Lennox International Inc (LII) 2012 Q1 法說會逐字稿

Welcome to the Lennox International Q1 2012 earnings conference call.

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

There will be a question and answer session at the end of the presentation.

As a reminder this call is being recorded.

I would now like to turn the conference over to Steve Harrison, Vice President of Investor Relations.

Please go ahead.

Good morning.

Thank you for joining us for this review of the Lennox International's financial performance for the first quarter of 2012.

I am here today with Todd Bluedorn, CEO, and Bob Hau, CFO.

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

In the earnings release we issued this morning we have included the necessary reconciliation of 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 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.

Thanks, Steve.

Good morning and thank you everyone for joining us.

Let me take you through a few key points on the first quarter, and then Bob will discuss the financial results in more detail and the outlook.

Total Company revenue in the quarter was up 2%, led by 7% growth in our residential business.

Volume and price mix were both up for the Company overall.

We continue to closely manage costs with SG&A down 3% from the prior year quarter.

Total segment profit margin was up 50 basis points.

Adjusted EPS from continuing operations was $0.01, versus a $0.04 loss in the prior year quarter.

This is adjusted from discontinued operations from the planned sale of our Hearth business.

First quarter 2012 adjusted EPS from continuing operations had a $0.03 benefit from the movement of the Hearth business to discontinued operations.

First quarter 2011 had a $0.07 benefit from this move.

So if Hearth had not been moved to discontinued operations, we would have reported a $0.02 loss for adjusted EPS from continuing operations, versus the $0.11 loss in the prior year quarter.

On our website we have posted revised 2011 quarterly and annual earnings statements, which show the effect of the removal of the Hearth business on the Company's 2011 results.

On a GAAP basis for the first quarter of 2012 the loss per share from continuing operations was $0.01, versus the loss of $0.06 in the prior year quarter.

Our Residential business had strong execution in the first quarter, driving 7% revenue growth and 230 basis points of margin expansion in the business.

Residential segment profit was up 150%.

Revenue from residential new construction HVAC equipment was up more than 40% in the quarter, revenue from replacement equipment was up high-single digits.

The first quarter got off to a relatively slow start in January and February due to warm weather, but the unseasonably warm weather in March led to an early start to the cooling season and a strong finish to the first quarter.

R22 shipments were up a couple of points from the first quarter of last year, and were high-single digits as a percentage of total cooling unit shipments.

As we enter the summer months, we are still planning for R22 to be about 25% of the cooling product shipments, up about 5 points from last summer.

We still expect R22 to be a mixed headwind to operating profit of about $15 million in 2012.

Overall it was a nice quarter for residential, but looking ahead some cautions are in order.

The first quarter is a very seasonably light period for us and the industry , and it is tough to draw conclusions as the business transitions more to cooling products for the key summer selling season.

April is off to a solid start and has seen warm weather in some key regions, but the critical months are May and especially June for the second quarter overall.

Turning to our Commercial business revenue was flat in constant currency with segment margin up 10 basis points.

As we mentioned in the last earnings call the timing of growth in our national account business in 2012 would be beyond the first quarter.

Backlog and order rates look good, and we continue to expect a solid year in our Commercial business.

On the National account front we signed up nine new accounts on top of the 20 last year, to bring our total to 104 new national accounts won since the start of 2007.

In Europe revenue was up low-single digits at constant currency.

Turning to Service Experts, revenue was down 13% on weakness in the Residential business.

Commercial service revenue saw strong growth on continued success with national account customers.

In Refrigeration revenue was up 6% in the first quarter, about half of that rate on an organic basis.

We closed the Kysor/Warren acquisition in mid-January of last year, so we had a couple of weeks of inorganic growth in the first quarter this year.

We saw solid growth across all of the regions except for Australia, where the macroeconomic environment remains weak.

One last point before I turn it over to Bob.

We have continued to closely manage costs as reflected in SG&A being down 3% in the quarter, and our sourcing and engineering load programs that will provide $20 million to $25 million of in incremental savings this year.

We have also continued to invest in R&D and move innovation forward.

In Residential we are excited about our new generation of communicating controllers called iComfort WiFi.

It is as advanced yet simple to use as the latest smartphones and Tablets, and the iComfort app even enables consumers to monitor and control their HVAC systems from these wireless devices.

Dealers are excited because it helps them install a system much faster and eliminates error.

A consumer may also choose to have a dealer monitor the HVAC system for regular maintenance needs, as well as to take advantage of the prognostic and diagnostic capabilities of iComfort WiFi.

In Commercial we have introduced the Environ coil system, an all-aluminum design that is up to 50% lighter and uses 45% less refrigerant without sacrificing cooling performance.

Environ is now available on our high efficiency Energence systems, advancing our leadership in meeting the needs of national account customers.

These are just a couple of examples across all of our businesses in 2012, we continue to innovate, compete in new ways, and are focused on winning across the full spectrum of the market.

Now I will turn it over to

Thank you Todd.

Good morning everyone.

I will provide some additional commentary on the business segments for the quarter, starting with Residential heating and cooling.

In the first quarter revenue from Residential heating and cooling was $273 million, up 7%.

Volume was up 10%, Price was flat, and mix was down 3%.

Currency was neutral to revenue for the quarter.

Residential segment profit was $11 million, up 150%.

Segment profit margin was 4.0%, up 230 basis points.

Results were primarily impacted by higher volume and lower SG&A expenses, partially offset by mix and higher commodity costs versus the first quarter a year ago.

Turning to our Commercial heating and cooling business in the first quarter commercial revenue was $137 million, down 1%.

Volume was down 1%, and price and mix were up 1%.

Currency had a negative 1% impact on revenue.

North American commercial HVAC revenue was down slightly on the timing of national account growth.

In Europe HVAC revenue was down low single digits in actual currency, but up low single sittings in constant currency.

Segment profit was $6 million, flat with the prior year quarter, segment profit margin was 4.4%, up 10 basis points.

Results were primarily impacted by favorable price and mix and productivity initiatives, with offsets from higher commodity costs and the timing of SG&A expenses.

Moving to our Service Experts business segment, revenue was $102 million for the first quarter, down 13%.

Volume was down 19%.

Price and mix were up 6% on strong mix due to commercial service growth.

Currency was neutral to revenue.

Segment loss was $12 million compared to a loss of $8 million in the prior year quarter, and segment loss margin was 11.3% compared to segment loss margin of 7.0% in the first quarter a year ago.

Results were primarily impacted by lower volume in residential service, partially offset by lower SG&A expenses and strong growth in commercial service.

In the Refrigeration segment revenue in the first quarter was $185 million, up 6%.

Volume was up 4%, and price and mix were up 2%.

Currency was neutral to revenue growth.

On a regional basis in constant currency North America was up high teens, China was up mid teens, Europe and South America up mid-single digits, and Australia was down mid teens.

Segment profit was $14 million, up 5%.

Segment profit margin was 7.7%, flat with the prior year quarter.

Refrigeration results were primarily impacted by higher volume and favorable price mix, with offsets from higher commodity costs, timing of factory absorption, and selling expenses.

Looking at special items for the first quarter from continuing operations the Company had restructuring charges of $2 million after tax.

The remaining special items netted to a gain of $1.2 million.

Corporate expenses were $14 million in the first quarter, essentially flat with the first quarter a year ago.

For 2012, our corporate expense guidance remains $65 million to $70 million.

Overall SG&A was $163 million in the first quarter, down 3% from the prior year quarter.

For the first quarter cash used in operating activities was $34 million, compared to $148 million in the prior year quarter.

Capital spending was $7 million for the first quarter compared to $8 million in the first quarter last year.

Free cash flow was a negative $41 million in the first quarter compared to a negative $156 million a year ago.

Due to the seasonality of our business it is common to use cash in the first half of the year, and generate cash in the second half of the year.

Cash and cash equivalents were $55 million at the end of March and our debt to EBITDA ratio was 2.1 ending March, and we expect this to trend down through 2012.

Total debt was $524 million at the end of the quarter, and for 2012 we expect interest expense of approximately $20 million.

We did not repurchase stack in the first quarter, but still plan a minimum of $50 million of stock repurchases in 2012.

We have $121 million remaining under our current stock repurchase authorizations.

Before I turn it over to Q&A, I will briefly talk about our outlook for 2012 which has not changed.

We expect North American residential shipments to be up low single digits for the industry.

We expect North American commercial unitary shipments to be up low single digits for the industry, and we expect Europe HVAC and Refrigeration shipments to be up low single digits as well for the industry.

Based on these assumptions our guidance for our revenue growth remains 2% to 6%, with a neutral impact from currency.

We continue to expect approximately $15 million of commodity headwind for 2012 weighted more towards the first half of the year, although we expect this to be offset by price on a full year basis.

In our global sourcing and engineering led cost reduction programs we continue to expect $20 million to $25 million of savings for the full year, although weighted more to the second half.

Looking ahead at the year in total with our strongest seasonal period still in front of us we reiterate our guidance for adjusted EPS from continuing operations of $2.20 to $2.60.

Our GAAP EPS range is now $2.15 to $2.55 including the impact of announced restructuring activities.

The average weighted diluted share count guidance for the full year remains approximately 51 million shares.

We still expect our full year tax rate to be 33% to 34%.

For capital spending we still expect approximately $55 million in 2012.

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

Thank you.

(Operator Instructions).

Our first question comes from the line of Jeff Hammond with KeyBanc Capital Markets.

Please go ahead, your line is open.

Hey, good morning, guys.

Hi, Jeff.

I understand it is early in the year but just on the guidance I guess, one it looks like X the goodwill impairment you lost about $0.15 on Hearth last year.

It just seems like if you move that into disc ops you get a bump in the guidance.

Give me a sense of where maybe 1Q came in relative to kind of your internal plan?

Let me talk about Hearth first.

As we mentioned back on the February call, we expected improved conditions for the Hearth market, and for our business in 2012, and have taken actions to significantly narrow the loss position.

Since we expected the 2012 -- and we expected to have a much smaller loss this year than last year, and I think you saw that in first quarter, where we lost $0.03 this year versus $0.07 last year in first quarter.

And so from a full year basis not near the impact that this year that we had last year.

And so therefore we encompassed it in our current guidance.

In terms of where first quarter came in, I mean there were puts and takes but broadly speaking, first quarter as you know is our lightest quarter.

Second and third quarter are really the drivers of the year even in second quarter, as you know, Jeff, almost half of the revenues are in the month of June.

First quarter was a good quarter for our residential business.

April has started solid where we have had some warm weather, and that has helped but there is still the cooling season is still in front of us.

In years where the first quarter wasn't as good as everyone thought it should be, we didn't lower the number and first quarter might be a little better than people might have thought it would be.

We don't think it is time to raise the number, let's get into the selling season.

Okay, that is perfect.

Can you give us a sense of order rates in 1Q for res and the commercial heating and cooling business, and maybe any kind of trend into April?

Both in commercial, I will talk to the commercial business first.

Both in Commercial and Refrigeration order rates remain solid, especially in commercial HVAC as we talked about the revenue in the quarter really didn't reflect the underlying order rates that we are seeing, given the timing of some of our big national accounts, and we said the industry is going to be up low single digits for the year.

We are still standing behind that and we always encompass that we are going to outperform the market especially in our Commercial and Refrigeration business.

Res, I have heard some of our competitors talk, March was a strong month for us, but we didn't sort of see the hockey stick maybe that others saw, and I think that is because we are more balanced between residential new construction and add-on and replacement.

As we mentioned in the script we saw residential new construction up 40% in first quarter, and the warm weather in January and February probably helped us there.

But markets that are not weather dependent, the south and the west, we also saw some pickup there.

And so overall it is sort of a good quarter for us in residential.

Okay.

Thanks.

I will get back in queue.

Thanks.

Thank you.

Our next question from the line of Josh Pokrzywinski with MKM Partners.

Please go ahead, your line is open.

Maybe just a follow-up on Jeff's question on Commercial and order momentum there.

I understand you are indicating that you are up in line or seeing similar momentum to some of your peers out there, who are reporting pretty strong order rates.

Maybe not to put too fine a point on it, it seems like there is a difference between as you characterized it as solid, and competitors saying exit rates for order growth for the first quarter were up 20%.

Want to make sure that we are not too far off that number.

And if so, if it is truly just a timing aberration or there is some difference in the market with commercial accounts versus some other previously lagging verticals, like office?

We continue to do well in our Commercial business, and I think that our order rates remain, as I said, we had a good year last year and we continue to have solid order rates this year.

I think that our bias tends to be not the preannounced order rates, but the sort of post-announced strong revenue within a quarter, and so I think we had a strong run in our commercial business and that continues.

Okay.

And I apologize if I missed this earlier in the prepared remarks, but you guys called out incremental restructuring in the press release.

Where is that hitting?

We took some restructuring charges in first quarter associated with our residential distribution network activities.

Okay.

And then could you break out a furnace versus cooling for the first quarter?

In first quarter as order of magnitude, half cooling, half heating.

Okay.

And just on, I would imagine furnace down, was it down materially and cooling up nicely?

We actually had solid performance in both product lines in the first quarter.

Even with some of the warm weather that we had early in first quarter, we had a good quarter both for furnaces and for cooling product.

Got you.

Alright, thanks, guys.

Thanks.

Our next question is from the line of Keith Hughes with SunTrust.

Please go ahead.

Your line is open.

Are you there, Keith?

One moment if I could pull him back, because he just disconnected from us.

We will go to the line of Adam Samuelson with Goldman Sachs.

Please go ahead.

Your line is open.

Good morning, everyone.

Hi, Adam.

First question on pricing.

I think the comment on the prepared remarks was Resi pricing flat year-over-year.

Maybe talk about what you have been seeing in price and chatter in the industry that the fall prices may be getting some push back from customers and distributors.

Maybe what you are seeing and expectations as we move through 2012?

What we said about the enterprise overall, which obviously encompasses res since that is order of magnitude half of our revenue, is that we would have $15 million of commodity headwind, and we would have enough price at a minimum to offset that in 2012.

What we saw in first quarter across the businesses that we did that in first quarter.

We are still confident we are going to do that for the full year.

In res there are always skirmishes on the edge of the empire around pricing in any given market things are going on.

The fact that we saw some growth in the market this year in first quarter certainly in our revenue, I think that sort of bodes well for pricing.

Okay.

That is helpful.

And then maybe within the res business maybe a growth differential between the Allied brands and the Lennox brands, if any?

We had growth in both businesses in the replacement markets.

Our Lennox brands are the brands we sell to residential new construction, and given that was up more than add-on and replacement that sort of helped drive the Lennox brands in the first quarter.

The maybe just quickly switching gears to Refrigeration, you had margins flat year-over-year despite the fact that Kysor/Warren closed in the first quarter of 2011.

I believe there were some integration charges that were taken in 1Q, so X those items margins actually would have actually been down.

Maybe talk about the progress on Kysor/Warren?

Other drivers here maybe mix with the Australia business being down so much?

I think you sort of pulled on a couple of the threads.

The Kysor/Warren integration has actually gone very well.

We have talked about the accretion that we are going to get this year, and we are well on track to do that.

So that wasn't the issue in first quarter.

The issue in the first quarter was higher raw component commodity costs, and the timing of some of the factory absorption on a year-over-year basis.

In other words, last year we built more inventory first quarter than we did this year, and that factory absorption that we had last year we didn't repeat this year.

Our Australia business which is the material part of our Refrigeration business which we have talked, about 20% or 25% or so of what we do was down significantly, down double digits in revenue with tough market conditions in Australia.

Our North American business performed nicely.

Our European business revenue was up low single digits.

Given the caveats I said, it was another good quarter for our Refrigeration business.

That is helpful.

Maybe just lastly on that Australia business any outlook on the full year?

How does that play out as we get into the more meaningful selling season?

As I am sure you know it flipped in Australia versus here.

In many ways we just went through the selling season.

Our winter, North America winter is their summer in Australia, and as we he get into our summer, that is sort of the lower sales period for Australia.

We think we have an eye on that, and baked it into our guidance.

Okay.

That is helpful.

Thanks very much.

Thanks.

Thank you.

We do have a question from Keith Hughes with SunTrust.

Please go ahead, your line is open.

Thank you, I got disconnected before.

You usually hang up after I answer, not before.

I hit the wrong button this time.

A couple of questions, the high single digits repair replacement in the quarter, if you have normal weather is that a number that is doable for other periods of this year?

That is just a surprisingly high number.

I don't know if I would use the words surprisingly high number.

I think we had easier comps in first quarter.

We talked about a pull forward that we had at the end of 2010 with the please increase, and so I think in some ways we had an easier comp in first quarter.

We have talked about the industry and Bob sort of reguided being up low single digits for the full year, and I think that is still our best view of the world.

But as you know it is sort of an uncertain res market right now.

Yes, it could be up higher than low single digits but that is our best call right now.

Okay.

And can you give us any sort of update on R22 production?

I know there is heavy talk in the industry on the amount that could be produced or imported coming down substantially.

Any new news there would be helpful.

There are sort of moving pieces on R22 that I will talk about.

Sort of high level, I think the message I would leave you with is, last year 20% of our cooling shipments were R22 and for the industry, and we have called out 25% and that is about a $15 million headwind, and we still think that is after one quarter going to be the case.

And first quarter which you wouldn't expect to see much R22, you really see that in the summer time, about 9% of our revenue or cooling units was R22, which is up a couple points from last year and first quarter tracked about where we would expect it to be.

There is things going on in the industry that you know about, the EPA reducing the allocations of R22 refrigerant which has driven up the price, and then some rule making from DOE about restricting condensing units that were not certified prior to January of 2010.

We think all of those are good movements, and over the medium term we will close this loophole, but we still think 25% of the volume this year is going to be R22.

If there is an impact you think it will be a 2013 impact is that fair to say?

I think it won't be 2012 and may be 2013.

Final question.

Within the commercial business, are you seeing dramatic differences, I know you are not in applied commercial, are you seeing big differences between growth rates and what your competitors in applied commercial are talking about and your primarily unitary commercial?

The only thing I heard, I heard what Trane had to say.

Carrier was announced this morning, so I didn't hear what they had to say, and I am not sure I understood what York had to say.

I am not sure I could connect all of the dots on what our competitors have seen.

I will just reiterate, I am pretty confident in the unitary market where we play, we have had a very good run the last couple of years in winning in the marketplace, and first quarter was no different.

It is just about timing of some major national accounts in terms of year-over-year basis where they are taking the deliveries in the year, and we are still very confident that we will have a good year in commercial.

Alright.

Thanks.

Thank you.

We go to the line of Rich Kwas with Wells Fargo Securities.

Please go ahead.

Your line is open.

Hi, good morning, everyone.

Hi, Rich.

Todd or Bob, on price cost it seems like the outlook in terms of the $15 million in terms of covering that seems conservative.

Just given that you put through pricing last year, you are lapping some significant commodity cost increases.

I caught your comment about at least cover that.

Should we kind of view that as being the $15 million in terms of being net neutral being a conservative estimate at this point, or is there anything that you are seeing on the commodity cost side that worries you at all?

I don't think there is, on the copper side as we have talked about we hedge.

At this point in time we are large part hedged for full year.

The variable in our commodity structure is steel, and we buy that at CRU pricing from the mills and from the service center a quarter in arrear.

That is really sort of the outlying risk among commodity costs, I think the commentary is about price realization both the prices we have announced already, and continue to drive to get price in the marketplace.

Again our guidance is to cover at a minimum to cover the 15.

I think you can sort of read that how you would like to.

Okay.

Big picture question.

Service Experts continues to underperform.

I know you are trying to shift that more to commercial in terms of the mix.

At what point do you kind of look at this and go is it really a core part of the business, does it make sense to keep it?

You sort of captured what my answer was going to be.

We he have done a lot of the heavy lifting to drive productivity.

We obviously need some more residential volume to flow through the business.

Commercial I think we have the recipe and we continue to grow, and let's get through the summer season, and I think a lot of the actions that we take are going to pay benefits as we get through the selling season.

One last housekeeping.

Bob, what was the revenue for Hearth in the quarter?

For first quarter last year was about $18.4 million.

About flat, up slightly in the first quarter of 2012.

Okay.

Great.

Thank you.

Thanks.

Thank you.

We have a follow-up question from the line of Jeff Hammond with KeyBanc Capital Markets.

Please go ahead your line is open.

Go just to go back on Service Experts a little differently.

Help me understand the disparity between the res heating and cooling business and Service Experts, is that strictly the weakness January/February kind of overtaking the quarter, or maybe help we understand the dynamic there?

The equipment business saw signature benefit from the fast growth in residential new construction.

Service Experts doesn't play there.

I think that is point one.

Point two is we had in the equipment business we have had a lot of success signing up new dealers with the initiatives we talked to you about, Parts Plus being one of them.

And all of the dealer retention programs we have talked about and acquisition programs, and so I think we had a nice both from residential new construction and add-on replacement in our residential business, and there is always a bit of a timing even when we sell 80% of our volume direct to dealers there is a timing between when the dealers see some of the volume as the weather heats up during the cooling season.

And in your review of inventories in your channel, and what are you hearing on just inventories overall, and just preparedness if we get this better selling season?

I can't comment on others.

We are ready.

So we sort of had lots of internal reviews and conversations with suppliers and conversation with the factory, as we saw sort of the revenue rates of first quarter, and so we want it to be hot for a long time in the summer time, and we will be ready to ship cooling product.

Thanks, guys.

Thanks.

Thank you.

(Operator Instructions).

We will go to the line of Rob Wertheimer with Vertical Research Partners.

Please go ahead, your line is open.

Hi, good morning guys.

Most of my questions have been answered.

I just wanted to ask again on industry mix, you talked about the Allied brand.

Do you feel like the consumer is coming out and is healthier, and looking to get a little more shift towards premium?

I know the R22 issue you talked about the 20 to 25.

Just your general impression beyond R22 on how mix is trending?

I think it is too early in the season to declare victory, Rob.

The first quarter in terms of sort of the high efficiency mix, we were order of magnitude the same of where we were first quarter last year, which last year we sort of had to trade down from where we were in 2010.

We sort of saw a flattening of that in first quarter.

But I think you are really going to see what is going on in the summer season, because that is where you have a lot more of the over-the-counter people emergency replacements of their air conditioners, where you would see the trade down effect.

The answer is I am not sure yet, we will know better after second quarter.

That makes sense.

That was really it for me, so thanks.

Thanks, Rob.

Thank you.

We go to the line of Steve Tusa with JPMorgan.

Your line is open.

Hey, good morning.

Maybe you could talk about, I missed some of the call and sorry if you have already answered this.

If not I will just go back to the transcript.

Your sense of industry inventories out there, and I know you do a lot of your own distribution, but maybe what you are seeing and how distributors are behaving out there, and how you are kind of thinking about inventory in the industry?

I don't have a broad participant on the industry.

With us our independent distributors have been cautious through first quarter but are being more optimistic, as they see some of the results in warm weather in March.

We were asked on a prior question sort of our inventory position if it as really hot summer can we meet demand and the answer to that was absolutely.

Again I think as given that we are 80% direct model, when we see the demand we will see the sales and we have plenty of inventory to cover it.

Alright.

Are you seeing any kind of shifts in obviously R22 last year was not a kind of a high tide for everyone.

Are you seeing any kind of competitive shifts out there, as some of your peers come out with or kind of re-establish themselves in that market?

Have you seen anything move around at all?

You may have benefited or lost last year, and now given that you are more full steam this year you are going to benefit more?

Either way, any kind of share shifts?

The honest answer is it is early.

What I said on an earlier question is we are about 9% R22 of our cooling shipments in first quarter, which is up a couple of points from last year first quarter, but we still think it will be full year go from 20 to 25 as an industry.

I am sure you are talking about Trane with your question.

We will have to wait and see but we haven't seen any big share movement.

As I is said in the past, there was R22 available last year to dealers who might have different brand logos on the top of their doors, they could have bought it from other people, and in fact did buy it from other people.

So we will have to see is the short answer.

Right.

Why was the North American Refrigeration so strong in the quarter, and how do you guys, what have your customers told you about kind of the moving to the back half?

I don't know if that can be lumpy or not quarter to quarter?

I think we have called out low single digits for the Refrigeration market, and that is sort of broadly where we think it is.

We had a good quarter in North America, and I think we continue to win share with our legacy Heatcraft business, and then in our display case business, I will think the industry leader continues to have some chaos, and I think we continue to take advantage of that.

Anything on the kind of remodeling front out of major customers that is lumpy this year, or is things pretty steady state?

I think it is spread out.

As you know, whether it is the pharmacy or the drug segment, the big players there continue to go to more prepared food and refrigerated food, whether it is reformatting at the big boys, where they try to go to more sort of small manageable formats for urban environments.

There is lots of reformatting going on, and we think we are right in the middle of that.

One last question for you.

The dynamic around repair versus replace.

Are you seeing, obviously the weather has been warm.

Obviously housing is picking up here a little bit.

Has there been any evidence that the consumer is kind of getting out of bed here a little bit, just in March, or are what you are hearing from the contractors and distributors about conversations they are having with consumers?

Any kind of ray of hope that people are actually spending a little bit more money on replacing their systems?

There is always a ray of hope, but the answer is it is too early I think to call it.

I think we will know more after second quarter.

I mean we had a good first quarter in our residential business, but the demand or repair/replace phenomena, I think we will know a lot more in the summer time.

That is where you tend to get a lot of the at once replacement, the over the counter brands, that is where I think we will get a much better feel of what the full mix effect is going to be.

Great.

Thanks a lot.

Appreciate it.

Thank you.

There are no further questions in queue at this time.

Please continue.

Thanks a lot Operator.

I want to thank everyone for joining us, and maybe leave you with a couple of key points.

As we talked about on the call, our residential business had strong revenue and profit growth in the first quarter, driven by both new construction and replacement business.

We are well positioned for the summer selling season, and April is off to a solid start, but it is early, and May and June are the critical months for second quarter.

Commercial and Refrigeration backlog and order rates continue to look good, and we expect another solid year for these businesses.

With Lennox well-positioned competitively and winning in the marketplace, we look forward to our strongest seasonal period of the year.

Thank you all for joining us.

Have a good day.

Thank you.

Ladies and gentlemen, that does conclude the conference for today.

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