LII - Earnings call transcript Q3 2021 | Lennox International Inc.

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Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Lennox International Third Quarter Conference Call. At the request of your host, all lines are currently in a listen-only mode. There will be a question-and-answer session at the end of the presentation. [Operator Instructions] As a reminder, this call is being recorded. to of conference Investor like Harrison, to now President Vice Relations. would turn over the Steve I Please go ahead.

Steve Harrison

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

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

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

year. be held Please to more December this date Invitations calendars. will event XX. The be announce Before and Todd, format I our would follow. community investment The the details to of will virtual morning the meeting. of the annual call will like mark I again your over turn Wednesday,

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

Todd Bluedorn

financial down to the from operations X%. segment and in thank Strong production joining global impacted all us. $XX at revenue profit Thanks, was points the continuing Good record segment labor is quarter $X.XX $X.XX and to price quarter. continued to disruptions to prior revenue down flat availability in Total strong X% million our morning, the shipment-constrained everyone operations a with and quarter disruptions. Steve. profit GAAP global impact results, third GAAP and was negatively our in $XX a income approximately was margin billion, approximately was was you million COVID-XX total EPS across COVID-XX $X.XX X% businesses operating and including relatively the but from to supply third quarter. compared slightly environment. and $X.XX of in XXX impact of continuing for Adjusted negative the $X.XX, the chain EPS to chain to supply down operating benefit up basis XX.X%. down Company demand from of year

double business digits. profit revenue Residential for were refrigerant as revenue has warming, the to an people our segment residential and exponential look replacement systems and pandemic. highlights more quarter brand are bullish seeing HVAC X%. run More construction than X% systems low X, of there HVAC third of was And reducing and of market single low the and other This by digits. and low XXXX. is With high weather entering and revenue from down was quarter. January import before refrigerant are system with home digits. segment the window. Market Lennox from down using ban we the the sales on up continue business old effective on taking and at is to R-XX XXXX effective cooling we equipment points demand complete the from XX.X%. brands place ahead to ban replacement Allied was years. XXXX our on R-XX in impact fourth R-XX production the remain was Looking margin global the the down revenue basis remains XX single digits X, up sale Segment was the new mid-single January down down life coming Residential we work driven refrigerant the or of systems. and distribution from hotter Revenue EPA

significantly new expensive XXXA available in cases, replace market, a is and system than with comes to warranty, many In it's these still XXXA. the of cheaper efficient XXXX R-XX. more system. growth. to also which benefit is refrigerant to than air The sold heat XX% replace R-XX to R-XX repair and conditioners a it's XXXX, While From to with the has meaningful residential new more pumps were old a need

market to residential for these strong conditions ahead. dynamics expect years to We lead the

Lennox and proven be market Allied share playbook addition, In for running will their gains.

was up to points down top profit declined XX.X%. Commercial by Moving to business; segment revenue XX%. emergency Commercial constant replacement Within low down single and On quarter up hit the was replacement issue. the more was XX%. hardest availability commercial of XX% COVID-XX with At more chain our single supply in this, equipment The replacement factory disrupting quarter. up third and margin a low down X%. was revenue digits our bottlenecks Arkansas was shortages than was the than in production, labor basis XXX and revenue digits quarter currency, significant planned

equipment and to high revenue digits. was up down equipment account team revenue another digits. was account National mid-single single quarter The high revenue XX single digits. won customers two local national construction New down way, regional year-to-date. out the third was revenue business in Breaking total

Service Refrigeration up than XX% quarter, revenue On [ph] XX for more In Europe XX%. revenue was expanded XX%. the service revenue down up Lennox up North America margin revenue relatively Refrigeration revenue was segment revenue flat Refrigeration mid-teens. mid-single HVAC was than Europe basis points the more up profit and as to XX.X%. was Account up digits. National was side, XX%. ERF third was was

Refrigeration and ahead the to We expect to But Commercial we order saw Backlog shortages million from quarter, approximately bottlenecks. production material clearly and continue for an to business we and a similar and XX% look $XX negative $XX we continue Demand Commercial quarter, issue. expect both up for Looking impact million revenue as financial our not demand remains to profit. supply Refrigeration of in a approximately chain the and third currently is operating is of impact strong. rates be XX% businesses, for as our strong. at fourth

pressures, with but components enacted increases inflation. just Residential. this quarter, have in including of broad focus rounds staying to ahead inflationary including yielded latest in price September for X% X the third continue year. The three We The and company on on a was commodities see overall one we price of X%

the into to we're next XXXX. our carryover addition price September In benefit June increases, price increases and from year heading announcing additional

X% has XX% XXXX. recently Refrigeration North European price Likewise, December increase to X. for increases in effective round from drive of announced Our America X% in business generally of to has announced price a our another business

of our of Our X XX% November Commercial Residential round to price increase January effective to announcing increases business price another into up announced business in XXXX. be and heading has will be a effective

EPS For for the our year. guidance and XXXX, we are nearing revenue

to XX% for are XX% to We guidance revenue XX%. to range XX% a from XXXX new of nearing

expected revenue. a still is exchange X% Foreign be to favorable to

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

cash million the guidance year. for remains Our $XXX flow free

positioning pricing the the disruptions think expect just future. we battle in third company year. to in one through quarter the to which global year, guidance to continues of too this from third for for As company XXXX as continue. but The company price X% the the to chain yielded supply about next from month are the we It's also early production benefit strong increase we the set COVID-XX, power had

XXXX, carry XXXX price June For price September from over benefit increase. we'll our and

in benefit next commodity announced with price to year strong our a price increases have We offset next headwind year. additional

Commercial us, to at growth up profitability opportunities. strong more HVAC unit expect on drivers of XXXX, disruptions return we and as as we our turn in strong market backlog and position Looking and refrigeration supply in capitalize Residential, market we behind the to order more get

Now, it Joe. to let over me turn

Joseph Reitmeier

some to starting down disruptions Heating neutral price was with quarter, and XX Todd you, everyone. global and higher comments favorable with the and factory volume good Cooling. and from primarily Residential costs, profit business X% revenue. down up X%, down to was was material, the X%, impacted other & supply points. Segment and morning, XX.X%, million, exchange X%. price provide product financial down Residential third SG&A I'll million, partial additional Heating In distribution, mix was revenue lower basis $XXX details Thank $XXX down tariffs Volume margin to X%. Residential for unfavorable foreign inefficiencies, included due offsets & and Residential with freight, on lower profit segments was chain the COVID-XX was quarter, expenses. segment by mix, was production, Cooling

X%. the our and to was down & up up quarter, $XXX turning Cooling X%, Now Commercial X% Commercial was up Heating third was million, In X%. mix price business. was revenue Volume

chain was freight, distribution, Foreign tariffs volume points. and by Volume included global product a up primarily margin $XX partial disruptions million, favorable was Segment was mix. XX%. impact X%, Segment profit basis price costs, up material, production, XX.X%, to was offsets exchange down and was mix $XXX In Commercial other factory down COVID-XX profit higher lower and segment to price had million, up revenue Refrigeration, X% inefficiencies, XXX positive XX%. supply revenue. with was to and impacted X% X%. down due was

neutral XX impacted higher margin was Results profit factory price. and freight material, revenue costs. volume was profit growth. Segment COVID-XX positively by Refrigeration to and production and SG&A which constrained $XX by was inefficiencies XX.X% XX%. and Segment was Global negatively were profit points. was disruptions million, higher exchange segment up Foreign to favorable and chain up impacted basis supply revenue.

million The third $XXX in prior quarter. X.X. benefit third Cash, tax million included from from prior prior the Capital million a a Total net XX.X% the items. $XXX cleaning quarter, million the facility in million the quarter. million dividends cash and equivalents had cash cash $X.X in to compensation. COVID-XX as was from to prior Regarding in compared SG&A and a to segment third from in and and quarter, the with in profit, the $XX short-term the excluded incurred in repurchased the debt pandemic of Overall, company quarter year quarter the of end million investments at was total the revenue items year that for year $XXX down prior $XX incentive In percent quarter. of $XX was the various million the Corporate to benefits year the million share-based $XX million was the excess from were due special equipment million a million XX.X% third deep quarter after-tax of of the due $XX end in million debt-to-EBITDA lower benefit quarter. to was million third in of other the million a of net $XXX in million quarter, compensation quarter we quarter, billion quarter. quarter. SG&A paid prior the third of of personal in and to year million and primarily stock in expense $XXX ended at for in $X.XX items $XXX $X.X benefit expenses was $X.X the company protective were $X.X charge the ratio net $XXX to Free quarter. including for $XX down compared operations expenditures compared flow approximately compared

I XXXX. before it I'll current market points and turn assumptions guidance to Now for over review Q&A, our

to unitary shipment for double-digit Residential North the growth for markets continue year, expect For the we and and industry. Commercial in Refrigeration HVAC full low America

company, the revenue expect new foreign to for XXXX from to we now XX% and For still benefit XX% guidance a growth range XX% exchange. are narrowing X% a we from of to revenue to XX%

to $XX.XX guidance We XXXX continuing prior for to mentioned, guidance from quarter. are a the to $XX.XX previously to days than of narrowing from from as EPS are of the GAAP new quarter EPS range have adjusted $XX.XX new a of we operations from to range XXXX continuing a will operations fewer to And $XX.XX. from $XX.XX narrowing $XX.XX of XXXX $XX.XX for fourth X% headwind year $XX.XX. And

benefit X% quarter. first prior The than quarter days XXXX a had the of from more year

there are no For just I'd days to differences, XXXX, like highlight.

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

price from We changing. now that $XXX the prior for guidance benefit. of are benefit $XXX items expect the for a of year, First, million from up million

of and down prior prior to savings a LIFO our expected reduction now expected down we we e-commerce, in $XX Factory from from are About Overall, We guidance $XX million the SG&A sourcing continued me, and for million from SG&A, reducing from in our guidance, $XX headwind continue be be $XX neutral, pressures. investments benefit. incentive compensation. accounting million IT the $X inflation due a $XX a up mix in engineering-led inflationary of is a a net components, productivity. $XX $XX from million expect and is costs of headwind, million to and million to from corporate is lower development that quarter. approximately year, fourth productivity expected guidance leadership million, approximately Residential We a cost automation be and and now material Within from -- to $XX headwind, continued is about prior research was continued benefit. now to make million $XX to and million excuse -- to XX% $XX is with higher to guidance products, in down expected down benefit on factory million XX% from headwind controls, million $XXX this third to now adjustments of swinging to be be swinging innovation prior and a from prior million. expense guidance, quarter be

commodities diluted And be to approximately million from million quarter, same: the freight $XXX a to to stock a year we million for and the million still a approximately and operator, still be for then $XXX Other now Q&A. million the the This For for million the an mid-October. shares. expect remains to for we guidance expect full expense tax $XX exchange $X plant. rate to initial of full is Saltillo, by tariffs is weighted flow capital campus headwinds basis the production production now XX% and to benefit; let's $X still million plan expected $XXX our expenditures that and annual before $XX full runs million; in track In repurchased effective we savings and products year, ramp $XX plant approximately a on on million target expected end be for of be still completed $XX year guidance, complete remain be for as still expected to XX the is million guidance foreign of be still targeted unchanged still full third to adjusted headwind with our of and headwind third headwind pension took between the is place our is $XXX in a this to to to million year. net count in of prior initial are expected be the end interest XXXX be that Pilot go with our guidance approximately average are items share year; about well. that, which of XXXX. that remains nearly Free to million XX Mexico. to we mid-XXXX We third of a start cash in the up the expect full $XX million from at

Operator

with Mitchell Please Barclays. line Julian [Operator First from the Instructions] of go ahead.

Julian Mitchell

Maybe back you're How getting Lennox XXXX? thinking QX, morning. just about thinking inefficiencies in pace these headwinds you, market understand sort into sort the headwind here to from some you're similar those recapture, the issues, wanted like of $X.XX these quickly from when down from aspects Good about the Thanks. catch-up can of plant share of QX. come of how in

Todd Bluedorn

Yes.

sort unpack at August date, the of because it through me on AHRI that's we question flat Let away When data, get day. swing and obviously that of year look sort of we're topic the shares. to we

their number. distributor. carrier's think a issues But having larger top too. again, I So others I reported know Watsco primary or are

top off so also, they're XX% down XX% you that distributors, up that shutting and If it's or the looked at are much. dealers we're XX%

doing we're times others how think report in above middle middle our slightly and of penalty of their think think sense the even we're different at pack, the the maybe But pack. had different -- is, people see the share at. turn sort We or let's different of I have wise, OEMs they're So sort of I box. see where

in COVID terms of getting second things impact. both Things on I'll making are In the about timing very talk impact the about more behind of supply better. getting the progress, us, good and we're a which chain

costs the way look works fourth that's similar the get quarter Although it third on sheet. to hung the quarter, because just up balance financially,

it it. sell don't you You until see

of ended being we're then seeing seen. the the need. nice absorption sort we our the the And impact on with revenue impact overtime than production and -- lower we because So quarter and the inventory on problems improvements. rates, entering line it's side, are what we're But

So me supply a so COVID. driven by balance chain issues bit. of are unpack XX%, let to or the XX% little it from

our talk first. the it's stand Let Arkansas, in sort today, South worst about double to COVID due me has our run at of confident, Carolina, really Mississippi, saw is news we Delta as the variant Southern that and unplanned in is least We factories factory, we're behind course COVID. The us. Georgia, absenteeism good

literally need. cardboard in getting mean, of integrated -- to year's I things we factories things what On supplier It's the parts that. all compressors. and suppliers key in protect sort mundane and we like with sure different requalifying are We've address factories We're the have making teams buying worked and worth of parts pallets. in inventory in circuits ourselves. motors It's to inventory and tiger know. a in are supply corrugated which taking integrated things it's chain side, aggressively as we which circuits as We're

supply best competitive But we've today, although haven't degree think the And and least ago, the was in month two in behind see from COVID QX. so much. we don't seen it news, think far, to large are of others still the we months similar in we're seen not data numbers it's still OEM it's in published from share obviously. chain, better is we'll than viewpoint, significantly see what situations, battling, So a we tail think impact a losing ago we than but AHRI. now financial the we're although us better a at We all while

Julian Mitchell

helpful, market on just Todd. maybe residential demand. really one And follow-up That's

bullishness You inventory some and think, look trend Residential, year-on-year market from I in couple you Joe supply there of as The emphasized slightly quarters? momentum in the reaccelerates? year-on-year sort as on absorption of of X% XXXX. down chain of down there's said, go sort noise in there volumes your thinking year-on-year, of XXXX, to sort the on yes, that, for had at Lennox through and you about good sort Are QX. that placeholder a of flat next And volumes sort so you is then were

Todd Bluedorn

I own question. think my let me level, your be in think put I words -- to it will just constructive high which

summer. from R-XX lay systems XX% for continues have about XXXX intimidated in against X%, people adjust comp Residential the volume just talk the be of I and really because running it up including you've third top that we think, and to miss by, that the the the I from tough heard you longer, And compared things on XXXX sales think had frankly, to quite that all fact If that X%, production, I very a us, last were have nice that me would around very year we been that revenue's of our And warmer system performance. quarter then the X%. Lennox kick units

the we've So I about bullish about, talked market. as still feel,

Julian Mitchell

you. thank Great,

Todd Bluedorn

Thanks.

Operator

ahead. next Capital with go Our from is Hammond Jeff Markets. KeyBanc question Please

Jeff Hammond

good this Todd, maybe you Hey, can everyone. mix into jump shift. morning,

million tied chain think the supply issues? you that are guide. people what I on swung the Or at is and that Is $XX COVID buying? to

Todd Bluedorn

are business. a mean there's down. construction new obvious was And we supply to we about that The for -- issues It's resi -- tied the talked replacement protect builders, one up I big the and couple other issues. reasons. COVID was

a And mix it. around been And so chain most Mexico our And supply then has that both the comes it's supply side of that has is a out -- facility reasons. of lower for Saltillo on facility from product myriad COVID resilient the there. category drove and

able in produced Carolina, we So had been we Iowa, more have rich Mississippi. have not out if would to not more of in a South mix

Jeff Hammond

knows get supply mean on you I it the I Okay. think I resurgence. getting when the -- just dynamic, what know into dynamic getting back carries who you COVID the And is mentioned mean, like with then sounds to normal 'XX? your well you there? is it that better Or that, thought do chain but happens and better But

Todd Bluedorn

not I'm sure answer. honest it's the

them, we to we're I aren't sort we supply because to look than industrial chain us. in enough month a inventory XXXX America that find we're of I clearly sit But or -- think two on when what -- integrated when than three is bed better we ago. have and said, significant think supply I issues months significantly I corporate when and the better I I a close know around it's it's them level done. chain micro months putting out reviews businesses buffer America we better like than ago, buy to circuits ago. with think things And better It's

Jeff Hammond

on then think a increases about on the like price, a for to you've announced to good And all line price is kind if snap starting X% point just the or planning announce, Okay. XXXX? we favorable of

Todd Bluedorn

$XXX the for I up what and give full significant mean million was in year. Yes. we math on we X% in resi the I'll was to got price. we're said is guided we call script, mean the get that going X% at I QX, you which

the you about will when through up you we're do have million. which QX, time, you math If $XX

over prices the going we're quarter. in implies at that get so fourth corporation X% And to

of we're But the increases going we going to Now into Carrier we're lots year. the -- fourth best third rate and have quarter that's quarter. about you run year, second, next this going be to still price think

Jeff Hammond

thanks. Great, Okay.

Operator

with go we'll Partners. go to Vertical Sprague Jeff Please ahead. Research Next,

Jeff Sprague

December-ish, can you pick Good Todd, should kind magnitude Hey, more? we bump also. thank of morning, some bit So you. on like price a little January-ish sounds reasonable normal of a just up it everyone. expect

Todd Bluedorn

Yes. we announced guys what January think, to to Commercial final we've because aggravate -- the effective me then in things wraps script up or December And it probably Refrigeration on X. just I own on was XX% resi convey sort in are of want but mean January the I the to -- with putting and for call pricing tried they probably already we effective, And pricing going something the to the communicate increases to X. similar effective Europe in their resi announce we're for already December. went out both on U.S.

at yes, another essence that's year. the of in So way the end there's effective

Jeff Sprague

I that's other update or where if actually kind process, Any wonder you at. us expected timing update And the on of anything? could succession on

Todd Bluedorn

Yes.

think, think into it, I mean when short we'll and of I we announce is long search the is. as the it. it's something I say, to it. ongoing, is have Board's fully And

Jeff Sprague

I Great. appreciate guys. I'll leave there. it Thank it. you,

Operator

to Merkel with go we'll ahead. go William And Ryan Blair. Please

Ryan Merkel

thanks. Hey,

res? the commercial? off, was majority first expect split? pushed do So And to of the you the million $XXX in shift rough Or when what's

Todd Bluedorn

Commercial. excuse of question was me, third -- then resident Residential fourth I'll be will sure the is, the of the question it the the first than And answer part not I'm part Residential. second more more the Commercial second but more than question. of the of part in quarter, quarter

like of the is split And XX-XX. sort

first next to of the the quarter we're it's what's the XX% part then resi. In quarter, flip. And Commercial, third is going So question, it? XX% ship the when

Ryan Merkel

introduce when Yes, going and it are ship you -- the yes. push to

Todd Bluedorn

Yes.

the is of sort bubble it's that of think quarter, what's happening fourth short right? -- sort just there's think I a in I through answer moves So -- system.

the in fourth fourth ship third in quarter. we quarter, -- some And couldn't ship things we of

flat lead sort some enough end in we I some be people people data demand dealers a the the think in be of of picked I bow country, things XXXX when suggested. Miami of will it in think will that because of I up when the be we're that third the i.e., HVAC the many as is and deferring see but selling when trouble we've we Watsco the season deferring fourth start season. is in season not I enter quarters what's all summer people broadly, had muted or while replacement of to but down. And are in install up producing, an quarter units, is what And sort I conditioners enter it mean at by industry-wide out is happening And will think I and to get AHRI we comes the have that of many country. summer Not air year. there'll being from until times local Phoenix, long the production next are we think parts to picks think wave the when into -- and parts will

Ryan Merkel

That Yes. makes sense.

little, can going to improvements offset follow-up, the can Todd from share time you you're about my there the for is is then hit to see you for issues in supply COVID? a when talk the a this but newer initiatives? on And strategies implementing line you Okay. And company

Todd Bluedorn

ago. the line month a answer the I time was think is

significant seeing already initiatives. improvements we're the So from

to the said, Just through for a just flow all while like takes it it I P&L.

of millions inventory. and less of have, in our have say, the to disruption August, So I dollars, I tens peak. than doing And want sort business of with of of year We're circuit engineering and taking an XX spending that. MCR It times we're things would is we're of said maybe we're little a team was early like that peak the now just it's that September past we feels on key integrated integrated We're a circuits. suppliers. of qualifying focused and lots buying them our of inventory months that suppliers new

ones But they an us call better. where trying are behind they thing on would through a bumpy suppliers we So thought through compressors. is issue, say this and live of and calls. work I the through but have got getting we're it be our never those and And things that if I are and motor I'd had again, are to We a pallets think to we've short phone us. ride the phone work bit major it a also. in had world worked we've quickly. But

work financial repeating time, know around myself So caught just way is is system. in the but the a think in inventory takes I through operationally, while the for answer the I up we're fifth the this for much but It -- still QX issue cost is news to I'm bad financial better. the news it's

Ryan Merkel

Thanks. Helpful.

Operator

is Stanley. Please with Josh go ahead. Our from next question Pokrzywinski Morgan

Josh Pokrzywinski

on pick of time. done some mean, guys. a to get of it's maybe not morning I good in ourselves 'XX but in just or a before matter and kind the up kind Hey, margins that gets comment of already on last been annually I the flatten lap work's up Todd, to to commercial, guess just some of we ahead specifically good can stuff kind dynamics next on Or half these to guidance of first fully do go year? basis better? of start out need of year-over-year

Todd Bluedorn

answer increase not basis, I a one-off down that's we quarter my Josh, math think be just see don't to with comment, I I'm make I'll trying a I you, honest that the be I the this third know -- do in coy. But I'll -- quarter, that back. head. XXX from can't commercial and expect on is to we're in full fact next the basis a margins year we'll year. What year points in be have

Josh Pokrzywinski

of one And that specific you OEMs there only think helpful. That's to really talked can hasn't a But dynamic in you're about supposed the recycling that pointing se. some consumer? refrigerant of noticed driver, included, that kind you resi, And the it. sort to put Watsco that that XX that sort why years of that per fill I to kind Got of as Like out anything then around that's point, the a be was driving of remember side kind there? ago, supply or thing. of stepped big like that delta a in shortages the I number-wise to as hasn't maybe of on in

Todd Bluedorn

too. think I talking Watsco's Well, about it,

understands Josh, unit. Say, think house, give it. to you're I getting close But the I'll you everyone your big an example. a business

unit a you So house. you're have your getting foot X-ton square that X,XXX in for

of XXXA X-pounds you for a refrigerant. because about charge the about now, And buy ton. of per $X,XXX of per difference $XXX ton, charge, it's X-ton refrigerant $X,XXX a about assume costs refrigerant. and $XX it It's R-XX about sort you conditioner And there's between for right unit, the it's the ton per if air

a difference refrigerant. with So unit -- buying of a recharging of that's about for $X,XXX X-ton

into have So a for labor warranty unit And way, but comes demand that, get -- you are I the out get R-XX $X,XXX. and And says, place with are system more $X,XXX takes this. that dealers "Okay, sell plus $X,XXX you very by it's baked and the leaks, I and charge and that's there's coil someone for recycling to you just some it's taking whole spike can very, only I put and efficiency." conversations and place. the that at new will the supply Those a the there's up. and refrigerant continue And know that a that They're up XX-year spiked good it's this. a bad it to back that's in, have or refrigerant me

Josh Pokrzywinski

Got it, that's helpful.

but electric example. think blowing cubes fan more I vesting we're over fans ice like good

Todd Bluedorn

Thanks.

Operator

Our Next go Patrick with JPMorgan. from question ahead. Please Baumann is

Patrick Baumann

Thanks question. taking morning, my morning, Hi, Todd. good Good for Jeff.

question have price fourth just about you pulls terms year-over-year and looking you're on flattish And a assuming is. guess that versus seems and at the like basis, that one, for I quarter revenue looking what's guidance was quarter the coming not adjusted embedding kind the looked rate kind you're your the guess my days organic from fourth really in X% I -- in just it flattish selling growth disruptions improving of you volume. It is the to what it, a by to is [ph]. visibility and It down really quarter. then at and the think volume improvement of on mid-single-digit it from sales third and from And I'm on looks like which like comments, X% question in volume said supply COVID I days impact your decline First sales. low the my chain. of at

to versus or something curious some that. on furnaces related you could availability AC like color So if of kind I'm maybe it's that. just give

Todd Bluedorn

No.

what already -- we almost and inventory. to on I I tied the mean it's through entered we entered that think a I said, low quarter we're month

capabilities. around my product so -- production our And were our comments

three ago. materially were months and they so or better better month even ago a they're what were than than And two they more

So guide issues -- us. mean to our getting but these I the we're guide's behind production capabilities

Patrick Baumann

impact behind but are the issues The disruptions it. Got from unchanged. the Okay. are

Todd Bluedorn

the say getting along. able then of and and be are us. enter behind sheet then didn't I issues to cost go to you said I have the said right? sell I catch And behind you the as So hangs up to you that the getting the inventory us, it's quarter fixed, sort I said balance with up on

issue And so we the face. that's that

Patrick Baumann

you and And XX%. then planned down to this and wrote could kind I XX% Commercial a that. follow-up emergency that isn't of about definition recapture? And my quickly, hard these the But confirm I so on behind Okay. talk that -- just I'm emergency think up you replacement drivers want if lot, replacement that was down And it wondering was replacement said since numbers. obviously down HVAC by I to is just just doesn't

Todd Bluedorn

were emergency didn't I replacement. recapture we Yes. say to going

but say But with the is higher So accounts margin reflects by national for don't it I we're I that disagree our way, protecting didn't that. us. a is, which business what

So I others -- emergency it's we've going said replacement. to it. think issues. And having replace I after we're But similar earlier what are yes, captured hard

the market we'll shake sort So see of out share what as.

Patrick Baumann

Appreciate the Thanks color. for time. Understood. the

Todd Bluedorn

Thanks.

Operator

Stephens. Next Moll question Please Tommy is from ahead. with go

Tommy Moll

environment my Good constructive. is question. still sounds it for like morning. rather Thanks pricing taking Todd, the

XXXX? any cost discipline industry? neutral momentum any sign into can Is what's the of And the curious. there players you that just I'm there keep diminishing? your level among confidence in So Is lack price that of

Todd Bluedorn

Yes. constructive. still remains It

I than our over understatement, mean be more That's that's Tommy. it's before. up constructive. I I think price going said X% Southern to

flatfooted we're million; affects offsetting of priced. -- of So $XX we're adds even $XX up that But million, million is aggressively it tariffs $X commodities this the going cost, answer all going $X is LIFO are $XXX we're on price our which freight, million; We're getting year get year, doesn't to million; sort when into this it. to $XXX million.

than And even better year. and so this offsetting next year have pressures those more a we're we'll inflationary performance

Tommy Moll

a was understatement Perhaps there. there little

Todd Bluedorn

It's a quarter, tough Tommy.

You've helping be me got to here.

be get can't You [indiscernible].

Tommy Moll

to ask line. the a on I wanted SG&A follow-up

level year set expect? we've Or any they year as on be squarely, know accustomed that to may year or favorable of do we as that today, been versus a whether comparisons us be any to deliver would best where should should way line this you unfavorable? next incremental anything next think about you Just type typical

Todd Bluedorn

normal, of broadly, think a hair sort that all as pressures think is that we've a year -- more think maybe on labor we're we and inflationary up the issues strong we really say things given I I down that of half sort taken about step salary would a level true. high I that's of I think increases year. had than probably seeing first see, though of Even half the second really, I

year above a this year. on So target full comp basis, incentive up is

get And products re-base it. the IT a next and in we'll year investments in we so we line make and benefit we'll continue always And to distribution when like do.

we're I with and up think So a years would you increases model would started of going some where way and and up than bake what couple saying sort in. sort less that's the that's SG&A but at of I of as I revenue takes of end over this last look puts there's of a would I long-winded

Tommy Moll

Thank you, I'll it Todd. turn Got it. back.

Operator

Next, ahead. go go Please Goldman Joe Sachs. Ritchie with we'll to

Joe Ritchie

Thanks. Good morning, everyone.

out just a cost those price comments little maybe So parsing just further, Todd.

about should the then quarter. I into obviously, rate are to maybe half those like a XXXX? curves the like first of come the we six down. fourth So as you cost the thinking that starting kind mean, of in next run points And mentioned be

the So think point spread that at start benefit into you of next year? do to what get widening you

Todd Bluedorn

much think I the cost curves are thought. I coming down than lower

aluminum steel's bit large but as exposed at a where most we're Copper out from down coils. this down is point pretty So degree high. little steel, move steel's copper is still but away a little we two -- bit

So it I take starts unwind. while think a to to

next commodities given -- planning we cost this be least of the timing still hedge and year, things on over that think structure, of a steel the we I pricing commodities that's -- at we commodities the based for a up still formats given and to price be different -- on on significant buy up end CRU why our quarter we're carryforward year the will and expect we're increase include passed significantly. And year. prior pricing, basis to year-over-year at

of with quarter, year, answer year of the year. question, going and offset again so second of we're this have the headwinds though. them I we're year. your And to price really quarter We're And to beginning third going price to fourth confident next think increases last quarter were

yes, the the nice some So we'll first half year. have tailwind of

Joe Ritchie

guess I Okay. my helpful. follow-on. No, one that's

of I like And of to that and degree. dug that down mid-single in just market color of XXXX. sounds supply replacement of And resi to into potential kind head replace? so just kind It further provide as can about like terms guys we R-XX know what's kind being replacement around you you any conversation referred to the digits. other some impacted you replacement. I certainly and think chain guess have left resi this into if to any don't that how this

Todd Bluedorn

But done think about XX% mean, would the XXXX, when even that's haven't you on XXXX, R-XX. a the XXXX question. understand XXXX, we the math to lot I I there's I -- or warranty year -- still under last units they there. the those mean it so time get depending the people of don't on up before, they're slice just until out fixed. I year XXXX,

systems out are are units there those So out there. and

I of major And so of it's driver -- significant driver think a demand demand.

Joe Ritchie

great. guys. that's Thanks, Okay,

Operator

ahead. Cowen. from question Please Next Khanna with Gautam go

Gautam Khanna

about Hey, How business? maybe thanks. Commercial Good is the in I as figure big you well. it so IAQ, asked you're inquiries? Can terms morning, guys. on I in Nobody seeing what might comment of

Todd Bluedorn

I how remains pushed honest other customers. prioritizing sort to that it it have Yes. and customers the taking you. how mean, still gets bit the of we're I but we important I'll and side, given of a issues mean care little be with we're

buildings been low-rise office and So are important as But than the still and others. biggest probably and market inquiries part. an for little still schools a strong us I've less know, is you bullish is resi

issues much about think our and into XXXX, we're some opportunities So of going when we'll on obviously but focused I are more I important. drive these it mean other

Gautam Khanna

with system portion... sell ticket a us IAQ What if incremental do is size is add-ons? Can you what the you the remind

Todd Bluedorn

do Yes, than it on system, resi be Commercial or XX% XX% system, less that, to it On XX%. if a so. you a probably can

full get everything. of the you if sort package, You get

probably MERV if you -- or X%. lights. just filters, If X%, the UV X% of it's upgrade thing. That's sort filters whole just do you That's

Gautam Khanna

and mentioned Saltillo be issue? the Helpful. facility Or but... a was the Carolina little to QX entirely from impact You more impacts QX is And clear, resilient in South a Commercial just or it resi also almost COVID, Iowa? that on Todd, did

Todd Bluedorn

the order was in The impacted business to the most factories that had Arkansas.

our Our our Arkansas factory which Residential factory. Carolina South is Mississippi Orangeburg, and Commercial factory but Residential

I people expect, had our criteria people than society because the sort and lots really about again, when we our factories. And criteria will put then I'm resi this think factories where but I where offend going the never country, in the much vaccine mean rates I anyhow. believe reflects science, it And are of I say much, So we that. lower of know Commercial of factory. two factories, say in we would Southern parts in as a you they right? other are to

so these And of vaccine with factories around we've XX% rates. XX%, had some

Gautam Khanna

for question me. last And

also have also have constraint? therefore, mix supply true on the more kind the risk pinch from it the just to dynamics. electronic Does mix, products? are is systems impact more the that supply that relative And components? entry-level chain not the the points higher-end Is at SEER mentioned that You of an Or SEER true?

Todd Bluedorn

Marshalltown, think simplified probably and as around But control it lower around speed mix and about site probably I did than Mexico Iowa it better I both that fair. production had That's you're as right, mean, systems. variable thinking I we there.

dug part is So probably answer. would my in, if I be of the you're right, that guess probably

Gautam Khanna

very Thank much, you Got it. guys.

Operator

Next, with ahead. to we'll Nigel Research. go Wolfe Coe Please go

Todd Bluedorn

Coe? Nigel Hey,

Operator

if your open, possibly. Nigel you're on Coe, mute, is line

Nigel Coe

morning, Good Yes, mute. I everyone. on was

labor chain of it in So about just Was of then is we impacts sort Medea? something supply separate? -- factory? talking time, supply And primarily partly Or sort a real productivity from be of would in motors? on we replacement. subtext improving and to when that compressive Or about imports availability is the your from that Commercial and conditions that are talk the labor VRF the

Todd Bluedorn

availability was the the VRF impacted much I'll in was order. to the But really because customers quarter, before What question, had first was replacement. our contractor Nigel? of our reverse we we large in business maybe new accounts. protecting it clearly weren't replacement protect went national emergency we up answer part existing impacted mean I there. after were the by so we

Nigel Coe

really is is -- that's mainly Or better it's labor it... Yes, it gotten for you?

Todd Bluedorn

Yes. Southern The should What's states impact absenteeism, see unplanned again, point. of that's us COVID the sort behind you us? behind it case Yes. sort in And at this charts. of COVID

Carolina, So they're if down dramatically look our you look Arkansas, in look York and South at at look Mississippi, Times, New in factories. we've at seen that

that the suppliers. months ago. is, have it critical own. facing healing we're chain in then So we And think components, challenges the positions supply two if still our actions taken taken supply I is itself was even better and think but or I And it's -- on chain, piece three investments much we've made an on we've than that inventory new I that's we order qualified third hadn't

Nigel Coe

as constraints, And issue. and then metals But sort even about know but up of the talking are a metals companies some an as pronounce. aluminum you're auto aluminum magnesium coming other are alloys can't that rare I I [indiscernible]? these consumer of any of

Todd Bluedorn

integrated circuit some pop future. on But different I that's has the the not But aluminum yet. we steel. ways. mean metals straightforward No, radar cold-rolled think my up and may buy I mean in in screen that straightforward issue I around impacted the market

exotic in And not helped slowing now, auto and that with an as issue steel, aluminum us. the with has buying not So there not us you guys the doesn't that's might we're down future. right be mean but anything might imagine. But issues

has that helped. so actually And

Nigel Coe

then until And company Great. can once committed Todd, to again you're mean I -- you're address not search. just CEO the we Okay. the mid-XXXX.

your search color mean hands? the there talking about -- describe helpful. intense? So months? still be would a right are you on we Any weeks, is would Or now I as there time time

Todd Bluedorn

intense. It's Yes.

this, soon can day. will sooner that they move the and wheel wheels But the got my I've understand something all somebody better. got I as you hard on and get place. -- And the announce every you driving take like as we on, as think transition as I the I I'm once then fighting my hands

done get And as trying they is the as get intense. it quick better so We're quick it it's as can, to trying done Board we say or can. it, to to as

Nigel Coe

Got it.

Todd. Thanks, Okay.

Operator

question next Credit with Please from Our go John ahead. is Suisse. Walsh

John Walsh

good Hi, morning.

Just a wanted demand than for expected. has of better year, to been, price differently Obviously, folks market come think, at here. the little side this I cost cost the

of buying might So a we've heard commodities. some spot been of little bit there have more the

would I'm versus buy hedged hedged you you next characterize year of of curious spot year have about this thinking year, the in commodities? unusual you this might what as you had in terms on commodities just how on on what in if terms much Just market.

Todd Bluedorn

question. directly I'm it going and touch ramble maybe touch the around on think I other areas. it understand and to I

I to we but hit your way still see going it think ways us, going on next significantly the be up pressures I point, broadly to forward. that This I have of inflationary -- different in buying are the think spot year. not broadly, communicated is commodities

reduction in $XX The are people net material it's I us. delta price This we a closer reduction, year, passing to out. we delta doing think cost costs on don't isn't breakeven. us the about to way to is the talk other were way are. is And taking aren't increases $XX million a that cost has inflationary that where we is usually million pressures year, typically that hurt that

seeing in So to also pricing in have it, they're passing on us. suppliers that and we're that things steel passing who pressure it on that from aluminum are have

have we're also seeing here. offset normal of at And go that's this we'll reduction that and why next material cost price new we'll we aggressively year. again, But -- the to into price not so our year, able end when have the we're with

John Walsh

for just from Thank they if are -- yet enough one pumps? then the impact, the they mix one, big on heat I that. they're Lennox. have overall or heat And mix if a of meaningful actually there know you to pumps. would dilutive actually accretive they that a Are don't for margin maybe part is

Todd Bluedorn

so heat with it's that we heat an one-third pumps. outdoor if the or a indoor. an with total sell margins it's pump the dissimilar a memory, not from AC and heat in outdoor sell us furnace pump are we handler, If capacity system and with I indoor and part. It's, our we of margin. to an get And industry-wide meaningful roughly think air they're cooling line

meaningful out buy spoken about, you our significant investments, or are a allows with of to them we weather energy it's part So that Canada a I've pump we've region heat and as made have cold And coming north appropriate. far and efficient to them business. be cold as still as

of. investments. significant made would not ago, and of investments now industry. a else people we've who but ahead maybe even sort years has we're everybody caught say so significant I said almost up lagged of we've maybe have Carrier we five I'd made the ahead And

John Walsh

taking the Great. Thanks I'll pass for questions. along. it

Operator

Joe Our with Wells final Fargo. ahead. O'Dea be question go will from Please

Joe O'Dea

Hi, good morning, everyone.

there Mexico when favorable is place else anything supply does seen manufacturing to online? chain understand dividends pay kind of Is a Or chain far? about capacity had you've fewer to strictly more the in environment issues want just Mexico. to And as through that supply I that just made for continue First, there? on what we've and disruptions that it COVID comes increase your factory be so you has that

Todd Bluedorn

south we of certainly factories one U.S. other we line Mason-Dixon the the were think there that less is in in hit were I COVID, in than our

to areas Gautam so supply, the more we more of that third don't for that the were just robust. better answer steel use basic is that But worked less for a I happen less was the has suppliers is way circuits, product structurally entry-level more it's hadn't integrated be -- in articulated, risk. at says in think supply, the then I were. probably to think I it's Mexico something to they, I that think on that And like fact, reason. some sort Mexico be the it pallet robust place out,

Joe O'Dea

there's more just And you preventive wonder you in share equipment that replace shift share maintenance. more someone that? Does question of that the Are in you're for can where a kind over and of emergency maybe an out because just you less get time? swoop get an Okay. become on more marketplace losing tries to I if and not connected better opportunity as and then data and replace. emergency protect it seeing

Todd Bluedorn

it. tends replacement electromechanical and it and a sense, We're it's cold product, I then It's don't and monitoring hot not be it it emergency entry-level when controls. they in they when They're think -- they turn breaks turn it. so it's because us. call not monitoring to off on

So demand remote to aren't usually sort if any that -- don't way remote -- monitor we're to monitoring, a then booked up we're going of unit. impact any in if to if people able I will customers them think meaningful thinking that are better trade about

Joe O'Dea

Got it. lot. a Thanks

Todd Bluedorn

Sure. Thank you.

Operator

Bluedorn, Mr. any I'll it closing turn for comments. to you back

Todd Bluedorn

Thanks pressure. positioning battling disruptions chain strong pricing We supply through today to To offset for inflationary power the future. wrap a into company but lot. also carry XXXX the up, we're

I on supply opportunities. position strong our joining return today. as markets thank drivers more and up the market disruptions To refrigeration unitary of everyone commercial chain behind we us, capitalize and strong at more get to and rates, want order for and Looking profitability see and XXXX. we backlog growth market we expect to to in residential, us

Operator

gentlemen, conclude you that for your for and Thank conference does participation. your today. Ladies

may You now disconnect.

Lennox International (LII) 25 Oct 212021 Q3 Earnings call transcript