LENNOX INTERNATIONAL INC

Previous wording

Results for the first quarter of 2024 were driven by overall year-over-year sales and profit increases primarily led by our Building Climate Solutions segment, with an increase in net sales of 21% and an increase in segment profit of $28 million. Net sales decreased 1% and segment profit increased $1 million for our Home Comfort Solutions segment. Net sales decreased $60 million and segment loss increased $4 million for our Corporate and Other segment. Our European businesses were sold in the fourth quarter of 2023 and generated $60 million in net sales in the first quarter of 2023 and had a segment loss of $0.4 million.

Current wording

Results for the second quarter of 2024 were driven by overall year-over-year sales and profit increases. Net sales increased 5% and segment profit increased $26 million for our Home Comfort Solutions segment. Net sales increased 15% and segment profit increased $11 million for our Building Climate Solutions segment. Net sales decreased $68 million and segment loss increased $2 million for our Corporate and Other segment. Our European businesses were sold in the fourth quarter of 2023 and generated $68 million in net sales with segment profit of $2 million in the second quarter of 2023.

Previous wording

•Operating income in the first quarter of 2024 increased $27 million to $167 million primarily driven by favorable price.

Current wording

•Operating income in the second quarter of 2024 increased $41 million to $320 million primarily driven by favorable price and higher sales volumes.

Previous wording

•Net income for the first quarter of 2024 was $124 million.

Current wording

•Net income for the second quarter of 2024 was $246 million.

Previous wording

•Diluted earnings per share was $3.47 per share in the first quarter of 2024 compared to $2.75 per share in the first quarter of 2023.

Current wording

•Diluted earnings per share was $6.87 per share in the second quarter of 2024 as compared to $6.10 per share in the same period in 2023.

Previous wording

•For the three months ended March 31, 2024, we returned $39 million to shareholders through dividend payments.

Current wording

•For the six months ended June 30, 2024, we returned $78 million to shareholders through dividend payments.

Previous wording

Net sales for the first quarter of 2024 as compared to the same period of 2023 were relatively flat. This was primarily due to a 6% reduction in sales from the fourth quarter 2023 sale of our European businesses and unfavorable mix of 1% which were partially offset by favorable price of 4%, a 2% increase in sales volumes from our AES acquisition, and 1% from higher sales volumes.

Current wording

Net sales for the second quarter of 2024 increased 3% as compared to the same period in 2023. This was primarily due to favorable price of 3%, higher sales volumes of 3%, and an increase in sales volumes of 2% from our AES acquisition, which were partially offset by a 5% reduction in sales due to the fourth quarter 2023 sale of our European businesses.

Previous wording

Gross profit margins in the first quarter of 2024 increased 330 basis points ("bps") to 32.5% compared to 29.2% in the first quarter of 2023. Gross margins increased 300 bps from favorable price, 50 bps from lower product warranty costs, and 30 bps from miscellaneous other items. Partially offsetting these increases was 50 bps from higher freight and distribution costs.

Current wording

Gross profit margins in the second quarter of 2024 increased 120 basis points ("bps") to 33.6% as compared to 32.4% in the same period in 2023. Gross margins increased 240 bps from favorable price and 10 bps from miscellaneous other items, which were partially offset by 70 bps from higher freight and distribution costs and 60 bps from higher material and product costs.

Previous wording

Selling, general and administrative expenses ("SG&A") increased $3 million to $171 million in the first quarter of 2024 compared to $168 million in the first quarter of 2023 primarily due to higher employee-related costs including incentive compensation and wage inflation and higher discretionary spend, which were partially offset by a $16 million reduction in SG&A expenses from our fourth quarter of 2023 divestiture of our European businesses. As a percentage of net sales, SG&A increased 30 bps to 16.3%.

Current wording

Selling, general and administrative expenses ("SG&A") decreased $12 million to $169 million in the second quarter of 2024 as compared to $181 million in the same period in 2023 primarily due to a $16 million reduction in SG&A expenses from our fourth quarter of 2023 divestiture of our European businesses, which was partially offset by higher employee-related costs including increased incentive compensation. As a percentage of net sales, SG&A decreased 120 bps to 11.6%.

Previous wording

Losses (gains) and other expenses, net for the first quarter of 2024 and 2023 included the following (in millions):

Current wording

Losses (gains) and other expenses, net for the second quarter of 2024 and 2023 included the following (in millions):

Previous wording

We participate in two joint ventures that are engaged in the manufacture and sale of compressors, unit coolers and condensing units. We exert significant influence over these affiliates based upon our ownership, but do not control them due to venture partner participation. Accordingly, these joint ventures are accounted for under the equity method and their financial position and results of operations are not consolidated. We recognized income from equity method investments of $1 million in the first quarter of 2024 and in the first quarter of 2023.

Current wording

We participate in two joint ventures that are engaged in the manufacture and sale of compressors, unit coolers, and condensing units. We exert significant influence over these affiliates based upon our ownership, but do not control them due to venture partner participation. Accordingly, these joint ventures are accounted for under the equity method and their financial position and results of operations are not consolidated. We recognized income from equity method investments of $3 million in the second quarter of 2024 and in the second quarter of 2023.

Previous wording

Interest expense, net decreased to $12 million in the first quarter of 2024 from $14 million in the first quarter of 2023 due to lower borrowings.

Current wording

Interest expense, net decreased to $13 million in the second quarter of 2024 from $15 million in the same period in 2023 due to lower borrowings.

Previous wording

First Quarter of 2024 Compared to First Quarter of 2023 - Results by Segment

Current wording

Second Quarter of 2024 Compared to Second Quarter of 2023 - Results by Segment

Previous wording

The following table presents our Home Comfort Solutions segment's net sales and profit for the first quarter of 2024 and 2023 (dollars in millions):

Current wording

The following table presents our Home Comfort Solutions segment's net sales and profit for the second quarter of 2024 and 2023 (dollars in millions):

Previous wording

The following table presents our Building Climate Solutions segment's net sales and profit for the first quarter of 2024 and 2023 (dollars in millions):

Current wording

The following table presents our Building Climate Solutions segment's net sales and profit for the second quarter of 2024 and 2023 (dollars in millions):

Previous wording

Net sales decreased 1% in the first quarter of 2024 compared to 2023 primarily due to unfavorable product mix of 2% and lower sales volumes of 2% which were partially offset by favorable price of 3%.

Current wording

Net sales increased 15% in the second quarter of 2024 as compared to the same period in 2023 primarily due to higher sales volumes of 9%, favorable price of 2%, and a 6% increase in sales volumes from our AES acquisition which were partially offset by unfavorable product mix of 2%.

Previous wording

Segment profit in the first quarter of 2024 compared to 2023 increased $28 million primarily due to $18 million from favorable price, $7 million from higher sales volumes, $5 million from our acquisition of AES, and $1 million from favorable product mix. Partially offsetting these increases was $3 million from higher SG&A costs.

Current wording

Segment profit in the second quarter of 2024 increased $11 million as compared to the same period in 2023 primarily due to $12 million from higher sales volumes, $6 million from favorable price, and $5 million from our acquisition of AES. Partially offsetting these increases was $6 million in higher factory inefficiencies, which includes costs related to the ramp up of our new factory in Mexico, $4 million in unfavorable product mix, and $2 million from miscellaneous other items.

Previous wording

The following table presents our Corporate and Other segment's net sales and loss for the first quarter of 2024 and 2023 (dollars in millions):

Current wording

The following table presents our Corporate and Other segment's net sales and loss for the second quarter of 2024 and 2023 (dollars in millions):

Previous wording

Net sales decreased $60 million and segment loss increased $4 million in the first quarter of 2024 as compared to 2023. Our European businesses, which were sold in the fourth quarter of 2023, generated $60 million net sales in the first quarter of 2023. Excluding our European businesses, Corporate and Other costs increased $4 million in the first quarter of 2024 compared to 2023 due primarily to higher incentive compensation and wage inflation.

Current wording

Net sales decreased $68 million and segment loss increased $2 million in the second quarter of 2024 as compared to the same period in 2023. Our European businesses, which were sold in the fourth quarter of 2023, generated $68 million in net sales and $2 million in segment profit in the second quarter of 2023. Excluding our European businesses, Corporate and Other costs decreased $1 million in the second quarter of 2024 as compared to the same period in 2023 primarily due to lower incentive compensation costs which were partially offset by higher legal, professional, and other costs.

Previous wording

Our effective tax rate was 19.4% for the three months ended March 31, 2024 compared to 21.7% for the three months ended March 31, 2023. The decrease in rate is primarily due to a discrete favorable adjustment for excess tax benefits in 2024 and unfavorable adjustments in 2023 related to discrete return to provision adjustments.

Current wording

Our effective tax rate was 19.7% for the six months ended June 30, 2024 as compared to 19.0% in the same period in 2023. The increase in rate was primarily due to income allocated to high-tax jurisdictions partially offset by a favorable adjustment for excess tax benefits.

Previous wording

Net sales increased 21% in the first quarter of 2024 compared to 2023 as sales volumes increased 7%, price increased 6%, product mix increased 2%, and a 6% increase in sales volumes from our AES acquisition.

Current wording

Net sales increased 17% for the six months ended June 30, 2024 as compared to the same period in 2023. This was primarily due to higher sales volumes of 8%, favorable price of 3%, and a 6% increase in sales volumes from our AES acquisition.

Previous wording

The following table summarizes our cash flow activity for the three months ended March 31, 2024 and 2023 (in millions):

Current wording

The following table summarizes our cash flow activity for the six months ended June 30, 2024 and 2023 (in millions):

Previous wording

Net Cash Used In Operating Activities - The change in net cash used in operating activities for the three months ended March 31, 2024 compared to the net cash used in operating activities for the same period in 2023 reflects changes in working capital and an increase in net income.

Current wording

Net Cash Provided By Operating Activities - The change in net cash provided by operating activities for the six months ended June 30, 2024 compared to the net cash provided by operating activities for the same period in 2023 reflects changes in working capital and an increase in net income.

Previous wording

Net Cash Used In Investing Activities -Capital expenditures were $30 million for the three months ended March 31, 2024 compared to $35 million in the same period of 2023. Capital expenditures in 2024 were related to our Commercial factory in Mexico, the general expansion of manufacturing capacity and equipment, and investments in systems and software to support the overall enterprise.

Current wording

Net Cash Used In Investing Activities -Capital expenditures were $62 million for the six months ended June 30, 2024 compared to $85 million in the same period of 2023. Capital expenditures in 2024 were related to our Commercial factory in Mexico, the general expansion of manufacturing capacity and equipment, and investments in systems and software to support the overall enterprise.

Previous wording

Net Cash Provided By Financing Activities -Net cash provided by financing activities for the three months ended March 31, 2024 decreased to $42 million compared to $101 million provided by financing activities in the same period of 2023. The change was primarily due to changes in net borrowings and repayments of long-term debt. We returned $39 million to shareholders through dividend payments for the three months ended March 31, 2024 and $38 million in the same period of 2023.

Current wording

Net Cash Used In Financing Activities -Net cash used in financing activities for the six months ended June 30, 2024 increased to $118 million as compared to $34 million in the same period of 2023. The change was primarily due to changes in net borrowings and repayments of long-term debt. We returned $78 million to shareholders through dividend payments for the six months ended June 30, 2024 and $75 million in the same period of 2023.

Previous wording

On October 25, 2023, we established a commercial paper program, as a replacement to our Asset Securitization Program which expired in November 2023, pursuant to which we may issue short-term, unsecured commercial paper notes under the exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933, as amended. Amounts available under the Program may be borrowed, repaid, and re-borrowed from time to time, with the aggregate face or principal amount of the CP Notes outstanding under the Program at any time not to exceed $500.0 million. The CP Notes have maturities of up to 397 days from the date of issue and rank pari passu with all of our other unsecured and unsubordinated indebtedness. The net proceeds from issuances of the CP Notes are typically used for general corporate purposes. Our revolving credit facility serves as a liquidity backstop for the repayment of CP Notes outstanding under the Program. CP Notes currently outstanding under the Program totaled $250.0 million as of March 31, 2024.

Current wording

On October 25, 2023, we established a commercial paper program, as a replacement to our Asset Securitization Program which expired in November 2023, pursuant to which we may issue short-term, unsecured commercial paper notes under the exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933, as amended. Amounts available under the Program may be borrowed, repaid, and re-borrowed from time to time, with the aggregate face or principal amount of the CP Notes outstanding under the Program at any time not to exceed $500.0 million. The CP Notes have maturities of up to 397 days from the date of issue and rank pari passu with all of our other unsecured and unsubordinated indebtedness. The net proceeds from issuances of the CP Notes are typically used for general corporate purposes. Our revolving credit facility serves as a liquidity backstop for the repayment of CP Notes outstanding under the Program. CP Notes currently outstanding under the Program totaled $147.0 million as of June 30, 2024.

Previous wording

We have an existing $1.1 billion unsecured revolving credit facility dated as of July 14, 2021 (as amended, the "Credit Agreement"), with JPMorgan Chase Bank, N.A., as administrative agent, and the other lenders party thereto. We had outstanding borrowings of $12.0 million as well as $1.7 million committed to standby letters of credit as of March 31, 2024. Subject to covenant limitations, $836.3 million was available for future borrowings after taking into consideration outstanding borrowings under our Program. The Credit Agreement includes a subfacility for swingline loans up to $65.0 million. The Credit Agreement will expire and outstanding loans will be required to be repaid in July 2026, unless maturity is extended by the lenders pursuant to two one-year extension options that we may request under the Credit Agreement.

Current wording

We have an existing $1.1 billion unsecured revolving credit facility dated as of July 14, 2021 (as amended, the "Credit Agreement"), with JPMorgan Chase Bank, N.A., as administrative agent, and the other lenders party thereto. We had 0 outstanding borrowings and $1.7 million committed to standby letters of credit as of June 30, 2024. Subject to covenant limitations, $951.3 million was available for future borrowings after taking into consideration outstanding borrowings under our Program. The Credit Agreement includes a subfacility for swingline loans up to $65.0 million. The Credit Agreement will expire and outstanding loans will be required to be repaid in July 2026, unless maturity is extended by the lenders pursuant to two one-year extension options that we may request under the Credit Agreement.

Previous wording

In September 2023, we issued $500.0 million of senior unsecured notes, which will mature in September 2028 (the "2028 Notes") with interest being paid semi-annually in March and September at 5.50%. We issued two series of senior unsecured notes on July 30, 2020 for $300.0 million each, which will mature on August 1, 2025 (the "2025 Notes") and August 1, 2027

Current wording

In September 2023, we issued $500.0 million of senior unsecured notes, which will mature in September 2028 (the "2028 Notes") with interest being paid semi-annually in March and September at 5.50%. We issued two series of senior unsecured notes on July 30, 2020 for $300.0 million each, which will mature on August 1, 2025 (the "2025 Notes") and August 1, 2027 (the "2027 Notes," and collectively with the 2025 Notes and the 2028 Notes, the "Notes") with interest being paid semi-annually in February and August at 1.35% and 1.70% respectively, per annum.

Previous wording

We periodically review our capital structure to ensure the appropriate levels of leverage and liquidity. We may access the capital markets, as necessary, based on business needs and to take advantage of favorable interest rate environments or other market conditions. We also evaluate our debt-to-capital and debt-to-EBITDA ratios to determine, among other considerations, the appropriate targets for capital expenditures and share repurchases under our share repurchase programs. Our debt-to-total-capital ratio decreased to 79% as of March 31, 2024 from 82% as of December 31, 2023.

Current wording

We periodically review our capital structure to ensure the appropriate levels of leverage and liquidity. We may access the capital markets, as necessary, based on business needs and to take advantage of favorable interest rate environments or other market conditions. We also evaluate our debt-to-capital and debt-to-EBITDA ratios to determine, among other considerations, the appropriate targets for capital expenditures and share repurchases under our share repurchase programs. Our debt-to-total-capital ratio decreased to 69% as of June 30, 2024 from 82% as of December 31, 2023.

Previous wording

We believe our cash and cash equivalents of $46 million, future cash generated from operations and available borrowing capacity are sufficient to fund operations, planned capital expenditures, future contractual obligations, potential share repurchases and dividends and other needs in the foreseeable future. Included in our cash and cash equivalents of $46 million as of March 31, 2024 was $21 million of cash held in foreign locations. Our cash held in foreign locations is used for investing and operating activities in those locations, and we generally do not have the need or intent to repatriate those funds to the United States. An actual repatriation in the future from our non-U.S. subsidiaries could be subject to foreign withholding taxes and U.S. state taxes.

Current wording

We believe our cash and cash equivalents of $47.6 million, future cash generated from operations and available borrowing capacity are sufficient to fund operations, planned capital expenditures, future contractual obligations, potential share repurchases and dividends and other needs in the foreseeable future. Included in our cash and cash equivalents of $47.6 million as of June 30, 2024 was $20 million of cash held in foreign locations. Our cash held in foreign locations is used for investing and operating activities in those locations, and we generally do not have the need or intent to repatriate those funds to the United States. An actual repatriation in the future from our non-U.S. subsidiaries could be subject to foreign withholding taxes and U.S. state taxes.

Previous wording

The following combined Parent and Guarantor Subsidiaries financial information is presented as of March 31, 2024 and December 31, 2023 and for the three months ended March 31, 2024 (in millions):

Current wording

The following combined Parent and Guarantor Subsidiaries financial information is presented as of June 30, 2024 and December 31, 2023 and for the three and six months ended June 30, 2024 (in millions):