Lennox International (LII) 27 Jul 232023 Q2 Earnings call transcript

Welcome to the Lennox Second Quarter 2023 Earnings Conference Call. [Operator Instructions]. And I would now like to turn the conference over to Chelsey Pulcheon from Lennox Investor Relations team. Chelsey, please go ahead.

Thank you, Ashley. everyone. morning, Good

to excited here us with We have morning. this are you

Maskara; is Reitmeier; today me CFO, CEO, Quenzer. Joining Michael Alok Joe Finance, and VP

depth session for fiscal quarter will After that, financial discuss and have XXXX. Joe and on a and will into Q&A results guidance will quarterly Alok, the updated Alok our we company's with highlights go Joe Michael.

uncertainties certain to Slide today's page. also call, to be that underlying and making of during numerous this A subject we business management indicators are that forward-looking outlined reminder X. which We Turning refer to non-GAAP statements, on to considers as risks financial performance. relevant will may be certain measures

all to on filings available measures. our additional our refer details, SEC and reconciliation GAAP non-GAAP for Please of website including a

webcast today's for Investor Relations release, presentation link are on the www.investor.lennox.com. and slides our archived available earnings website new call today's The at

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

our Thank record progress you, strategy demonstrate from revenues, of record morning, am power quarter everyone. profit, the delivered I Chelsey. flow. These the to cash growth Good and the our on of EPS, XX, record and we our during impressive turnaround commercial plan. record focused recent record which results margins ending June results share delighted

I'm have customers quarter. performance I our whose relentless improving service our and grateful thankful as am our Lennox of contributed colleagues, to loyalty the committed our their to outstanding my for hard to further work levels experience. for towards we customer continued their also dealers efforts dedication this products XX,XXX enhancing remain and and services and

expansion direct our relationships, on the our to foreseeable network. of factors unique advanced our will and our power future. products the existing strategy, laser-focused demonstrates margin and gain quarter which share successful fuel These for continue distribution platform builds customer strong This

want on X. I key quarter highlights the Slide discuss of to some Now

per to adjusted resulting First, core expanded in XXX and points margin earnings our share, to $X.XX. revenues segment increasing basis XX.X%, X% grew XX% our adjusted

Additionally, million. XXX% increased cash to our flow $XXX operating nearly

of Second, location. we the growth are this manufacturing extremely Both strategy. proud production Commercial execution Stuttgart and and quarter, for a driven price/mix of revenue commercial our from hit output record segment our profitable team's by favorable improved our profits

Third, residential Residential our our levels, normalize profits. margins segment, resulted were were lower we inventory by output transition. challenging, as which also markets the end in and post and delivering impacted SEER lower factory Margins absorption own revenue,

We remain believe cautiously is about industry's decelerating. that optimistic inventory we as second rightsizing the half, the

during year. recent our addition, increase performance us of balance enable margin price In the deliver the will improved to

finally and full for the later revenues, depth we page, pleased are higher call. higher flow year. review cash this greater as revised will per Joe for guidance share the we operating in the Fourth and the on to revised this share guidance earnings higher in anticipate fiscal year

to Now, view Slide current industry. our the please X for on turn the impacting business conditions

For we experienced destocking residential season. market, selling cooler end start and to the summer a the higher-than-expected distributor

decline are now versus full digits volumes unit of by prior a to high decline. for year We anticipating the expectation mid-single-digit single

an impact to our the diminish destocking of we started distributor and the at Looking expect we uptick consistent second sales, have see temperatures. higher half, to with replacement in

and extended, The expectations times be low although they with low double lower of for we full remain to XX% up anticipate versus backlog year single and are year line order In remains increase. sales the digits now than double-digit lead last the Commercial, sales delivery to industry. prior in digits high strong,

to industry broadly report that pleased disciplined versus our mid-year price the inflation, pricing we own and successful. remains been price increase Regarding are has

the second positive unchanged, price and inflation inflation to cost expect we on both of half spread. versus outlook remains a Our commodity year and the components deliver and stable

to gives the gain us service year. improved and second our of well half commercial production positioned share levels that in are increased Ultimately, confidence this we

continue more while key processes, win and deploying invest frontline incremental accounts. our more resources SG&A over to go-to-market improving dealers We to towards dollars

We minimum efficiency believe gaining outperformed that launching customers standards, our loyalty further the to from and new Lennox the the dealers. successfully product meet portfolio industry in

regulatory During the low including on share. X, and requirements outperformance deliver aims refrigerant January to Lennox transitions, capture future upcoming GWP additional similar XXXX,

Please turn related X regarding upcoming details to to refrigerant for ongoing the Slide more Lennox activities transition.

was to to gas requirement from is R-XXXB pleased meet the effective transition and valued EPA less We January to our R-XXXB are our will R-XXXB emissions X, to the XXXA refrigerant, option The for provide commitment potential. existing XX% customers global warming refrigerant greenhouse the reduces the environment. announce choice to Compared that driven R-XXXA by XXXX. best Lennox and approximately

and Lennox has changes this demonstrated exception. will track regulatory navigating of be no record successfully a solid

product completed redesign transition. updated most for performance. and have phase and now this are We high testing for includes in redesign other the compatibility efficiency and refrigerant compressors The components

products To address include if safeguards may safeguards and algorithms we sensors, occur. will any safety refrigerant. requirements mitigate this all AXL on our that additional leaks use when they the which for new will refrigerate, These and controls have

highest redesign our standards. Safety will remains or exceed our products our priority, of and safety meet all applicable

us them during for Lennox manufacturing, As advantage share win to with while selling dealers with end transition, of accurate dealers. regulatory you consumers. a primarily the the addressing direct deliver our team training to installation. deliverers our This structural and safety This to know, and all the information distribution and advanced to helps enables has equip to requirements

seamless not a happen by the do likely we transition We inventory communications timely to will avoid R-XXXB relationships maintaining similar significant our levels. transition, in appropriate to a disruptions. By strong transition, and chain supply refrigerant prebuild would expect with supported past. compared we as to suppliers, transitions the inventory faster deliver this safe, Throughout intend

still we reviewing or to it are we expect accretive While financial transition's this margins. neutral impact, to our be

and from offset increase the industry during again, additional be anticipate dealers Overall, in price. transition. the the that confident our once cost customers product are we garner refrigerant will that this We will outperform we and by loyalty

will me take let Joe, performance. of our Now call through details the financial to QX hand us the who over

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

excludes Core earlier, year's European record than more Alok benefits, mentioned and operations our sales a was billion, price the mix prior which offset earnings strong X% revenue volume As company to a up Residential and posted compared revenue, declines. $X.XX growth.

or and in versus partially investments Total $XX profit mix Price $XX $XXX prior year. and were million segment increased increased with XX% effects million SG&A. volume offset and inflationary and adjusted profit from from by lower and $XX distribution million million

was XX.X%, XXX Total points versus prior adjusted basis margin segment year. up

tightly the decline of $XX corporate spending. a $X continue as expenses For corporate were we quarter, to control million, million,

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

tax XX.X%, and XX.X compared rate outstanding quarter to Our record -- million diluted XX.X million in our were quarter. was shares year the second prior

Slide Now X. turn to

quarter in quarter, offset season resulting the continued decline destocking X% decline. was The price the XX% second and the first with As distributor began with favorable cooler X% temperatures, favorable partially volume in and industry-wide saw we summer in a volume mix.

which segment through single the Our are low XX% in distributors our remaining experienced which revenue of The a approximately was increase goes revenues, sales, direct-to-dealer XX%. digits. down of revenue, XX% our around

and headwinds to to price minimum driven inflation driven XX X% selling fell favorable partially basis million, lower increases mix, volume, by new XX.X%, by margin primarily were investments. $XXX points and offset profit and the segment and standards. with efficiency effects partially The Residential segment dipped distribution

volume Turning segment up were Commercial XXX% to that business than quarter results. was and up and Revenue XX%. Slide and the to profit $XXX more delivered exceptional was margin X%. $XXX doubled up X, and XX% quarter, XX.X%. mix of up another in our price million segment was Commercial Combined million,

a mix of $XX the we the already -- and trailing in provided profit compared I'm Price last $XX million had quarter, $XXX the profit the an of on the $XX increase. our same million surged million period Last total $XXX and million that profit guidance share million, XX-month total to outsized to multiyear by impact of has year. delivering segment opportunity year, delighted and

continues align rooftop industry. improving with and to times, output increase, the commercial lead steadily maintaining robust which we Our are delivery now backlog, while production a

cash $XX million were prior year our quarter, an million increase $XX the in to expenditures EBITDA Operating on Moving for X. was the prior the debt quarter starting flow compared performance million cash flow $XX of quarter. Capital for $XXX the to compared to and to Slide million year.

like capital investments priorities consistent, growth industry-leading our factory Our commercial in innovation supporting acquisitions. Mexico, driving new bolt-on organic deployment remain exploring potential and

company and our $XX.X the paid of $X.X was million million quarter, quarter. X.Xx. ratio the short-term equivalents was the of Cash, debt-to-EBITDA In at were and billion quarter, debt cash the dividends. the Total end at approximately investments the $XX end in

Turning to XX. Slide

full year guidance. XXXX our review Let's

full As performance, a we half year are result our of strong our increasing outlook. first

year the share revenue and $XX $XX.XX per to to up be share. We per and expect X% share between for X% of per earnings core

cash free target We our of are $XXX $XXX to range million million. flow a increasing to

remains our with expenditures prior capital million. at for consistent guidance guide Our $XXX

As that take investment a to and transition commercial in includes a in factory to investments effect second refrigerant the related reminder, XXXX.

million, now headwind is of in million $XX XXXX. cost benefit to component headwind along of $XX in with Price net $XXX we $XX reduction $XX expected million expect million, and cost a inflation initiatives, be from million net material benefit. now material cost commodity be by cost to is The savings cost driven the

for to $XX million expenses. target compensation new expenses corporate attributable Our incentive is higher

advance investments our and average in XX simultaneously the SG&A products million innovative for and still manage enhance weighted to And solutions year be full shares. continue initiatives, diluted count business to making to productivity. will We share million finally, while growth the expect expenses we XX the and support between essential tightly,

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

Thanks, Joe.

to for value that transforming XXXX results, we towards also company towards the our longer-term a making are path clear In initiatives targets. shared solid quarter, key progress expansion. addition shareholder short-term financial pave Last significant we the

to these creation. up will phases those XXXX Today, execution share the of X targets set initiatives. frame and would for the even Collectively, value on we longer-term transformation deliver time Lennox would clarify that like initiatives

and We currently the our plan, delivers are which self-help to consistency of customers shareholders. in the execution phase

commercial initiatives. demonstrated have and recovery in success portfolio simplification We already our

setting, initiative netting. through Our pricing improved excellence will favorable margins price and drive getting

core strengthening and are accountability. and with as in by foundation serve for enhancing on growth accelerated XXXX culture our beyond. will talent stronger a reinforcing an We This emphasis foundation springboard

growth areas. Lennox several in XXXX, prepared is into for acceleration Looking

margin base sales focus products. premium go-to-market renewed capacity increase our grow dealer and will up-to-dated our on Our a growth core with strategy

during highlighted accelerated gain As share we we earlier, refrigerant change. the upcoming anticipate

Our climate share industry will technology gain during pump in heat enable additional electrification. ongoing cold advantage

to to remain opportunities also we even committed delivering value we financial recognize our XXXX targets, the continue expanding shareholder While XXXX. beyond

will upon network expanded increase an structural our American distribution with coverage. our to build competitive advantage We North

through supplies parts, and share for attachment also adjacent expanded to higher will rates used commercial this service HVAC of wallet our network distribution products capitalize dealers. We expand penetration, higher by on

clear a shareholder have are committed strategic of we continue line XXXX fiscal summary, targets also creating In our value. will differentiated that sight to to and imperatives

Now I Slide please I differentiated deliver long-term advantage turn where is why to competitive believe that XX, to shareholder value. structural recap like to will poised Lennox's

the pillars advantage. highlight of Let our me X structural

First, us our elevate growth. enhance the customer To positions meet this, our to direct-to-dealer growth make sales to deliver go-to-market will effectiveness, market in experience capacity consistently investments and model we accelerated necessary uniquely capture demand.

because we scale our leveraging by to channel, own deliver and and we cost distribution Second, sustainable primary can the our distribution reduce margins and efficiency own network. of technology increase higher resilient

balanced deliver execution throughout lean operations. operating chain processes, supply scorecard-based Third, system, sourced our digital our dual and consistency

our is solutions. heating and suited sustainable is to The that industry with environmentally portfolio North serve American fourth pillar cooling the innovative perfectly advanced technology

core that culture values and talent nurtured is high-performance our and recently have behaviors. launched by we guiding Finally,

continuously compensation are aligned in structure planning, to ensuring is shareholder talent development our diligently that We creation. closely and while value succession engaged

and customers. my employees to our like to close by would our I reaffirming gratitude

half ahead this We are of in to the days best are believe and continue us. that first proud of year our our accomplishments of

I you. will now. Joe, to Michael your happy take Thank and questions be

to Ashley, let's Q&A. go

[Operator Instructions].

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

margins Just were just the on commercial, I exceptional. mean that

level versus wanted I quarter? margin and the times of and So the sustainability, that how in to are to any just the And contributed reduction of to just understand peak much quarter? aberrations improving backlog maybe the kind speak lead then just your

down first, Margins improving. the are the mostly perspective, of lead margins a times resilient. sustainability saw in backlog Yes. because the we the remains From strong, remains a little It's bit, QX. reflective backlog within

in for growth good is that we solid So see to coming sign which continue. is pricing out of factory, again, continue And output the volume a business. to mix

Yes.

the from see, for more think price mix volume the the you'll half the Jeff, segment. one of and In thing up should the commercial I see propped quarter. you quarter, back year, even

ability once So we're into on by trajectory back and excited I the excited trajectory to was XXXX. there. getting demonstrate again, our about getting target achieved think about are future now this Once to it we've of that the our margins our business

trajectory anything of more in company-owned just for Okay. the going then kind to weather maybe stores. destocking that's how informing your And just And speak is lower than really your Great. resi, there?

listen, Sure. talk all QX This I is just Alok. about weather, don't on but know to Yes, want was we resi, softer.

I the end, than also think pronounced also about had year. and our down in we volume the notice, learning -- see guide just took digits. And you X we our reflect our kept That's was more as distributor destocking But the the at revenue single expected. same. months high talking of we to

own is destocking inventory fine. From my going perspective, our

and lot And more will of struggle and it months know was X another we cautious normal us think take to try past. which we don't to turn down more people around because to are to and want I them, to a it lay just levels. X the a bring in just off hire that's internally,

hear to a from they bit bleeds things most -- destocking QX. furnaces by products well QX, like don't be that be in the QX. expect we into likely that of and what to seasonal little sell If over distributors, them From there's that's

for hasn't us. view changed that So

similar So had disclosed. within But than it's worse time. overall, talked last outlook in the range, we overall previously about resi, we slightly guide to we what it's think

from We'll Moll Stephens next question Tommy take our Inc. with

then one outlook? think to trends direct-to-dealer Allied-driven follow comment, sell-through on you several an like said, to Allied? outlook. is other up a about more is for the with the would in quarter in that's on about talked more share trends occasions the wanted resi of weather volume changed in the versus Are the but destocking, your I able than, I cooler you anything on quarter and volume which there distributor you've second basis the terms And

Yes.

up had our ADP, makes decline. channel, they significant clearly, So Allied which and indirect

of flattish, slightly in of core down kind Our Lennox business maybe was terms units.

that well. So that the current by industry destocking. I softness holding a gives is mean mostly driven us the is quite of all distributor the lot confidence just And

destocking. June is colder, gets Now you've almost be for year, was a because the July up got bit to ignore the current but net-net, that and channel Tommy. weather little I harder, a just to washes all But full things think impact industry like is by holding is out going little well, overall driven

culture the Alok, accountability on bit you the you also a Can highlighted want and helpful. a us I that means to what are? follow wanted really you to up just bring drive. That's on more that theme in some earlier, just initiatives and growth of little on what

Sure.

mean, a So culture, as always culture. I has great Lennox great had a

past tornado, supply negative Two, other as just with conversations. trained chain, saw, and many because our industry of we more any in Lennox. the supply to again China. the got pieces we we finished disproportionately COVID where use on for the T and to never finally chain versus impacted reliant the want Starting the years, which X we the you Marshalltown word For rebuilding was

and And we in our using those X just as -- going forward, launched years, I of think past down all I got relaunched we beaten excuses. started values. core think the have

We have X behaviors. guiding

seen when have may complete. you next were going Each going training those to employee of here. be a some and posters months, is every over that's through XX the You

with are you years And we on accountability, such and results. past genuinely ready X, course, XX excited the we and of the behind to is very the experience, things forward, the as emphasize are us customer are in truly innovation, where And years. sustainability. that But organization. put everybody really about depends next want X path to Employees embrace the pleased

question with from next TD Cowen. our Gautam take Khanna We'll

year. refrigerant to average mix in product transition I you And lift next we change? the change year this do to you start the the do get transition this year see when new When terms is is the we that transition another And it to expect guys. of with of about ask then to and like? into that like what that And implications wanted channel? price refrigerants? did selling the numbers, -- Great pricing do

is Michael. this Yes. Gautam,

that pretty really price/mix the than up the inventory you be cost. price start we'll XXXX. much So won't for offset through really, than impact -- XXXX, of But and where see January, to in the more XXXX but really We'll lift will dealer XXXX. more January or preparing that network, be the financial will preparing no dynamic until some preparations happen transitioning a that of and but XXXX transition in to impact

a market? quick kind do And expect to? the the of when on to you have you that side. Commercial with replacement reentered respect emergency just Where Okay. you capacity do the And it? to are Have follow-up yet? Do you

continues the reengaging the We're and planned way I to more Gautam, the engaged in still significant that account fully replacement increase in that, now, it's early national remains for forward. year, going replacement segment would a right output. factory we're innings opportunity of upside as business. us and now, but By Yes, emergency that characterize right the in innings end our we'll focused be early the of on

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

on just guidance. So the maybe full revised year

So And like to second I second that of going that's half. of come think the you're XX% earnings kind in half sub-XX% more now. the typically, implying in

understand potential from between something or conservatism we one guidance you the trying have? dynamics in like in the should that just half, So be to as factoring

Yes.

we the accused end around there once going But first and uncertainty been once forward, again, think cooperating the being to remains results tempered as about second have move certainly even Residential once past. you forward. going conservative in again, I it saw and I now, optimistic a And some cautiously little we're strong we've that we bit, a it's we've But in think be though segment. upside Residential half, I in quarter probably economy markets, whether think our the of again, Nicole, commentary had still certain number. our

to it. margins. clear. That's the respect with Got And Resi then

of sequentially perspective. quarter that called guess, on kind opportunity a between because Do related to normally, improve XQ? of the are from the XQ specific into So flattish Resi to margins we out you of I third seasonal as move margins you those headwinds guys call and XQ see some

Alok. is Nicole, this

On the be. on where disappointed margins Resi out margins, turned to I the was

perspective, understand the Resi to the the up lot a So bake of don't have want trend, From while and upside. we in I margins lot a upside room more my for seasonal model.

the you margin need talked margin and get to have margin are things about about, much, more If that's think where we higher manufactured performance we we today. just distributor to than much

So there's a I think room. lot of

Our pricing have to excellence factories less from we QX, initiative the perspective, now, only which are a results going delivering selling. benefit. in is building are Right starts than

clear absorption is year. through going negative the there's So a last impact, to which

So in the are XXXX up and then same half, think think will well. in margins we second as going continue I

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

I you wanted to margin. Joe, was said Commercial up price/mix. follow it on the

seems I XX, like margins half, boosted the EBIT is think like that the the in XX more the quarter. It range. second guidance

you changing? what's second the us to half XQ and So bridge can kind of help just

carryover we obviously, is you don't give really we of but what first the was the in in So there really a second get lot conservativeness. to in year. that, price second But benefit guidance, half last half that implied started some still saw half

But reflect that that half backlog you balance than still said, the the has of the they the see half. will way in should through more in second our with and solid benefit first commercial So year. margins some price

X. decelerating question maybe the Is it sense. Is like seems And price? destock a just And are sales. half had more seems big else? second what bit Makes and Resi, there anything I a the It down to Okay. it imply drivers? then on

the forward. July most right ones, is I tailwind Ryan, that as obviously, caused think two are move the has destocking weather decline. those a for us been And of we

I will be things X call the So think those out. I would

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

of is today on I forward we were of bit. little or what last normalizes? of the it we you're your is, margins sort laid you XX one by here? where just more ago. months? price we XX, seeing maybe Alok, that stuff, originally from cost about through about kind talked this which Or year progression guess turn Commercial want discussion versus the what that Maybe maybe you a how of a Is how seeing a journey winning you're follow walk a pull to X-year out year? us I up Obviously, So should big a year and had thing think much plan

time, conference this at they $XXX I Sure. and about million. Chicago, Last in year, talked think, we at, about were Ryan's

out the did good got as million. happened turned some the be repricing cost right As than and expected. getting job a backlog. better is rest of negotiations we benefits, team to because What of getting we Joe have And really kind said, that's of $XXX the the price the kind cost

upside of The from manufacturing. as such lot a factors, other continues

output. below we We which are still talked about in historical levels, of terms

has Joe factory think opportunity I of. on as the we more a our us, emergency lot are still feel productivity. which still like replacement, scratching into for surface I more lot things a barely getting mentioned there's room for earlier,

And remember, with spending we're we second now a output. that right no on factory money have

So net-net, communicated. that things say. not forward, just had necessarily It's it's kind than pull I we better of of went would kind

internal We're and months to million X plan called an ahead that of that, external glad million basis, for for it. Now clearly, years, $XXX now promised our of when put $XXX are behind us. half X on we we

we new focused basis. segments both range not that's what be said going a would want on. We we've in And be talk long-term a making we the to of But on XX% XX% margin range always sustainable commitment. be to to we're a about

think is 'XX. in then what for or in replacement down refrigerant helpful. there's folks much if more just you know to the getting to expensive? Any step That's prices And of like, the a equipment this kind about big coming allocation refrigerant market, that for transitioning are new does this transitions year, I R-XXXA. next you refrigerant hey, Okay. out talked sense

up get tough? question, mind. about near How couple think replace on being a to years to equipment going a Do maybe more transition just where that refrigerant but do availability anything term, is little away, I want gap open-ended of you being really something your

I'll tell mentioned true, we looking the things we price is have Sure. but lot don't you, the ball in there, into 'XX yet. Each that final a don't have that you draw R-XXXA to be A crystal of and inventory we'll what do legacy down an to stuck going on have to for sure always There's beyond year. we're make need. not R-XXXA we next with

from think a is a I And consumer going to be change. this small perspective,

gone It's changes before. this be We have consumers more through Consumers really dealers going well a versed few don't and think are our more than refrigerants. who to probably about in educating others.

So lot to danger used changes, overanalyzing industry of very getting to this used are still because of there's this pieces. a now are moving is change, we the I dealers this think to used our Net-net, these change. a

going happen with think to seamlessly is minuses. than all more expect I we and this some pluses

we if might 'XX. 'XX But forced as pricing like R-XXXA of some to happening it our in up mix higher, Michael in helps price and our this conjunction. said towards in earlier, But start we are the is think increase

stay transition, tuned, confidence and design, are a way think truly moving of training from product having So but ahead. dealer pieces, in we I lots the

Research. We'll Coe Nigel from with question take next Wolfe our

next from of this of the spending, And guess, But this you out to deadline? impact don't you -- understanding, mix investment So here, is be to a channel any dead a do an year? installation sort I R-XXXB through going Or mean about think does new refrigerant. impact there's production is year. years? you Investment that's but talked sort be look is the as does How know we your going this deadline? transition to spend it positive. Clearly, how beating shake into I next couple that that transition. this of horse

Yes.

bit I a than think to transition, near will going traumatic seamless. XX SEER going little past, this don't be back be a transitions to where for anywhere that's the mentioned, probably Alok industry. bit the more different in XX I to which think as maybe we've the a little this was situation larger the had

So innovation. million $XX we'll to again, a edge And things. make out is, leading well typically to of et transitions This to probably year year, mentioned, investments. we're we've million requires appropriate way made shape. this just the and the once some the these great as $XX of play factor Alok we're it being already. cetera, And investment. those very of next prepare on are it processes, in do able during because significant investments We ahead

opportunities creates X or share the some typically Street. and that X usually us. This There's competitors for lease on stumble, they

once positioned for lies come this us. we're front again, to these So when excited about We're win things typically And in what well of we transition. fruition.

this what to about excited forward we're So brings us.

year, And Nigel, transition. expect make a economic add next don't difference And and think more that's don't to to significant as a is XXXX meaningful we price just I delta the a be dealers' a just toward XXXX price because to price year-over-year. XXX said, it's But between expensive difference Joe that, calculations. going might manufacturing like burn a date just inventory normal the

XXXA like be that flammable using there just that I next are contractors just customers are alone. this as basis definitely was as some on out the year there pushing to you refrigerants. about seems wondering, excited might contractors It was

be, we might can't and on a more But it, we control. XX,XXX fire. overall, have the if a on blow concerns catch and extinguishes overblown. in you candle mean plus U.S. There I the candle I I versus refrigerant dealers little flammability think and think take the

like So this not is flammable as fear. might people some as

are lots done have mechanisms internal solid. of safety the and testing We

we'll of I a and along product, believe hey, this us think rules will make majority come good the a the contractors follow the So perspective, is safe say, to with that from is I seamless. transition and product. This

that, appreciate I Alok. Okay.

just one, store channels? expansions? at expansion. a the been Or to or you you -- so on quick network more Is it's the Lennox that And independent do clarify are primarily think looking distribution

both. It's

independent underpenetrated still low look both. we North way distributors, of is increasing but through are the in our current products very putting on and geographically recent America. focus On underpenetrated think stores we are is at share. I in we our a around And stores, we have that, the through more course, it more output

we So both think have opportunities. those, of significant expansion I

we our that. through and once acceleration process through get behind we the our right expansion feet amount super get and Once growth the of street on the We're self-help, put about the phase. excited

next We'll from take Tusa with Steve our question JPMorgan.

on -- and reported differences know but things side, strong in comps that, the So very very, the commercial volume. I Carrier like just there's like so

like up You guys, I think, were X%.

You to and still theirs have think growth specific where differences do mentioned anything talk and your replacement. reenter yet to But vertical between the emergency about? you rate you

Steve, this is Michael. Yes.

at But rooftop factory. volumes significantly look So our if Stuttgart up out X%. we saw That total production of the more. you up was

to growth and that side lot of rooftops we're really coming it growth offsets saw products, our we broad-based than it. of the We obviously So in of A on the more had that X% some accounts, different definitely national and across growth. on some factory. that the and Stuttgart was but really pleased distributions see restaurants retail broad-based was that that saw out

From an still we emergency quarter, did in little small. but replacement, although of it's the bit small, growth a very see

we that to good a start journey that it's space. back into move as So

the for also the And trend haven't I but in continues, to say and industry that, is them, congratulations I industry earnings, I are -- shape. think great hey, digested growth the would team. excited and that good we start overall the growth Carrier

for well bodes them. that think I for and us

We less still producing are we remain production-constrained confirmed. we where than

output Mexico. So continued our increase in excited in and Stuttgart new about factory

than is I about technology you you mean, of guess, not what -- think, just of have better it so this, on I that other into confidence you you're your is the kind I saying. said now What's refrigerant, your the guys? you source technology talked chose delving here, a much in December, then being you're of just that change, And since big the

where also, the obviously, choppy, relative the is couple very period, a different And little what the do you you're initiatives years, of little last what's what on of a to to versus share CEO -- market A did been guys? think it's differentiated so gains? XX-year entitled why you In different bit bit over former do a with happened. approach your product of think other like a

in The more was the others past indirect direct I And impact, constrained things, I spot tornadoes supply and Sure. couple for leadership because have are it as very lots all, manufacturing versus of think X years, on impacts. China transition because a difficult on A the our reliant especially our of CEO we crimped more the had was First Lennox chain right? obviously, said, doesn't products. than that ability, of others. severely a premium while for

is So question -- important of important now. confident. more but your that's What's are right why we not

something I great we leveraged, a have think that building is up. direct-to-dealer our under but have job network done

while. that's So that I still to a delivering continue -- investment the for results needs think

current versus they even units. mean, of there I then of was and they the of put indoor units transition, indoor lot SEER a about units noise compatibility homebuilders outdoor lot put outdoor first in Technology-wise, A the new units.

During units SEER the the have units indoor year if compatible indoor were transition, they outdoor out new go the rip units were older to and SEER.

indoor Ours' SEER. were difference with because both didn't compatible have to the our the SEER that make new and old units

of end, kind same it competitive those helps But package I of have, what probably usually. our choices tell gain we can that So for results our make can't would dealers, answers. you The to convincing we be the any we what compressor us helps tell the us the the you that's from than decisions. actual share. place made our more buy the choices my At is design, you because compressor product and our than better that connection our is dealer and

a wait answer year X this with let's numbers. we'll question and So or then

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

but of stuff, probably do. accused is we overanalyzing Look, that you us what

the So need I know to comments on It do. reiterating what transition. the Joe's for you clearly you of sounds like investment appreciate kind

terms XXXX the in So Gautam's customers in to price your guess increase unanswered cost what's or best Mike of on selling of left I in on kind somewhat transition? question think the

give I Part -- of numbers. it think I'll the I give try well, more enough, know of it. exact we ranges. is fair you don't detail and can

XXXX we increase to could significantly pricing, evasive, to there's by that's price current price we answer on. going XXXX hesitant not from production potential don't is The XXXX. think curtailment be know that and X the which that trying we So question XXXX but to get then to R-XXX reason things are The XXXX, are about. to price from increase prices, like impacted

either. be through. to just just X% going together. give to between on likely it's going and it's you XX%. I think It's I preserve don't some pass And cost think putting help ranges. X% that's us everything our XX%, don't I be all to the margins and

was the a Going in it analyzing, over like back to the industry report, which teacup. analyzing says become actually one research of the has storms HVAC

to in of win because I year. design one better, my products. that is not really our learned we that is direct-to-dealer our a we we this, only thing, and I'm and going think are because I of Lennox what I I've reading focused learned have able because and we on -- So one And because to to lot are one thing need all leverage think network, enjoyed actually

we more recently, design awards, got the awards we and won others. Just than

all the what about So more was differentiates but last what learned What I've the matters, that everything my do I think presentation. that's we it Lennox in same. is else of is page

to Yes. XX% to on 'XX That it... put that finer to 'XX just Or is from X% though, it? is point

If going me to it, to you're yes. hold not

Yes. question. going at going midpoint But to realistically, yet separate conservative. I we're of like be just XXXX a year, Joe be And and the to guys, not likes mean, link You're of right? guide you're to know it, at and roughly. this your then I kind

you're investment from extrapolate signaling margins that. about drive clearly, of that. give heavier more context on are thinking upside So here. shouldn't a think But maybe you just kind you're and Maybe there's how signaling to fact aggressively bit too we also, you little to therefore, that there's growth on in us

Sure.

I this high actions reason is of to third to year targets our beyond a remain sooner. is talked commit the transformation, won't there we 'XX, chance phase I the the the same. that next about which the I think yes, because, will get I 'XX year is or mean,

So I that's one. think

so historically, for the gone past. us conservatism And go the there wrong listen, On could are things it has many in that side, wrong.

wrong, the that make on on are wrong want the sure just if aggressive to we we So side we are side. wrong going versus being conservative be to

of I think, the second questions, mean investment year. is will investment rate the sure, factory we happening mean refrigerant of I what will heavy happen lot and change I On some current going for our those lift CapEx as this going the is is go down forward. kind year this expect investment forward And no, a next year.

So no.

we ourselves some incentive payouts on this last lapping of And also on are much lower year. incentives, is

Last will were it year, target. at year, This math current shows be our least below incentives above target.

cost and we where see. the we'll XXXX, know you we corporate to by that's net-net, hope the sooner, optimistic, targets So there to get sure. are to But we delta but XXXX get

Oppenheimer. We'll Kaye take our next question from Noah with

understand outlook better revised Maybe benefit. of million to EBIT just price/mix, $XXX the

already done million, year-to-date. You've right, $XXX

you can Resi for a the less the help kind mean is the seems quarter us dynamics per $XX implemented of maybe It commercial rest carryover little rate, like if the because you at So maybe year. along bit but this clipping benefit easing, million PI. I is of understand just in run

just that guide? us understand help revised So

Michael. it's Yes. Noah,

Commercial. carryover One benefit of the the big drivers of is, you mentioned, as

new margins just in was is excellence half. again, that really, good But and of be as what announced in look first the increase is that we sized Residential odd start do Alok the in second with second a the happen focused that bit some And conservativeness, would price/mix half. little we're that backlog. in of category. the said said, So pricing that's half difference the on between But to have price will Commercial

looks conservative. half little the second guide be So on may for everything a still, price/mix positive but

Yes.

Just click the benefit Resi mean how of that, on side? think we to do in incremental that double about price I increase

Yes.

guide million to the quarter, in $XX $XXX million had from reflected last the price in So raised that million, our already guide. million increase. We $XXX residential $XXX we price/mix additional the previous

Okay.

progressing well. that's So

the you capacity. dimension And then timetable the us how remind there Commercial's on how update us an increases can Saltillo for on revenue expansion, looks. us of then just give or that much sort just And

Sure. minutes video an I was the Saltillo quarter, feed construction. Yes, before congratulating them excellent ground factory saw prepared. call, I of just before team, Commercial The with the the pictures -- is and on and all XX latest the

in up going the roof of portions have business. We

being equipment way are redeployed on lead hiring residential well are factory ordering given from the are we We some talent, the of our in of Clearly, Saltillo. some extended time.

equipment land we're solid and wise, end put judicial more, will production more green are a than the basis. at all could and enough immediately, roof space the on get not equipment capacity. years, going we're time, starting to right? to to But put indications that year. we put We're double to going next all over but going our it same Nameplate So capacity be of

well. have overcapacity And the this we the industry last to is as thing want on

we as opportunity our be network emergency getting what by truckload, it shipped use dismally Joe mentioned focused is would distribution replacement, So into that below And a this our number. we're going to out. be watch earlier, just revenue low. the huge the where to products standard around used increase share is to And and have to our

go excited all So we very are there. systems and

next go to we'll with Goldman Ritchie Joe And Sachs.

these trajectory that to that just commercial think few months you a margins. us XX% But the just along question about long-term just and lines maybe gave target. to XX% it only ago trying So Jeff's above after I of earlier know was that the then here do the already year, just about even there are maybe from of of curious, half of you that kind like you I'm slightly first XXXX. margins guys it. how and think actually beyond business, the

Investor keep to our as think on lot well, next we and Day lot going well. is go be you targets. XXXX, mind a that to long-term I in our update I could but going a There's love wrong

sign a our I think doesn't I it's a progress. trend. great one of quarter make mean

could different job, I done need excellent things to ways. team think room we an leave some but slide has the for

not are we listen, saying. anything Net-net, doubting you're

cautious be in the to we need ourselves get not we in and where journey. ahead of are think I

update to targets. No, able those to to fair. Yes. be in be a -- already be that's And it's to good look, position ready --

there. that So piece the quarter independent congrats progress business, distribution. the question. The of maybe of business your your goes I my guess through on quick follow-on

XX%. said How I that volumes guys much came was think were it versus in business? through down the pricing you that down

sell messy in Well, we that because a on lot business. that a volume one of is little coils remember,

than for the at But mean number say on us you I AHRI what you general, the skews that they volume were So kind I of would were slightly at a think negative more the in in data. all AHRI -- data. often look I would look way. guys better they

we So I better in did but think slightly better. you AHRI data, than saw what the

from our And Fargo. will take question next Wells Joe O'Dea we with

us levels? I the output the year. the wanted sort manufacturing, factory for time details major you in around make are targeted on sort you've any to when to could there? half that, hit Any improvements just that outline of line you Commercial expect still goalposts for to manufacturing that back what's there start the further of noted And of

Sure.

You line we that. drastic looked SKUs. to very We the January because when year, Listen, of products and the XX% to the our at customers. production some we a rationalized hardly good give had question any serve that in different us actions. taking started way lines on reconfigure we did improvement the make were best our We

past. numbers to have used are we in until hit higher end first rates kind the factory January of of X starting So with in do starting progressively are the to almost half, what from consistent the that and reached daily the

The linear first as challenges forward. I team kind us. there. from to of that X well mean, are second got to the maintain I half, a of getting progression labor driving the rate think obviously we've in our and to going think is rate and half I improvements behind doing continue

are track XX%, labor. I supplier challenges are to of struggling say, kind We XX% would longer no us. behind

have We or build and with a but are at sometime, like transportation. source we communicate supplier we and getting working still appropriate better feel our suppliers good to buffer the playing job whac-a-mole done dual

go It going it. look could I at So way well. are the things better

sort just be mindful for versus forward, that to when half? expectations margin, back XX.X% does of internal we think to the compare then quarter? the any in going of of And back to commercial helpful. then That's typical the kind seasonality And variances it. how seasonality I about mean, Got circling

could tell answer, Yes, Michael team but my higher than Yes, I over answer my always expectations delivers. rest. to listen, the hand it to are you the I'll

aside, give think So answer I that can that. Michael better on you put like a

a that was recovery little of the of because faster pleased little But speed this the of saw. lot we the recovery what a to see of it. that side of expected, than just we is better on a and that mostly Obviously, speed price/mix had it price/mix benefits we're than the expected

that the the perfect see inquired on have doesn't we business because nature. seasonality then lot in seasonality there's And really a always patterns. commercial demand residential choppiness you that of the a of about, It natural project our its in sometimes

leave out just that I'll So there.

little a the can the than all Sometimes bit depends be on it projects. but more second quarter a quarter, of quarter us leading third for

non-repeat of into quarter in nothing back be But really the the to of comp sort terms in half? mindful of

No.

We'll take Barclays. from Julian Mitchell our with next question

cup anyone were denigrate For comments definitely, overly sensitive, not tea the meant work. to diligent

In terms of, I the... on suppose, sort in diving of

thought the way continuing and bigger in sort great analyze to while of look cup. comment, it tea a that offense. I that Julian, was picture, at storm I enjoyed used to a I

plays we'll to of kind in very very, was trying way down about of sort low Resi that quarter. fourth the year-on-year? are we out, then think sort I down it your third Resi you're we how cliff of sort the assuming the Yes, term, in HVAC in the But volumes -- think see short double-digit But low it in Is suppose. singles quarter and are -- the of XXXX. to guide, about

showed down our mind, that at the worst current basis, you and no, maybe, side, keep would the the volumes bridge see got Resi not I if And indirect we year. overall much. side, you probably on the On that during you XX% look in the not that's but on know Julian. the to And are

As gets think just we we the better toward number there QX, go on. from

Okay.

the it's QX, a still with decline then? in even destocking year-on-year narrower So

Exactly, exactly.

in So as very decelerating, little. destocking start the do I And happening think is in we some mentioned destocking think QX, we comment.

So I being number lower look much in QX QX. and at would that then

that the year. put to EBIT the sales benefit wanted sort guided revenue price/mix I tailwind any for clarify within core from price/mix sales on guide up benefit, but finer if the company clarified just in point I you price/mix then the of of you And total perfect. see X% that? a Did That's just wondered guide?

did We not.

of at -- so look like coil. we I parts a different think types that we mean products in of mix are at mix, there mix was channel the of factors versus lot mix many half We look versus the there. I We SEER. say is look in half the residential in and the based benefit there. other SEER at, on of obviously, about because all that did other equipment was

pleased but lot in uncertainty are we where a we of still So July. there, with are out

moving how strong helpful. Commercial should are one. pressure that that That's the on stay I markets understand do the much backlog, it or times end last here? Does see quick from And put that normalize. lead stable? you sort backlog enough should one of

Yes. Julian, this is Michael.

much. we times lead obviously, saw our decline So that our XX%, improved backlog and didn't

rates plan, continue to we on accounts remains replacement see remain national still strong. order for So strong. Everything

So really for backlog just decline because no indication yet of a except lead shortening. are of times

joining Second for us today. no further Call. you are Thank Conference there Since conclude questions, will this Lennox's Quarter

disconnect may lines wonderful and time, day. your You a this have at