Lennox International, Inc.

Thank you for standing by and welcome to the Lenox International First Quarter Earnings Conference Call. At the request of your host, all lines are currently in a listen-only mode. There will be a question and ask 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 your mind of this call is being recorded. Now I'd like to turn the conference over to Steve Harrison, Vice President of Investor Relations. Please go ahead.

Thank you, and it sounds like we have some music. Okay, we're good. All right, good morning, everyone. Thank you for joining us for this review of Linux International's financial performance for the first quarter of 2022. I'm here today with Chairman and Interim CEO Todd Teske and CFO Joe Reitmeyer. Todd will review key points for the quarter. Joe will take you through the company's financial performance and outlook for 2022. 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 for replay. We'd 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 Todd Teske.

Good morning and thank you for joining us. It's great to be here on the earnings call today to review the quarter with Joe during the short interim period until Alok Mascara's start date as Lenox International's new CEO on May 9th. Many of you already know Alok over the course of his career from McKinsey to GE to Pentair and then as the CEO of Luxferb. In the coming weeks and months, you'll have an opportunity to reconnect with him or to make introductions. We are excited to have Alok join us to lead the company as we continue to focus on driving growth and profitability to maximize shareholder value. Along with his impressive experience and proven track record of successfully operating businesses through various economic challenges over 25 years, we see Alok as a great fit with the performance culture of Lenox. With his background and experience, Alok was the candidate during the search process that rose to the top of an outstanding slate of candidates. Alok recognizes the firm foundation that's been built at Lenox, and I thank Todd Bludorn for his 15 years leading the company, and we look forward to the next chapter in the company's history. Turning to the near term, let me start with some highlights on the first quarter of 2022, a record first quarter for revenue and earnings per share. Company revenue in the quarter was up 9% to a first quarter record of $1.01 billion. GAAP operating income was $112 million, down 2%. GAAP EPS was a first quarter record of $2.29, up 4%. Total segment profit for the first quarter was $115 million, down 1%. And total segment margin was 11.3%. down 110 basis points. Adjusted EPS was first quarter record of $2.36, up 4%. The record first quarter for Lenox International was driven by our residential and refrigeration businesses, which both set new first quarter highs for segment revenue and profit. In residential, revenue was up 11% to a first quarter record of $682 million, Replacement and new construction were both up double digits. Residential segment profit was up 12% to a first quarter record $108 million. Segment margin was down 10 basis points to 15.8%. In refrigeration, revenue was $144 million, a first quarter record adjusted for historical divestitures. Revenue grew 15%, as reported, and 18% at constant currency, led by more than 20% growth in North America. European refrigeration revenue was up low single digits, as reported, and up low double digits at constant currency. And Europe HVAC revenue was up high single digits, as reported, and up mid-teens at constant currency. Refrigeration segment profit rose 78 percent to $14 million, a first-quarter record adjusted for historical divestitures. Segment margin expanded 350 basis points to 9.8 percent. Turning to our commercial business, demand remains strong, but our commercial operations continue to be impacted in production by labor constraints and global supply chain disruptions. Commercial revenue was down 6 percent, segment profit was down 77 percent, and segment margin contracted 1,040 basis points to 3.4 percent. More about this in a moment, but further breaking out revenue. Commercial equipment revenue was down low double digits. Within this, replacement revenue was up low single digits, with planned replacement up more than 20 percent, and emergency replacement down more than 35%. New construction revenue was down more than 30% in the quarter. Breaking out revenue another way, regional and local business was down mid-teens. National account equipment revenue was down mid single digits. On the service side, Lenox national account services revenue was up high single digits. A few points to make on the performance of our commercial business. Given the business mix to national account customers in a constrained environment, mix was up as was price, but price increases took longer to work through given contractual obligations, causing inflation to run ahead of price benefit in the commercial business currently. We announced another price increase of up to 9% for our commercial business effective May 2nd, and we will continue to layer an additional price this year. We continue to see additional inflationary pressures in commodities, components, and freight, and the global supply chain disruptions continue to create factory inefficiencies along with lingering labor constraints. Our commercial business continues to be challenged by supply chain disruptions that has adversely impacted production more than our other businesses. There are unique components in the commercial equipment primarily electronics and controls, to name just a few, that distinguish it from our other businesses where we are experiencing abnormal delays even for these times. For all of our businesses, lead times in the supply chain continue to lengthen. However, they have been especially disruptive in commercials' configure-to-order environment. We do not know all the components required for a unit's production until you get all of the specifications of the product's configuration from the customers. Our sourcing, engineering, and manufacturing teams continue to collectively address supply chain disruptions by working closely with our suppliers and assisting them in addressing their delays, increasing safety stock, rapidly qualifying new suppliers, and expanding supply base along with insourcing and substitution where feasible. Even with the actions we continue to take, there are still unavoidable extended lead times for our commercial configure-to-order products. Patrick O' Due to delays in the supply chain for certain components. Patrick O' With respect to labor constraints in Stuttgart, Arkansas and surrounding areas where we draw from for direct labor, unemployment is at historical lows, 3% or less. Patrick O' We have been experiencing unprecedented employee turnover in our commercial factory. Part of the part of the turnover stem from late last year and early this year, as we navigated the COVID related disruptions affecting our commercial facility, many COVID exposed employees elected not to return to work at the at the factory. In addition, our utilization of overtime to overcome production disruptions also impacted employee retention. To ease labor constraints at our Arkansas factory, We have raised wages to attract a broader pool of talent in a very tight market and make Lenox the employer of choice in that area. In addition to raising wages, we have instituted static scheduling in the factory that will ease demands for significant overtime on direct labor and create a better work-life balance for our factory employees. We expect the actions we've taken in the factory of increasing wages and stabilizing the work schedules for our factory employees to significantly reduce absenteeism and improve employee retention, easing the labor constraint that, along with supply chain disruptions, is resulting in commercial manufacturing delays. Our commercial team continues to work diligently to overcome these disruptions with the primary focus of taking care of our customers. For the company overall, Price is pacing ahead of commodity component and freight pressures, and we expect that to continue through the year. In the first quarter, the company captured $85 million of price for a 9% yield compared to $58 million of material and freight headwind in the quarter. Joe will talk more about it in the 2022 guidance, but we now plan to capture approximately $335 million of price this year compared to prior guidance of $235 million, with a focus on staying ahead of inflationary pressures. For the company overall in 2022, we are raising revenue growth guidance from 5% to 10% to a new range of 7% to 11%. And we are reiterating EPS guidance of $13.50 to $14.50 for the full year. We are reiterating plans for $400 million of stock repurchases in 2022 as we drive toward another record year led by the strength in our residential and refrigeration businesses. Now I'll turn it over to Joe for more detail on the first quarter and our outlook.