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Lennox (LII) Misses Q1 Earnings Estimates, Trims '20 View

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Lennox International, Inc.’s (LII - Free Report) ) shares dropped 16% in pre-market trading on Apr 20, after the announcement of first-quarter 2020 results, wherein earnings and revenues missed the respective Zacks Consensus Estimate. This heating and air conditioning company also slashed its full-year guidance, thanks to warmer-than-usual weather conditions and the outbreak of coronavirus pandemic. Lennox closed yesterday’s trading session at $181.00, down 1.6%.

Quarterly Numbers
 
First-quarter adjusted earnings came in at 56 cents per share, which missed the Zacks Consensus Estimate of $1.12 by 50%. Furthermore, the bottom line decreased 66.7% from the prior-year figure.
 
Total revenues during the reported quarter amounted to $724 million, which lagged the consensus mark of $768 million by 5.8%. Also, the reported figure declined 8% year over year. Adjusted net revenues (excluding the impact of divestitures in the prior year) were down 4% from the year-ago quarter. Although price and mix were favorable, volume was down from the prior-year quarter.

Lennox International, Inc. Price, Consensus and EPS Surprise

Lennox International, Inc. Price, Consensus and EPS Surprise

Lennox International, Inc. price-consensus-eps-surprise-chart | Lennox International, Inc. Quote

Segmental Details

Residential Heating & Cooling revenues amounted to $442 million, down 5% year over year. The year-over-year difference in insurance benefit and unfavorable weather negatively impacted the segment’s results. Additionally, the pandemic resulted in lower volume, factory shutdown expenses, higher other product costs and unfavorable mix, which added to the woes.

Commercial Heating & Cooling revenues came in at $178 million, up 3% year over year. This was backed by favorable mix, lower material costs, and lower SG&A expenses.

However, revenues in the Refrigeration business fell 12% year over year to $103 million. Foreign exchange had a 1% negative impact on revenues. Notably, favorable price and lower SG&A expenses were offset by the outbreak of COVID-19 pandemic that resulted in reduced volume and factory shutdown costs, higher other product costs, as well as unfavorable mix.

Margin
 
Adjusted gross margin contracted 330 basis points year over year to 22.9% in the quarter. This was due to lower volume from adverse weather and the impact of the COVID-19 pandemic, unfavorable mix, decline in factory absorption, higher other product expenses, as well as factory shutdown costs.

Selling, general and administrative expenses during the quarter totaled $131.1 million, down 10.2% from the year-ago period.

Balance Sheet/Cash Flow
 
As of Mar 31, 2020, the company’s cash and cash equivalents were $39.1 million compared with $37.3 million on Dec 31, 2019. Long-term debt was $1,189.9 million, higher than $849.3 million recorded at the end of 2019.
 
In the first quarter, Lennox used $98.8 million of cash in operating activities compared with $141 million in the year-ago period.
 
2020 Guidance

Owing to the uncertain market conditions arising from the coronavirus outbreak, the company currently expects a negative 20% impact on the North America unitary HVAC and refrigeration market.

Lennox expects adjusted revenues to be down 11-17% versus 4-8% growth expected earlier. It expects adjusted EPS from continuing operations in the range of $7.50-$8.50 for 2020.

This Zacks Rank #4 (Sell) company has been undertaking cost-reduction initiatives to realize $115 million in SG&A savings in the remainder of 2020.

Stocks to Consider

Some better-ranked stocks in the Zacks Construction sector include AAON, Inc. (AAON - Free Report) , Gibraltar Industries, Inc. (ROCK - Free Report) and Orion Energy Systems, Inc. (OESX - Free Report) . While AAON and Gibraltar currently sport a Zacks Rank #1 (Strong Buy), Fluor carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

AAON and Gibraltar’s earnings for the current year are expected to increase 43.1% and 16.7%, respectively.

Orion Energy surpassed the consensus mark in all the trailing four quarters, with an average earnings surprise of 363.6%.

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