Lennox International Inc (LII) 2012 Q4 法說會逐字稿

Welcome to the Lennox International fourth-quarter 2012 earnings conference call.

At the request of your host, all lines are in a 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 Lennox International's financial performance for the fourth quarter and full year of 2012.

I'm here today with Chairman and CEO Todd Bluedorn, and CFO Joe Reitmeier.

Todd will review key points for the quarter and year, and Joe will take you through the Company's financial performance and outlook.

Financial results discussed today have been adjusted for discontinued operations related to the Company's previously announced plans to divest the service experts' business.

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 Chairman and CEO Todd Bluedorn.

Thanks, Steve.

Good morning, everyone, and thanks for joining us.

2012 was a year of strong earnings growth and cash generation for the Corporation, and we continue to make key strategic investments to position us for strong performance in 2013 and beyond.

In the uneven market conditions of 2012, the Company grew revenue 5% at constant currency.

Adjusted EPS from continuing operations was up 20% to $2.70.

GAAP EPS from continuing operations was up 26% to $2.63.

The Company's performance in 2012 was led by our residential business, with revenue up 9% and profit up 17%.

Residential margins expanded 50 basis points for the year, to 7.5%.

With North America residential HVAC market shipments up 2% in 2012, we clearly gained share with strong double-digit growth for the year.

The made significant gains in our replacement market, while also capitalizing on the recovery of the residential new-construction market in 2012.

Equipment revenue from residential new construction was up nearly 30% for the year.

In our commercial businesses, we had strong operational performance in the face of flat market conditions in 2012.

In refrigeration, revenue was flat at constant currency, with profit up 6%.

Refrigeration margins expanded 80 basis points to 10.4% for the year.

In commercial HVAC equipment and services, revenue was up 3% at constant currency, with profit up 14%.

Commercial margin was up 140 basis points to a record 12.7% for the year.

Turning to the fourth quarter, an overarching comment to make is that momentum continued, with revenue growth and strong operational performance across all of our businesses, while profit was impacted by higher incentive compensation, as planned and previously discussed.

The higher incentive compensation stems from performance targets achieved or exceeded in 2012 compared to 2011 when incentive compensation was significantly lower.

The impact was $23 million for 2012 overall, and about two-thirds of that impact was in fourth quarter alone.

Company revenue was up 6% at both actual and constant currency.

Adjusted EPS from continuing operations was $0.56 compared to $0.55 in the prior-year quarter.

GAAP EPS from continuing operations was $0.52 compared to $0.56 in the fourth quarter a year ago.

Total segment margin was 6.2% compared to a 7% in the prior year.

At constant currency, residential revenue was up 9%.

Commercial revenue was up 5%, and refrigeration revenue was up 2%.

In residential, we continue to capitalize on growth in residential new construction, with equipment revenue up 30% for the fourth quarter.

Replacement equipment revenue was up low-single digits in the quarter.

Commercial growth was primarily driven by non-national account business, while we continue to see national account orders pushed out into 2013 due to the political and economic uncertainties in the fourth quarter.

This business appears to be solidifying in the first half of 2013.

I would also like to note that our commercial equipment business signed up 29 new national accounts in 2012, tying the record year of 2007.

This is an indication that national account customers continue to select Lennox for our leading high energy efficiency rooftops, advanced controls, outstanding distribution and delivery, and customer support and service.

In refrigeration for the fourth quarter, revenue growth was led by greater than 20% growth in Asia-Pacific and high-single-digit growth in South America from the successes we are seeing with our growth initiatives in both these regions.

Residential and refrigeration profits were down in the fourth quarter, primarily impacted by the higher incentive compensation, while residential also had some impact from lower mix and a step up in our strategic investments in distribution.

Residential margins were down 200 basis points to 4%; refrigeration margin was down 60 basis points to 11.1%.

Commercial also had an impact from higher incentive compensation, but the strong operational performance of the business still drove margin up 220 basis points to a new fourth-quarter record of 13.5%.

Cash generation was strong in the fourth quarter and for 2012 overall.

Free cash flow was $171 million for the full year, or 190% of GAAP net income.

We paid $48 million in dividends in 2012, and repurchased $50 million of stock.

We're planning to repurchase $100 million of stock in 2013, and have $371 million remaining under our stock repurchase authorization.

With strong cash generation and a solid balance sheet, we are well-positioned to continue to invest in the business, return cash to shareholders, and consider acquisitions that make sense in our core businesses.

Inversely, we have been divesting non-strategic businesses.

We completed the sale of our Hearth business in the second quarter of 2012, and in the fourth quarter of 2012, we announced plans to sell Service Experts business, and this process continues to move forward.

At the analyst day in mid-December, I mentioned several strategic initiatives that we are excited about for improved growth, productivity and profitability.

In residential, we ramped up our production in Mexico by 30% in 2012, and will continue to grow that operation in 2013.

We continue to source more components from Asia, now over 45%, as well as [engineer] to cost reduce our product platforms and move further into material substitutions, including replacing copper with aluminum, for example.

In 2012, we had 32 Lennox PartsPlus wholesale stores, and plan to add another 28 locations this year.

HVAC equipment accounts for about 75% of the sales from these stores, and parts and supplies accounts for the remainder.

These stores have been one of the keys to our market share gains in residential outperformance in 2012.

As I mentioned earlier, we stepped up our investments in these stores in the fourth quarter, impacting us in the near term, but we expect positive benefits within 12 to 18 months, as each of these locations ramp up sales.

Also in residential, we continue to introduce new products in the market, ranging from entry-level all the way up to the most premium products available.

Most recently at the International Builders Show in January, we introduced the ultimate comfort system, the most advanced and efficient air-conditioning, heating and air-quality system ever created.

Led by the new XC25 air-conditioner and the new IHarmony zoning system, Lennox offers a complete system that allows homeowners to achieve customized comfort and control.

The XC25 is the most precise and efficient air-conditioner on the market, with industry-leading efficiency of 25 SEER.

It is equipped with silent comfort technology that keeps sound level to a minimum, and the XC's 25 cooling output can be changed in increments of just 1%, providing energy savings and comfort for the homeowner.

For the ultimate control, the new IHarmony zoning system solves a problem of uneven or uncomfortable temperatures throughout a home, and reduces homeowners' energy costs.

The IHarmony directs air to specific areas in the home while decreasing the airflow in others by using motorized dampers that allow homeowners to change a temperature throughout the entire house or only in a particular area.

The IHarmony zoning system can also be configured with the IComfort Wi-Fi thermostat and controlled by an iPhone, iPad or android device, putting precise comfort at the homeowners' fingertips.

In commercial, our new rooftop product called Raider to attack the emergency replacement market in North America is in production and available to customers starting this quarter.

We are very excited about this launch and the opportunities available.

Emergency replacement for commercial rooftops comprises about 45% of a $3 billion unitary market in North America.

This has not been an area of traditional focus for Lennox compared to our success in planned replacement in commercial new construction.

With Raider, we now have the right product to sell to contractors in the segment of the market to prioritize upfront cost, and we continue to invest in distribution to provide the highest level of same day, next day delivery that customers require for emergency replacement.

I will now turn it over to Joe.

Thank you, Todd.

Good morning, everyone.

I will provide some additional comments and financial details on the business segments for the quarter and the full year, starting with residential heating and cooling.

In the fourth quarter, revenue from residential heating and cooling was $305 million, up 9%.

Currency was neutral, volume was up 9%, and price mix was flat on revenue.

Residential profit in the fourth quarter was $12 million, down 27%.

Segment profit margin was 4%, down 200 basis points from the fourth quarter a year ago.

Segment margin was negatively impacted by higher incentive compensation as planned, lower mix, and a step up in strategic investments for distribution expansion that is planned to benefit us 12 to 18 months out.

Segment margin was positively impacted by higher volume and lower material costs.

For the full year, residential segment revenue was $1.4 billion, up 9%.

Currency was neutral, volume was up 11%, price was up slightly, and mix was down 2%.

Segment profit was $103 million, up 17%.

Segment profit margin was 7.5%, up 50 basis points.

Turning to our commercial heating and cooling business.

In the fourth quarter, commercial revenue was $188 million, up 4%.

Currency had a negative 1% impact, volume was up 4%, and price and mix were up 1%.

Both North America commercial HVAC equipment and service revenue were up high-single digits in constant currency.

Europe commercial HVAC revenue was down high-single digits in constant currency.

Commercial segment profit for the fourth quarter was $25 million, up 25%.

Segment profit margin was 13.5%, up 220 basis points from the prior-year quarter.

Segment margin was positively impacted by higher volume, favorable price and mix, and lower material costs, with an offset from higher incentive compensation.

For the full year, commercial revenue was $785 million, up 1%.

Currency had a negative 2% impact, volume was up 2%, and price and mix were up 1%.

Segment profit was $100 million, up 14%.

Segment profit margin was 12.7%, up 140 basis points.

In our refrigeration segment, revenue for the fourth quarter was $192 million, up 2%.

Currency was neutral, volume was up 1%, and price and mix were up 1%.

From a regional perspective in constant currency, Asia-Pacific was up more than 20%, South America was up high-single digits, North America was down mid-single digits, and Europe was down low-double digits.

Segment profit was $21 million, down 4% from the prior-year quarter.

Segment profit margin was 11.1%, down 60 basis points.

Segment margin was negatively impacted by higher incentive compensation as planned, with higher offsets from higher volume, favorable price mix, and lower material costs.

For the full year, refrigeration revenue was $788 million, down 2%.

Currency had a negative 2% impact, volume was down 3%, and price and mix were up 3%.

Segment profit was $82 million, up 6%.

Segment profit margin was 10.4%, up 80 basis points.

Looking at special items in the fourth quarter, the Company had net after-tax charges of $2 million, including $700,000 from restructuring activities.

For the full year, Lennox had net after-tax special charges of $3.6 million, including $2.7 million from restructuring activities.

Corporate expenses were $16 million in the fourth quarter, up from $14 million in the prior-year quarter.

And for the full year, corporate expenses were $60 million, up from $55 million in the prior year, primarily on higher incentive compensation.

Overall, SG&A was $127 million in the fourth quarter, up from $104 million in the prior-year quarter.

For all of 2012, SG&A was $507 million, up from $477 million in the prior year, primarily from higher incentive compensation.

Cash from operations was $221 million for the full year, up from $76 million last year.

Capital spending was $50 million in 2012 compared to $41 million in 2011, resulting in free cash flow of $171 million for the full year, up from $35 million in the prior year.

Now looking at liquidity.

Cash and cash equivalents were $52 million at the end of December.

Our debt-to-EBITDA ratio was 1.4 ending the year, within our target range of 1 to 2 times.

Total debt was $387 million at the end of the year, down $94 million from the third quarter of 2012, and down $79 million from the fourth quarter a year ago.

Before I turn it over to Q&A, I will review our outlook for 2013.

One month into the year, our market assumptions for 2013 remain the same as we discussed at the analyst day in mid-December.

We expect the North America residential and commercial unitary markets to be up low-single digits.

We expect Europe HVAC and refrigeration markets to be down low-single digits for 2013.

And based on these market assumptions -- market shipment assumptions, guidance for our revenue growth is 2% to 6% for 2013, with a neutral impact from foreign exchange.

As discussed at the analyst day, there are several puts and takes we expect for 2013.

We expect about $10 million of headwind from lower mix in the residential business this year due to more 13 SEER products, and faster growth in residential new construction.

Corporate expense is expected to be approximately $70 million in 2013, up from $60 million in 2012.

We continue to expect approximately $30 million of material cost savings through a combination of sourcing initiatives and engineering-led cost reductions.

And we currently project $20 million of price and commodity mix tailwind in 2013.

We expect about two-thirds of the $30 million material cost savings to be in the second half of 2013, and about 50% of the $20 million of favorable price in commodities impact to be in the second half of the year.

Our 2013 guidance for EPS from continuing operations remains $3.15 to $3.55.

To wrap up a few other guidance points for 2013, we expect net interest expense for the year of about $18 million.

We expect a tax rate of 34% to 35% for the year.

Our average weighted diluted share count for the full year is expected to be approximately 49 million shares.

And for capital spending, we expect about $60 million in 2013 as we continue to focus on transformational investments in the businesses.

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

(Operator Instructions)

Sanjay Shrestha, Lazard Capital Markets

Great, thank you, good morning, guys.

Pretty straight forward on a lot of things, but a few question.

First on the success you guys are having on the residential side, right?

Obviously, it is a new construction mix, which I think is helping you guys.

But how should we think about the continuation of that topline growth for you guys?

And if you can also comment a bit on the overall competitive dynamics as it relates to that?

If you look at over the last 12 months, and I think in resi share, you have to look over a 12 month period.

I think it's tough to look quarter to quarter given the timing of different distribution models.

But over a 12 month period, industry is up 2% in unit shipments, we're up double-digits.

And it is both new construction, but we are also gaining share in replacement market, and I think that reflects that investments that we have made in our PartsPlus distribution model, doubling the number of locations of the last three years and plans to double it again over the next three years, combined with the investments that we have made in product.

So, I think it is both winning and new construction, and that market is coming back very strong, but I also think we are winning in the replacement market.

And guys, so you do expect that market share gain dynamics to continue for you guys, given what you're doing, right?

That's what I was trying to get at more.

Yes, well I'd answer it this way.

History being a predictor of the future, the strategies that we've embarked upon building out distribution in investing new products, we continue to do that.

We talked a little bit -- or I talked a little bit on the call about some new resi product.

Actually, we are real excited about 2013.

Got it.

One final question then for me, guys.

So, incentive payment is a good problem to have, because things have come better than expected, but how do we think about -- has it been trued up now to a point where for the residential side of the business the incentive comp is no longer going to be a drag to the margin in '13?

Or how should we think about that?

The short answer is yes.

Maybe let me, Sanjay, go a little bit and just talk about the residential margins, because my guess is there is probably some questions to talk about there.

So number one, we talked about on the phone call, we said there was about $23 million year over year on incentive comp.

And that is simply, quite frankly, we had a tough year 2011, and so we didn't pay a whole lot of incentive comp, and we had a pretty good year 2012 and we did pay it, and that's the difference.

And out of the $23 million, you'd pro rat it out based on revenue.

And we said $15 million of it was in fourth quarter alone.

So, if you pro rat, you can pro rat it based on revenue, about half of it or so goes to the resi business.

The other thing we talked about with margins on resi is we talked about the strategic investments we have made in PartsPlus.

Back in the second half of 2011, given all the uncertainties we saw in the market, we put PartsPlus on hold, and so the whole second half of 2011, we only added one new store and the second half of 2012 we added 17 stores.

So, given that it takes 12 to 18 months for these stores to ramp up, what made a big investment in second half of 2012.

We saw some of that drag in fourth quarter as these stores start to ramp up.

We think it really positions us as we get into the cooling season in 2013 to have all of these new stores online.

And if you take those two elements and pro rat it, if you will, you'll see that our operating margins in resi were up about 100 basis points with those adjustments.

That's all I had, guys.

That's great, thank you, and congratulations.

Keith Hughes, SunTrust.

Your comment that equipment in residential was up 30%, the believe I heard.

Was that for the quarter?

If we said that, we did not mean to say that.

I think what we said is on a full-year basis, residential new -- the residential new construction portion of the business was up 30%.

Okay, I missed that, okay.

I wish it was up 30%.

I bet you do, I was about to say, what was down to some of these residential numbers.

Switching over to commercial in Europe, I believe you said it was down high single-digits, I assume that was for the quarter.

What was it for the year?

I am looking around the room.

I think it was flattish on constant FX for the full year, but someone will stick a number in my ear.

But you know what Keith?

We continue to see slowness in Europe as we head in the first quarter.

And we were profitable last year on flattish revenue, we continue to sort of take the time and make the investments to take some costs out of the business, and we are doing that as we enter first quarter.

Is that is something that would be up for strategic review?

I know it's been kind of up and down for many years now.

We have shown, I think, that we are not afraid to parse the portfolio.

But we like our European business.

We think that when you sort of combine our refrigeration business and our HVAC business in Europe, we think we're, if not at, real close to critical mass, and I think that is a business we continue to grow.

I think we have got it down to a cost basis where we are making mid to high single-digit [rosses], depending on the business that we have, the business that I'm talking about in Europe.

But we like it.

Okay, final question.

In your '13 guidance, and you said this at the analyst day that you expect mix to be a headwind in residential for '13 due to higher percentage of '13 SEER.

Is that the builder impact on the business in your projections?

I think it is two things, Keith.

It is the faster RNC growth, as you suggested, but it is also continuing pressure on the consumer and continuing to mix down on the replacement market, although albeit at a slower rate than we have seen in the last few years.

Why would there continue to be mix down if we're slowly coming out of the pretty horrendous downturn the last four or five years?

I would expect it to be going at least marginally the opposite way.

I hope you are right, then one have negative $10 million in mix.

But I -- it's -- there's still a lot of things on the horizon that affect the consumer, not the least of which is there's going to be some budget wrangling that takes place right when we get -- federal budget wrangling that takes place right when we go into the summer selling season.

So, my crystal ball is maybe cloudy on what consumer confidence is going to be in the US as we get into the summer selling season.

All right, thank you.

Jeff Hammond, KeyBanc Capital Markets.

Good morning, guys.

Just to wrap up on the one timers, you said it looks like the incentive spending.

Could you quantify what the investment spending was in the quarter in residential?

On distribution?

Yes.

The order of magnitude, $2 million.

Okay.

So, incrementals were more normal if you strip out that and the incentive comp?

When I do the math, if you do the incentive comp, sort of take halfish of the $15 million and $2 million or so for the investment distribution margins are up order of magnitude 100 basis points in res, which is more in line with what you would expect.

Okay, so the -- okay, perfect.

And then can you give me an early read on what you're seeing in terms of price actions that you have taken thus far in terms of those sticking or what the feedback has been in the channel?

As you know well, we announced that Carrier announced that Trane announced a price increase, Goodman announced a price increase, Nordheim announced a price increase, and so far, so good.

As we all know, everyone in the industry announces an umbrella price increase, get the full amount you announce.

But it looks like so far that we are back to a normalized industry where people announce a price increase at the beginning of the year before we go into the season, and will make it stick.

We will know more as we get into the summer, but so far, so good.

Okay., and then anything in the order trends in commercial or what you are seeing in residential 4Q and into 1Q, kind of shade your view at all on '13 growth rates or how you frame the guidance?

I know it's unchanged, but --

No, as you know, fourth quarter is always our seasonally lightest period, but the quarter is off to a solid start with some colder weather in January versus last year.

But up to half our shipments can take place in March, and so it's early.

And we also, as we talked about some of the guidance that we expect two- thirds of the $30 million material cost savings to be in the second half.

So, some of the cost savings are pushed out.

But from a market viewpoint, so far, so good.

And as we talked about in the script, we have seen the commercial market stabilize a bit, which is good news.

And again, that may change as we get into the some of the more additional budget wrangling at the end of the quarter, but so far, so good on commercials.

And your comment that commercial is stabilizing, is that functionally that some of the national count push outs are abating?

Yes.

Okay.

Thanks, guys.

Steve Tusa, JPMorgan

Hi, good morning, it's Drew on for Steve.

Just hoping I could get an update on refrigeration.

I wasn't -- maybe do a little bit of a similar margin walk for there and then just give an update on what is going on with the Kysor/Warren integration and then any other kind of margin details for the 4Q?

I think the margin details for our refrigeration business is driven by the incentive comp.

And so they're about a quarter of our business, and so I think you can pro rata out the incentive comp to them by about the same amount.

Operationally, they had a solid quarter again.

Kysor/Warren, we continue to be on track on the cost side of the business.

The revenue side has been a bit soft as grocery has in 2012 tightened up about halfway through the year, not only for us, but with all of our competitors.

But KW's a great acquisition, and we think we have done a really good job integrating it, we have some big plans in '13 and beyond for KW.

That's helpful.

And then back to resi, maybe just give color on the Allied versus Lennox split and then maybe what you saw from an independent distribution channel, their stocking behavior.

I know there's been some kind of diversions in the timing of price increases, so maybe get that split and some color.

Yes, it is hard for me to figure out when competitors do things or don't do things.

So, those have independent distribution, what they're doing in terms of loading the channel, I guess is the correct phrase to use.

So, I guess I don't have a whole lot of color to add there.

On the Allied Lennox comment, we continue to make investments in both those businesses and continue to win in both those businesses.

We have solid quarters of both our Lennox and Allied businesses.

Similar levels of growth?

I don't know if they're similar.

I think some of the investments we have made in PartsPlus have really -- and the exposure to new construction have set of helped the Lennox branded business because our Allied business really doesn't play in new construction, so 30% growth we're seeing in the Lennox business.

So, Lennox grew faster than Allied did.

Okay that's helpful.

Thanks very much.

Rich Kwas, Wells Fargo Securities

Good morning, everyone.

Question on, Todd, regarding the -- what you are seeing on the national accounts.

So, you said that basically here this last quarter, sounded like some of the non-national accounts were stronger, you continue to see the push outs.

If we think about margin flow-through, if national accounts are stabilizing, there's potential improvement later the year, does that come through at a lower margin versus the non-national accounts?

Is there any significant difference there?

No is the short answer.

Okay.

Again, we sort of cost and priced it and a little bit margin agnostic on the two segments.

Okay, so does not matter in terms of the mix, okay.

And then on the -- I know you don't give quarterly guidance, but we thinking about the first quarter here, as you mentioned, seasonally slowest quarter.

Last year had a pretty strong March on the residential side, nice rebound.

Anything we should be considering here as we think about first quarter, just for modeling purposes?

I think the thing I threw out both in the Q&A and the call about the $30 million material cost savings being two-thirds of those savings second half of the year.

So, if you lay that into your model linearly, in a linear fashion, I would revisit it.

And then we talked about -- I don't know if I said it on the call or I just have it in the Q&A in front of me, but the $20 million price and commodity tailwind will be split 50-50.

And so if you front end loaded some of that, I would spread it out equally throughout the year.

Okay, great.

That's all I had.

Thanks so much.

Nigel Coe, Morgan Stanley.

Hi, this is Jane calling for Nigel.

Just a couple of questions, thanks.

First on inventory, it looked a little bit high year-over-year.

Is this an indication for stronger expectation for demand going forward into 1Q?

Not really.

I think it is just the timing of when we build in what we don't build.

I think the thing I would underline with inventory and broader working capital is we had an outstanding fourth quarter and a very good year where we were almost 200% of GAAP net income.

And so, yes, the short answer is, given our guidance, we think the markets -- our revenues is going to be up in 2013, and we have built some inventory to take care of that.

I see.

So, for the inventory build, is that mainly for heating or cooling products?

Is it possible to get a breakdown?

We don't really get into that level of detail.

The honest answer is right now, even in the middle of the -- even in fourth quarter, we are building -- we're selling half of our load as air conditioners, so we sell air conditioners on a yearly basis.

We are selling both those, and the real ramp up for the cooling season inventory starts more in February where we now are starting to build up.

What you would have seen at the end of the year was just inventory as we are coming out of the peak of the heating season.

Got it, that's very helpful.

And another question just on the R-22 mix.

I guess R-22 sales is going to be lowering in '13, and do you expect to see some margin benefit from that in '13?

What we have talked about is that we think we're going to have a mix headwind next year of $10 million, both from faster growth in RNC and more '13 SEER that the elimination of -- the decrease in R-22 as a percentage of our sales we think drives revenue as people buy fuller systems.

But there's still this pressure on margins, and we think it's going to be about a $10 million headwind next year.

Okay, got it.

That's all I have, thank you.

Rob Wertheimer, Vertical Research Partners.

Good morning.

I wanted to ask just sort of a bigger question picture about the competitive environment in commercial.

It seems as though you guys have been winning share for quite a while though, I've asked you before, I'm not sure you're willing to quantify the net rooftops versus the gross.

But it seems as though you continue to win share, and I'm wondering if you seeing any stepped up competitive response?

And then the secondary question, does the Raider product help you, and I apologize for forgetting, at all with national accounts, or is that more just the mom and pops?

Let me answer the second question first.

It does not help with national accounts, although I would not label it mom and pops.

I think I would label it as emergency replacement.

I know you mean by mom and pops, yes, it's local businessman, local rooftop, often with an intermediary in between.

So, what they want as the landlord is to meet their contractual obligations at the lowest landed cost.

And that product -- that segment of the market accounts for 45% of the total rooftop market in North America.

Huge segment.

We have low single-digit share - or mid single-digit share in that segment, big opportunity for us, and it is about two things.

It's about having the right product, which we now have with Raider, which means cost but the features that people need, but nothing more.

And then distribution, and we have launched an initiative we've called ERA, emergency replacement.

And what we now have and planned, we have doubled or distribution over the last couple of years and we have plans to double it again in commercial distribution.

Again, it is getting those rooftops on the ground at the right cost point is a big deal.

So, we think that is a big growth opportunity for us.

And just the a bigger picture competitive response as you seemingly continue to -- I just don't have share numbers.

Yes, short answer is, everybody pushes back, and we have some very good competitors technically and distribution-wise.

And so they continue to go after national accounts, but -- and we continue to spin the [fly rule] ask quicker, quicker on innovation, and we continue to hold our own.

(Operator Instructions)

Glenn Wortman, Sidoti & Company.

I was actually going to ask about the commercial competitive position as well.

But then shifting over to refrigeration, can you just comment on your competitive position there and any market outperformance, if any, that you experienced in 2012 and what you anticipated heading into 2013?

Yes, I think across-the-board in refrigeration, the same points about the investments that we have made in product differentiation and our traditional Heatcraft business in North America, I think we've probably gained some share.

We're pretty confident in our international business, most namely South America and Australia.

We had a nice year.

In our Kysor/Warren business, our share was sort of a flattish probably in 2012, and I think that is an opportunity going forward for us to grow share.

As you know, that is a three party race, and I think the largest competitor, people are looking for alternatives, and I think that is a big opportunity for us.

Yes, thank you.

And we have no more questions in queue at this time.

Okay, thanks, operator.

A few points I want to leave everybody with.

2012 was a year of strong earnings growth and cash generation for the Company, and we continue to make key strategic investments to position us for strong performance in 2013 and beyond.

Momentum continued in the fourth quarter with revenue growth and strong operational performance across all our businesses.

From significant share gains and strong new construction growth in residential, the pickup in national account business and refrigeration in commercial, as well as the opportunities in emergency replacement market, we are focused on continuing momentum for the Company and outperformance in 2013.

I want to thank everyone for joining us today, have a great day.

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

Thank you for your participation and for using AT&T Executive Teleconference.

May now disconnect.