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The diversified machinery company, Lennox International, Inc. (LII - Snapshot Report) released its first quarter 2013 results on Apr 22. Earnings per share for the quarter were recorded at 33 cents, rising 73.7% from the 19 cents recorded in the year-ago quarter, led by increased revenues and margins. Earnings also beat the Zacks Consensus Estimate of 27 cents by 22.2%.


Revenues in the reported period grew 8.8% year over year to $668.4 million as a result of better volumes and price mix. Sales beat the Zacks Consensus Estimate of $638.0 million by 4.8%.


Lennox’s cost of sales in the quarter increased 6.9% to $506.4 million. Gross margin in the quarter was 24.2%, up 130 basis points from 22.9% in the prior-year quarter, due to better volumes and low material costs. Selling, general and administrative expenses represented 20.3% of sales at $135.6 million. Operating margin was 4.2% in the reported quarter, up 109 basis points year-over-year. 

Segment Details

Residential Heating & Cooling segment generated revenues of $314.5 million against $272.6 million in the year-ago quarter. The rise was brought about by better volumes and favorable price mix, thus improving the operating profit margin of the segment by 250 basis points to 6.5%.

Commercial Heating & Cooling segment’s sales improved 4.0% year-over-year to $163.0 million, resulting from better volumes and favorable price mix as well. Operating profit margin increased 150 basis points to 6.8%.

Revenue from the Refrigeration segment was recorded at $190.9 million, increasing 3.1% year-over-year. Operating profit margin grew 100 basis points 8.7%.

Balance Sheet/Cash Flow

Exiting the first quarter, Lennox’s cash and cash equivalents were $34.9 million, against $51.8 million at the close of the preceding quarter. Long-term debt rose to $489.8 million from $351.0 million at the end of fourth quarter 2012.

Lennox’s cash used in operating activities was recorded at $137.3 million in the quarter, against $34.3 million used in the year-ago quarter. Capital expenditures in the quarter were recorded at $12.1 million, against $6.6 million in the first quarter of 2012.


Based on the current performance of the business, Lennox’s management increased its lower end guidance for revenue and earnings for the year 2013. Core sales in the year 2013 are now expected to grow by 3% to 6% against previously announced 2% to 6%. Moreover, earnings per share for the year are currently expected to be in the range of $3.25-$3.55 against $3.15-$3.55 expected earlier. Lennox also reiterated its tax rate guidance to be 34%-35% for the full year. Capital expenditure guidance for the year is maintained at $60.0 million along with stock repurchase plans worth $100.0 million in 2013.

Stocks to Consider

Lennox currently carries a Zacks Rank #3 (Hold). Other stocks to watch out for in the industry are Watsco Inc. (WSO - Analyst Report), Broadwind Energy, Inc. (BWEN - Snapshot Report) and Crane Co. (CR - Snapshot Report); each carrying a Zacks Rank #2 (Buy).

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