Lennox International Inc. (NYSE:LII), a leading provider of climate control solutions, has reported its second-quarter 2024 financial results, showcasing impressive performance and raising its full-year guidance. The company's unwavering focus on executing its strategic transformation plan has yielded remarkable results, with the company delivering its sixth consecutive quarter of double-digit earnings per share growth.

Financials

In the second quarter of 2024, Lennox reported net sales of $1.45 billion, a 3% increase compared to the same period in 2023. This growth was driven by a 3% increase in favorable pricing, a 3% rise in sales volumes, and a 2% boost from the company's acquisition of AES, partially offset by a 5% reduction due to the divestiture of its European operations in the fourth quarter of 2023.

The company's gross profit margin expanded by 120 basis points to 33.6% in the second quarter, up from 32.4% in the same period last year. This improvement was primarily attributable to the 240 basis points of favorable pricing and 10 basis points from miscellaneous items, partially offset by 70 basis points of higher freight and distribution costs and 60 basis points of increased material and product costs.

Selling, general, and administrative (SG&A) expenses decreased by $12 million to $169 million in the second quarter, primarily due to a $16 million reduction in SG&A expenses from the divestiture of the European operations, partially offset by higher employee-related costs, including increased incentive compensation. As a percentage of net sales, SG&A decreased by 120 basis points to 11.6%.

Segment Performance

Lennox's Home Comfort Solutions segment delivered an exceptional performance, with a 5% increase in revenue and a 13% surge in segment profit. The segment's profit margin expanded by 170 basis points to 23.3%, driven by a 4% increase in pricing and a 1% rise in sales volumes, partially offset by a $19 million increase in expenses related to wage inflation, general inflation, and critical investments in distribution and sales.

The company's Building Climate Solutions segment also continued its strong momentum, with a 15% increase in revenue. This growth was fueled by a 9% organic volume increase and a 6% boost from the AES acquisition, partially offset by a 2% unfavorable product mix. Segment profit increased by $11 million, despite approximately $5 million in ramp-up costs for the new commercial factory in Saltillo, Mexico.

Lennox's Corporate and Other segment, which included the company's European operations that were divested in the fourth quarter of 2023, saw a $68 million decrease in net sales and a $2 million increase in segment loss compared to the same period in 2023.

For the six months ended June 30, 2024, Lennox reported net sales of $2.50 billion, a 2% increase compared to the same period in 2023. Gross profit margin expanded by 210 basis points to 33.2%, while SG&A expenses decreased by $10 million to $339 million.

The company's net income for the full year 2023 was $590.1 million, with annual revenue of $4.98 billion, annual operating cash flow of $733.1 million, and annual free cash flow of $482.9 million.

Outlook

Looking ahead, Lennox has raised its full-year 2024 earnings per share guidance to a range of $19.50 to $20.25, up from the previous range of $19 to $20. The company expects total revenue growth of approximately 7% for the full year, with low single-digit improvements in sales volumes and mid-single-digit price and mix increases. Lennox also maintained its free cash flow guidance of $500 million to $600 million for the year.

The company's strong performance in the first half of 2024, combined with increased clarity on market risks, has given Lennox the confidence to raise and narrow its EPS guidance range. The company's focus on executing its strategic transformation plan, which includes accelerating growth, expanding resilient margins, streamlining processes, advancing technological innovation, and fostering a winning culture, has been the driving force behind its success.

Business Overview

Lennox's geographic breakdown shows that the majority of its revenue, approximately 94%, is generated in the United States and Canada, with the remaining 6% coming from international markets. The company's revenue is primarily derived from its two reportable business segments: Home Comfort Solutions and Building Climate Solutions, which accounted for 66% and 34% of total revenue, respectively, in the second quarter of 2024.

Within the Home Comfort Solutions segment, direct sales to a network of independent installing dealers, including through Lennox's network of stores, represented 76% of revenues, while sales to independent distributors accounted for the remaining 24%. In the Building Climate Solutions segment, equipment sales represented 82% of revenues, with the remainder generated from the company's service business.

Liquidity

Lennox's strong financial position and liquidity have enabled the company to continue investing in its strategic initiatives. As of June 30, 2024, the company had cash and cash equivalents of $47.6 million and a debt-to-total-capital ratio of 69%, down from 82% as of December 31, 2023. The company's senior credit ratings from Moody's and S&P remain at investment grade, reflecting its financial stability and creditworthiness.

Recent Developments

The company's focus on innovation and technological advancement has been a key driver of its success. Lennox's recent joint venture with Samsung to accelerate heat pump growth in North America is a testament to its commitment to staying at the forefront of the industry. The partnership combines Lennox's direct-to-dealer distribution network with Samsung's global reach and brand strength, providing customers with a comprehensive and integrated portfolio of heating and cooling solutions.

Conclusion

Overall, Lennox International Inc. has delivered an impressive performance in the second quarter of 2024, showcasing the effectiveness of its strategic transformation plan. The company's strong financial results, coupled with its focus on innovation and customer-centric initiatives, position it well for continued success in the years ahead.