DALLAS, TX — Lennox International will report 1999 sales of about $2.4 billion, 30% over its 1998 performance, and projects this year’s sales to be about $3.2 billion, another 30% gain.

This was the bullish word from chairman John Norris, who attributed much of the next 12 months’ growth to the acquisition of Service Experts, which did more than $400 million as a stand-alone consolidated contractor. The company had 120 service centers in 36 states. Lennox’s own buyouts of its independent dealers add another 80 dealerships.

With this deal, the company effectively became the world’s largest dealer of residential-light commercial hvac products at about $1 billion.

Another revenue boost came from its hearth products, where Lennox is the third-largest producer, Norris said.

In his annual talk at a trade-press dinner, Norris reported on two unprecedented events in the company’s 106-year history: going public on Wall Street last July, and buying Service Experts last October, a deal that was consummated last month.

Lennox faces a balancing act, he said, treating its approximately 500 company-owned dealers on a par with its thousands of independent dealers.

“It’s important that we do it right,” he said, noting that the company’s direct-to-dealer history makes it easier to do than it would be for competitors, whose direct-to-distributor history puts them at one remove from the installing contractor.

Vote of confidence

He cited the 1,500 independent Lennox dealers who have signed on as associates, who in return for incentives give the manufacturer the right of first refusal when they sell their businesses. “If that isn’t a vote of confidence, I don’t know what is.”

The effect of the company’s retail operations is that its outlets will continue to sell and install not only Lennox equipment, but also that of competing manufacturers who have solid relationships with Service Experts dealerships. This arrangement, with unique competitive crosscurrents, will stay in place as long as it makes marketing sense, Norris said.

In early February, a meeting was held in Dallas to work out the details of folding in the Service Experts service centers into the corporate operations.

The company’s entry into the retail sector is a reaction to changes sweeping through the industry, he continued, noting the growth of large consolidated contractors and the fast-paced entry of utilities onto contracting turf, either through direct purchases of companies or the use of alliances with contractors.

“The idea of a manufacturer actually owning installing contractors is a very important part of our future,” he said.

Bane of lawyers

As a publicly traded company, Lennox is now subject to Securities and Exchange Commission regulations. This entails “a whole raft of lawyers who listen to every word I say and are just waiting for it not to come true so they can sue me,” he grumbled good-naturedly.

This did not prevent his bullish predictions about 2000.

In its six months on the market, Lennox stock has not been warmly received because, like other industrial stocks, its track record of profitable operation has paled against the glamorous “dot.com” stocks, many of which have bedazzled the investment community.

This is despite a paradox that many of these “stars” have yet to turn a profit. He contrasted the so-far “nonprofit” Amazon.com, whose stock went up 27.8% in the third quarter, to that of the profitable Barnes & Noble, which lost five points in the same period.

These new speculative stocks have attracted the “momentum” investors and day traders, leaving the less glamorous industrial sector behind.

However, “Wall Street isn’t running this company,” Norris said. “We are.” The flurry of changes made by the company is measured against the question: Would earlier generations of Lennox owners approve of these actions?

Yes, Norris said, noting that an earlier Norris developed the first forced-air gas furnace in 1935 in direct disobedience to his father’s prohibition, working surreptitiously in the plant and using a Chicago dealer as a “front” to sell the furnace to the father.

“It was the first technological leap made in conjunction with a dealer,” he said. “Without the dealer, it never would have happened.”