Lennox Reports Record Fourth Quarter and Full Year 2023 Results; Increases Long-Term Financial Targets and Provides FY 2024 Guidance

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(Unaudited)

(Amounts in millions, except per share data)

For the Three Months Ended
December 31,

For the Years Ended
December 31,

2023

2022

2023

2022

Net sales

$          1,154.8

$          1,093.8

$        4,981.9

$        4,718.4

Cost of goods sold

800.0

808.6

3,434.1

3,433.7

Gross profit

354.8

285.2

1,547.8

1,284.7

Operating Expenses:

Selling, general and administrative expenses

177.8

155.0

705.5

627.2

Losses (gains) and other expenses, net

3.4

(0.6)

8.5

4.9

Restructuring charges

2.9

0.3

3.1

1.5

Impairment on assets held for sale

—

—

63.2

—

Gain on sale of businesses

(14.1)

—

(14.1)

—

Income from equity method investments

(0.5)

(1.3)

(8.5)

(5.1)

Operating income

185.3

131.8

790.1

656.2

Pension settlements

0.2

(0.4)

0.8

(0.2)

Interest expense, net

11.3

12.7

51.7

38.7

Other expense (income), net

0.4

—

0.1

1.9

Income before income taxes

173.4

119.5

737.5

615.8

Provision for income taxes

28.9

25.1

147.4

118.7

Net income

$             144.5

$                94.4

$            590.1

$            497.1

Earnings per share – Basic:

$                4.07

$                2.66

$            16.61

$            13.92

Earnings per share – Diluted:

$                4.04

$                2.65

$            16.54

$            13.88

Weighted Average Number of Shares Outstanding - Basic

35.6

35.4

35.5

35.7

Weighted Average Number of Shares Outstanding - Diluted

35.8

35.6

35.7

35.8

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

Segment Net Sales and Profit (Loss)

(Unaudited)

(Amounts in millions)

For the Three Months Ended
December 31,

For the Years Ended
December 31,

2023

2022(2)

2023

2022(2)

Net Sales

Home Comfort Solutions

$       709.4

$       703.4

$    3,222.9

$    3,198.3

Building Climate Solutions (2)

390.0

327.2

1,511.4

1,286.4

Corporate and other (2)

55.4

63.2

247.6

233.7

$    1,154.8

$    1,093.8

$    4,981.9

$    4,718.4

Segment Profit (Loss) (1)

Home Comfort Solutions

$       115.0

$       119.2

$       610.2

$       596.9

Building Climate Solutions (2)

90.5

45.6

340.8

162.9

Corporate and other (2)

(28.7)

(32.6)

(93.9)

(94.0)

Total segment profit

176.8

132.2

857.1

665.8

Reconciliation to Operating income:

Gain on sale of businesses

(14.1)

—

(14.1)

—

Impairment of net assets held for sale

—

—

63.2

—

Items in Losses (gains) and other expenses, net which are excluded from segment profit (loss) (1)

2.7

$            0.1

14.8

8.1

Restructuring charges

2.9

0.3

3.1

1.5

Operating income

$       185.3

$       131.8

$       790.1

$       656.2

(1)

 We define segment profit (loss) as a segment's operating income (loss) included in the accompanying Consolidated Statements of Operations, excluding:

•

The following items in Losses (gains) and other expenses, net:

•

Net change in unrealized (gains) losses on unsettled futures contracts,

•

Environmental liabilities and special litigation charges, and;

•

Other items, net

•

Restructuring charges,

•

Impairment on assets held for sale, and;

•

Gain on sale of businesses

(2)

Previously, we operated in three reportable business segments. In November 2022, we announced the decision to explore strategic alternatives for our European portfolio and that we would continue to invest in our Heatcraft Worldwide Refrigeration business, all of which were previously in our Refrigeration segment.  On January 1, 2023, we adjusted our segment presentation to better align with how the segments are managed and evaluated after the change in portfolio.  Heatcraft Worldwide Refrigeration is now part of the Business Climate Solutions segment while the European portfolio is presented with Corporate and Other until disposition. Amounts presented in this table have been recast to reflect the revised segment presentation. In 4Q 2023, we successfully completed the divestiture of our European operations.

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(Unaudited)

(Amounts in millions, except shares and par values)

As of December 31, 2023

As of December 31, 2022

ASSETS

Current Assets:

Cash and cash equivalents

$                                   60.7

$                                  52.6

Short-term investments

8.4

8.5

Accounts and notes receivable, net of allowances of $14.4 and $15.5 in 2023 and 2022, respectively

594.6

608.5

Inventories, net

699.1

753.0

Other assets

70.7

73.9

Total current assets

1,433.5

1,496.5

Property, plant and equipment, net of accumulated depreciation of $910.8 and $920.8 in 2023 and 2022, respectively

720.4

548.9

Right-of-use assets from operating leases

213.6

219.9

Goodwill

222.1

186.3

Deferred income taxes

51.8

27.5

Other assets, net

156.9

88.5

Total assets

$                              2,798.3

$                             2,567.6

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current Liabilities:

Commercial paper

$                                 150.0

$                                      —

Current maturities of long-term debt

12.1

710.6

Current operating lease liabilities

57.5

63.3

Accounts payable

374.7

427.3

Accrued expenses

416.1

376.9

Income taxes payable

4.2

17.6

Total current liabilities

1,014.6

1,595.7

Long-term debt

1,143.1

814.2

Long-term operating lease liabilities

164.6

161.8

Pensions

22.5

40.1

Other liabilities

168.2

158.9

Total liabilities

2,513.0

2,770.7

Commitments and contingencies

Stockholders' equity (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

1,184.6

1,155.2

Retained earnings

3,506.2

3,070.6

Accumulated other comprehensive loss

(56.9)

(90.6)

Treasury stock, at cost, 51,588,103 shares and 51,700,260 shares for 2023 and 2022, respectively

(4,349.5)

(4,339.2)

Total stockholders' equity (deficit)

285.3

(203.1)

Total liabilities and stockholders' equity (deficit)

$                              2,798.3

$                             2,567.6

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

(Amounts in millions)

For the Years Ended
December 31,

2023

2022

Cash flows from operating activities:

Net income

$          590.1

$          497.1

Adjustments to reconcile net income to net cash provided by operating activities:

Gain on sale of businesses

(14.1)

—

Impairment on net assets held for sale

63.2

—

Income from equity method investments

(8.5)

(5.1)

Dividends from affiliates

0.5

1.7

Restructuring charges, net of cash paid

2.6

1.0

Provision for credit losses

9.8

6.9

Unrealized losses, net on derivative contracts

6.0

1.7

Stock-based compensation expense

30.1

21.8

Depreciation and amortization

86.0

77.9

Deferred income taxes

(26.0)

(15.2)

Pension expense

3.2

6.0

Pension contributions

(15.0)

(22.5)

Other items, net

(0.5)

(1.1)

Changes in assets and liabilities, net of effects of acquisitions and divestitures:

Accounts and notes receivable

(32.7)

(112.4)

Inventories

11.1

(249.3)

Other current assets

7.1

(7.3)

Accounts payable

(29.2)

28.2

Accrued expenses

65.0

13.7

Income taxes payable and receivable, net

(24.1)

56.4

   Leases, net

3.1

1.7

Other, net

8.5

1.1

Net cash provided by operating activities

736.2

302.3

Cash flows from investing activities:

Proceeds from the disposal of property, plant and equipment

2.1

1.6

Purchases of property, plant and equipment

(250.2)

(101.1)

Acquisition of business

(94.9)

—

Net proceeds from sale of businesses

23.2

—

Proceeds from (purchases of) short-term investments

0.1

(3.5)

Net cash used in investing activities

(319.7)

(103.0)

Cash flows from financing activities:

Commercial paper borrowings

150.0

—

Asset securitization borrowings

190.0

407.0

Asset securitization payments

(540.0)

(307.0)

Long-term debt payments

(364.4)

(12.9)

Issuance of senior unsecured notes

500.0

—

Borrowings from credit facility

1,721.0

2,537.5

Payments on credit facility

(1,893.0)

(2,352.0)

Payments of deferred financing costs

(5.4)

—

Proceeds from employee stock purchases

3.9

3.6

Repurchases of common stock

—

(300.0)

Repurchases of common stock to satisfy employee withholding tax obligations

(14.9)

(8.3)

Cash dividends paid

(153.4)

(142.0)

Net cash used in financing activities

(406.2)

(174.1)

Increase in cash and cash equivalents

10.3

25.2

Effect of exchange rates on cash and cash equivalents

(2.2)

(3.6)

Cash and cash equivalents, beginning of period

52.6

31.0

Cash and cash equivalents, end of period

$            60.7

$            52.6

Supplemental disclosures of cash flow information:

Interest paid

$            50.2

$            35.4

Income taxes paid (net of refunds)

$          197.8

$            77.2

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 (loss) 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 and enhance the ability of investors to analyze the Company's business trends and operating performance.

In November 2022, we announced the decision to explore strategic alternatives for our European portfolio. The results from operations for these businesses have been shown in the tables below as "Non-Core business results." The prior period results have been updated to provide period-over-period comparability.

Reconciliation of Net income, a GAAP measure, to Adjusted net income, a Non-GAAP measure

For the Three Months Ended December 31,

For the Years Ended December 31,

2023

2022

2023

2022

Amount
after tax

Per
Diluted
Share

Amount
after tax

Per
Diluted
Share

Amount
after tax

Per
Diluted
Share

Amount
after tax

Per
Diluted
Share

Net income, a GAAP measure

$     144.5

$       4.04

$       94.4

$       2.65

$     590.1

$     16.54

$     497.1

$     13.88

Restructuring charges

2.2

0.06

0.2

0.01

2.4

0.07

1.2

0.03

Pension settlements

—

—

(0.3)

(0.01)

0.3

0.01

(0.1)

—

Items in Losses (gains) and other expenses, net which are excluded from segment profit (loss) (a)

1.5

0.05

—

—

11.1

0.31

6.6

0.19

Excess tax benefit from share-based compensation (b)

(2.8)

(0.08)

(0.9)

(0.03)

(5.2)

(0.15)

(0.6)

(0.02)

Other tax items, net (b)

(4.1)

(0.11)

0.2

0.01

(3.7)

(0.10)

(0.5)

(0.01)

Impairment on assets held for sale

—

—

—

—

62.0

1.74

—

—

Gain on sale of businesses

(11.1)

(0.31)

—

—

(11.1)

(0.31)

—

—

Non-core business results (c)

(0.6)

(0.02)

(1.9)

(0.05)

(5.4)

(0.15)

4.3

0.11

Adjusted net income, a non-GAAP measure

$      129.6

$        3.63

$       91.7

$        2.58

$      640.5

$      17.96

$     508.0

$      14.18

(a) Recorded in Losses (gains) and other expenses, net in the Consolidated Statements of Operations

(b) Recorded in Provision for income taxes in the Consolidated Statements of Operations

(c) Non-core business results represent activity related to our business operations in Europe not included elsewhere in the reconciliations

Reconciliation of Net Cash Provided by Operating Activities, a GAAP measure, to Free Cash Flow, a Non-GAAP measure
(dollars in millions)

For the Three Months
Ended December 31,

For the Years Ended
December 31,

2023

2022

2023

2022

Net cash provided by operating activities

$          306.3

$          132.2

$          736.2

$          302.3

Purchases of property, plant and equipment

(125.2)

(34.1)

(250.2)

(101.1)

Proceeds from the disposal of property, plant and equipment

0.5

0.4

2.1

1.6

Free cash flow, a Non-GAAP measure

$          181.6

$            98.5

$          488.1

$          202.8

Reconciliation of Net sales, a GAAP measure to Core net sales, a Non-GAAP measure

For the Three Months Ended December 31,

Corporate and other

Consolidated

2023

2022

2023

2022

Net sales, a GAAP measure

$                     55.4

$                     63.2

$                1,154.8

$                1,093.8

Net sales from non-core businesses (a)

(55.4)

(63.2)

(55.4)

(63.2)

Core net sales, a Non-GAAP measure

$                        —

$                        —

$                1,099.4

$                1,030.6

(a) Non-Core businesses represent our business operations in Europe

For the Years Ended December 31,

Corporate and other

Consolidated

2023

2022

2023

2022

Net sales, a GAAP measure

$                   247.6

$                   233.7

$                4,981.9

$                4,718.4

Net sales from non-core businesses (a)

(247.6)

(233.7)

(247.6)

(233.7)

Core net sales, a Non-GAAP measure

$                        —

$                        —

$                4,734.3

$                4,484.7

(a) Non-Core businesses represent our business operations in Europe

Reconciliation of Segment profit (loss), a Non-GAAP measure to Adjusted Segment profit (loss), a Non-GAAP measure

For the Three Months Ended December 31,

Corporate and other

Consolidated

2023

2022

2023

2022

Segment profit (loss), a Non-GAAP measure

$                   (28.7)

$                   (32.6)

$                   176.8

$                   132.2

Profit from non-core businesses (a)

1.6

1.1

1.6

1.1

Adjusted Segment profit (loss), a Non-GAAP measure

$                   (30.3)

$                   (33.7)

$                   175.2

$                   131.1

(a) Non-Core businesses represent our business operations in Europe

For the Years Ended December 31,

Corporate and other

Consolidated

2023

2022

2023

2022

Segment profit (loss), a Non-GAAP measure

$                   (93.9)

$                   (94.0)

$                   857.1

$                   665.8

Profit (loss) from non-core businesses (a)

7.6

(3.3)

7.6

(3.3)

Adjusted Segment profit (loss), a Non-GAAP measure

$                 (101.5)

$                   (90.7)

$                   849.5

$                   669.1

(a) Non-Core businesses represent our business operations in Europe