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Lennox Updates 2018 Guidance

Lennox International Inc. (LII) announced 2019 financial guidance and updated 2018 guidance to reflect the earlier receipt of insurance proceeds than in previous guidance. The insurance proceeds relate to the July 2018 tornado that damaged the company's Iowa manufacturing facility and disrupted operations.

The company said it updated 2018 guidance for GAAP earnings per share from continuing operations from $8.11-$8.51 to $8.95-$9.35. It updated 2018 guidance for adjusted earnings per share from continuing operations from $8.70-$9.10 to $9.21-$9.61. Analysts polled by Thomson Reuters expect the company to report earnings of $8.95 per share for 2018. Analysts' estimates typically exclude special items.

The company reiterated 2018 guidance for revenue growth of 2-4% on a GAAP basis and 4-6% on an adjusted basis, which excludes the impact of the divestitures of the company's Australia, Asia and South America Refrigeration businesses in 2018.

For 2019, the company expects GAAP earnings per share from continuing operations of $14.30-$14.90, adjusted earnings per share from continuing operations of $12.00-$12.60, and revenue growth of 3-7%. Analysts expect annual earnings of $11.84 per share.

Overall for 2018 and 2019, the company expects to receive about $347 million in insurance proceeds, including approximately $124 million in 2018 and $223 million in 2019. On a GAAP basis, the company expects a pre-tax gain of approximately $132 million in non-core earnings over 2018 and 2019 due to the difference in book and replacement value of assets.

For 2018 on a non-core basis - which includes tornado site clean-up costs, asset write-offs, and factory-inefficiency costs -- the company has received $97 million in insurance proceeds, compared to previous guidance for $80 million, for an incremental $17 million or $0.32 per share to the prior 2018 GAAP guidance.

For 2019 on a non-core basis, the company now expects approximately $35 million of tornado impact, compared to $15 million previously, and insurance proceeds of approximately $150 million compared to more than $15 million previously - incremental to 2019 GAAP guidance by approximately $2.30 per share.

For 2018 on a core basis for the Residential business segment, the company received $27 million, or $0.51 per share, of insurance proceeds in the fourth quarter to cover lost profits from business interruption in the third quarter of 2018; these proceeds were previously expected in 2019. The core impact for lost profits in 2018 still to be offset by insurance recovery in 2019 is now approximately $38 million compared to prior guidance of $65 million.

For 2019 on a core basis for the Residential business segment, the company continues to expect approximately $35 million of tornado impact and now expects approximately $73 million of insurance recovery after the $27 million that was paid in 2018, a timing shift of $0.51 from 2019 to 2018 guidance.

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