Lennox International Inc. (Lennox) has reported net sales of $3.48 billion for the year-end 2008, down 7%, compared with the net sales of $3.73 billion in the previous year-end. It has also reported a net income of $122.8 million, or $2.11 per diluted share, for the year-end 2008, compared with the net income $169 million, or $2.43 per diluted share, in the previous year-end.

Fourth quarter 2008 adjusted EPS from continuing operations of $0.52; GAAP EPS from continuing operations of $0.21

Full year 2008 adjusted EPS from continuing operations of $2.71; GAAP EPS from continuing operations of $2.15

Full year cash from operations of $183 million and free cash flow of $121 million

Restructuring initiatives on track and additional measures announced

Reaffirm 2009 adjusted EPS guidance from continuing operations; GAAP EPS guidance from continuing operations now $1.91 to $2.31

For the fourth quarter, revenue was $746 million, down 15% from the prior year, including a 5 point negative impact from foreign exchange. Adjusted EBIT margin was up 20 basis points to 6.7%. Diluted earnings per share from continuing operations on an adjusted basis, a non-GAAP measure, was $0.52 compared to $0.55 in the year-ago quarter. Diluted earnings per share from continuing operations on a GAAP basis was $0.21 compared to $0.59 in the year-ago quarter.

Despite difficult market conditions, Lennox posted improved EBIT margins for both the fourth quarter and full year on strong cost controls and operational execution, said Todd Bluedorn, chief executive officer. Our cash generation was strong in 2008 and our free cash flow for the full year was $121 million. For 2009, we reaffirm our outlook provided in December of adjusted earnings per share from continuing operations in the range of $2.10 to $2.50. Our GAAP EPS guidance from continuing operations is now a range of $1.91 to $2.31, reflecting additional restructuring initiatives. While the global slowdown can be seen across our end markets, we continue to lower our cost structure and execute on our strategic priorities.

Fourth Quarter 2008 Financial Highlights

Revenue: Revenue for the fourth quarter was $746 million, down 15% from the prior year. At constant currency, revenue was down 10%.

Gross Profit: Gross profit in the fourth quarter was $205 million, down 17% from adjusted gross profit of $247 million in the year-ago quarter, which excludes a $17 million favorable warranty adjustment. Adjusted gross margin declined slightly to 27.5% from 28.0% in the year-ago quarter, primarily due to lower volume and higher commodity costs, with offsets from improved pricing and favorable product mix.

Income from Continuing Operations: For the fourth quarter, adjusted income from continuing operations was $29 million, or $0.52 diluted earnings per share, compared to $36 million, or $0.55 diluted earnings per share from continuing operations in the fourth quarter of 2007. On a GAAP basis, fourth quarter 2008 income from continuing operations was $12 million, or $0.21 diluted earnings per share. Fourth quarter 2007 GAAP income from continuing operations was $39 million, with diluted earnings per share of $0.59.

Adjusted income from continuing operations for the fourth quarter of 2008 excludes net after-tax charges of $17.4 million, which are derived from:

$7.7 million charge from restructuring activities

$6.9 million charge for impairment of an equity method investment

$2.8 million charge primarily from the net change in unrealized losses on open futures contracts

Full Year 2008 Financial Highlights

Gross Profit: Gross profit for the year was $974 million, down 6% from adjusted gross profit of $1,031 million in the prior year, which excludes a $17 million favorable warranty adjustment. Adjusted gross margin increased 40 basis points to 28.0% compared to 27.6% in the prior year, primarily due to improved pricing and favorable product mix.

Income from Continuing Operations: Adjusted income from continuing operations for the full year was $158 million, or $2.71 diluted earnings per share, compared to $174 million, or $2.51 diluted earnings per share in 2007. On a GAAP basis, income from continuing operations was $125 million, or $2.15 diluted earnings per share, compared to $170 million, or $2.44 diluted earnings per share in 2007.

Adjusted income from continuing operations for 2008 excludes net after tax charges of $33.2 million, which are derived from:

$20.7 million charge from restructuring activities

$9.1 million charge for impairment of an equity method investment

$3.4 million charge primarily from the net change in unrealized losses on open futures contracts

Free Cash Flow and Total Debt: Cash generated from operations for the year was $183 million and the company invested $62 million in capital assets, resulting in free cash flow of $121 million versus $170 million in 2007. Total debt as of December 31, 2008 was $420 million. Total cash, cash equivalents and short-term investments were $156 million, and the current ratio exceeded 1.6.

During 2008, the company returned $344 million to shareholders through share repurchases of $311 million and dividend payments of approximately $33 million. The company repurchased 8,907,650 shares during 2008. The company has $285 million remaining of its outstanding $300 million share repurchase program after buying 603,007 shares in the fourth quarter.

Business Segment Financial Highlights

Residential Heating and Cooling

Fourth quarter 2008 revenue of $299 million, down 15% from $354 million in the year-ago quarter; down 13% at constant currency

Fourth quarter 2008 segment profit of $27 million, down 12% from $31 million in fourth quarter 2007

Fourth quarter 2008 segment profit margin of 9.1%, up 30 basis points from 8.8% in fourth quarter 2007

2008 revenue of $1.5 billion, down 11% from $1.7 billion in 2007, with and without the effect of foreign exchange

2008 segment profit of $146 million, down 16% from $174 million in 2007

2008 profit margin of 9.8%, down 60 basis points from 10.4% in 2007

Fourth quarter and full year results were impacted by lower volume, with offsets from improved pricing, improved product mix, and lower expenses from cost reduction initiatives.

Commercial Heating and Cooling

Fourth quarter 2008 revenue of $189 million, down 16% from $224 million in the year-ago quarter; down 11% at constant currency

Fourth quarter 2008 segment profit of $20 million, down 17% from $24 million in Fourth quarter 2007

Fourth quarter 2008 segment profit margin of 10.6%, down 30 basis points from 10.9% in Fourth quarter 2007

2008 revenue of $835 million, down 5% from $875 million in 2007; down 7% at constant currency

2008 segment profit of $93 million, down 8% from $101 million in 2007

2008 profit margin of 11.2%, down 30 basis points from 11.5% in 2007

Fourth quarter and full year results were impacted by lower volume, with offsets from improved pricing and lower expenses from cost reduction initiatives. Product mix was favorable in the fourth quarter but was relatively flat for the full year.

Service Experts (Continuing Operations)

Fourth quarter 2008 revenue of $145 million, down 13% from $166 million in the year-ago quarter; down 8% at constant currency

Fourth quarter 2008 segment profit of $8 million, up 11% from $7 million in fourth quarter 2007

Fourth quarter 2008 segment profit margin of 5.3%, up 110 basis points from 4.2% in fourth quarter 2007

2008 revenue of $627 million, down 6% from $667 million in 2007, with and without the effect of foreign exchange

2008 segment profit of $20 million, down 23% from $26 million in 2007

2008 profit margin of 3.2%, down 70 basis points from 3.9% in 2007

Fourth quarter and full year results were impacted by lower volume, with offsets from improved pricing, favorable business mix, and lower expenses. In the fourth quarter, the company announced plans to exit from seven unprofitable service centers, which became discontinued operations.

Refrigeration

Fourth quarter 2008 revenue of $131 million, down 17% from $158 million in the year-ago quarter; down 4% at constant currency

Fourth quarter 2008 segment profit of $11 million, down 24% from $15 million in Fourth quarter 2007