LENNOX INTERNATIONAL INC. This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are based on information currently available to management as well as management's assumptions and beliefs as of the date such statements were made. All statements, other than statements of historical fact, included in this Quarterly Report on Form 10-Q constitute forward-looking statements, including but not limited to statements identified by forward-looking terminology, such as the words "may," "will," "should," "plan," "anticipate," "believe," "intend," "estimate" and "expect" and similar expressions. Such statements reflect our current views with respect to future events, based on what we believe are reasonable assumptions; however, such statements are subject to certain risks and uncertainties. In addition to the specific uncertainties discussed elsewhere in this Quarterly Report on Form 10-Q, the risk factors set forth in Part I, "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year endedDecember 31, 2019 , and those set forth in Part II, "Item 1A. Risk Factors" of this report, if any, may affect our performance and results of operations. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may differ materially from those in the forward-looking statements. We disclaim any intention or obligation to update or review any forward-looking statements or information, whether as a result of new information, future events or otherwise, except as required by law.
Business Overview
We operate in three reportable business segments of the heating, ventilation,
air conditioning and refrigeration ("HVACR") industry. Our reportable segments
are Residential Heating & Cooling, Commercial Heating & Cooling, and
Refrigeration. For additional information regarding our reportable segments, see
Note 2 in the Notes to the Consolidated Financial Statements.
Our fiscal quarterly periods are comprised of approximately 13 weeks, but the
number of days per quarter may vary year-over-year. Our quarterly reporting
periods usually end on the Saturday closest to the last day of March, June and
September. Our fourth quarter and fiscal year ends on December 31 , regardless of
the day of the week on which December 31 falls. For convenience, throughout this
Management's Discussion and Analysis of Financial Condition and Results of
Operations, the 13-week periods comprising each fiscal quarter are denoted by
the last day of the respective calendar quarter.
We sell our products and services through a combination of direct sales,
distributors and company-owned parts and supplies stores. The demand for our
products and services is seasonal and significantly impacted by the weather.
Warmer than normal summer temperatures generate demand for replacement air
conditioning and refrigeration products and services, and colder than normal
winter temperatures have a similar effect on heating products and services.
Conversely, cooler than normal summers and warmer than normal winters depress
the demand for HVACR products and services. In addition to weather, demand for
our products and services is influenced by national and regional economic and
demographic factors, such as interest rates, the availability of financing,
regional population and employment trends, new construction, general economic
conditions, and consumer spending habits and confidence. A substantial portion
of the sales in each of our business segments is attributable to replacement
business, with the balance comprised of new construction business.
The principal elements of cost of goods sold are components, raw materials,
factory overhead, labor, estimated warranty costs, and freight and distribution
costs. The principal raw materials used in our manufacturing processes are
steel, copper and aluminum. In recent years, pricing volatility for these
commodities and related components, including the impact of imposed tariffs on
the import of certain of our raw materials and components, has impacted us and
the HVACR industry in general. We seek to mitigate the impact of volatility in
commodity prices through a combination of price increases, commodity contracts,
improved production efficiency and cost reduction initiatives. We also partially
mitigate volatility in the prices of these commodities by entering into futures
contracts and fixed forward contracts.
Impact of COVID-19 Pandemic and the Resulting Changes to our 2020 Financial Outlook
A novel strain of coronavirus ("COVID-19") surfaced in late 2019 and has spread
around the world, including to the United States . In March 2020 , the World
Health Organization declared COVID-19 a pandemic. The COVID-19 pandemic has
disrupted our business operations and caused a significant unfavorable impact on
our results of operations.
In response to the COVID-19 pandemic various national, state, and local
governments where we, our suppliers, and our customers operate issued decrees
prohibiting certain businesses from continuing to operate and certain classes of
workers from reporting to work. Those decrees have resulted in supply chain
disruption and higher employee absenteeism in our factories.
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--------------------------------------------------------------------------------Additionally, certain of our manufacturing facilities experienced short-term suspensions of operations for COVID-19 employee health concerns during the second quarter of 2020.
Due to the adverse impact of the COVID-19 pandemic on our European manufacturing facilities and the resulting downturn in the related business, we recorded an$8 million valuation allowance in the first quarter of 2020 on certain foreign deferred tax assets as we concluded that it was no longer more likely than not that these foreign tax loss carryforwards would be realized. InApril 2020 , we implemented cost reduction actions to realize$115 million of SG&A savings for the balance of the year. In connection with these cost saving actions, we incurred pre-tax charges of$10 million in the second quarter of 2020 related primarily to personnel severance and benefits and facility exit costs. Also, during the second quarter of 2020, we incurred$3 million of expenses for facility cleaning and supplies to ensure the health and safety of our employees. The magnitude of the impact of COVID-19 remains unpredictable and we, therefore, continue to anticipate potential supply chain disruptions, employee absenteeism and short-term suspensions of manufacturing facilities, and additional health and safety costs related to the COVID-19 pandemic that could unfavorably impact our business. We also anticipate significant challenges in the remainder of 2020 due to uncertain market conditions. Accordingly, our revised downward financial outlook remains but we made slight adjustments to our expectations. Currently, we continue to believe that theNorth America unitary HVAC and refrigeration market will be negatively impacted about 20% this year by the pandemic. Since the first quarter of 2020, we have reset our financial expectations for the year based on that level of market impact and now expect revenue to be down 10% to 15% from last year versus our initial guidance for growth of 4% to 8% (and down from our first quarter expectations of a 11% to 17% decline). We now expect Diluted EPS from continuing operations in the range of$7.31 to$8.11 for the year (as compared to our first quarter expected range of$7.07 to$8.07 ). We expect our cash generation to remain strong for 2020 as our working capital requirements decline and are projecting approximately$460 million in cash flows from operations for the year. We have reduced our capital expenditure plans for 2020 from$153 million initially to$120 million . We are rated investment grade by both S&P and Moody's, and we expect to remain well within our debt covenants. Our bank revolver and asset securitization line do not mature until the latter half of 2021, and our senior notes do not mature untilNovember 2023 . Our quarterly dividend plans are unchanged, most recently$0.77 per share, or more than$115 million in total payments for the year. We repurchased$100 million of stock in the first quarter of the$400 million we had planned to repurchase for the year. However, we placed the remaining repurchase plans for 2020 on hold and we will review plans for the third and fourth quarters as the year progresses.
Financial Overview
Results for the second quarter of 2020 were impacted by the business downturn caused by the COVID-19 pandemic. Year over year sales and profit were down in each of our business segments primarily due to lower sales volumes. The Residential Heating & Cooling segment saw a 6% decrease in net sales and a$26 million decrease in segment profit. The Commercial Heating & Cooling segment had a 28% decrease in net sales and a$18 million decrease in segment profit. The Refrigeration segment had a 27% decline in net sales and a$10 million decline in segment profit. Financial Highlights •Net sales decreased$158 million to$941 million in the second quarter of 2020 driven by volume declines in each of our operating segments. •Operating income in the second quarter of 2020 decreased$78 million to$136 million primarily due to lower volumes, factory inefficiencies, and non-recurring insurance recoveries in 2019 for lost profits related to theMarshalltown tornado. •Net income for the second quarter of 2020 decreased$11 million to$100 million . •Diluted earnings per share from continuing operations were$2.62 per share in the second quarter of 2020 compared to$2.81 per share in the second quarter of 2019. •For the six months endedJune 30, 2020 , we returned$59 million to shareholders through dividend payments and repurchased$100 million of common stock through our share repurchase program.
Second Quarter of 2020 Compared to Second Quarter of 2019 - Consolidated Results
The following table provides a summary of our financial results, including information presented as a percentage of net sales:
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For the Three Months Ended
Dollars (in millions) Percent Percent of Sales
Change
2020 2019 Fav/(Unfav) 2020 2019
Net sales $ 941.3 $ 1,099.1 (14.4) % 100.0 % 100.0 %
Cost of goods sold 665.6 767.0 13.2 70.7 69.8
Gross profit 275.7 332.1 (17.0) 29.3 30.2
Selling, general and administrative expenses 129.5 152.4 15.0 13.8 13.9
Losses (gains) and other expenses, net 3.6 2.1 (71.4) 0.4 0.2
Restructuring charges 10.0 (0.1) (10,100.0) 1.1 -
Loss on sale of business - 0.4 100.0 - -
Insurance proceeds for lost profits - (26.0) 100.0 - (2.4)
Loss (gain) from natural disaster, net of
insurance recoveries 1.0 (5.9) (116.9) 0.1 (0.5)
Income from equity method investments (4.4) (4.6) (4.3) (0.5) (0.4)
Operating income $ 136.0 $ 213.8 (36.4) % 14.4 % 19.5 %
Net Sales
Net sales declined 14% in the second quarter of 2020 compared to the second quarter of 2019, driven by a 15% decline decline in volume, partially offset by a 1% increase in higher combined price and mix.
Gross Profit
Gross profit margin in the second quarter of 2020 decreased 90 basis points
("bps") to 29.3% compared to 30.2% in the second quarter of 2019. We saw margin
decreases of 200 bps from lower combined price and mix, 100 bps from factory
inefficiencies, and 50 bps from higher product warranty costs. Partially
offsetting these were margin increases of 90 bps from lower freight and
distribution costs, 70 bps from lower commodities costs, 60 bps from lower
tariffs and sourcing and engineering-led cost reductions, and 40 bps from lower
other product costs.
Selling, General and Administrative Expenses
Selling, general and administrative expenses ("SG&A") declined approximately $23
million to $130 million in the second quarter of 2020 compared to $152 million
in the second quarter of 2019 primarily due to lower salary and incentive
compensation costs. As a percentage of net sales, SG&A decreased 10 bps to 13.8%
.
Losses (gains) and Other Expenses, Net
Losses (gains) losses and other expenses, net for the second quarter of 2020 and 2019 included the following (in millions):
For the Three Months Ended
2020 2019
Realized losses on settled futures contracts $ 0.1 $ 0.1
Foreign currency exchange gains (2.1) (0.2)
Gain on disposal of fixed assets (0.2) (0.4)
Other operating income (1.2) -
Net change in unrealized losses on unsettled futures contracts 0.8 0.1
Special legal contingency charges 0.7 (0.1)
Asbestos-related litigation 1.2 0.4
Environmental liabilities 1.1 1.3
Charges incurred related to COVID-19 pandemic 3.4 -
Other items, net (0.2) 0.9
Losses (gains) and other expenses, net (pre-tax) $ 3.6 $ 2.1
25-------------------------------------------------------------------------------- The net change in unrealized losses on unsettled futures contracts was due to changes in commodity prices relative to the unsettled futures contract prices. For more information on our futures contracts, see Note 9 in the Notes to the Consolidated Financial Statements. For more information on special legal contingency charges and asbestos-related litigation, see Note 4 in the Notes to the Consolidated Financial Statements. The environmental liabilities related to estimated remediation costs for contamination at some of our facilities. The charges incurred related to the COVID-19 pandemic related primarily to facility cleaning costs and supplies to ensure the health and safety of our employees.
Restructuring Charges
Restructuring charges were$10 million in the second quarter of 2020 and related to several cost reduction actions taken in response to the economic impact of COVID-19 on our business. These actions consisted of employee terminations for positions that are no longer needed to support the business, selective facility closures, and cancellations of certain sales and marketing activities. For additional information on our restructuring activities, refer to Note 7 in the Notes to the Consolidated Financial Statements.
Gains and Losses related to Marshalltown Tornado
OnJuly 19, 2018 , our manufacturing facility inMarshalltown, Iowa was severely damaged by a tornado. Insurance covered the repair or replacement of our assets that suffered damage or loss and reimbursement for other expenses and costs that have been incurred relating to the damages and losses suffered. These costs and insurance recoveries are shown in Loss (gain) from natural disaster, net of insurance recoveries in the Consolidated Statements of Operations. Our insurance policies also provided business interruption coverage, including lost profits, related to the losses suffered. These insurance recoveries are shown in Insurance proceeds for lost profits in the Consolidated Statements of Operations. InDecember 2019 , we reached a final settlement with our insurance carriers for a total cumulative insurance recovery of$367.5 million for the losses we incurred and will incur from the tornado. All recoveries related to the final settlement were received in 2018 and 2019. During the second quarter of 2020, we incurred expenses of$1 million related to damages caused by the tornado, which included site clean up, waste disposal and other restoration costs. See Note 4 in the Notes to the Consolidated Financial Statements for additional information.
Income from Equity Method Investments
We participate in two joint ventures that are engaged in the manufacture and sale of compressors, unit coolers and condensing units. We exert significant influence over these affiliates based upon our ownership, but do not control them due to venture partner participation. Accordingly, these joint ventures have been accounted for under the equity method and their financial position and results of operations are not consolidated. Income from equity method investments of$4 million in the second quarter of 2020 was comparable to the second quarter of 2019. Pension Settlement In the second quarter of 2019, we entered into an agreement withPacific Life Insurance Company to purchase a group annuity contract and transfer$100.0 million of our pension plan assets and$105.6 million of related pension benefit obligations. We recognized a$60.6 million pension settlement charge in the Statement of Operations as a result of this transaction. There were no pension settlements in the second quarter of 2020. For additional information, refer to Note 10 in the Notes to the Consolidated Financial Statements.
Interest Expense, net
Interest expense, net of$7 million in the second quarter of 2020 was down$6 million from$13 million in the second quarter of 2019 due to lower borrowing costs and lower borrowings. Income Taxes Our effective tax rate was 21.4% for the second quarter of 2020 compared to 20.6% for the second quarter of 2019. The rate increased primarily due to lower excess tax benefits. We expect our annual effective tax rate to be between 21% and 22%, after excluding the impacts of excess tax benefits recorded under ASU No. 2016-09, the$8 million valuation allowance recorded in the first quarter of 2020 and the tax impacts of restructuring and pandemic-related charges. 26 --------------------------------------------------------------------------------
Second Quarter of 2020 Compared to Second Quarter of 2019 - Results by Segment
Residential Heating & Cooling
The following table presents our Residential Heating & Cooling segment's net
sales and profit for the second quarter of 2020 and 2019 (dollars in millions):
For the Three Months Ended June
30,
2020 2019 Difference % Change
Net sales $ 644.8 $ 689.1 $ (44.3) (6.4) %
Profit $ 127.3 $ 153.4 $ (26.1) (17.0) %
% of net sales 19.7 % 22.3 %
Net sales decreased 6% in the second quarter of 2020 compared to the second quarter of 2019. Sales volumes declined 8%, partially offset by 2% higher combined price and mix.
Segment profit in the second quarter of 2020 declined$26 million compared to the second quarter of 2019 due to$25 million from lower sales volumes,$18 million of non-recurring insurance proceeds for lost profits due to theMarshalltown tornado,$9 million of factory inefficiencies and lower absorption,$6 million from non-recurring warranty adjustments and other product costs, and$1 million of lower income from equity method investments. Partially offsetting these declines was$12 million of lower SG&A expenses,$8 million of lower freight and distribution expenses,$6 million of favorable combined price and mix,$4 million of lower commodities costs, and$3 million from engineering and sourcing-led cost reductions. Commercial Heating & Cooling The following table presents our Commercial Heating & Cooling segment's net sales and profit for the second quarter of 2020 and 2019 (dollars in millions): For the Three Months Ended June 30, 2020 2019 Difference % Change Net sales$ 188.3 $ 261.3 $ (73.0) (27.9) % Profit$ 35.6 $ 53.9 $ (18.3) (34.0) % % of net sales 18.9 % 20.6 %
Net sales decreased 28% in the second quarter of 2020 compared to the second quarter of 2019. Sales volumes declined 27% and mix was unfavorable 1%.
Segment profit in the second quarter of 2020 declined$18 million compared to the second quarter of 2019 due to$24 million from lower sales volumes and$5 million of unfavorable mix. Partially offsetting these declines was$5 million of lower SG&A expenses,$2 million of lower commodities costs,$2 million of engineering and sourcing-led cost reductions,$1 million of lower freight and distribution expenses, and$1 million from favorable foreign currency exchange rates. Refrigeration
The following table presents our Refrigeration segment's net sales and profit for the second quarter of 2020 and 2019 (dollars in millions):
For the Three Months Ended June
30,
2020 2019 Difference % Change
Net sales $ 108.2 $ 148.7 $ (40.5) (27.2) %
Profit $ 8.9 $ 19.1 $ (10.2) (53.4) %
% of net sales 8.2 % 12.8 %
Net sales decreased 27% in the second quarter of 2020 compared to the second quarter of 2019 due to lower sales volumes.
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Segment profit in the second quarter of 2020 declined $10 million compared to
the second quarter of 2019 due to $13 million of lower sales volumes, and $3
million of factory inefficiencies and lower absorption. Partially offsetting
these declines were $2 million of lower SG&A expenses, $1 million of lower
commodities costs, $1 million from engineering and sourcing-led cost reductions,
$1 million of lower freight and distribution expenses, and $1 million from
favorable foreign currency exchange rates.
Corporate and Other
Corporate and other expenses decreased$5 million in the second quarter of 2020 compared to the second quarter of 2019 primarily due to lower salary, incentive compensation, and discretionary expenses.
Year-to-Date through
The following table provides a summary of our financial results, including information presented as a percentage of net sales:
For the Six Months Ended
Dollars (in millions) Percent Percent of Sales
Change
2020 2019 Fav/(Unfav) 2020 2019
Net sales $ 1,665.1 $ 1,889.4 (11.9) 100.0 % 100.0 %
Cost of goods sold 1,223.7 1,355.8 9.7 73.5 71.8
Gross profit 441.4 533.6 (17.3) 26.5 28.2
Selling, general and administrative expenses 260.8 298.2 12.5 15.7 15.8
Losses (gains) and other expenses, net 2.3 3.2 28.1 0.1 0.2
Restructuring charges 10.5 0.4 (2,525.0) 0.6 -
Loss on sale of business - 8.8 100.0 - 0.5
Insurance proceeds for lost profits - (65.5) 100.0 - (3.5)
Loss (gain) from natural disaster, net of
insurance recoveries 2.7 (12.8) (121.1) 0.2 (0.7)
Income from equity method investments (7.2) (7.2) - (0.4) (0.4)
Operating income $ 172.3 $ 308.5 (44.1) 10.3 % 16.3 %
Net Sales
Net sales decreased 12% in the six months ended June 30, 2020 compared to the
six months ended June 30, 2019 due to a 11% decline in sales volumes and a 2%
decline related to the sale of our Kysor Warren business in the first quarter of
2019, partially offset by 1% from favorable combined price and mix.
Gross Profit
Gross profit margins for the six months ended June 30, 2020 decreased 170 bps to
26.5% compared to the six months ended June 30, 2019 . Our profit margin
decreased 200 bps from unfavorable combined price and mix, 120 bps from factory
inefficiencies, and 90 bps from higher product warranties and other product
costs. These were partially offset by 80 bps from lower commodities costs, 80
bps from sourcing and engineering-led cost reductions and lower tariffs, 50 bps
from lower freight and distribution costs, and 30 bps from the divested Kysor
Warren business which had lower margins.
Selling, General and Administrative Expenses
SG&A declined$37 million to$261 million for the six months endedJune 30, 2020 compared to$298 million for the six months endedJune 30, 2019 primarily due to lower salaries and incentive compensation costs, the sale of ourKysor Warren business in the first quarter of 2019, and lower discretionary expenditures. As a percentage of net sales, SG&A decreased 10 bps to 15.7% from 15.8%. 28 --------------------------------------------------------------------------------
Losses (gains) and Other Expenses, Net
Losses (gains) and other expenses, net for the six months ended
For the Six Months Ended
2020 2019
Realized losses on settled futures contracts $ 0.2 $ 0.2
Foreign currency exchange losses (2.6) (0.7)
Gain on disposal of fixed assets (0.1) (0.2)
Other operating income (1.3) -
Net change in unrealized losses (gains) on unsettled futures contracts
1.4 (0.3)
Special legal contingency charges 0.7 0.2
Asbestos-related litigation (0.5) 1.8
Environmental liabilities 1.3 1.3
Charges incurred related to COVID-19 pandemic 3.4 -
Other items, net (0.2) 0.9
Losses (gains) and other expenses, net (pre-tax) $ 2.3 $ 3.2
The net change in unrealized losses on unsettled futures contracts was due to
changes in commodity prices relative to the unsettled futures contract prices.
For more information on our futures contracts, see Note 9 in the Notes to the
Consolidated Financial Statements. For more information on special legal
contingency charges and asbestos-related litigation, see Note 4 in the Notes to
the Consolidated Financial Statements. The environmental liabilities related to
estimated remediation costs for contamination at some of our facilities. The
charges incurred related to the COVID-19 pandemic related primarily to facility
cleaning costs and supplies to ensure the health and safety of our employees.
Restructuring Charges
Restructuring charges were approximately$11 million in the six months endedJune 30, 2020 and related to several cost reduction actions taken in response to the economic impact of COVID-19 on our business. These actions consisted of employee terminations for positions that are no longer needed to support the business, selective facility closures, and cancellations of certain sales and marketing activities. For additional information on our restructuring activities, refer to Note 7 in the Notes to the Consolidated Financial Statements.
Loss on Sale of Business
We recognized a loss of$9 million for the six months endedJune 30, 2019 related to the sale of ourKysor Warren business in the first quarter of 2019. There were no losses related to this sale for the six months endedJune 30, 2020 . Refer to Note 6 in the Notes to the Consolidated Financial Statements for additional information on this divestiture.
Gains and Losses related to Marshalltown Tornado
OnJuly 19, 2018 , our manufacturing facility inMarshalltown, Iowa was severely damaged by a tornado. Insurance covered the repair or replacement of our assets that suffered damage or loss and reimbursement for other expenses and costs that have been incurred relating to the damages and losses suffered. These costs and insurance recoveries are shown in Loss (gain) from natural disaster, net of insurance recoveries in the Consolidated Statements of Operations. Our insurance policies also provided business interruption coverage, including lost profits, related to the losses suffered. These insurance recoveries are shown in Insurance proceeds for lost profits in the Consolidated Statements of Operations. InDecember 2019 , we reached a final settlement with our insurance carriers for a total cumulative insurance recovery of$367.5 million for the losses we incurred and will incur from the tornado. All recoveries related to the final settlement were received in 2018 and 2019.
For the six months ended
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--------------------------------------------------------------------------------Income from Equity Method Investments
Income from equity method investments of
Pension Settlement
In the second quarter of 2019, we entered into an agreement withPacific Life Insurance Company to purchase a group annuity contract and transfer$100.0 million of our pension plan assets and$105.6 million of related pension benefit obligations. We recognized a$60.6 million pension settlement charge in the Statement of Operations as a result of this transaction. There were no pension settlements for the six months endedJune 30, 2020 . For additional information, refer to Note 10 in the Notes to the Consolidated Financial Statements.
Interest Expense, net
Interest expense, net of
Income Taxes
Our effective tax rate increased to 26.8% for the six months endedJune 30, 2020 compared to 19.0% for the six months endedJune 30, 2019 primarily due to a$8 million valuation allowance on certain foreign deferred tax assets recorded in the first quarter of 2020 and lower excess tax benefits.
Year-to-Date through
Residential Heating & Cooling
The following table presents our Residential Heating & Cooling segment's net sales and profit for the six months endedJune 30, 2020 and 2019 (dollars in millions): For the Six Months Ended June 30, 2020 2019 Difference % Change Net sales$ 1,086.9 $ 1,154.6 $ (67.7) (5.9) % Profit $ 159.8$ 240.1 $ (80.3) (33.4) % % of net sales 14.7 % 20.8 %
Net sales decreased 6% in the six months ended
Segment profit for the six months endedJune 30, 2020 decreased$80 million compared to the six months endedJune 30, 2019 due to$58 million of non-recurring insurance proceeds for lost profits related to theMarshalltown tornado,$33 million from lower sales volumes,$17 million from lower factory absorption and efficiency,$15 million from non-recurring warranty adjustments and other product costs,$11 million from unfavorable mix, and$1 million from lower income from equity method investments. Partially offsetting these declines was$18 million of lower SG&A expenses,$9 million of favorable price,$9 million from sourcing and engineering-led cost reductions,$8 million of lower commodities costs,$7 million from lower freight and distribution expense,$2 million from lower tariffs on imported Chinese components, and$2 million from favorable foreign currency exchange rates.
Commercial Heating & Cooling
The following table presents our Commercial Heating & Cooling segment's net
sales and profit for the six months ended
30
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For the Six Months Ended June 30,
2020 2019 Difference % Change
Net sales $ 366.7 $ 434.7 $ (68.0) (15.6) %
Profit $ 54.3 $ 68.9 $ (14.6) (21.2) %
% of net sales 14.8 % 15.9 %
Net sales decreased 16% in the six months ended June 30, 2020 compared to the
six months ended June 30, 2019 due to 17% from lower sales volumes partially
offset by favorable mix of 1%.
Segment profit for the six months ended June 30, 2020 decreased $15 million
compared to the first six months of 2019 due to $26 million from lower sales
volumes, $3 million from unfavorable mix, and $1 million from higher product
warranty costs. Partially offsetting these declines was $6 million of lower SG&A
expenses, $4 million from sourcing and engineering-led cost reductions, $3
million from lower commodities costs, $1 million from lower freight and
distribution expenses, and $1 million from favorable foreign currency exchange
rates.
Refrigeration
The following table presents our Refrigeration segment's net sales and profit
for the six months ended
For the Six Months Ended June 30,
2020 2019 Difference % Change
Net sales $ 211.5 $ 300.1 $ (88.6) (29.5) %
Profit $ 9.6 $ 27.5 $ (17.9) (65.1) %
% of net sales 4.5 % 9.2 %
Net sales decreased 30% in the six months ended June 30, 2020 compared to the
six months ended June 30, 2019 . Sales volumes decreased 18%, the loss of sales
from our divested Kysor Warren business contributed 12%, and unfavorable foreign
currency exchange rates contributed 1%, which was partially offset by 1% of
favorable combined price and mix.
Segment profit for the six months ended June 30, 2020 decreased $18 million
compared to the six months ended June 30, 2019 due to $17 million from lower
sales volumes, $7 million from lower factory absorption and efficiency, $3
million from other product costs, and $2 million from non-recurring European
refrigerant quota sales. Partially offsetting these declines was $5 million of
lower SG&A expenses, $2 million from lower commodities costs, $1 million from
sourcing and engineering-led cost reductions, $1 million from lower freight and
distribution expenses, $1 million from favorable foreign currency exchange
rates, and $1 million of higher profit due to the divestiture of the Kysor
Warren business.
Corporate and Other
Corporate and other expenses decreased$3 million in the six months endedJune 30, 2020 compared to the six months endedJune 30, 2019 due to lower salary, incentive compensation and discretionary expenses.
Liquidity and Capital Resources
Our working capital and capital expenditure requirements are generally met through internally generated funds, bank lines of credit and an asset securitization arrangement. Working capital needs are generally greater in the first and second quarters due to the seasonal nature of our business cycle.
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