Lennox International, Inc. · NYSE:LII
Lennox International — Investor Day (December 2011)
41 slides from Lennox International's investor day presentation, Dec 14, 2011
Slide 1: 2011 Investment Community Meeting
2011 Investment Community Meeting December 14, 2011
Slide 2: Forward-Looking Statements
FORWARD- LOOKING STATEMENTS This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from such statements. Su
Slide 3: Who We Are; Strategic Priorities; 2011 Review & 2012 Guidance; Q&A
Who We Are Update on Strategic Priorities 2011 Review & 2012 Guidance Questions & Answers 3
Slide 4: Lennox International key themes
Lennox International … is continuing to aggressively reduce its cost structure … is continuing to make transformational investments in the business … is participating in growth markets with significant pent-up demand … is driving shareholder value with a disciplined use of free cash flow 4
Slide 5: Focused on Four Related Businesses
Focused on Four Related Businesses 2011E Revenue 1 2011E Segment Profit 2 24% 32% 32% 40% 16% 3% 33% 20% Residential Commercial Service Experts Refrigeration Heating & Cooling Heating & Cooling 1 Excluding eliminations 2 Excluding eliminations and unallocated corporate expense 5
Slide 6: Business Mix
Business Mix 9% 6% 30% 45% 55% 70% 85% Geography End Market Customer Americas Replacement Residential Europe New Construction Commercial Asia Pacific Source: Based on 2011E total LII revenue excluding eliminations 6
Slide 7: Sales, Earnings, and Cash Flow
Sales, Earnings, and Cash Flow Sales & ROS Free Cash Flow ($Millions) $4 10% $250 $3.7 $3.4 $3.1 $3.3 8% $200 $3 $2.8 $170 $167 7.5% 7.7% $140 7.0% 6% $150 $121 $2 5.8% 5.6% ROS % SALES (US$ Billions) 4% $100 $90 $1 2% $50 $0 0% $0 2007 2008 2009 2010 2011E 2007 2008 2009 2010 2011E Core EPS $2.45 $
Slide 8: Residential Heating & Cooling Segment Sales & ROS
Residential Heating & Cooling Segment Sales & ROS LII Residential Sales $2,000 14% Replacement $1,670 12% NC New NC $1,493 Construction $1,500 $1,293 $1,417 $1,35010% Replacement 10.4% 9.8% Replacement 8.6% 9.3% 8% $1,000 ROS % SALES (US$ Millions) 6% 5.5% 4% $500 Allied Allied 2% Lennox $0 0% Lenno
Slide 9: North America Residential Market
North America Residential Market % Y-O-Y Change in Units Pent-up demand 30% created from 20% under-replacement Low 10% Single 4% 3% Digits 0% Mix and system-sell 06 07 08 09 10 11E 12E pressure (10%) Field-charged R-22 units (11%)(11%) (8%) Fragile consumer (16%) (20%) confidence (30%) Weather comps
Slide 10: U.S. Residential HVAC Industry Revenue
U.S. Residential HVAC Industry Revenue* 2010 to 2011 % Change in $s $6.4B $6.2B (3%) $5.9B “High 50% Efficiency” 49% 61% 50% (19%) “Low 50% Efficiency” 50% +22% 51% 39% 2009 2010 2011E Market down 3% in dollars in 2011 Significant “mix up” in 2010 and “mix down” in 2011 * AHRI / Company Estimates 10
Slide 11: U.S. Residential HVAC Industry
U.S. Residential HVAC Industry* % Condensing Units R22 Dry Charge Furnace Units as a % of Total Units 36% 33% 32% 31% 25% 20% 2% 2010 2011E 2012E 2009 2010 2011E 2012E Mix Pressure Moderates in 2012 * AHRI / Company Estimates 11
Slide 12: Commercial Heating & Cooling Sales & ROS
Commercial Heating & Cooling Sales & ROS LII Commercial Sales $1,000 14% $875 $835 11.2% Air Cooled Chiller / Heat Pump 12% $800 10.5% 11.5% 8.3% $690 10% Europe 11.2% $620 HVAC $600 Baltic 8% Rooftop North $595 America ROS % Rooftop HVAC 6% Landmark $400 SALES (US$ Millions) Rooftop 4% $200 2% Roof
Slide 13: North America Commercial Unitary Market
North America Commercial Unitary Market % Y-O-Y Change in Units Planned Replacement 30% Growth Continues 20% Retail New Construction 11% Up Modestly from 2011 10% Low 10% Single 4% 3% Digits 1% 0% 05 06 07 08 09 10 11E 12E Macroeconomic (10%) Uncertainty (12%) (20%) (30%) (27%) Source: Industry data
Slide 14: Service Experts Sales & ROS
Service Experts Sales & ROS Service Experts Sales 8% $624 $586 $590 $600 $535 $540 6% Comm’l $400 3.9% 4% Residential 3.2% 3.3% ROS % SALES (US$ Millions) 3.1% 1.5% $200 2% $0 0% 2007 2008 2009 2010 2011E 14
Slide 15: Refrigeration Sales & ROS
Refrigeration LII Refrigeration Sales Sales & ROS $810 20% $800 Asia 18% Pacific North 16% America $608 $618 Europe $600 $551 14% $513 12% South America 9.5% 9.0% 10% $400 11.1% ROS % SALES (US$ Millions) 10.1% 9.7% 8% 6% $200 4% Refrigeration Equipment 2% Energy & Environmental Display Efficient $0
Slide 16: Kysor Warren Acquisition
Kysor Warren Acquisition Synergies Factory Improvement NA Market Share NA Display Case Market On Track for 12¢ Accretion in 2012 16
Slide 17: Who We Are; Strategic Priorities; 2011 Review & 2012 Guidance; Q&A
Who We Are Update on Strategic Priorities 2011 Review & 2012 Guidance Questions & Answers 17
Slide 18: Strategic Priorities
Strategic Priorities 1. Innovative Product and System Solutions 2. Manufacturing and Sourcing Excellence 3. Distribution Excellence 4. Geographic Expansion 5. Expense Reduction VALUES PEOPLE 18
Slide 19: Innovative Product and System Solutions
STRATEGIC PRIORITIES 1. Innovative Product and System Solutions PREMIUM SEGMENT Stratus icomfort Commercial VALUE SEGMENT Emergency Flex Cold Replacement Armstrong Furnace Evaporators Rooftop Innovation Across Market Segments 19
Slide 20: Lennox India Technology Center
STRATEGIC PRIORITIES 1. Innovative Product and System Solutions Lennox India Technology Center (LITC) Chennai, India Key Benefits Significant R&D Leverage “Top Notch” Talent Cycle Time Reduction Areas of Focus Communicating Controls Value Engineering Information Technology Established in 2010 / 100+
Slide 21: Manufacturing and Sourcing Excellence: Saltillo Mexico Factory
STRATEGIC PRIORITIES 2. Manufacturing and Sourcing Excellence Saltillo Mexico Factory Units Produced (000s) 340 290 180 20 2008 2009 2010 2011E Ramp Up in Mexico Continues 21
Slide 22: Move to Low Cost Sources and Platform Redesign
STRATEGIC PRIORITIES 2. Manufacturing and Sourcing Excellence Move to Low Cost Sources Platform/Subsystem Redesign Platform Cost Copper to Reduction Aluminum Substitution Low Cost Sourcing and Platform / Subsystem Redesigns 22
Slide 23: Distribution Excellence: Regional Distribution Centers
STRATEGIC PRIORITIES 3. Distribution Excellence North America HVAC Lennox Residential Regional Distribution Centers 7 of 8 RDCs in Place -- Completed in 2012 Reducing Logistics Cost as a % of Sales Improved “Same Day/Next Day” Service Factory RDC 23
Slide 24: Distribution Excellence: PartsPlus Stores
STRATEGIC PRIORITIES 3. Distribution Excellence North America HVAC Number of PartsPlus Stores 100+ 76 62 23 2009 2010 2011 2012E Drives Entry-Level Dealer Growth 24
Slide 25: Geographic Expansion
STRATEGIC PRIORITIES 4. Geographic Expansion 2011 International Revenue International ROS 100% $560M 8% South America 8% Australasia Europe 5% 36% 56% 1% 2009 2011E 2013E 25 Note: $s in USD Millions
Slide 26: Expense Reduction
STRATEGIC PRIORITIES 5. Expense Reduction Sales and SG&A Growth ’09 - ’11 Focus Areas 17% Automation Shared Services Indirect Spending 5% Lean Office Effort Sales1 SG&A 2 Target: SG&A Grows ½ Rate of Revenue 26
Slide 27: LII 2014 Targets
LII 2014 Targets $5 12% $4.0B 30% incremental10% $4 $3.7B margin $3.4B $3.3B 10% $3.1B 8% $3 $2.8B 7.5% 7.7% SALES 7.0% ROS % 6% $2 5.5% 5.6% 4% $1 2% $0 0% 2007 2008 2009 2010 2011E 2014E 27
Slide 28: Segment Profit Margins 2014 Targets
Segment Profit Margins 2014 Targets Residential 11% - 14% Commercial 13% - 15% Service Experts 6% - 7% Refrigeration 12% - 14% 28
Slide 29: Cash Deployment Philosophy
Cash Deployment Philosophy Cash conversion to approximate net income Invest in the business to drive growth organically and through strategic acquisitions Return cash to shareholders $50 million of stock repurchases targeted for 2012 $0.72 annual dividend ( 2.1% yield and 30% payout) 29
Slide 30: Who We Are; Strategic Priorities; 2011 Review & 2012 Guidance; Q&A
Who We Are Update on Strategic Priorities 2011 Review & 2012 Guidance Questions & Answers 30
Slide 31: 2011 Full-Year Guidance
2011 Full-Year Guidance Revenue up 7% - 9%, with 2 points of positive FX impact Adjusted EPS from continuing operations of $2.00 - $2.15 GAAP EPS from continuing operations of $1.78 - $1.93 Capital expenditures approximately $45M-$50M Tax rate approximately 33.5% 31
Slide 32: Key Market Assumptions
Key Market Assumptions 2008 2009 2010 2011E 2012E Low NA Residential (Units) (11%) (8%) 4% 3% Single Digits Low NA Commercial Unitary (Units) (12%) (27%) 3% 10% Single Digits Low Europe HVAC & Refrigeration (10%) (35%) 3% 7% Single Digits Market Recovery Continues Source: AHRI, company estimates 32
Slide 33: 2012 Overview
2012 Overview + - Material Cost Reduction Macroeconomic Uncertainty Restructuring Tailwind Residential Mix Volume Growth Commodities Price Variable SG&A 33
Slide 34: 2012 Full-Year Guidance
2012 Full-Year Guidance Revenue up 2% - 6% with neutral FX impact Adjusted EPS from continuing operations of $2.20 - $2.60 GAAP EPS from continuing operations of $2.17 - $2.57 Capital expenditures of approximately $55M Tax rate of 33% - 34% Stock repurchases of $50M 34
Slide 35: Lennox International key themes
Lennox International … is continuing to aggressively reduce its cost structure … is continuing to make transformational investments in the business … is participating in growth markets with significant pent-up demand … is driving shareholder value with a disciplined use of free cash flow 35
Slide 36: International
INTERNATIONAL
Slide 37: GAAP / Non-GAAP Reconciliations
GAAP / Non-GAAP Reconciliations 37
Slide 38: Reconciliation To U.S. GAAP Measures
Lennox International Inc. and Subsidiaries Reconciliation To U.S. GAAP (Generally Accepted Accounting Principles) Measures (U.S. dollars in millions, except per share amounts) Per Per Per Per Diluted Diluted Diluted Diluted 2007 Share 2008 Share 2009 Share 2010 Share Income from continuing operation
Slide 39: Free Cash Flow
Free Cash Flow $s in millions 2011 2007 2008 2009 2010 Estimated Net cash provided by operating activities $239.9 $183.2 $225.5 $185.8 $135 Purchase of property, plant and equipment (70.2) (62.1) (58.8) (45.8) (45) Free cash flow $169.7 $121.1 $166.7 $140.0 $90 39
Slide 40: 2011 EPS Reconciliation - Diluted
2011 EPS Reconciliation - Diluted GUIDANCE Adjusted EPS Continuing Ops $2.00 - $2.15 Restructuring Charges (0.19) Special Legal Contingency Charge 0.03 Net Change in Unrealized Losses on Open Futures Contracts and Other Items, net (0.06) Continuing GAAP EPS $1.78 - $1.93 40
Slide 41: 2012 EPS Reconciliation - Diluted
2012 EPS Reconciliation - Diluted GUIDANCE Adjusted EPS Continuing Ops $2.20 - $2.60 Restructuring Charges (0.03) Continuing GAAP EPS $2.17 - $2.57 41