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 Performance
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.
23
--------------------------------------------------------------------------------Additionally, certain of our manufacturing facilities experienced short-term suspensions of operations for COVID-19 employee health concerns during the second and third quarters 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 relative to our initial 2020 financial plans based on expectations that the North American unitary HVAC and refrigeration market would be negatively impacted by approximately 20% due to the pandemic. During the third quarter, we revised our outlook for the remainder of 2020 due to the improved performance of our end markets and our strong operational performance. We are now planning for$65 million of SG&A savings this year, with the decrease in savings due primarily to reinstituting the temporary salary reductions, increasing sales commissions and paying performance-based incentive compensation. In connection with these cost saving actions, we incurred pre-tax charges of$10 million in the second and third quarters of 2020 related primarily to personnel severance and benefits and facility exit costs. Also, we incurred$6 million of expenses for the nine months endedSeptember 30, 2020 for facility cleaning and sanitization 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. Since the first quarter of 2020, we have reset our financial expectations and, based on our latest guidance, now expect 2020 revenue to be down 5% to 9% from last year versus our initial 2020 guidance for growth of 4% to 8%. Additionally, we now expect Diluted EPS from continuing operations in the range of$8.35 to$8.95 for the year as compared to our initial expected range of$11.30 to$11.90 for 2020. We expect our cash generation to remain strong for 2020 as our working capital requirements decline, and currently project approximately$525 million in cash flows from operations for the year. We reduced our capital expenditure plans for 2020 from$153 million initially to$100 million . We are rated investment grade by both S&P and Moody's, and we expect to remain well within our debt covenants. We do not anticipate any liquidity concerns as we issued$600 million in senior unsecured notes in the third quarter of 2020 and extended the term of bank revolver by one year until the latter half of 2022. 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.
Financial Overview
Results for the third quarter of 2020 were mixed and adversely impacted by the business downturn caused by the COVID-19 pandemic. Year over year sales and profit were up in our Residential Heating & Cooling segment primarily due to higher volumes, while they were down in our Commercial Heating & Cooling and Refrigeration segments primarily due to lower sales volumes. The Residential Heating & Cooling segment saw a 13% increase in net sales and a$27 million increase in segment profit. The Commercial Heating & Cooling segment had a 18% decrease in net sales and a$8 million decrease in segment profit. The Refrigeration segment had a 12% decline in net sales and a$7 million decline in segment profit. Financial Highlights •Net sales increased$22 million to$1,055 million in the third quarter of 2020 driven by favorable price and mix combined and net volume increases. •Operating income in the third quarter of 2020 increased$10 million to$167 million primarily driven by factory productivity, lower commodity costs, and sourcing and engineering-led cost reductions, partially offset by non-recurring insurance recoveries in 2019 for lost profits related to theMarshalltown tornado. •Net income for the third quarter of 2020 increased$17 million to$132 million . •Diluted earnings per share from continuing operations were$3.42 per share in the third quarter of 2020 compared to$2.94 per share in the third quarter of 2019. •For the nine months endedSeptember 30, 2020 , we returned$89 million to shareholders through dividend payments and repurchased$100 million of common stock through our share repurchase program. 24 --------------------------------------------------------------------------------
Third Quarter of 2020 Compared to Third Quarter of 2019 - Consolidated Results
The following table provides a summary of our financial results, including information presented as a percentage of net sales:
For the Three Months Ended September 30,
Dollars (in millions) Percent Percent of Sales
Change
2020 2019 Fav/(Unfav) 2020 2019
Net sales $ 1,055.0 $ 1,032.9 2.1 % 100.0 % 100.0 %
Cost of goods sold 731.7 734.6 0.4 69.4 71.1
Gross profit 323.3 298.3 8.4 30.6 28.9
Selling, general and administrative expenses 151.8 143.4 (5.9) 14.4 13.9
Losses (gains) and other expenses, net 3.4 2.2 (54.5) 0.3 0.2
Restructuring charges 0.1 6.1 98.4 - 0.6
Loss on sale of business - 0.2 100.0 - -
Loss (gain) from natural disasters, net of
insurance recoveries 4.9 (7.1) (169.0) 0.5 (0.7)
Income from equity method investments (4.0) (3.3) 21.2 (0.4) (0.3)
Operating income $ 167.1 $ 156.8 6.6 % 15.8 % 15.2 %
Net Sales
Net sales increased 2% in the third quarter of 2020 compared to the third quarter of 2019 driven by higher sales volumes of 1% and favorable combined price and mix of 1%.
Gross Profit
Gross profit margin in the third quarter of 2020 increased 170 basis points
("bps") to 30.6% compared to 28.9% in the third quarter of 2019. We saw margin
increases of 80 bps from lower commodity costs, 80 bps from sourcing and
engineering-led cost reductions, 60 bps from lower freight and distribution
costs, and 50 bps from factory productivity. Partially offsetting these were
margin decreases of 70 bps from unfavorable combined price and mix and 30 bps
from higher tariffs.
Selling, General and Administrative Expenses
Selling, general and administrative expenses ("SG&A") increased $8 million to
$152 million in the third quarter of 2020 compared to $143 million in the third
quarter of 2019 primarily due to higher incentive compensation costs. As a
percentage of net sales, SG&A increased 50 bps to 14.4% .
25
--------------------------------------------------------------------------------Losses (gains) and Other Expenses, Net
Losses (gains) losses and other expenses, net for the third quarter of 2020 and 2019 included the following (in millions):
For the Three Months Ended
September 30,
2020 2019
Realized losses on settled futures contracts $ - $ 0.1
Foreign currency exchange gains (0.4) (0.3)
Gain on disposal of fixed assets (0.2) -
Other operating income (0.4) (1.2)
Net change in unrealized (gains) losses on unsettled futures contracts
(1.4) 0.1
Special legal contingency charges 0.2 0.3
Asbestos-related litigation 2.4 1.5
Environmental liabilities 0.3 1.1
Charges incurred related to COVID-19 pandemic 3.0 -
Other items, net (0.1) 0.6
Losses (gains) and other expenses, net (pre-tax) $
3.4
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 sanitization supplies to ensure the health and safety of our employees. Restructuring Charges Restructuring charges were insignificant in the third quarter of 2020 and related to ongoing cost reduction actions taken in prior periods. For additional information on our restructuring activities, refer to Note 7 in the Notes to the Consolidated Financial Statements.
Gains and Losses related to Natural Disasters
OnJuly 19, 2018 , our manufacturing facility inMarshalltown, Iowa was severely damaged by a tornado. OnAugust 10, 2020 , theMarshalltown facility was partially damaged by a derecho wind storm. The costs and losses incurred as well as any insurance recoveries for both of these natural disasters are shown in Loss (gain) from natural disasters, net of insurance recoveries 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 third quarter of 2020, we incurred expenses of less than$1 million related to damages caused by the tornado, which primarily related to other restoration costs. We have insurance for the repair and replacement of our assets that suffered damage or loss related to the wind storm. We are working closely with our insurance carriers and claims adjusters to ascertain the amount of insurance recoveries due to us as a result of the damage and losses we suffered. Our insurance policies also provide business interruption coverage, including lost profits and reimbursement for other expenses and costs that have been incurred related to the damages and losses suffered. During the third quarter of 2020, we incurred expenses of approximately$5 million related to damages caused by the wind storm, which included site clean up, building repairs 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
26
--------------------------------------------------------------------------------
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 third quarter of 2020 was up slightly compared to the third
quarter of 2019.
Interest Expense, net
Interest expense, net of$7 million in the third quarter of 2020 was down$6 million from$13 million in the third quarter of 2019 due to lower borrowing costs and fewer borrowings. Income Taxes Our effective tax rate was 17.3% for the third quarter of 2020 compared to 20.2% for the third quarter of 2019. The rate decreased primarily due to higher excess tax benefits from stock-based compensation and a favorable mix of income from jurisdictions with lower tax rates. We expect our annual effective tax rate in 2020 to be between 19% and 20%, after excluding the impacts of excess tax benefits recorded under ASU No. 2016-09, after the$8 million valuation allowance recorded in the first quarter of 2020 and after the tax impacts of restructuring and pandemic-related charges.
Third Quarter of 2020 Compared to Third 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 third quarter of 2020 and 2019 (dollars in millions):
For the Three Months Ended
September 30,
2020 2019 Difference % Change
Net sales $ 722.0 $ 637.6 $ 84.4 13.2 %
Profit $ 153.0 $ 126.5 $ 26.5 20.9 %
% of net sales 21.2 % 19.8 %
Net sales increased 13% in the third quarter of 2020 compared to the third quarter of 2019. Sales volumes increased 11% and combined price and mix increased 2%.
Segment profit in the third quarter of 2020 increased$27 million compared to the third quarter of 2019 due to$19 million from higher sales volumes,$7 million of factory productivity,$6 million from engineering and sourcing-led cost reductions,$6 million from lower freight and distribution costs,$5 million from lower commodity costs,$4 million of favorable price,$2 million from lower warranty and other product costs, and$1 million of income from equity method investments. Partially offsetting these increases was$16 million of non-recurring insurance proceeds for lost profits related to theMarshalltown tornado,$4 million from timing of tariffs for certain Chinese imports,$1 million from unfavorable mix,$1 million from higher SG&A expenses, and$1 million from unfavorable foreign currency exchange rates.
Commercial Heating & Cooling
The following table presents our Commercial Heating & Cooling segment's net
sales and profit for the third quarter of 2020 and 2019 (dollars in millions):
For the Three Months Ended
September 30,
2020 2019 Difference % Change
Net sales $ 207.9 $ 253.3 $ (45.4) (17.9) %
Profit $ 38.8 $ 47.1 $ (8.3) (17.6) %
% of net sales 18.7 % 18.6 %
Net sales decreased 18% in the third quarter of 2020 compared to the third quarter of 2019. Sales volumes declined 15% and mix was unfavorable 3%.
27
--------------------------------------------------------------------------------
Segment profit decreased $8 million in the third quarter of 2020 compared to the
third quarter of 2019 due to $14 million from lower sales volumes, $2 million
from unfavorable mix, and $1 million from other product costs. Partially
offsetting these declines was $3 million from lower SG&A expenses, $2 million
from lower commodity costs, $2 million from engineering and sourcing-led cost
reductions, $1 million of factory productivity, and $1 million from lower
freight and distribution expense.
Refrigeration
The following table presents our Refrigeration segment's net sales and profit for the third quarter of 2020 and 2019 (dollars in millions):
For the Three Months Ended
September 30,
2020 2019 Difference % Change
Net sales $ 125.1 $ 142.0 $ (16.9) (11.9) %
Profit $ 13.0 $ 19.8 $ (6.8) (34.3) %
% of net sales 10.4 % 13.9 %
Net sales decreased 12% in the third quarter of 2020 compared to the third
quarter of 2019. Sales volumes decreased 16%, partially offset by favorable
combined price and mix of 2% and favorable foreign currency exchange rates of
2%.
Segment profit decreased $7 million in the third quarter of 2020 compared to the
third quarter of 2019 due to $9 million from lower sales volumes, $2 million of
factory inefficiencies, and $1 million of lower income from equity method
investments. Partially offsetting these declines was $3 million from lower SG&A
expenses, $1 million from lower commodity costs, and $1 million from favorable
foreign currency exchange rates.
Corporate and Other
Corporate and other expenses increased$10 million in the third quarter of 2020 compared to the third quarter of 2019 primarily due to higher incentive compensation costs. Due to the timing of our earnings, certain annual incentive compensation costs were not earned and recorded until the third quarter of 2020, while the same incentive compensation costs were earned and recorded in earlier quarters of 2019.
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 Nine Months Ended
Dollars (in millions) Percent Percent of Sales
Change
2020 2019 Fav/(Unfav) 2020 2019
Net sales $ 2,720.1 $ 2,922.2 (6.9) 100.0 % 100.0 %
Cost of goods sold 1,955.3 2,090.3 6.5 71.9 71.5
Gross profit 764.8 831.9 (8.1) 28.1 28.5
Selling, general and administrative expenses 412.7 441.6 6.5 15.2 15.1
Losses (gains) and other expenses, net 5.6 5.3 (5.7) 0.2 0.2
Restructuring charges 10.6 6.5 (63.1) 0.4 0.2
Loss on sale of business - 9.1 100.0 - 0.3
Loss (gain) from natural disasters, net of
insurance recoveries 7.6 (85.4) (108.9) 0.3 (2.9)
Income from equity method investments (11.2) (10.5) 6.7 (0.4) (0.4)
Operating income $ 339.5 $ 465.3 (27.0) 12.5 % 15.9 %
28--------------------------------------------------------------------------------
Net sales decreased 7% in the nine months endedSeptember 30, 2020 compared to the nine months endedSeptember 30, 2019 due to lower sales volumes of 7% and a 1% decline related to the sale of ourKysor 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 nine months endedSeptember 30, 2020 decreased 40 bps to 28.1% compared to the nine months endedSeptember 30, 2019 . Our profit margin decreased 150 bps from unfavorable combined price and mix, 60 bps from factory inefficiencies, 40 bps from higher product warranties and other product costs, and 10 bps from higher tariffs for certain Chinese imports. These were partially offset by 80 bps from lower commodities costs, 70 bps from sourcing and engineering-led cost reductions, 50 bps from lower freight and distribution costs, and 20 bps from the divestedKysor Warren business which had lower margins.
Selling, General and Administrative Expenses
SG&A declined$29 million to$413 million for the nine months endedSeptember 30, 2020 compared to$442 million for the nine months endedSeptember 30, 2019 primarily due to lower salaries and discretionary expenditures, and the sale of ourKysor Warren business in the first quarter of 2019. As a percentage of net sales, SG&A increased 10 bps to 15.2% from 15.1%.
Losses (gains) and Other Expenses, Net
Losses (gains) and other expenses, net for the nine months ended
Nine Months Ended
2020 2019
Realized losses on settled futures contracts $ 0.2 $ 0.4
Foreign currency exchange gains (3.0) (1.0)
Gain on disposal of fixed assets (0.4) (0.2)
Other operating income (1.7) (1.2)
Net change in unrealized losses (gains) on unsettled futures contracts
- (0.2)
Special legal contingency charges 0.9 0.5
Asbestos-related litigation 1.9 3.3
Environmental liabilities 1.5 2.4
Charges incurred related to COVID-19 pandemic 6.4 -
Other items, net (0.2) 1.3
Losses (gains) and other expenses, net (pre-tax) $
5.6
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 sanitization supplies to ensure the health and safety of our employees. Restructuring Charges Restructuring charges were$11 million for the nine months endedSeptember 30, 2020 and related to several cost reduction actions taken in response to the economic impact of the COVID-19 pandemic on our business. These actions consisted of employee terminations for positions that were 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. 29 --------------------------------------------------------------------------------
Loss on Sale of Business
We recognized a loss of$9 million for the nine months endedSeptember 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 nine months endedSeptember 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 Natural Disasters
OnJuly 19, 2018 , our manufacturing facility inMarshalltown, Iowa was severely damaged by a tornado. OnAugust 10, 2020 , theMarshalltown facility was partially damaged by a derecho wind storm. The costs and losses incurred as well as any insurance recoveries for both of these natural disasters are shown in Loss (gain) from natural disasters, net of insurance recoveries 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 nine months endedSeptember 30, 2020 , we incurred expenses of$3 million related to damages caused by the tornado, which primarily related to other restoration costs. We have insurance for the repair and replacement of our assets that suffered damage or loss related to the wind storm. We are working closely with our insurance carriers and claims adjusters to ascertain the amount of insurance recoveries due to us as a result of the damage and losses we suffered. Our insurance policies also provide business interruption coverage, including lost profits and reimbursement for other expenses and costs that have been incurred related to the damages and losses suffered. During the third quarter of 2020, we incurred expenses of approximately$5 million related to damages caused by the wind storm, which included site clean up, building repairs and other restoration costs.
Income from Equity Method Investments
Income from equity method investments of$11 million for the nine months endedSeptember 30, 2020 was up approximately$1 million compared to the nine months endedSeptember 30, 2019 . Pension Settlements 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 less than$1 million of pension settlements for the nine months endedSeptember 30, 2020 . For additional information, refer to Note 10 in the Notes to the Consolidated Financial Statements.
Interest Expense, net
Interest expense, net of$22 million for the nine months endedSeptember 30, 2020 decreased$15 million from$37 million for the nine months endedSeptember 30, 2019 due to lower borrowing costs and lower borrowings.
Income Taxes
Our effective tax rate increased to 21.9% for the nine months endedSeptember 30, 2020 compared to 19.5% for the nine months endedSeptember 30, 2019 primarily due to lower excess tax benefits from stock-based compensation and the recording of a$8 million valuation allowance on certain foreign deferred tax assets recorded in the first quarter of 2020. 30 --------------------------------------------------------------------------------
Year-to-Date through
Residential Heating & Cooling
The following table presents our Residential Heating & Cooling segment's net sales and profit for the nine months endedSeptember 30, 2020 and 2019 (dollars in millions): Nine Months Ended September 30, 2020 2019 Difference % Change Net sales$ 1,808.8 $ 1,792.2 $ 16.6 0.9 % Profit $ 312.8$ 366.6 $ (53.8) (14.7) % % of net sales 17.3 % 20.5 %
Net sales increased 1% in the nine months ended
Segment profit for the nine months endedSeptember 30, 2020 decreased$54 million compared to the same period in 2019 due to$74 million of non-recurring insurance proceeds in 2019 for lost profits related to theMarshalltown tornado,$10 million of factory inefficiencies,$14 million of higher warranty and other product costs,$6 million from lower sales volume,$19 million from unfavorable mix, and$2 million from higher tariffs on certain Chinese imports. Partially offsetting these declines was$17 million from lower SG&A expenses,$14 million from engineering and sourcing-led cost reductions,$13 million from lower commodity costs,$13 million of higher price,$13 million from lower freight and distribution expense, and$1 million from favorable foreign currency exchange rates. Commercial Heating & Cooling The following table presents our Commercial Heating & Cooling segment's net sales and profit for the nine months endedSeptember 30, 2020 and 2019 (dollars in millions): Nine Months Ended September 30, 2020 2019 Difference % Change Net sales$ 574.6 $ 687.9 $ (113.3) (16.5) % Profit $ 93.1$ 116.0 $ (22.9) (19.7) % % of net sales 16.2 % 16.9 % Net sales decreased 16% in the nine months endedSeptember 30, 2020 compared to the nine months endedSeptember 30, 2019 due to lower sales volumes. Segment profit for the nine months endedSeptember 30, 2020 decreased$23 million compared to the same period of 2019 due to$40 million from lower sales volumes,$5 million from unfavorable mix, and$2 million from higher warranty and other product costs. Partially offsetting these declines was$9 million from lower SG&A expenses,$6 million from engineering and sourcing-led cost reductions,$5 million from lower commodity costs,$1 million of factory productivity,$2 million from lower freight and distribution expenses, and$1 million from favorable foreign currency exchange rates.
Refrigeration
The following table presents our Refrigeration segment's net sales and profit for the nine months endedSeptember 30, 2020 and 2019 (dollars in millions): Nine Months Ended September 30, 2020 2019 Difference % Change Net sales$ 336.7 $ 442.1 $ (105.4) (23.8) % Profit $ 22.6$ 47.3 $ (24.7) (52.2) % % of net sales 6.7 % 10.7 % 31
-------------------------------------------------------------------------------- Net sales decreased 24% for the nine months endedSeptember 30, 2020 compared to the nine months endedSeptember 30, 2019 . Sales volumes were lower by 17% and the loss of sales from our divestedKysor Warren business contributed 8%, which was partially offset by favorable combined price and mix of 1%. Segment profit for the nine months endedSeptember 30, 2020 decreased$25 million compared to the same period of 2019 due to$26 million from lower sales volumes,$9 million of factory inefficiencies,$4 million from warranty and other product costs,$2 million from non-recurring European refrigerant quota sales in 2019, and$1 million from lower income from equity method investments. Partially offsetting these declines was$7 million from lower SG&A expenses,$4 million from lower commodity costs,$2 million from engineering and souring-led cost reductions,$1 million from favorable combined price and mix,$1 million from lower freight and distribution expenses,$1 million of higher profit due to the divestiture of theKysor Warren business, and$1 million from favorable foreign currency exchange rates.
Corporate and Other
Corporate and other expenses increased
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.
© Edgar Online, source
