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Lennox International Raises '18 EPS Guidance, Shares Up 3%

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Lennox International Inc. (LII - Free Report) revised its full-year 2018 guidance and issued the same for 2019, reflecting the earlier receipt of insurance proceeds than in the previous view. These proceeds are from the company’s Iowa manufacturing facility that got damaged in July 2018 tornado. Following the news, shares of the company increased 3.1% in yesterday’s trading session.

The insurance proceeds of $347 million include earnings of approximately $124 million for 2018 and $223 million for 2019. Notably, Lennox International is likely to be entitled to a pre-tax gain of roughly $132 million in non-core earnings over 2018 and 2019, given a difference in book and replacement value of assets.

2018 Guidance Updated

For the full year of 2018, Lennox International expects adjusted EPS from continuing operations in the range of $9.21-$9.61, which was previously expected within $8.70-$9.10. On a GAAP basis, the company now expects EPS within $8.95-$9.35 versus $8.11-$8.51 projected earlier.

Effective tax rate for 2018, on an adjusted basis, is likely to be approximately 23% compared with 22-24% projected earlier. Moreover, the company has increased its capital expenditure view to nearly $125 million, as $25 million is funded by insurance proceeds.

The company reaffirmed its 2018 adjusted revenue growth expectation of 4-6% (excluding the effect of the divestitures of Australia, Asia and South America Refrigeration businesses during the year). Also, corporate expenses are likely to be $85 million. It has completed its stock repurchase of $450 million.

The Residential business, on a core basis, received $27 million or $0.51 per share in insurance proceeds in the fourth quarter of 2018. The proceeds, which were previously expected in 2019, will cover lost profits from business disruption in the third quarter. Consecutively, the core impact of these lost profits has decreased to $38 million from $65 million projected earlier.

On a non-core basis (including tornado site clean-up costs, asset write-offs and factory-inefficiency costs), Lennox International received $97 million in insurance proceeds, up 32 cents per share from the prior GAAP guidance.

Full-Year 2019 Guidance

Revenue growth for 2019 is expected within 3-7%. Moreover, the company projects adjusted EPS from continuing operations in the range of $12.00-$12.60 per share. GAAP EPS is anticipated within $14.30-$14.90 per share.

Corporate expenses are likely to be approximately $90 million and effective tax rate is expected in the range of 22-23% on an adjusted basis. Moreover, expected capital expenditure of nearly $215 million includes $115 million of insurance proceeds for the reconstruction of the Iowa manufacturing facility. Additionally, the company plans to repurchase $350 million shares in 2019.

On a core basis, in its Residential business unit, the company now expects to receive approximately $73 million of insurance recovery to offset tornado impact of $35 million.

On a non-core basis, tornado impact is now anticipated to be approximately $35 million compared with $15 million expected earlier. Although it expects tornado impact to be more in 2019, insurance proceeds are likely to be nearly $150 million, up from $15 million expected earlier.

Factors to Drive Growth

Lennox International, a global leader in heating, air conditioning, and refrigeration markets, has been riding high on new investments for expansion, research and development, as well as buoyant marketing programs.

In the first nine months of 2018, the company’s net sales as well as volume increased 3% each, and price of its products was up 2%. Increased volume and price were responsible for the sales growth. Notably, its Residential Heating & Cooling segment delivered higher volume, given higher replacement equipment, new construction business, as well as parts and supplies. Also, its Commercial Heating & Cooling segment generated higher sales volume in North American equipment business as well as North American Service business.

Shares of Lennox International have gained 3.6% against its industry’s decline of 4.1% in the past year. Moreover, the company surpassed the Zacks Consensus Estimate in three of the trailing four quarters, with the average being 0.8%.



Zacks Rank & Stocks to Consider

Currently, Lennox International carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the Construction sector are Great Lakes Dredge & Dock Corporation (GLDD - Free Report) , Altair Engineering Inc. (ALTR - Free Report) and EMCOR Group, Inc. (EME - Free Report) . While Great Lakes currently sports a Zacks Rank #1 (Strong Buy), Altair Engineering and EMCOR both carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Great Lakes, Altair Engineering and EMCOR’s 2018 earnings are expected to increase 111%, 23.1% and 20%, respectively.

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