Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Lennox International Inc. (NYSE:LII)

Q1 2012 Earnings Call

April 24, 2012 9:30 am ET

Executives

Steve Harrison - VP, IR

Todd Bluedorn - CEO

Bob Hau - CFO

Analysts

Jeff Hammond - KeyBanc Capital Markets

Josh Pokrzywinski - MKM Partners

Adam Samuelson - Goldman Sachs

Keith Hughes - SunTrust

Rich Kwas - Wells Fargo Securities

Rob Wertheimer - Vertical Research Partners

Steve Tusa - JPMorgan

Operator

Welcome to the Lennox International Q1 2012 earnings conference call. (Operator Instructions) I would now like to turn the conference over to Steve Harrison, Vice President of Investor Relations.

Steve Harrison

Good morning. Thank you for joining us for this review of Lennox International's financial performance for the first quarter of 2012. I'm here today with Todd Bluedorn, CEO; and Bob Hau, CFO. Todd will review the key points on the quarter and Bob will take you through the company's financial performance.

In the earnings release we issued this morning, we have included the necessary reconciliation of the financial metrics that will be discussed to GAAP measures. You can find a direct link to the webcast of today's conference call on our website at www.lennoxinternational.com. We will archive the webcast on that site and make it 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 Lennox International's publicly available filings with the SEC. Lennox 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 CEO Todd Bluedorn.

Todd Bluedorn

Thanks Steve. Good morning and thank you everyone for joining us. Let me take it through a few key points on the first quarter and then Bob will discuss the financial results more detail and the outlook.

Total company revenue in the quarter was up 2%, led by 7% growth in our residential business. Volume and price mix were both up for the company overall. We continue to closely manage cost with SG&A down 3% from the prior-year quarter. Total segment profit margin was up 50 basis points. Adjusted EPS from continuing operations was $0.01 versus a $0.04 loss in the prior-year quarter. This is adjusted for discontinued operations from the planned sale of our Hearth business.

First quarter 2012 adjusted EPS from continuing operations had a $0.03 benefit from the movement of the Hearth business to discontinued operations. First quarter 2011 had a $0.07 benefit from this move. So Hearth had not been moved to discontinued operations, we would have reported a $0.02 loss for adjusted EPS on continuing operations versus the $0.11 loss in the prior-year quarter.

On our website we have posted revised 2011 quarterly and annual earning statements, which show the effect of the removal of the Hearth business on the company's 2011 results. On a GAAP basis for the first quarter of 2012, the loss per share from continuing operations was $0.01 versus a loss of $0.06 in prior-year quarter.

Residential business had strong execution in the first quarter, driving 7% revenue growth and 230 basis points of margin expansion in the business. Residential segment profit was up 150%. Revenue from residential new construction HVAC equipment was up more than 40% in the quarter. Revenue from replacement equipment was up high-single digits.

The first quarter got up to a relatively slow start in January and February due to warm weather, but then seasonally warm weather in March led to an early start to the cooling season and a strong finish to the first quarter.

Our 22 shipments were up a couple of points from the first quarter of last year and were high-single digits as a percent of total cooling shipments. As we enter the summer months, we're still planning for R-22 to be about 25% of the cooling product shipment, up about 5 points from last summer. We still expect R-22 to be a mix headwind to operating profit of about $50 million in 2012.

Overall, it was a nice quarter for residential, but looking ahead some cautions are in order. The first quarter is a very seasonally light period for us and the industry, and start to draw conclusions as the business transitions more to cooling products for the key summer selling season. April is off to a solid start and it seem warm weather in some key regions, but the critical months are May and especially June for the second quarter overall.

Turning to our commercial business, revenue was flat in constant currency with segment margin up 10 basis points. As we mentioned in last earnings call, the timing of growth in our national account business in 2012 would be beyond the first quarter. Backlog and order rates look good and we continue to expect a solid year in our commercial business.

On the national account front, we signed up nine new accounts on top of the 20 last year to bring our total to 104 new national accounts won since the start of 2007. In Europe, revenue was up low-single digits at constant currency.

Turning to service experts, revenue was down 13% on weakness in the residential business. Commercial service revenue saw strong growth and continued success with national account customers. Refrigeration revenue was up 6% in the first quarter about half of that rate on an organic basis.

We closed the Kysor/Warren acquisition in mid January last year, so we had a couple weeks of inorganic growth in the first quarter this year. We saw solid growth across all the regions, except for Australia where the macroeconomic environment remains.

One last point, before I turn it over to Bob. We have continued to closely manage cost, as reflected in SG&A being down 3% in the quarter and our sourcing and engineering programs that were $20 million to $25 million of incremental savings this year. We have also continued to invest in R&D and move innovation forward.

At residential we are excited about our new generation of communicating controllers called iComfort Wi-Fi. It is advanced yet simple to use as a way to smartphones and tablets and the iComfort app even enables consumers to monitor and control their HVAC systems from these wireless devices. Dealers are excited, because it helps them install a system much faster and eliminates error. A consumer may also choose to have a dealer monitor the HVAC system for regular maintenance needs as well as to take advantage of the prognostic and diagnostic capabilities of iComfort Wi-Fi.

In commercial we have introduced Environ coil system, an aluminum design that is up to 50% lighter and uses 45% less refrigerant without sacrificing cooling performance. Environ is now available on our high-efficiency Energence systems, advancing our leadership and meeting the needs of national account customers.

These are just a couple of examples. Across all of our businesses in 2012, we continue to innovate, compete in new ways and are focused on winning across the full spectrum on the market.

Now, I'll turn it over to Bob.

Bob Hau

Thank you, Todd. Good morning, everyone. I'll provide some additional commentary on the business segments for the quarter, starting with residential heating and cooling.

In the first quarter, revenue from residential heating and cooling was $273 million, up 7%. Volume was up 10%, price was flat and mix was down 3%. Currency was neutral to revenue for the quarter.

Residential segment profit was $11 million, up 150%. Segment profit margin was 4.0%, up 230 basis points. Results were primarily impacted by higher volume and lower SG&A expenses, partially offset by mix and higher commodity cost versus with first quarter a year ago.

Turning to our commercial heating and cooling business. In the first quarter commercial revenue was $137 million, down 1%. Volume was down 1% and price and mix were up 1%. Currency had a negative 1% impact on revenue. North American commercial HVAC revenue was down slightly on a timing of national account growth and Europe HVAC revenue was down low-single digit to the actual currency, but up low-single digit at constant currency.

Segment profit was $6 million, flat with the prior-year quarter. Segment profit margin was 4.4%, up 10 basis points. Results were primarily impacted by favorable price and mix and productivity initiatives, with offsets from higher commodity cost and the timing of SG&A expenses.

Moving to our service experts business segment. Revenue was $102 million for the first quarter, down 13%. Volume was down 19%, price and mix were up 6% on strong mix due to commercial service growth. Currency was neutral to revenue.

Segment loss was $12 million compared to a loss of $8 million in the prior year quarter and segment loss margin was 11.3%, compared to segment loss margin of 7.0% in the first quarter a year ago. Results were primarily impacted by lower volume in residential service partially offset by lower SG&A expenses and strong growth in commercial services.

In the Refrigeration segment, revenue in the first quarter was $185 million, up 6%. Volume was up 4% and price and mix were up 2%. Currency was neutral to revenue growth. On a regional basis in constant currency, North America was up high-teens, China was up mid-teens, Europe and South America were up mid-single digits and Australia was down mid-teens.

Segment profit was $14 million, up 5%. Segment profit margin was 7.7% flat with the prior year quarter. Refrigeration results were primarily impacted by higher volume and favorable price mix with offsets from higher commodity cost, timing of factory absorptions and selling expenses.

Looking at special items for the first quarter for continuing operations, the company had restructuring charges of $2 million after-tax, the remaining special items netted to a gain of $1.2 million.

Corporate expenses were $14 million in the first quarter, essentially flat with the first quarter a year ago. For 2012, our corporate expense guidance remains $64 million to $70 million.

Overall SG&A was $163 million in the first quarter, down 3% from the prior year quarter. The first quarter cash used in operating activities was $34 million compared to $148 million in the prior year quarter. Capital spending was $7 million for the first quarter, compared to $8 million in the first quarter last year.

Free cash flow was a negative $41 million in the first quarter compared to a negative $156 million a year ago. And due to the seasonality of our business, it's common to use cash in the first half of the year and generate cash in the second half of the year.

Cash and cash equivalents were $55 million at the end of March. And our debt to EBITDA ratio was 2.1 ending March and we expected this to trend down for 2012.

Total that was $524 million at the end of the quarter. And for 2012, we expect interest expenses of approximately $20 million. We do not repurchase stock in the first quarter but still plan a minimum of $50 million stock repurchases in 2012. We have $121 million remaining under our current stock repurchase authorizations.

Before I turn it over to Q&A, I'll briefly talk about our outlook for 2012, which has not changed. We expect North American residential shipments to be up low-single digits for the industry. We expect North America commercial unitary shipments to be up low-single digits for the industry. And we expect Europe HVAC and refrigeration shipments to be up low-single digits as well for the industry. Based on these assumptions our guidance for our revenue growth remains at 2% to 6% with a neutral impact from currency.

We continue to expect approximately $15 million of commodity headwind for 2012 weighted more towards the first half of the year, although we expect this to be offset by price on a full year basis. And our global sourcing and engineering-led cost reductions programs we continue to expect to $20 million to $25 million of savings for the full year, although weighted more to this second half,

Looking ahead at the yearend total with our stronger seasonal periods drawn in front of us, reiterate our guidance for adjusted EPS from continuing operations of $2.27 to $2.60. Our GAAP EPS range is now $2.15 to $2.55 including the impact of announced restructuring activities.

The average weighted diluted share comp guidance for the full year remains approximately 51 shares. We still expect our full year tax-rate to be 33% to 34%. For capital spending, we still expect approximately $55 million in 2012.

And with that operator, let's go to Q&A.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Jeff Hammond with KeyBanc Capital Markets.

Jeff Hammond - KeyBanc Capital Markets

I understand it's early in the year, but just on the guidance. I guess, one, it looks like ex the goodwill impairment you lost about $0.15 on Hearth last year. So it just seems like if you move that into disc. ops you get a bump-in in the guidance. And then just give me a sense of where maybe 1Q came in relative to kind of your internal plan.

Todd Bluedorn

Let me talk about Hearth first. We did improve conditions for the Hearth market and for our business in 2012, and have taken actions to significantly narrow the loss position. Since we expected the 2012 impact and we expected to have a much smaller loss this year than last year. And I think you saw that in first quarter, where we lost $0.03 this year versus $0.07 last year on first quarter. So from a full year basis, not near the impact that this year that we had last year and so therefore, we encompassed it in our current guidance.

In terms of where first quarter came in, I mean there were puts and takes but broadly speaking, first quarter as know is our lightest quarter. Second and third quarter are really the drivers of the year. Even in second quarter as you know, Jeff, almost half the revenues in the month of June.

First quarter was a good quarter for our residential business. April has started solid where we've had some warm weather and that's helped, but the cooling season is still in front of us and so in years where first quarter wasn't as good as everyone it should be. We didn't lower the number in first quarter, might be a little bit better than people might have thought it would be. We don't think it's time to raise the number, let's get in to selling season.

Jeff Hammond - KeyBanc Capital Markets

And then can you give us a sense of order rates in 1Q for res and the commercial heating and cooling business and maybe it's only going to trend into April.

Todd Bluedorn

Both in commercial and refrigeration, order rates remain solid. And especially in commercial HVAC as we talked about the revenue in the quarter, really didn't reflect the underlying order rates that we're seeing given the timing of some of our big national accounts. And we said the industry is going to up low-single digits for the year. We're still standing behind that and we always sort of encompass that that we're going to out perform the market especially in our commercial and refrigeration business.

In res I've heard some of our competitors talk, March was a strong month for us, but we didn't sort of see the hockey stick maybe that others saw. And I think that's maybe because we're more balanced between residential new construction and add-on and replacement. And as we mentioned, in the script we saw residential new construction up 40% in first quarter and the warm weather in January and February probably helped us there. But markets that are not weather dependant, the South and the West, we also saw some pick up there. And so overall it's sort of a good quarter for us in residential.

Operator

Our next question is from the line of Josh Pokrzywinski with MKM Partners.

Josh Pokrzywinski - MKM Partners

Maybe just a follow-up on Jeff's question on commercial and kind of order momentum there. I understand you're kind of indicating that you're up in line or seeing similar momentum to some of peers out there, who are reporting pretty strong order rates. But I guess maybe not to find a point on it, but there seems like a difference between, as you characterize it a solid and competitor saying exit rates for order growth for the first quarter were up just a little 20%.

So what make sure that we're not too far off that number? And if it is truly is the timing aberration or if there is some difference in the market with commercial accounts maybe versus some other previously lagging verticals like office?

Todd Bluedorn

We continue to do well on our commercial business and I think the order rates remain, as I said we had a good year last year, we continue to have solid order rates this year. I think our bias tends to be not the preannounced order rates, but to sort of post-announce strong revenue within order. And so I think we've had a strong run in our commercial business and that continues.

Josh Pokrzywinski - MKM Partners

I apologize if I missed this earlier in the prepared remarks, but you guys call that incremental restructuring in the press release. Where is that heading?

Bob Hau

We took some restructuring charges in first quarter associated with our residential distribution network activities.

Josh Pokrzywinski - MKM Partners

And then could you break out furnace versus cooling for the first quarter?

Todd Bluedorn

In first quarter as quarter of magnitude, half cooling, half heating.

Josh Pokrzywinski - MKM Partners

I mean I would imagine furnace down, it was down materially and cooling up nicely or?

Todd Bluedorn

We actually had solid performance in both product lines in first quarter. Even with some of the warm weather that we had early in first quarter, we had a good quarter both for furnaces and for cooling product.

Operator

We'll go to line of Adam Samuelson with Goldman Sachs.

Adam Samuelson - Goldman Sachs

So first question on pricing and so I think the comment on the prepared remarks was resi pricing flat year-over-year. Maybe talk about what you guys have been seeing on price and chatter in the industry that the fall price increases that were taken by the industry, maybe getting some pushback from different customers and distributors and maybe what you're seeing and expectations as we move through 2012?

Todd Bluedorn

What we've said about the enterprise overall, I think obviously encompasses less since that's order of magnitude half of our revenue is there. We have $15 million of commodity headwind and we have enough price at a minimum to offset that in 2012 and what we saw in first quarter across the businesses that we did that in first quarter. And so we're still confident we're going to do that for the full year.

I mean in res there is always skirmishes on the edge of the empire around pricing in any given market things are going on. But I think the fact that we saw some growth in the market this year in first quarter, certainly in our revenue, I think that sort of boards well for pricing.

Adam Samuelson - Goldman Sachs

And then maybe within the res business maybe a growth differential between the allied brands and the Lennox brands, if any?

Todd Bluedorn

We had growth in both businesses in the replacement markets. Lennox brands are the brands we sell to residential new construction and given that was up more than add-on in replacement that sort of helped drive the growth at Lennox brands in first quarter.

Adam Samuelson - Goldman Sachs

And then maybe just quickly switching gears to refrigeration. You had margins flat year-over-year despite the fact that Kysor/Warren closed in the first quarter of 2011. I believe there was some integration charges that were taken in 1Q, so ex those items, margin actually would have been down. Maybe talk about the progress on Kysor/Warren, other drivers here maybe mixed with the Australian business down so much?

Bob Hau

The Kysor/Warren integration is actually going very well. We talked about the accretion that we're going to get this year and we're well on track to do that. So that wasn't the issue in first quarter. The first quarter was higher on commodity cost and the timing of some of the factory absorption on a year-over-year basis.

In other words, last year we build more inventory in first quarter than we did this year and that factory absorption that we had last year, we didn't repeat this year. And then Australian business, which is a material part of our refrigeration business as we talk about 20%, 25% or so of what we do, what was down significantly down double digits in revenue with the top market conditions in Australia.

Our North America business performed nicely. Our European business revenue was up low-single digits. I think so given the caveats I said it was another good quarter for our refrigeration business.

Adam Samuelson - Goldman Sachs

Maybe just lastly on that Australian business, any outlook on the full year, how does that play out as we get into a more meaningful selling season?

Todd Bluedorn

As I'm sure you know, it sort of flipped in Australia versus here. And so in many ways we just went through the selling season. Our North America winter is their summer in Australia and as we get into our summer that's sort of the lower sales period for Australia. And again, we think we should have an eye on that and baked it into our guidance.

Operator

We do have a question from Keith Hughes with SunTrust.

Keith Hughes - SunTrust

A couple of questions, the high-single digit repair replacement in the quarter. If you have normal weather, is that a number that you know doable for other periods of this year or was it surprisingly high number?

Todd Bluedorn

I don't know if I'd use the word surprisingly high number. I think we had easier comps in first quarter than we talk about a pull-forward that we had at the end of 2010 with the price increase. I think in some ways we had an easier comp in first quarter.

I mean we talk about the industry and, Bob, sort of re-guided being up low-single digits for the full year. And I think that's still our best view of the world. But as you know its sort an uncertain res market right now. So, yes, it could be up higher than low-single digits, but that's our best call right now.

Keith Hughes - SunTrust

And can you give us any sort of update on R-22 production, I know there's heavy talk in the industry on the amount that can be produced or imported coming down substantially. Any news there will be helpful?

Todd Bluedorn

There are sort of moving pieces on R-22 that I'll talk about. But sort of high level, I think the message I'd leave you with is, last year 20% of our cooling shipments were R-22 and for the industry. And we've called out 25% and that's about a $15 million headwind and we still think that's after one quarter going to be the case.

And first quarter, which you wouldn't expect to see much R-22, you really see that in summer time, about 9% of our revenue, our cooling units is R-22, which is up a couple of points from last year. And so the first quarter track about where we would expect it to be.

I mean there is things going on in the industry that you know about, the EPA, reducing the allocations of R-22 refrigerant, which has driven up the price. And then some rulemaking from DOE about restricting condensing units that were not certified prior to January 2010. We think all those are good movements. And I think over the medium term we'll close this loophole, but we still think 25% of the volume this year is going to be R-22.

Keith Hughes - SunTrust

But if there is an impact, it would be 2013 impact is that fair to say?

Todd Bluedorn

I think it won't be 2012 and maybe 2013.

Keith Hughes - SunTrust

And then, a final question. Within the commercial business, are you seeing dramatic differences, I know you're not in applied commercial. Are you seeing big differences between growth rate and what you're competitors in applied commercial are talking about and your primarily unitary commercial?

Todd Bluedorn

The only thing I've heard, I heard what Trane had to say. A carrier was announced this morning, so I didn't hear what they had to say. And I'm not sure I understood what you are trying to say. So I'm not sure I can connect all the dots on what our competitors have seen. I cannot just reiterate.

I think I'm pretty confident in the unitary market, where we play. We've had a very good run in the last couple of years and winning in the marketplace. And first quarter was no different. It's just about timing of some maiden accounts in terms of year-over-year basis where they're taking the deliveries in a year, and we're still very confident that we're going to have a good year in commercial.

Operator

We'd go to the line of Rich Kwas with Wells Fargo Securities.

Rich Kwas - Wells Fargo Securities

Todd or Bob, on price cost it seems like the outlook in terms of the $15 million, in terms of covering that seems conservative. Just given that you put through pricing last year, you are lapping some pretty significant commodity cost increases. I caught your comment about at least cover that. Should we kind of view that as being the $15 million in terms of being net neutral being a conservative estimate at this point or is there anything out there that you're seeing on the commodity cost side that worries you at all?

Todd Bluedorn

On the copper side as we've talked about we hedged. And at this point in time we're large part hedged for full year. The variable on our commodity structure steel and we buy that at CRU pricing from the mills and from the service centers a quarter and arrear. So that's really sort of the outlying risk around commodity cost.

I think the commentary is about price realization, both the prices we've announced already and continue to drive to get price in the marketplace. Again, our guidance is to cover at a minimum to cover the 15. I think you can sort of read that how you'd like to.

Rich Kwas - Wells Fargo Securities

A big picture question, service experts continues to under perform. I know you're trying to shift that more to commercial in terms of a mix. But at what point do you kind of look at this and go, is it really a core part of the business, does that make sense to keep it?

Todd Bluedorn

You know, you sort of capture it. You know what my answer is going to be. Now, we've done a lot of heavy lifting to drive productivity. We obviously need some more residential volume to flow through the business. Commercial I think we have the recipe and we continue to grow. And let's get to the summer season and I think a lot of the actions that we take are going to pay benefits as we get through the selling season.

Rich Kwas - Wells Fargo Securities

And then one last housekeeping. Bob, what was the revenue for Hearth in the quarter?

Bob Hau

For first quarter last year is about $18.4 million, it's about flat, up slightly in the first quarter of 2012.

Operator

We do have a follow-up question from the line of Jeff Hammond with KeyBanc Capital Markets.

Jeff Hammond - KeyBanc Capital Markets

Just to go back on service experts in a little bit different way. Can you just help me understand the disparity between your res, heating and cooling business, and service experts, is that just strictly the weakness January, February kind of overtaking the quarter or maybe just help me understand the dynamic there?

Todd Bluedorn

The equipment business saw significant benefit from the fast growth in residential new construction, service experts doesn't play there. I think that's point one. Point two is, in the equipment business we've had a lot of success signing out new dealers with some initiatives, we talked to you about PartsPlus being one of them, and all the dealer retention programs we've talked about and acquisition programs.

I think we had a nice growth from residential new construction and add-on replacement in our residential business. And there is always a bit of timing, even when we sell 80% of our volume direct to dealers, there is a timing between when a dealer see some of the volume as the weather heats up during the cooling season.

Jeff Hammond - KeyBanc Capital Markets

And your view of inventories in your channel and what are you hearing on just inventory is overall and just preparedness, if we get this in a better selling season?

Todd Bluedorn

I can't comment on others, we're ready. And so we've sort of had lots of internal reviews and conversations with suppliers and conversation with the factory, as we saw sort of the revenue rates in the first quarter. And so we wanted to be hot for a long time in the summer time and we'll be ready ship cooling product.

Operator

We will go to line of Rob Wertheimer with Vertical Research Partners.

Rob Wertheimer - Vertical Research Partners

Most of my questions were answered. I just wanted to ask again on industry mix, you talked about the allied brand, et cetera. Do you feel that the consumer is sort of coming out and is healthy and is looking to get a little bit more of a shift towards premium? I know the R-22, which you've talked about the 20 to 25. Just your general impression beyond R-22 on how mix is trending?

Todd Bluedorn

I think it's too early in season, but the clear victory, Rob. I mean for first quarter in terms of sort of the high efficiency mix, we were order of magnitude the same of where we were at first quarter last year, which last year we sort of had a trade down from where we were in 2010. So we sort of saw a flattening of that in first quarter.

But I think you're really going to see what's going on in the summer season, because that's where you would not tend. That's where you have a lot more over-the-counter people emergency, replacements of their air conditioners where you would see the trade down effect. So the answer is, I'm not sure yet, we'll know better after second quarter.

Operator

We'll go to the line of Steve Tusa with JPMorgan.

Steve Tusa - JPMorgan

But your sense of industry inventories out there and I know you do a lot of your own distribution, but maybe what you're seeing, how distributors are behaving out there? And how you're kind of thinking about inventory industry?

Todd Bluedorn

I don't have a broad perspective on the industry, Steve. What I'll say, our independent distributors have been cautious through first quarter, but are being more optimistic as they see some of the results in the warm weather in March. We were asked on a prior question sort of our inventory position if it's really hot summer, can we meet demand, and the answer to that was absolutely. So again I think as given that we're 80% direct model, when we see the demand we'll see the sales and we have plenty of inventory to cover.

Steve Tusa - JPMorgan

Are you seeing any kind of shifts, obviously R-22 last year was not a kind of a high tight for everyone. Are you seeing any kind of competitive shifts out there, as some of your peers come out with or a kind of reestablishments. And have you seen anything move around at all? You know you may have benefited or loss last year and given that you're more full of steam this year, you're going to benefit more? Either way, any kind of share shift?

Todd Bluedorn

Not necessarily. I mean what I said on earlier question is, we are about 9% R-22 of our shipments, cooling shipments in first quarter which is up a couple of points from last year first quarter. We still think this is going to be full year go from 20 to 25 as an industry.

I mean, I'm sure you're talking about Trane with your question. I mean we'll have to wait and see, but we haven't seen any big share of movements. I mean as I've said in the past at least so far, I've said in the past, there is R-22 available last year to dealers who might have different brand logos on the top of the doors. They could have brought it from other people and in fact did buy from other people. So we'll have to see, is the short answer.

Steve Tusa - JPMorgan

Why was that North American refrigeration so strong in the quarter? And what have your customers told you about kind of the moving to the back half, I don't know if that can be lumpy or not quarter-to-quarter?

Todd Bluedorn

I think we've called out low-single digits for the refrigeration market and that's sort of broadly where we think it is. We had a good quarter in North America. I think we continue to win share with our legacy Heatcraft business and then our display case business. I think the industry leader continues to have some chaos. And I think we continue to take advantage of that.

Steve Tusa - JP Morgan

Is there anything on kind of remodeling front out of major customers that's lumpy this year or is that things pretty stable?

Todd Bluedorn

I think it's spread out. But I mean as you know whether it's the pharmacy or the drug segment, the big players there continue to go to more prepared food and refrigerated food. Whether it's reformatting at the big boys, where they try to go to more sort of small manageable formats for urban environments. There's lots of reformatting going on and we think we're right in the middle of that.

Steve Tusa - JP Morgan

And then one last question for you. The dynamic around repair versus replace, obviously the weather has been warm. Obviously housing is picking up here a little bit. Has there been any evidence that the consumer is kind of getting out of bed here a little bit or just in March or what you're hearing from the contractors and distributors about conversations they're having with consumers. Any kind of ray of hope that people are actually spending a little bit more money on replacing their systems?

Todd Bluedorn

There is always a ray of hope. But the answer is, it's too early, I think to call it. I think we'll know more after second quarter. I mean we had a good first quarter in our residential business. I think we'll know a lot more in the summer time. That's where you tend to get a lot of the at once replacement, the over-the-counter brands. That's where I think we'll get a much better feel of what the full mix effect is going to be.

Operator

Thank you. And there are no further questions in queue at this time. Please continue.

Todd Bluedorn

Thanks a lot operator. I want to thank everyone for joining us and maybe leave you with a couple of key points. As we talked about on the call, our residential business had strong revenue and profit growth in the first quarter, driven by both new construction and replacement business.

We are well positioned for the summer selling season. And April is off to a solid start, but it is early. And May and June are the critical months for second quarter. Commercial and refrigeration backlog and order rates continue to look good and we expect another solid year for these businesses.

With Lennox well positioned competitively and winning in the marketplace, we look forward to our strongest seasonal period of the year. Thank you all for joining us. Have a good day.

Operator

Thank you. And ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using AT&T executive teleconference service. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Lennox International's CEO Discusses Q1 2012 Results - Earnings Call Transcript
This Transcript
All Transcripts