Global HVAC OEM Lennox International Inc. (LII) today reported record third quarter revenue of U.S. $1 billion, a 9-percent increase over the prior year, with foreign exchange contributing 1 percent to sales growth. Net income was $36 million, or $0.49 per diluted share, compared with $55 million, or $0.76 EPS in last year's third quarter. Adjusted income from continuing operations, a non-GAAP measure, was $50 million, or $0.69 per diluted share, an improvement over the previous year's third quarter adjusted earnings of $49 million, or $0.68 per diluted share.
"We are pleased to report solid third quarter results after anticipating challenging year-over-year comparisons for the second half of 2006," said LII CEO Bob Schjerven.
LII, based in Dallas, Texas, U.S., said, on an adjusted income from continuing operations basis, sales growth and lower corporate and interest expenses offset commodity price escalations, higher freight and distribution expenses, and inflation in other costs.
"While we are seeing softening in the residential new construction market, which we estimate to represent approximately 20 percent of our total revenue, we believe we can offset the downturn by adding new builder accounts and increasing sales in the larger, and more profitable, replacement business," Schjerven added. "We are reaffirming our full-year 2006 earnings per share guidance of $2.00 to $2.10 on a GAAP basis. Adjusted EPS from continuing operations is expected to exceed that range, which will represent greater than 15 percent improvement over adjusted EPS of $1.83 in 2005. Our consolidated revenue is expected to increase approximately 10 percent."
- Residential Heating & Cooling revenue rose 7 percent with no significant impact from foreign exchange. Segment profit of $54 million was down from $67 million in the third quarter of last year. Factors contributing to the decline included a predicted lag in realizing recent price increases and the corresponding inability to fully cover higher commodity and other input costs, a shorter cooling season than the prior year, and manufacturing and distribution inefficiencies as the company consolidated operations of its Armstrong and Ducane brands. In addition, the company's successful initiative to increase sales in more price-competitive Sunbelt states has, as anticipated, negatively impacted margins.
- Commercial Heating & Cooling revenue was up 14 percent, or 13 percent when adjusted for foreign exchange. Segment profit was $26 million, down slightly from $27 million in the third quarter of last year, with higher commodity costs offsetting volume growth and price improvement. While the segment achieved double-digit sales growth in both North America and Europe, price improvement in the quarter was limited to the domestic market.
- Service Experts revenue was up 1 percent, or flat when adjusted for currency fluctuations. Segment profit was $8 million, the same as a year ago.
- Refrigeration revenue rose 14 percent, or 13 percent when adjusted for foreign exchange. Segment profit rose to $14 million from $12 million in the third quarter of last year. The increase in sales and segment profit was broad-based, with the most notable improvements in the Americas and the Asia/Pacific region. Supermarket and cold storage demand continued to be healthy, and the segment also reported growth in convenience stores, food service, and discount variety stores that are adding refrigerated sections.
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