Lennox International Inc. (Lennox), a US-based provider of climate control solutions, has reported net sales of $585.4 million for the first quarter of 2009, down 23%, compared with the net sales of $764.5 million in the year-ago quarter. It also reported a net loss of $18.1 million, or $0.33 loss per share, for the first quarter of 2009, compared with the net income of $6.3 million, or $0.10 per share, in the year-ago quarter.

Excluding the negative impact of foreign exchange, revenue would have been down 18%. Diluted loss per share from continuing operations on an adjusted basis, a non-GAAP measure, was $0.23, compared to $0.11 earnings per share in the year-ago quarter. Diluted loss per share from continuing operations on a GAAP basis was $0.33, compared to $0.11 earnings per share in the year-ago quarter.

End markets were weak in the first quarter, compounding the effects of our seasonally lightest quarter, stated Todd Bluedorn, chief executive officer. However, cash generation and free cash flow remained strong with a $49 million improvement from a year ago as the company continued to focus on working capital improvements. Our balance sheet and liquidity remain solid, and we continue to invest for the future. Looking ahead, we are entering stronger seasonal periods, although we expect end markets conditions to remain difficult in 2009 and are re-setting our revenue and earnings guidance accordingly. The company is executing on additional operational efficiency and cost reduction initiatives, including a $55 million cut in SG&A and a further 12% salaried headcount reduction in 2009, as we continue to position Lennox to emerge from this economic downturn with strong earnings leverage as end markets recover.

Financial Highlights:

Revenue:

Excluding the negative impact of foreign exchange, revenue would have been down 18%. Lower volume across all business segments impacted revenue growth, with offsets from improved price and mix from the year-ago quarter.

Gross Profit:

Gross profit for the first quarter was $139 million, down 28% from $194 million in the year-ago quarter. Gross margin was 23.7% compared to 25.3% in the year-ago quarter, primarily due to lower volume.

Loss from Continuing Operations:

Adjusted loss from continuing operations in the first quarter was $12.4 million, or $0.23 diluted loss per share, compared to adjusted income of $6.7 million, or $0.11 diluted earnings per share in the first quarter of 2008. On a GAAP basis, loss from continuing operations for the first quarter of 2009 was $18.2 million, or $0.33 diluted loss per share, compared to income of $6.7 million, or $0.11 diluted earnings per share in the prior-year quarter.

Adjusted loss from continuing operations for the first quarter of 2009 excludes the following items (after-tax):

$7.5 million charge from restructuring activities; and

$1.7 million gain from the net change in unrealized gains on open futures contracts.

Free Cash Flow and Total Debt:

Net cash provided by operations in the first quarter was $16 million compared to a usage of $33 million in the prior-year quarter. The company invested $10 million in capital assets resulting in free cash flow of $6 million for the quarter, compared to a usage of $42 million in cash in the year-ago quarter. Total debt at the end of March 2009 was $405 million. Total cash, cash equivalents and short-term investments were $134 million, and the current ratio was 1.6.

Business Segment Highlights:

Residential Heating & Cooling:

First quarter 2009 revenue from the Residential Heating & Cooling business segment was $246 million, a decrease of 25% from $329 million in the year-ago quarter. Excluding the negative effect of foreign exchange, revenue was down 23%. Segment loss was $5 million and segment loss margin was 1.9%, compared to segment profit of $13 million and segment profit margin of 4.0% a year ago. Results were impacted primarily by lower volume, with offsets from cost reductions and favorable product pricing and mix.

Commercial Heating & Cooling:

Revenue in the Commercial Heating & Cooling business segment was $132 million, down 20% from $165 million in the year-ago quarter. Excluding the negative effect of foreign exchange, revenue was down 16%. Total segment profit was $2 million and segment profit margin was 1.5%, compared to segment profit of $6 million and segment profit margin of 3.8% in the year-ago quarter. Results were impacted by lower volume, with offsets from cost reductions and improved product pricing and mix.

Service Experts:

Revenue in the Service Experts business segment was $109 million in the first quarter, down 21% from $137 million in the year-ago quarter. Excluding the negative impact of foreign exchange, revenue was down 17%. Segment loss was $8 million and segment loss margin was 7.2%, compared to segment loss of $7 million and segment loss margin of 5.0% in the year-ago quarter. Results were impacted by lower residential volume, with offsets from ongoing cost reductions and operational efficiency initiatives.

Refrigeration:

Revenue in the Refrigeration business segment was $114 million in the first quarter, down 27% from $155 million in the prior-year quarter. Excluding the negative impact of foreign exchange, revenue was down 14%. Segment profit was $6 million and segment profit margin was 5.7%, compared to segment profit of $15 million and segment profit margin of 9.6% in the first quarter a year ago. Results were impacted by lower volume, especially in international markets, with offsets from gains in supermarket replacement business, cost reductions, and overall product pricing versus a year ago.

Full-Year Outlook:

Faced with weaker end markets and economic conditions globally, the company is re-setting its financial guidance for 2009;

Reducing 2009 revenue guidance to a range of down 15% to 19%, including a negative 4 point impact from foreign exchange, versus the previous range of down 8-12%, including a negative 5 point impact from foreign exchange;

Reducing 2009 adjusted EPS guidance from continuing operations to a range of $1.65-$2.05 versus the previous range of $2.10 and $2.50;

GAAP earnings per share guidance from continuing operations for 2009 is now $1.38-$1.78 versus the previous target of $1.91-$2.31, reflecting the full-year impact of $5.4 million after tax of additional restructuring charges from projects announced in the first quarter;

Corporate expense guidance remains about $60 million for 2009; and

Lowering 2009 capital spending guidance to about $75 million compared to previous guidance of $80 million.