Lennox International, Inc. (NYSE:LII) Q3 2019 Earnings Conference Call - Final Transcript

Oct 21, 2019 • 09:30 am ET

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Lennox International, Inc. (NYSE:LII) Q3 2019 Earnings Conference Call - Final Transcript

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Q & A
Operator
Operator

[Operator Instructions] And our first question is from the line of Julian Mitchell with Barclays. Please go ahead.

Analyst
Julian Mitchell

Hi, good morning.

Executive
Todd M. Bluedorn

Hi, Julian.

Analyst
Julian Mitchell

Hi. Maybe just a first question on the Residential business. Just give us some updates Todd on how happy you are with the commercial side of things, in terms of sales and market share traction and also within resi any updated thoughts on incremental margins over the next 12 or 18 months? You've got perhaps more efficient refreshed operations now in Marshalltown and some tailwinds or normalized cost environment. So just wanted how will that roll together, so overall resi incrementals?

Executive
Todd M. Bluedorn

On the small sea commercial side, I think we're satisfied where we're at is, I'd put it. I think we're happy with the end markets, I mean the consumer still feel -- still strong adjusting for the tornado impact, while revenue in resi was up seven and we had negative four of tornado impacts, up 11, if you adjust for that. So I think the end markets still feel strong -- consumer still feel strong. And then what we guided at last call of recovering 85% to 90% of the tornado impact, that's still where we're at, that's where we'll end the year at in fourth quarter, we are a little less than that in third quarter if you go through all the math, more like 75% and we'll end the year at 85% to 90% of it recovered.

In terms of the drop through, I think everything you said is true. I think the numbers will be clouded by the fact that the $40 million of net insurance recovery was a one-time item in '19. But if you strip that off, the things you talked about are true. And then I'd lay on top of that, given some of the softness because of weather and second and third quarter we've taken some action on the SG&A side and cost containment as we go into 2020. And so I think that will help the margin drop through also.

Analyst
Julian Mitchell

Thanks. And then my second and last question just around the Commercial segment capital we see, it lowered the end market outlook a touch for North America back on the last earnings call. Good revenue numbers today in commercial, I think particularly in the new construction or OE side. So maybe just give any updates about different verticals? We surprised by what's happening in Commercial, any color on backlogs?

Executive
Todd M. Bluedorn

Going into fourth quarter our backlogs up slightly in the Commercial segment. I mean we had a really good third quarter, but it was chunkiness of some large national accounts, as you saw in the script that it was driven more by new construction and replacement on growth, and again that just timing year-over-year differences. So pleasantly surprised in third quarter, again the verticals that are hanging in their most for us, believe it or not continue to be retail. It's a both build and replace small office buildings, so