Lennox International Inc (LII) 2009 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Lennox International Q1 2009 earnings conference call.

At the request of your host, all lines are in a listen-only mode.

(Operator Instructions).

As a reminder, this call is being recorded.

I would now like to turn the conference over to Mr.

Steve Harrison, Vice President of Investor Relations.

Good morning.

Thank you for joining us for this review of Lennox International's financial performance for the first quarter of 2009.

I'm here today with Todd Bluedorn, our CEO, and Sue Carter, our CFO.

Todd will review key points on the quarter, and Sue will take you through the Company's financial performance.

In the earnings release we issued this morning, we have included the necessary reconciliation for the financial metrics that will be discussed to GAAP measures.

You can find a direct link to the webcast of today's conference call on our corporate website at www.LennoxInternational.com.

We will archive the webcast on that site and make it available for replay.

I would like to remind everyone that in the course of this call, to give you a better understanding of our operations, we will be making certain forward-looking statements.

These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from such statements.

For information concerning these risks and uncertainties, see Lennox International's publicly-available filings with the SEC.

Lennox disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Now let me turn the call over to CEO Todd Bluedorn.

Good morning, everyone, and thank you for joining us.

In the first quarter, weak end markets compounded the effects of our seasonally-lightest quarter.

Based on public AHRI data, industry unit shipments in our two largest end markets, North America residential and North America commercial unitary, were down 22% and 29%, respectively, in the first quarter.

We saw similar market downturns in our worldwide refrigeration and European commercial markets.

A little more detail on the U.S.

residential market.

The National Association of Homebuilders estimates that single-family housing starts were down 52% in the first quarter, and we estimate that the residential replacement market was down mid-teens from a year ago.

In this market environment, Lennox revenues were down 18% at constant currency and down 23% at actual currency at $585 million.

Adjusted earnings per share from continuing operations was a loss of $0.23 versus a profit of $0.11 in the year-ago quarter.

On a GAAP basis, earnings per share from continuing operations was a loss of $0.33 versus a profit of $0.11 in the first quarter last year.

Despite the loss in the quarter, cash generation remains strong as we aggressively manage working capital levels.

As a result, cash from operations and free cash flow were both $49 million better than in the first quarter a year ago.

Working capital changes year over year contributed $34 million to cash generation.

Our strong first-quarter cash performance, on top of our free cash flow performance for 2007 and 2008, at approximately 100% of net income, reflects our ongoing focus on cash generation.

Our balance sheet remains strong with a debt-to-EBITDA ratio of 1.4, well within our target range of 1 to 2.

We are well positioned with our balance sheet to sustain and enhance our premium position in the market.

Financial results in the first quarter were impacted by down volume across all end markets, with offsets from cost reduction and improved price and mix compared to a year ago.

In response to these down markets, Lennox is aggressively managing its cost structure.

We previously committed that we expect an incremental $19 million of savings in 2009 from announced restructuring activities.

With additional restructuring actions, including the closure of our Blackville manufacturing facility announced in the first quarter, we now expect this to be $25 million in savings in 2009.

Despite lower volumes in the market, we continue to expect $20 million in commodity savings and another $20 million in global sourcing savings in 2009.

As a headwind, we now expect negative foreign exchange impact of $13 million for the year.

On top of our 7% salary headcount reduction last year, which was 400 positions, we are reducing salaried headcount in 2009 by an additional 650 positions.

In total, the company will have reduced 1,050 salaried positions over 2008 and 2009.

Given these headcount actions, as well as other cost-control actions we have put in place, we are reducing our SG&A spending by $55 million from our planned 2009 level.

This reduction is in addition to the $25 million of restructuring savings I just discussed.

We continue to look for further opportunities to cut costs and will update you as we go along.

Let me now discuss some key points for each of our business segments for the quarter.

In our residential business, as I discussed earlier, new construction was down significantly and consumers were cautious on the replacement side.

We continue to see a mix in shift in the first quarter to our Lennox high-efficiency products of 14 SEER and above.

This was up 13 percentage points from a year ago to approximately 40% of shipments.

We see the recently enacted stimulus plans contributing to this ongoing shift to high-efficiency products.

Due to the 30% tax credit, up to $1,500 is now available for certain high-efficiency HVAC systems.

Let me update you on the progress we are making in transforming our North American residential distribution network that we first talked about at the analyst day back in December.

In the first quarter, we opened up the Atlanta regional distribution center, which is our third regional distribution center, along with Columbus, Ohio, and Calgary.

The first new storefront opened in the Dallas suburb of Garland, Texas, in the first quarter, and is doing quite well.

In the second quarter, we will add three more new storefronts in Sunbelt states.

When completed, we expect this new distribution model to enable us to significantly lower distribution costs in our residential business, and capture more replacement opportunities by improving our same-day next-day capability to approximately 85%.

While the commercial unitary market in North America slowed significantly, we continue to win in the marketplace.

Lennox grew its replacement business in the first quarter.

New construction national accounts was lower in the quarter, but Lennox continued to win new customers with five new national accounts.

This brings the total of new national account wins to 60 over the last 27 months.

One bright spot in the North America commercial market is schools and government business.

We are well positioned with our Strategos product line, the most efficient rooftop in the industry, as well as with a focused salesforce for these markets.

Our refrigeration business saw further slowdown in the end markets around the world.

However, refrigeration continues to win in the market with its new high-efficiency products, especially in replacement business from supermarkets as they remodel their stores and look to lower operating costs.

We also signed up three new distributors in China in the quarter, bringing our total to 11, as we continue to expect this business to be up for the full year.

And Service Experts, both residential new construction and service and replacement business, were weak in the quarter.

As mentioned last quarter, we exited six businesses from seven unprofitable service centers and sold them in the first quarter.

In Service Experts, we continue to see cost and productivity benefits from the move to centralized call centers.

The rollout of the handheld devices to technicians is 85% of the way through the process and we continue to see increased revenue dollars per hour and upgraded selling.

On the commercial services side, our sales and profits grew year over year on the strength of key national account business.

Let's move on to our outlook.

Based on results to date, and the reduced end market outlook for 2009, we are resetting our revenue range to down 15% to 19%, which includes a four-point negative impact from foreign exchange.

Our guidance for adjusted EPS from continuing operations is down 1.6 -- is now $1.65 to $2.05.

GAAP EPS from continuing operations is now expected to be $1.38 to $1.78 on additional restructuring charges from announced programs.

We expect end markets to remain difficult in 2009, especially the first half.

End markets in the first quarter were tough.

We expect more of the same from the end markets in the second quarter.

We are also up against a difficult comparison since the second quarter a year ago was a record for adjusted EPS on the strength of a hot June.

In the second half of the year, comparisons become easier and the $40 million in total commodity and global sourcing savings is weighted more to the second half of the year.

Moving forward, Lennox will continue to execute on its strategic initiatives to reduce costs and align operations for the market conditions and outlook we are seeing.

Now I'll turn it over to Sue.

Good morning, everyone.

I'll provide some additional commentary on the business segments for the quarter, starting with Residential Heating and Cooling.

In the first quarter, revenue from our Residential Heating and Cooling segment was $246 million, down 25%.

While volume was down 30%, price was up 4% and mix improved 3%.

Currency had a 2% negative impact.

The volume decline, compared to a year ago, was driven by a significant drop in new construction and softer replacement business as consumers remain cautious in this economic environment.

Segment loss was $5 million compared to a profit of $13 million a year ago.

Segment margin was a negative 1.9%, compared to a positive 4% in the first quarter a year ago.

Turning to our Commercial Heating and Cooling business, in the first quarter, revenue for the commercial business was $132 million, down 20%.

Volume was down 20%, product mix was up 4%, and price was up 1%.

Currency had a negative 5% impact.

Segment profit was $2 million, compared to $6 million in the year-ago quarter.

Segment margin was 1.5% versus 3.8% a year ago.

Our Europe Commercial HVAC revenue was down in the low 20% range at constant currency, and the business was in a loss position for the quarter.

Aggressive restructuring activities continue in Europe.

In North America Commercial HVAC, revenue was down in the low double digits at constant currency, due to the overall new construction slowdown and market weakness.

Moving to our Service Experts business, in the first quarter, revenue was $109 million, down 21%.

Volume was down 17%, and price and mix were flat.

Currency had a 4% negative impact.

The volume decline, compared to a year ago, was driven by a decline in new construction and a weaker replacement business.

Segment loss was $8 million, compared to a segment loss of $7 million in the prior-year quarter.

Segment margin was a negative 7.2%, compared to a negative 5% a year ago.

In our Refrigeration segment, revenue in the first quarter was $114 million, down 27%.

Volume was down 17%, product mix was flat, and price was up 3%.

Currency had a negative 13% impact.

At constant currency, sales down in the mid-teens in North America, up in Australia, and down significantly in other markets -- in other international markets.

Segment profit was $6 million, compared to $15 million a year ago.

Segment margin was 5.7% versus 9.6% in the year-ago quarter.

Restructuring activities continue with the expansion of the manufacturing facility in China now complete and more than half of the product line transfers completed from Australia to China.

Looking at restructuring charges and other items from our continuing operations in the first quarter, Lennox had a net after-tax charges of $5.8 million from restructuring activities and unrealized gains on open futures contracts.

These charges impacted our GAAP earnings per share from continuing operations by $0.10.

Corporate expenses were $14 million in the first quarter, compared to $12 million in the first quarter a year ago.

Lower compensation expenses and payroll taxes were offset by non-restructuring severance costs and lower JV earnings in the quarter.

Our 2009 corporate expense guidance is $60 million.

Overall, SG&A was down 15% in the first quarter versus a year ago.

One point to note on SG&A is that there was a minor reclassification from SG&A to cost of goods sold.

The current and prior periods were both adjusted, so comparisons are on a like-for-like basis with a true 15% SG&A reduction in the quarter.

Our cash provided from operations in the first quarter was $16 million compared to cash usage of $33 million in the first quarter a year ago.

Capital spending was $10 million, consistent with the year-ago quarter.

Free cash flow in the quarter was $6 million, compared to negative free cash flow of $42 million in the year-ago quarter.

Cash generation was up in the quarter on a year-over-year improvement in working capital changes of $34 million, as we aggressively managed working capital to be in line with market conditions.

In addition, net income for the quarter was down on lower volume, offset by $24 million in cash returned of the $38 million of collateral posted for copper hedges in the fourth quarter.

$12 million was applied to hedges that matured and settled, and $12 million in cash was returned to Lennox as copper prices increased and the hedges were no longer in a loss position.

Operating working capital balances improved on a year-over-year basis by $110 million.

Working capital as a percentage of trailing 12-month sales for the company was 18.4%, consistent with the level in the prior period.

The quarter-end working capital ratio was 15.8%, compared to 17% in the first quarter a year ago.

Let's look at liquidity.

Cash and short-term investments were $134 million at the end of March, and the current ratio was 1.6.

Debt to EBITDA was 1.4 at the end of the quarter.

Our total debt on the balance sheet was $405 million at the end of the quarter.

We have a $650 million revolving credit facility in place through the year 2012.

We have a $125 million asset securitization facility in place, and our utilization remained at $30 million in the first quarter, at excellent rates.

We also have $28 million of subsidiary credit facilities in place.

In summary, Lennox has a strong balance sheet and is well-positioned from a liquidity perspective.

Before I turn it over to Q&A, I'll briefly talk about our outlook for 2009.

On the residential side, we continue to face a very difficult market environment.

The NAHB currently estimates North America single-family housing starts to be down 42% for 2009.

Our best estimate for the replacement market is down high single digits.

Assuming the residential market is 75% replacement and 25% new construction, you get a decline of mid-teens for the total residential market.

Turning to commercial HVAC, we continue to see a deterioration in the end markets, both in the North America unitary market and in the markets we serve in Europe.

We now expect both of these markets to be down in the mid-20% range.

And finally, in refrigeration, we see continued market growth in Australasia, but softness in North America and Europe.

Based on these assumptions, our revenue guidance for 2009 is to be down 15% to 19%, which assumes four points of negative foreign exchange impact.

Our 2009 guidance for adjusted earnings per share from continuing operations is now $1.65 to $2.05.

Our share count assumption is 55 million to 56 million shares, and our tax rate is expected to be 36% to 37%.

Our new GAAP earnings per share range of $1.38 to $1.78 reflects the full-year impact of additional restructuring charges from announced programs.

We expect capital spending of $75 million in 2009, down $5 million from previous guidance, focused on new product introductions and continuing transformational investments in the business.

And with that, let's go to Q&A.

Jeff Hammond, KeyBanc Capital Markets.

Good morning.

Just wanted -- I know it's early in the selling season.

Can you just talk about the progression you saw in the first quarter, and as we get into the early part of the selling season in late March, early April, what are you seeing in terms of any seasonal uplift, any change in kind of replacement deferral philosophy?

I'll start with the obvious statement, what I said in the script.

Markets were tough in the first quarter.

The markets of residential and commercial were down 22% and 29%, respectively.

Adjusting for constant currency, when we look at both industry shipments and our own shipments, February and March were better than January.

But with that said, the main selling season, as you suggest, is in front of us.

Still lots of uncertainty out there.

When we talk to dealers, there's -- cautious optimism about what's in front of us.

But we are not ready to call the bottom on the market yet.

There's still just a lot of uncertainty, both on the commercial and residential side.

So the answer is things are going into the dealers sort of as normal, at a lower level than a year ago.

But the markets -- the season is still in front of us, so lots of uncertainty.

And to that point, what is your tack on inventories?

How do you feel about inventories in your channel?

I think what's happened in the first quarter, in part, has been de-stocking by independent distribution.

We saw that with our independent distribution.

Our own inventory levels on our Company-owned distribution are lower, and you see that in our working capital being down over $100 million year over year.

So I think the inventory in the channel is lean.

I think, obviously, the silver lining to that is if we see -- or when we see end use demand from the consumer or from our commercial customers, the product will flow.

And then, good color on the markets.

And certainly, a nice mix within the residential 14 SEER plus.

How are you thinking about price and mix as a contribution in residential and commercial for the year?

The way we think about it on a full-year basis is, over the last few years, we've gotten mix and we are going to continue to get mix.

I think that's tied to our product strategy, things like Strategos, things like our Dave Lennox Signature series.

I think that's an advantage of owning our own distribution because we can sell the premium product.

I think the government stimulus package on the tax rebates help us in that area also, and you saw that in the numbers in first quarter, as our mix of residential was up 10 points from last year.

I'm turning to the guys to make sure I got the right number.

13 points from last year.

On the price side, the price we got in first quarter was driven by prices increases that we announced last year.

So in some ways, it's just hanging on to price increases we had in the marketplace.

As we continue to work to do that, I think one thing we have as an advantage to us as an industry is the shock of copper over the last month or so, I think reminds everyone in this industry, customers and ourselves, that our input costs aren't a certainty right now in this uncertain environment.

And so, we are not looking to get price back and continue on the margins to look to try and get price.

Even in a difficult marketplace.

Final question.

How should we think about free cash flow for the year?

Do you see any more downside opportunity of the CapEx number?

How much can you pull out of working capital?

And then, along those lines, how are you thinking about share repurchase these days?

Our high-level guidance, which we won't get away from on this call, is cash flow in line with net income.

So that's the guidance.

But I think -- I would focus on first quarter, which I think was a very good -- lots of badness in first quarter, but I think one very good point is around our cash flow for the quarter being up $49 million from last year.

$34 million of that is reduction in working capital -- or improvement in working capital changes year over year.

So we are focused very aggressively on generating cash for the year.

We are not going to give you any more guidance than what we've given, but we are focused on, as you look at the first-quarter results, on share repurchase.

Again, the answer is the same as it continues to be, which is we will opportunistically look to buy when it makes sense.

We have no firm sunset on this share repurchase authorization, so we'll look to buy when we think it makes sense.

Did you do any share repurchase in the first quarter?

No.

Okay, thanks.

Scott Davis, Morgan Stanley.

Just a little bit of a history lesson.

Is there any kind of precedence to having residential replacement down 15%?

I can't recall, in the seven or eight years I've covered this space, seeing anything like that.

And I guess my question is if there is, if you could walk us through what -- what kind of a snapback you typically see, or what the lag, I guess I should say, in the snapback?

And then, maybe just a little bit of color on what's going on.

You mentioned that inventories are leaning out, but is there something at the customer level that -- just lack of credit -- that people -- maybe any signs that people want to replace but just can't afford it and can't do it, so they have to repair instead, duct tape, etc., a temporary replacement that, again, could come snapping back in 2010?

Let me sort of take a couple of pieces.

I'll start, though, with -- the duct tape fix doesn't work all that well.

But I will -- we'll let that one go.

A couple responses.

We are breaking glass on new territory here.

Two years ago, we said since the war -- and I mean World War II -- there had never been a residential market that was down three years in a row.

And then, last year, it was down three years.

And now we are down a fourth year in a row.

Replacement market, even in tough times, is not down, is flattish.

And what we are saying this year is we think it's going to be down high single digits for a year, and for the quarter it was down mid-teens.

In terms of what's driving that, I think it's lots of things that are driving it right now.

Most important is just consumer confidence.

And to me, that's one of the largest macroeconomic indicators, at least on the replacement market.

I mean, units are breaking just as often as they always do, and what we have seen is this move towards repair versus replace.

If not with duct tape, putting in a new compressor to fix it rather than replace it.

And what happens is -- to get a little technical for a second -- compressor failures are often the symptoms of other system problems.

So if a unit breaks and you live in Phoenix, Arizona, and you replace the compressor this year, and it's a 7- or 8-year-old unit, it may get you through the summer.

But next year, when it's 110 degrees, the compressor is going to pop again.

I just make that point to say there is lots of -- and we haven't quantified it, but there is significant pent-up demand that's being created on the replacement side of the business in residential.

We've had multiple years of down replacement markets, and a large part of that is people repairing units.

And when consumer confidence comes back, I think we're going to see a pop.

In terms of consumer credit, on the margins that's had an impact.

But we still think our consumers are able to get financing.

We have a deal -- or we work with GE Finance to support our dealers who provide packages to consumers.

On the margins, the minimum FICA score is a little higher and the cost to borrow is a little higher.

But consumers are still able to get credit to buy product.

As a follow-up, can you talk a little bit about that GE Capital agreement?

I believe, historically, about 10% of your sales have required that type of financing.

Have you seen a big jump up in that number as folks can't tap their equity line as easily and their credit cards are maxed out?

We haven't seen big movements.

Back in fourth quarter of last year, right in the throes of when all this was breaking on the credit side, we saw FICA scores really bump up and we saw sort of a downturn at the end of fourth quarter, and made us a bit nervous.

But as we've moved in the first quarter, we've seen things start to normalize a bit.

So we haven't seen huge movements around the percentage of our business that's being financed.

And lastly, that agreement, when does that expire?

Is there any visibility that it will be extended?

Let's get back to you.

I'm not sure -- our dealers tend to be -- we facilitate it and our dealers are the ones who have the relationships with GE Finance.

Okay, fair enough.

Thanks.

(Operator Instructions).

Glenn Wortman, Sidoti & Company.

Good morning, guys.

Just a quick question.

It sounds like the product mix is still improving.

I think we kind of touched upon this a little bit on the last call.

Has there been any trade down on the lower end?

I know people are, obviously, going after the higher efficiency items to capture some of these stimulus benefits?

Are you seeing a bifurcation of the market at all?

Yes.

We've seen a bifurcation probably for the last six to nine months.

And that continued in first quarter.

And obviously, what we mean by that is -- we have consumers who are willing to move up for high-efficiency, especially stimulated by the government bill, and -- but at the same time, we see consumers who just want -- the least costly alternative to replace an HVAC unit.

So we see movement down to our lower-end product, our Allied brands or our Merit [to] Lennox brands.

So yes, that continues.

Middle market continues to move both ways.

You noted some additional cost-cutting opportunities.

Can you give us a little color on that?

As I talked about on the call, back in December, we gave guidance of $20 million in commodities, and we still think that's the case.

We talked about $20 million in global sourcing savings back in December.

That's still the case.

We talked about $19 million in restructuring back in December.

We now think that's $25 million.

An additional new number we gave this time was in response to the market downturn and the reduction in revenue.

We have aggressively attacked SG&A and are taking off $55 million more in SG&A than what we had in our last guidance.

And to a high level, I think about that as 40% of the SG&A savings is coming from reduced headcount, about 20% of it is coming from compensation items like lower commissions and bonuses, and then the balance, 40%, is aggressive reduction on all the other discretionary items.

Thank you.

Finally, in conversations with some of your large retail customers, is there any cautious optimism on that front?

You mean on the commercial side?

Yes.

It's hard in this environment to have retail and optimism in the same sentence, even if you put cautious in front of it.

I think the good news, or sort of the optimism that I would put around it is -- we have relationships with the winners in retail.

So if you think about who's winning in retail right now, in a large part it's the guys down in Arkansas, and we're their suppliers, as well as several other major retailers, Target and the like, who we do business with.

The others -- we're winning in the marketplace with 60 new national accounts our last couple of years, so we are picking the horses that win.

So I'm not sure retail has played itself out.

But as I've said before, I think once things stabilize on consumer confidence, my sense is that's a segment of the commercial industry that's going to come back first since it went down first.

And we are well positioned there.

Thank you for your time.

Michael Coleman, Sterne Agee.

Good morning.

$25 million in cost savings and restructuring, if you could maybe just take a look at that $25 million and where the majority of it, whether it's residential, commercial, refrigeration, if you could break it into three buckets.

I don't know if you've done that before, but it might be helpful as we look at the margins over the back half of the year.

Sort of the big buckets of it are sort of cuts between -- as you would imagine, between factory, savings on pre-announced projects, and SG&A or headcount reductions.

So to order of magnitude, it's probably two-thirds sort of SG&A cuts we've taken, headcount reduction, and about one-third of preannounced factories.

Again, not to confuse folks, the $25 million is incremental to the $55 million.

So even though I am using SG&A sort of separately, you should feel free to add those two together.

In terms of the businesses, I would think about it as -- order of magnitude probably one-third commercial, one-third refrigeration, and the balance between residential and Service Experts.

Okay.

To that note, given the revenue decline in the commercial, it looks like the conversion was relatively strong.

And that was the rationalization that was done in Danville a year ago, or has that been already factored in, in historically?

Are you seeing the benefits from that?

Danville is in our Refrigeration segment, and the answer is -- that is, we are seeing the significant benefits in '09 from our Danville consolidation.

In our Refrigeration segment.

And the commercial (multiple speakers) benefit from --

I think we are seeing the benefit there from the SG&A cuts that I talked about.

When you think about the SG&A, the $55 million, a big piece of that is residential and a very large piece of that are commercial business.

As we pretty quickly figured out at the end of last year, that the markets had turned significantly, we have aggressively attacked our SG&A structure.

And done a lot of it without restructuring, and that's why it's sort of a separate bucket.

On the residential, in terms of the savings with -- I think it's Saltillo, Mexico -- as you defer volumes in the residential, it just becomes harder to get the savings associated with that new plant?

Or is there a certain level of savings you're going to get irrespective of volume pick-up or volume shift to that plant?

Short answer is, as volume goes down, unless we make other corrections, it's harder to get the savings.

But what you saw in first quarter -- or, excuse me, what you saw that we talked about back in February, and did in first quarter, was closing our Blackville Allied facility, and are moving that production down to Mexico.

So one of the things we are doing in response to the downmarket is moving as quickly as we can to get additional volume into the Mexico facility.

Now that gives me an opportunity to brag about our Mexico facility.

It has ramped up extremely well.

I was down there about a month ago for the official opening ceremonies.

And a very good factory that we are going to continue to move volume to.

The $55 million in SG&A savings, is that going to be realized in 2009?

Or what portion of that --

You should view the $55 million as in-year savings from SG&A.

Great, thanks.

Jeff Hammond, KeyBanc Capital Markets.

Just wanted to follow up on the copper issue, and hedging.

Have you -- when copper was in the low dollars, did you -- upsize your hedging, or have you kind of stayed with the banding strategy?

How much of -- is there any risk within your $20 million of commodity savings?

Within our banding strategy, there is sort of ranges we can be.

And when it was add it, at least now loads, we pushed it to the extreme of our banding strategy.

But still within a banding strategy.

Right now, or at least when we ended first quarter, we were about 87%, 90% hedged for the full year.

And that reflects our best guess of where volume is going to be.

And all of that is baked into what I said earlier, that we still feel the $20 million is solid.

Great.

And you mentioned the SG&A cost savings, but you're leaving the corporate lines at $60 million.

Any more wiggle room to maybe move that down as we move through the year?

You know, we're going to continue to pound on it.

But as you know, we have taken it down $40 million over the last couple of years.

And there's just costs that are there -- that need to be there.

We are going to continue to pound on it.

But I would not see -- I would not expect a material move on the corporate line, but the $55 million on SG&A and the rest of the enterprise is where we focused our time.

Perfect, thanks.

I would now like to turn the conference back over to Todd for closing remarks.

Thanks, everyone.

End markets were weak in the first quarter, compounding the effects of our seasonally-lowest quarter.

Despite this, cash generation was strong.

Moving into the second quarter, market conditions remain tough and the comparisons to the year-ago record quarter are difficult.

But Lennox continues to aggressively cut costs and make the transformational investments to position us to emerge from this economic downturn with strong earnings leverage as the markets -- end markets recover.

Thank you, everyone.

Thank you, ladies and gentlemen.

That does conclude our conference for today.

Thank you for your participation and for using AT&T executive teleconference.

You may now disconnect.