Lennox International, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to the Lenox International second quarter conference call. At the request of your host, all lines are currently in a listen-only mode. There will be a question and answer session at the end of the presentation. You may enter the queue to ask a question by pressing 1 and 0 on your phone. Pressing 1 and 0 again exits the queue. As a reminder, this call is being recorded. I would now like to turn the conference over to Steve Harrison, Vice President of Investor Relations. Please go ahead.

Good morning. Thank you for joining us for this review of Lenox International's financial performance for the second quarter of 2020. I'm here today with Chairman and CEO Todd Bludorn and CFO Joe Reitmeyer. Todd will review key points for the quarter and the outlook, and Joe will take you through the company's financial performance and guidance. To give everyone time to ask questions during the Q&A, please limit yourself to a couple of questions or follow-ups and re-queue for any additional questions. In the earnings release we issued this morning, we have included the necessary reconciliation of the non-GAAP financial measures that will be discussed to GAAP measures. All comparisons mentioned today are against the prior year period. You can find a direct link to the webcast of today's conference call on our website at www.linuxinternational.com. The webcast will be archived on the site and available for replay. I would like to remind everyone that in the course of this call, to give you a better understanding of our operations, we will be making certain forward-looking statements. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from such statements. For information concerning these risks and uncertainties, see Linux International's publicly available filings with the SEC. The company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Now let me turn the call over to Chairman and CEO, Todd Bludorn.

Thanks, Steve. Good morning, everyone, and thank you for joining us. Let me start with a quick overview on the second quarter that was significantly impacted by the COVID-19 pandemic and then discuss the updated outlook for 2020 in which we are raising guidance for revenue and earnings for the year. For the second quarter, company revenue was $941 million, down 14%. GAAP operating income was $136 million, down 36%. And GAAP EPS from continuing operations was $2.62, down 7%. The second quarter last year included an insurance benefit of $26 million and a pension settlement charge of $61 million. Total segment profit was $153 million, down 24% from the prior year quarter. That included an $18 million insurance benefit. From an operational perspective, excluding the insurance benefit, total segment profit was down 17%. Total segment margin for the second quarter was 16.3%, down 210 basis points as reported, and down 50 basis points from an operational perspective. Adjusted EPS from continuing operations was $2.97, down 21% as reported, and down 12% from an operational perspective. In our residential segment in the second quarter, revenue was down 6%. Revenue from replacement business was now high single digits. Revenue from new construction was down low single digits. Residential segment profit was $127 million, down 17% as reported, and down 6% on an operational basis, excluding the $18 million insurance benefit in the second quarter a year ago. Segment margin was 19.7% in the second quarter, down 260 basis points as reported, and up 10 basis points on an operational basis. A residential business improved each month through the quarter and was up 7% in June as economy continued to reopen and weather heated up for the summer. Cooling degree days for the second quarter overall were up 4% from the prior year quarter. For the month of June, cooling degree days were up 12% from last year. The hot weather has continued month to date in July. We're seeing strong residential growth on excellent operational execution by the team to capitalize on market opportunities. Turning to our commercial-facing businesses, they are more heavily impacted from the pandemic as we expected. In the commercial business segment, revenue was down 28%, segment profit was down 34%, and segment margin contracted 170 basis points to 18.9%. National account revenue was down approximately 40%, and regional and local revenue was down approximately 20%. Breaking down the revenue another way, replacement was down 35%, and new construction was down nearly 20%. On the service side, Lenox National Account service revenue was down about 20%. VRF revenue was up to those single digits. While overall commercial equipment was down 30% in the second quarter, we're seeing signs of relative improvement in the business, with commercial equipment backlog currently down 20% year over year. Commercial continues to win new business and position for future growth. Commercial won 15 new national account customers in the first half, including six in the second quarter. Turning to our refrigeration business segment, revenue is down broadly across our businesses in North America and Europe, declining 26% at constant currency. Segment profit was down 53%, and segment margin contracted 460 basis points, 8.2%. North America revenue was down more than 20%, and Europe revenue was down about 30%. As in our commercial business, we are seeing signs of relative improvement in refrigeration as well. Backlog is down approximately 20% year over year. Overall for the company for the second half of the year, we continue to face highly uncertain market conditions. Our stock repurchase program remains on hold, currently given the high uncertainty. But we continue to be encouraged by the performance of our residential business and relative improvement in the commercial and refrigeration businesses. We continue to maintain a strong balance sheet and expect a strong year of cash flow generation. We continue to target $340 million of free cash flow for 2020. The company has executed well on its $115 million of in-year S&A savings for 2020, and we managed decremental EBIT margin of 20% on an operational basis in the second quarter. We are raising our financial guidance for 2020 and now expect adjusted revenue to be down 10% to 15% and adjust the EPS from continuing operations within a range of $7.90 to $8.70. As I turn it over to Joe, I will just mention that Lenox has a seasoned team with experience managing through economic downturns while continuing to invest and advance the company's position. All of us are focused on capitalizing on market opportunities and shareholdings. Now, over to Joe.