Lennox International (LII) 24 Apr 242024 Q1 Earnings call transcript

Welcome to the Lennox First Quarter 2024 Earnings Conference Call.

[Operator Instructions]

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

Savanna. you, Thank thank and joining today. us Good you morning, for

our quarter results. We are first share to excited XXXX

Joining CEO, we will share Q&A me Quenzer. their Michael as session. prepared Alok Maskara; remarks before move the CFO, into and Each

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

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

Thank want customers you, to gratitude us and Lennox margins. employees to record marked Chelsey. our profit deliver my expressing helped by loyalty Good to QX begin results whose by morning. strong I

Specifically, to employees distributors key to of our our customers excellence my extend and our solutions Lennox drive I ACR deliver for America. can dealers, from trusting be products productivity transformational effort HV to customers. The to success to account platforms, industry-leading unwavering and want North appreciation strengthen our distribution support across network, and innovative execute entirely elevate customer experience, pricing advance the credited and

regulatory markets the end to quarter growth further navigate our upcoming changes. and complex prepare successful our effectively ability for maintain This demonstrates low GWP momentum,

segment key would highlight XX% details Slide margin to quarter in the expanded on points core $X.XX. XX.X% adjusted earnings basis X% X resulting this share our X where Lennox's like I to per Now first, grew our adjusted increasing revenue let's XXX and dive into to messages: of

$XX was million improvement $XX year. million, usage in a cash prior from significant the operating usage Our

Second, Solutions delivered slight revenue a moderate decline Home alongside Comfort EBIT growth.

by counterbalanced to and and XX the we point With basis the all glad destocking margin phase we end. delivered price mix, see volume, effect destocking expansion, nearing its on are

our profit satisfy Climate of on remain Saltillo outgrew both We customer for the and delivered by enable margins in fully record emergency market replacement QX will Third, supported our and demand growth. Building early revenue team new factory track us QX, which Mexico presence in to segment. Solutions opening

range. as review delighted X the earnings on guidance guidance GWP QX now, are to our Lastly, to this year the for confidence results more transition. for in fiscal per for Michael we share updated announce provide But refrigerant the later will let's upcoming low Slide a turn us greater call. the in detailed the details give of

upcoming prepared refrigerant the schedule fully are for on and We transition.

have technology Our designs, engineering manufacturing product and finalized. all been processes

product We expected anticipate this XX-plus the new we launches, to currently price time for plan material meet our later in to the new year product, and are transitioning product percent line. shipping GWP refrigerant demand, raw inventory low of to the increase we start facilitate

production low will our this convert we we During factories. manufacturing transition, each line GWP as headwinds face in

approach efficiency. cost will with production reconfiguring factories balance Our to effectively flexibility our

predominantly XXXX in XXXA Looking refrigerant our as foresee year. ahead, we

and shift demand we confident and product of X/X for to our low our end benefit mix well to demand prepared move XXXX, navigate us transition to expect the position capture to share. favorably Ultimately, we into the in we reach product half successfully. in ability also As This approximately this the GWP are will market new market.

to of a become X HVAC of Now an please turn distributor products. to overview Slide initiatives for better our

of service Lennox's XX access a contractor for distributor is outlets than supported digital digital regional coverage geographical Nearly partners are substantial have sales our through over through Lennox know, As you by to residential top-tier XX% North also now dashboard with where more monitoring. in prognosis, HVAC platform, XXX and equipment a distribution our America lennoxpros.com centers. diagnosis

We geographic and parts wallet focus share and our to expanding share accessories. coverage the our greater through by market improve opportunity have on grow

to also our We customer on page rate dealer increase loyalty our The resiliency. core enhanced have increase network changes with will and an and experience. opportunity the X an and fill improved distribution improvements margin this accelerate highlighted growth

First, decentralized aligned organization consistent best distribution that and we better a established have is with practices.

conditions experienced visibility have for better leaders have we have accountable decision-making. who leaders P&Ls both for and led local X are result, regional market sales stores. who by autonomy increased will into a Furthermore, As local established faster regional

are such journey, the and areas seen far. with long-term This In pricing we building management. a operations revenue and early critical addition, we pleased have as thus we is progress our excellence are capabilities distribution in

Second, a that quality ensure have to distribution to improve our of the we service, we structure. growth customer analysis completed network capacity and cost physical optimal sufficient

a demand implementing of also warehouse the system inventory in trend our few and Lennox. with processes, a end-to-end fully benefit to will and us have the we We realize changes. recent far, But our thus throughout pleased and deployment are streamlined modern take It fulfillment years these management rate. digitized are we

across around created company. us to set interactions. we and our have feedback our Third, goals customer established numerical have businesses Net for This charter Promoter practices collect and the customer Score allows

and we that long the improvements in Net are term. that know to delighted results the continue our We will Scores over Promoter the is with this yield are equipment seeing

talent a to we in technology-enabled growth summarize, and this resources investing distributor, support To we are becoming opportunity. are and

that and will there early resiliency. margin results, of this While are growth multiyear promising signs promote a is accelerate endeavor

let you financial who QX take through over performance. Now will Michael, of call details to hand the me the

drivers revenue to results, comments, margins Core share. the offset reflect price growth This benefits. Alok. and Alok's million, Expanding up came growth earnings the XX% the I'm was of million improvement. Please and to on you, the excited $XX QX share only revenue morning, continued increased start also Slide most investment first distribution. Good Thank SG&A X% to inflation of and by and of strong profit from Adjusted record was our segment adjusted an billion, $X a as to year, where partially not earlier price highlight X. acquisition but mix quarter turn everyone. $XX in in per gains and year-over-year AES impressive from main were which

Total certain $X prior adjustments in noncore adjusted will segment Beginning million, previously expenses margin in was considered includes approximately of XX.X%, up our categorized Corporate basis were which adjusted expenses we adjustments. noncore year. XXXX, include previously points XXX earnings. versus $XX million

to quality reduce recurring aims reported. overall which our earnings improves approach of This immaterial or adjustments,

exclude such as significant items restructuring adjusted effects to will Our continue programs. and the earnings business of divestitures nonrecurring

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

financial review continues our can segment. Now let's the of X-step attention to direct Comfort Solutions channel X, down quarter. performance million effects where The Home our declined destocking distribution of volume first Slide our the X% to to Revenue in mid-teens. we the in industry was $XXX feel and

volumes sales with up homebuilding the single as in direct-to-contractor growth low channel new new digits solid starts construction Our were rebounded. have

was still approximately sales. although profit X%, quarter. ongoing points to investments XXXX, half price improvement as of to growth yield second impacted margin The pricing successful we increased in inflation XX distribution in experienced of our also earned and Solutions of $XXX Home the the the are yield Price X% segment well XX.X%, reflecting initiatives million, Comfort by the million and in initiatives execution $X an pricing results progressing basis segment as are well, from

headwinds. challenging mix margins conditions proud given even and we of the market, to increase Overall, end with in volume profit the are our execution

pricing prepared are months launch new product to We low coming the product GWP margins. in new maintains material the gross ensure the and

Slide X% contributed and by this These X% driven The profit Climate our Solutions up gains. best and revenue growth quarter. Climate quarters. and million segment XX%. by quarter, XXX price to in to propelled expanded and volume an by segment the Building from our volume mix X and were basis strong Solutions another grew our XX% Solutions Turning Building was in were delivered revenue X%, points price Building impressive XX% results revenue up in performance growth primarily Climate AES sales many or $XX that Combined quarter. margin acquisition

profit factory expenses. Our for million also our ramp-up results new headwind [ $XX ] reflect Saltillo Mexico

unit Arkansas shows improvement. and volume factory steady supply Despite challenges, Stuttgart, production production ongoing from the chain

we product from Saltillo new launch in we'll and XXXX. the product excited QX Additionally, early early our output are new factory in for low GWP

by Building Solutions achieving our impressed the efforts initiatives team's to Climate be to executing way continue the strong in long-term We for pave targets.

deployment as to were $XX If I to $XX capital $XX Mexico year. used million prepare you we Slide in $X Capital performance we for million cash new quarter the Operating transition new our review quarter. anticipate XXXX, temporary million up GWP year the quarter, now capital Later low strategies. in in factory compared prior and to increases working flow cash in product. our a of the ramp the the was compared will and prior expenditures million X, for decrease the flow will turn Saltillo, to

processes is guidance cash improving flow accounts Concurrently, targets. receivable. free and the focused conversion team year and items are and our reflected generating in both Both payable efficiencies on accounts cash in full long-term

competitiveness Our our the commitment performance marketplace. targeted and strategic enhance and to high in investments ROIC that drives

new showing is products Saltillo as factory transition progress. proceeding mentioned, previously the the and As refrigerant the and new planned positive to

down debt M&A their continue closely in that Net We strategy. bolt-on look prior was EBITDA year. also X.Xx align from X.Xx with the opportunities company at to overreaching adjusted to

remains deployment returns, We repurchases consistent. to expenditure supplement capital opportunities, strong share grow with prioritize to capital and explore with with approach dividends necessary. M&A Our continue earnings, investments when

we committed to Additionally, rating. investment-grade our maintaining are

to Turning Slide XX.

the XXXX year review guidance. full Let's

as provided revenue on outlook performed first as Our our trends last unchanged call conference quarter remains during expected.

approximately few highlights Total revenue I As X%. projected by will the reminder, a increase growth on The to left is guidance revenue revenue company year factors. table reiterate points. full a

a growth volumes positive. Climate flat stable Solutions price are expected Price revenue from and increase Building Home price/cost We also and expect ensure to solutions. will sales we mid-single-digit Comfort remain a drive for with increases mix where slight

$XX are previously As $XX. range a earnings first to to we quarter from our per strong year $XX of profit performance, of share guidance the also our $XX.XX result revising guided to full

million Our mid-single refrigerant our be remain million. ] unchanged Component R-XXXA large to unchanged. assumptions acquire cost Those cost free and cost also increases in and at cash anticipated recent product remains up prices. in flow including to $XXX inflation [ $XXX commodity guidance inflation other is to digits

reduction SG&A $X approximately offset programs. cost partially this new costs along with anticipate million We be with pressures cost material million facilities. comfort of expect home increase $XX to We associated year, factory, Saltillo a by the result Mexico inflationary to for ramp-up $XX million the inflation across approximately solutions investments. both refrigerant and transition our manufacturing expenses are of expected to the in

customer resources on focused are initiatives. growth system service, investments distribution to improve and information Our advancements

expense Interest investments be long-term also still and be sales at million. and tax million to both marketing expected targets. unchanged to will Capital XX%. is in $XX our remain growth approximately be our expected making is approximately We expenditures rate $XXX support to

for With please I'll turn back Alok end to that, it and Slide an markets. of overview turn XX, to

see On XX, our end through. replace went Michael. dynamic both segments, I markets amidst Within construction, that Comfort we have guidance residential Thank to will Home Solutions you, we the consumer Slide Nevertheless, resiliency. the just the segment, continue to outlook macro share a full our uncertainties. signaling new year for rebound versus which closely monitor health Michael in started align repair with on

levels. We are pleased distributor normal near inventory to see to return

EPA introduction GWP management manufacturing refrigerant and dealers cutoff ambiguity does for the of updates and product inventory However, dates, distributors. add component pending new on low

project come this of in new from the With new year. we expect of said, deceleration most towards that of segment, that Solutions year's RXXXA construction the this still end products delays. product adoption accompanied sales the Building with to Transitioning anticipate Climate RXXXB will potential limited by we

remained new grid driven to as from However, order need in backlog by services. team our significant interest highlight Insights Account National replacements strong for increased replacement as rates our a and demand. Services upcoming pent-up well [indiscernible]

Our market volume will and market. expansion PCS be in the in factory driven Saltillo segment from prospects the by our new Mexico replacement the share emergency

cautiously remains made in acquisition. with offerings possible outlook to new this our national are accounts our securing We the integrated additional also AES optimistic. for due Overall, year wins

success product value regulatory anticipate shareholders. proactive optimizing pricing our gain. remains potential and during uncertain, Lennox's driving market exceptional in that at we and acknowledge our customers record track transitions, aimed but and market strategies Given delivering growth new are We margins to the benefit share from of confident we

that We do items and we action by controllables can this on drive. focusing

to turn please XX. Slide Now

the customer execution to investments and continue As strategic implement foundation optimize growth pricing opportunity strategy, consistency fourth, a finally, behaviors, and continue and investment second, first, demand; our Lennox confident will by go-to-market The technology remain great operates advancement of leveraging at a our support to continued margins, serves innovation will high-performance values customers and innovative processes, solutions through on effectiveness our evaluate we unified growth had system, is: recap, strategy; consistently to and focus third, management as demonstrates team's improve reasons forefront margins we with our markets, technological practices talent. focus customers; network; our a teams best Lennox to make our the to remain X our in increase of productivity is direct-to-dealer we end the leverage Lennox resilient able Lennox remain streamline to execute for will be guiding advanced our and core culture. a in high-performance enable be

looking accomplish, lies us. dedicated by our saying We'll team of go employees still of with Q&A. questions promising valued are structure have you Our our Thank the the all ahead shareholders. interest been that you. customers. to that future to me Lennox each up proud to happy I'm I'm Allow and to best pay-for-performance incentive we able further of of wrap thank Savannah, to ahead of let's our to talents the take as forward aligns your our now. days be and of

[Operator Instructions]

question first from come will Tommy with Stephens. Moll our And

follow-up Alok, I with on network. comments wanted the a to distribution made you regarding strengthening start the

think, us slide a are, introduced. X think There I lot points the gave on You that about. to different you

for multiyear our frame of we or elsewhere context. what technology question early of us, extent behind very is this clarified You look can progress my you And to and if effort on signs those a efforts? whether or it's all where focus where so were the helpful to investments, you should year would quantify you focus and attention there in personnel, some

Tommy, year-over-year. as SG&A up QX so on investment the you side, is see, our

The our talking right? There Among numbers, so about -- our part are the are of X guidance [indiscernible] of training, buckets that classic already in that X, Hence, a in blame this investments is I we're and large you to get And the X, are I rate already McKinsey but on terms anything -- Promoter else. Net are indicators progress my would not in our Score, or be share X McKinsey that. market of would which in And seeing around fulfillment on indicators background and solid things both we gain. both our customers early are of focus

numbers kind that see point will there, of pricing in is do anyway. which but out Third excellence, thing embedded is you we in our

what The at where don't I is about talk rate. is significant the amount X, detail, we but internally monitor that's first of publicly, in where looking and our NPS fulfillment

That's helpful.

bogey us additional what what for point, just related regarding wanted a you the seasonality detail Any would I isn't convention for midpoint. then probably half, the helpful. mentioned right expense is corporate And raised you For guidance EPS half? think for still the follow-up, a a can be provide, just can included give to year for to Is refresh there. -- on if assuming especially ask this second it here? you you Michael a XX-XX and first goes on Michael, the the could us about clarifications one versus you're way to couple

Sure. Yes.

we've So seasonality on is perspective, from think about the XX% QX mentioned we perspective, of the a the from already year. revenue that revenue

for we've half about a the is we perspective. had asbestos XX%. That's that expense, some unique second First is items corporate, environmental XX%, half on in revenue included previously, And about litigation. then now items from litigation,

this just of adjusted small noisy was year. last immaterial and our we've that somewhat So it moved these into are year of kind now were about that items items recurring, $X.XX earnings

So that would be...

just pick back you on. could I If

Sorry, go ahead, Tommy.

to say, Yes. going I Michael. was

from would I hearing year last you unfavorable year. that item this to So correctly? Am $X.XX a be

which a it's are are, expenses about those generally XX% yes, they flat, headwind. Yes. we think If

it. Okay. Got

Sorry, Alok.

we did to Yes, that Tommy, improve our are only They and became of think more saying I we the items. we items, onetime small. just exclude these items extraordinary should quality earnings. mean recurring,

good this opportunity So become this items, bit as many was recurring all cleanup these was a had for a past just role came because this into a of to which years. take Michael

KeyBanc. will come from question Hammond next Our Jeff with

Maybe residential. about just talk to me

out You negative called mix.

on to kind kind on go of recently. weaker XQ, the you a industry selling just on change there. I understand on of into noted our given kind season, kind what's of discernible replace What repair, because the And are more seeing we we the checks XQ, want of going in what's volumes for So as lean year?

now Sure. replacement. the which us back, construction, If lower mix margin that subdued part. to I is is residential just last you're to start on we for year first referring compared and sat new could the and The mix coming was that's

out So calling that's that noticed. of were impact mix we've we kind the

think I on replacement, checks, our still versus your which we've kind jury talked of which read I dealers out. dealer. repair country channel I've the the part of the On and mean, is to depends

haven't sales we anyway. any part distributors But life in forward. Then sales, robustly equipment We may to way dealers call be optimistic of one repair change not economical wouldn't significant probably remain out. on to most the equipment but versus be noticed would that first pretty the the our that overall move the other where notice

So I as call-out clearly but might mentioned possibility as worse. that's anything, consumer a noticed haven't that we because health get a

I on you just greater refrigerant then the out think than And XX%. transition in presentation called Okay. pricing, the

year? refrigerant XX% you seeing XX%. you been there anything than think get changed Has really when saying maybe I what then other from just this pricing to drive that? that might timing you've And prices of XXXA are changes

Sure.

X over we pricing, the that process. times We implemented Nothing has changed really to has about in 'XX been price but increase have So think and we is the we said we -- Last the nothing enough, already pricing be so it changed. of and year, first we mid-QX that have going I few will years the statement that XX% was 'XX. that increases made fourth part and have they're on because one, 'XX, price clear XXX a if increased see impact. talked not in may for

remaining the XX%. So is

want just clarify Nothing to I years. has just It was X So that. over changed.

talking X year. we're about Now

think pricing, XXXA is I On mixed. the picture

our actual end be And XXXA the we that's we fair, selling to hasn't are almost think changed pricing on I less But still to price that think flat. is the ramp-up from that it's going move. we product than and our expected, year. this perspective,

Ryan we have Next, question Blair. William Merkel from a with

on Alok, ask quarter. I the to also the on Congrats wanted HOL.

the Just from ]. [ in XX% XX% to HX 'XX

right is the can Or Just little the increase, resi bit why is commercial? is a that price then you And clarify, the is number? both that and commercial XX%, less? potentially

So add of some to And to going ballpark the what you a I need XX% and within on be you significant [indiscernible] seeing into built and both next sensors that components We from this the that you're can probably the year. think first, of XX%. I'll also year XX%, price to sell we're higher, EPA compression have technology. were we why then XXXA are the Then in systems in same think of in that increase. the of our not if kind bit the the factory carryover is have, guidance, next it's able going mean to products investments a year. sold it's year be next

are the those XXXB think adoption of going next of we to the XX% XX% combined and year refrigerant then product. to be the market new would X balance the be So

it. Got

on then also ask I helpful. just And to and That's wanted resi Okay. trends.

that I you digits, some of there's quarter, cadence X% destock, think weather are resi rest Are March, but single low wasn't for the up the in great. I thinking volumes is the right first the way? volume realize but just down the So

Yes.

a but rest the year to low our the guidance, would on indirect the of digits, you the If kind year. slightly stronger of look implied side, the you balance little kind up flat kind sell-through balance had single at of be of the of for

And starting the for of much are that's mostly seeing easier destocking. indirect. we comps The end and get QX,

hear Ritchie from with Joe And Sachs. next, Goldman will we

just given kind on based question, coming maybe market just just what's start publicly could some soon M&A are I'll there the there to that of out on yes, been So disclosed. just assets appetite be

bit your little going forward. about and what you're looking in for M&A currently So transactions appetite talk a potential

I regulatory talked we because think that good a there, we GCI changed you Lucas, nothing reemphasize has our I and need when that's believe Sure. I you it friend, just same be mostly consolidation Investor QX. kind Relations pretty mean, in now perspective, to scale more articles but really successful. that. of lot. industry as read. accelerate, read good, the changes like is my is leader Jim closely, do to compared to guys And from We the But about follow I especially Jim if

focused for From and we of have is making interest execute our is perspective, that the we strong rumored sale past us. very asset either. the we have be on been on path this hasn't a in appropriately, What public changed to sure are we about ahead that very

through pricing opportunities as we create become significant working refrigerant have we Our volume improve on an share X-year to we of opportunity our plan value big kind is through new ongoing and much to long-term the targets. And for execute through have and changes. successfully us going our pipeline bolt-on huge about a basis so gain well. a as factory, There's the better of talked commercial excellence distributor

specific we a very compete evaluate come process, we and good feel So to we opportunity that the any about they position can't sufficient scale have are talk by. in and while we

That's you Alok. to just question Michael, comment maybe back super for made. going My helpful, follow-up that that seasonality

of specifically. fo think cadence curious the just of as you Just kind XQ

You the destocking to guys comps. because an kind better year Shouldn't you're this is seems slightly lapping -- like end. destocking be it of coming seasonality

would be around any commentary helpful. Just that

Yes.

think I still though in markets end the there's on uncertainty, some the sell-through.

here It's QX. for the we're quarter. see the watch We'll in think where cold to goes within of I rest it Dallas. trying weather

I could think the some still first appropriate. think seems weather there's I the the go. So of sales XX% concerns where half in on But

concerns worry I'm just have longer say, downside. a wait don't leaders And about and until we And "hey, your been out Yes. to here whether the who for upside want next new call away. term, industry. revenue week." I business to might whenever for go or whether

make significantly bigger of quarter, So still than early a June portion April in does. and the sales May up our

will come UBS. from Our Damian Karas next question with

for a is Thanks going end the the time this now. few confidence just that last we've ask to we're hear as to quarter? detail hearing quarters far. the of so destocking about in this What's a about your all the been have thus I -- for this headwind driving

wrong it as been got We keep answer likely so we've ending the a going earlier, mind QX. talked to And Well, before, we've that got by sense about to is in and question. that I then continue. signaled in QX, we we

As such so terms coils, in we and coal leading the typically go and in indicators, those those, when make we we look up. at things to mine to of the canary as first universal down coils go first are sell

lines those distributors. went with them addition, we we sell had our in product conversations coming in look a and I when at up, first lines that those back product good down and march So sales, pretty on

But the So we points. be those data X were would listen, before. wrong

think But time, that again. we maybe supports have wrong So would be data I this it. more much

of still then you're different kind book-to-bill kind about national guys talents talked markets, that's bit little for solid mergence of end thinking what replacement, Could orders just you give stable, BCS. a a you going you're forward. how seeing versus and And in about have maybe unpacked us sense how maybe

Sure.

we think like complexes. things our If apartment you don't presence, and office do large about remember, buildings multistory

are are those national we is of we are slowing any in good or I'd of of momentum boxes big what's and be were limited, large year more and constraints be exposure others. to whether a accounts, seeing single-story The the areas, really on slow kind replacement what as to exciting, building type our us. we continue lot perspective, is demand see So and supply and which in from behind that's that last

they Lead the out across savings in to folks are the the and the times especially investments, particularly the and are going industry, willing of more get given equipment. are energy new to normalizing put carbon

us. matter into trends so and gain, half are our dealers, our back. getting when market the to make our share The don't On progress emergency all lot dropped has we'll in accounts traditional replacement, I gets low year progress traditional making share second second in a it's factory mean back good more up and our running. and the of really about we

behind So trend. talked and that's majority of overall sales, order of what rates. a driving kind we strong, be which strong Replacement, in that's our continues of about is vast terms to

next with question from come our will Noah And Kaye Oppenheimer.

little appreciate in so more is of that the well mix, to price of less color that It unpack what dollar increases, across more for a wanted drives of commercial resi sounds bit benefit mix Just segments implied like like the than mathematically a the segments. outlook the the balance year primarily the price price on just the the on but would side, as kind as color for year. mix balance of

Yes.

partial in price February price yield we So within yield that the of increases for announced but into March. only a pretty and some the X%, was good we had quarter, of that

to don't going the up see side. So I carryover we're mix pick new to more bit on expect QX. did the continue and it pricing in also like a little construction

then continued second later in that that, get we year. carryover half not of the within see the guide. to XXXB the think pricing this much the products favorable just really we'll from within And of the benefit also some the in the minimum it's overall, products moderate we HCS. efficiency late start to year, a So as But maybe will mix year, minor for very SEER

some did guide, that BCS the year. we increases lapping a really big it's price we're last where story similar On

as of So get price of that in some first a will the the increases then quarters lot well. more quarter year that segment you as that see that in we moderate this announced we in later

the guys will And then I like refrigerant view on look a year. the you side mix next really taking on what appreciate

is have to this much for build to Just how channel certainly headwind quantify inventory possible that going obviously year that cutoff a is date. it the for because working to of the you're direct capital before

Yes. There's X capital build. inventory working on we're in It's this that year. focused things

Mexico. in help new additional first raw materials The to some building transition factory the solutions is climate

into piece depending on that's year, on of prebuild years to market other end a segment and through And also then do the is the it can next of unitary year. demand continue of So BCS R-XXXA is carry have XXXA and sell be going residential some a side that to the we then through. X to to that's to rooftops side that going this how for end build we it. systems then But on the

or BCS or on the So XXXA few we sure -- product. a have sufficient want year cover to we continued of make years so to volume demand next the for

that to million of going about So we're all year. up have inventory $XX this to add adds that to

Mizuho. comes with question Brett next Our from Linzey

I wanted really half about the revenue utilization second coming way come phase back or And building new into and produced? next to how in levels a factory capacity does how ramp the the of dimension should up units online, thinking that to then through year? segment commercial to terms and the

From but a produced, shared units we targets, have haven't internal we that externally.

to want don't capacity. got about We the footage did years over enough think I So the or talk happens we term, over square X I to double we go long there. that that more. mean,

a at capacity at perhaps line XX% time. maybe up of think slowly one So ramped max

we But way I think cases, and conditions. at that's production of move balance We'll new And to it. between factory. market will prudent. factory be So think obviously the the some look kind about in existing clearly, one it can and

ground way at investments to materializes. put to in those one to machines the We've double haven't we'll but space we the be got that, do full as put in to demand look going enough But it. capacity. the that's So

refrigerant composition units again it. just Got to next guess is the And pricing less Okay. step to is the come I on back it reasonable the sense. reduced, supply the legacy dealing old think the also wanted to year new supply? of year. as needs refrigerant forecast to Makes products next as you're the on then up with

Yes.

the demand. cost could As year do, which a price price and XXXB next where go It XX% monitoring the always the increase we will that, to come the and large out significantly. expect we product. on that new another that on year next we're with pretty the have we'll of of a to increase for there goes similar up, increase gas But up be depending also XXXA

with that the the is will to factory inefficiencies the go cost And expect. complex and also XXXA older down manufacturing in that going at has more be to because XXXA units we higher manufacturing got the mind keep associated for be volume

Next Julian with question from come Mitchell Barclays. will

thanks the quality. for effort earnings to improve And

I think other commentary most in companies question and are so half held the and the -- Maybe been the sort be would around second quarter ongoing around of forth. the my direction. first first

When those items year, we're XX%, whether about $X.X would around color and any that XX the plant QX XX-XX sort here about the million and sort absorption of that just this because profile. Mexico cost those sort different sequential leverage. if out any you based to of sales, of sort quarter be of got XX% had half say, second or you've of for call forth. figure Maybe thereabout leverage suppose, how sequential play so starting on you've thinking the split. million with So billion of X second in fixed Classically, the just phasing margin just of, ATL wondered ramp-up that first I quarter from operating or out? the I headwinds

Yes, as as the transition XXXB the to in additional new to well there make going first fully starting that in commercial be product they're in to start investments weren't will impacted quarter the predominantly the to new HCS. quarter second some launching factory

repeat cost quarter. or third Additionally, be margins not first second in also the so we will the a overall, onetime of and of next for adjustments, a quarter. into there weren't benefit within warranty increases that the that had year within But the coming some quarters for will bit QX next kind

it. Got

Okay.

offsets leverage, specifically. year some maybe with sort of decent this still So but

get costs Correct. to we're product that transition the need going Yes, to some to ramp-up ready.

implied had revenue to thoughts thrust XX% that in that BCS tailwind point put I construction you later sort up vertical? could or the point, delays, And then on from starts seeing at really, Maybe that a Alok question Maybe expire. delays conservatism? seems on see guess more project or on decline could question, some growth that circling of that education vertical asset cautious the Alok, is the in really BCS the my the pure second the And sort division. the project any if is is little finer readings. back Certainly, think, just and anything education in is broadly of bit things project year year? ABI I an delays a expectation aspect XX%, just like the the to of the what Or we're an tone, we is happen to quarter, and there that? in new first aspect, Is like updated those you of segment something more

on last easy Sure. we in Julien, be is and biggest had compared were to fairly I X guess, year. conservative we factors that to second, like we QX where the comps

remain I'll capacity On side, by demand constrained. start production we demand saying not or constrained, manufacturing the

keep yes, because us it but portion year. had constrained us. was today, benefits it's it impact are that for answer just right again, our Education XX%, project right to the The being actually that is, and continues this sales. vertical, hold new it's XX% of was our have push demand an needed other that the now to to XX% to for versus some in not the mind last XX% year, replacement, supply in it out of of a a mover as sales our But issue only last year, because really is all different happening all does impacts left call but So here. that about we may I sales nor points construction that about constraint not material

it really us. So impact doesn't

like whether where and units is to and for factory our in is things pinning what comps you closer rates because about Julina. conservatism built to XX asked goes are Many The biggest order there way life. That's some box it's no on beyond others, of optimism big they rooftop, the that is But age of driver perfectly, units, and are years the lag easier useful of drives XX the XX. delta the them startup useful a forward. the the optimism officially going

startups As there. you here always or issues have factory know, some

get of So we ourselves. to want didn't ahead just

O'Dea come Our next question Fargo. Joe will with Wells from

both it as efforts, a to had with The in which to in question that's the of sort what pricing engaged outcome Just of matter result. and pricing pricing relative result, of you of I the the related maybe and to what is pricing overall, P&L. market pricing you it is to in, strategy, you're related below consultants degree side implemented kind First market? just are which on that, you degree changes And we were the inning the question a and where of market things and net BCS, sort you're of just complete, HCS on have pricing think see those was a above a to being? you as in see

we we in price I tell signed that. say are key have we but we fourth is, inflation accounts after pre-COVID the were the you Where and market have I many did where and yes, our the or not it's of it, click to of that in inning below are contracts in just right you clauses tornado third baseball, have inning, since If would now. probably first we

a to were portion sales up level. still to cases, process definitely large and below market our their in market get some was there So the we where of

of a So that. I think big that's part

giving Pricing there autonomy get different adjusted, There local then thing very pricing pricing no than that, in the the pricing is national part of we as and a such we in national an to which to is leaders around do pricing. North. is used extent is second South to realize

will pricing and pricing through more be greater going to be just by able So on capture there's upside that. having localized that excellence to we working

continuing ahead because of people of think to inflation pricing The and third aspect simply has inflation around pricing it's not. away, capture is us gone

during and margin the get lost channel SG&A work inflation, all SG&A. with inflation and need just because to not customers of increases transition inflation the all labor, it's whether impact price COVID and our do So price continues during we us, or as make impacts we to materials behind the we and tornado, fact that sure partners points ahead of or that we

and some the some cases. So say took on far, but of key so are accounts aspects, but and gotten price than market, halfway in pleased to complete, less progress market especially would those still closer I with we the pleased with actions we are X below

right then opportunity? taking pursue the comfortable about if the of to Got it. Xx to itself, about leverage target out wanted to were M&A there, opportunity set and in you ask And range leverage when you on to also the X.Xx. how long-term that a opportunity present you just are talked think leverage But type high

to and X.Xx. increase go grade above key to opportunity X%, investment to up we'd that term back quickly right initial maintaining want key. X%. That's X the of materialize, the is After to maybe little But If over a near the ratings. kind get X then that

with next Markets. RBC Deane Our from question will come Dray Capital

cricket to just in sense, appreciate that this no what not in million $XX us the analogies from a pressurization, Yes, I a is you're would higher refrigerants the conversion, are a actual new line is the give assumption? over be? $X adding the is idea what the some disruptive new is a line you're you that that to just Is is -- how just clarify, that And standpoint, Alok how us any disruptive And give facility. about. on because million to sense going to of this the this use manufacturing have Is I there change Mexico it logistics testing? the talking standpoint, might components? And to technology new

Sure.

start-up we then is from So called The inefficiencies out pretty Mexico to $X big. XXXB. called is change auto the transitioning additional XXXA two residential million we One million to out. on inefficiencies. inefficiencies of the And $XX for

which that the flammable. sure mildly make refrigerant, is to have are we handling We appropriately new

of might DOT product change classification piping, different best regulations, different So when storage, cases. The compressors chambers. it different different different new. requires to it [indiscernible] size a some so the it has are testing, in comes long

pretty we're but used change, big fairly it. a it's to So

ready. very starting not This are We is now.

A year. lot of last these started changes

new line test example, been We're you already and new if today, start refrigerants already runs the doing already the make in we facility. for in storage needed would. to products tanks the So

product already test and floor down make core we all of on it. investments a costs the the So now. the of restart while efficiencies. be the of That's inefficiency kind that lines the source for the changes, few simply shutting then out are weeks of kind Most we called would

out And of were the mean, my that something. to as gosh, we spend no I and close "Oh eliminations, There was time I'll morning we for and weren't follow-up Michael, missing earnings. any company quality to to helpful. add shot this conclusion. follow. question that my as gap real That's is then for we the I said, the also doublecheck had some this

So thank you.

you, Dean, listening were I when Chelsey you challenge. as a your took and at that conference, to we fold and that

start to it mentioned that your So you I. at and Chelsey when did conference

of And cash yourself still a got you've buffer supply you color there as Is then use. of buildup, All a quarter said does chain where helpful. all Have got flow. coming more ourselves was dynamics additional that question free it less What but a appreciate so but inventory some with down, is that. that's inventory this we -- We there? the buffer are build on a you I read mundane all And the would from inventory I've distance some first issues? right. know typically use, winding entirely? be

Yes.

raw we chains side, are are higher inventories down drifting better our still yes, than healing. as are supply the material They like. On

that to getting half of to year. ramp second better. have be guide million. element inventory about higher we So normal CapEx. also new second our than they a bit that we're -- down, in up a the rebuild start and going of is free Normally, have to we're for within But start this flow going we $XXX to year Building And the to to the some we're another It's half in grow transition factory. to but year raw about guide. later that grow are inventory XXXA CapEx we for is But yes, grow of Solutions will million that is going have coming overall to them and little new cash this Climate bit the this of going $XXX this the

ready transition to go. that half factory XXXB new in product there's more to the and of going be get complete ramp-up see our can second to to the the You the

next Our Bank. Deutsche question with will come DeBlase Nicole from

a this through quarter. the on guess and of thing the takes year from XQ really year? rest commercial just the the is of continue and have how margins, to Thinking how gets the obviously, I do first expand all XQ. guess the through guys you conviction can strong you that much really, rest through through puts harder again to lot year-on-year margins comp the I

Yes.

we X% do excellence. So announced to we've And pricing QX. continue up in to increase price

lap in with to to So guide digits challenging. year. That to XX% now, the up Right going more little increase, single to even balance of a continue some price drive though going we're going the low our is the volumes which to it's comps, kind are be normally comes flattish of of incrementals.

So working up. that we should headwinds to that the factory new little against that a of return help then as up But ramp margins higher. drive bit our have that sales, profit operating on

So factory the absent still moving up. ramp, of margins modestly we see

And like and on. could be of your Can recently. concern costs potentially when something Okay. P&L? or then at us to That's XXXX Would it. on point we've this rising more copper just impact that a you aluminum seen that refresh focus helpful. Got

Yes.

starting That's a also lag. on That immediate. process. up. are It's that an XX-month increases through steel a hedging of blended goes aluminum more of and is see to kind kind we come process. So quarterly copper The hedging

see of next it pricing in it continues elevated, new need well. if XXXB on have year product, it will but start of we'll later see continue monitor We'll Force as year to reflective to year, would pricing So the this that. the be type year. some next NA to definitely, this what into If we'll pricing and that that come to do. actions we stays But into

And with JPMorgan. come our from next Steve question will Tusa

and you mix February. then Allied you rest guys believe, and the Can of maybe in help of the reconcile January mean price the me business through, early just some in dynamics. was X I I put had

quarter. was I like think increases. price the in X% they Price of were XX% upwards up

the negative was that mix. your just of me the X% through mix what quarter maybe reconcile accelerate that? then help gets price basically rest So basically with to for And year. mean the I

of So data points reconcile maybe the mid-single-digit guidance? just with kind those help me

Specifically pricing. speak to the

on the quarter, a had price partial within the quarter So increase. we only

we February. on starting the announced Lennox So brand

that So side. get fully the even Lennox seeing a didn't through month on about way all the February,

also throughout some our continue some that activity were the -- as of then should that So also just also the price we and year increase we on And large builder Lennox. on was go those normal quarter. partial PE contracts a had on flow to increases of

year. expand you'll start in later to also So see the that

the that if that on But assuming On does. mix going RNC construction think it going But to to help that should right is new the we're the mix basically slows side, so down watching see it now, we mix side. that, continue, forward. we're don't

mix the is So mix by that business type replace. like for number a negative sales put That's new that mix that in driven what construction versus you of reflects. there, X% like mix

yes. quarter, Within correct, the

have like you're accounted customer the selling to? didn't always I the -- the thought I more was to opposed for of [indiscernible] you product as guys it of that way? about level type that

product that they think Well, of if you do products. normally sea it entry-level type the within level customer, is a

one. part types the mix doing the both. Steve, always way. driver largest we from are change. products for because out same mix has year, So of mix CRX But that called us, a of RMC we product of was the older it's going been newer it wanted we're to Last CR kind and as the standards that

right? over relatively change should next several guess, next really change, not Mix going over I that's several remain that quarters? new I Or the Right. does focused? the mix but to quarters, construction guess,

down. had starts housing gone new as Well,

low. I think QX last abnormally year was

So we year. I ourselves that start impacting, comping out We're right? had last both dip think of the

had think was you do I up, mid- -- estimation? your you think, you how to the looked guess, to pretty market do than in high Got it. relative the guys commercial. little some single That as a strong. the you think volume commercial people what you What did obviously market perform is data, last quarter? And this What which narrow on did? define HRI I I more that guys a market. mean did digits. one then do that one light just And

the in winning Our some but think than that within gains, reported X%. declines up within grew HRI the rooftops quarter, we the quarter that share. refrigeration our rooftop were units we of [ We down HRI some back more had the faster volume were taking than ] some on

you Yes. it. portion a compared compare can gets entire of saying And take that. Michael only segment to segment and is our our

or equal the did AHRI we better So data. than

Gautam from TD Khanna Cowen. comes question with Next

questions. had a of I couple

channel that an First, trends the was wondering third-party in Can end. April, about that talk in to about might you your inform destocking April coming talked conviction? in and channel you maybe order how

Yes.

call the seeing already having what is in are we the we towards that are April. of of reflective April, end conviction Given

So remain that destocking end. we coming the an is to convinced

that Do of unit be in quarter volumes? the channel anticipate second still you down to in terms

QX. channel I would in to that in up No. volume be expect unit

-- that's I year-to-year. And assuming irrespective weather Okay. mean, big not variable a is

April. don't in get going call wear just I do to I'm want listen, Yes. but because sweatshirt out to weather, a I Texas in nervous

you. Got

demand you talk as about the have could capacity comes online. you if you'll wondering was the I think Mexican Okay. new

not maybe So the if to or could been customers commercial may you able about business you that talk on accommodate side. have

that capacity big commercial So run demand What you'll people you because soften gives be conviction a fulfill concerned get unitary able after up of COVID. about starting obviously, that time? to over to

Yes.

So listen, great question.

While there certainties. no are

what what we higher rates our and turning and at, are manufacture, can look I to that order we we still we would be away businesses than know right? Here's not. mean we rather continue

at, for been out to way that's looking just are X years and we that's So X going internal now.

it that's one. [indiscernible] don't So put it but might, tomorrow,

out know Second, to leveraging emergency part the Lennox had that, that's that do longer our will is in back that be delayed we And working be replacement they start emergency will around global team with go with key have of products them the refrigerants and conversations lower adding towards talked replacement of replacement some to and because to because working contractors made that significant to it investments it's we investments replacement. able products dealers we're market. potential we contractors adding that the whom in XXXB when especially of And core to or push want them preparing lost our and about some and finally, some comes XXXB accounts rated. sales cases, be and had having

that So get as for carbon they well. credits some

there But and mean, made multiple kind investments and pull accounts time, goes conversations demand with So have at to rate lots running in factory factors current our our drumming in down overcapacity. to of lots the forward. current that we same extra up is key I of

in And us fully case that got and going we in through, lots into numbers is demand and super what to we flexibility forward. So come flexibility where our produce. of baked we've the produce exciting also doesn't

helpful. That's one And last for me.

more to On ultimately that divest pursuing? sale, assets just it, we whatever. what JCI and for -- were that Or entertain? got you unitary whatever stuff. sell that we too curious how guys the the resi or if you much you is worth once, want because then something pull hear not complexity for is they're then York that embedded interest other of it in an selling, therefore guys it I'm it in If -- would there assets you expressed were have

else you to company, ] going we something strategy think don't that's And HVAC/R don't And [ comment just Yes, that's want be on on what and going do is our sure. mean working. HVAC. becomes on we available. other opportunistically No, focused I I I that's to change because I'll are an we fair. but to that. Again, company, focused tell are

We us [indiscernible] have pathway very execution But for we'll see ahead on We the just scale. doing end. business our focused. remain a strong

that's North correct? just American HVAC, clear, to And be

And as looking heat market. say the that exports do We as we would a are do I overseas. we being use, well. primary American at technology pump of from the HVAC North get No, we lot

As that. hundreds already we in you of of have millions know, sales

no questions, With And conclude XXXX Quarter the this Conference joining today. thank Call. further for you will us First Lennox's

disconnect time. at may your this lines You