Release Date: October 23, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Lennox International Inc (LII, Financial) reported a record quarter with double-digit revenue growth and an operating margin exceeding 20%.
- Core revenue grew by 15%, and adjusted earnings per share increased by 24% to $6.68.
- The company generated $452 million in operating cash flow, a 44% increase over the same quarter last year.
- Both Home Comfort Solutions (HCS) and Building Climate Solutions (BCS) segments achieved 15% revenue growth.
- Lennox International Inc (LII) raised its 2024 EPS guidance range to $20.75 to $21, reflecting confidence in continued strong performance.
Negative Points
- The transition to new R-454B products is expected to continue causing manufacturing cost headwinds into the first quarter of next year.
- The Building Climate Solutions segment faced manufacturing challenges and new factory ramp-up inefficiencies that limited production output.
- There are anticipated inflationary pressures for both commodities and component costs, as well as increases in healthcare and employee benefit costs.
- The company is cautious about potential shifts in consumer behavior towards more value-tiered products, which may negatively impact mix.
- Lennox International Inc (LII) anticipates destocking in the first half of 2025 as distributors sell through R-410A prebuy inventory.
Q & A Highlights
Q: Can you clarify the pricing and mix tailwind for the A2L transition and your confidence in achieving it?
A: Alok Maskara, CEO: Both the magnitude of the pricing/mix tailwind and our confidence in achieving it remain unchanged. Additionally, we are more confident in gaining competitive share during this regulatory transition.
Q: What are your assumptions for the 65% A2L adoption next year, and is the risk to the upside or downside?
A: Alok Maskara, CEO: The risk is balanced around the 65% figure. If it's lower, it could be due to more prebuy of 410A; if higher, it might be because competitors are already out of 410A inventory.
Q: Can you discuss the market share dynamics and how much share Lennox has gained or lost over time?
A: Alok Maskara, CEO: We have reversed previous share losses and are on a positive trajectory. We aim to retain the captured share, especially as competitors replenish their inventory.
Q: How do you view the impact of the prebuy on Q3 and the first half of 2025?
A: Alok Maskara, CEO: The end of destocking and beginning of restocking were the largest contributors to Q3. Prebuy may have had a minor impact towards the end of the quarter. We expect some depletion of prebuy in Q1 2025, with carryover into Q2.
Q: What are your expectations for industry volumes next year, considering prebuy and other factors?
A: Alok Maskara, CEO: We expect industry volumes to be flat to slightly up next year, driven by ongoing trends, unit age, and repair versus replace dynamics. Interest rates will also influence this.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
