backlog that was Where second is in us. concerted still market, as we’ve again, effort to there. positioned vertical put regardless our order once preserving more emergency half. is business given the half then our rates think, a that in we today, the few provide and the than

just sort transition residential with maybe CEO so understand bit so QX noisy of had of And a the to weather helpful. just and forth. that volumes, going you you. That’s sort quick I back constraints. some Thank and And that is my on maybe follow-up happening then

volumes down in the quarter resi in got just you’ve you. So the behind

small April, seen plays that down you’ve do by about same year Is how in you’re sort what quarter. the year amount, growing second As for the digit through quarter then fourth the the the way we single assume probably volume? the And think quarter, about volumes resi but the is quarter, second think high about out for to of we sort very it’s albeit of a and in that month down volumes again.

mean think all I volume April, don’t I almost the part, so about were right? trend. was key mean, it it’s say April I extensive I hard was transitions of in destocking I the to destocking. that’s in really completed take de give we you expected. that because QX, So I and and decline stock, drivers some knew doesn’t mean a the destocking say comfortable if mean, pullback and if probably QX, QX not some what as would they if I as know most be see more that we’ll as it people of QX

be destocking. should be I and be zero a less we done QX, minimal QX destocking. think will QX, there’ll then to with little

housing we starts what the during we COVID well. in places, So I the seems just think that’s construction, is that about mean, demand new saw that way residential the growth can I predict it. drive there’s holding think just seems rapid to fine. very other but growth to be that it. And Because holding to be user saw fine. And we RNC, demand no

I’m construction. the perspective, XX% in the residential to will because will it’s Julian. on like started It thinking the QX, it growth to depend better. to now, returned think to closer year QX. XX% new right not it We we monitor a from be QX, down watch that It’s looks declines portion, and your looking moderate. just X% volume housing it start I need that won’t So in But be if sure specific

That’s helpful. Thanks, Alok.

Sprague We next question Jeff with will take from Vertical Research Partners. our

open. Your line is

had call of once or X, guess, area pricing actions, slide. these maybe Alok, on a some the an I’ll where Thank them color of significant price focus? on I right? you. back Slide into firm the little insight leakage, to non-price can morning, come Rebates, – deeper give to kind opportunities, actions lost of could kind area want or might Good dig it’s be? the how I things maybe you Is everyone. you maybe this of like new And is driving like that. it this a some discipline netting and the

non-critical other – having cases, to back that such Yes. In during I so volume these important, supporting just focus I days, And we on in had to on things and levers and discipline. pulled important. these strongly setting, other had netting as believe COVID three pricing had my consulting COVID we as at yes, on, looking that cases, strong of I the we are of done some give it’s back constraint. activities, all getting think some guess recovery

it’s to it I around, accounts, going make it with and we accounts or customers sure us right? think and us have them also that accounts We deploy find network. we retrain to comes whether it some large it be it. We we when we of a to lot of way growing these optimize serving the to national dealer often it. the lot got we We’ve we So make to this distribution key and have serve win-win create make sure there. cost A freight, direct, lowest of it’s of Because can and our situations and is large muscle. advantages call win-win a like sponsor-owned work to for find are structural jointly kind for

optimize sides, Where about So it’s but margin the it’s less and what that’s that. what’s we an opportunity. think on about more both a is, opportunity we to have big list price

other very We lost So areas. it just we well. ground used we some on focus had because to to do

structural We going sides. after to are would lower the serve we in larger be bringing the on back, cost and that accounts about where excited have are both we advantage

and where the to we’re the spoke on your embedded where be that XX% the address guess I out guide up channel issues I if you there? crazy just given any think year-over-year and just you absorption to sequentially. It’s aware or your not inventories, could that’s the you destocking through other inventories, inflation own like. should then there. wonder And But address of in maybe just work vis-a-vis else as anything be you or particular are inventories they XX%

business. I you the in but of that that then off with the what QX, think And QX is our seasonal burn guide our will quarter. first QX into grew always normal that’s built the in inventories saw off We and definitely of inventory in inventory. grow burn we nature our

may there But bit did a build be QX. potentially we to some inventory upside in to little look to free normal think going to exceed We We’re the do cash it’s more. as guide.

can were improvement we a still I And inventory right at few year Xx room years to X mean, if are taking there. if that. it you jump on again we I when have now, we a mean, ago, X I back for turning just and go to at Xx.

on to I So to mentioned, period, inventory a our we to material by and that the crazy we material, drive X Driven here, to go chains our goods very our inventory we are anything better. years us with can supply to over do but X in raw next to and planning back turns over optimization bulked at the Michael but customers, disciplined levels. finished think going don’t turning the X-year raw also up became working extended, want historical expect you suppliers be manner,

Great. Thanks a lot. it. Appreciate

from take our Josh Stanley. question Pokrzywinski next from Morgan will We

is open. line Your

Hi, good morning, guys.

Hey, Josh.

about adjacent gain. I want share I on, but Look, really to follow-up price, to guess,

see customer talk kind on the market kind accounts Maybe different to dealers, you about the designed where more If national guys? the of you really biggest this of in bigger like Is about homebuilders? between field meet it opportunity larger where autonomy the types. is it newer today, smaller try think to is

forced somewhere Sure. endo of were I simple I opportunity them known have mean to I have inventory underserve the look tornado. were service smaller the levels, products. post We our Josh, them. I because Signature answer we we enough else. is because with mean, partnerships had all really good many them didn’t an mean for we Series we think or and of dealers

distribution So of into, Second and levels is of that I footprint, more them And efforts factor local that right? is where lot Florida reach, a much geographic. mean, geographic getting driven, share all think that’s share have our been legacy based our service mean lower of for has, I our goes our need the including a heat is win back. increasing coverage, Marshalltown, investing the South second improved market to think of pump market just autonomy, that’s that’s part lot in I in on the and Iowa, and we I where in all we than that years. of done,

working partnership. create them we come it’s with or win-win that to make larger structural of dealers, national and a back where approach more have advantage on that’s the the sophisticated we to different, a Third, a trying dealers to sure

opportunities doing business, in we also at have our well. And Josh, areas. the time indirect very three all is forget don’t So, same which

that talked I when well. So, about distribution better we a independent are works that the direct, network them giving stronger, where indirect Allied, side, on value targeting through and proposition, our

that sure to and win-win unfortunately value have at are the continuing key expansion, all right. because value proposition our finally, and believe make regional So, truly accounts we going have after looking we we well lost into unique model and I as a a dealers proposition. we two-step tornado, getting important, during Smaller to think expand four

of kind our market gain. are four levers those for share So,

Understood. to year, like then start in but anything the really product you have you just getting commercial, ‘XX? so and does CapEx, coming know up, guidance of padding XXXX transition today, bit forward over to anything [ph] able are side a for And pull shifting you little else on it the on set performance R&D, look the I to that good

is Yes. It’s meet have we levels our making of pull noticed sure a transition. priorities demand are XXXX $XXX can. Once that and that market elevating are the million capital million. and our I forward, some of situation is you to continuing we $XX again, where customers, of our we our are that with all to product right are service the end with mix doing to done extent, ahead Josh, got staying we think then associated expenditures

activities efficiency our like year, XXXX. deliver investments ahead that ahead the minimum of value making And are this in what’s can’t customers. with attack that to seamlessly transition those once those we we again, us we much So, did pulling

of it. for luck guys. Best color. Thanks the Got

Thanks.

And we will take our with next Oppenheimer. Noah question from Kaye

now Your is line open.

the resi benefit you. guide? you SEER year channel I to seasonal in sold in embedded fairly XQ. said Good Is of SEER in to morning. uptick the with, small it interested a it around think mix. the I would start was be into products to quarter, this Thanks. for possible year to about the full amount SEER in the guess think you specifically quantify actually, Good Look, and that commentary to how benefit with the what’s through mix

But what I question, was will new sales in new break saying Sure. the still let our but the as Michael down our SEER to you can answer in were going. but all the benefits you. shift for are the Michael SEER sale not actually mix QX me QX older is that did no, of that products, are clarify. SEER, in sales QX just Maybe of about majority one-third products

Alright. Yes. favorable In It’s residential, the see for we predominantly mix. did SEER transition.

as it talked acts more we As have than price. about volume previously,

little of higher on about the for to through start rest a as should we some saw dropped should a it on top but in we bit the drop-through mix additional residential. pricing about that And in drop-through that on commercial get that, residential. the see drop-through the year margins are able on a we to of drop-through be XX% to XX% similar to that XX% the We shift. see So, benefit the for

how to the that Okay. around e-commerce just I channel factor channel then you gains share in? did Great. And see question what think the quarter? did from this overall,

to talked Investor through Day, that out those e-commerce at us. Yes. very sticky of to channel at We and are Day, find But We it’s a we the break customers, third quarter. We look very a Investor by our say, of the continues for as sales as in go don’t grow. sales needless mentioned all over important e-commerce. that we

the even I and intelligence excited us, investment breakdown is not still of us, planning what also data be And or to predictive to It’s pricing, think important we artificial from December more strategy. we inventory relationship about from growth something and out quarterly. But using leverage better, disclosed of think nor that very making break perspective huge decisions, quarterly but for machine but numbers looking is maintenance it quarterly, a it critical learning is others. at we relevant. the break those to it’s to easier do we that important to make and dealers an everything So, hold out relevant for think for it’s in don’t our able the and our part we are

Yes. Appreciate the color. Thank you.

from Merkel Ryan William We with take our will next question Blair.

Your line open. is

everyone. Hey

Just of cleanups a couple me. for

you year? you sort Just be Alok, there it to this why recovery, the might because margin a before, and going are back X-year at linear you like thought end progression the so think on far can put of point I on ahead finer a you was commercial now it of looks

really I a have all, say of would pleased first conservative Well, CFO. to

when our it point driving So, And on be that were we Internally, Ryan. helps. I start think we external faster pace. we to years, will like a the obviously, commitment. Listen, at first that X that, looked it said being definitely really

for over, able as the rationalize I SKUs. as full think were looked converting to products, transition team our give the mean also new stabilizing, us. labor SEER well we we the the I worked at the getting factory credit to I which

So, less XX% simplifying. and we SKU the like factories through have working in

restored. our of was of of because those. not lot core key legacy a some We new just with were rationalization. We SKUs by these able all to were discipline contracts, a the So, work make accounts with step forward covered SKU so

were there hit thought cylinders we and an scenario, think scenario I a probably like guys But that. closer of now, within midpoint the And was optimistic we to optimistic. what to the to we you So, of right – on conservative we if are Ryan. be guiding it’s range fighting

helpful. just any in had weather geography? That’s differences that. some We Thanks there. then just out the on quarter west, And by for obviously resi, curious

factor. is think an was certain did Northeast mean I weather right. there winter mild in Because that’s I substantial. cases, related, well, industry-wide not do the Not but

it could year did transition but during our states and because be think competitors Southern stumbled some inventory. also of this we well, I had

the that on, you particular nothing So, I But answer I Southern could we strength. think the or states, dubious out give some call saw Ryan. of

Thank you. it. Got

And we Coe Wolfe with will take Nigel our Research. from next question

open. is line Your

morning guys. Good Thanks.

Good morning Nigel.

of say lot will already. ground we guys. got I Hi a

Just last on that point.

did the during saw the fair, Alok? obviously, like with pretty fourth that significant a quarter that stream, we transition. the in perhaps at continued shift continue first It Is quarter. sounds but So not the that

players mean abrupt sure the make and QX the excess inventory in South, have them typically, industry like make QX the North obsolete. all between them through end become of things And to the have selling fair. think these given on got regulations, doesn’t time and got – starting of think to nature we sophisticated That’s kind of difference all continue I and but E&O Yes. I I

think have we So, a done that. I good with done all – job have

in our strategy I two-step think And us the destocking due to the direct-to-dealer channels. benefits

two-step channel see once So, as of in unjustly criticized Once that we share. some up. losing stocked share of for were form will I the the destocks, think again, benefit it additional probably as we again,

fair. very That’s Yes.

about target labor to margins, I But Going today you well relative and think facility, you is where commercial on been curve? sort know this vetted. has material normal, define of where normal, leave will you but the I back Arkansas if trending to productivity that are to and

am leave leave to you it glad normal. am are going to I somebody us going to define else. I to

are wages but normal, back. fine I So, here thing, is the it’s going hard mean to right. not

normal, But factories because those including And was that inefficiencies had running rates actually still in line worse it that including go QX our put rate, change. Lot expedited still little bit let’s are the on to including through SEER we persist. of in, So, overtime, perspective. a that trapped inefficient. fairly below

new and introduced design retooling at we models are imagine year. of So, there us. three the to all for which completely were new that beginning getting your products, the lines Remember, new

forward. for think is productivity going for still room there improvement I us So,

produce, Our priority output I is more still there, we we think I find. can mean can more right. the the

second limited accounts mean being two got one that’s on making out key the replacement, efficiency factories improvement truly after based of But going to very high this I emergency just getting the can stock, all look being We standard that on at velocity, products other the up, sooner. order focused still the we very is the vision still for are productivity specific. at factory, high and to changed. Board. to factory Once working our made hasn’t and We remember, one output on of factory. have existing by and getting on our manufacturing made

lot. I Okay. there. Thanks will a it leave

with from Joe question We our next Ritche take Goldman will Sachs.

Your line is open.

am your was Hi teens Allied down. on just the into guys. this quarter. independent down looks channels? visibility your business touch It you guessing high distribution volumes probably Good morning. like Can I are like

of kind you actually to XQ? you do what have pretty visibility Just much in behind being destocking,

Sure.

say we we Allied. and two-step, mean when and ADP So

together, I you combined mentioned. and in you the So, mean the was down are range right. volume

every that of by with in is the I distributor of beginning or reason amount a operating somebody We hard rhythm and we be have compete as else us. beginning we QX with then good distributors in that’s be this should of It’s state. relationship visibility, of the nobody destocking channel, different, to very destocking good beginning quantify hinting QX because different the exact behind that at, right. think have mean But same has of kind are continue and QX. second expect are we is to excess inventory half. the holding will – would We

follow-on going improvement to anticipated? even seems is the which Got it. getting unfair about it, just know back. It’s of I $XXX congrats margin that what to question, but are being probably talked on like lot and $XXX for – we I commercial. post going you That’s than a achieving ask thinking the come million, plan on on where about this million how have originally you a come super way helpful. ahead me guess faster And maybe it’s to

out to I Yes. a few mean point different right. I things, will

had include benefit. First said remember, million does we second of the factory not the all, $XXX

still are to we think that. holding I So,

So, construction. factory, have Things we along the well. are second started moving

of the production year. sometime year. the expect expect be by next roof would We to We end under

give benefit two So, operating our as very focused significant to customers really serve have that we factories, a will well.

one that’s So, be going to part.

we is, that business happening for for growth. given is that, there think fully on to at a our on and disruptions service I here. very looking is significant were us attractive opportunity focused continue all Service the Second us, not

service insight getting and and it’s sales. is great service which margin, good focus, increasing us and repeatable, equipment our gives it’s for predictable, So,

inefficiencies of well. inefficiencies, us system. help in going out. really those that would the to want And manufacturing of out working rule the we and of to service the stages I think through finally don’t the manufacturing all are I back early I getting mean

term are So, I segments. of committed things talked the page, excited in commercial. about we And are sort the mentioned working those the apply to we the we the And ROS have across steps. long on. XX%-plus I initiatives key about both both are all and to residential when kind last equally six self-help are of They

guys. makes It Great. sense. Thanks

Linzey next Mizuho. with our We question will take from Brett

open. is line Your

all. morning Good Alright.

Hi Brett.

back I to briefly. just commercial wanted come to

solid. should for and national on that orders the of anything So, two quarters? you rates versus aware of specific order year? have the there whether this you visibility next strong And those noted of account three backlog over is do degree converting are other be quarters, we remains it’s mix, verticals What

first. will I second take the question

I we funnel no, pipeline mean are projects anything, don’t projects that through side, have the all mix that the right. price these I large on or we mean accordingly. and products these So, are

the no, expecting margin margin So, in our your no are in QX, different question, right. backlog that’s the is than if we

have good, all We to visibility about margin, nothing it’s there. worry that good into and

people get I likely of into I mean to a QX replacement year getting is lead low. GWP competition, demand the want to the our industry right I plan now wants visibility, low this you remain would accounts product everything On if the mean overall tomorrow. times today, product But it’s healthy. it’s somebody an year. sort chances places some stretched. post order, whether of backlog from is next on mean emergency who key our XXXX who volume

revenue, think I margin the both going perspective. and solid forward, also demand but some have. we from that’s pretty visibility here It’s and kind sales there is there, So, flexibility of actual

And of internationally, move heat into you speak to do the making part it portfolio? then maybe Great. compete one with inorganically? how European peers your be your portfolio Okay. week this your appetite much is a on to to be maybe news And required investment you think can organically, just to maybe just that it follow-up pumps, just of reinvigorate

It’s laser-like As large a industry. you North America operation. very HVAC-R European last business. make move, year includes know, the like We already of we being made a our to on decision which focused portfolio divestment

low We share. have

to I our is us focus help think win. going

other player. think line so XXX% We America committed our to bolt-on stores HVAC/R at efficient looking currently opportunities. card, expanding I whether North lots still we our of or remaining about are opportunities can more it’s have here, be So, service and

say Lennox like the winning us, win transition. help I and in America we us up on never, for think and gets will And our at think that currently, I employees So, help every will never laser focused HVAC-R. but through direction. Everybody focus morning is North our that that focus, all in us share, XX,XXX

want We formula that’s to companies. diversify in if And other buy you for are for guys international always can other winning confident shares a us. international, you

a luck. Thanks of lot. Best Alright.

Thank you.

And we from Tusa with JPMorgan. take Steve our will next question

open. is line Your

Good in. me Hi. Thanks for morning. squeezing

Hi Steve.

could April I lot – I for guys quite to the am heard been but I at how calls before, what is a looking guys posted this this don’t you first in quarter? on resi comment not morning, of all relative you sure

year consistent with tell will And I April, expected. caused on month change the hard nothing in of summer We most there stops sales us you, we have outlook. it’s June. of our kind and is didn’t would that but full April comment what a specifically given April to in May is that But

and didn’t about production year you redesign of Okay. It really how major there. kind inefficiencies And progressed taking up were sheet of you on do products product, explain were strategy to was advantage legacy a this coming kind my then think that? I guys you go the you clean like through just fourth had talking unit for there the understanding new product your that you I around? a maybe maybe how mentioned were some in thought outdoor Can you speed. of quarter kind

Sure.

with right. let’s two So, separately, start the segments

did were commercial, redesign and to we product, the we on So, that’s our referring what earlier.

design SKU modular So, and we significant replaced models legacy modern. that most our launched more three and of new included more rationalization,

not we a our air our did because did new. unit indoor efficiency and ago. redesign regulation launched are they indoor are does. are pump, already very They On line. but very still And that’s We our product they redesign outdoor compatible. an residential, because or had were conditioning heat what units high commercial, we to just year just and so So units re-launch

air gives our handlers believe the advantage new that higher pump heat compatible and conditioning we air units furnaces in backwards and that us indoor. So, marketplace is with are existing competitive our

I the we earlier. of think product piece mentioned the had that’s So, strategy

it. Got

between this I then remind just on Okay. how price total And with one, increase? are selling what your channel? mean price And captive increase is you you works much then is price increase, your that seeing? go one distribution that like there of and in – – how your versus last difference can contractor what independent seeing independent distributor the does the is a is us

Yes. lot We the targeted a it Steve. a call I starting And discussions, of increase, now. price the customers are think

doing So, small priced sure answer we From portion cost. in not all making go overall inflation. are in right step is details of a we one. And be I offset more marketplace. consumer believe the the competitively for is this that would is us we But rather the perspective, this the a to that of terms is into can

given guide, have our $XXX took earlier we with the up end a range by inflation You $XX will at pricing full notice now million in year $XXX in high about we and offsetting benefits, talk we commodity million. our million,

are that’s the of kind numbers. where So, we on

Got it.

in that whatever embedded, in June. get embedded realization, $XXX your to So, it’s you million expect it’s now,

the the to We Yes. remove number. and with just stuck range high

Yes.

you. Thank Great. Okay.

you. Thank

And Jefferies. we Chirag with will Patel our next take question from

Your line is open.

Thanks.

you brand? to more of cover the with additional wanted an in talked expand there XXXX I as blush the piece much the to the that growth? what like Is piece, kind for bit of $XXX looking that, How that trying distribution Allied so know that at Just opportunity of we versus One, of in see was over the is sense there the target. kind to get What little share one business seems you kind of of about a kind acceleration to just of kind time? to gains you growing opportunity Allied? to an of I past, I what So, more just million opportunity get product? for here. particular Lennox is of partner channels do core see a that is idea the just have or guys

Sure.

job have I business has So I past over I very first of up think have Allied. we same years. I mean are a being the to don’t expanded have beautifully. grown the proud all, many mean we the of done. At And we the time, that. are the team anywhere [ph] close done done taking and margins they great Joan Xx. think fabulous mean

We again to have years X serving a have awards doubling wins significant focused distributors. product lot as room focus a and continue business to best very independent for of that these the easily add can next portfolio over improvement. I truly see on distributors we we that

The At So, the think there excited more share I in gain them Allied, opportunity them. of time, excited lot of direct keep I it, the a we $XXX deliver we million right. business million is get I about same down both to targets have driving $XXX growth both don’t super Allied, will get ideally, about on Ideally, want both mean between indirect, and ahead. we to we in and of potential shareholders. the break will and A would B. we think opportunities

Appreciate a there to mix slower or I margin the on that that. little Would be a were shift bit mean? grow if faster side, just

residential of to all hard No. development for would because it’s same of I down – kind remember, that. don’t infrastructure just and artificially we committed XX% manufacturing, remain the share overall. to out break margin And margin break on we we margins. product And

So, that just becomes game, right. allocation

you. Thank Okay.

conclude there conference further call. will quarter this no you are us Lennox joining Since for today. first questions, Thank

your this disconnect lines time. at You may