Lennox International Reports Second Quarter Results and Raises 2020 Guidance
DALLAS, July 20, 2020 /PRNewswire/ -- Lennox International Inc. (NYSE: LII) today reported financial results for the second quarter of 2020. All comparisons are to the prior-year period. The company's insurance references relate to the July 2018 tornado damage at a Residential manufacturing facility in Iowa. Adjusted revenue and profit exclude non-core Refrigeration businesses divested in prior periods.
For the second quarter of 2020, Lennox International reported revenue of $941 million, down 14%. GAAP operating income was $136 million compared to $214 million in the prior-year quarter. GAAP earnings per share from continuing operations was $2.62 compared to $2.81 in the prior-year quarter. The second quarter of 2019 included an insurance benefit of $26 million and a pension settlement charge of $61 million.
Total adjusted segment profit was $153 million in the second quarter compared to $202 million in the prior-year quarter that included $18 million of insurance benefit. Total adjusted segment margin was 16.3% compared to 18.4% in the prior-year quarter. Adjusted earnings per share from continuing operations was $2.97 compared to $3.74 in the prior-year quarter.
"The COVID-19 pandemic significantly impacted all our businesses in the second quarter, but our Residential business improved each month through the quarter and was up 7% year-over-year in June as the economy continued to re-open and weather heated up," said Todd Bluedorn, Chairman and CEO. "With hot weather continuing month-to-date in July, we are seeing strong Residential growth on excellent operational execution by the team to capitalize on market opportunities.
"In total for the second quarter, Residential revenue was down 6%. Segment profit was $127 million, down 17% as reported. From an operational perspective excluding $18 million of insurance benefit in the prior-year quarter, segment profit was down 6%. Segment margin was 19.7%, down 260 basis points as reported. On an operational basis, segment margin was up 10 basis points.
"As expected, our commercial-facing businesses were more heavily impacted from the pandemic. In our Commercial business segment, revenue was down 28%, driven primarily by national account customers pushing out orders as previously discussed. Regional and local business was also down significantly in the quarter. Commercial segment profit was down 34%, and segment margin contracted 170 basis points to 18.9%. In the Refrigeration segment, adjusted revenue was down broadly across our businesses in North America and Europe, declining 26% at constant currency. Segment profit was down 53%, and segment margin contracted 460 basis points to 8.2%.
"We continue to face highly uncertain market conditions in the second half of the year, and the company's stock repurchase program currently remains on hold. Lennox International maintains a strong balance sheet and continues to expect a strong year of cash generation, targeting approximately $340 million of free cash flow. The company has executed well on its $115 million of in-year SG&A savings for 2020 and managed decremental total adjusted segment profit margin of 20% on an operational basis in the second quarter. We are raising our financial guidance for 2020 and now expect adjusted revenue to be down 10-15% and adjusted EPS from continuing operations of $7.90-$8.70. Lennox has a focused and seasoned team with experience managing through economic downturns while continuing to invest and advance the company's position to capitalize on share gains and market opportunities."
FINANCIAL HIGHLIGHTS
Revenue: Revenue was $941 million in the second quarter, down 14%. Foreign exchange was neutral to revenue. Volume was down, and price and mix were favorable to revenue.
Gross Profit: Gross profit was $276 million on a GAAP basis and $275 million on an adjusted basis, both compared to $332 million in the prior-year quarter. GAAP gross margin was 29.3% and adjusted gross margin was 29.2%, compared to 30.2% in the prior-year quarter. Gross profit was impacted by lower volume due to the COVID-19 pandemic, lower factory absorption, higher warranty expense, and unfavorable mix.
Income from Continuing Operations: On a GAAP basis, income from continuing operations for the second quarter was $100.6 million, or $2.62 per share, compared to $111.0 million, or $2.81 per share, in the prior-year quarter.
Adjusted income from continuing operations in the second quarter was $114.0 million, or $2.97 per share, compared to $147.6 million, or $3.74 per share, in the prior-year quarter. Adjusted income from continuing operations for the second quarter of 2020 excludes net after-tax charges of $13.4 million, consisting of: $7.9 million for restructuring activities, $2.6 million for personal protective equipment and facility deep cleaning expenses incurred due to the COVID-19 pandemic, and a net $2.9 million in charges for various other items.
Cash from Operations, Free Cash Flow and Total Debt: Net cash from operations in the second quarter was $105 million, compared to $30 million in the prior-year quarter. Capital expenditures were $19 million in the second quarter, compared to $16 million in the prior-year quarter that also had approximately $6 million in proceeds from insurance and property disposals. Free cash flow was approximately $87 million compared to $20 million in the second quarter a year ago. Total debt at the end of the second quarter was $1.39 billion. Total cash, cash equivalents and short-term investments were $49 million at the end of June. In the second quarter, the company paid approximately $30 million in dividends.
BUSINESS SEGMENT HIGHLIGHTS
Residential Heating & Cooling
Revenue in the Residential Heating & Cooling business segment was $645 million, down 6%. Foreign exchange was neutral. Segment profit was $127 million, compared to $153 million in the prior-year quarter that included $18 million of insurance benefit. Segment margin was 19.7%. In the prior-year quarter, segment margin was 22.3% as reported or 19.6% excluding the $18 million insurance benefit. Residential results were negatively impacted by the year-over-year difference in insurance benefit, higher warranty expense, and the COVID-19 pandemic that led to lower volume and factory inefficiencies. Partial offsets included favorable price and mix, lower material, freight and distribution costs, and lower SG&A expense.
Commercial Heating & Cooling
Revenue in the Commercial Heating & Cooling business segment was $188 million, down 28%. Foreign exchange was neutral. Segment margin was 18.9% compared to 20.6% in the prior-year quarter. Segment profit was $36 million compared to $54 million in the prior-year quarter. Commercial results were negatively impacted by unfavorable mix, higher warranty expense, and the COVID-19 pandemic that led to lower volume. Partial offsets included lower material, freight and distribution costs, and lower SG&A expense.
Refrigeration
Adjusted revenue in the Refrigeration business segment was $108 million, down 27%. Foreign exchange had a negative 1% impact on revenue. Adjusted segment profit was $9 million compared to $19 million in the prior-year quarter. Segment margin was 8.2% compared to 12.8% in the prior-year quarter. Refrigeration results were negatively impacted by higher warranty expense and the COVID-19 pandemic that led to lower volume and factory inefficiencies. Partial offsets included lower material, freight and distribution costs, lower SG&A expense, and favorable foreign exchange.
FULL-YEAR GUIDANCE
The company is updating its 2020 guidance and raising estimates for revenue and EPS from continuing operations.
-- Raising guidance for adjusted revenue to be down 10-15% from the prior
year compared to previous guidance to be down 11-17%.
-- Raising guidance for GAAP EPS from continuing operations to $7.31-$8.11
from previous guidance of $7.07-$8.07.
-- Raising guidance for adjusted EPS from continuing operations to
$7.90-$8.70 from previous guidance of $7.50-$8.50.
-- Corporate expense is still expected to be approximately $75 million.
-- The effective tax rate is still expected to be 21-22% on an adjusted
basis for the full year.
-- Capital expenditures are still targeted to be $120 million.
-- Guidance for free cash flow remains approximately $340 million.
-- The company's remaining 2020 stock repurchase program of $300 million
currently remains on hold; the company repurchased $100 million of stock
in the first quarter.
-- The company's quarterly dividend plans remain unchanged at $0.77 per
share, or more than $115 million in total for the year.
CONFERENCE CALL INFORMATION
A conference call to discuss the company's second-quarter results and outlook will be held this morning at 8:30 a.m. Central time. To listen, call the conference call line at 844-721-7239 (U.S.) or 409-207-6953 (international) at least 10 minutes prior to the scheduled start time and use participant code 5188986. The conference call also will be webcast on Lennox International's web site at www.lennoxinternational.com. A replay will be available from approximately 11:00 a.m. Central time on July 20 through August 3, 2020 by dialing 866-207-1041 (U.S.) or 402-970-0847 (international) and using access code 2654797. The call also will be archived on the company's website.
About Lennox International
Lennox International Inc. is a global leader in the heating, air conditioning, and refrigeration markets. Lennox International stock is listed on the New York Stock Exchange and traded under the symbol "LII". Additional information is available at: www.lennoxinternational.com or by contacting Steve Harrison, Vice President, Investor Relations, at 972-497-6670.
FORWARD-LOOKING STATEMENTS
The statements in this news release that are not historical statements, including statements regarding the 2020 full-year outlook, expected consolidated and segment financial results for 2020, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on information currently available as well as management's assumptions and beliefs today. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from the results expressed or implied by the statements, and investors should not place undue reliance on them. Risks and uncertainties that could cause actual results to differ materially from such statements include risks associated with the economic impact of the COVID-19 pandemic on the company and its employees, customers and suppliers; risks that the decline in the North American unitary HVAC and refrigeration markets will be greater than current assumptions. Additional statements include, but are not limited to: the impact of higher raw material prices, the impact of new or increased trade tariffs, LII's ability to implement price increases for its products and services, economic conditions in our markets, regulatory changes, the impact of unfavorable weather, and a decline in new construction activity and related demand for products and services. For information concerning these and other risks and uncertainties, see LII's publicly available filings with the Securities and Exchange Commission. LII disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
(Amounts in millions,
except per share data) For the Three Months
For the Six Months
Ended June 30, Ended June 30,
2020 2019 2020 2019
Net sales $
941.3 $
1,099.1 $
1,665.1 $
1,889.4
Cost of goods sold 665.6 767.0 1,223.7 1,355.8
Gross profit 275.7 332.1 441.4 533.6
Operating Expenses:
Selling, general and
administrative
expenses 129.5 152.4 260.8 298.2
Losses (gains) and
other expenses, net 3.6 2.1 2.3 3.2
Restructuring charges 10.0 (0.1) 10.5 0.4
Loss on sale of
business - 0.4 8.8
Insurance proceeds for
lost profits - (26.0) (65.5)
Loss (gain) from
natural disaster, net
of insurance
recoveries 1.0 (5.9) 2.7 (12.8)
Income from equity
method investments (4.4) (4.6) (7.2) (7.2)
Operating income 136.0 213.8 172.3 308.5
Pension settlement - 60.6 60.6
Interest expense, net 6.9 13.1 15.6 23.9
Other expense (income),
net 1.1 0.3 2.2 1.2
Income from continuing
operations before
income taxes 128.0 139.8 154.5 222.8
Provision for income
taxes 27.4 28.8 41.4 42.4
Income from continuing
operations 100.6 111.0 113.1 180.4
Discontinued Operations:
Loss from discontinued
operations before
income taxes (0.8) (0.3) (0.8) (0.4)
Income tax benefit (0.2) (0.6)
Loss from discontinued
operations (0.6) (0.3) (0.2) (0.4)
Net income $
100.0 $
110.7 $
112.9 $
180.0
Earnings per share - Basic:
Income from continuing
operations $
2.63 $
2.84 $
2.95 $
4.58
Loss from discontinued
operations (0.01) (0.01) (0.01)
Net income $
2.62 $
2.83 $
2.95 $
4.57
Earnings per share - Diluted:
Income from continuing
operations $
2.62 $
2.81 $
2.93 $
4.53
Loss from discontinued
operations (0.02) (0.01) (0.01)
Net income $
2.60 $
2.80 $
2.93 $
4.52
Weighted Average Number
of Shares Outstanding
-Basic 38.2 39.1 38.3 39.4
Weighted Average Number
of Shares Outstanding
-Diluted 38.4 39.5 38.6 39.8
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
Adjusted Segment Net Sales and Profit (Loss)
(Unaudited)
(Amounts in millions) For the Three Months For the Six Months
Ended June 30, Ended June 30,
2020 2019 2020 2019
Adjusted Net Sales
Residential Heating &
Cooling $
644.8 $
689.1 $
1,086.9 $
1,154.6
Commercial Heating &
Cooling 188.3 261.3 366.7 434.7
Refrigeration (1) 108.2 148.7 $
211.5 265.8
$
941.3 $
1,099.1 $
1,665.1 $
1,855.1
Adjusted Segment Profit (Loss) (2)
Residential Heating &
Cooling $
127.3 $
153.4 $
159.8 $
240.1
Commercial Heating &
Cooling 35.6 53.9 54.3 68.9
Refrigeration (1) 8.9 19.1 9.6 28.5
Corporate and other (18.8) (24.1) (33.1) (36.2)
Total adjusted segment
profit 153.0 202.3 190.6 301.3
Reconciliation to Operating Income:
Special product
quality adjustments (1.0) (0.5) (1.0) (0.5)
Loss on sale of
business - 0.4 8.8
Partial advance of
insurance recoveries
related to lost
profits - (8.0) (8.0)
Loss (gain) from
natural disaster, net
of insurance
recoveries 1.0 (5.9) 2.7 (12.8)
Items in losses
(gains) and other
expenses, net that
are excluded from
segment profit (loss)
(2) 7.0 2.6 6.1 3.9
Restructuring charges 10.0 (0.1) 10.5 0.4
Operating loss from
non-core business
(1) - 1.0
Operating income $
136.0 $
213.8 $
172.3 $
308.5
(1) Excludes the non-
core business
results related to
Kysor Warren,
which was sold in
March 2019.
We define segment
profit (loss) as a
segment's
operating income
included in the
accompanying
Consolidated
Statements of
Operations,
(2) excluding:
-- The following
items in Losses
(gains) and other
expenses, net:
º Net change in unrealized losses
(gains) on unsettled futures
contracts,
º Special legal contingency charges,
º Asbestos-related litigation,
º Environmental liabilities,
º Charges incurred related to COVID-
19 pandemic,
º Other items, net
-- Loss on sale of
business,
-- Special product
quality
adjustments,
-- Partial advance
of insurance
recoveries related
to lost profits,
-- Loss (gain) from
natural disaster,
net of insurance
recoveries,
-- Operating loss
(income) from non-
core businesses;
and
-- Restructuring
charges.
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Amounts in millions, except
shares and par values) As of June 30, As of December 31,
2020 2019
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $
44.8 $
37.3
Short-term investments 3.8 2.9
Accounts and notes receivable,
net of allowances of $7.2 and
$6.1 in 2020 and 2019,
respectively 624.2 477.8
Inventories, net 499.7 544.1
Other assets 54.4 58.8
Total current assets 1,226.9 1,120.9
Property, plant and equipment,
net of accumulated
depreciation of $848.5 and
$824.3 in 2020 and 2019,
respectively 441.2 445.4
Right-of-use assets from
operating leases 177.1 181.6
Goodwill 186.5 186.5
Deferred income taxes 15.5 21.5
Other assets, net 77.1 79.0
Total assets $
2,124.3 $
2,034.9
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Current maturities of long-
term debt 343.6 321.9
Current operating lease
liabilities 52.0 52.7
Accounts payable 295.0 372.4
Accrued expenses 251.0 255.7
Income taxes payable 4.6
Total current liabilities 946.2 1,002.7
Long-term debt 1,047.2 849.3
Long-term operating lease
liabilities 127.9 131.0
Pensions 91.8 87.4
Other liabilities 140.1 134.7
Total liabilities 2,353.2 2,205.1
Commitments and contingencies
Stockholders' deficit:
Preferred stock, $0.01 par
value, 25,000,000 shares
authorized, no shares issued
or outstanding -
Common stock, $0.01 par value,
200,000,000 shares
authorized, 87,170,197 shares
issued 0.9 0.9
Additional paid-in capital 1,102.4 1,093.5
Retained earnings 2,201.5 2,148.7
Accumulated other
comprehensive loss (121.7) (103.8)
Treasury stock, at cost,
48,919,279 shares and
48,575,901 shares for 2020
and 2019, respectively (3,412.0) (3,309.5)
Total stockholders' deficit (228.9) (170.2)
Total liabilities and
stockholders' deficit $
2,124.3 $
2,034.9
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
(Amounts in millions) For the Six Months Ended
June 30,
2020 2019
Cash flows from operating activities:
Net income $
112.9 $
180.0
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Loss on sale of business - 8.8
Insurance recoveries received for
property damage incurred from
natural disaster - (12.8)
Income from equity method
investments (7.2) (7.2)
Dividends from affiliates 2.5 2.0
Restructuring charges, net of
cash paid 5.9 (0.2)
Provision for bad debts 3.1 2.2
Unrealized losses (gains), net on
derivative contracts 1.1 (0.2)
Stock-based compensation expense 10.4 11.4
Depreciation and amortization 37.9 34.9
Deferred income taxes 6.6 15.7
Pension expense 4.9 64.2
Pension contributions (1.2) (1.0)
Other items, net 0.7 (0.1)
Changes in assets and liabilities, net of effects
of divestitures:
Accounts and notes receivable (151.5) (270.0)
Inventories 43.1 (149.9)
Other current assets (1.1) 10.2
Accounts payable (66.2) 52.6
Accrued expenses (11.9) (21.0)
Income taxes payable /receivable 10.2 (11.5)
Other, net 6.3 (19.1)
Net cash provided by (used in)
operating activities 6.5 (111.0)
Cash flows from investing activities:
Proceeds from the disposal of
property, plant and equipment 0.3 0.8
Purchases of property, plant and
equipment (43.5) (53.5)
Net proceeds from sale of
business - 43.6
Purchases of short-term
investments (1.1) (1.8)
Insurance recoveries received for
property damage incurred from
natural disaster - 12.8
Net cash (used in) provided by
investing activities (44.3) 1.9
Cash flows from financing activities:
Short-term debt payments (1.9) (2.1)
Short-term debt proceeds 1.9 2.1
Asset securitization borrowings 91.0 65.5
Asset securitization payments (70.0) (43.5)
Long-term debt payments (2.6) (33.3)
Long-term debt borrowings -
Borrowings from credit facility 1,060.5 1,459.5
Payments on credit facility (863.5) (1,037.5)
Proceeds from employee stock
purchases 1.6 1.6
Repurchases of common stock (100.0) (250.0)
Repurchases of common stock to
satisfy employee withholding tax
obligations (5.6) (14.5)
Cash dividends paid (59.1) (50.8)
Net cash provided by financing
activities 52.3 97.0
Increase (decrease) in cash and
cash equivalents 14.5 (12.1)
Effect of exchange rates on cash
and cash equivalents (7.0) 2.2
Cash and cash equivalents,
beginning of period 37.3 46.3
Cash and cash equivalents, end of
period $
44.8 $
36.4
Supplemental disclosures of cash flow
information:
Interest paid $
16.9 $
23.5
Income taxes paid (net of
refunds) $
22.8 $
54.2
Insurance recoveries received
$ $
128.0
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
Reconciliation to U.S. GAAP (Generally Accepted Accounting Principles) Measures
(Unaudited, in millions, except per share and ratio data)
Use of Non-GAAP Financial Measures
To supplement the Company's consolidated financial statements and segment net sales and profit presented in accordance with U.S. GAAP, additional non-GAAP financial measures are provided and reconciled in the following tables. In addition to these non-GAAP
measures, the Company also provides rates of revenue change at constant currency on a consolidated and segment basis if different than the reported measures. The Company believes that these non-GAAP financial measures, when considered together with the GAAP
financial measures, provide information that is useful to investors in understanding period-over-period operating results. The Company believes that these non-GAAP financial measures enhance the ability of investors to analyze the Company's business trends and
operating performance. During the first quarter of 2019, the Company completed the sale of its Kysor Warren business. The results from operations for this business have been shown in the tables below as "Non-core business results".
Reconciliation of Income from Continuing Operations, a GAAP measure, to Adjusted Income from Continuing Operations, a Non-GAAP measure
For the Three Months Ended June 30,
(Unaudited)
2020 2019
Pre-Tax Tax Impact After Tax Pre-Tax Tax Impact After Tax
(e) (e)
Income from continuing
operations, a GAAP
measure $
128.0 $
(27.4) $
100.6 $
139.8 $
(28.8) $
111.0
Restructuring charges 10.0 (2.1) 7.9 (0.1) (0.1)
Pension settlement - 60.6 (15.1) 45.5
Special product quality
adjustments (b) (1.0) 0.2 (0.8) (0.5) 0.1 (0.4)
Special legal
contingency charges (a) 0.7 (0.1) 0.6 (0.1) (0.1)
Asbestos-related
litigation (a) 1.2 (0.3) 0.9 0.4 (0.1) 0.3
Net change in unrealized
losses on unsettled
futures contracts (a) 0.8 (0.1) 0.7 0.1 0.1
Environmental
liabilities (a) 1.1 (0.2) 0.9 1.3 (0.3) 1.0
Excess tax benefits from
share-based
compensation (c) - (0.1) (0.1) (1.0) (1.0)
Other tax items, net (c) - 0.6 0.6
Loss on sale of business - 0.4 (0.1) 0.3
Charges incurred related
to COVID-19 pandemic
(a) 3.4 (0.8) 2.6
Partial advance of
insurance recoveries
related to lost profits
(f) - (8.0) 2.3 (5.7)
Loss (gain) from natural
disaster, net of
insurance recoveries 1.0 (0.2) 0.8 (5.9) 1.2 (4.7)
Other items, net (a) (0.2) 0.1 (0.1) 0.9 (0.1) 0.8
Adjusted income from
continuing operations,
a non-GAAP measure $
145.0 $
(31.0) $
114.0 $
188.9 $
(41.3) $
147.6
Earnings per share from continuing
operations -diluted, a GAAP measure $
2.62 $
2.81
Restructuring charges 0.21
Pension settlement 1.14
Special product quality adjustments (b) (0.02) (0.01)
Special legal contingency charges (a) 0.01
Asbestos-related litigation (a) 0.02 0.01
Net change in unrealized losses on
unsettled futures contracts (a) 0.02
Environmental liabilities (a) 0.02 0.03
Excess tax benefits from share-based
compensation (c) (0.03)
Other tax items, net (c) 0.02
Loss on sale of business 0.01
Charges incurred related to COVID-19
pandemic (a) 0.07
Partial advance of insurance recoveries
related to lost profits (f) (0.14)
Loss (gain) from natural disaster, net
of insurance recoveries 0.02 (0.13)
Other items, net (a) 0.02
Change in share counts from share-based
compensation (d) 0.01
Adjusted earnings per share from
continuing operations - diluted, a
non-GAAP measure $
2.97 $
3.74
(a) Recorded in (Gains) losses and other expenses, net in the Consolidated Statements of Operations
(b) Recorded in Cost of goods sold in the Consolidated Statements of Operations
(c) Recorded in Provision for income taxes in the Consolidated Statements of Operations
(d) The impact of excess tax benefits from the change in share-based compensation also impacts the Company's diluted share counts. The reconciliation of average outstanding diluted shares on a GAAP and non-GAAP basis is included in this amount..
(e) Tax impact based on the applicable tax rate relevant to the location and nature of the adjustment.
(f) Recorded in Insurance proceeds for lost profits in the Consolidated Statement of Operations.
For the Six Months Ended June 30,
(Unaudited)
2020 2019
Pre-Tax Tax Impact After Tax Pre-Tax Tax Impact After Tax
(e) (e)
Income from continuing
operations, a GAAP
measure $
154.5 $
(41.4) $
113.1 $
222.8 $
(42.4) $
180.4
Restructuring charges 10.5 (2.2) 8.3 0.4 (0.1) 0.3
Pension settlement - 60.6 (15.1) 45.5
Special product quality
adjustments (b) (1.0) 0.2 (0.8) (0.5) 0.1 (0.4)
Special legal
contingency charges (a) 0.7 (0.1) 0.6 0.2 (0.1) 0.1
Asbestos-related
litigation (a) (0.5) 0.1 (0.4) 1.8 (0.4) 1.4
Net change in unrealized
losses (gains) on
unsettled futures
contracts (a) 1.4 (0.3) 1.1 (0.3) 0.1 (0.2)
Environmental
liabilities (a) 1.3 (0.3) 1.0 1.3 (0.3) 1.0
Excess tax benefits from
share-based
compensation (c) - (5.3) (5.3)
Other tax items, net (c) - 8.1 8.1 0.6 0.6
Loss on sale of business - 8.8 (3.5) 5.3
Charges incurred related
to COVID-19 pandemic
(a) 3.4 (0.8) 2.6
Partial advance of
insurance recoveries
related to lost profits
(f) - (8.0) 2.3 (5.7)
Loss (gain) from natural
disaster, net of
insurance recoveries 2.7 (0.6) 2.1 (12.8) 2.9 (9.9)
Other items, net (a) (0.2) 0.1 (0.1) 0.9 (0.2) 0.7
Non-core business
results (g) - 1.3 (0.3) 1.0
Adjusted income from
continuing operations,
a non-GAAP measure $
172.8 $
(37.2) $
135.6 $
276.5 $
(61.7) $
214.8
Earnings per share from continuing
operations -diluted, a GAAP measure $
2.93 $
4.53
Restructuring charges 0.21 0.01
Pension settlement 1.14
Special product quality adjustments (b) (0.02) (0.01)
Special legal contingency charges (a) 0.02
Asbestos-related litigation (a) (0.01) 0.04
Net change in unrealized losses (gains)
on unsettled futures contracts (a) 0.03 (0.01)
Environmental liabilities (a) 0.03 0.03
Excess tax benefits from share-based
compensation (c) (0.13)
Other tax items, net (c) 0.21 0.02
Loss on sale of business 0.13
Charges incurred related to COVID-19
pandemic (a) 0.07
Partial advance of insurance recoveries
related to lost profits (f) (0.14)
Loss (gain) from natural disaster, net
of insurance recoveries 0.05 (0.26)
Other items, net (a) 0.02
Non-core business results (g) 0.03
Change in share counts from share-based
compensation (d) 0.01
Adjusted earnings per share from
continuing operations - diluted, a
non-GAAP measure $
3.52 $
5.41
(a) Recorded in Losses (Gains) and other expenses, net in the Consolidated Statements of Operations
(b) Recorded in Cost of goods sold in the Consolidated Statements of Operations
(c) Recorded in Provision for income taxes in the Consolidated Statements of Operations
(d) The impact of excess tax benefits from the change in share-based compensation also impacts the Company's diluted share counts. The reconciliation of average outstanding diluted shares on a GAAP and non-GAAP basis is included in this document.
(e) Tax impact based on the applicable tax rate relevant to the location and nature of the adjustment.
(f) Recorded in Insurance proceeds for lost profits in the Consolidated Statement of Operations.
(g) Non-core business results represent Kysor Warren business, not included elsewhere in the reconciliation.
For the Three Months For the Six Months
Ended June 30, Ended June 30,
2020 2019 2020 2019
Components of
Losses (gains) and
other expenses, net
(pre-tax):
Realized losses on
settled future
contracts (a) $
0.1 $
0.1 $
0.2 $
0.2
Foreign currency
exchange gains (a) (2.1) (0.2) (2.6) (0.7)
Gain on disposal of
fixed assets (a) (0.2) (0.4) (0.1) (0.2)
Other operating income
(a) (1.2) (1.3)
Net change in
unrealized losses
(gains) on unsettled
futures contracts (b) 0.8 0.1 1.4 (0.3)
Special legal
contingency charges
(b) 0.7 (0.1) 0.7 0.2
Asbestos-related
litigation (b) 1.2 0.4 (0.5) 1.8
Environmental
liabilities (b) 1.1 1.3 1.3 1.3
Charges incurred
related to COVID-19
pandemic (b) 3.4 3.4
Other items, net (b) (0.2) 0.9 (0.2) 0.9
Losses (gains) and
other expenses, net
(pre-tax) $
3.6 $
2.1 $
2.3 $
3.2
(a) Included in both
segment profit (loss) and
Adjusted income from
continuing operations
(b) Excluded from both
segment profit (loss) and
Adjusted income from
continuing operations
Reconciliation of Earnings per Share from Continuing Operations
-Diluted, a GAAP measure, to Estimated
Adjusted Earnings per Share from Continuing Operations -
Diluted, a Non-GAAP measure
For the Year Ended
December 31, 2020
ESTIMATED
Earnings per share from
continuing operations -
diluted, a GAAP measure
$7.31 - $8.11
Other non-core EBIT
charges and other non-
core tax items, net,
incurred in 1Q 2020 and
2Q 2020 (0.59)
Adjusted Earnings per
share from continuing
operations - diluted, a
Non-GAAP measure
$7.90 - $8.70
Reconciliation of Average Shares Outstanding - Diluted, a GAAP measure, to Adjusted Average Shares Outstanding - Diluted, a Non-GAAP measure (shares in millions):
For the Three Months For the Six Months
Ended June 30, Ended June 30,
2020 2019 2020 2019
Average shares
outstanding -diluted,
a GAAP measure 38.4 $
39.5 38.6 $
39.8
Impact on diluted
shares from excess tax
benefits from share-
based compensation - (0.1) (0.1) (0.1)
Adjusted average shares
outstanding -
diluted, a Non-GAAP
measure 38.4 39.4 38.5 39.7
Reconciliation of Net Sales, a GAAP measure, to Adjusted Net Sales, a Non-GAAP measure
(dollars in millions)
Refrigeration Segment
Consolidated
For the Three Months For the Three Months
Ended June 30, Ended June 30,
2020 2019 2020 2019
Net sales, a GAAP
measure $
108.2 $
148.7 $
941.3 $
1,099.1
Net sales from non-
core business -
Adjusted net sales, a
Non-GAAP measure $
108.2 $
148.7 $
941.3 $
1,099.1
Refrigeration Segment
Consolidated
For the Six Months For the Six Months
Ended June 30, Ended June 30,
2020 2019 2020 2019
Net sales, a GAAP
measure $
211.5 $
300.1 $
1,665.1 $
1,889.4
Net sales from non-
core business (a) - 34.3 34.3
Adjusted net sales, a
Non-GAAP measure $
211.5 $
265.8 $
1,665.1 $
1,855.1
(a) Non-Core businesses represent the Kysor Warren business.
Reconciliation of Gross Profit, a GAAP measure, to Adjusted Gross Profit, a Non-GAAP measure
(dollars in millions)
Refrigeration Segment
Consolidated
For the Three Months For the Three Months
Ended June 30, Ended June 30,
2020 2019 2020 2019
Gross profit, a GAAP
measure $
32.2 $
45.7 $
275.7 $
332.1
Non-GAAP adjustments
to gross profit - 1.0 0.5
Adjusted Gross profit,
a Non-GAAP measure $
32.2 $
45.7 $
274.7 $
331.6
Refrigeration Segment
Consolidated
For the Six Months For the Six Months
Ended June 30, Ended June 30,
2020 2019 2020 2019
Gross profit, a GAAP
measure $
59.6 $
88.3 $
441.4 $
533.6
Non-GAAP adjustments
to gross profit - 1.0 0.5
Gross profit from non-
core business (a) - 3.6 3.6
Adjusted Gross profit,
a Non-GAAP measure $
59.6 $
84.7 $
440.4 $
529.5
(a) Non-Core businesses represent the Kysor Warren business.
Reconciliation of
Segment Profit
, a GAAP measure, to Adjusted
Segment profit
, a Non-GAAP measure
(dollars in millions)
Refrigeration Segment
Consolidated
For the Three Months For the Three Months
Ended June 30, Ended June 30,
2020 2019 2020 2019
Segment profit
, a Non-GAAP
measure $
8.9 $
19.1 $
153.0 $
202.3
(Loss) profit from non-
core business -
Adjusted
Segment profit
, a Non-GAAP
measure $
8.9 $
19.1 $
153.0 $
202.3
Refrigeration Segment
Consolidated
For the Six Months For the Six Months
Ended June 30, Ended June 30,
2020 2019 2020 2019
Segment profit
, a Non-GAAP
measure $
9.6 $
27.5 $
190.6 $
300.3
(Loss) profit from non-
core business (a) - (1.0) (1.0)
Adjusted
Segment profit
, a Non-GAAP
measure $
9.6 $
28.5 $
190.6 $
301.3
(a) Non-Core businesses represent the Kysor Warren business.
Reconciliation of Selling, general and administrative expenses, a GAAP measure, to Adjusted Selling, general and administrative expenses, a Non-GAAP measure (dollars in millions)
Refrigeration Segment
Consolidated
For the Three Months For the Three Months
Ended June 30, Ended June 30,
2020 2019 2020 2019
Selling, general and
administrative
expenses, a GAAP
measure $
25.3 $
29.5 $
129.5 $
152.4
Selling, general and
administrative
expenses from non-
core business -
Adjusted Selling,
general and
administrative
expenses, a Non-GAAP
measure $
25.3 $
29.5 $
129.5 $
152.4
Refrigeration Segment
Consolidated
For the Six Months For the Six Months
Ended June 30, Ended June 30,
2020 2019 2020 2019
Selling, general and
administrative
expenses, a GAAP
measure $
53.6 $
65.9 $
260.8 $
298.2
Selling, general and
administrative
expenses from non-
core business (a) - 4.6 4.6
Adjusted Selling,
general and
administrative
expenses, a Non-GAAP
measure $
53.6 $
61.3 $
260.8 $
293.6
(a) Non-Core businesses represent the Kysor Warren business.
Reconciliation of Net Cash Provided by (Used in) Operating Activities, a GAAP measure, to Free Cash Flow, a Non-GAAP measure (dollars in millions)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
2020 2019 2020 2019
Net cash provided by
(used in) operating
activities, a GAAP
measure $
105.3 $
30.0 $
6.5 $
(111.0)
Purchases of property,
plant and equipment (18.8) (16.3) (43.5) (53.5)
Proceeds from the
disposal of property,
plant and equipment 0.2 0.5 0.3 0.8
Insurance recoveries
received for property
damage incurred from
natural disaster - 5.9 12.8
Free cash flow, a Non-
GAAP measure 86.7 20.1 (36.7) (150.9)
Calculation of Debt to EBITDA
Ratio (dollars in millions): Trailing
Twelve
Months to
June 30,
2020
Adjusted EBIT (a) $
499.2
Depreciation and amortization
expense (b) 73.1
EBITDA (a + b) $
572.3
Total debt at June 30, 2020 (c) $
1,390.8
Total Debt to EBITDA ratio ((c /
(a + b)) 2.4
Reconciliation of Adjusted EBIT, a Non-GAAP measure, to Income From Continuing Operations Before Income Taxes, a GAAP measure (dollars in millions)
Trailing
Twelve
Months to
June 30,
2020
Income from continuing operations before income taxes, a GAAP measure $
439.6
Items in (Gains) losses and other expenses, net that are excluded from segment profit 13.6
Special product quality adjustments (1.2)
Restructuring charges 20.4
Interest expense, net 39.2
Pension settlements 99.2
Loss on sale of business 1.7
Insurance recoveries received for property damage incurred from natural disaster (56.1)
Other expense (income), net (57.2)
Adjusted EBIT per above, a Non-GAAP measure $
499.2
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SOURCE Lennox International Inc.
