LII - Earnings call transcript Q3 2024 | Lennox International Inc.

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Operator

Welcome to the Lennox Third Quarter 2024 Earnings Conference. [Operator Instructions] As a reminder, this call is being recorded. I would now like to turn the conference over to Chelsey Pulcheon from Lennox Investor Relations team. Chelsey, please go ahead.

Chelsey Pulcheon

Thank you, Margo. everyone. morning, Good joining XXXX for as share we Thank quarter us results. remarkable third a you today

Joining CEO, we will share Q&A me Quenzer. their Michael is session. prepared Alok Maskara; remarks before move the CFO, to and Each

refer to to on call, will today's may this which to subject of page. additional non-GAAP Please financial be that of underlying and risks refer considers statements, our we to forward-looking non-GAAP on We Slide numerous indicators X, that details, certain to measures. reconciliation certain for SEC uncertainties measures business our Turning reminder Investor are during a management making relevant as a all also outlined website available GAAP filings performance. Relations including

link website available our for today's The investor.lennox.com. today's at earnings release, call Investor on archived presentation Relations webcast and are the

Now X please the to our I Alok call over turn turn Maskara. Slide CEO, as to

Alok Maskara

record growth, strong Thank delivered Lennox you, by another flow. XX% and highlighted Good exceeding revenue morning, Chelsey. free margin quarter double-digit cash everyone. operating

We team of talented our strong enabled also plan. I exceptionally initiatives as mindset our transformation for on part progress these am grateful the our made customers ongoing growth results. of who key and multiple solid

$X.XX. an same which $XXX impressive the to generated year. million cash We increase X grew to to segment for of turn of million Core record highlights $XXX of is quarter XX% or revenue QX a flow Slide last Let's operating expanded XX quarter. adjusted in per XX%, earnings this share approximately increase this adjusted our quarter points over and the margin in basis XX.X%, XX% resulting

share the strong and XX% meet our Investments customer for front-end products. segments, manufacturing segment revenue capacity has to both XX%. continued demand industry-leading Our growth and HCS Both gain deliver us to BCS, enabled grew profit. redesign and and in our to ROIC achieved quarter in also

of on technologies The and track in commercial factory investments addition, processes Comfort remains Solutions. order start-up integrated digital Building segment the Climate new within Solutions rates improved acquisition Home led successfully distribution schedule. and ahead to the In fill AES

reflect support of our XXXX our $XX. raising the employees range confident These Therefore, and in dedication XX,XXX our results of to $XX.XX dealers to customers. am I EPS and the guidance continued

Slide Now our X on CLO to more transition. turn for details please

Torres earlier this to Legal take and Lennox's morning, Chief Lennox. announced [ As moment [ John's retire. leadership John ] years has XX to ], want elected outstanding Officer, his acknowledge a to of impact lasting on I

compliance by streamline with portfolio led ethics our multiple we and divestitures to strengthening that ensure He acquisitions office. and ethical highest our and standards operate the

thoughtful As Brown excited role takes planning, a of of the XXXX. she are Legal result our X, succession effective we for ] Officer Monica Chief January on [ as

XX Monica functions. and for ] has a our with [ Lennox years across legal been businesses record track proven with

firm. nearly XX she law outside Lennox, Before with spent joining a years leading

Looking ahead, is a ] capabilities with to focus [ on well growth. legacy [ success and our continue accelerating Monica future positioned of John's advancing digital ]

the QX hand the of financial to call to performance. let details through me us take Now our Michael over

Michael Quenzer

everyone. Alok. to Slide you, X. Good morning, turn Thank Please

consecutive seventh adjusted share double-digit our growth. quarter earnings to We are of report pleased year-over-year per

segment EPS adjusted margin in resulting growth. points increased revenue XX% we by quarter, remarkable This growth, basis adjusted a achieved XX% our and XX

costs regulatory volume from well segment to results. by Core and XX%, $XX details profit segments. approximately up last driven increased partially our offset million new and benefits. will factory as by gains quarter million I in Now $XX transition mix by This commercial related both expenses our price was ramp-up. share volume or on third million as nearly attributed Adjusted billion, in year, more financial $XXX $X.X revenue to was mostly

XX.X XX.X% to we distribution growth. to million outstanding tax and support XX.X consistent rate compared as profits strategic was were to impacted in also The the initiatives prior quarter. profitable year diluted sales investments are Ongoing committed in million shares and

Solutions and Home expansion Let's of XX% X to quarter review an segment impressive financial Comfort basis Home and the turn performance segment revenue delivering an XXX Slide profit Comfort third The growth in exceptional profit Solutions point growth, quarter, segment. margin. the XX% now segment had

Sales over growth channel, normal by increased distributor of after primarily our in volumes X-step XX%, reflecting by fueled restocking destocking. quarters several XX% industry-wide

compared growth, contractor modest one-step market. volume saw broader Our channel availability supported to the

the demand. end on the past the driving over well. the R-XXXA of for are execution products, XXXX we saw price key growth prebuy Towards pricing improvement focus met we Having of been the in Pricing initiatives R-XXXB revenue and these early concentrating year, now are our signs targets, X% for the HCS a has progressing quarter. successfully quarter, segment new

anticipated our quarterly improving our ongoing profit distribution transition challenges experience. R-XXXB for products cost at impacted enhancing product aimed new by to our and investments the customer our was during Finally, overall capabilities and

X. quarter, X% Slide to growth inorganic impressive to attributed can The Building also our acquisition. the in third AES on growth which Moving of segment delivered revenue XX% from Climate be Solutions an

We completed are pleased this very acquisition, was the last quarter fourth which year. of with in

of was inefficiencies limited organic production additional perspective, output. sales volume growth and delivered From margins better-than-expected we up was synergies. by constrained that manufacturing challenges have new quarter, profit factory schedule, in was finished an integration ahead The but X% AES and ramp-up by the driven

costs. track. though factory million, commercial margin profit new manufacturing anticipated declined Mexico, at Saltillo, to ramp-up in Segment our start-up remains by Production profit increased due $X on

manufacturing demand However, be below output HVAC levels. to total continues commercial for

are in pilot results For offering emergency started early have we some and products markets encouraging. replacement,

flow quarter representing Please $X same X, million increase million last in were turn year. Capital where $XXX the million Operating $XXX $XX million, the cash will year-over-year. to review compared to period flow capital expenditures and I Slide totaled performance cash strategies. our deployment for

million solid implemented capital. performance Earlier a $XXX the margins flow on has revenue been focus drive in a driver which accounts has efforts working flow. profit to year-to-date with increase expand Our year, year, capital operating reflecting cash this cash and initiatives we working been this of payable, optimize ongoing growth,

tools working digital leveraging will In processes. years, capital and by unlock efficient additional the coming we

demand. ROIC invested on return an cycles resilient industry-leading Our nondiscretionary to figure at remains XX%, that capital, replacement high across business due stands

capital expand coming while year-over-year investments are also substantial making to deliver ROIC to in poised years. continue We the benefits that

maintain with X.Xx, adjusted we debt Finally, the at in healthy net prior EBITDA year. from down to a balance sheet X.Xx

focused flow free on annual growth dividend strategy deployment cash bolt-on Our remains driving and executing acquisitions.

third We excess we'll continue have in efficiently reinitiated to buybacks leveraging quarter, return the shareholders. repurchases and share to cash

the our left year Slide full of year The table more our will will revenue you factors. last results now XXXX full the our turn have and review growth I If After visibility quarter raised guidance. into to quarter revenue guidance. financial the we revised third year, summarizes on the X,

up now mid-single-digit revenue single our by company improvement is increase sales pricing mix We to core volumes XX%. Total to acquisition AES approximately contribute to and projected single-digit be now and in low growth. digits low expect combined

full guidance we As profit raising per a $XX $XX.XX. result our $XX.XX third year of to earnings guided share performance, are from $XX.XX quarter to the previously to our strong range of

also are guidance our to million cash free $XXX $XXX flow to We million. raising

earnings us approximately As expense, see, guidance. most of the share Overall, our guide which on be our industry has significantly given combined can year-to-date for demand, changed, performance, clarity estimated you other to with per confidence to increased raise interest now not million. points is $XX have except

an please refrigerant the transition. Alok XX, it overview turn low of to Slide that, and turn I'll back With GWP for over to

Alok Maskara

for low necessary products ensuring successful of preparations All Thanks, in the completed were GWP launch the engineering earlier a design, and third the manufacturing in year, quarter. Michael.

this systems. by split Samsung of and pump also part our mini As new transition, we BRF to heat excited introduce are Lennox powered

headwinds low into new of developing We in heavily minimizing we during in to GWP invested year convert first have the production lines disruptions quarter transition. the We manufacturing products continued next factories. cost as and our continue anticipate

In we demand reconfiguring expect for GWP with a cost production new efficiency. refrigerant our products. Our XXXX, the in gradual approach balances to low flexibility factories shift

from The impact approximately continued market first end quarter, pre-bought year, low year, still full mix. depletes distributors for dealers XX% GWP estimate product, the will demand see inventory. to everyone and will of of as sales their first which the that regular manufacturers, and will the R-XXXA the favorably transition We specifically half R-XXXA

we on products. contractors ahead, This leading higher XXX-A opportunities new service for Looking demand more demand additional supply and also low transition replacements. This components existing safety features system R-XXXB for GWP will products. given as refrigerant increases repairs and dealers face moves opens will to towards pressure cost the further anticipate price items increase and

some transitions of low into extend GWP mix expect the the to product. and to fully GWP benefits price market We as low the new XXXX

for outlook please thinking for the Slide our XXXX. on turn With that, to XX early

the We our given XXXX, competitive remain transformation are of industry momentum our ongoing cautiously optimistic with We from growth. the North America resilience pleased for sustained journey. HVAC

transition revenue confidence that accelerate has dealers and with growth from the slide, you of increases see extremely side price these the likely low percent from transitions, executed GWP regulatory left-hand Mix the distributors. growth. will well XXXX. share benefits and gaining impact in several On during XX-plus Lennox historically our will factors will

the share serve cycle confidence to next will factories ability plan market. made we same to instill improvements Moreover, in able output our do be segment. will greater team commercial these anticipate our our life We higher the this previously year, the HVAC manufacturing recapture the value within national some investment full with We our conjunction to a year. lost we In accounts of in replacement in from with thing emergency BCS sales proposition.

and our providing higher dockless with heat growth to access well a system the base. to by incentives broader tier higher encouraged recognition replacement as pump mix. Samsung offering, Increased are We demand for partnering brand lead may opportunity energy-efficient as customer strengthening for from

it be confidence negatively end alongside several more mix. pose XXXX by is can we generally our challenges While impacted a to Uncertain products, growth, are may about towards value-tiered which market recognize revenue continues outlook to factors. impact optimistic important trend consumer

as products we new R-XXXA first versus dynamics. half in destocking Higher may industry From this for expect ongoing create repair sell-through replace of an distributors perspective, cost also XXXX year. complexities in prebuy the the the

overcome may competitors current availability share their they as challenges. some gain Additionally,

right-hand incrementals, discipline. key price product the supported by the have we highlighted drivers side GWP mix on of XX% our low with anticipate the margin margin continued On We for from expansion. improvements slide, cost focus

productivity GWP the digital We in fill planning inventory our the focus transition. to and low second distribution year margin expansion, of start also we Greater foresee ramp-up efficiency will commercial factory on lap higher technologies distribution from as rates factory our the to contribute generate our to particularly with as in next half improvements investment begin in and costs associated new also results.

may several However, these offset be partially by gains factors.

distribution improving capabilities and digital and network in for improvements operational enhancing essential investments are customer experience. efficiency Our

long-term While are for some create these crucial may margins. near-term investments pressure on growth, they

inflationary commodities both and anticipate Additionally, pressures for costs. we component

remains expand and margins. We growth health employee in in also Ultimately, XXXX benefit on drive focus superior expect our differentiated to and care costs. increases execution

guidance early provide next earnings will We financial QX further our report when year. we

please XX. to Now turn Slide

emphasize our growth guided strategic in of will transformation I As our we call, confidence driving wrap key elements up today's plan. by X sustainable

Our accelerating of focus first greater customers on as wallet capturing existing is adding new from share well growth customers. a as by

Second.

and We our our expand the margins from price/cost productivity leveraging direct-to-dealer strength network. will of

Lennox to strategy. key operations, The our practices and system share us best unified our Third. streamline management success execute remains helping

pump forefront digital us cutting-edge in investments solutions our to ongoing innovation at our and Next, deliver of heat technology customers. the keep for

model And core rooted in reinforced strong values success. drives our our culture finally, pay-for-performance and by our

sustained and our us. strategy differentiated so ahead doubt still I create have to to that proud far, of are enable I'm competitive advantages us Our goals. long-term days no and of what achieve will we incredibly our have best continues accomplished

Thank you.

happy questions to take Q&A. be let's now. go your will We Margo, to

Operator

from our Stephens. take first from question We'll Moll Tommy Instructions] [Operator

Thomas Moll

Alok, I you've about the XX-plus with product AXL recent hear initiatives guess. I percent the talk to about you start tailwind early XXXA want months, on I and in also versus pricing some success that weeks or commentary provided. then the

all conviction realizing together, successfully the albeit then tailwind So that of the that pull am higher some market, that your number volumes? low pricing/mix two, is this correct unchanged prior if that, number now expectations? is saying we the at you've versus introduced one, in into I magnitude product And in

Alok Maskara

I would say both are true, Tommy.

is also I competitive during transition, achieving gain any that confidence we this get The share third normally higher. that regulatory would the add the is transition in to thing in

Thomas Moll

thinking what do you how I that sure have those you're want of tier here referencing slide evolve and into Looking date in what replace. for to the make trend What to XXXX at provided, seen then And value about you the then on might unpack repair the points? you year? to next communicate the wanted terms to early versus Alok,

Alok Maskara

meaningful given Yes. shift so What replace, we rise. seen a to have we and but not and continue is of far be that about price new cautious repair it, between the will equipment -- especially

that's why monitor we it call So to that, I and to want continue out.

of the sort It a from look buying the we industry. the went at be have we as people of shift already towards and minimum as SEER shift, XX economy, tier to of value the to On more seen overall SEER XX%, we the XX used XX% state SEER.

XX% it So of now might be XX% industry. to the

what on tier. value out that's So no previous are No changes calling conversation. any of from the we surprises, our

the lay calling out for XXXX, but change that wanted to we and positives in potential Just the really QX out. are no watchout

Operator

William Merkel We'll Blair. next go Ryan with to

Ryan Merkel

first hard AXL. of will you the the or to about a I XX% would be year downside? My making next there kind that talk but... you the And one just that's is the the upside there? you're just some on to say then of assumptions risk is question, Can know

Alok Maskara

XX. right number now are to we fairly answer It questions. But I around risk think Listen, balanced hard your is hard the the is a here question. Ryan,

year, about XX% around remember number. to XX%, earlier right now, the feel talking XX% were the but you more we in confident If we

I in we the there's see now. if higher, QX. little lower, already it inventory in out because a competitors XXXA it more which be it's of because And XXXA, a it's could think lot if of right will will be prebuy

it next year. we're over being quarter So used selling XXXA, this could versus as for be left

those are product. I on which kind of that the competitors because of chances the is dynamics prebuy, we short that think some are X just are because up today, land on that does So it's XXXA or becoming selling

So the minuses Ryan. on pluses those will and be that,

Ryan Merkel

Got it.

just then the the And prebuy, helped Okay. clearly, on that quarter.

so just set can models our you about the think correctly? quantify magnitude we half 'XX, the we of can As first

Alok Maskara

Sure.

on us prebuy, how what if much you I helped not think factors. QX. mean about different So I'm sure helped X the QX, it was

was mean, of the that largest I First of contributor. all, the end beginning destocking restocking, and probably of

our saw XX%. over you up X-step As business XX% was or around

factor helped the I So in what that's for QX. think biggest

out because is better inventory. just been and call gains. execution I of was of running would of mean out just some I impact gaining there we've Second, share share competitors

second the I think gains share were factor.

business a Third, bit which going distributor the little remember, pretty to able lot I bonds, tail our levels prebuy. the is to be they're and close a dealers go to goes renting normal. end big But and of of may inventory towards have happened do mean, are they start of still quarter unless to out not most prebuy

there saying we be destocking QX in prebuy expect, on So confidence on as how in of prebuy, want I some said, clearly just to of the we QX, will point sales the some or be carryover XXXB. expect. maybe What I emphasize next the the is year would XX% but depletion next majority us number year, in that gives will

Operator

we'll with Wells O'Dea to Joe Fargo. go And next

Joseph O'Dea

on you've trajectory. the of share reversed XXXX I the comments X made. a time in of that over wanted those like share in mean I share have period X I years, maybe on been to of think period past it to and start a seems you've that going time back some of couple tornado market years or headwinds, gain

time, how gain about where you and much have in through given stand recaptured? Net-net, you terms opportunities much may share you've can of you level-set the these today of periods up, how moving you're how just thinking But forward? do

Alok Maskara

AHRI of today, data. share, any that we all or I'll we what at But share yes, little a said look we reversed we confident gained as pieces, Because by we X-step, share. those we Sure. continue is on are X-step are share reaffirming stand where have both gain you because difficult do back we that, start and we to of moving and losses those a positive have and trajectory. is the

making make as have next competitors right many share don't of like which the them we What captured lot sure effort retain XXXA year our of would because that can our have inventory, now towards more permanent. are there of do gains share then most we product, on is to a be sure going

the demand able capacity, share on commercial by for the part still comment are gain share to XXXX the plan manufacturing On That's comes also segment. our on not in recover getting where not side, been have constrained we because replacement the we emergency up, that so of back far. share

want I residential. the into shared to comments So commercial and separate

Joseph O'Dea

Got XX%-plus you've XXXB in provide noted of I to respect means the you And there's that wanted the that circle then out pricing that with list what terms to debate still to how Any and on versus can the price? -- realized. or think think about back I just color and it. there price that initiatives are progressing And on on well. commentary,

So clarification that's there number. you price and any a about when talk XX% realized if

Alok Maskara

when of sales we are Right will have we is as we that acceptance, QX. gain also we only But think price. a and in XXXB raising of can finish market price about I what the apply and next only greater talk movements clarity to be on to XX% looking out that on are XX% QX, we now, realize XXXA products and the you'll early year.

XX% the pricing to today. has conjunction XXXA be with in taken So

can moving seeing there and price introducing is that but the provide into product XXXB moves are cost are the our competitive clarity, higher greater XX-plus on of where increase is a So we and we lot supported we're being pieces, overall, percent marketplace XXXX. by in

Operator

go Jeff to next, with we're And Hammond KeyBanc. going to

Jeffrey Hammond

I underlying you each moving of you If but businesses. noise as into the kind pieces. of just that commercial pieces, we growth kind of the of think there's looks with 'XX 'XX? unit a color like -- the and know I what in unit moving kind looked of appreciate some all prebuy, line just Just do on that snap market a number demand at market unit the res today,

Alok Maskara

expected year, going we're And this be then upgraded volume up earlier where to about to are in down, to flat. flat through a side. res, If now flat on the we you think slightly to that the talked the say we the to maybe be halfway we is about dealer we for and year res

destocking, units, as come you with installed conservative, different think more about talking to maybe stocking, like up a aggressive moving of from hard as number, it's flat a numbers slightly at. the know, I'm that to to And look But to a firm little as but pieces. away flat bit in

Michael Quenzer

Yes.

play do than impacts see executed as how normally, initiatives better what market kind about, during end we demand well this as talked the to out share gain we've prebuy think see that of that others need I we've and transition.

those So quarter. out need next how to the that unknowns are X see play over they we

Alok Maskara

wait but to look at good think HRI, a for market would we'll flat So residential. up way I to slightly on be end

typically On It's our we supply just remain with we commercial, multistory we markets market I growing don't where we had go happened. slightly. decline still recovered what the from buildings. offices, Because has industry remember commercial that since think not as as fully constrained, have have don't retail, we that COVID single-story the -- the call housing, figures, been much

that end low better going So perspective, about see from lower interest market digits more we next resi, at grow into rates, to continuing market. optimistic that do performance market year. single do And the I'm

Jeffrey Hammond

us commercial a remind then know level mix in lot in And just there's of K-XX your I maybe been and hot Okay. a market. -- education, been around funding and that's

move that signs back? as you're market seeing that see If any that sunsets a might

Alok Maskara

of going back. We that any are not seeing market signs

at focused . Our historically, also a been good and useful than we look probably and as down we slowing on that we bonds remain these maintenance But exposure opportunity. schools their of past we education competitors, very some way other necessary But in that as any currently, is of so units life. are our issuing because see these many have growth pieces see given of don't less retail. like

Operator

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

Jeffrey Sprague

they gain of and Watsco somebody. morning. some over kind competitors there's share just want function I actually running dynamics, you're to come to else maybe gain But to a with the what putting share back we've and largely sound this like is saying problem bigger of of out of got see the XXXA, hop Alok, where kind being some

with Are name of some also of actually than just there kind running you other in to the names kind the transition? are other competitors, someone seeing with you of expecting on channel not kind struggle but out I'm problem systematic XXXA? of somebody

Alok Maskara

we the is know what's of our those right is giving don't availability competitors. of that's than XXXA many advantage. products the other players, we Obviously, with happening now better any us What and know inside on an hold

the have as more off making a gets made that We year lot our higher sure decentralized and that's well. distributor, in we rates sales that a improving on AOR being team, dealer, all focused model a also typical investments we our know ensuring and last of aggressive fill we paying better have that

second, XXXA It's made out some I with So consistent that would shift want believe gains of I XXXB part run year. into of been they year, may made have would and do. And everything current comments, advantage totally out bet transition. have We the share because this a the One have of don't to and trying bet to higher the happen be right? may throughout only competitive break X products. we different some demand to of next is stumbles. a the competitors maybe

Jeffrey Sprague

thinking that's in then by it of to effects XX% by manufacturers be right, whatever we on year, have definition, the the year, sitting are not into end has if distribution the now. almost about And I right, mean next of XXXB, low right? the prebuy market running the of after

feels give -- comment -- of distribution than, year So a the mean, on out? the I really you of people that the kind the the know, see maybe of this that, might the potentially of maybe pocket I prebuy end how back kind in air on state just that don't year early play think how like bigger like and at maybe

Alok Maskara

Yes, sure.

QX year next to all, starting, work of just is get and because we got clarity that. will through we still First greater

like some we will end even of year we have that number based was on will inventory XXXA XX that at XXXA have selling. Our the manufacturers be the will inventory,

year. of I think at also So as other we and manufacturers end distribution, inventory the look likely own the have our XXXA at will

in just and not inventory distributors. it's at inventory it's So manufacturers distributors,

the most impact. where we QX will see is

the science full I effect if XX-XX. or why and waning away transparency. But that's in starts QX, complete this wish there was and exact the I behind visibility Jeff, an think we had

is just this educated us So with up coming know looking guess. what and at we like an

be are to don't going just We know wrong. or wrong it's the We on going whether upside downside. be the to

Operator

go with Stephen Volkmann to Jefferies. to going we're Next,

Stephen Volkmann

to Actually, are of off that going rather Wouldn't R-XXXA into right having so further I'm wrong that, Alok. build just by you price competitive you be XXXX? more

Alok Maskara

hope industry, the we of out which of For whole everybody I would well, what deeply that is as year. about the runs care XXXA by the end

a So is seamless we get better dealers. the mix our more for transition and

a training different lines crews dealing just For product difficult. all and dealer with X and it's their very that,

others quite So our But given support our and quarter, for the XXXB. price industry we from when the be our yes, At first like we competitor and running XXXA. in clean is I of want perspective, out, to is hope would to have don't XXXA. to entire move manufacturing the us transition already some to may to which be we disadvantage time, want runs out that dealers, likely, same

that's got daily Jeff we've So ]. Steve to drive, (sic) balance [ a

Stephen Volkmann

commercial. words of the XXXX, try the wisdom when we think of model And kind start-up away? and that ramps facility we maybe go as switching to of just up through to Okay. about new of kind sort costs how and Any

Alok Maskara

our than track the share from I by definitely say focus transition. costs originally a we line really go A the and is perspective, QX. we back time forth, start-up now, are it's sure product, more a start-up just The on on are higher inefficiency quality to of we freight to for maybe will away because what are take are we large extra part will sometimes Right make where we and the products paying go good through and move in and away putting we quality care Yes. customers thought would want we QX.

would by us factory I be. the capacity say should of kind thought of the mid-next expect we be as So would running up to year you to

QX. think another in inefficiencies of So ramp-up Michael? associated fading worth away quarters of with X

Jeffrey Sprague

of that costs we're add believe, lot these a right I'll are Yes, factories. we're launch experiencing temporary. just we trying in now, to Obviously,

next in So temporary factory the year, of half costs that fully abate. these should transition second operational, is when

Stephen Volkmann

is just better then you supply Great. demand up on thing this is And finally is normal run to that earlier outstripping that on then commercial. mentioned in midyear When balance? rates, that,

Alok Maskara

know We we'll may up supply, up continues the below factory be getting of to capacity we are if in our able demand we because running. capacity, only current in to at us We enough capacity but at mean will And XX%. I large still put outstrip be and XX% the we're time. another is be double better balance. remember, XX% for a to doing potential

the we'll better to have. our definitely meet But low yes, and we better very amount of satisfaction that and currently, customers. just balance I customer demand can't and mean be able serve because our is orders we

Operator

Next, we're going to go to Joe Ritchie with Goldman Sachs.

Joseph Ritchie

just sure and trying that for of meet the your year, -- to to levels clearly Alok, get that's balance the crystal that right? on own at it like to demand inventory of you comments square exiting expect you you way make products we the but should here, the to is those the least quarter know you carry XXXA ball about levels have that I you're really So don't first think inventory kind

Alok Maskara

sell-through times Approximately. are perspective reason will distributor I inventory phase-out I year, a The a QX. distributor that like, also we X around mean, XX% do act know say like I inventory that turn where phase-in, XXXA sales which much, have we from sales. just will we just And remember, in a [indiscernible] of I and our

it So some think is, of of want and of practical remain I competitive. there constraints transition just course, to we do

can. over that's will I continue we a manufacturing largely just it how not goal, So while will out think it's time because play the we

Joseph Ritchie

the pricing Okay. the part year on be network as it into of for you XXXA, through pricing And even products that of year are that early Fair the of sticking change your annual in to next next does typically to just put held year, pricing we given in that Or XXXA discontinued for then should going think that put dynamics that the able how in enough. kind the price portion about going the you're just XXXX? to early [indiscernible] maybe

Alok Maskara

want perspective, First is fully to But any and the XXXA we now, of mean expect pricing products capture we're right incremental all, supply demand XXXA second, XXXX. our from be I a short customers of sold experiencing and take supply, care XXXX we to which for fair. in in is what in

wages. we And of be of around increases. commodities lot up, going to in the mean cost I benefits do price inflation of a are annual continue cost

be we than XXXX XXXX. fully yes, at XXXA have price So higher a expect sold to to sold a in in

Operator

to we'll with Mitchell Julian Next, go Barclays.

Julian Mitchell

Alok, maybe on suppose, interesting and I are Slide to together. the off, of there bits wrap XX. sort first some on it margins, Maybe trying pieces

think about I your up point total -- margin just Lennox. this guided your year for a whole, the margin X year So as is operating

So is pieces it's is on percent When similar the on margin. at something it's look Slide Slide and main parts of XX? takeaway bits there incremental that of incremental a or XX-ish the next missing moving the we sort on year XX, some I'm

Michael Quenzer

is next making. all but we've making, some the XX% incremental in still. we'll margins more also expect some the by have a some which XX% on details the takes have overall, the through the investments the of to will offsetting We'll puts share, we'll mix on And incremental volume see. going at some least of we're through to and think but got go incremental. that investments that range, We're go to and mix expand we're get we year, tailwinds XX% led then predominantly our be sound all [indiscernible] to I and to benefits of the XX%

Alok Maskara

margins I remember, still we that have our are long-term -- there. Julian, And Yes. we published not Lennox for mean, targets

keep progress making X year, obviously towards get we next X.X that there. want years the to to over So

want don't that get number expect -- how because give for has still exact do you out I to year, sure. So depending play expansion next but to QX on we margin goes,

Julian Mitchell

That's follow-up, stuff the my helpful. just sadly And again. then prebuy revisiting

right be couple it the we the not destock. a concerned sounds we're of So that's trying extent like to I quantify reasons too guess, about should it, if for of if

think, I it's of gain. for if X think said gone a I the year guide your this is but X what July, up about versus share residential that I you in is, points, lot for at year, look volume

a you've you year. small seasonal And the product. from for QX in a also is anyway effect refrigerant mostly so I presumably which and maybe, affects is is this of effect of product, particularly if quarter cooling year. hot than typically So know, pre-buy the next got for don't very then point rather QX what change

just me maybe if anything for please? points, clarify with those I'm misunderstanding So

Alok Maskara

I correct. quote, our you're misunderstanding, the industry quote well, about like This strategy I to all, yes, the of do if math in -- right? you, a a is back sometimes. your execute Like First but overanalyzed have is your that storm not is analyzing companies teacup, mean classic can better, strong Julian.

are -- that's immune discussion, work to and our whole we shares going I XX% mean prebuy as planned. of the kind of to

other all the XX%, is The we believe said out Having that, effect is of right prebuy. QX destocking, now of majority stocking, not still there.

change, are prebuy will by of prebuy a talk lot be we very mean and assuming a could queue not us some this has in mean, prebuy far, But that heavy to year. QX and I that's quarter, will there I we driven have heavy impacts about QX. and our so all that answers a but

Operator

to with we're Noah going Kaye to go Oppenheimer. Next,

Noah Kaye

great levels you been be conversion. Really It that back flow used and front? you on flow think years, some talked share but as free I we repo a past, generation. the XQ free How getting the of in back, we or picking for to going of on in had pretty And think the you CapEx cash repurchases, active for side, about do look here 'XX? towards up couple XXX% generation 'XX quarter lapping cash made about cash to investments the

Alok Maskara

just that, really the by it question. level He's of level drive to to new a capital management. new helping a start will hand working cash. and that our focus bringing saying CFO is I that on free accountability to new of I'll level of a new answer Michael actually over discipline, With

Michael Quenzer

to the of on started of get even close to to align And initiatives trying capital management, net just cash XX% one look to or I'll is income. that. on we I've the working organization especially as add XXX% free That's

couple yield to companies our we're And is year, our dividend generating of at XXX. increase We're S&P our So yes, over where it's next consistent look lot years. be deployment to every are going in going a on focused compared the cash. going we we're But to growth strategy of the to basically something dividend.

So we'll do that.

that And bolt-on right the acquisitions then to we're also have have returns on it. evaluating the right fit with

continue So into this it do thereafter, repurchases of quarter. we about a back then share we're deploy repurchases. but if those, We'll share getting being there. don't to acquisitions. very be kind back be started disciplined will in going efficiently that, capital but And we're to do to definitely We it's tool focused

Noah Kaye

you And pipeline can this talk bit moment? Okay. be your needs acquisition what that about little might a and at

Michael Quenzer

commercial technologies what products we distribution opportunities that a technologies, think We've through we've kind gives assortment a bolt-on looked is the looked us Yes, different offering to with space our I sell distribution at can our product at commercial better residential network. in customers. of just full that have of

big either And technologies make IAQ. thermostats, our on X ones. products are smarter Those the then to just different there's

of we're it's again, right So the have But fit right at. a they the and host things to got that price. looking

Alok Maskara

And a would opportunity there's we more that, a a today. add to just manufacturer. buy accounts that our also versus products of big that we trying a mean, be dealers don't to I And key are buy or distributor for sell I remember,

significantly look our to would be could and we if into Michael technologies, So bring shareholders. as value-enhancing products network, at and said, our that appropriate them

those Michael a Michael are balance So which all the team and said, very as flow, and strong I opportunities this great allocation. starts cash capital we appropriately, disciplined with will but think we doing job look in are at it at. And

Operator

Dray we're to Markets. RBC Next, to go going Deane with Capital

Deane Dray

emergency outlook plan on 'XX. is to the that build saw share I highlighted in for replacement the

on this XX-hour will you you that you're it and You the know have what boost and ready My either it's in share color to talked Can turnaround just for miss is to because about need some refocus you field customers before. inventory it this that need business. the entirely. on to understanding means order you or

looking emergency and kind you working increase size burden you fill what are at So can replacement of that? capital to

Alok Maskara

to working capital, doing will it. come and look back we inventory because that. And the all at all raw and some a have material it customer. else product lot and same we're have gone can look into I and cases, may it emergency with down you, the back tell be day. back else would a lot within XXXX, more having to having transitioning to today, but in comes come or market capacity, agree side good something to us And finished and then finally, that from in more getting working of on contractors it's that. effort. look Most replacement that's factories, and with the as excess won't the I Thanks. sure manufacturing also then materials at of the capital also going someone raw of the starting impact as happy requires question. closer to capital Deane, street right that XX making working be on of starts to it redeploy you to and we'll be But I into feet are goes we appropriate It have hours very factories who goods the a we

I a heavy additional perspective, the part start-up. So a moves. carrying expect from financial raw would we from of it's of as pretty are come But inventory that lot

Deane Dray

ahead Lennox from in That's ROIC, really helpful. On is so else of industrials. Michael. far And then second anyone question

probably nearly bigger next -- closest versus I the think from our you're Xx coverage, competitor. you're

outcome it's of make talk just in you at or this looking think us it investments? at company? the the question investment decisions, you are pressure way target just more you is know decisions, know, ROIC about at So idea the impact? to the as ROIC, going that in rhetorical a CapEx all so I kind Do but will, you you're you and times, decisions, of a through, just hesitate an

Michael Quenzer

I'll is approach mostly What ROIC investments. disciplined to is by driven Yes. that our say organic industry-leading our

So dilutive. above do we we've will but it of good the not inorganic be AES, we're those, done look Obviously, acquisitions. did when ROIC, still XX%, XX% with they was acquisitions a at like you that when we tracking. well a lot But below

our above And that at perspective, capital. the thing. from acquisitions So bolt-on we do look we'll are of capital same continue cost a to then expenditure

So stay CapEx. on we're ROI not and projects good but growing above we on necessarily wanted have XX% targeted to these XX%,

so expenditures of our inorganic above looking organic acquisitions on and the cost the to both capital. And capital have we're at ROIC healthy

Operator

Linzey we're to go Next, going Brett to Mizuho. with

Brett Linzey

should low to could out. similar those XXXX the that, on on incremental the something quarter. the Just through on thinking incremental at price maybe and GWP. drop that year? come parse early Congrats comment back above and a you Is XX% mix this volume I comment then wanted to to pieces hoping

Michael Quenzer

cost and Yes. up expecting, least What pricing we margins have will a drop-through we're of that the be the it's into at kind additional investments gross of and we're a we're product XX% having that and reflect on that that costs mix more about will mix put come we'll just price for then the through, making. to that to the our maintain talked

Our are volume incrementals to XX%. similar also

the gains. dropping year normal kind and through have of our both mix volume So XX% at we next

Brett Linzey

Thinking housing far residential, some pick of versus new noted in the thoughts next environment then was some drag. Got much it. grow line And about you growth How and Any that down year? investment, this year just a And new has tier in replacement market? better thinking obviously, some value new then so about the for up with a next should maybe share the year. housing in housing there? of you or been

Alok Maskara

Yes.

I shoots see green starting think are we new some housing. to in

either the trough off bottom are we from coming from like along we or the are bouncing new housing. So

the that new are kind positive. that's months So X behind of we you housing number remember, might see. starts And

and in And we starting very renovations, lower replacement homeowners to interest higher about the article from Our repairs if demand again, Street Wall even rates there confidence. remains Journal share recent strong. consumer side, result more there the and think probably position believe on do you will

that all a of lot said, But there's just uncertainty.

are a by tier, because the pricing SEER comment of levels was our the interest value because higher versus because the and driven prevailing few of ago. years the rates On of changes, that

watch want that forward. for out to going we So just

in evaluate and and analyze firm to us more come you for those more to things. we give lot on before a So guidance XXXX you

Operator

JPMorgan. Next, Steve go to we're going with to Tusa

C. Stephen Tusa

think maybe of little like couple What's is up -- when driver summer the the months like flat the driving there? you up last distributors bit stock do in kind is transition a to have effectively What this the of coming? what's the you demand and of

Alok Maskara

think, Yes. type which depends we it distributors. I our on can And about I mean, Steve, talk of distributors.

seen haven't distributors our We up. stocking

from We destocking. are going our away seeing distributors

stock measures to levels we to normal back going taking extraordinary them pre-COVID. they're haven't existed So seen up. that inventory And

seen get at I do Now not think might big least but versus our XXXB, push advantage from price in we work some some to distributors any that stock -- have QX, with to up. prebuy any they I XXX

Michael Quenzer

top on of the comps. add just I'll And

If was that you go back to QX channel XX% due destocking. last year, down to

as So mentioned. they definitely Alok restock, as comps favorable year-over-year

C. Stephen Tusa

And then it. pricing for next year. to when Got comes it the

on your XX% I saying penetration. of XX%-plus you're XX% So think, revenue,

right the for So talking you segment. that firmly for gets the of you're kind kind next price about? the for plus into that Is range capture year in that of mid-single-digit like math

Alok Maskara

math think looked get it Yes. you [indiscernible] look now. at I the XXXB. most greater on way clarity roughly we'll have XX-XX But the to versus both I brand-new and We'll at you going price, right, mix because right products. in clarity, these right is because more that's like do XXXX -- are

C. Stephen Tusa

Right.

But price. right like So pure around it's X%, this the is that math just now, mix X%? right is versus

Alok Maskara

range. good a is digit Mid-single

Michael Quenzer

just making investment transitions because as And cost a lot normally high see add, the stick we it. we're I'll stick we of to rate regulatory need

C. Stephen Tusa

I Got the more. it. least for of lastly, the the And maybe with perhaps guess, then at combination prebuy just industry,

far this as Some stage next be industry about year, repair of as talked next volumes? gains, down, Do confidence, You've is the industry volume year is down but to you uncertain your you expect replace being industry the that. volumes you all about versus share at things talked consumer think? do like

Alok Maskara

the and year. this from away up volume, flat installed think and my from it's to the be is stock ground, so would Listen, slightly on or that. like to in I next distributor out perspective, all any would stock going say I industry

view I I accurately, that is cost trends, on replace. age this. But everybody by Steve, of versus and ongoing is different lot of units a of a could more to the driven wish And going repair just that have predict

Michael Quenzer

And influence have to interest in as going heavy well. rates that a are

C. Stephen Tusa

Right. sorry, And X then question. more

Alok Maskara

new so picking home up, remember right? construction is But

C. Stephen Tusa

Yes.

Are comment said, of the like this was. year more one with overanalyze question the the out market, that? is gain you've comp you next why are of that tough that -- sustainable? Why think those this from kind gains share into The maybe been that whatever Sorry, competitors your because they as have of isn't guy year? like a structural taken share you

Alok Maskara

with stumbles took of years us stumbled that permanent. back. somebody tornado, Whenever we in Like some that it the when get X share becomes years to

past look at So some won't. switch dealers tumbles our when some I back, and will

part possible. and So I my our comes . works. that's comment what where mean, as permanent -- I -- our But down execution to that's as them is see goal is make

Operator

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

Nigel Coe

customers, XQ? this XXXX, of XQ, versus have do prices to stock not going they And with the AXL? overanalyze on is situation. in effective for can? there We let's come mean ground. of the requirements, the dealers a actually I lot feedback to take this dynamic technology, much wondering, up just XQ have terms they But to versus the cetera? end to contractors, Do the you're I'm want your AXL XQ incentive to XXXA increase they or want from covered as them they et what is And an

Alok Maskara

Yes.

tell belly-to-belly So can with contractors. I and are have the good talking like individual of news about all we I is you, views. XX,XXX XX,XXX in them, XX,XXX mean

So who that will ask, you view. get on depending you

the a down high-end one say doing. they will doing only They most move move to later at sooner they have a continue not them, they're have to It range. are especially also they what would end because but of resistant, prefer XXXB. of they comes the don't to that realize to some I high-end versus contractors general, want are selling to bottom they're and choice, the and change would In product

the end chuck the XXXA they as doing long more and will are keep as bottom want truck of at a range, who to Others in possible.

well On through understand the how gone install it. have positive side, People people it's training, to accepted. been

doing training. time of doing a lot a spending doing time training. are are distributors of lot We Other

happen. will that So

on Is mean because Yes, some do that not to I stock at of end will that. they up deal of may the risk XXXA is risk have a more and quarter think with warehouses? there I the the a we they garages that's year. there barns, risk them have every

Nigel Coe

Yes.

of to just barn up units. I'm used HVAC stock Okay. being

We have barn just... to then And visits. some do

Alok Maskara

and in saw actually I was at a Wisconsin barn that.

So...

Nigel Coe

going just component about a XXXA system of XXXB if system the XX going versus and to a instead to just then to dynamic. you're et system, If replace in Then thinking Yes. whole got the have conceptually, or world replace repair you're replace you've just replacement, cetera. [indiscernible] we're a

putting there motor mix kind as replacements trying a I'm replacements we in just through will of another why more whether whatever or figure XX% make see here wouldn't compressor transition world of we're So kind repair price? Does out sense? where to be through more of it or AXL. we a this

Alok Maskara

-- does, unit. think think down fundamentally to still age I comes I the the it it absolutely. of

to and X-year they're unit it's a to it's and the the change XX-year-old the if likely a noises, where broken, whole broken If making replace old unit to compressors and got system. the come compressor XX is is motor likely is the the So compressor. dealer

and spikes additional yet, In spiked to has an the becomes once factor into XXXA, comes XX- that it extra unit, play. because the XX-year-old not of it cost

years, years, but did move R-XX to it more change to pieces versus it like towards it the the in think don't I the XXXA didn't the just it's repair. So replacement beginning in repair replace, future

thing to versus will. I repair happen, for same future going no in XXXX years it in probably replace, impact think the is but

Nigel Coe

you emergency at replacement for quick question you just And you Great. do can market Have that then get last the a X TAM for the dollar sort share here. What think probably commercial? of TAM? the and sized

Alok Maskara

or has key we between key but the a and yet, We that mix we all to we are know that broadly broadcast industry what we emergency know healthy used account, and almost also haven't sized and have, replacement essentially accounts.

account industry replacement. terms in and the in we of are that So emergency XX% XX-XX XX% XX-XX, key is probably

opportunity us for know forward. that take we So have significant a to do we

by industry sizing emergency is that but that. towards some we multiply Maybe lot weighted can industry more take a You AHRI you are. the will and replacement next data, year, give and on it back than we come

Operator

Lennox's you Conference joining us no will Since there this Call. Third conclude Thank are for XXXX today. questions, Quarter further

your at disconnect this You lines time. may

Lennox International (LII) 23 Oct 242024 Q3 Earnings call transcript