Lennox International (LII) 31 Jan 242023 Q4 Earnings call transcript

Welcome to the Lennox Fourth Quarter and Full Year 2023 Earnings Conference Call.

[Operator Instructions]

As a reminder, this call is being recorded. I would now like to turn the conference over to Chelsey Pulcheon from the Lennox Investor Relations team. Chelsey, please go ahead.

Shelby. you, Thank everyone. Good morning, for yet joining as you this us quarter of share another we outstanding Thank morning performance. CFO, With me Michael Reitmeier. outgoing CFO, our Maskara, Joe today is Quenzer; CEO, and Alok new our will Michael Q&A the share Alok, Joe their remarks move session. before prepared to we and

X, considers management that page. uncertainties refer and to that to to making a measures on call, indicators this be may during as we also filings of certain on risks Please financial non-GAAP all Relations non-GAAP including performance. Slide Turning business relevant additional forward-looking to to available GAAP underlying reconciliation statements, numerous of details, today's will We SEC refer our certain which a measures. website reminder are subject outlined our Investor for

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

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

to morning, our Thank Good results. you, delivered employees record as represent XX,XXX Chelsey. and full of we I'm another year welcome. proud

with our and important expansion more XXXX margin growth, generation. pleased cash are We

were loyalty noteworthy, the that results employees messages I'm would I we by X our Slide faced be begin our highlighting unprecedented hard grateful the manufacturers drove key last on strong Our year. by residential deeply whose customers today. discussing and and for destocking dedication work, HVAC given will results like to X.

an year-over-year. $X.XX increase First, EPS XX% year-over-year. EPS a the QX, of was we delivered $XX.XX, full increase XX% in for adjusted for Adjusted year

in core point year notable X% growth, revenue XXX adjusted were margin. expansion also segment full XXXX results Our basis for

cash prior operating flow than more In to doubled year. addition, compared our

industry-leading growth maintaining wisely optimization, capacity, invest distribution technology manufacturing our transitions XX%. initiatives and Second, of we continue to while ROIC in

$XX. and while us to in end range confidence XXXX gives foundation sets our strong of market EPS $XX.XX momentum guidance Third, our transformation a linger, uncertainties

increase financial previously Fourth, on we announced are given to plan, goals. the progress transformation pleased our the robust XXXX self-help

X of for success XXXX self-help Slide phase In experienced to turn XXXX, self-help more at our plan. accomplishments. please Now first significant Lennox transformation the details during

us challenges, us strategic solid growth This destocking the capitalize allowed future and opportunities. positioned phase on demonstrated initiatives resilience Our exceptional to further our navigate execution. laid growth a to foundation and effectively for which

by We to attract our new existing growth strengthening dealers. our accelerated serve HVAC share our muscle and better wallet distribution customers from customers, of increase

in sales create our We greater for stores autonomy investing to and are experience. alignment, teams and improving the accountability customer

were levels pricing implemented margins inflationary up period many we recent to excellence signed before depressed previously renewal. long-term from resiliency ensure contracts came for account To as recover the which initiatives key

also Together, productivity We contributed achieved measures optimize mix. margin and resiliency. margin higher to and factory enhanced the expansion output, overall product our strengthened these

implemented balanced management Lennox to core a consistent to Finally, ensure system. execution, system, refer unified card-based as we which we operating

strategic instrumental and in was system our This with ensuring to driving accelerate alignment and goals revenue growth accountability margins. expand

simplified total the with recent also improved sale European value acquisition. of portfolio the and our the with life We cycle AES proposition businesses our

to that Lennox's is future. bright fueled will Lennox's XXXX momentum accelerate growth our success engine and the Slide the the On about throughout building the heart and of unwavering success the I our X that continue to will At components we more our next internal transformation share shows to in how journey. are X commitment ensure of mission. power fine-tuned vision plan transformation and our slide,

the our efforts set direction goal. a do, we shared for aligning everything north towards These true

us culture that will the and help talent accelerated strategy outward, win technology resilient growth, execution Moving to deliver and day. every advanced consistency, margins, portfolio great

by delivering and exceptional the being Next quality our of to is charters, always experience emphasizing solutions. customer partner a our commitment dedication to customer choice

our the was performance outstanding Lennox our to unified systems. element crucial implementation Another of management

commitment operating to and balance utilizing cadence higher a to practices approach aligning competition. and unified a processes outperform shift Lennox into represents and gear integrating our to standard scorecard best enables that This accountability, drive are for We efficiency.

of we such culture as X expansion. critical improved a self-help team's values build guiding engagement behaviors only as serve behaviors out growth journey high-performance These spring our this behaviors our experience. positive but components and Lastly, act growth transformation not year, continue rolled Last on guiding our with on as the our X long-term improving a focus momentum a of and that core foundation the sustainability. us helped year, to also and boom passion customer for

service oversee Before I'm us my a of section, CEO, and to we few me a to Quenzer. that to for me, smooth allow train move Lennox, and Joe's to am detailed our our thankful new CFO, gratitude moments to grateful CFO, and especially transition Reitmeier. I financial into express with the to outgoing years the Joe stayed Michael new

Now for call, on Joe. an the time me over let the call earnings last hand to

invested markets, a significant new American profitability and and resulted to us in of morning record-setting allocation Thank key that had pleasure with the focus increases during in joining announce end you, our Alok, this Officer and performance achievements. and more enable on innovative efficient privilege drove Chief introduced Financial as on capital everyone serving a Portfolio I've initiatives of greetings and Lennox's solutions. team industry-leading the returns as record-setting and outlook. North period transformation capital. intense We that delivered we Lennox's on coupled changes

for most and returns increases in sheet significantly, balance we the generated shareholders. our exponential fortified We

serve I'd another Now investing future to in the the to and customers. before performance off reflect strengthening for people, on exceptional hand I our while it our year XXXX. innovation sustaining of by capabilities foundation was briefly better It our to industry-leading like enhancing Michael,

much. while both and even well a that an leaving that organization time extremely I'm so great such I seasoned of extremely for greater accomplished long-term has take Now is that financially talented knowing strategically with very pride and success. I'm team my proud positioned

the over the who details your I'll Lennox's take comments to like sincere our Michael, stakeholders take with years. and over you investment my outlook. hand other to you financial Lennox through partnerships employees, the it of I'd valued thank a will and all away. up performance wrap now Michael, customers, community for it to

you, Thank morning Good Joe. to everyone.

X. Slide to turn Please

at quarter been margin versus revenue, of which record increased and in improvement. [indiscernible] year with million mix price and revenue has $XX the $XX benefits was the Core up and distribution. fourth offset a XX.X%, investment As operations $X.X segment prior SG&A The million and mix Alok price segment as in exception. profit were basis earlier, drove mentioned X% excludes our inflation year-over-year XXX Total partially no adjusted up billion, by year. points XXXX was

$X a For the fourth of quarter, million. decrease expenses $XX million, were corporate

to prior XX% year quarter. $XX.X in and fourth earnings the rate Our of $XX.X million share, fourth quarter XX% outstanding was quarter compared profit tax were $X.XX. record segment which The levels by to diluted adjusted achieved grew per and shares million revenue,

shift Let's financial a left residential the grew effective of segment. revenue focus from was X% shows higher favorable segment efficiency by and as offset in products Slide The our partially and to results of Comfort Home a X to The million referred mix benefited record quarter. our This graph Solutions fourth volume $XXX to declines. pricing formerly review segment the execution.

independent consumer Comfort continued remained our segment declined Unit volumes stable, volumes distribution more profit unit Home by through landscape. decreased channels a industry driven direct-to-contractor volumes in sales approximately X%, XX% demand of impact the attributed declined was than for destocking. sales Solutions signaling sales resilient decline in XX.X%. volumes by decrease to X% XX The to basis also decrease $X points to selling. and inflation distribution and $XXX million, a million $XX and a investments and from segment sales experienced margin million Although

to Slide on X. Moving

was outsize margin formerly of to or quarter, Solutions XX% performance Building review was the up segment revenue driven of Climate several our aided now the Solutions volume These XX.X%. depressed Combined and segment, was The self-help and recovery each volume Climate performance were primarily execution were in will of record referred $XX previously the consistently resulting points Building Revenue profit price commercial XX%. deliver another mix The by gains. profit and segment. expanded price XX% to profit. up results in in sales segment quarter, XXX on million We as the initiatives X%. up and to and up $XXX quarter team's margins. million basis continues

and the strong interest These fourth in chain initiatives is proposition. Lennox momentum a quarter. Ultimately, integration existing The productivity played the AES enhanced also cycle AES full factory the acquisition with quarter in the corrections, strengthened the showing year's customers during role XXXX. include smoothly a supply The value in growth progressing continued price resulted finish resiliency. life to and

results. to If will you recap full will X, Lennox year turn now the Slide I

the Despite and standard. in operations, year XX.X%, as markets, new XXXX, pressures and was distribution. inflation in as offset initiatives million through excluding achieved Comfort segment were Solutions partially core prior successful the residential points up as profit margin the investment pricing ongoing SG&A revenue basis and segment benefits Adjusted mix price challenges and versus $XXX minimum XXX X%. full to strategic year. investments, million European by sales SEER was $X.X of Comfort well and declines seamless profit Solutions growth revenue, the volume Home Home Total end $XXX increased adjusted segment of For volume up execution inflationary facing transition and billion,

earnings chains impressive pricing and segment achieved second previously key half Exceptional per to depressed execution Solutions and by in years growing to execution a share from a supply played volumes the the year, compared chain XXXX. role record $XX.XX, results in segment margins helped adjusted the year. both growing segments new Climate and Healing profit factory Building of prior The and higher of in productivity increase XX% in also the recover costs. setting representing resulted supply production a

quarter, flow down prior to for of quarter $XXX Net prior XX. to million Slide and the was expenditures quarter. Capital year EBITDA the to capital prior million $XXX million deployment Xx million $XXX increase year. on flow compared compared year. for Operating were on cash debt X.Xx, Moving from was the $XX to cash the adjusted in an in

capital to approach deployment remains consistent. Our

with to organic with prioritize supplement grow dividends with investments We continue explore necessary. when strong and repurchases returns, opportunities will M&A to share and earnings growth

only value through XX% upcoming our but our also elevate the completion We HVAC high to of industry-leading factory performance necessary production our our to Lennox's of is and ROIC, to dedication to to commercial the make and investments We successful reflects maintain our competitiveness strategic ROIC aimed anticipate midyear. investments. targeted slated to marketplace. stakeholders delivering begin in and not aim

in in challenges the anticipate our emergency half market. ramp-up better enhancing the capacity in and our share and will XXXX. in XXXX. known to address overhead by It a posed end pivotal of sustained expenses market allow the benefits facility factory recapture plays we XXXX, realize commercial us This demand will by production first consumer [indiscernible] productivity growth, of XX% While role

Now to let's transition Slide XX.

slight trend due growth Solutions Home key financial an amid year a to expected to a end markets. expected growth, provides profitable XXXX. from to increases Here, of but Comfort sales by minimum will continued chart mid-single-digit drivers full anticipated is flat a X%. and the anticipating Building to relatively revenue guidance We efficiency Alok margins overview the in our later additional price with price upward with in contribute the I stable approximately slight growth Climate will are and growth markets will regulatory remain end volumes increase inflation on mix comments revenue, favorable sustain of mix year solutions for another The provide expected provide to presentation, combination change. of the left XXXX cost and on is

of inflation and In listed digits, in our our to large cost the side key drivers expected have increases we costs XXXA the profit the up to from right Component slide. investment ] to revenue, cost refrigerant. be [ acquire mid-single including is assumptions on addition

reduction new partially refrigerant the cost $XX material Home our across to expect manufacturing We We along this approximately costs million commercial programs. by ramp-up Comfort with with be facilities. the of additional solutions for costs HVAC anticipate associated factory transition offset

initiatives system growth information We service. improve customer projects to and continue in invest will to advancements, distribution

Additionally, support by initiatives we in marketing. expect sales making both to growth and investments

on continue in moderate SG&A XXXX. we managing area While focus expenses, to inflation pressure we expect do

expense GWP $XX and low million. for includes approximately XX% XX%. is tax new This million $XXX for transition. estimated capital is guidance expected Interest spending factory the be between to is and HVAC and the expenditures rate commercial to refrigerant be final XXXX approximately Our

share to the Incorporating share all of range per within these expect of $XX share. $XX.XX guidance items, earnings and be per per we

be $XXX range free cash to million we the expect to within million. Finally, of $XXX flow

conditions. Slide XX, overview please over it turn XXXX Alok to to business for that, turn back and an With I'll of

Thanks, Michael.

dynamic. the Comfort As we health consumer replace demand while the will year, momentum Solutions facing it look important Home forward versus recognize results, driver the of to segment, we the the repair market. greatly significant yielded is transformation has that our end are of our coming positive influence remain challenges to Within and still in a

We introduced an It also element the year, macro to out, an [ not repair. shift and Ahead we point do RXXXB of replace to carrying from are data early levels. election important noticed sentiment, of continue and have inventories. consumer mindful we'll meaningful pre-buy especially uncertainty any to a to in in indicators. increased track anticipate is the of for yet not large have fatigue of ] regarding cost rulings tunnel industry transition, inventory due the we inventory EPA

However, distributors to year this its patterns. we levels ordering the to returns do expect normalize inventory usual channel as

win expect strategic pricing ongoing Lennox benefits also We transitions. share as during initiatives the potential opportunity historically of and share regulatory

Solutions, Climate we solid Turning to demand predict our XXXX. attention in building

End and of product new our remains for delays. face market soon. related averages Ultimately, we coming need conditions accounts delay impacted availability. replaced business, the historical cautiously rooftop the the data acknowledge demand have also commercial challenges may XXXX and key from aged in we outlook know units RXXXB installs new may that softening will markets to the optimistic, With complexities we are be National years. past project XXXX be pending though to if Account construction Services our

line We towards continue customer will and growth, strategies trust our propel top initiatives focused to that value. proactive Linux executing consistently our and enhancing driving margins on on shareholder expanding experience

which a of On On been slide, our relates self-funded on to our depth the it into will strategies current moment more XXXX. to transformation XX, steering next plan, as has I I want go revisit success. each take Slide to the

the reminder, a this X several is years. next plan structured over As phases around

growth Now the of from investments actions strategic pivotal actions. through year where sets for phase. of our specifics wave the acceleration will the is dive next the let's we This the focused as into for stage XXXX, and phase it transition initial growth to

our expand touch factory. are anticipating HVAC overall output enhancing investing improved in experience points, new we force to First, our the customer from through and customer innovations sales digital commercial

we attachment aim to holistic customers. rate ensuring experience for increase the Additionally, our the and parts for accessories,

committed the collectively new the are reduction of realizing RXXXB position driving to from our This solidify leveraging recovery, and productivity sustainable our to financial pricing greater material mix margins. competitive we actions product. Second, and benefits cost excellence, resilient transitioning involves fortify maintaining advantage. volume reaping These

clear to priorities. streamline we our management and Lastly, unified will leverage operations the Lennox system set

our our Our phase I with and the and into strategic a phase. for our pump actions in is heat dedication network of management are commitment the plan, collective execution. shaping groundwork into we focused lay our us distribution a acceleration consistent strategy, success. to that growth purposeful year XXXX are investment following just that to enhancement confident propel further exemplify we will our expansion future not am and the journey approach, growth

of introduced our even been schedule, an Now please financial for since update ahead XX year goals turn a long-term on is Slide uncertainties persist. confident we It to has goals. our market our that execution are over just and XXXX though

Home and volume We Climate solutions while that Building significant Solutions margins headwinds. record resiliency, demonstrated are Comfort facing even that margin achieved has pleased

With better recognize positions. we our to adjust this achievements, our long-term reflect to the current need year's goals

For XXXX to we total now billion, of targeting are company $X margin $X.X XX%. range billion of revenue XX% target to with

free the support conversion approximately to target as necessary growth. XX% Our investments is our complete cash we flow

range a XX% range of a and ROS. long-term to increasing solutions Climate XX% ROS Solutions building to are XX% the for Comfort to target XX% Home We to of

has investment its a reasons wrap operates execution in Lennox a Slide growth and continue for believe opportunity. end I consistency Lennox please is serves margins our make remain we continue for demonstrates to up, confident Now and XX markets resilient results to effectiveness in turn first, talent. that great through technology high-performance will investments strong to The customers to our growth demand. support deliver consumer are: to X strategic reasons and ability we advanced improve go-to-market the

network. optimize our we our evaluate Second, and pricing to focus a direct-to-dealer increase solutions margins innovative continue productivity as to remain implement our strategy,

the systems, teams leveraging while consistently will strong able Third, processes, results. streamline best our practices deliver and leverage to unified be Lennox management

of our The our ensure for that solutions at continued the technology Lennox aspect will remain forefront innovative fourth reflects customers. advancements

of our values introduction the our focus high-performance culture. on core enhance guiding Finally, fortified our and behavior team's

further interest our the team pay-for-performance structure refreshed and of Our aligns incentive our talents of stakeholders. the

me we dedicated as of Allow customers. each by up that what ahead looking to of are and the thank accomplish Lennox proud us. were to our forward still you days able I past our saying best of this valued lies you. to wrap for Thank employees ahead am future to I'm and year, promising

go We questions let's Q&A. and Joe I will Operator, to go go Easy and be now harder Michael take questions. Reitmeier. happy the can questions should to to to

Instructions] [Operator

we'll And Capital KeyBanc first Markets. question Jeff Hammond with take from our

Cleveland, Joe, look me you in forward look seeing to up.

Just think the to trying on puts margins, and I'm about just takes.

in some maybe guide of embedded factory got going about finer and efficiencies you of you are incrementals inflation, just this then to just You've how the Slide manufacturing a number talk to point on you XX how cost of a if I'm left to think the incrementals profit Much headwinds. for on overall costs? [ put wondering refrigerant point]. five more ramp-up and similar the did could

Yes.

the the investments. see margins. well you So side left-hand related costs increase side, is the contribution rate on to And as can on for as our right-hand

margin have impact. see join together those we combined. expect But at next the to the you the look you improvement enterprise two some year So full for do when

to nearly of XX% costs a are and up of component going refrigerants piece then big go significantly. also our cost Our are goods sold

saw acquisition just we we not to the get margins leverage expect margins that XXXX. be then on and of of points So basis in as well. overall, up like to a volume XXX the we'll little bit leverage pricing our gross do current and of maintain most bit on should But be a there

destock they about of inventory with company-owned independent in on more are just Okay. terms respect much where your you your can you distribution? destock? how just And then on the Or are you And at? to process telling channel, what go to talk

I'll but given think I I more flat. think second build in going towards just XXXX, have take internal always up Jeff. our ensure get we of transition. be reaching half that's embedded and We Sure. we I that, upcoming to can transition, a -- levels I guide improvements, On mean the the smooth might AXL to working capital think relatively especially the some are own the but are a to level,

the we I was more do behind second don't destocking do well. the On as but destocking especially weather some know. QX, independent than the And distribution going from on ready in remain China, as expected. half some think EPA and ruling we us, I But eases to expect all, QX, distributors be be we bleeding a allows transition there's for XXXX QX, channel that and honestly, by line happening QX mean, impact especially product we of whether in sell-through some destocking would AXL largely that's think confident them independent or overall, into the get in destocking

So of all embedded that Jeff. in we've guide, the lots pieces, of but moving

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

your Joe. retirement. Congratulations, Enjoy

So I'm it's incrementals. question maybe But of about back the not. kind -- I or Jeff's question tough not a sure on think the whether on just of

[ incremental margin. You've XX% as got price mix ] a

So the plays just how math. mid-single-digit wondering that inflation component into

$X price get Is with you that just a sort EPS Jeff's the $X how tailwind. thinking see mid-single-digit if from again, So it? just but you're contribution incremental, about to mix maybe you I'm question to asking of

to the I of drops have through is to year mean There's price a transition. bit benefit mix price, from we'll predominantly do Yes. minimus from that we carryover get look, it's little the XXX%. what

get well then mid-single the When So side the both you you the significantly, of that together, of as kind where think then have our inflations the components blend be to the drop digits XX, from of to we through but that as the cost some kind normal we up going inflation, on X are XX%. covers refrigerant. will right-hand at

margins SG&A. your the So maintains that a thereafter, a little in then XX improving maybe see margins. that, still And we operating overall and to sets which of think of kind than start distribution of less make we lot basis it gross investments within points And guide.

Okay.

I mind, factory to to that, We'll could And have for AXL the Every inefficiency keep in line have commercial the or factory do. for transformation and that's think to the redone. if both conversion, the but start-up we has fairly shutdown. Saltillo [indiscernible] Nigel, factory be in add massive I

got So your we that our in bake to in we question. inefficiencies of in those guide. -- so baked we I all of all understand It's -- just

I increases it like digits. the of And We get mid-single it. of component the price doesn't they're manufacturers, understand then now. And XXXX. talked exchange on motor mid-single-digit just that I some feel targeting to heat inflation suppliers. some in

just of mid-single-digit talk XXXA, So that where just XXXX. commodity in terms the And in expectations about curious you're seeing inflation inflation. price what that are maybe your

Sure.

First were give telling you of that people all, should the those list me you all of that.

starting So to we can we contracts get negotiate, on I'd work use the down of up In But coming renewal. long-term did point. go Nigel. for that seriously, cases, to have on components, it their that. some are that love no, and comes some more

we So inflation some escaped in have the of past. may the like

expect EPA, it's overall, you've But reduction lot XXXA. contract based of before, fully SG&A on I where mean got I lower or inflation have on are it's a to but still gone in spot we NAV quota not factors. and moving The the And inflation is than pricing, thing the from we pieces. the baked pricing in whether the mean, and see XXXA, production other away,

come up in for we've if as to at components, but that us. do So XXXX we built for contracts looked we in see our to continue renewal. especially all inflation long-term what's happen in going of

offline, those you e-mail to suppliers I'll okay? Right.

Nigel. Thanks,

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

the And mid-single-digit more versus for contribution. growth it's half? little the of the mix art the if of then there? bit presume outlook to half I a to on think bogey price by about here Can the us over back any wanted more I any what's where But give the you to past, start for phasing you in and in less going second sense your I year, contribute next X or you XXXX. there? just if you've think that years, the Alok, of use XX% plus you is on end could refresh good And possible confident wonder XX%, to the said a I the we'll outlook? us are land

Yes.

answer So on that we build I'll and the price, first starting QX, see mostly to through QX. QX in

in is to announced take increase. little that get it we where new side the QX time see But full the As QX, will of product, mix you'll from in a we'll of the price bit get carryover year SEER benefit that. benefit on the minimum

I think, this the to in towards large happen Tommy, year. overall, going we tail second end in XX XX% that on of XXXX. stick to by part A the is like start to XXXX total of products launched XX% or our impact getting the as half pricing

when a the more we benefit they some benefits. catching up are because So more this our as we'll was year that that we of of there's sensors, view of do lot line and of this year from see benefit like cost at offset. this that or of we a next see now changed inefficiencies transition cost start capacity, heating has of will to XXX I is to to lot seeing that as XXXB, because unfortunate of others is will as year also next look there's just to manufacturing must the on glad in year and dynamic which we half that extra we're industry coming our not the year There's cost than extra the see those But early to outlook controls, we lot cost a tail going extra compressors. that, extra see there's

I with loose just a appetite in up at about your share market on insight participant assets. the the there? about to this might M&A. or question point to Good question follow any potentially for you another wanted of There's some Begs M&A hear. talked that's turning

call on a one was question. third I the expected that it Sure. I'm the to question of today. surprised be first

So consolidation but before Lennox things, participate I'll very a that if to time, if an will the Lennox been came by specifically we clear all, would start to like few like And of [indiscernible]. industry named right? out Listen, participate. saying that even that is First past, in my companies there has on. we have opportunity,

So that be We a I consolidation, view that. not it's if good Overall, quite an participant when confirm that, industry that let look that has me at there's just in Lennox would a opportunity reasons. it believe for changed. still few

at we as look dealer we As look at consolidation. increased regulations,

better technology the I better think consumer. We'll we'll to serve look our come at to customers.

think I make can that we the gives investments right kind of us it succeed. to

have going as our are specifically any good. it's don't as I think But well. news. strategy I I be all things confident don't to available. mean, So like can to would we the you this. become and We specific in want to very comment we participate and do stand-alone own clear when and I to company on tell is that

scale We to compete. sufficient have

share are in respective We gaining segments.

technology We great have and like a team path very a forward. good

are we is participate, positioned on So balanced the ourselves. but would we that opportunity, I of very on think also we're if outlook kind that's there's where like an confident to

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

Maybe it first for Mexican of the of or sort cadence the earnings the have Joe, a of pre-COVID nuance changed help. refrigerant can the Thanks, the just and we does seasonality all of on plant year, and has through at question tricky be -- change. looking something is apply kind the

always low half and we maybe the second then So earnings versus split and weak year of you're seasonally a sort QX with half and volume. first it's kind are out XX-XX of starting assuming home comfort

then XXXX. of in seasonality XX-XX. QX XX% similar and what kind QX kind in of look the in on the guide. the Yes, of of at XX-ish QX pretty I should similar kind and saw have think you That's QX revenue revenue I'd year we be to each

delta Comfort trying fourth if split distribution? of we're after narrows for How independent contractor Just thinking And terms director should the in that be to solutions how within understand then there about a whole the Home quarter. kind in as in volumes. quickly year very significant versus bifurcation a the being the of wide

Sure.

see I to the I think appropriate the in But channel when that on sales order get normalize fully we of think of last given distribution happens XXXX. we because and to everything else. and year. our we channels back get to versus in overall, We're a patterns because independent not of do even by comps dealer. comps to the level, sure and of the inventory of the channel, inventory expect the and in expect, the what will we irrespective from bounce mean, that stops, levels sales timing channel, all increase

On the although expect they resiliency we into resiliency to and we down, into were and of better gives XXXX, sort numbers us XXXX. us that going volumes side, the going baked we that that down on expected. have in than with dealer pleased were And flat were most of comfort saw,

true, because transition, [indiscernible] levels to recovering election you what can look assumptions rate, you are of kind and Just interest we control, so and and decide decide. far out we on replace, we of We year, that how share want all at the all our chatter through has service are put it. win nicely. are the here Like let around we we be but which not to repair, turned make to we going sure that focused know of

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

to Here's the of rebranding segments? a functional of? Any aware drove What be easy the difference potentially one.

with on to aware which the was simplified and on. simplified confusion and websites. embarked No, branding, so there name X. [ We had Lennox, Overall, I on and between not at we be no differences we new focused business it We going some just unit X We different positive brand building from consumers, our segment name have going to confusion a were message. functional internal guess dealers on a of. ]

huge improving technology, introducing have We customers' updating investments lennonx.com. e-mail our in our experience, and new even addresses our

nomenclature of just It besides was business what of we just read differentiate part exercise. time I Because better wouldn't what from our was reflecting it It in do, but commercial anything segment big to simplifying tiny right? to more had refrigeration unit, also was a internal a bit called and rebranding about there. residential

new and better our more branding the we reflect names think do So are what consistent I with guidelines. new do

significant about effort talked around your in you culture. past year prepared as the the over a remarks, Alok,

functionally Can performance people metrics you're mentioned performance. what more major types expect 'XX. into to performance, when as did those might we and were timing and for towards, behavior how some pay of terms of those of the trying pay what impact to You implementing changes you incent highlight get that in of you you for

Sure.

start highest staff. me the Let's level the and executive with on

where year So year end component our a incentives a growth [ the was component short-term or ]. had last first revenue to

growth. from comes the now STI [indiscernible] that just our of mindset. And XX% changed So

a give to on but it few matters. Just an really let's take to levels example, it you down where

So if margins. are around other and compensation, the incentives only you revenue profits think because way enough on be and it about to used sales not on

revenue. autonomy on we in versus about team now and that as like purely a more force, more them would of accountability, talked sales deploying So measure all in are we profits, measuring sales on the distributor our

the more results cards journey storytelling on can't these to long and fully you on have pleased kind margins. sometimes because a change versus the of into the with things overnight, on get they focused X culture that's the And and profitability pleased technology many seeped behavior, growth the level, switch street metrics-driven are senior we more So level, years. we and on especially But that's long-term journey the profit the as and add if more finance there. been prepared and early for for many, behavior score focused

Sachs. with Joe Ritchie question And from we'll take our next Goldman

everything. Thank a Have for you, Joe, well deserved. retirement. It's great

question implied year. Alok consensus above is and is full your the year my the today where sounds for consensus guidance the for is of is towards It XQ Michael. high end So like and guide

baked I'm trying of like to like might kind conservatism that be the versus to just high understand low end. in So the the

So any helpful. color want you there provide would be to

all and was XX, so start, through you on in. then did I'll assumptions. brackets Page and We And quarter. will Sure, don't look low we by not really giving end that the did, laid consider guidance, end, we we volume here's can assumptions guidance what right? are Because that. high jump of give kind out consensus Michael volume and the on the But

SEER weird Michael because new we to earlier, SEER old and benefits, as it, get is a more had we at we look As be still QX year, said products. mix last because going little

other along price of with as saw the in increases Some for us, the go February into competition. you effect

So any to there half have similar will on are you only And seen benefit be get quarter we that. patterns. a unless seasonality what unusual weather

So what honestly, just add Michael, where you would of to focused are that. didn't longer spend tons term drive we of we thinking time that? quarter-over-quarter. looking at and were We the

a little bit little we that generally, the in Alok of about as guidance. through in QX as look you out starting add, seasonality just just would plot factory, a But quarterly the at destocking distributor better maybe business talked better give production QX don't thereafter. I maybe obviously about, well. a up little revert the volumes when more talked commercial we then as from and you And then back commercial to Yes.

Got it.

I the potential a what looking M&A. the for to M&A appetite And broader that in U.S. predominantly criteria Okay. versus deals is everybody to today, Maybe your footprint follow-up And What question guess, if That's you just of go space. helpful. just for be? you're kind which internationally is look, have remind your would

think mean we where like from we I positioned. are I perspective, our

are We That that the and was I appropriate did we positioned we to think but win there. returns. So look profile can we somewhere be of think exited generate can the could in where exited market. we Europe because weak, end to positioned because can margin succeed, an else. were we Europe. we it like happens win, where what start markets, don't where we think mean America, we let's attractive is I North we for be attractive

done rule anything it it well going I to But us and I this look things to share buyback. based the to any opportunities buyback? very is comments of we'll how attractive we at to benefit I are mean stage. end So and we're we out share we in for have does create at want But well, do to or don't shareholders? where on will day, mean, win. positioned positioned continue Does win. those make versus look we specific Are markets our for

from question UBS. will next Damian take with Karas our I

you to I this year. for your wanted about commercial outlook ask

a pent-up demand the and the of to older base. spoke lot You installed

out, you volumes the parse versus that for maybe about building replacement you're kind planned guiding come up emergency You're how singles. Could to just and low of thinking new construction?

Sure.

halves mean So of strong. order quite rate pieces, [ I moving I'll tell ], but it's positives maybe X tale you, right? that remains few our a let's is talk a

remains in doesn't solid. but although term backlog short matter, backlog the Our

pretty moving Our right. we any excited that, see and KBI projects and no about, that whether impact of is team see read index the to all we things some the sales of it's do we

So we we are a cautious go as into it. bit

around late a We existing might product to enthusiasm the our wait that they also are as this the lot "well, talk product." of concerned somewhat versus we I'll and maybe mid- say, for the -- find RXXXB year, accounts take just key towards XXXB to

future reflect in [indiscernible] versus demand pocket supply And just come our order factory, please weird that's you freeze the some of what to adding the more noise us, see if current we with competing into is want in constrained excited the that and at it, baked we back air this guide even pleased about backlog, output output slow any the they So kind transition. just to to go the constraint. with look of production current we at rate, our could [indiscernible] to different looked remain factors, with in for because construction XXXB

if I I thinking thing of look, guess about think HR, coming over overseas market, you're by a for like these maybe good the any perhaps you said players. seeing but the share. time. the of increased consolidation see observations you're my the industry, a does there's or of be some gain could competition expecting to it you bigger of one expect feel to some in out know kind push just guess U.S. I overall I'm wondering

for We at of I to but saw boots the the money HRI I'll reflects pools their went and aspirations was the in that of on I'm impressive of show, and -- like it market share you booth. sorry, to correlated and the on spent spend tell the more players the U.S., the the they money too amount all in future. probably amount overseas it missed you some I the

I only single-digit mini in traditional player still what have core if players very and year and if unaffiliated I share a we it and the tough but of any [indiscernible] we unitary had are it U.S. are and on in these are success, market -- any very -- comes 'XX. listen, know think remains But comes that's very, only where to splits few VRF, had very you all splits think products, the different and well, U.S. to the in done -- market overall them

at a drive some also opportunity So the work able and both to be international we an at areas. share look as to players, a threat. we it as threat in market with to our as joint But look them

we that at we're capacity displayed production we we products like robust with way from the and excited energy we team products new but at new adding, just that's are own AHRI, getting the how our general sales emergency were the So look on about was. pleased interest replacement it, our activity pleased were the we with people on

more had, I show me attendance of has It than on optimistic the read was newspapers. highest which the what makes in economy the AHRI kind

[Operator Instructions]

next We'll take Dray Deane our question with Markets. from RBC Capital

expand comment, said fatigue. just the you're of expecting term, you inventory it I new there could a you a And discussion some lot you And on be on I the Alok, was prebuy. think -- if the not added Maybe refrigerant. might think

it's that on please, heard Just if can I correctly. expand that, an concept. you interesting Maybe

CEO may need they prepared, not rate the And as pretty that of just how disruption higher were holding being of the ago years X much But EPA of the little had because manufacturers historically, came landing lot think up November, [ the a a concern out well. because since of confusing environment in I because sort with prebuy independent interest obsolete the that December, the COVID mean, channel Sure. of see transition feel from a in given And just about people inventory overall these the ] is rulings they I channel. the ago. year -- works products. transitions

you why are for distributors us? and just the us working with of that Some manage saying, don't

want Make the sure your I not can spend and cash warehousing to up. low, lead times and get space quickly. it to build I are a may

'XX. downside over 'XX and upside a wrong, listen, you're mean normalizes Now if but it will I period, in anyway. we have in X-year

a people be we based it, just said, So to we in. on looking were have if but decide of prebuy, any that we will at not take prepared as let's

flow capital-intensive second XX% just there because like question, at not are this on business. a seems then is And longer-term you targets, the cash free the underpromising

but you've light baking by should You term, -- be from conversion, in versus over capacity CapEx push but big just more a to closer potential that free had know is. expansion it flow seems what in XXX. you near I cash our are perspective, the And your

starting That XXX give slide tried went you're year range. over hours. got listen, $XXX We through so many a past but million We and you to the if changes to the tried -- XX think are. of to period, some investments. But the we'll term, a X-year right? in CapEx, just you're not to going XXX reach in I we mean, where I at get long

closer grow to working XXXX. XXXX The other to depreciation capital main growth and have CapEx revenue. is with that driver revenue, by you're we net going to as be

related So with to revenue the growing working it's growth. capital mostly just

the XX%? capital working target associated that with sales capital working -- What's

Upper teens.

the range XX% on XX%, of... direct Yes, the higher like on probably in to it's our model, side, lower indirect

Upper fine. teens is

don't Yes, listen, is I X do our any But balances. adjustments, it overall. the this below our we -- checkbook cash mean flow, right? is thing XX

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

X had I questions.

terms First, how in my just is see on And was of in second an the cold the did snap weather, you of question And the fourth lift any with a then up winter? January? big impact up any the on quarter, is first of the half might little half sort slightly sounds margins. down Just and help. it year-over-year. like a second commercial be little cadence It Is bit? the of mild

the I'll and back then Sure. I'll come first one. second answer to let Michael the one,

why you So ahead. don't Michael, go

Yes.

other. margins, mix should the the headwind, benefit on first and in a up neutralize each of bit but on yes, So the of see little we'll commercial a volume. a bit That kind little of get of ramp though, factory half, we'll the the

adjusting each be So overall, they'll throughout flattish be those of year the in should margins up I X kind elements against other. think commercial, but with

question set like delivered. on that winter, daily learned when based did weather my of be some and on about you to Ryan, to impact think the negatively yes, have talk weather. career, in number where we But kind challenging our warmest QX, I And ever track that never your And we first a looks yes, based would of had and on are, as we tomorrow statements don't on, I had have early the like, the average good what we guys QX would days. heating streak, rates days the start track things the and correct, know you you or expect on cooling same looks with February we the a like cold both but but weather, Ryan. are order

Tim next our Wojs from take we'll And with Baird. question

Joe, entry with working been Thanks it's good congratulations for here. you. and the

ones Just me. X for quick

just just next and 'XX, of at still allowing changing product distribution? expect given through look the to Would transition sell-through. you your kind the -- as DOA DOE, -- RXXXA a or EPA fair year you First, remember, can't I amount own or sell from through of

I rounding? from you some benefits that a Is to XX% mix just the said is of on a it of [indiscernible], from kind Alok, before? said then second think, Or And XX%. longer-term question kind change what just you

No.

benefit we'll numbers, us, because rounding think second this longer one I we -- the for it's kind as well. year give just of some get

just right? like just should a and I'll ranges XX looks So giving portray pick to like, Maybe what rounding. I here. So stop center XXXX that's try line

weird I they're impacting some to one, then up year. be rule, through products, units would coming be and products. to way a they uncertainties Tim, that based XXXA people not written, there XX% the the dynamic outdoor number be know going next some on currently products. indicated the new final have not probably with And as there's because the But make can preference XXXA it's products would our be we'll repair XX% Listen, make first rules. there. forced XXXA factories is it's using EPA still on the some will to XXXA to

XXXA -- got just and and would manufacturing other we not the So at adopts each stage but how see XXX the too. prefer it, that. out to plays still for efficiency on are not to be that We waiting make state clarity some rules a for we've to of final reasons, how

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

quick Two me. from ones

kind bit leverage. back on M&A, where maybe of little Just to of on is comfort your color just zone a

the I where work is from? targets before. talked flex comfortable normal to kind think for like leverage bigger target something of be you that down about you'd But

I

is, be we'll attractive opportunistic it from right, is if time on have that I But have that together. yes, attractive preferred the all we get the with within put what our the board discussion discussion year would and be. up. to when perspective, it's and to our shareholders leverage X. or mean, back to would our range mean be The that's focus is a our something to we an to company. I Think need key to lever that's going question

So long-term you that right? our and within leverage I use we math long couple can then mean goals years. as to there's real a backwards, of do can the cash, cash as back get think we to

in make are shop [indiscernible] grade I maintain is grade. investment that else thing not we We'll to work. I like could important us, we mean think anything that. right? or investment But

and for Has expected CapEx. program, And the plant changed. the of just amount the total Understood. on CapEx new then otherwise

in million XXXX for about you CapEx $XXX think were talking I previously.

I Now little there. it you of additional [ was getting just provide we're a just kind ]. XXX Maybe color could at through faster.

program total refrigerant new to the refrigerant for lines [indiscernible] also new additional in and just XXXX with have The prepare in factory investments same. that this still that have products We is the year. CapEx some we the within and come

we're is when through normal million year? to a all this $XXX And CapEx $XX million

probably to inflation, not like... XXX closer Yes,e-with

XXX Yes, XXX. million, closer XXX, not it'd be I XX to think to

maintenance be add more. support probably but that, into our Just we might and Maintenance right? growth to growth, built XX, will XX,

of So I north say XXX. it's would

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

see. at at multiples investors may missed I was HR. correlated you someday, but which say to also we'll record Yes, I'd inversely attendance of a be

a booth, interrupt. good audience, I saw you're company far I didn't different holding in a you but from

Lots that great show, yes. of sure. details yes, Yes, of for

Just dynamics. capture on price the

at about and price doing you waterfall some works? think your midyear how just in quarter you Can was about was talk guys had the how that net realization kind of year, of doing and what -- things I were increases capture your what maybe midyear talked types this fourth X%. you around

Sure. I'll start.

So I construction And honest. and maybe talked that go residential to we down whole towards at baked talked and about price to ahead shipped as in expected, seasonality time residential there. lot we we worse in a that came of about as drop-through I we what of think overall, increase middle price the QX the we frame. new XXXX. a That expected, did construction the mix think expected is in new increases, share doing the gets overall as looked the R&C Not than just between be the about

we So from perspective, that as that went expected.

broader announced a price increase, know account into key mostly into going in year, We this this and we effect that year, have price increases February. and we X early effect goes

So direction we about moving we all comfortable the is We whole well. to as the are. expected. see that industry that had remain gone talked been as good in pricing that actions it's where on And we

unit for a just on was volume the putting unit And resi fourth Yes. for the what actual quarter? business? guess parts was what basis, And captive that business the captive revenue I the was business, -- the what aside, in

Yes.

was So for digits was total to single revenue down high up high through the distributors and direct QX. then mid-teens

volume actually in for that was unit business your So QX up.

Correct. Low digits. single

you one, last to the AXL rollout be what's physical When see distributors of call a schedule ground And for one will product, you of guys? the like what's that ship specs kind the product. and on just will your when the like new just And that product? Okay. actually able first physically? When the is -- on

Sure.

We're going seeing with that. the already So all training I through already key and think they're distributor, spec. the the

to First And products, physical with going of the and be RXXB the start half for I transition year. lower-end the is the more high-end towards lower probably this of then comes slowly products. think out will will sort we product in to going and consumer's faster. And appetite the second year we

would things. of middle the end with RXXXB towards start in we And for showcase PU higher the can we'll on or But are this of booths So be this place don't expect ahead and on in second put for on half of yes. schedule a year. somebody to on year, We those year. a each meaningful the first display actually of of we buy a half the sales, track any

take next We'll O'Dea with our Wells Joe question Fargo. from

of of mix, you On that how how can emergency commercial XXXX XXXX. just you're percentage the stepping talk in was the kind thinking what mix and replacement to -- up about in

think I a like but as think normal. maybe XX%, still on I toward of normalized something sort migration

Yes.

X. So we listen, close were to

until I and our digit, double think would in both in direct Barely, digits to say, XXXX, of we trying half a going production think hit terms double still digit there's the ahead. needle includes to second in partners. And I year. our emergency and of to get Saltillo high replacement. single that 'XX through this in room of that move we in probably distribution lot won't We comes

comes high to online. us in So digits double low until single digits, expect hover Saltillo

anticipated your and are think residential thoughts sounds demand then of side we than indirect the about what on it. better Got in trended 'XX like when worse. And direct sort the

And direct do assessment and just headwinds things? indirect that your is align destock channel averages? worse? how why historical X so Is thinner inventory would than trend better those trend And you

distribution that yes, to partners, and remember with it EPA flows QX, XXXA inventory It's starting close channel in unless sell very Listen, talk be to was to the essentially XXXX. not products, channel the would you not December especially fear more replacement as worried then we them. they're than the and able while a ruling for our we're everything, thought. the that had was talk we And

consumer glad channel, final I out ruling. being clarification we created up was resiliency. pleased direct the means So I in thought issued with better that we were holding is EPA which freeze our mentality positive. some a just ruling that coming with which the But mean, than actually and a think and I'm business resilient,

mean, the how share, are rail. of is out much Lennox, versus I on Now and share mean, fact see, transitionary going we us that out how direct, how out gain need normalize. are something much now shares. that so hard we winning much from also it share figure I of as to numbers to that's things is gained we I We figure will but is numbers for given lots being of watch that we think dynamics the unclear CEO It's we of right just

SEER I'll And add direct on just we well the minimum the very side, transition. on executed

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

in about states I terms the IRA wanted the tax well ask defined to how rebate. it the and is in of

figure which show a you on will kind know is to for make If the drips this it and of the to But priority figure were and piece, upside there's then kind especially IRA of dealers stopped starting put practical IRA slowly now, whole of impact the that through it criteria their was given we're out right own. and such to with I dribblers. not do of on to it for that's I qualification in credits has become the some of the which in. there's of flowing XX really for this from their out it the cases, way income don't on some state government SEER very and big but governments left, the the but the one expecting dealer ] [ act banking work. get with don't do think no IRA, a right states months topic saw to now, to it are election year, a rest past on think if tax dripping I us IRA, renewing kind little gets aspect it see we together we're as any government through counting how

the average systems of And refrigerant over Do confusion, or your given of the the think lower about for the X I pricing you. years, you XX% something the think guess, phase-in levels. now? that's valid next updated pricing like in we've past, resi it's Got 'XX talked then still off the do 'XX, in you what new are expectations

Yes, that's a valid.

still it's No, valid.

that over maybe totally working that that year. earlier But getting number some I well that this the and of process, XXXA still years still just think at that's talked this numbers year, comment as we was through the the entire about X especially with valid.

unitary everyone slowdown what seen getting in Okay. Or And given competition? industry is seeing resi. and price intensified through the potential the in that. just we're any in that evidence you you of pushing mentioned -- price anywhere and getting still Have

look that an look me basis. now, the not we why in expanding numbers. at to the their talk broader close mean overall price It's it's they you more X and sticking no nowhere to But their margins be right territory, a you I margins, costs too. in trend, the But data I and meeting mean, those points at pricing if the overall number across up X there's if latter corner, I on accident. board. they're what seems that's convince individual to price about. intense if And the listen, an speak the will competition you ignore salesperson going own are

inflation. just went at is and AXL higher compressors products, the new recovering it that material burden labor and So SEER refrigerants, better we and to are we look some to have through efficiency cost continuing as the of

extra manufacturers the are we incurring. see to So going I that don't because costs backwards have offset

maybe further one could will? implying QX facility you last costs quantify -- new the if are you are and what And cost, What for one you Michael. in that. you just just I unabsorbed like And -- specifically QX? on

Yes.

about thinking it. Just

as We're really, We until have -- going people. absorption going high build get even that very start units trained. to kind QX. to of productivity staff with start We're them any won't we going we're and mid- to we a to not late factory to have get to

full out, even will You get the of we be efficiency have highly to million costs then be at efficient. in all start portion $XX mid-XXXX. second some units won't of efficiency, won't lower the it those will And until there. We ramp-up half, be running a but

the that So half to of you more get it front better $XX gets the be as and million. it's second to going into half, probably

in million. Got it's the it. for aggregate year, But $XX

Correct.

it. With end, appreciate I the front

Yes.

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

your at You lines may disconnect this time.