LII - Earnings call transcript Q3 2017 | Lennox International Inc.

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Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Lennox International Third Quarter 2017 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded. And I would now like to turn the conference over to Steve Harrison, Vice President of Investor Relations. Please go ahead.

Steve Harrison

morning. Good joining the review third for financial Lennox for for performance quarter us you of this international’s Thank of XXXX. with today CFO, here Chairman Todd CEO, I'm Bluedorn, Joe Reitmeier. and and and key for the review financial outlook. and performance take will Todd company's the quarter, you Joe points through will To give any for during additional ask to the yourself limit requeue please everyone follow-ups couple a and time to of questions Q&A, questions or questions. financial reconciliation measures issued this will morning have of earnings the GAAP the necessary non-GAAP to release we discussed In that included be we the measures. noted. prior All comparisons against are mentioned today year the period, unless otherwise

you You the differ from this on everyone the course statements call The conference statements. can forward-looking would site better uncertainties direct find that at actual will call, that making in webcast our a I could numerous link and understanding remind These that be webcast of will www.lennoxinternational.com. to website operations, risks our to materially of give for today's cause archived a such be to to replay. statements. on like we certain are to subject of results

or information to any these as For or otherwise. result see with intention the or and Lennox update SEC. of concerning The uncertainties, information, forward-looking any disclaims statements, available future events, publicly revise company International's risks whether new filings a obligation

Wednesday, will of webcast. also of annual and more community morning meeting. Invitations investment Before meeting I will follow. Please XX, turn announce held mark the The will call York over City. the to our calendars. to the The Todd, I in details would be date your like be New event December

Bluedorn. to over call the and Chairman turn me CEO, let Todd Now

Todd Bluedorn

to level rose a quarter XX segment ago. that X% replacement directly the GAAP hit. $X.XX. couple replacement, EPS down impacted quarter, X% from the operations Overall the Florida. XXX up significantly operations were in by impacted every for year quarter down of wholesale XX.X%, segment International materially Midwest including the hit third performance was and than for days America revenue, at month growth taking us. and quarter, Texas you quarter Commercial ago GAAP and continuing continuing down in for profit and not hurricanes Good growth a from August but margin from quarter was most record a were third to XX% weigh year basis cooling adjusted X% weather degree XX%. third third near-term businesses Residential basis, up to down in regions were quarter of weeks third cooler These the for XXX a cooling X% Steve. our company, performance margin and quarter million. dynamics HVAC Total degree total more or third million. two record our the swing year morning, XX% disruption in emergency than EPS a markets were regions prior a more record caused both so segment with total Thanks, and the and On also key September. a points EPS an refrigeration Overall, operating where rose $X.XX. Lennox Adjusted market the up the were North Nationally, of X% place the margin income X.XX by it largest posted constant was quarter much for a was and upper joining basis, to from quarter. On the currency. The in for northeast record than that down everyone, record billion, profit revenue and thank hurricanes a record days to business the third

Revenue construction new the X%. level and XX from third margin on Segment the points basis profit up digit of was In XX.X%, on quarter revenue third X% up the in business. single digit quarter growth points Residential, rose segments replacement highs. growth Residential for record to profit quarter. single high was third business our key hit in a Turning new and low year ago.

front, quarter. and continued Operational to total we as Parts with invest We Plus of the XX to growth the in products IT On in the up new support a our the distribution to R&D starts, Lennox footprint. XXX of in ended business, as stores investments well the future quarter expand innovative further

of ahead opening in expect driving to million We savings as sales our new both leveraging productivity operations. operation look realize level XXXX investments similar existing this we the a track continue initiatives growth. to in our same-store stores and Mexico Manufacturing, year our from are on to focus by we of savings In $X on we and U.S. incremental

Turning was factors. record profit to hit ago. quarter currency. at The year X% two commercial quarter constant revenue revenue a the points and by margin our the business, was high quarter. Commercial new for up up XX.X%, any decline impacted profit basis XX in Commercial up was from marks Commercial X%. margin was Segment

large that quarter. quarter. national second the factor And were customers in lower that was the shipped some expenses. Pricing orders commodities account balanced the in a from of change the First, we had timing year-over-year were certain the product in mix

year second margin commercial prior continue slightly in period. We over segment expect the up half be the in total to

Looking third high revenue low up replacement constant approximately emergency the and up The flat. double-digits. revenue drivers replacement digits, revenue equipment single North at currency, was up XX%, quarter America plan at was in replacement commercial revenue

was revenue up was nearly revenue construction new revenue digits. business and digits. single New account national single account equipment up low Cutting the national XX% mid up another was way,

third Lennox equipment a new quarter business, for XX of won year-to-date. Looking national customers total account new in XX at the

construction third in the healthcare, facilities, customers New firms. estate quarter restaurants, retailers, and included and real

revenue HVAC were constant constant a America account America currency. flat, quarter. second commercial low was revenue up national the Europe, and regional Refrigeration, side was perspective up at currency, was Australia X% the On constant currency. South down in down up was single our double double-digits From basis North mid-teens service was XXX business, from In up mix of and revenue the at In negative by digits, Europe and low impacts to profit business. profitable margin driven decline at a digits, XX.X% the America more North XX%. business, which Refrigeration points on was margin is was up declined weather was than low The Asia most our segment XX%.

We our productivity of in also had several factories. issues key

these to We the are are having on addressing this us. well and way behind

have General Lennox job As few company, over ten strong with done Vice President who’s close you as the the October last Many for including at Lennox Manager Officer. well we new Refrigeration know the our and profitability in and Chief to quarter, Bedard two year and Gary, year. successful XXXX, decades as place, but business over residential X of of taking you’ve the out and business. Gary of Operating pieces years to in seen revenue, leadership drive in in positioned announcement, over the third an is outstanding coming record margin growth our profit A highly and moving President

it I'll to Now over turn Joe.

Joe Reitmeier

X%. Pricing was and financial Thank up combined Todd. a segments $XXX you, X% quarter, quarter the was Good some with on residential and provide price and million, with I’ll starting for additional flat third record was up X%. Residential mix heating revenue cooling. details morning X%. Volume mix up business down the everyone. comments

expansion. was record profit million, $XXX was higher XX a third to up revenue. and information sourcing unfavorable and was engineering-led cost margin development, basis quarter mix, higher in as Residential investments XX.X%. Offsets price, positively impacted distribution reductions, other technology, volume, product included Foreign research SG&A, neutral exchange. well to down other Segment by costs, foreign exchange favorable and as commodity in was and X%. profit points investments and Segment

$XXX our was up combined up X%. a was X%. Cooling and to price X%, and Commercial Heating turning revenue mix Price and Commercial Volume was up Now, with business. flat. up million, record mix

distribution was Commercial a up X%. and price lower mix costs, timing favorable price, third Volume in Offsets margin other a Segment $XXX and up Segment higher positive SG&A freight combined up XX $XX profit revenue favorable X%. cost In commodity impacted the XX.X%, And exchange of expenses. volume, positively and record expense, the X%. impact. and by was quarter engineering-led Foreign reductions, was expenses, profit higher flat. foreign included X% was million, points. sourcing Refrigeration, million, lower was had exchange. basis profit higher and down was segment mix,

a America Foreign impact From on exchange constant regional addressed had Todd revenue flat. was currency. revenue. North growth in perspective, basis, positive a X% a reported On

$XXX up million from research of in Overall contingency volume the quarter XX% commodity third XX.X%, compared in of productivity, from million SG&A the Segment Total Corporate down in the costs, expenses in benefit the the XXX and basis sourcing debt factory mix, $XXX quarter. segment ratio digits. and $XX third million X.X was third basis, margin in was quarter. include $X.XX other and Overall more for million quarter a than billion asbestos after special third XX%. tax or for SG&A. a South a of net Cash quarter, and we was at at was was impacted America excluded expenses, a in engineering-led prior reductions. down million. million information equivalents and up tax Free Cash of the charges, charges Refrigeration year of in third $XX million, excess both $XX adjusted with $XX quarter legal was restructuring the profit higher Also quarter, million litigation, approximately by and $X year of and technology, excludes September was quarter $XXX the $XXX unfavorable sales, offsets of million charges, Asia flow other in benefits profit $XXX million for third higher up for XX.X% from operations was including down million, the $XX total EBITDA million Capital $X.X mid freight compensation. to on the XX.X% cash end from X.X. development, the related $X million, million, and million, distribution year points. spending Australia XX%. mid up to $X.X to and and of were the end was compared to share-based ago. up million of year. debt investments in cost quarter the items. $X.X cash was an Partial quarter. company, single Europe Segment last ended was were prior teens,

for and provide I XXXX. on over our Q&A, to it review thoughts few Before XXXX turn I’ll a outlook

expect be the mid-single range. overall, the shipments For North the American of to we lower Residential end digit industry HVAC up at

guidance North we market this on outlook Refrigeration revenue X% with environment, with neutral our expect unitary the low exchange. to And of a to be from shipments Commercial fourth from and up America expect to X% raising we company's range point digits. quarter, low of benefit the to for single a half digits. shipments are the North year-to-date, Based single end America new up foreign exchange, X% foreign to X%, We be low performance a

for to for our a guidance $X.XX For range this year, adjusted EPS. operations charges full and we GAAP the new This range special to EPS for year the from our $X.XX. of items latest incorporates are a updating $X.XX for to taken range our $X.XX continuing of guidance

guidance are new adjusted for range to a $X.XX operations of updating EPS from to $X.XX $X.XX from a range continuing We $X.XX. to of

and the points key and let assumptions for of the XXXX. run puts through Now guidance me takes

a versus guidance our faster construction a in $X of year benefit from Residential now benefit now million expect impact. mix be expect the First, instead prior on neutral this new and that are growth to Residential XXXX flat a $X for exchange points business. foreign changing, million guidance the the for replacement we given We

that the points remain guidance the for same. Now

$XX to million programs. cost expect sourcing engineering in from an continue We led savings our reduction

$X We million in actions are already from from track manufacturing savings taken. our on for Mexico operations in

commodity million offset of higher cost million this year. year, We continue by $XX this expect $XX of to from price headwind

expect price, by As similar an of of from so regard. XXXX offset continue aside, $XX XXXX, $XX approximately that year commodity year, looking next a in million of for higher we costs, ahead million headwind to of

remain few a for unchanged. points XXXX other to guidance back Now that

the to adjusted an for for on still expense is million. We rate We expected $XX expect effective full the full of continue interest to expense between expect million XX% still XX% year. be an to about tax approximately year. net basis Corporate $XX

approximately diluted million average expected XX for $XXX XX between expect expenditures count the be year to with cash are of XXXX. continue the Q&A. free to million full And We Capital flow we be shares targeting shares. are that, to weighted $XXX for let's million to million. go to And share

Operator

of line Tim comes the Baird. Our Wojs from first of question

is open. line Your

Tim Wojs

question first the question I might have residential a the of the for and you have is, quarter? margins kind quarter out but this know pretty you I maybe on cost guess the mix piece if do maybe is then I just think hurricane you in could what impact third in the tough

Joe Reitmeier

business points Again, I driven XX would down being margin higher replacement Res higher the was was - in our margin the for And replacement basis by the at mix. look quarter new growth we and the high was QX. as math the construction margin while down was our the only single X% QX, was digits, replacement up in weather really by the cool in up discussed, tampered business

sold and new but add-on more to Within margins going it's moving we the understand with down because business hard we I'm sort construction. we the replacement give less you the continue were add-on clear quite So down replacement reason math frankly our and exact the not and mix-up. pieces, was to of because to mixed it's that

more than prior year. product did we we're the So premium selling

In we'll terms of about the up that a I hurricanes with the internally. about except I'll no cooler was of pieces. Tim. business of of But point over one the our what last hurricanes, only It's cooler that's some by of moving and the future In X%. back think quantify. on we hurricanes, We've has, impact order magnitude there either X% you, business is this the grown residential an by weather, of that in QX, six of replacement would see I And to lot and average, the of change and weather impacted conversation honest think quarters. was bounce There's I to were really so sort lots that quarters point be year-over-year. hard had replacement

Tim Wojs

sourcing, perspective, on just margin from within and you incremental what basis, bigger on then intermediate margin commentary XXXX? given some back that incremental that maybe a have the so the XX% you help other a pricing, XXXX, of target of incremental an some are that’s productivity, outside in America get things just XX% And just hurdle that can of to the North the a inflation margin on cost

Todd Bluedorn

again, be Maybe range. always sort continues day in into make changing QX and in low if couple about. been of saw guidance XXXX But to heard our risk, XXXX. We of will, we points XXXX, don't talking And I'll a as weather, bridge, all from as you've at there's have a growing we'll see mid momentum the we annual know, to detailed of digit from analyst in you through on while I'd end is of walk the single much providing that reasons for go you as think December. our us preliminary XXXX Tim, we mid markets

where point We're In business addition, that's been we've little we or gain to five and HVAC last in continue years. America. a our North half the from about over a share market up four share, of

to a XX% suggested, as you I year. incremental. think doing on And next We're focused, that continues. we're committing

next we other giving year, get by another X not we of productivity to incremental about me in XX can Mexico We've of lean our of XX engineered-led moving sort are confident talked to U.S. And similar from million reduction. savings million XX and to and sourcing expect savings pieces factories, million initiatives from while savings automation techniques. -- both cost we're the we're

a The had of about I've twice year. XX expect before we phrase this is about used Commodities, for about we've talked you As million headwind. what

million So be it's order magnitude confident to going that able of price. XX minus of million we're plus or we're offset where with, XX to

of and that grow few investments. the we're over publicly of maybe in the of a windfall the half, a We've been IT last about third as and last SG&A in in of years percent to commodities with even while R&D growth think spending targeting story SG&A with both it line revenue on And a talked the rate price, XXXX revenue months, and we've or line strategic will had productivity, couple newer big some is from in accelerate and as sort we think SG&A few growth. years, had I more this last grow the I've percentage. able we've

while think to continue help growth get down. the to be we’ll we’ll invest still And going that productivity with to in XX% so that incrementals. we that to get And we're slow the helps SG&A, ensure able will SG&A rate

So overall, into economic another we conditions remain go solid we record incrementals. as we're XXXX year. expect And and XX% targeting

Operator

Company. Our next Gautam question & Cohen Khanna comes of from

open. is line Your

Gautam Khanna

your trying specifically expand how doing I to PartsPlus businesses? grow Todd, stores? could was you're things same you at growth of for upon What you of if some store wondering of accelerate more are kind sales to the mature

Todd Bluedorn

more in it of place done But day. job high have But XX%, is mix revenue analyst in as we of way, we December the But focus think were I bit sort these now the you sell about XX% supplies so, equipment mature called mix our talk and been historically, with is a place. -- and equipment stores if -- -- put of and They’re our has supplies doing we sales. the growing and a that. We'll PartsPlus. this parts the really misnomer. parts at at that level, a about sales, it we name, residential look a when of of And the other about they've business, they put great

more look even industry maybe You an leading parts Watts supplies. XX%, XX% a and of distributor, at Co, they're sort

business that big and And our supplies the opportunity through fixed to parts stores we this have. flow so it's a it we grow and asset, think cost

i.e. we've SKUs sure what initiative, on they're we've carry, able meet position also some so more our But on-site piece counter pieces parts around details in and a the carry, to make -- we'll focusing be of demand. of that both them, they deepening of make have is to inventory training the to people we be tools taken and the sure the December. we aggressive And supplies. focus supplies the then the rights want the targeting information to again to and management sell because trained broadening share able And parts third sales but to to on logistics and parts we're and inventorying in and

there's there. So big opportunity think a we

Gautam Khanna

Wal-Mart, I’m Refrigeration, your some on And your one of anticipate to contracts follow-up. referring better course. specifically do to one economics you start margins? when of large customer At will the benefit of

Todd Bluedorn

within continue others, businesses on want, Wal-Mart quoting business. cases. with part grow the a think business display Wal-Mart And want goal We the to going them and our the of out factory. with of costs the through We the a business. the making to we've from the term, frankly our competitors more process our businesses good We quite recently our not at profitable system job work We're but done diversifying margins base. taking through Kysor/Warren only on customer pretty longer

to continue We design costs.

material it's is on portion cost other of KW frankly new higher focused focusing also and business revenue of But coming than percentage So team’s quite as doing out our we any that. that on have. reduction customers a winning maybe

Operator

to go KeyBanc. line the we'll of next And Jeff Hammon of

Your line is open.

Jeff Hammond

productivity back little progress. Refrigeration, there? period did seems It you have mention a stepped On bit after going margins the just some what's factory on issues, like of

Todd Bluedorn

weather margins major first one, which our impact the drivers, answer. are two being broaden a from businesses. basis on mean, was we XXX me up one’s the Let America and last the North five quarters. negative the down There after mix primary six or I points saw

tied what’s HRP a American tied most than of business, part business. call frankly our business it sold place. demand Product more but business group, which is we economic the also XX% Our And is non-Kysor/Warren North Refrigeration in business that to all that flow is of sort Refrigeration profitable in the conditions, and is to of happening internally, market of weather distributors. the quite It's through Heatcraft

saw Our side, demand X% a quarter, Heatcraft in had over there X% while a a moving the business last per major were And impact. had QX average about on decline. weather quarters six pieces and of we other some we on think growth

on it being down quarters has profitable did so So the other our we some addressing had several factories, factories up over it last having we're than I that Heatcraft our issues those then And issues highly mixed productivity the our an had we to one key labor X% issue this being call mention business the have us. were on way We're in Europe and material of and rather in X% very is behind this on six America. North down. The of as flow and yes, well impact, productivity.

continue We XX margins year to Refrigeration up to this points. expect flat basis be to

We pressure XXXX. to little basis guide I on think continue margin reaching there’ll focus that. points. think may be on XX% segment by prior the XX But was XX% we a to

on of As he's of and I some mentioned, Refrigeration issues. Gary Bedard’s like our now head these business, laser focused

Jeff Hammond

some heating then there? color cooling, XX% And then a or And or accounts, in Is that is kind said just growth of little was commercial positive there? wins? you flat. Thanks. maybe any national Or on lumpiness timing key just replacement and think the emergency that I weather

Todd Bluedorn

was replacement to XX% single years. emergency because close couple weather, high we've of last the think digits, We been clearly

And driven. think clearly weather so it’s we

it's this the was and national that combination so strong last had slower had On quarter always we what had growth. quarter of revenue we've than we then both, growth a accounts,

national lumpiness both continues we a -- lot to customer these we to journal, And combination why it's So while of verticals a continue but always playing talk we national headlines and I of about our because that to of winning in that our as our sort we're think account more commercial or percentage footprint national of continues broadly retail a other reflect that account business. gets and we're the of accounts these growth base. accounts, think also diversify the

Operator

the Wells of of Kwas Rich And Fargo. to go next, we line

Your open. line is

Rich Kwas

does of hedging that you the that? into next there's XXXX? fully impact if snapped kind some you commodities, XX the But some thoughts million have think broad get with lag on negative XXXX. with kind for about we speed as up that there's the that cost creeps today, to Just because around So or happens year, core extending what does that the of smoothing that just to into still headwind regards impact

Joe Reitmeier

I a think sort it can short really it answer narrow how mean, comments it of moves. broaden rambling answer what of half I happens some I'll depends and second help model yourself. the then is quickly you and I give can year, with The

know So and commodities, market with this, on pricing for buy to as is a discount of are Rich, but prior from we XX% XX% the you mills, and months call, a of at our then copper others XX the XX% of on look and and quarter material to XX% we're and steel aluminum on to XXXX on we about COGS hedge, XX% that magnitude out. already. copper about half aluminum, of it we as order hedged And

look So XX% as we XXXX, hedged. we're at

so to the another flow quarter, how I'd of COGS see then the on buy model think make to is it probably the you flipside point P&L. And timing time it from through how spot And with other consistent you through the XX% steel is the flows there's timing is market. as about the the we time the the

We'll that's do it second curves we have second half. XXXX. taking And think go depends sort a bit it the copper we it's what going and as half of again So think year. betting to year going little is magnitude impact XX moves of next into and be aluminum on to we of the order how of future

Rich Kwas

were under this is construction, like, for here impact incremental XX of being incremental mix a XX, in in construction of XX do just in XX picture, for to I the versus that we, standpoint, then of off and -- to new replacement that mix say terms think far north construction if replacement, we And margins terms the big quarter? trying I do margins new from am piece, replacement new gauge

Joe Reitmeier

No.

close. You're

Rich Kwas

but And to better, quick I part of of against week’s any seeing the early, first last the know what period, know thoughts. start are I one, second most been just season’s yet this far? was year just mean, you to I so ago it's heating warmer October, so than come mean, been I quick then normal October

Todd Bluedorn

cool, and said, as No, who as you business call and rooting solid we're others I is December’s lower mean, normal but and needs a I to the QX, was know now last cool we and to an think early, the which off to of to led mix keeping furnaces. than get month. you always turn things it in a our want for couple start, midwest. year score was don't on cool we're A suggested, a for so it's to as if weather, it warmer northeast important remember well,

sort So more is weather tailwind if a be that's year, normalized for going this to good us. of

The in days the we're housekeeping to X% more QX. QX while of had is reminder calendar, we other X% because going in days have fewer

And being order a we of revenue. have headwind X% equal, so all on things of magnitude

Operator

of have Jeff Sprague Vertical we Next Research. line the of

Your line open. is

Jeff Sprague

on Res. in revenue in didn't make a Not Joe remark commercial Is cost, to split offset cost caught up on hairs on price but I specific price? the think explicitly said quarter price that and

Todd Bluedorn

just In Residential, almost. my details, at looking

short price or with the prior builders do much ability the do had and of that within price that business two little to We of a mix had a to we In to with business. get had. think think but of on million as we with We’re were commodities. flow again, I offsetting versus quarters,

quarter where So Commercial, out there we caught lag quarter and in were called up. that was now third last timing we a

we up had. of in reflecting more think that business it's I mix the Residential type

Jeff Sprague

catch-up any Just have we're that AC a here Does going is on stuff to at off-season? there just next just though playing play kind even you of do do of in view or season hurricane post you all see how dynamics. And get pushed kind out?

Todd Bluedorn

lots not operationally financial because of think on quite to lot Houston in of be Not able lot know of the I honestly that certainly guide, lot people we're all totally that cover homeowners little to a to is a what be going given impact band-aided mean, with we sure, supplies this we of people and are sure market, initially. that's being a may the insurance because a in not and parts and of I'm things opaque why we're internally. getting

have to units. XXXX. we maybe be lots it. to again, the that be be need may sure to people have in so longer supplies into of able to we're parts equipment to demand. bleeding we'll term, able And will in And Being there XXXX and replace do meet making And and more market

right markets both spike that's parts in frankly, these supplies, think in movement not things still some equipment quite but and seen much expected be sorting I to they're in we've yet, now out. because, up

Jeff Sprague

Is just to changes happy clear production of plants, you at chain in that in Todd, coincidental productivity or management several and on kind issues not hear scheduled kind being there. you're performance, is wrong finally the like of then something some supply else? that And Refr, something It of made go or surprising inherently just one way the kind or it's with did is quarter.

Todd Bluedorn

it's them issues I product we we and again, the has to at March we're in up did transparent points fully also Europe, wouldn't American I in a and both get do, of wouldn't have ran I look into XXX say the wanted and, but and very movement sophisticated some be engineered that line, have hung a mix sort the systemic of issue. was major on we North also I driver When coincidental. them think order the it basis and business, and putting to behind issues us. we addressing to U.S. our

Operator

Barry Next Robert we of have the of line Susquehanna.

line open. Your is

Robert Barry

on Just follow-up that last maybe question. to

issues quite Is I noted lot. Europe end think down the market? to Commercial related that a or you was operational

Todd Bluedorn

not flat this East little We we of making big call end think probably our A market, customer the had of themselves had the market’s the follow-up. orders some a year that there's year-over-year business. issues. trouble good a of didn't a just just chunkiness bit year. that's orders. last And on reflection that's in and operational Middle deliveries. a We And repeat That's

Robert Barry

on there's topic the are And, the we're there while I end concern guess, that non-res, of markets growing slowing.

I you up you think markets there? outlook mid-single, how end new you construction said the but And did? what thinking the think about was do are

Todd Bluedorn

don't buildings. which large for to where play play high high Robert, in continue is I'll buildings play as is this, in unitary We it and but you don't We in space, steady Commercial know And she office below. residential rise goes. We don't rise be others the play in three stories We is Institutional. we buildings. say

And to education, entertainments, those so along. food, continue perk play verticals to K-XX continue we and the bubble percolate. and Retail, fast in

we single probably We to that's think going be low growth now, for it's it's so think of we look order steady where to magnitude to in And and that's Commercial sit going And XXXX, market what into like. up be. call digit. going we see we as

concern it. frankly So, not all quite about We're commercial I seeing the understand markets. about calls

Robert Barry

what SG&A. does, you earlier happening the growth And about just clarify of to cost one is thing right? down bringing said regardless price in that That's

Todd Bluedorn

Correct. Yes, strategically, is for as reasons. said, One pull already, we've I we two investments. forward

the it's to thing Now right do.

Second is commodities to come for wait in. you can't

sizing actions got take So, now. the you right to

the doing to we SG&A spend had restructuring XXXX. quarter we're in saw our get that some right what for supporting You and helps

Operator

Next we have the line of of Ryan William Merkel Blair.

line open. Your is

Ryan Merkel

question first was residential. for upside hurricane The I had potential on the

in So, XXXX? guess residential hurricane many any clean from up at how Todd, industry see the the units could

Todd Bluedorn

perspective reasonable so good pieces repair impact and a moving error the if really many quantify around around, versus replace again, all go a to and hard But it. margin then I had number a that mean, for versus had it's I what I'd No. was.

so and X% we will that come QX, and Replacement last six thing the quarters only we're that Residential, see in the up publicly. are fact and some were in resi hurricanes The in forecasts that's there confident will back is both And out X% impact. up we'll the of back. it and weather that I'm I'm that the have obviously, seen, bounce of confident I've in weather

Ryan Merkel

And that any expect is or hit that are next hearing I'm X%. to you margin and Is opportunity year regulation going contacts the my some then this for drive something cost of does X% to and commercial new secondly, rising you prices up there there's some channel price? from offset the

Todd Bluedorn

than We'll of And lower very equipment up in regulatory see. And position. bit capabilities we're little that regulatory have technical Costs too more good changes with point go but the about are on. probably that to us commercial we've meet pass certainly come requirements sort cost job going leverage a after when able our high that all we'll in technical we are the done to a competitors, up our minimum a a requirements efficiency at new to that's December, and our and from certainly viewpoint, and of historically or going that we'll a product for out there's efficiency competitors. when we talk in

margin them i.e., a keep or if so think of up. And either sort didn't we disappointed don't have margin we new call material to out, it. get I able be a go for are and percentages that will launched be we'd that product always

Operator

of have of Next the we Credit Mitchell line Suisse. Julian

is open. line Your

Julian Mitchell

QX. in thought what of on the in just the deployment, spent half of second terms firstly you in you Maybe already capital buybacks sheet, on balance sort

Your share year count guide unchanged. for the is

maybe of updates on So or buyback use cash? other any any planning

Joe Reitmeier

forward. $XXX We expect to it's part repurchases you fourth going million up, to debt that. At on that midpoint We've to track it and or spend will I million our as as end that the achieve frankly, X.X complete when And of about we to think EBITDA probably quarter. completed to between And share gets ratio, the this of of initiatives us we're steady now, that, We $XXX on early quite support that targeted business XXXX. goes. roll the X, in she plan right still point, sort which in the all year. CapEx of is in

Julian Mitchell

show be by coming a over specific so gross to you’re your rate onetime margins obviously we a lot, that. in when margins do gross months, that six gross be down, then twelve or able And SG&A should to third bps be think to recovery down fairly quarter, soon? flat XX within at looking margins, expecting or some or in factors should the But offset the next you

Joe Reitmeier

gross the will think margins show recovery. I

but quarter, continue and we flog business, mix, gross in weather Refrigeration our not what impacts answer, think residential I impacted this our our is that saw margins. third the to in business in to when down mix

or productivity incrementals. sort reduction, cost of productivity been that that six, around So growth get core we eight XXXX. has the the buffer factory story But to our of to seven, hallmark material years, going SG&A help around XX% continues is volume insure the help in last productivity, around and mix-up

Julian Mitchell

activity? investments that you'd want normal call. product out on is this And new highlight rollouts course of then or just to Any times specific just business product several you or lastly, called changes this

Todd Bluedorn

normal is business. of This course

in our quarter So we marketplace. out tend roll with first products to our

that programs and so alternate you those And the we're it's know continue investing, areas and refrigerants we all all to so make controls, energy our investments. efficient product, of

Operator

of Next we Robert McCarthy of line the have Stifel.

open. is line Your

Robert McCarthy

the comfort get to the some sense of you of I July I kind going In the -- of a can the guess other better but impact’s how difference of August any any on But of -- of to kind to event, basis did quarter squeezing within looking impacts think line trend intended. mean, give see me between date know hurricanes in impact? Thanks in. one you the of kind any from be? hurricanes in I couple break a distorted trend any to of of business difference sales points No kind the terms disruptive us I XXX for tough through all questions. in you pun did -- line. it's and flipped what at parse the distorted anything quarter through way of cite

Todd Bluedorn

and tried weather the comments, and cooler hard my to it's in effects. because script to disaggregate in hurricanes lump together the In part the

some we our weather so guess the warmed having and and weather for demand then cool I hurricane And were then effect. the replacement we at had when business up look pre-hurricane we

both I on had material think they quarter. impacts the

frankly, entire weather, the Houston since and Florida had than just the more impacts. quite touched impact think, country, it I

Robert McCarthy

to and probably I inventories, for I next expect terms pricing mean in oil would given the pricing seeing environment of any guess according Are you forward. the side of is concerns kind tried. activity and service around about I and parts Resi in the to pricing the you're going thinking the on question be channel, just how here for marketplace? the outlook, pricing in perspectively you

Todd Bluedorn

I committed price to getting think to the about it offset this way. We're commodities.

have going on Our our same structure we get we we commodity doing. offset track focused record have. inflation so a of the we're They have. industry have price commodities to pretty industry cost the the what doing confident and competitors entire that's We're it, same has to

Robert McCarthy

obviously could question that the properties about last the longer you that then think is, that opportunities of next a mean over prospect interesting? space you years, for I the Do could you couple I could be this have over see And accelerate broadly. talked and term, there's the the consolidation think sizable

Todd Bluedorn

someone now, businesses, exit It businesses to where value some to help can getting Other margin be there's to industrial or to conglomerates looks a We business. they a that we'd you help like, gets through position they don’t have them. will, I right environment it. certainly that think if synergies, And I great love created to in thing traditional the decide should in talk industry be the are only know I combination, these is be on think we do we're that what think an -- in. some would they consolidating of creation. if want to want

Operator

Global. Seaport Next have Liptak line of Walter the of we

Your is line open.

Walter Liptak

you you do Wanted something the it down to of to ask feel your work part channel stronger about business about there. the that Florida, you a how channel? feel Is need about maybe the just How or and distribution Southeast Texas on?

Todd Bluedorn

gains. a channel stronger of the and is and own pay across in Watts we've just continue some strategy what where at and than look we Florida now, and you if distributions But love think both we're fact. the PartsPlus making, we our look if nice made clearly like We share think are a Southwest Southeast been all is that's one mean, dividends. market physical were investments to you years the are we and where country both historical to good I someone our in six and very and five, the we I distribution, at ago

other as around the And well focus on so markets markets as we those to country. continue

Walter Liptak

what this that into region? Of year, percentage the PartsPlus that went in went stores Southeast

Todd Bluedorn

the the investments. openings about we trying prioritize it the for I can value that's that how answer. not get don't trying in we you it, of Southeast. pick is us, know But, -- to win create We're off again, the that we and head. my those to think we’re most at store yeah, it’s think way, We the about the least way top

put so stores. then share, stores And we've share identified someplace, that's already where put we’ll if the in, have high have really a we we'll high but we customers,

that about going it and we’re So the is way. where thinking opportunity

Walter Liptak

on visibility you maybe kind looking What resi of part the do of that this the of starts last place? kind And one time year, of the may then just and the get new the kind of and take XXXX it. business, construction at

Todd Bluedorn

the XX the national with We and with we have top them. especially and time relationships builders, ten, spent strong top

us they they and give us But visibility, about national visibility guidance, are. it's changes, to like business. give us forecasts have visibility they sort give if react the our but it. environment macroeconomic of They and We what land account own they their

when certainly can little as building. it’s to something that. we a talk So, new our we be interest be bit our XX% to We year, right think business their And down now, rates steady up of goes. construction, than we're big guys, XXXX, builder about might if the this or up guided something happen to she as more But the sort thinking on spike up economy, similar. were they slow for

Operator

Pokrzywinski the of Research. Josh have line Wolf of we Next

Your line is open.

Josh Pokrzywinski

of that million Todd. cost, XX on Just price a follow-up

the of abnormally quoted around it. maybe at you some copper had it hedged time that a fluidity, just here? a point? could number another, $X this into like pretty maybe you first think big I Or range had know, kind I stays if is that Are don't have well XX%, Copper’s XXXX XX% that from something number, move, that. above

Todd Bluedorn

the can we've Where we guys, what have we it of we right order we're me XX me, that's again, is just was what at constantly the of confident we number. our math think And saying - and year, twice what order year. of now price. says XXish where magnitude get of twice we're sits magnitude But today, that copper and this than with this including is decided have and easier

Josh Pokrzywinski

some. on part to productivity know want unnoticed, that equation the unmentioned material component and I are a a comes we or sourcing a the number? value then gross that number the track supplier can't $XX based And Clearly, get cost to throw price your hard contractually always that just more that the that gone and net that Just is in higher really of historically engineering suppliers then are it and guys on maybe not get number, I is you bit million pocket other side. guess when quantify And down that we of something trying Bloomberg of think directly. purchase on going and material price in there. equation to about but kind has is But obligated increases? to a there's that

Joe Reitmeier

this an its number, line bottom to When we XX quote MCR net million, XX million million, year XX impact. the

And internally. so we can it literally point to a P&L and see

and so you to from if price the of And it number outrun answer get you the countries is reduction we all It's small I we at to P&L. is after net and it time so a you time, of see this. we is focused And joke can how sort measure have this other net equal GDP price to increases was to to cost about be do used We to short you have when have but those number in UTC, can the way, XX XX. very increases.

Josh Pokrzywinski

the be maybe or are some today, you replacing side, some to seeing just parts smaller as cases clean-up then through back said hurricane clear stands And in on you coming repairing and pull people it equipment?

Joe Reitmeier

parts some seen and we've Houston, so in less Florida but Especially maybe Florida, in in pickup supplies. in

Josh Pokrzywinski

anything like not branch things just were, the was say, closures, that's that? one no And downtime there because doing where from

Joe Reitmeier

repair it's repairing units. And getting units. either think to A, I prepared parts be repairing to or people units

Operator

Our question JPMorgan. of Steve Tusa of line the from comes last

open. line Your is

Steve Tusa

actually you seeing you the what kind take continuing know share. unit think industry, a think in hopped I a did that. you industry and I'm open kind in guys didn’t to are is And out is do clearly I'm to every basis unit a just stores little a on there as year. I sorry, of basis? what then -- Resi kind on -- you XQ because that do The number same I to curious industry be store what of seems of the catch didn't late. you're basis? I guys on

Joe Reitmeier

don't full on I'll above on basis, half said with What businesses done Honest is slightly back is to know on the share four we've or consistent I year-to-date a that in quarter. the was point third or call were what I which come last a five in a HVAC second. answer just our years.

at you skewed it's some As distribution you be and look way. know, the HRI of data, could that independent quarter any So timing people and unloading, given given have loading if

you sell-through. it's If Hardi data, look at

different. so And that's

we're that on we when being when talk biased, -- just pretty up we to Residential, good distribution. to did well. street, I replacement the have we think So had and but again, timing guys be a of quarter, may given only digits, add-on -- pretty But we our single think up X% in construction loading be new the different the say numbers we something high we

Steve Tusa

also anything of to of seeing Are heard the particularly this peers you brands because specific of there more talk seeing own similar about there? competitors that I've starting competitors guys kind I kind pursue distribution, out from of the from you're reacting heard just you're a about the of going a kind on initiate Particularly, if that change differentiate of but going to that not curious success distribution your channel definitely others of kind out, are that have started to with there a your I investments. that from storefront some kind strategy. you build know I the bit there? to is been you're ground having of you but Has response. train guess

Joe Reitmeier

been look, talk heard about point, lesser JCI we've the I because field. I in talk we had on advantage own from utterances. we degree train and for total we've it have didn't stores or But, distribution. it. mean, your clear mean, years Carrier’s public XX right? big XX invent No, And about a years from the we to concept, this beginning certainly to again, a

And they own so when their own distribution.

already others done. I what out to doing build stores, if And have we're so And want fine. so they

ten out do. that takes a you've would year to got we. the only while sort get a strategy building will it virtual headed So the strategy store them to to But five to we is of give to right committed be caveat I is because like in I a think direction the cycle

and with have have of the now so keep to they just And we we sort it. toy machine If want it, with marching won't they same results. a

Todd Bluedorn

think Operator, all that's the I Q&A.

which everyone the joining to to for closing hotel said and to are for I at what over drive us growth EPS at, is I and year want look company margin we revenue thank Again are the comments So, record strong the to and Steve? well seeing a profitability us call. My coming for the year. joining today. positioned you in thanks out script, forward We close on -

Steve Harrison

New York Palace.

Todd Bluedorn

Palace. I'll the investor on annual everybody. put in them a flag meeting. of our for morning York for December New community XX Thanks,

Operator

executive our this for conference Ladies and gentlemen, service. participation morning. for now much the do your We for very concludes that you thank and using AT&T teleconference

now may disconnect. You

Lennox International (LII) 23 Oct 172017 Q3 Earnings call transcript