HVAC equipment maker Lennox International Inc. (LII) announced unaudited fourth quarter and full-year 2004 earnings.
LII's sales from continuing operations for the fourth quarter of 2004 increased 6 percent to U.S. $741 million. In constant currencies, sales were up 4 percent. Income from continuing operations declined 7 percent to $19 million, or $0.29 earnings per diluted share, including a $0.01 negative impact due to EITF 04-8, which addresses the effect of contingently convertible debt on diluted earnings per share. This compares with EPS from continuing operations in the fourth quarter 2003 of $0.32. Discontinued operations negatively affected earnings by $13 million in the fourth quarter 2004, resulting in reported net income of $6 million, or $0.11 per share, the company said.
Sales from continuing operations for full-year 2004 increased 7-percent to $3.0 billion. The HVAC company achieved record earnings from continuing operations of $91 million before goodwill impairment, a 7-percent increase over the prior year.
LII said it continued to strengthen its balance sheet, reducing total debt in 2004 by $52 million. Over the past 4 years, it has reduced its total debt by $380 million, plus reduced the balance in its asset securitization program by $130 million. The company generated $62 million in cash from operating activities of continuing operations in 2004 and invested $40 million in capital expenditures, providing free cash flow from continuing operations of $22 million.
Bob Schjerven, CEO, said that 2004 was a demanding, but ultimately rewarding year for the company. "Our results were near the high end of the earnings range we provided at the start of the year, in spite of a $47 million year-over-year increase in the cost of materials and related components," he said.
"Looking ahead, we are optimistic about 2005. Our manufacturing businesses continue their strong performance, and our Service Experts segment is beginning to benefit from the restructuring actions we have taken," Mr. Schjerven said.
LII expects earnings per share in 2005 will be in the range of $1.50 to $1.60 -- an improvement of 8 percent to 15 percent over the 2004 result of $1.39 -- on mid-single-digit revenue growth. This EPS range includes approximately $0.10 of dilution due to EITF 04-8 and, based on preliminary analysis, the impact of expensing stock options due to the company's adoption of SFAS 123R during 2005.
The company indicated capital expenditures will approximate $80 million in 2005, driven by investment to comply with the new National Appliance Energy Conservation Act 13 SEER industry standard, which increases the minimum efficiency for residential air-conditioners by 30 percent, as well as investment in other new products and IT systems.
Fourth Quarter Segment Results
LII's Residential Heating & Cooling segment revenue increased 3 percent during the quarter to $333 million, driven by growth at the company's Lennox Industries and Ducane units, as well as the its hearth products business. Adjusting for foreign exchange, sales were up 2 percent. Segment profit was $37 million, down from $45 million in 2003, with operating margins declining from 13.9 percent to 11.2 percent.
Commercial Heating & Cooling benefited from strong performance in North America, LII said. Segment revenue increased 18 percent, or 15 percent when adjusted for foreign exchange, to $155 million. Segment profit increased 7 percent to $13 million, with operating margins, squeezed by higher material costs, contracting 90 basis points to 8.4 percent.
Service Experts sales from continuing operations were down 3 percent, or 4 percent adjusting for currency fluctuation, to $154 million. The segment posted an operating profit of $1 million for the quarter, or 0.6 percent of sales, compared with a loss of $4 million in the previous year.
The company's Refrigeration segment revenue increased 12 percent, led by strong sales growth in the Americas. Segment profit increased 26 percent to $10 million, and operating margins grew to 8.5 percent from 7.6 percent in fourth quarter 2003.
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