Lennox International (LII) 26 Oct 232023 Q3 Earnings call transcript

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

Thank you, Gary. everyone. morning, Good

Joe an to had this XXXX. take and are Maskara, we some With Michael as of the We Alok on fiscal Quenzer. as the exciting guidance details forward CFO, Alok CEO, discussing today you company's financial and results with looking VP quarter will as me Finance, well have is quarter, Reitmeier, all morning. perspective our preliminary for depth some you go year the into through well revised on ahead. highlights as Joe will quarterly of

the At the end to we of call, Q&A our session. move will

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

our additional link earnings Investor Investor presentation at SEC call measures. website our The the filings release, on a Please on available are GAAP today's non-GAAP investor.lennox.com. Relations all archive webcast including refer of and details, to to available for for today's website our Relations reconciliation

find AES Relations the for You can the transition website. and releases also CFO acquisition our press Investor on

to our X, Now CEO, please turn the to turn Slide Alok I call over then Maskara.

initiatives deeply speak that dealers customers place reflect Lennox's has as Thank I delivering the a of to the profit resilient to you, truly exceptional revenue, Chelsey. unwavering our possible commitment last products my appreciate growth part transformative another played sharing our we record also extend hard . These been for as to top-tier I this expansion. for in tireless and in our dealers work self-help by Lennox the made Good are today and am quarter of with and margin were provide who solutions. innovative efforts year. that I XX,XXX record appreciation acceleration customers. morning, employees everyone that our of loyalty to of these impact everyone. towards report well entrusting The put results results. Lennox results earnings the proud and delivering and

of XX% XX% let and Lennox's an highlights. our to to overview adjusted transition and into revenue expanded XXX points grew quarter's segment core $X.XX. this per XX.X%, earnings our in Now increasing share margin me basis adjusted resulting

cash operating $XXX of was year-over-year. flow XX% Our million up

retire our Additionally, Quenzer morning, to and earlier Michael Reitmeier CFO. this announced appointment new we as Joe of decision the

complete for this excited are We both planned and as we transition. Michael Joe

strategic morning. synergies Additionally, acquisition we value. and is of announced AES is with growth, and service accelerate Services, shareholder the to our clear enhance unlock create bolt-on operational Engineering will incremental Architectural offerings fit this strategy consistent or strategic also our a that The acquisition acquisition

to turn please Now Slide X.

increase earlier transition. per details express more Announced Under for to on market like milestones, For to I'd CFO Reitmeier his Joe earnings many Xx significant this XXx my gratitude Lennox. cap. company XX-year including growth tenure in morning, has remarkable and achieved leadership, share the his and at decided our retire, sincere

January on dynamic here a expect Beyond plan, his transition that organization and a effective Michael at financial smooth Officer, foundation XXXX. cultivated as With X, succession we robust stewardship, Chief talented Quenzer strong Joe ] role [ has finance takes of Financial Lennox. the

Relations, new performance. CFO for record solid equips a the the been and track Michael's creating segment a with has key and a He strong role. proven of most to developing Michael him as Lennox joined in financial shareholder experience driving during Finance talent operational excellence his foundation has turnaround VP contributor and recently commercial value. Lennox's XXXX as and Investor

Please work with join looks and me Michael. I new I'm congratulating capacity. Joe am in he well-owned his in to very as to forward both happy for excited retirement, his and Joe, Michael

Now ADS please acquisition. the for overview to turn Slide an of X

are to clear bolt-on and benefits acquisition customers, This employees employees to customers our our is Lennox provide strategic to in deployment family. and the welcome overall AES capital shareholders. and pleased strategy We line with

may account and service services. preventative know, team national maintenance you existing is As on Lennox's monitoring focused energy

more Our installation their is recycling. that serve accessories centered new us combined reclaim The as refrigerant, our all on portfolio by well acquisition Lennox. met are needs turnkey as and to allow will ensuring customers holistically,

of to [ also enhances strengthen our provides cross-selling client can this to refrigerator provider opportunities fragmented base. life including material commercial cycle new services our a This recycling. us ] with services facilitate our for it range we a relationship our service and solutions Additionally, offer commissioning, now life as comprehensive product and in light positions broader will and AES customers industry.

For example, AES customer reclaim from monitoring and equipment commercial can recycling maintenance services, rooftop us a services Lennox, purchase the use utilize and installation and our leverage of life. end equipment for at

with a regulations align create needs evolving also innovations. at services. ensuring and revenue the business, these our we offering stream new By forefront that environmental but not sustainable of only for remain We the

the parts critical competitive in this the manufacturing our several and marketplace. growth pirapters of and [ efficiencies, increase addresses in build strategic actors curate will and needs acquisition specifically Ultimately, be edge this in into By aspect is acquisition vertical a ]. in-house ] strategy. able bolt-on compelling cost profitability integration generate [ accessories, execution to stronger Another we core

adds increases reclaimer life maintenance capabilities It to and to services, product access recycling services installation fees. support our sales and of and such refrigerant decommissioning material provide parts preventative cycle the as new industry-leading

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

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

revenue posted strong As earlier, company earnings the and growth. Alok mentioned

where profit was European was $XX up points and by $X.X improvement. inflationary basis of partially were and operations achieved and quarter, XX.X%, costs. increase a a record an record to impacts of [indiscernible] share benefits quarter, billion, were distribution versus earnings inflation. share. XXX incentive of up Adjusted as . Total grew adjusted result margin segment prior Our per core price excludes offset drove million SG&A revenue, In year-over-year levels XX% increased mix as significant million quarter which our -- on $XX mix of per Corporate price segment or $XX million, third by and $XX for segment compensation adjusted Adjusted revenue, profit the higher third million the wage expenses $X.XX. year. earnings And the and

third year XX.X% Our million million and $XX.X in of to rate quarter. the shares tax quarter $XX.X outstanding were diluted prior compared

efficiency Turning revenue to our richer a of quarter. efficiency record Slide million X% X. ] segment minimum residential mix and shows a The products. in The on chart [ new $XXX higher growth benefited standards of from to third results

the in June. increase impact positive the noticed strategic also from price We

sales the the unit sales through our channels reflecting markets volumes declined digits, X%, quarter. for share primarily segment Although healthy market end by mid-teens, declined direct-to-contractor due distribution gains. decelerated mid-single continued Unit sales volume ongoing during industry to which independent volumes and de-stocking, increased

XX% incentive Residential points lower improved effects offset by million, segment and and compensation mix on XXX segment margin and XX.X%, to increased wages to volume, partially primarily driven profit by $XXX and with inflationary higher basis price and distribution.

quarter. points continues for X%. inflation margin million and up the or growth $XX significant productivity. the factory total in mix by of increase a construction, factory total to a for will XX%. productivity our These have which progress we and profit and results were has price made on and for Increased in driven $XXX offset million Turning $XX X million to support was XX%, XXX new price up segment that Commercial mix Slide Combined XX%, quarter, up commercial was and Revenue were deliver strong results. up the volume and to profit expanded and XX%. segment basis our was business

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

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

and new the were the and was some In mid-XXXX. at approximately investments ramped, ramps and net anticipate By temporary of quarter. productivity $X.X quarter, of nicely million the end million in the as commercial Cash, factory Construction end up. XXXX, cash is equivalents billion approximately was be production begin build at short-term $XX factory and the paid ratio the also of working Total however, $XXX.X dividends. debt-to-EBITDA fully do we the first on quarter, half capital X.Xx. our second anticipated coming realizing will with the along company inefficiencies P&L factory the we We will the expect debt gains.

our turning Slide review year I'll guidance. XX. revised XXXX Now to full

to year growth of core a revenue our and strong per approximately We As X% execution $XX.XX expanding per of $XX.XX year share for per be up to we and our share on the estimate outlook. increasing share. result driving full earnings are margins,

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

million, this includes are from be in Our expected Pricing refrigerant guidance is expenditures for our and material costs now capital investments. and million, net $XXX are expected our Saltillo cost investment to the to transition-related factory for guide new $XXX be benefit and unchanged flat XXXX. prior at

corporate be to attributable to estimate incentive our higher revised expense We million compensation $XXX expenses.

in to and solutions, promote managing We to necessary innovative support making the we XX, With weighted the products our and year will expense million And to hand on to turn be for back business the that, while over approximately improve productivity. diligent share of full remain growth, Alok. expect investments shares. also count average still Slide XX.X development it SG&A I'll our diluted finally, overall let's

Joe. Thanks,

for growth reached our cooling margins. well progress ] the delivering of European to operations businesses. -- we where we divest the announced Lennox's [ quarter, portfolio. as market, also are to exclusive we Last European to concentration agreements North process impressed a resilient HVAC American aligning commercial businesses significant are towards accelerate our In as expand with plan results, making the the divest well year, third and addition sale strategic our on we plan European announced our to we In streamlining positioned

this agreements, Based on impairment quarter. recorded we million noncash these $XX

both expect to end the We of be before transactions the year. completed

strong which November in commercial retire unsecured a ] issued secured and of program. million We million of $XXX all balance to we $XXX this introduced order simplifying year. In will paper the notes, replace credit senior September, facility maturing already made strides also [ In our we in sheet. revolving load our increased X-year debt

our we these changes, additional With financing liquidity. cost have and lowered created

assessment commercial transformation initial to be turn will transition and an please Lennox of up low the will transformative continue XX, XXXX Slide I where our provide another GWP XXXX conditions. ramp as business refrigerant we year plan. Now factory for to new

Our execution strategic allow ongoing navigate and macroeconomic discipline uncertainties. regulatory will management and to us

of end favorable we and which will XXXX, anticipate to left-hand XXXX. headwinds channel slide, this trends in lead that we out demand. to have likely industry are to in the laid side impact several On And tailwinds de-stocking volume

returns channel As its usual ordering patterns. to

incentives aimed at as grades versus promoting will to local repair other commercial the products. replace of sales continue Additionally, and at energy-efficient normalize, demand well lead IRA, encourage to consumers the chains credits as tax as higher ] drive growth. products Also, times heal will and [ boost the for supply pent-up efficiency

XXXX. the prepare in continue demand to changes to We refrigerant monitor are There demand risks, inventory related as possible deadlines. transition mitigate is and regulatory impending distributors chain going likely to supply adjust advantage levels to regulatory meet to disruptions gain to price be

confidence In large and homes XXXX elevated significant uncertainty geopolitical on projects. as in source new rates and interest concerns macroeconomic consumer year, of include impact the the commercial an terms influenced of construction headwinds, election factors. from most stems of residential fluctuations These by

drivers. slide, we of We and consistent the side identified will volume have On profit drive believe with that improved inventory of demand normalization end profits. several incremental the channel market right-hand

the expect R-XXXA also the ongoing driven [ by opportunity in We pricing the ] additional and strategic initiatives increase benefits the refrigerant. of cost of pricing

for factory drivers We costs to higher manufacturing new associated due exchangers XXXX, chain by of and sensors, ongoing [ forecast we'll ratings. higher ramp-up be supply for constraints. by commercial Saltillo and end with and to energy more in the benefits, of boards additional and R-XXXB start productivity for ] transitions. that the inflation, fuel costs heat refrigerant additional will absorption These mix partially control require efficiency maintain the Towards cost driven units experiencing price the new advanced offset

we XXXX new in to working capital. be cautiously as flow, our outlook anticipate to complete factory refrigerant cash temporary Regarding the cash impacted and requirements. by meet Ultimately, well on conversion the as a capital is optimistic. commercial increase to transition XXXX investment

when driving line Our execution, next margins. to quarter expanding strategy financial consistent early top our guidance our focused remains plan our growth year. fourth We on provide report and earnings XXXX we

delivering some to With Allow continue to to turn Slide that, great that please is poised to lead factors XX. believe me Lennox of summarize results. me the

enhance our to First, necessary effectiveness long-term the we go-to-market attractive demand. to making industry are investments meet the

resilient our to direct-to-dealer and profitability. margins unique and optimize our us leveraging network Second, model by to sustainable distribution manufacturing both higher enables deliver

consistent system, and deliver of Third, processes. chain balanced our digital source we utilization operating lean execution supply CoreCard based dual through

Our address mega-trends solutions growth fourth to repurchases. pillar capital deployment acquisitions share is remains portfolio that The investments, disciplined technology as us to advanced we our prioritize developments, and customers. organic our provide innovative allows and

by guiding our we values culture. Finally, live and high-performance core our our principles strengthen to embody

Our new would on by interest. want Reitmeier dedication over expressing his and pay-for-performance I I and years of talent employees his Quenzer to our as of the stakeholder incentive structure Michael also customers. conclude for to CFO. alignment ensures my like Joe also appreciation all and to thank role close congratulate

as what excited welcome best to us. Thank take and Lennox your future all the be now. to Kerry, questions Finally, to XXX are you. happy of for days of Joe, I will ahead still about would am Lennox I AES go our holds employees the let's to I family. the Q&A. Michael like

Instructions] question from line our we'll Vertical Research take [Operator And the of Sprague first Partners. Jeff with

Thank you. going miss Joe, to morning, you. we're Good everyone.

think LeBron you, from it I me was and Akron.

to down be now, ... to but X going we're So

I appreciate you.

drill years. this say, Thanks the the this, into view for of just about in transition over thinking early in Just Look, the about a help timing your And XXXX. cost I progression kind thinking P&L the itself. of that then ultimately in side? we should if year? of into the for other prepare then prices selling just higher expect, all of more wonder as and are kind recaptured through you we the little the early all the bit thanks could of sell on burdens year the kind later the

I'll specifically the and ramp Michael. production count up Yes, What we'll that head some year the on needed Jeff, factory of specifically into of late factory. next kind to first this in the to of you'll is half speak commercial is that the QX. training the start see

start see that get some the full at no half but second half us get you'll to back into production will that in be of still It first efficiency. at replacement. we need time the and the the then levels get costs get before emergency we take to production efficiency, won't will a with some to inventory in bit start we'll to let least more get output. some out half, into the So start And the but production output, also second

So the the kind most first going half the better is getting year of in half. be to of cost and efficiency second

be true And Jeff, would transition. the on the same refrigerant

year. towards is benefits. to you're be is And converting price second we where likely half, think I ordering So lines, next start but that getting XXXX, seeing the spare right first the start half of mix assume Most then parts. mix burdens for cost price be the as we'll to of there more benefits refrigerant would transition that start we some tail of end the

as follow-on just comment maybe a And here.

margins, looks just some still expectation Obviously, you story kind It expect of step like a very the in price/cost but seasonality, in Just down just a commercial some a give are to here QX. on bridges in in you'd thinking positive XXXX. there's the significant mix there? QX commercial how margin color and about expecting what maybe us obviously,

little drops as and QX bit. margins margin look supports our still a Yes. our backlog it we backlog, to the Naturally, QX. that But in in a seasonally, volume we it little this down less saw has -- the

is pricing the to there well positive. remains mix still as as hold dynamic So well

dynamic, we years normal into have the So where behind several next being margins. price/cost back I of of think to mean kind we've continuing we gotten . on we year. see that after

maintaining to forward do. refrigerants and additions it's we to going some margins that of cost for costs ] as those Now involved new see R-XXXB start the [ need we

I more if that we in I still perspective, to QX, think, heavily remind just had would on Jeff, sold we mean, want guide even have the like we more. I And volume-constrained. capacity, are

just chain like giving output. ahead that year. supply back with still to the for guidance that more paying as make the in too to ourselves remind production a we time with the of -- we good So want rest wanted factory. get to didn't There We made are sure some far I are progress of

the of And next we'll Patel our Jefferies. take question line Chirag from with

you. Thank

thing on Just kind Any for and if side. about the wanted to was also time over years. of continued his then something earnings. thoughts talked currently? And Joe being role. acquisition forward that thank the hit doesn't that look match I to up of commercial sort to there on I we to on Michael with where One patience of your Congratulations. the in new with us And is is wanted accretive insights seasonality business,

to in bit profile sense Just at Will we're is works. also near that the be commercial dilution similar the term? a of little there it Or kind of levels margin to how wanted get that a that a maybe for in here seeing currently?

Sure. Thanks, Chirag.

on start me Let that.

excited of of such consistent about bolt-on parts first goal areas we accessories. all, service and the acquisition, as our and at very very stated So with look how

So super what excited brings. on that

Lennox In to terms installation to the of wouldn't very of par same would embark we us the on accretive business, also it's services, of be business. I nor the materially rest different the to rest margin. similar anything Lennox, margin the comment The as going XXXX. given rest to the expect same it's compared holds seasonality The that I on on dilutive neither of so as and be mean,

hand with in our this revenue from us be and Lennox's well business So how margin is would a portfolio. on the I fits to for like existing of glove rest a great fit fit for the perspective. us, business. of it similar perspective dynamics kind fit a mean

of that's you we that more out markets more bit sell talked there, or various seeing serve? be given to softness of environment But idea commercial bit weakness the little of within we the anything the are macro digging you into the specific able just can a just then better? moderating I markets being if in currently. side, area any little may that us understanding Is sort guess end And deeper that there volume any capacity a about on the you themselves, actual help current had a

that news The to is seen complexes some we have like and Where small. software is office ] exposure is large good our very [ others. market

exposure, and like all single-story is have know, well. them schools of primary doing buildings retail, as in Our restaurants, flat you been very

haven't we significant So any change. seen

see do us, in backlog, back we more levels. normal buildings except back levels Now where to exposure more are noticeable But times pocket large not noticing which demand going have perspective, small big that's for complexes. normal is we from core a like not any much differences, office and going we're don't as to lead the office

line the Nigel Wolfe And take Coe with of next from our we'll question Research.

quarter. Nice

net [indiscernible] the So I looks flat. now, think,

I components think you're break deflation commodity if offset I ], [ XX I the think, $XX on -- for, if looking ] out mistaken. curious you prior, So costs, commodities, the between I'm by does that was of, price and the does How of component think, not how inflation million flat I looks? mainly through the bucket coming Is facing how that that commodities. steel [ just look? it

lot are of Yes. favorable. be the pretty quarter. commodities is commodities of in the think in the the And the we What We a seen saw about don't we've going to see is rest benefit We for flat. steel favorable. fourth commodity year, year-to-date

we material. inflation commodities That's on relatively thought significant You'll it's previously been the is the copper a But QX, in aluminum. bit that bit costs on some the steel, where have of flat little the our see material less of non-commodity but change now, and across guidance. under as really for last not expected little continued as big headwinds some

half into visibility that And ], does maybe through then the the obviously, if we then [ the with How you of carry year? got look some that first 'XX in hedges, there.

as benefit the pricing. fluctuation the copper in spent next on little of and a steel the aluminum, on the that year the drift half bit they more aluminum on see for current hedges more we'll the Yes, that's first as into we

steel see on we'll commodities. will So be muted we where goes, think pretty it year next but

$XXX it And because at ] you me with then X%, or just look, the [indiscernible] I was low cost think, mentioned a I quick ] on you X%. think with ] [ bear replacing fencing million [ one, $XX if [

work So just how there? the wondering mathematics

take I secured our our as mean, we and you of a it I'll paying versus costs interest if you're were mean, But at package lines the think from financing control Sure. as the a at mean, I are are of the of right. cost, I lower at and versus interest be under pure many the together, But an I that. rates that took look interest rate a for cost we higher. are expiring. overall a if bonds actual clearly, perspective, out would benefits But credit items look financing paper, higher are on new rate commercial bonds now you secured whole financing what at control. otherwise.

that. into dig And it congratulations. Joe, congratulations, I'll Michael, Okay.

leave I'll there. it So

the And from with of question Kaye comes Oppenheimer. Noah the next line

And just may well, next installation are mix actually mix similarly, R-XXXA off rules are year the of to ] both the wishing like under expect front-loaded a came prebuy I'll GWP could the richer out, EPA based of be [ products my [ stronger you luck. that low of add a congratulations lots requirements they Peers sounding thinking there recently as ].

year? the impact your next those thoughts rules how Just considerations for on

still the of are mean rules I bit in a flux. a

know, guidelines with recently. some EP you As came out final

We think clarifications going half be second for are towards more year? from there next of other early new some the Absolutely. We benefits refrigerants? still it's know. year. and DOE mix going We to it Is likely next waiting to don't pieces. be be Would for

units direct-to-dealer outdoor with sure which that our units. given orders starts know or we of ahead we we preparation, transition are is compatible our given at and what our the model, preparation, think indoor As But in our terms are ticking for given forward. of

we go positioned the into we go we are transition, think we transition the year. as As favorably through

we QX But you more that transition. give on rules when details clarity the will and and there be greater regulations the impact we results different announce will

the we are be be impact change, going TBD, others, the but still feel second half do in and better is half. the ready for we're versus likely to than to We mix first to more

you that the pleasantly are margins to comparable that's AES the is on hear about to that, sort And largely talk a bit Can target surprised acquisition a quality appealing what to accounts installed for I'm really for the was in implications commercial And an that? it the the of given average about just little that that business? or Okay. would made what And business business. be Lennox you? the

Yes.

good. the was did our I is own We to Lennox, said, be is because adapters. of and we core of to not we rest manufacture as services similar our holistic did installation able comprehensive to did and refrigerant earlier, customers not provide provide to us range to which was not a recycling, reclaim So financial attractive provide profile, What services.

good So really the it fit in our customer like team. the the with gaps very, very base. like was We We a portfolio.

significant diligence diligence. using for you services can external we did including imagine, As financial due due

And be serve giving them we cradle good our the all forward, a for from customer about getting product to share the able business of super to to greater excited are assurance as the well. way grave spend, taking

out to this financials while go, that including about and the the we are super is strategic excited are business. going where can small, just gain business of So synergies the we this fit

of comes Joe Ritchie with line Goldman next from question the Sachs. our And

thank My congratulations time well. all to for and wish then retirement. Michael you, as Joe, on And you best the the

the this Curious, kind parse out? maybe can direct? your my first What independent just in versus to you on that specifically do Nice volumes see you focus So channel trend can maybe decelerating just question, we quarter quarter. see of for the resi selling distribution

Yes.

independent that on. we volumes saw we And the saw So kind as of quarter the of improve down kind mid-teens. distribution, went

coils businesses one our Specifically destocking. That to business. of started was see We're the that improve. starting in that first

coil is good ending So side. destocking that's The sign. on the a

mid-teens distribution. of kind start district independent on you'll So the

Got like side? of it. the for expectation And Michael, kind XQ the then distribution what's independent on

a [indiscernible], we're down QX. that getting flat in product of of in a QX. to little some for to the still think There's be more needs channel bit. inventory a It's kind it'll seasonal de-stock. We furnace volume

for direct So you'll the side be offsetting that then But should a that. see bit. up

appreciate productivity been then kind Cool. margins good. the just plant. And really, potentially XXXX, like comments ramp of a same I the efficiencies thinking seen yet, lot the the already through commercial I plant you on have guess At benefits as and you and of you've yet are haven't the margins -- coming commercially about Okay. and made really time, productivity

be just do of like curious could So commercial I'm margin should like the in XXXX? the profile how set do be -- we what or level you kind -- business how for

Sure.

Let me speak on that.

ahead and of And improvement before look delivered as are [ in million we of we had even communicated we expected, QX. where over EBIT as So progress. a the $XXX we reminder, we at the commercial sort business, are ] very have with and pleased

portion If you of we did there, go look product. strategically we at back significant what and rationalize a our

call You mix that benefit. a can

mean, benefit. are much margins of the are we on. You I our factories greater running us yes, matter. a -- that can productivity doesn't really that output getting better, giving But products cause more we It getting and

to So what kind are to and have startup are going it We labor, degrading we into sets we'll does us nicely really start we cost though factory in XXXX, we it production. margins think throughout not is even year. for bidding be going onetime extra cost the of for extra commercial be a before up going the

think I we success. So are set up for long-term

productivity into benefits of those excited and about much We volume mix. put I the Second future walks, we as at mix whether different are read wouldn't on similar too put those commercial. factory of because margins, lot can not gets or ways. you us any more we a And just got [indiscernible]

question Blair. our line from the with William next And of we'll Ryan Merkel take

quarter. add? Nice XQ Allied into else Alok, improving, just is the sounds and comment but could It you XQ? on anything like trends you'd demand business exiting

compared 'XX, give in what very Ryan, seeing earlier, thanks. we exactly mentioned haven't tailing Michael that And to That resi We And for side. Consumer to besides are been is destocking indirect end noticed even pretty of holds we guidance QX. seems expect It's channel. still as in holding furnaces, and end is to you're destocking true different be direct versus furnaces. some that's when similar. some the the we well on both the 'XX, anything essentially there. beginning would QX down of said

the and how past is changes comes with when we On finished demand again, communicated what sophisticated around consistent QX. [indiscernible]. very, we over year what weeks few there's into But move no we back and the do in capacity side, dialogue thought and have we in it the QX transition next as it commercial past. lots how about very of we Everything with significant

demand. have mentioned -- you how the curious You of I'm through 'XX. pent-up you much have? do backlog visibility first the part half just Do first

Just commentary of sort confidence any on the part business? in . that your of

I mean the long we type are not business. in backlog lead

end typically the X have quarter, ship. a we we X on So mean I quarter, weeks we of books. the book might and to within When backlog

repairs it pent-up we on units more new and conversations a means paying a over carry rooftops than starting remember, customers, no, quarter Lowe's, from they booked The So much it's a the Because a good from what others, to don't is and changeovers, much But feel a beyond higher order payback than to quick which unit about have our of average customers or when schedule large XXXX. be, whether you may times. for quotation there's compared with should look activity perspective, so. should we age and they're previous Walmart, at demand.

we into all more results XXXX. this when make confident. QX But those announce in get early So we'll feel conversations us

KeyBanc. question next from Jeff with comes of the Our Hammond line

Congrats, home Joe, . Cleveland retirement wondering you're your getting I'm [ if in ].

not, around it on Believe and you way. or yes, see we'll the some stocking

So.

I want made comments price. conference look, some Just go of back you a at to to pricing XX% kind

out think with I similar was comments. Carey

of Just not it kind inflation, your more yet. we're year which able realize being refrigerant seeing like walk around those? -- maybe confidence is through maybe to seems then X in And

from on feedback refrigerant of here? where go any Just kind prices

Yes.

there's over familiar, X may an the ], reminder we XXXX, range giving. opportunity just pricing that ending [ similar numbers in of to [indiscernible] because gave X years. all, be starting think, those years, We a right? to And first are less over the think said So numbers who XXXX others pleased are were what we a that I peers we are in

First year, a there refrigerant. yes, is

spot the Now quota and down little gets keep pricing starting goes XXXX. up into the bit. production been mind in has yet. on That that reduced XX not a reduction But

to still we up. So price refrigerant expect go

increases, suppliers it will, will including And conversations all us. do everybody that force to indications based is price on with that

monitoring and are that we yet. closely in no outlook change our So

year addition, has we and further go efficiency, In cost tire the as think either. sensors, changed not of we that outlook into new of the the

on get there and this viewpoint you in Jeff, that be not has changed. our early we'll certain XXXX, while can So more into in

business, with I higher-end on chain stuff. noise residential Okay. is and Great. change mean, And do I then just much up and consumers it just how obviously straight the resi pickup be was where that issue mix the it's continues you And wondering share year know share an I'm some maybe like to gain. seems but see everything, just supply the then impressive. just coming some in or versus mixing from? destocking on

Sure.

On the a about like last a mix reminder, being mix year, we talked Jeff, lot as negative.

X lot lot the tend we as has which mix for of semiconductor-driven chips. for A more uses chips negative it our products, remember, years. So high-end to was been the the have past a

has So itself. that reverted

a products. more selling are lot We the premium of

doing team the excellence, appropriate promote pricing we the good a of right would larger job and part running really accounts That as into mix. higher as mix the promotions. think a driving go I is

the of The [indiscernible]. at helps a And come one. lower efficiency and a pure well rebates not called incentives at only structure government higher products, serchange lot then, course, we of ], us incentive out which because the there's [

think has I the is So selling more in from changed. But the premium mostly mix products. I not all upside factors, think that number the on other higher-end

just share of then kind And around gain?

share a at period. look of clearly to artificial it as very think again. destocking it mean, go right direct away our over gain, some share is of and shows destocking I gains. because now, XX-month like On good will We I business

too settle the in to But between to stocking numbers of dust all take or early it's it around victory like the see We'd like will year. by lap We victory to and stick some is in and call clears early are a as confident de-stocking. next too here. real

But a on stores are satisfaction conversations, to we coming back feedback who the getting. pipeline dealer us on based are very we and that dealers feel good based of on number new on our based and customer based just

to dipped. is we I into a share. leading scores, look are regular than had But back indicator at Our as which regular, better customer always NPS satisfaction

that we we win. and So months more claim like before but kind a give we are, few be where settle I'd of feel to it just to good to a

Instructions] line One next from Fargo. And we'll the of [Operator O'Dea with question Joe Wells take our

for just a XXXX in growth just your and kind wanted a other consider then on on comments you of resi little of volume growth volume and on some bit around you're the destock how guess that and XXXX, touch bit to algorithm? about of the factors but the dynamic particular, you're kind as of and just setup incrementals of little volume that so consistent the thinking maybe comp side considering of and absence I start benefits, side kind

destock, the you that of The absence that revert the obviously Yes, touched that's just one to on. next year. going was

good there, with grow up to we low we years the see a see the down indirect that then we the the next We'll continue next to replacement gains in come, business. our expand. we some residential. programs talk we then many and continue visibility that year. planned that, as accounts. So years And expect economy year several to going after some have with industry. They well see share [indiscernible] talked big grow of that in still we as volume to we and on pick national commercial the of We're into about, And for being going will continue [indiscernible] potentially in market single-digit to of to see replacement get that, on outside see side as still

larger-than-normal you adding any then versus And what's also resi on it there seasonality? down. Is more on the typical because touch it within down, fourth resi anything touched quarter typical kind nothing a sequential commercial, sounds that's than of implied is Can looks margin like step abnormal on you seasonality? pressure implied like step

absorption. from We'll have of a little bit headwind

As saw get in the QX, inventory [ we down levels. some in QX. that inventory headwind ramp absorption started We'll to our ] the QX, see you levels to We we had some flow transition of next in so where benefit to Then as the refer get grow year. new start we our be inventories cash you absorption and next we again year, want product, to year. maximize back to we this the more

Okay.

that this kind bigger when so think a see about on than margin impact would we what And the we of Is on fourth move, and third resi reasonable? quarter quarter commercial.

Yes.

from Our the question Mizuho. comes with Brett next Linzey of line

and here? as think And lead and we Congrats wanted to back of there's regulatory to price. to I understandably, But should we a terms commercial, Does how give mix I here. in moving improve flip come lot calendar to everything an price and Michael. serve that guess broadly as Joe of in pieces on you the more entitlement? your about resi. to times ability And it does price inherent thinking the your

us we entitlement This any is know have don't that gives it if additional price look, today. I --

account been have done past. key that had at pricing So the we getting with in better contracts stuck

better driving done appropriately. have at We mix

lower where both of in kind . out appropriate of advantages have capacity and margin products focusing on price getting So of we performance. our business and the higher-margin terms

roll and there. there's wouldn't [ national and we catch year, earlier another up beyond don't already incremental [ the year. was that about next this of the beyond talked in R-XXXB new those think of A done I As getting commercial R-XXXA the expect we XXXX, ] lot the we catch-up end the that units. towards talked I into X about on pricing ] into anything tail accounts year and impact

it. be And follow-up a performance bit that individual you might then on the That's commercial. was I a helpful. little Got provide of just to business. on within vertical hoping Okay. able context

QX? there the you replacement you verticals think that I gradual improvement was And any a does there? individual into then regain footing within there. your color But noted continue on as quarter, last emergency

seasonal, always schools see trend happen compared will as of like tailing things Same to that, QX. QX mean some placements are you in beyond most as so summer. But off I that in nothing it, no and to continue to and those QX normal key specific replacement seasonality, value account make out. we our . emergency track, would point maintain specific to I into inroads, else continue beyond call and

line comes the question Markets. of Dray RBC Deane from next with our And Capital

back this the circle destocking quarter. Maybe resi on I could

there from You have it decelerated, . any was said seems Has to played it perspective? surprises out. so mostly your been

surprises. out we end. not net-net, ] terms better, much I it surprises, I look would in are think it at there where way month-to-month, thought worse. Deane, numbers big as really I But when months because turning the overall, exactly really it we many Not some that months think sometimes thought we was, industry it's very of [ mean, be when the overall some wow, would

organized And distributors. independent I between and just large think large and to in our organized distributors exposure is versus our dynamics distributor. independent different Now largely focus distributors there's keep that mind

very to it out would. thought played what it's us, similar For we

was free appreciate some I could of on implications. early expand And cash flow on Great. you dynamics the look hoping the the XXXX

capital might get Just working bill can might that worked you temporary And that what down? when size be?

prebuild on the that year cut of bit We're still material related have all for going system. the with it plants, equipment end little mostly additional might but formalizing business the R-XXXA the We're of the as but be ramp need to the of factor. manufacturing at raw up Commercial maybe all to X% [ we kind also of did a sales. It's package since is might off commercial that ] the of

the that's next expenditures year into -- where most or in then commercial finish to the going and need elevated to make capital have finish growth investments factories up So factor R-XXXB ] the is to up and to going addition product. of we really transition of factory that, the we be to that and some as our [ the transition higher finish we'll up

place take that So will about well. And working next cap XXXX. as be of $XXX kind you ask burning off maybe that year over CapEx will elevated on then for million that

Our Gautam Cowen. TD. line comes next with the Khanna question of from

think I down Gautam in the moved queue.

go the next to question. Steve maybe So next

JPMorgan. with One moment, please. Tusa Steve

of the over Joe. the Congrats pleasure a shooter, working was years. with to you, so both It tremendous Always straight work for sure, I appreciate you.

on XX% this the Carrier numbers. mean, up some just again really or that. like commercial guys opening something I I are quarter So side, know good you up

What are as You fake a -- the the normalizes? what the time which to point, are Like book-to-bill some was lead for is an even lead at extent. the like backlog What is like book-to-bill? quarter say weeks orders almost business times solid. XX is but the that this

beyond as very for we have order. look booked over And like order Steve, business, that carry we when I orders mean quarter. little a our us, at

closer quarter crisis. book-to-bill X us around our has ], just Lead been the to a ratio -- was most XX at least a extremely except longer [ trending to close which really and the getting during for times bad So it And are within of lead weeks. times normal. quarter is what no time, are much, much for now

Right.

on even lead that you're else a stretched backlog trouble having lot because that just you're I'm built kind of what there's that So backlog, obviously? times those no is everybody really mean, saying saying? when of build? I there out reconcile

we did. So

nature to year, had for carry backlog said us if same go more that, our to It's still but last have that about after right, much level. back we At elevated about given time, a in we talked we backlog, backlog, the that this we no business. the our unusual saying backlog, So XX and an you it's years book-to-bill. but had of so is normal point, the are longer

we are So any shipping are essentially as time. much at as given booking we

So that's to right. close

resi the just adjustment for of kind of mid-season And customers. about that have on guys the price talked Okay. some you then it. side, Got pricing

comp you through? on year, but tougher maybe XQ. was I pricing Can just bit played about last through? played maybe talk that color be just a that XQ may Your of of that a versus to how how some kind consistent that, know little

Yes.

in I think up still we fully some in QX, all we strategic and pricing you that QX. we in that had some of but prices benefit, picked lapping the saw what incremental QX, benefit QX by is lapped

launched though. strategic on start initiative rest of we'll see where year that's the good for pricing June. to the So see that we in But pricing yes, did the we normalize

if Okay. next 'XX sure and question I clarity And 'XX one mid-singles meant digit double bit just that . how then and [ see you more and ]. over on [ breaking between you ] on I'm for like 'XX X-year the mid-singles know that a not year. 'XX said ] period a and Maybe pricing last little [ out

made to there in in of October, well as the Steve, that's view of year. cost lots cost sensors, because we the more refined TBD. announce you in a a as still greater We're into situation any QX months we'll a are be different when couple we even bit next got results manufacturing refrigerants, give that much of moving is measurable product so able because early haven't a where quantity including go of new we of overall increases, clarity price we pieces, --

no Right. Investor December? in Day, And . obviously right,

right. That's Day. investor No

[Operator line question next Instructions] Julian Barclays. Mitchell take our the of from We'll with

little a And what think Michael. and the Michael, than earlier I about sort question. sequentially we that that a particularly margins, of Maybe looks down in you commercial original But Joe not said, think down like a to basis call, less XXX, just QX. firm-wide to topic. is points maybe Congratulations down margin so more. operating it's on XXX first -- this sort of resi if bit and it's commercial

of confirm of the that. year you mix QX of -- the a the are at we kind assuming of operating the we ramp-up. fairly and off that plant process headwind next commercial volume of more little correct? is for of bit normal that, takes maybe sort puts than XX% of the and from thought year, that just have So the a leverage, and then new margin sort price all have look When the tailwind that point year, roughly Is commercial balance we next and from or for of of jumping sort your color, something sort

margin mean, terms then by targets too we there's of to part start we just that always Michael don't of and takes. puts -- just and is segment by it get start I'll Julian, I small will that want reminding in for continue. quarter. really I But

So we I'll that, I having and and next can pluses think said at company both guide, who expectations when margin into the to minuses, overall, and get QX Michael, year. of the we and give go for details look for

I'll just first. next year maybe So talk about

is. that's this think point I at mostly our So focus

maintain of margins is on year of year. margins. and So on to will we'll maintain that see we the growth. our volume We'll those those the P&L to want specifically as what R-XXXA [ currently are refrigerant see come price ] in costs will next components that that, top retain in, And some next then

second XX-plus percent markets price get some so. we additional or of we'll that So volume end get incrementals as out

the our help So we've that think margins you'll some in some XXXX, the of early lift we overall we that the margins ramped operating structure factory, of kind will see you be thinking have the up. see new offsetting will that up right now. But next though factories, of in year. those That's of repeat the

price quick follow-up EBIT time. my it up just ], And to on [ helpful. tailwind you've for this very mix know The quantified we're is year. That's I

year? then run about next thinking we it's of good quarter, that magnitude? Just that's so we And that a do sort into of the $XX early sort fourth are million tailwind? assume or of roughly rate Is order

where guide come the have the we that That's results We'll see final now. right in.

of price last You increases we had started that year, remember to to need QX. a in that we get commercial lot

So But little next QX. you'll in why is a in that. we strategic year did commerce, get bit off retain yes, for And then pricing comps benefit pretty residential we a June. and that drift it big which should price the carryover

be next announced come so. January or to the month on increases we out let So that effective X of will any price top in

from Cowen. last with And we'll Gautam take our Khanna of question the line TD

and years, Well, Michael, I that. and you help appreciate all All first, your Joe Joe, wish right. congratulations, well. over the

Thank you.

North A asked evidence you that if HVAC. the sales American in quarter? third any will, been Have evidence I some in and But repair resi lot there's that have over your seen down, in of questions you of companies have curious, answered. replacement been of remarked trading was

Khanna Gautam i'll It's that. take unclear.

exposure repair you is know. lower some other industry, as the Our to than much in of the players

us same and the from our concern. at we don't But have that. some and our read what cause have see when we through So earnings and I gone we dealers, look does same we're own results the hearing that transcripts own

makes going our or better I've mean the going terms educating [indiscernible] the the same we we and and the up consumers little ] But units [ thing. are keeps that forward the of making R-XXXA fact read end look price full as I whether So it. the sure a us to at very It dealers as making come new it's at of keeps with efficiency and refrigerant cost going up, it in thing repair of around do right warranty informed the consumer sale. continue to guide a cautious our as day, train the to inform and of make dealers

same the we things. So read have but

We eye have seen base dealer close that our to or a our that heard yet, or for that from keep not going on but we're Gautam. channel

would kind productivity have to a backlog you to I'm Because and this capacity of book-to-bill of just on you more Steve on sounds within sounds like Yes. had business. off level the more, like you commercial of Okay. It And curious think what reconcile then it and just shipped at made earlier comment, are operating to you I point? do had this at

of X to of next the actually how curious much you like or I'm quarter Just demand? is terms visible in

confirmed there's XXXX by customer in and So used in having their us, mean of is companies pipeline, maybe differently and think POs those when could in shipments are confirm. that are backlog, I but then we for commitment about discussions right, system, -- And getting the I it's think with the not we orders term system. the PO backlog be we different our

our a is there's and higher, XX in much there. drop that XX the months, visibility So we conversion out next through see to but can pipeline

Typically, relevant within it during And numbers backlog. X So and we're be XXX% of want became to all where backlog it's chain the ship sure. we range. is get because our into business. we now and than quarter, we is sort are really quarter. the don't can within within situation to supply that XXX% we more to back quarterly And disruption, our quarter. same the not we book start sure a It publishing . What

specifically comment the the mentioned. I So that's backlog on that

And will to merger [ activities. that move I'll just backlog fast ], It really less we important more is as add that. be into even plus

last you commercial that facility to journey? a where in X curious I'm are And just Yes. better throughput Arkansas, much and you how in of be? And the Are of far just for productivity has like we have? upside maybe like terms still like. kind actually journey and the that me in how on left along you is do How as chain gotten at the headroom supply much expect

I of [ There has in online. factories mean I is Tax at sometimes as And after we and leaders. captured right I Band-Aid mean I management, called with think upside still to ], ] the running [ now, earlier, be second we great that remaining. some new have put it are

sold or have We labor got issues.

low But able from good things to factory a a perspective there. be very a there's So on rates, operations and going output, rework. defect consistent with lean little very of lot run to

will of what the its we We as of run factory. of. that capacity online a lot productivity not happening, sort capable for we factory and lot or is have think get has more that but in where happen A above factory is second room been the . significant improving

after that online. of happen some will factory comes the second only So

that. Second, working through we'll keep

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

at disconnect time. this may You your lines