• Revenue: Over $5 billion for the full year 2024.
• Adjusted Segment Profit: Over $1 billion for the full year 2024.
• Adjusted Earnings Per Share (EPS): $5.60 for Q4 and $22.58 for the full year 2024.
• Core Revenue Growth: 22% in Q4 and 13% for the full year 2024.
• Adjusted Segment Margin: Expanded 250 basis points in Q4 and 150 basis points for the full year to 19.4%.
• Operating Cash Flow: $332 million in Q4 and $946 million for the full year 2024.
• Home Comfort Solutions Segment Revenue Growth: 25% in Q4.
• Building Climate Solutions Segment Revenue Growth: 17% in Q4.
• Free Cash Flow Conversion Rate: 97% for the full year 2024.
• Net Debt to Adjusted EBITDA: 0.6 times, down from 1.3 times in the prior year quarter.
• 2025 Revenue Growth Projection: Core revenue projected to increase by approximately 2%.
• 2025 Adjusted EPS Guidance: Expected to fall within the range of $22 to $23.50.
• 2025 Free Cash Flow Projection: Projected to fall within the range of $650 million to $800 million.

• Warning! GuruFocus has detected 5 Warning Signs with SBSI.

Release Date: January 29, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Lennox International Inc (NYSE:LII) achieved over $5 billion in revenue and over $1 billion in adjusted segment profit for the first time in 2024.
• The company reported a record adjusted earnings per share of $5.60 for the fourth quarter and $22.58 for the full year.
• LII's core revenue grew by 22% in the fourth quarter and 13% for the full year, with adjusted segment margin expanding by 250 basis points in Q4.
• The company successfully navigated the transition to low GWP refrigerants, which positively impacted revenue by $125 million.
• LII maintained a robust balance sheet with net debt to adjusted EBITDA at 0.6 times, down from 1.3 times in the prior year quarter.

Negative Points

• The prebuy of R-410A equipment is expected to create revenue headwinds in both Q1 and Q4 of 2025.
• Inflation is anticipated to increase costs by approximately 3%, impacting profit margins.
• The Building Climate Solutions segment experienced a decline in profit margin due to higher product costs related to new factory ramp-up activities.
• The company faces uncertainty in the market due to factors like interest rates, labor shortages, and potential tariffs.
• LII's Home Comfort Solutions segment is expected to have flat volume growth due to market uncertainties.

Q & A Highlights

Q: Can you elaborate on the impact of the prebuy on Q1 and how it affects your outlook? A: The prebuy, estimated at $125 million, will create a headwind for Q1 as it pulled forward sales from Q1 to Q4. This will also affect year-over-year comparisons in Q4 2025. We anticipate a flat volume outlook for the HCS segment due to market uncertainties, such as interest rates and existing home sales.

Q: How do you view the margin dynamics between price, mix, and inflation for 2025? A: We anticipate overall margins to remain flat at 19.4%. Inflation is expected to increase costs by approximately 3%, but we are focusing on driving productivity to offset this. The uncertainty in the market, including interest rates and labor shortages, has led us to provide a wide guidance range.

Q: What are your expectations for the BCS segment's revenue growth, given concerns about market exposure? A: We expect mid-single-digit volume growth in the BCS segment, driven by healthy markets such as retail and foodservice. Our new factory will help us capture more market share, particularly in emergency replacements. We do not foresee significant impacts from funding changes in schools, as HVAC replacements are nondiscretionary.

Q: How are you planning to address potential policy changes, such as tariffs and labor regulations? A: We have reduced our supply chain reliance on China, and any tariffs on Mexico would be offset by productivity and pricing adjustments. We are also focusing on dual sourcing to enhance supply chain flexibility. In terms of labor, we expect a shift towards more replacements, which require less skilled labor.

Q: Can you provide more details on the 454B pricing strategy and its impact on revenue? A: We plan a 10% price increase on 454B products, which will account for about 70% of HCS revenue. As we transition from 410A to 454B, we expect a mid-single-digit mix benefit for Home Comfort Solutions. The competitive landscape may adjust pricing, but we remain optimistic about our strategy.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.