Diversified machinery company, Lennox International, Inc. (LII) reported adjusted earnings per share of 77 cents in the fourth quarter 2014, up 37.5% year over year and above the Zacks Consensus Estimate of 73 cents.
Earnings per share, including one-time items in the quarter, were 68 cents, up from 52 cents reported in the year-ago quarter.
In 2013, adjusted earnings per share were $3.70, up 37.0% from $2.70 recorded in 2012. The bottom line was also above the Zacks Consensus Estimate of $3.67.
Revenue
Net sales generated in the reported quarter were $749.5 million, up 9.4% year over year due to volume gains. The price/mix impact was neutral in the quarter.
Lennox International reports its top-line results under three heads, the fourth quarter results of which are discussed below.
Net sales generated by the Residential Heating & Cooling segment were $358.6 million, up 17.6% over the year-ago comparable quarter. Commercial Heating & Cooling segment recorded net sales of $212.6 million, reflecting year-over-year increase of 13.4%. The Refrigeration segment generated net sales of $178.3 million in the quarter, down 7.3% year over year.
In 2013, Lennox International generated net sales of $3,199.1 million, up 8.5% year over year.
Costs/Margins
Lennox International’s cost of goods sold in the fourth quarter 2013 went up 4.9% year over year and represented 72.3% of total revenue, down from 75.4% in the year-ago quarter. Gross margin in the quarter was 27.7%, up 310 basis points year over year.
Selling, general and administrative expenses, as a percentage of total revenue, stood at 19.5%, up 90 basis points year over year.
Balance Sheet/Cash Flow
Exiting the fourth quarter of 2013, Lennox International’s cash and cash equivalents were $38.0 million, flat with $37.8 million recorded in the preceding quarter. Long-term debt was $233.2 million versus $266.2 million in the previous quarter.
In the fourth quarter 2013, Lennox International’s cash flow from operating activities was $145.3 million, down 7.5% year over year. Spending on purchase of property, plant and equipments increased 68.0% to $37.3 million.
In 2013, cash flow generation from operating activities was down 5.0% while capital expenditure was up 56.0% to $210.3 million and $78.3 million, respectively. The company repurchased shares worth $125.0 million and paid dividends of $34.0 million.
Outlook
Lennox International maintained its guidance for 2014. Revenue is expected to grow in the 3%–7% range, including the negative impact from foreign currency translation. Adjusted earnings per share are predicted in the $4.20–$4.60 range.
The effective tax rate is anticipated within 34%–35%. The company intends to spend $90 million as capital expenditure and repurchase shares worth $150 million.
Lennox International currently has a $4.2 billion market capitalization and carries a Zacks Rank #2 (Buy). Other stocks worth considering in the industry include CommScope Holding Company, Inc. (COMM), Graco Inc. (GGG) and Cummins Inc. (CMI). All these three companies carry the same Zacks Rank as Lennox.
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