Specialist
Former regional director at Lennox International
Agenda
- Lennox International’s (NYSE: LII) competitive positioning, key end markets, including in HVAC (heating, ventilation and air conditioning) and commercial market recovery
- Supply chain constraints and industry demand backlog
- Efficiency standards and regulatory environment
- 2023 demand outlook
Questions
1.
Are there any macroeconomic trends that could positively or negatively impact Lennox’s volumes or revenues in 2023?
2.
Under historical recessionary conditions, what was the breakdown of work between replacement and new construction?
3.
Is there anything within today’s macroeconomic conditions that would move the needle towards less or more new construction in 2023-24?
4.
Lennox CEO Alok Maskara noted in the company’s Q1 2023 presentation that there’s significant room for margin improvement in the commercial segment in 2023. What type of margin increase should we be expecting? What drove margin improvement in this segment historically?
5.
How do you assess Lennox’s supply chain health in 2023 vs the massive limitations and disruptions that you highlighted, especially in 2020-22?
6.
You highlighted the commercial segment restructuring under Alok. What was your reaction to this restructuring? Did you favour this?
7.
You highlighted the sale of Lennox’s global business. What has caused the global business to suffer, particularly with the low margins you highlighted? Who could be a sensible buyer for this business and its performance?
8.
How large is the US commercial HVAC [heating, ventilation and air conditioning] market? What share does Lennox command in that market?
9.
Are there any disruptors that could take share from Lennox, Carrier or Trane in the commercial segment in 2023?
10.
What margins can be found in remodelling vs new construction?
11.
Is there a typical remodelling cycle that you would cite? You highlighted the SEER [seasonal energy efficiency ratio] update that went through in early January 2023. Could this drive a remodelling cycle that would allow capture of slightly higher margins?
12.
You said about 50% of Lennox’s commercial business is national accounts. Is that shared by other major OEMs or Lennox-specific?
13.
How long do national contracts usually run for? What would make a national account manager want to shift to the distribution model, eg, if it went from a Carrier model through a Watsco vs the Lennox model?
14.
If 50% of Lennox’s business is national accounts, could you comment on the other 50%? How well-positioned is the company there vs OEMs such as Trane and Carrier?
15.
Are there any particular US regions where Lennox is stronger or a little bit weaker? Should we expect any geographic expansion in 2023?
16.
You’ve highlighted a lot of good reasons behind Lennox going directly to other businesses. Why would Trane or Carrier choose to go through third-party distributors?
17.
Do you expect any short-term market share takes or losses in the commercial market across the big four OEMs? If so, what could drive those movements? You highlighted earlier that you don’t think there will be any specific disruptors.
18.
What drove Lennox’s lag in building up production meeting demand coming out of coronavirus-related supply chain issues?
19.
As you said, Lennox is looking to expand its manufacturing capacity to Mexico. The factory will be finished around 2024. Are there any risks here? Could we see depressed commercial markets in late 2024-25 that would then be oversupplied by the company’s inventory, or is your outlook positive overall?
20.
What percentage commercial market share could Lennox take in 2023-24 or short vs long term? Would it come more from Trane or Carrier?
21.
You suggested that Lennox could gain 1-2pp of market share in the next 12 months. How would such gains impact the company’s volumes and revenues in 2023?
22.
What does a soft commercial HVAC market look like in terms of volume vs a good year? You’ve given us the average year that we should expect, but what scenario would have to play out for us to see softening in the commercial segment?
23.
You highlighted industry-wide supply issues as we come out of coronavirus. Has anything else caused Lennox’s commercial supply issues? You highlighted quality as a strength relative to competitors such as Trane and Carrier, so was there any sense of a lack of quality as we were moving through the supply chain crunch?
24.
What type of pricing environment should we expect for commercial HVAC in 2023?
25.
Could pricing increases cause demand destruction? Are we in such a supply-constrained environment that customers and businesses are willing to take those increases?
26.
What would the limit be for pricing before we saw a customer pullback in HVAC?
27.
How do you assess Lennox’s remodel and retrofit vs new build pricing relative to competitors’?
28.
Is there anything about Lennox that typical analysts wouldn’t know that they should? Is there anything that we haven’t touched on that we should be monitoring for future conversations?
Gain access to Premium Content
Submit your details to access up to 5 Forum Transcripts or to request a complimentary one week trial.
The information, material and content contained in this transcript (“Content”) is for information purposes only and does not constitute advice of any type or a trade recommendation and should not form the basis of any investment decision.This transcript has been edited by Third Bridge for ease of reading. Third Bridge Group Limited and its affiliates (together “Third Bridge”) make no representation and accept no liability for the Contentor for any errors, omissions or inaccuracies in respect of it. The views of the specialist expressed in the Content are those of the specialist and they are not endorsed by, nor do they represent the opinion of, Third Bridge. Third Bridge reserves all copyright, intellectual and other property rights in the Content. Any modification, reformatting, copying, displaying, distributing, transmitting, publishing, licensing, creating derivative works from, transferring or selling any Content is strictly prohibited
