Climate control solutions provider Lennox International Inc. (LII) Wednesday reported a sharp decline in profit for the third quarter, as sales dropped 22% year-on-year reflecting lower volume across all business segments. The company also lowered its full year earnings from continuing operations guidance and tightened the adjusted earnings outlook.
Net income for the quarter plunged to $31.0 million or $0.54 per share from $54.9 million or $0.96 per share in the year-ago quarter.
Income from continuing operations was $33.7 million or $0.59 per share, down from $54.8 million or $0.96 per share in the prior-year quarter.
For the quarter, Lennox recorded loss from discontinued operations of $2.7 million or $0.05 per share, as a result of plans to exit the business of five unprofitable Service Experts centers.
On an adjusted basis, income from continuing operations was $41.1 million or $0.72 per share, lower than $62.7 million or $1.10 per share in the prior year. Adjusted results excluded an $8.2 million after-tax charge from restructuring activities and a $0.8 million after-tax gain from the net change in unrealized gains on open futures contracts and other items, net.
On an average, six analysts polled by Thomson Reuters expected the company to report earnings of $0.71 per share. Analysts' estimates typically exclude special items.
Quarterly net sales declined 22% to $749.5 million from $959.9 million in the previous year. Excluding the negative impact of foreign exchange, revenue would have been down 20%. Three analysts had consensus revenue estimate of $781.07 million for the quarter.
Segment-wise, net sales from Residential Heating & Cooling declined to $347.1 million from $414.0 million a year ago, impacted negatively by lower volume and mix, with offsets from lower component and commodity costs and SG&A salaried headcount savings.
Commercial Heating & Cooling segment's revenue plunged to $154.4 million from $251.4 million a year ago. Service Experts net sales were $137.3 million, lower than $154.0 million last year. Refrigeration division net sales decreased to $133.6 million from $162.9 million a year earlier.
Gross margin for the quarter was 29.8% compared to 28.1% in the year-ago quarter, up 170 basis points, benefited primarily from lower component and commodity costs as well as savings from manufacturing rationalization.
Commenting on the results, Todd Bluedorn, chief executive officer, said, "As expected, end market conditions continued to be difficult in the third quarter, and commercial markets were down significantly. While residential and refrigeration markets were also down from a year ago, we saw the rate of decline slow in the third quarter."
Lennox noted that new restructuring activity in the third quarter included a significant headcount reduction at the Europe HVAC manufacturing facility in Mions, France, and the transfer of Commercial rooftop production to the Longvic, France, facility.
In Residential business, the company is relocating the headquarters and other operations of its Hearth business in California to Tennessee. Lennox expects total restructuring charges of nearly $4.3 million, including $1.2 million taken in the third quarter, and anticipates annualized savings of about $6 million upon completion of both projects in the first half of 2010.
For the nine-month period, net income plunged to $44.7 million or $0.79 per share from $112.4 million or $1.90 per share last year. Year-to-date, net sales dropped to $2.11 billion from $2.70 billion in the comparable period.
Looking ahead, for the full year, Lennox lowered its earnings from continuing operations guidance to a range of $1.31 to $1.36 per share from the earlier range of $1.38 to $1.53 per share, as it narrowed its adjusted earnings per share guidance and expects additional restructuring charges.
Full year adjusted earnings from continuing operations guidance is tightened to a range of $1.65 to $1.70 per share from $1.65 to $1.80 per share provided earlier. The company also narrowed the 2009 revenue guidance from down 17%-19% provided earlier to down nearly 19%, including a negative 2 point impact from foreign exchange.
Analysts currently expects earnings of $1.66 per share on revenues of $2.82 billion for the full year.
The company also reiterated its corporate expense guidance of about $60 million for fiscal 2009, and lowered capital spending guidance from nearly $75 million to $65 million.
LII is currently trading at $35.87 per share, down 1.59%, on the NYSE.
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