LII - Earnings call transcript Q4 2024 | Lennox International Inc.

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

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

Chelsey Pulcheon

Thank you Angela. everyone. morning, Good joining fourth for as share we Thank and us full XXXX quarter year our you today results.

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

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

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

Alok Maskara

Thank and an you, our XXXX. XX,XXX-plus us innovation deliver morning, our enabled start finish to strong customers employees, XX,XXX gratitude want dealers expressing that I my of their by loyalty to our to for and Chelsey. to exceptionally all everyone. Good

that One revenue, over time $X adjusted the and in for billion over for of XXXX ever, highlights profit. is segment in first the Lennox delivered $X billion

both is that delivered double-digit segments XXXX our in achievement Another growth. revenue

investments made create to as addition growth In thoughtful a such new record also we factory capacity. results, starting commercial to delivering

a the the quarter XX% Core for quarter the for and grew quarter share overview. the earnings and year. $X.XX fourth full in XX% us the was XXXX Let Adjusted for revenue to for full Slide year per full and $XX.XX year. X turn record

million team later for segment margin details $XXX significant to full I improvement million provide delivered in year and how in to the The will points are and to Michael points highlight we adjusted basis year. a in team this more proud in QX conversion. want operating record the the expanded but quarter in deliver the full cash $XXX the did work also year XX.X%. Our presentation, XXX flow in basis cash the our XXX year-over-year of

please to the established of X, XXXX. exceptional drivers review portfolio Now the our not self-help XXXX, The a completed I only margins success. team's as initiatives phase In effort including strong successfully Slide 'XX, turn of an we some in transformation but simplification XXXX of initial plan. also for pricing strategic and restored acquisitions foundation our

to execution. delivering while and continued transition, successfully a resilience XXXX, navigate construction from customer associated strategic our results, the successfully and with commercial transition investments the In the enabled channels us new meeting Our factory positioning making strategic customer we elevated refrigerant us of experience. our and momentum initiative beyond. overcome outstanding challenges We showcasing manufacturing the impactful XXXA into effectively sales navigated in needs refrigerant, and to XXXX continue our distribution and investments

improving experience. Our offset pricing focus excellence investments partially ongoing customer programs the for on

and productivity. were output value. pursue, The approach. Our to disciplined AES value of deals exceeding original we enhancing our online thus schedule, The Lennox pipeline best our key M&A maintained shareholder in for the factory deals not M&A safeguarding new We now remains will is be integration strategic and commercial decided that XXXX and to ahead proposition. the long-term

Finally, performance. we ensured by unified management consistent accountability system, through Lennox driving the

will who to segment will leave that to since the of to XXXX, our legacy heart Michael, at call has Bedard, HCS I decision a our extend gratitude Before XX-year hand to retire my tenure future. his Lennox. continue announced Gary to from shape want fill Gary's President I Lennox

We President. next HCS have our identify to initiated a search process

while how results. also through hand who the business will Michael we invested to delivering now it you strong walk over in I'll successfully

Michael Quenzer

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

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

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

driven we was to in continue growth volume manage by the transition segments effectively as both to refrigerants. success low Our GWP

expected, equipment, positively to earnings million prepurchased $XXX which share and revenue impacted As by customers estimated increased R-XXXA is $X. per by have

X-step XX% let's an financial The segment review segment our to the impressive volume prebuy. by reflecting exceptional expansion proceed point in revenue Solutions XXX Now by quarter equipment quarter, margin. Solutions growth of profit Comfort XX%, basis segment. to delivering increased fourth had Comfort Slide distributor the our segment an and industry-wide Sales primarily R-XXXA X Home performance growth XX% channel, XX% Home growth, profit in driven over

digits. channel contractor volume still compared grew This double product After the well. market supported to volume was as availability for as saw some sales one-step R-XXXA prebuy, better also mid-single the prebuy. low continue to well increase Pricing segment adjusting initiatives progress broader digits. by Our by

on quarter initiatives increases new the R-XXXB and progressing limited, have are we to our expected. implemented impact as the Although was these price products,

on Saltillo, increased driven organic quarter. Moving well as pre-activity. million. early equipment by XX%. our contributions Slide with R-XXXA XX% very volume Building APS profit acquisition. the $X our Mexico Segment from Of reflects increased by manufacturing perspective, facility revenue sales fourth growing benefits some an This delivered inorganic segment during quarter strong new growth, Solutions from this From a The X. to as revenue Climate X% was

growth declined to inefficiencies continues emergency to to ramp-up costs to at margin related manufacturing $XX in and Production output new grow facility. product activities a is positioned profit million higher XXXX and factory replacement due initiative. existing well our support However,

We X. achieving XXXX. transition, gains. volume Slide navigated to Lennox notable refer performance GWP for the impressive low to successfully delivered Turning an

of quarterly XXX drove yields contributing to consistent basis expansion Our margin pricing price disciplined strategy points.

margin further sustained strategic for While the and investments growth in growth significant coming years, are expansion. deliver benefits including expected investments this tempered future revenue improvement, margin these to

X. Slide to Turning

Let's review our flow deployment. cash and capital

out more. earnings revenue growth even cash our performance and flow While were impressive, stood

of accounts capital in resulting cash has a working efficiency in of remain conversion progress, high made investments comes despite enhanced million. call, cash been payable our core a projects earnings particularly cash Capital initiatives, We've component focus. free XX%. rate This QX the flow strong expenditure in highlighted strategy. deployment depreciation expenditures key exceeding ROI by As conversion $XX in flow significant capital approximately a

expenditures sheet the X.Xx, X year is at the outpaced to Over continue We years, depreciation. estimated from consistently maintain This quarter. past in trend have capital adjusted of X.Xx balance with to expected million. $XXX expenditures debt a in capital prior robust EBITDA with down net XXXX

continues opportunities acquisition. that free flow deployment Our within years prioritize cash X growth to of strategy WACC inorganic exceeding ROIC deliver

shareholders. repurchases return continue will we efficiently to leveraging Additionally, share cash excess to

Slide revenue I year our review year full let's is table XX, will profitable summarizes begin growth, left, core will Total the guidance. another XXXX the drivers. Anticipating company our you to on growth increase year X%. revenue If projected turn to by full which of now approximately with

in both XXXX QX and year-over-year prebuy result revenue QX. the will headwinds in However,

a expect BCS increase volume, low also in growth We single-digit driven our by sales in segment.

Additionally, mix the growth GWP expected phaseout an the revenue growth. of to from quarter. low conclude to will legacy X% the of The by new products estimated XXXA second introduction contribute products is

$XX same Inflation system the areas costs we've the by right also total marketing assumptions include approximately At investments time, and to for approximately Turning in the efforts distribution outlined we XXXX. investments improve enhanced for growth will of information cost side such with strategic anticipated increase plan as make investments is initiatives, to sales at key slide, to to X%. estimated million customer projects These and designed year. advancements, service. the

factory headwinds In to BCS with costs In XXXX profit and subside the prebuy, cost generate million and efficiencies of ramp-up growth cost the our as from margins new terms productivity, the we are realized. even we revenue profit of flat. expect anticipate $XX savings of material with relatively summary,

$XX $XX.XX, projected earnings and to range the free range fall to within $XXX of of million. per $XXX We to fall is cash expect to adjusted million the within share flow

I'll for overview turn Slide With of back priorities. our that, it turn please to over to Alok an XX, XXXX and

Alok Maskara

Thanks, Michael.

Let the transformation of the transition since us We been our recovery at our cornerstone and acceleration which XXXX. the phase revisit phase end plan invest of growth from success to XXXX. self-help has a

share with introductions. lay customer for it in will momentum easier to and Investments to XXXX experience making As touch phase we maintain of digital prioritizing supported the us approach a next by expansion will product we strengthening engage in groundwork loyalty from the business 'XX, disciplined year into the move points. while growth. This and through all investing new the and customers are gains across satisfaction for

on supported demand growing pump broaden Our but capitalize energy-efficient expanded offering position only solutions. portfolio, not product also by the to us heat for Samsung JV our

of the enabling Additionally, our recent unable growth in a An emergency provide more that replacement accessories have to years. rates driver serve we on growth. us customer driving fully focus for better ensures and while additional commercial that program parts segment incremental comprehensive significant we a to experience our improving been is market attachment supply

GWP transition, increased margins. BCS Second, ability reductions, we resilient to productivity product and committed our cost low consistent reliable Benefits and to from volume financial strengthen material are from improvements performance. deliver profit expected the

deliver in Lastly, operational distribution we network clear priorities. robust our system execution to to our strategies, excellence. superior unified Lennox investment M&A management to continue a ongoing with will underscore Defined commitment utilize customer and satisfaction,

made XXXX this XXXX success. $X the ROS to the investments the that the we years to and X executing we at will of are continue a beyond and XXXX be into and anticipate foundation momentum. vision commitment merely expansion am revenue drive strong as normalize strategic for collective ongoing in a in to past given investment far. we believe [indiscernible] $X.X our which With XXXX, XX% move creating we plan, We year. by expected remain so billion XX%. range the of create confident our Hence, the I the We in set over phase. growth XXXX confident will progress prebuy path high end strategic impact of to ahead, towards within long-term stronger trajectory our is with target look a of and billion as we focus, dynamics are range end for a not As XXXX we in target The our

to us let Now turn Slide XX.

reasons Lennox an all opportunity by attractive Let for summarizing the our me wrap stakeholders. X up make that

focused on XXX% through are North and markets we are growth accelerating growth HVACR America end of gains. First, share

mix are Second, we pricing, optimization. productivity our profit through and expanding resilient margins

a the values services customer win execution Fifth, guiding system. we we management by and superior digital because and culture leader products ecosystem. Lennox core industry we high-efficiency defined with technology talent and by is our supported an unified behaviors. Third, advanced deliver our Fourth, through exceptional are

aligned ensures Our our closely are those pay-for-performance internal shareholders. our that of philosophy goals with

forward, that look you. our I are days As Thank ahead. I best remain confident

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

Operator

We'll Ryan William Instructions] to with Merkel go [Operator Blair. first

Ryan Merkel

-- was to Can maybe you what It think then comment than does a bigger for prebuy. it's saw wanted quarter. and why expecting. question with the that looks on Nice were little just really have. I I and start was XQ? it like you what mean I the it you

Alok Maskara

properly. are think I the second on part first I listen, heard $XXX out Ryan, don't calling million the the in But of question prebuy. pre-buy, the we part

you cloudiness because the some imagine, we were As don't as of it's you QX we estimate, happened gains of had can XXX% out an product. know that our number. in And visibility was some share competitors into there have temporary

say So would within are. little I it's a our expectations where range higher but the of expected, than we it's

Michael Quenzer

to then, And $XXX your question, impact into part QX. million the QX QX, forward from the on pull of really Ryan, the second the

And then a comps see in well. the in see have that as that you'll there. year-over-year QX headwind we'll won't is XXXX So also,

Ryan Merkel

Got it.

Okay.

assumptions second sort of just the question think question talk I be conservative, XQ but revenue math. outlook HCS the to sense So the for about -- segment, okay. the behind volume in some second is it And I Then mean makes $XXX flat that. the the of million

Alok Maskara

to a there's rates, are lot existing you they mean, market, continue I sales rates, at of a low high. in right? mortgage level I Sure. home mean fairly uncertainty the saw interest be

saw we little that's the a make this industry continue in It to uncertainty just model like right point. may to what we the but volume. on conservative, a in be XXXX, based market, at assumption given seem So flattish the

Operator

to next Sachs. Goldman go Ritchie We'll with Joe

Joseph Ritchie

Great year.

low account guide look something digits. It in like to and at tended price Slide for look, as is margins, mix like the conservatively you components just I #XX. historically, So incremental if like bridge have that's inflation calculating I'm you're baking of very this I into very guys take low, double in what seems

how to like So there just cushion the be that just might and equation some inflation. number where one, me understand in you And about help price mix of potential think guide? kind think between

Michael Quenzer

that give there obviously volume Joe, at would bit could potentially Lotus But guide, go imply think in XX.X%. are some feels inflation as us a the I does might If there's HCS the keep a it then interest at I prudent volume. opportunity overall we, that assumption down, productivity XX% to maybe on little mentioned you obviously, come are But little a more incrementals. The rates the look overall if up X% to approximately of it And less. much trying possible. there. drive right as at margins now, flat think come as inflation through group,

we're higher we cost a if going So to as to little perspective, productivity drive well. bit from a can focus

Alok Maskara

of the you bigger look rates, I interest And think the uncertainty I uncertainty. noise look at migrant labor I there's labor mean present. mean mortgage you if And here you around our around dealers. look amount noise just lot that's shortages issue rates, if and is of at for tariffs, at just a if

conservative, range. with past. think fairly a with done but very we went we what I in have it I the wouldn't consistent call it's So wide

Joseph Ritchie

I Okay. XQ I through answering think number, then the just of think That's Ryan's helpful. as in kind question. And

things digit down. right sequential the call step $XXX you've there's think to typically like, million XQ away And goes in then know, way it, got, So is mid-single about HCS XQ. to don't I that sequentially

is growth quarter. first then assuming the So in in still Am about it I HCS you're the thinking organic -- correctly?

Alok Maskara

the QX of first all, Maybe Well, in only right? an is estimate, January.

extend Some drawing XXXB we're QX, like dealers on can convert some... Michael sand on now your it could somewhere. the maybe line already give But in because the to selling it question, equipment, you a of sequential how and just depending

Joseph Ritchie

all not inventory into Alok it I XXXA our was think we of but quarter. HCS the did said a I it the close, little But was segment. million the in BCS generally some $XXX segment, that's think Yes, going bit have in of as right,

will some So might but in QX. kind of move this of QX, be into predominantly

Operator

next to with go Barclays. Mitchell We'll Julian

Julian Mitchell

of guidance to wanted to the a there. BCS switch segment Maybe the sort just for second tack and

you concerned people there unwinding marks AI funding exposure think or I are ESRA And been have have don't revenue have question outlook XXXX. there some what the the about because you BCS. in into around

help clearly lot healthier much understand volume I verticals, market been what a line-wise investors just BCS different growth top you're have kind segment mid-single-digit speaks So us a than in thinking. to, underlying of maybe think, the of seeing across assumption what

Alok Maskara

Chinese this not to center I would that at say markets that on our Monday, our told was Sure. the us in serve from And week we it data least exposure perspective, remain good seek healthy. stock. have

that If we or such have the is the look the to see X since stores. to sales, XXX, have more waiting volume, box, So service, not are our concerned perspective, big now I in we to DIY-type there food and remains exposure It been as sales. from put which think picking I our some is terribly before actually replacement these was splash low go to of places And we made new primarily they retail, refregent with. exposure. start warehouses, at up companies conversion

new clearly, in constrained, is still was confidence our supply primarily that demand underlying and factory. we case the were that thing Second QX. constrained, We not have a

get of the So we talked expect share about. us more emergency market, to replacement including that do fair we

spend. just for are of to the and keep I In things. schools the just and terms conditioning the other this but your can't we move that these nondiscretionary I've I mind, schools, mean, see for In breaks, schools. heard funding a yes, air issuing continue some concern most IRA, back is programs of run you bonds forward mean, in the

on we we as that nature and that nature our sufficient a gives confidence much replacement a us that and guide. program see the of the look at, from don't So nondiscretionary impact

Julian Mitchell

P understandably. a Second and of touched if about classically, been word, thinking my years earnings. but has year's one, recent in want to been the times just it's don't of of sort really mention specifically, on we're couple QX then XX% XX%, the I And QX a But

we And a then coming of normally is change. in year, quarter So the in. earnings a pressure maybe full than put it's extra refrigerants the understand big of right in rest huge of with finer the a mix to point of the it, particularly less get right But we the catch QX QX there's not a and if points up would because interpretation sort expect. tailwinds the on I couple full one of now some year's had

Michael Quenzer

little I'd maybe selling Yes, the dynamic into with out half in Julian, XXXA. I kind the first to of of look a think QX different, buck at more the the just of of because things shift QX

of the we than is This bit perspective, the of year, a from the be revenue kind little half first half second XX% kind normal different So a think XX-XX. about of XX%. being will

Second half the the of from product as commercial mix half. the to some of the well up gains benefit XXXB the as the factory start coming of really year, in second you'll see more new

Operator

to with Noah next go Oppenheimer. We'll Kaye

Noah Kaye

couple So company really claimed around and regulatory we've the and of years had now well of the a pricing transitions where gains. share opportunity has executed

You in and the thinking by and administration labor brought other potential that did tariffs the some went mentioned considerations your include into factors of about change.

So to we essential thinking opportunities how opportunity a be are for question about And some your The with do any tariffs have example, there. perhaps share your gain partners contingency how is, you would potential related opportunities you perhaps about that? investments, to could there's on and planning changes? pricing others if and that responding USMCA think

Alok Maskara

means from splits China. that coming of now a Samsung we Korea, chain And things job But into did in would remain each that not No, more question. take fact China. a like Sure. of on come we as Canada, from China reducing if also good you net Mexico, in you very and the our that's these, know. less are done mini supply as our reliance beneficiary really great dynamic, a And JV have if the tariffs things be we

that benefit not in any think Samsung's I be just quality big would for product, win us. better but from coming avoiding hindsight, China So of tariffs the a

from XX% roughly, any there in have in of peso which to are work then coming is impact the with the So Mexico, through tariffs productivity, devaluation, if of Mexico, with seeing offsetting means offset price. we'll industry capacity all but

could going I'm how we delay at clearly, timing, have But we would to to sure here. be look time and that what tariffs price tariffs we a announcement. positioned there in much given incremental not So any are is to react to be

to there be employer impact different Listen, piece, doing have our the might people who versus type field. And we be or no labor the a installs On construction will obviously, of factories. HVAC in

that what think with scale replacements massive versus less repair. does happened I less is and since require labor

I think versus are But shifting we that units the tariffs ago, sure to are labor more had more skilled flexibility requires such focus making a trend items monitor replacement because can as dealers, much repair years in heavier planning, supply giving would close higher continue harder address than that full we supply us replacement. concerns our to contingency of customers, from the now and X work and dual-source close towards versus any are and to not have -- repair, ticket our to replacement as more also we X to on probably continue our much staying labor movements. redundancies we those chain chain

have keep new homebuilders and consumer offset either help going come volume mortgage rates programs, the that need working just and last us. which financing Finally, the are to which consumer with either any others, watch impact we in weaknesses to our more consumer to more guaranteed really dealer on and interest the through for through education is rates, confidence, biggest the thing probably side,

winded. that your a hope little it I answered question, and was So

Noah Kaye

of I at questions. and No, it multipart was comprehensive, realized in some I asked

myself of offline colleagues, follow to and out So then. up take respect I'll

Operator

to next Stephens. with go Tommy We'll Moll

Thomas Moll

to topic on your start maybe the at could Are plus OEM still thinking to or XX mid-singles at market the XX XXX we us less pricing. want Home XXXB disciplined contribution maybe Comfort percent, that's the get the from for anyway And least if than that one there's whatever in I of just in that. look bridge how you we mix guide range is you mid-singles. to the

Michael Quenzer

half to HCS our we're plan average increase price the Yes, this in on still about we've Sure, revenue year. XXXB is more that XXXA clarity product been XX% And you some to talking equipment the give in of Tom. to equates as going about, the a that. sell through I'll on continue some segment. the and Yes, XX% on of first

of So take bit a to XXXB into little bleed it will the product. time

about full think we of of XXXB product. the So year the sales be will

it dilutes mid-single-digit kind home you of that solutions. mix down benefit when math, So comfort do for all to that

Alok Maskara

Yes. are released XXXX, the that talking competitive we because I about think Tommy, heard and XX%, question, also have And in I released but we of pricing. too, XXXX some pricing we XX% mean, OEMs the XXX on

price XXXX. that anyway. will we as are all in quarter forward, typically the first happens optimistic this our OEMs So we in take That the be adjusting

Thomas Moll

And follow-up, home outlook to I bit. a as unpack the wanted a volume

volumes as to where a financials talked So you X that would add interpreting you've want flat. your this those the headwind and report then mid-single-digit is about out you I together. for prebuy just just the that in call volume you there make have sure the separate that correctly, I'm

it a that. mid-single about Maybe just clarify So how be should you think we could headwind. would

Michael Quenzer

exactly That's That's it. to at look exactly right. how

Thomas Moll

any versus headwind the can we sell-through you sense assumptions give mid-single sell-in level, Okay. if the segment us And the then making take there? of for that you're

Michael Quenzer

the can a the more prebuy results We sell-in in see on of well. impacted in for a you sell-through the quarter. did to channel. think see little X-step bit fourth were that channel the as I the in we But

Operator

go Stanley. We'll with Snyder next Chris to Morgan

Christopher Snyder

that maybe talked to the math? it's well? in amount there's prebuy of QX. am a kind numbers QX something But in next a I similar about that $X headwind missing I of like I guess as a base. that on at X% does billion-plus guys You it in revenue look prebuy year, imply $XXX Or if million

Alok Maskara

great Chris, a question. is Yes. this

that. $XXX comps. in we face time XXXX, and the So take that say impact difficult frame of And the million, to then let's QX if QX QX, destocking will is will what you first, in happens we QX, that's the get

why number kind that that's twice, from you the perspective, impacts right? that twice. of seems So So

Michael Quenzer

get then And benefit QX in XXXX, you'll back. that

Alok Maskara

destocking the right? the comp what is impact, is [indiscernible] and

Christopher Snyder

Okay. I really appreciate that.

So assumption it's of material guess, on of kind that. is what I QX? pre-buy pinpoint is. a in that I of kind I imagine impact guess hard, kind to maybe just following triangulate wasn't, I the And there know the then and pre-buy up

be So that interested went you because I'd focus in how 'XX? just doing lot guys about it a on in the of obviously,

Alok Maskara

for on But did first it right? thank accurate, so directionally prebuys. we you last Great. We it -- is nor We of but call and that easy, is wanted $XXX all, a not not correct, encourage million, acknowledging precisely precisely admit We clean on we think to just we did have XXXA. are any give accurate not number.

in marketplace that as addition are believe that So possible. that now as And not switch the it about. at competitors over impact better availability gave did to Lennox pre-buy tail of XXXA XXXB in distributors And comes the neutral. led We some product. our we remain to order we prebuy. our to the I delayed us all that that as talking did the share order may gain some in of products to have we and end when for for much and fairly year, lines that we did, only to

outlook that we the more had, one But that baked in as we unlikely And Our are realistically that's keep goal had. being share as gain is, volume of muted we gain course, for we XXXX. in speaking, share that have can. are of to we keep all much reason to the

Operator

We'll go Brett next with to Linzey Mizuho.

Brett Linzey

Yes.

on Mexico is new the First facility. question commercial

to throughput you moving the the you're production, XXXX able what in terms the So you and from of there? online. volume said you're to contribution Are it's piloting embedding better quantify in

Michael Quenzer

Yes.

in mid-single BCS, would about a There's points If related you for factory new improvement. in volume digits. up the which gain, predominantly supply share look there few at guide the we're be to

Brett Linzey

progressing that's it. Or think the as about loaded? through little year? imagine a more And Got evenly Okay. we I should that back-end

Michael Quenzer

little the loaded. predominantly season A mean QX. replacement QX back-end more for to I is emergency

late it'll up. is more when of QX starting start QX in ramp into kind to So

Brett Linzey

status And inefficiencies there. Arkansas the the then then that a on in facility. year? the just a on Maybe the in existing improvements January? those point follow-up into update And finer just Was any late of

Alok Maskara

Yes. Sure.

think we inefficiencies during of the obviously, to as lot yes, got existing facility and But runs it Stuttgart ramp-up I and from to the late send which was as otherwise. the expecting, components startup related a we Mexico on so do were what trial end we was back year. were And will XXXX capture inefficiencies, that of those higher in in the to doing better. are phase. But ramp-up in yes, but the in through Stuttgart The we impact. Stuttgart then was bigger factory the Stuttgart vision the ramp-up start, was it is much And move the having frankly, we new SKUs to SKUs emergency to Saltillo. manufacture of the Saltillo over the as reduce of going number factory in replacement means are Stuttgart we in some

many years. as you a been for difficult So we recovering. know, are more factor But that's on optimistic

fingers for this year. are optic crossed, we So

Operator

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

Joseph O'Dea

costs. inflation, maybe touched a can cost That's in Michael, has inflation but conservatism bit on think, you bit? I presumably unpack of you that a X% the all little there, across

through? anything you're seeing you're sort talking headwinds more particular so the where freight, And materials, bundled. kind in coming inflationary all of of of And of in sort labor

Michael Quenzer

Yes, billion all of $X lower than have We're on average X%. costs. costs, it inflation we little that and to general, a care in it's side. of on are commodity blends wages on about of in the kind the the seeing But bit our some of health SG&A X%, higher more around

there be some but definitely especially I we'll SG&A watch like and of I continues inflation to exist conservatism, some and on said, it to think side. continue the could

Alok Maskara

be things are steel, And keep in want mind and tariffs If that on some of acknowledge to well. that like the then that for tariff that. we uncertainty as there impacts clearly prepared

Joseph O'Dea

that, I inflation price in But -- of X% guess so idea the of that compares revenue bridge is X%. Right. to the

right get going getting were a not market out to more you're the have saying, So because with. costs the burdened we to and

Michael Quenzer

also that Correct. cover for but as a to incrementals well I that, we drive better of we're more to getting bit of had through some well. productivity looking some little mean the as mix that we're

Alok Maskara

in put have in mix put could we XXXB, you the mind, and in keep that And mix. price,

think covering So well. inflation lot you've as to got a that is of of

Joseph O'Dea

Right.

to think to as about trying side, when just XX% of relates the the really the the the year XXXB then sticking? XX% BCS And confidence that kind we not think sense a of price visibility about, at do think which you'd that that understand side, to you'll have of good kind business, Okay. just and point the I HCS get is talked but it you in that you XX% what realization seasonality of when and --

Alok Maskara

get also good late we'll their XXXX QX announced -- OEMs some sense of the when pricing. make I to the not because think a mid- have we

good that's sense concerned a it. so impact we XX% us XX% So The is there's when it we it. no signs But XX%. for about of out what positive. be the called to are reason I early is the mean of reason far, or get that

see what reason half, So right ever greater progressively with of there's second to are, we'll that's means now, that have But number. or towards go which numbers captured. no the getting be as kind the they we concerned why you of a that portion

Operator

Jeff We'll with Hammond go KeyBanc. to next

Jeffrey Hammond

cleanups. a few Just

aware there's us on said Can So the any set just XX%. on particularly versus you capacity particular is? just you're what have the lower your mix industry OEMs mix you industry? And if Mexican level production,

Alok Maskara

guess, It's wouldn't -- we precisely and come I at OEMs Yes. it's I correct. that mean, accurate. number. reports directionally looked I and looked all different say other just at with It's have the

end low tariffs, the if products are make we $X previously believe there. we we ours. talked have perspective, they about billion merit about our And of in been For

we far, residential our U.S. not of that. XX% Mexico. would and premium in production our impacted was make U.S., our products output So and factories. X also in in so we since be have all Commercially, through

we're many geographical same our the manufacture But we starting often that of within competitors just as that in in on sometimes they do Mexico together. So know area Mexico well.

So the versus we is commercial. about skewed more think right, towards number XX% obviously residential

Jeffrey Hammond

say that industry you'd So you're today, below probably average?

Alok Maskara

bit on For but we With it OEM we're Slightly right? some higher. OEMs, are actually some below. OEMs, little significantly below, depends which a

goes by just it OEM yes. So OEM,

Jeffrey Hammond

is big the year then do move opportunities level start some this time those And a are distribution this up? kind you frame? us you just focus, over Okay. Great. of just And on the Or margins set past year? can to progress of that longer what margin think you on

Alok Maskara

based but It frame, the over see are a results long that that initiative you as time is today of on some well.

a the us for XXXX. you've of the changes you did margins. if long and incentive is did followed we we of a ROS that HCS, at that reorganization record happen us consistent period that distributor with we and in about the a lot realize and made end So time. of QX I have more think getting

our a are So right? We've long talked I margin higher distributor targets. those is journey, plus through. just think that's manufacturers XXXX some But of about coming than results

So I the so think to that on confidence end continues beyond XXXX. previously high gives of we XXXX. would be But the for our far say that published progress us targets

Jeffrey Hammond

today? And your and And entitlement mix what think accessories parts do what you is?

Alok Maskara

many years, But talking and Hasn't about that changed finally in remain our much few I past to I'm over mean the over much. I and we next results twice entitlement But months show years. about parts remains my confident it's low. the entitlement current for and time year? been and some high remains at volume percent we've that think accessories. is XX-ish

Operator

Nicole We'll to go next Deutsche DeBlase Bank. with

Nicole DeBlase

of within cleanups just lot I some maybe been construction guys for are But guess about ground you covered for new versus thinking replacement A here. HCS How me. has XXXX? demand

Michael Quenzer

as demand for that to side could that happen. making the that the new think in industry labor we that rates go space on of down, there's there's to kind demand. be can segment. the down. it's about We with challenges driver they sure goes pent-up big but XX% construction going of But is keep to flattish, be if of construction to If up going think some is interest that well continue there New obviously it home

interest mostly flattish driven, but it's So within rate kind of guide. the

Nicole DeBlase

Okay.

bit Got assume roll more of is be margin margin expansion right maybe dynamics prebuy in second I by Okay. those more given ramp-up new And fair guidance that some year-on-year, just don't of by it, then in guess, BCS give the XXXX. off? know segment, half sees costs some the a but the is And And BCS Understood. it official up. as should the about thinking to could way challenged it. through segment. I think margin you be kind guys then of directionally to

Michael Quenzer

expansion. year, margin the mostly share will throughout factor the down is in that second BCS, That's HCS. gains gains, in BCS, in correct. is which productivity of the guide $XX Overall, that portion of ramps larger happen of That flat, volume will kind BCS will the the a but be about million kind big of be half up up. The margin the for as driver of

Operator

RBC with Capital next We'll to Deane Markets. go Dray

Deane Dray

in you who a some I'll prebuy how Or some How your it referenced provided comments guys. And the earlier. like of a give previous stockouts echo was on sense it think much of you was the good really How were months you how level that? windfall us quarter? a fourth the for a competitors tactical was over you they Alok, the And in loaded? positioned switched Was what expand because you of individual bit, you and out? could you calibration you December? surprise big some had played of

Alok Maskara

Yes.

were a had yes, it. all, always else surprised these as not almost I But of which would of expected misstep happens we surprised mean First have somebody misstep. any to that had we have in that competitor were competitor transition. regulatory we to a

perspective, So from fully us loaded, bit had a like How of high we impacted was that a were and really surprise. throughout. rates was it we fill there

And that and be the we bake we to permanent share. And by was to take capture could a part now we challenge manufacture that's a driven we X of across challenge, all In anything that just whole additional it were share and is know to were of QX, we it going So months. fairly share. able make in. selling. was it more even And

it had our constrained supply where in manufacturing inventory capacity So more station and different was we by chain.

Some of the start share in temporary gain QX. did

stock think permanent that But us I that happened. that remain make that from for very our customers the was So buying took were to convert gain response more to sure we we just a that from selective optimistic part customers And on share gain. were and we share during who us we're would out. tactically, not permanent you with more we'll stay think of the

to were think as and from existing I some So convert loyalty customers gain some we new well. customers able

Michael Quenzer

Yes.

share high-quality and and Let's windfall comp. to be tough from have clear about a market that to a problem a prebuy that's talk temporary

that's best you data that a So probably then second there's of all did your but the on passed any the was appreciate And that in calibration. comment -- were it where deals have opportunity some question, you I be you question but those a color XXXX price, on, hunch, there a said Alok, Was expand do. can your of you not would just center there I kind helpful. of

Alok Maskara

domestic center There data very were that some opportunities opportunities CFO, right? on. There for there a Yes, we down ROIC have international credit was on. framework. well. on came opportunities as give mean were passed I we that conservative disciplined passed mean some a Michael that were expansion to passed to target. Sure. It having consolidation this, helps all we I

can share execution the we M&A. we get that of versus and with feel kind through more are often, at don't and industry We buying wear glasses to share better look going rose-colored

that I those So think to hoping were writing we my proud would lot the on of comment had we script. calls. kind somebody I when with a We comment. of catch was fun of were

Operator

with next Coe go Research. Nigel to We'll Wolfe

Nigel Coe

just year, much all flattish it and digits. gain? to mid-single for can Any how digits way that in is Anything BCS share And dig maybe just into the volume is Saltillo is ramp-up? there maybe Look, you up mid-single in would the I'm the be baked industry helpful. guidance for thinking, quantify

Michael Quenzer

bit we businesses, business, think there's service of refrigeration HVAC a And the remember, and We business. little X market have Yes. growth.

share of growth, points So that X a gain little bit specifically emergency or of around X market about replacement. a but would be

Nigel Coe

you XXXA. back the know Or but your guess XXXX perhaps And X helpful. a to you then That's think about expected. bit levels don't XXXA that that? in held excess hat XX And inventory your way that ]? sort about units if to higher that want I size would in have million had industry good to [ to a Is Okay. XXXA to ], to the any [ on, than I higher on shipped then I just year-end? if don't Q-over-Q. at would know, little have million inventory just way XQ. thinking be Obviously,

Alok Maskara

XXX of of high our end ], no first previous industry ]. admit are all, end from So there on one, range I is will the industry first expert, but estimate and reports [ [ units, think the of I've lots I low XXX of

million [ X So it's not number, that ]. in

it's X.X million think we're talking I So that about.

need and to within local case nobody a a things, that. get the that's into precise of X mean, emergency internal more we right? range. that within it's in it to own inventory our range insight more So And think I we a building mean, was are On I replacement, be has commercial, bit inventory, positioned inventory you of market.

is continue driving commercial, So to that's there. will . we peak are in the because trend QX inventory QX But model that our and for see building season. your probably probably you variation

Operator

Karas UBS. with Damian We'll go to next

Damian Karas

I wanted to ask you cash about the guidance. free flow

this bit wide. guidance in the had is But good pretty you for So expected obviously flow XXXX. a better than in year, came cash range

the just you moving could maybe So pieces out spell there?

Michael Quenzer

Yes.

of our flow midpoint midpoint at cash from conversion a I the net guide think conversion. is XX% it look to about perspective, guidance if free you of the income

performance So to as inventory, as we below conversion the having of us a we've of to receivables reinvest range capital would traditionally expenditures to I'm when just be beyond, XX% payable initiatives as well the to be and leading. than that of back and some the higher in into XX% depreciation. HCS little accounts that a BCS bit compared end high again, going targeted that depleted But both the reflect in the we because continue we mostly little well into and on better get obviously think XXXX we're

Damian Karas

are that XXXX for the thinking share tariffs market? in about mean beyond targets concern for all? your Just some know at a policy what I from confident give pump And helpful. where heat little curious, on talked and very you'll that the some immigration gaining be might you policy bit like penetration, thinking and just funding, guys you is about IRA potential that implications then cause something it. and you that pause Alok, Got That's before about

Alok Maskara

a mean difference 'XX. in I IRA 'XX huge think pass I in Yes. not news our with volumes or was good that making the the

it. We states are the that through come to back for come also waiting to and

already the of tax. part energy there, it on changed. is tax the has not right? Now So efficiency, rebased That

it even if impact I no IRA to for paused. it's material the have paused and material or 'XX, was whether on, So have has a not not impact in going 'XX going did in a think no, us

a it's for bit So no news us. of a

Operator

JPMorgan. We'll go Tusa with Steve to next

C. Stephen Tusa

clarify kind to couple wanted just of I a So of things.

So prebuy in still are no XQ. you saying guys there was that

that vast majority saying in the vast, XQ? like most You're came

Alok Maskara

some QX, true, did that's caveat temporary not in the gains, calling share rebuy the gain we were expect some QX. of that we able with of share otherwise, Steve. when Yes, which But yes, we the all also were fulfill see Yes. to demand. was But OEMs

C. Stephen Tusa

and kind XQ strategy guys didn't little between your share Maybe but those it. was share you like was of rate gain, they you the And any think the in that kind I into of a difference don't do split Or that there in because on change that gain XQ with then share like XQ? XQ. think changed commensurate do think you booked commensurate bit,

Alok Maskara

I improve think their aggressive then they XXXB QX in were launched and and the They they with marketplace was that. position the did less.

story. of QX, QX So almost it QX. a of It the think I share was tail think more from all prebuy. end that perspective, But I towards bled I into gain think obviously was

C. Stephen Tusa

Right.

a you competitive So they what was didn't guys, have product. really happened

came You gains guys shipped some a their lot a kind Is of XXXB, when share. the that share right? those gained of they the then XXXA with bit. And ebbed

Alok Maskara

right. That's a slowed Yes, bit. down Yes.

C. Stephen Tusa

run COGS? actual number? Okay. hard like sales absolute profit? the what the Is on that Or on on like the what that, what's And total number Or just Like X%, the the is the minus actual the that? cost numbers, rate number? is base then inflation

Michael Quenzer

cost. billion of total minus about The cost sales profit, $X

C. Stephen Tusa

Yes.

sorry, be do can Mexico. which on some you But sure plan guys? they just shift here ship price more. do, one helpful. can back the That's not increased? Okay. And they Will if some it Or to some with be these it U.S? is they through if then price I'm things, will. the Or for go will you of that you mostly stuff mostly What super back increases?

Alok Maskara

short the and besides will term, pricing. be from devaluation impact in mostly productivity, peso So it any

long is a to factories take more getting in it that we'll if at Orange term, us ramp some product. yes, used make it at looking looking Marshalltown, back in more start these some But will On up, long the as Book term, this of then to time.

Operator

We'll Jeff go next to Vertical Sprague Research. with

Jeffrey Sprague

trajectory a would XX-XX did my the your absorption first said about you channel lot us to split. of have you the or Maybe QX, that actually, a And left the a second be bit guess in-house question to more give is it in on think right? me to little little kind Michael, look more a what fourth the inventory about But the But me the too, you here part revenue sorry, normal QX. could, I color really XXXA. in adjust of relative quarter. just you half than one maybe and I inventories just if first out low Just that, jump inventory, of a helpful. pushing about to fact And bit of about think can little inventory I on XXXA quarter, if into to So But the commercial build obviously, in under doesn't margin that color kind Maybe lot obviously, right, going a position. bit. some to inventories sales, relative over-absorption triangulate likely you in you're that? how more sales on it were just had the lower on out in blowing be a

Michael Quenzer

Yes. Sure.

a a the I into of it's pre-bought point And at good the lot what was availability did we XXXA have inventory. QX. some is that the seeing but end on think we're year, of

the But into the will fully early I that quarter. mitigate we'll through QX, that's of gone gone by inventory. So kind start to be think of depletion really of it second kind and sell that

new the to then XXXB and first -- some the should see You're the product right, tailwinds the start we half in first more on up into going that ramp us And start to will quarter. to the you're year, of HCS. could in to going access absorption give side,

BCS we're launch to side, going we the continue comparisons On though, have new half as unfavorable factory. first the in that to

the you better absorption of get productivity BCS. lot a from Second on that year, half

Operator

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

time. at . may You your disconnect this lines

Lennox International (LII) 29 Jan 252024 Q4 Earnings call transcript