Lennox Caps Year of Record Revenue
Strong growth and profitability outlook for 2019
DALLAS — Lennox Intl. Inc. reported fourth-quarter and full-year 2018 results. All comparisons are to the prior-year period. The company's tornado references relate to the July 2018 tornado damage at a residential manufacturing facility in Iowa. Adjusted revenue and profit exclude the non-core refrigeration businesses divested in 2018 for Australia, Asia, and South America. In 2019, the company plans to divest its Kysor Warren business within its refrigeration segment and is currently targeting to close the sale in the first quarter.
For the fourth quarter, generally accepted accounting principles (GAAP) and adjusted revenue was $844 million. GAAP revenue was down 5 percent, including the impact from divestitures and the tornado. At constant currency, GAAP revenue was down 4 percent. GAAP operating income was a fourth-quarter record $116 million, up 12 percent. GAAP earnings per share from continuing operations was a fourth-quarter record $1.86, up 82 percent.
Adjusted revenue, excluding the impact from divestitures, was up slightly in the fourth quarter. At constant currency, adjusted revenue was up 1 percent. The tornado had a negative 8 percent impact on revenue growth in the quarter. Total segment profit increased 7 percent to a fourth-quarter record $110 million, and total segment margin expanded 70 basis points to a fourth-quarter record 13.0 percent. Adjusted earnings per share from continuing operations rose 18 percent to a fourth-quarter record $1.93.
For the full year, revenue was a record $3.88 billion on a GAAP basis, up 1 percent, including the impact from divestitures and the tornado. Foreign exchange was neutral to revenue. GAAP operating income was a record $510 million, up 3 percent. GAAP earnings per share from continuing operations was a record $8.77, up 22 percent.
Adjusted revenue for the full year, excluding the impact from divestitures, was $3.81 billion, up 4 percent. The tornado had a negative 3 percent impact on revenue growth for the full year. Foreign exchange was neutral to revenue. Total segment profit increased 6 percent to a record $540 million, and total segment margin expanded 30 basis points to a record 14.2 percent. Adjusted earnings per share from continuing operations rose 20 percent to a record $9.42 for the full year.
"Lennox Intl. posted a record year for revenue, profitability, and cash generation in 2018 while working through the challenges from tornado damage at a large manufacturing facility and further focusing our business portfolio with refrigeration divestitures in Australia, Asia and South America," said Todd Bluedorn, chairman and CEO, Lennox. "We plan another divestiture in 2019 with the sale of the Kysor Warren business within our refrigeration segment to focus on our businesses that have strong market positions and fit our growth profile.
"In the fourth quarter, residential reported tornado-impacted financial results of revenue down 3 percent, segment margin up 170 basis points to 17.7 percent, and segment profit up 7 percent,” he continued. “Residential revenue had $69 million of tornado impact in the fourth quarter, a 14 percent hit to top-line growth. Segment profit had $40 million of negative tornado impact in the fourth quarter, partially offset by $27 million of insurance proceeds received for third-quarter lost profits. We continue to expect fourth-quarter 2018 and 2019 lost profits from business interruption to be fully offset by insurance proceeds in 2019.
In Commercial, revenue set a new fourth-quarter high and was up 9 percent at constant currency on strong and broad growth in North America. Segment margin declined 240 basis points in the fourth quarter and profit was down 7 percent, primarily from the timing of other product costs in the quarter, as well as labor inefficiencies and lower factory productivity.
In Refrigeration for the fourth quarter, revenue at constant currency was up 1 percent, adjusted for the divestitures. Kysor Warren revenue was down significantly from the prior-year quarter, while the remainder of the North America revenue was up high-single digits. Europe revenue was up mid-teens at constant currency. Refrigeration segment margin declined 310 basis points to 9.2 percent, and profit was down 25 percent in the fourth quarter on mix and the timing of certain expenses and other products costs. As in commercial, we expect organic margin expansion in 2019 for Refrigeration.
"Looking ahead for the company overall, the first quarter is off to a solid start, and we reiterate guidance for 2019,” Bluedorn said. “The company is well-positioned for a year of strong growth and profitability, and we will continue to invest in the business to drive future performance, grow the dividend with earnings over time, and repurchase stock, with $350 million planned for 2019."
Publication date: 2/6/2019