Lennox International Inc (LII) 2013 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Lennox International first-quarter 2013 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 first quarter of 2013.

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

Todd will review key points on the quarter 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 sell the Service Experts business, which closed on March 22.

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 risk 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.

2013 is off to a good start, as our business momentum continued in the first quarter.

With growth across all three of our businesses, Company revenue was up 9%, led by 15% growth in our residential business.

Total segment profit was 4.4%, which was a first-quarter record for us, and EPS from continuing operations was also an LII record for the quarter.

Adjusted EPS from continuing operations was $0.33, up 74%, GAAP EPS from continuing operations was $0.31, up 72%.

In residential, segment profit was up 86% on the 15% revenue growth in the first quarter.

We continue to capitalize on growth in residential new construction, with equipment revenue up more than 20% in the first quarter.

Replacement equipment revenue was up low double digits in the quarter.

As expected, we saw some mix down from the faster growth in new construction, as well as generally from consumers in the replacement market, but the mix down impact was offset by price in the first quarter.

In our Commercial business, revenue was up 4%, and segment profit was up 34% in the first quarter.

Growth was led by North American commercial equipment and services, while Europe remains soft, and was down in the quarter.

Our Lennox National Accounts Services business was especially strong on the growth of nationwide services.

Refrigeration revenue was up 4% at constant currency in the first quarter, and segment profit grew 18%.

Refrigeration was led by double-digit growth in South America, and more than 25% growth in Asia-Pacific.

Australia saw strong growth, as we continue to make investments in our Wholesale business in that country, and expand our refrigerant operations.

In 2012, we made purchases of low-cost refrigerant and invested in decanting equipment and operations to sell it through our distribution network throughout the country.

Also in Asia-Pacific, we are seeing strong growth as we continue to capitalize on refrigeration build out opportunities in the emerging markets of China and Southeast Asia.

Turning to Service Experts, in late March, we completed the sale of Service Experts, in a $10.4 million all-cash transaction.

As part of the deal, we also secured a two-year supply agreement with Service Experts.

Following the sale of the Hearth business in the second quarter of 2012, the sale of Service Experts completes the divestitures of our non-strategic businesses, and we like our business portfolio going forward.

With a solid balance sheet, we are well-positioned to continue to make transformational investments in our businesses, maintain a competitive dividend that grows with earnings over time, and consider acquisitions that make sense in our core businesses.

In 2013, we are planning to repurchase $100 million of stock.

Currently, we have $371 million remaining under our stock repurchase authorizations.

Before I turn it over to Joe, let me update you on a couple of our strategic initiatives.

In residential, we added seven more Lennox PartsPlus stores to our distribution network in the first quarter, and are on track with plans to add a total of 28 of these wholesale stores this year.

We now have 115 PartsPlus stores, and they continue to be one of the keys to the success we are seeing in our Residential business.

Within these stores, about three-quarters of the sales are HVAC equipment, and one-quarter of the sales are parts and supplies.

In Commercial, our new Raider product line of rooftops, targeted at the emergency replacement market, started production in the first quarter, and began hitting the street in March.

We've seen a lot of excitement around the product launch from dealers and contractors, and Raider is off to a good start, as we head into the summer season.

As I mentioned before, this is a sizable opportunity for Lennox since the emergency replacement market comprises about 45% of the commercial unitary market in North America.

The emergency replacement market has not been an area of traditional focus for Lennox, compared to our success in the planned replacement and commercial new construction, but with Raider, we now have the right product to sell in this segment of the market that prioritizes upfront cost.

With 24 commercial regional and local distribution centers at the end of first quarter, we continue to invest in distribution to provide the high level of same-day next-day delivery that customers require for emergency replacement.

We expect to have 32 commercial distribution centers in place by the end of 2013.

Now I'll turn it over to Joe.

Thank you, Todd, and good morning, everyone.

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

In the first quarter, revenue from residential heating and cooling was $315 million, up 15%.

Currency was neutral, volume was up 15%, and combined price and mix was flat, with price up and mix down.

Residential profit in the first quarter was $21 million, up 86%.

Segment profit margin was 6.5%, up 250 basis points from the prior-year quarter.

Residential results were positively impacted by higher volume, favorable price, and lower material costs, with partial offsets from higher investments in our distribution expansion, and higher SG&A and lower mix.

Turning to our Commercial Heating and Cooling business, in the first quarter, commercial revenue was $163 million, up 4%.

Currency was neutral, volume was up 4%, and price and mix combined was flat on revenue.

North America Commercial Equipment and Service revenue was up high single digits in the quarter, led by strong growth in Lennox National Account Services.

Europe Commercial HVAC revenue was down nearly 10% at constant currency.

Commercial segment profit in the first quarter was $11 million, up 34%.

Segment profit margin was 6.8%, up 150 basis points from the prior-year quarter.

Commercial results were positively impacted by higher volume, favorable price and mix, and lower material costs, with partial offsets from investments in distribution expansion, and higher SG&A.

In our refrigeration segment, revenue in the first quarter was $191 million, up 3%.

Currency had a negative 1% impact, volume was down 2%, price was flat, and mix was up 6% from our Australian wholesale refrigerant initiative.

From a regional perspective in constant currency, Asia-Pacific was up more than 25%, South America was up low double digits, Europe was flat, and North America was down high single digits.

Segment profit was $17 million, up 18% from the prior-year quarter.

Segment profit margin was 8.7%, up 100 basis points, refrigeration results were positively impacted by price and mix combined, as well as lower material costs, with a partial offset from higher SG&A.

Looking at special items after-tax in the quarter, the Company had $700,000 for the net change in unrealized losses on open futures contracts, $300,000 for restructuring activities, and $200,000 for other items net.

Overall SG&A was $136 million in the first quarter, up from $123 million in the prior-year quarter on higher selling expenses, and higher incentive compensation expense than in the prior-year quarter.

Within SG&A, corporate expense was $19 million in the first quarter, up from $14 million in the prior-year quarter.

However, for the full year, we continue to expect corporate expense of approximately $70 million.

Cash used in operations was $137 million in the first quarter, compared to cash used in operations of $34 million in the prior-year quarter.

Cash usage was higher in the first quarter this year, as the Company had higher accounts receivables from a strong first quarter, higher inventories as the Company positions itself for higher demand in the seasonally-stronger second quarter, and a higher cash payout for incentive compensation based on 2012 results, compared to the first quarter a year ago.

Capital spending was $12 million in the first quarter, compared to $7 million in the prior-year quarter.

Free cash flow in the quarter was negative $149 million, compared to a negative $41 million in the first quarter a year ago.

As most of you know, it is typical for the Company to use cash in the first half of the year and generate cash in the second half of the year, due to the seasonality of our Business.

Total debt was $516 million, and our debt-to-EBITDA ratio was 1.8 ending the quarter, within our target range of one to two times.

Cash and cash equivalents were $35 million at the end of March.

Now before I turn it over to Q&A, I'll review our outlook for 2013.

We continue to expect North American residential HVAC shipments to be up low single digits for the industry, for the full year.

We anticipate North American commercial and unitary shipments to be up low single digits in 2013 for the industry as well, and we continue to expect Europe HVAC and refrigeration market shippers to be down low single digits for the full year.

Based on the Company's first-quarter performance, guidance for our revenue growth is now 3% to 6% for 2013, with the low end up 1 point from the prior-year range of 2% to 6% growth.

Foreign exchange is still expected to be neutral for the full year.

We still anticipate a $10 million headwind from lower mix in the Residential business this year, due to more 13 SEER products, driven in part by faster growth in residential new construction.

We continue to expect approximately $30 million in material cost savings, through a combination of sourcing initiatives and engineering-led cost reductions, and we're feeling good about our projection for $20 million of price and commodity tailwind in 2013, with about half from price and half from commodities.

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

We are raising the low end of our 2013 guidance for adjusted EPS from continuing operations from $3.15 to $3.55, to a new range of $3.25 to $3.55.

GAAP EPS from continuing operations guidance incorporates the $0.02 difference in the first quarter, and moves to a range of $3.23 to $3.53.

Now to wrap up with a few other guidance points for 2013, we continue to expect net interest expense of about $17 million for the year, we still expect a tax rate of 34% to 35% on a full-year basis.

Our average weighted diluted share count for the full year is now expected to be approximately 50 million shares, and for capital spending, we continue to expect about $60 million in 2013.

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

(Operator Instructions)

Jeff Hammond, KeyBanc Capital Markets.

It looks like your guidance raise is maybe reflecting more share gains than market, because it looks like your market assumptions are unchanged?

I think that's one way to think about it.

I think the other way to think about it is, cutting a little bit off the low end just reflects that we had a solid first quarter, and took some of the risk off the table from the first quarter.

Okay.

But it does seem like your share momentum continues.

How are you thinking about the sustainability of some of the share gains you've been seeing?

I think we're winning.

I think we gained share last year, and we're off to a good start this year.

I think when you're gaining share because of things like building out distribution as part of a multi-year strategy, and winning because your vitality index is over 40% on a multi-year basis, I think those are sustainable share growth.

So it's not that we're winning with one gee whiz trick.

We're building it in the trenches, with distribution and sustainable product advantages.

I think you can continue to win for a while that way.

Okay.

Then on price costs, we've seen some deflation in some of your inputs, and pricing seems to be sticking.

Why not raise that assumption?

At this point in time, we're 75% hedged in copper for the balance of the year, so a lot of our input costs are pretty much locked in.

I'm also cognizant that if copper was a roller coaster, we'd be up and down, to the point where I was about ready to throw up to the side, right?

So, it's down in the last two or three weeks, but could easily be up in the next month or two again.

So, I think it's maybe the first point, we're hedged out for the most of the year.

Okay.

And finally, just a couple questions on refrigeration.

One, it looks like this Australian business drove the quarter.

How sustainable is that?

And then, one of your competitors talked about a headwind from a large national retailer.

And I'm wondering if you have any kind of similar impact in how to think about that?

I'll take them in two pieces.

Let me talk a little bit about Australia.

We first talked a little bit about this on the fourth-quarter call, about some growth initiatives in Asia-Pacific, and we have a wholesale business there for Americans, the equivalent of a United Refrigeration, that's our Australian business, wholesale refrigeration.

We've been making investments to expand our operation there, especially to grow our refrigerant sales.

Last year we made purchases of low-cost refrigerant and invested in decanting equipment, and made ourselves vertically integrated in the sense of having the refrigerant, putting it into the jugs and then selling it through our wholesale distribution network.

Order of magnitude, the benefit for the quarter was about $5 million or so, and you have to remember that's the Southern Hemisphere, so it's the peak of the summer season, so that's -- think about it is a high level mark.

But it's a ongoing initiative.

We continue to make investments to grow that operation, so I think we're going to continue to have good news there.

In terms of your question about national accounts, or a big retailer, maybe I should broaden the answer for you and talk about what we're seeing in national accounts.

On the refrigeration side, we have seen some softness, you heard what we talked about in the script of down in North America, we've seen some push-outs from supermarket customers, who are most sensitive to the macroeconomic uncertainty and consumer sentiment.

But for the balance of the year, we're feeling better about order intake and backlog than what we saw in first quarter.

In our North American Commercial HVAC business, we saw had a solid quarter, have a solid start to the year, and orders and backlog look pretty good entering Q2.

Okay.

Thanks.

Keith Hughes, SunTrust.

Just wanted to dig in more on your comments on replacement residential HVAC.

It appears on the comments that there might be some share gain going on there.

Where do you think the overall state of that market is, as we start heading into the season in terms of potential growth?

I think maybe a couple points about share gain.

I said on the call, or in the script that we were up low double digits in replacement for the quarter.

We've had a bad quarters, I've said this, I'll say when we have good quarters.

It's dangerous, obviously, to look at share gain in one quarter, so I'd make the horizon over the last 18 months.

And there, I think we're clearly gaining share.

There's lots of uncertainty in the replacement market, Keith, and that's why we didn't really raise our market guidance.

We're still seeing low single digits, maybe if it comes mid-single digits as we get into the summer and see things start to flow, while we had a good first quarter, we're cognizant that it's our lightest quarter.

Some of that, while we sell through in first quarter, and we had a cold winter compared to a warm winter last year, which help drive furnace sales in the quarter, air conditioning, to a large degree, we're just getting the dealers ready for the summer season, and we're going to have to see what they do with consumers as the weather starts to warm up.

Okay.

And also in residential, you mentioned price was up, mix was down.

Specific to the mix, where do you stand on the dry ship and are you seeing mix within the R410a refrigerant down, and products down, as well?

Yes.

Where we really see the R22 dry charge effect is when we get into the summer months, so it's hard to see much right now.

The mix pressure that we felt in the quarter is what we talked about back in December, when we gave guidance, which is what we saw, which is one, RNC outgrew, residential new construction outgrew add-on and replacement, and on average make lower margins there, because it's more entry-level product.

And there's continues to be trade-down within our brands, within our SEER levels, within the and-on and replacement market, so it's the pressure on the consumer.

All right.

Thank you.

Steve Tusa, JPMorgan.

Your inventories were up a little bit more than normal.

That's just the build in anticipation of what's to come here?

And I don't know if you discussed it, sorry, I hopped off for one second, but so far through April, what you're seeing out there?

Yes.

The commentary on working capital is, we're about where we planned to be, and I think the short answer is it reflects a strong first quarter, and then a build getting ready for second quarter.

And we'll sell the inventory and cash out the receivables between now and the end of the year, so we're still confident on the first year cash flow.

I didn't really give much commentary yet on April.

I mean, it's building on the strong first quarter, we're off to a solid start here in second quarter, reasonable order rates, both in commercial and residential, but I think everyone understands that nearly half of second quarter is June, so it's really early.

But so far so good.

And on the share gain front, is this -- I know you're not going to call out competitors, but can you give us some color on what parts of the market are you seeing, and you don't have to answer it directly this way, but maybe we can tie the two together ourselves.

Are you seeing any kind of change from the Daikin acquisition of Goodman?

Any dynamic there to highlight in the marketplace at a high level?

I'll answer them in reverse order, I'll answer the Daikin one first, and then I'll get the share gain.

Short answer is no.

We haven't seen much change in Daikin behavior in the marketplace, or Goodman-Daikin's change in the marketplace.

We continue to look and see.

I think they are probably smart acquirers, which is, you don't want to rattle things too quickly in the field, and so far we haven't seen much of any changes.

In terms of share gain, the answer is what I would want to say, but it helps us that it's actually true, which is, I think it's a broad share gain.

Because I think with our innovative product, we came out with 25 SEER air conditioner, highest efficiency in the market, a new iHarmony zoning system to go with our icomfort controls.

So, I think were doing well on the high-end, and I think you can fill in the blanks about what OEMs also play on the high-end, who we might be gaining share from.

And I think we're making impact with our PartsPlus and rollout of distribution network, and ability to reach more entry-level dealers.

I think we're doing well with the different segment of end customers and dealers, the mid tier and low tier, and I think we're winning there, too.

And again, I think you can identify which OEMs you might think would be in our cross hairs there.

Okay.

That's great.

I think that's it.

Thanks a lot.

Richard Kwas, Wells Fargo Securities.

Todd, just a question now with, you got rid of Service Experts, Hearth has been gone for a while, what are you seeing in the M&A environment area that you might have interest in?

I know there is maybe parts of residential you'd like to bolster, parts of refrigeration, et cetera?

What are you seeing out there with multiples, et cetera?

I think we may remain consistent on this point, Rich, which is, you think about the platforms we would want to grow, we really like our refrigeration business, and that gives us a global platform, and we did the KW deal here in the US, vertical integration in display cases.

We found that to be successful.

We have a strong management team there, so we continue to look on bolt-ons for our Refrigeration business.

And then in our HVAC businesses in North America, I think we have good management teams, and we're doing well, and I think industry consolidation can always create value.

But there's only a handful of assets, and someone would have to decide they wanted to get out.

So, I think it's more likely we're going to be doing deals in refrigeration in the HVAC businesses in North America.

Someone would have to decide they wanted to change strategies.

With the caveat of, we really like our North America Commercial Service business.

We have a strong quarter there as talked about in the script, that's a business we have grown with acquisitions, smaller acquisitions, so we don't talk much about them.

But that's a business we continue to try and grow both organically and with acquisitions.

And then on the refrigeration front, as it relates to International assets, are you seeing any pick up in activity, assets that are being offered or valuations that look more compelling versus say, six months ago?

Not much changed from our perspective from six months ago.

Again, in the areas that we would want to do deals, the markets remain reasonably solid and strong, and so we haven't seen a crash in valuations.

And again, we're reasonably selective on what we're looking for.

Okay.

That's all I had.

Thank you.

Josh Pokrzywinski, MKM Partners.

Just a couple questions, most of mine have been answered, but first on commercial, you talked about strong order intake exiting the quarter.

I'm wondering how that compares to the mid-single-digit guidance.

Are you running ahead, or in-line with that?

And how we should think about that through the year, from a comms perspective?

I'll have to look at the script.

Hopefully, I said solid instead of strong.

I'm trying to nuance the words on you.

What I meant to say is we entered in commercial HVAC with a solid start to the year.

Again, when we give guidance on low single digits, that's on the market, that's not on our share, right?

Or on our revenue growth.

So, we had a nice quarter in commercial, up mid-single digits in revenue, and I think that's consistent with our call-out of the market and our ability to outperform it with things like the Raider, things like our growth in national accounts.

That's fair.

And back to residential, I know we've talked a lot about mix, but thinking about the Core Replacement business, obviously this time of year, RNC is more impactful, and I get that that's mixed down.

And R22 is also a mixed-down product for you.

But within our 410a equipment, is that migration to 13 SEER ongoing, or has a lot of that already played out?

I think we'll know, without being cute about it, I think we'll know more in September, so we have given our guidance, we believe it's going to continue to mix down, there's clearly different forces going on in the marketplace right now, and so, we'll know more when we get to September.

We think it's going to continue to mix down, and that's why we've given the guidance that we've given of a headwind of $10 million mix headwind in Residential.

Got you.

All right.

Thanks.

Brian Langenberg, Langenberg and Company.

I have no questions.

I'll take a pass.

That's my favorite kind of question, Brian.

Appreciate it.

Glenn Wortman, Sidoti & Company.

Can you give us -- you touched on it a little bit, but an early read on sales for your Raider product?

Too early to call.

I think the way I think about it is, no quantification.

I'll just talk about it anecdotally which is, we have dealer meetings across the country, six, seven, eight different locations.

We bring in thousands of dealers at each location, and that's one of the most exciting products we talked about this year.

People are excited about this, to be able to sell to contractors and drive business with this entry-level product.

So, as we go through the summer season, because that's when we're really going to sell it, and quite frankly, we just sort of started selling it or producing it in March, or hitting the street in March.

As we go through the summer season, we will give some more updates.

But we're excited by the Raider product.

Can you remind us, is there much margin differential on the Raider system versus your more traditional products?

We think we could have comparable margins, because we've got the costs right on this product, and it has lower SG&A associated with it.

So we like this product.

We're agnostic.

We like selling it.

Thank you.

Rob Wertheimer, Vertical Research.

A lot has been answered, but I think, Todd, you mentioned a little bit of caution on the grocery store segment.

Our of pure curiosity, when did that start, and has it backed off at all or not?

There's been a lot of different uncertainties throughout the last quarter.

I'm curious what drove it.

We started seeing pressure on the North America grocery segment for us about mid-year last year.

And it's continued, is the short answer, so maybe three quarters of pressure and push out and stretching.

But underlying that is, it feels different than when the crisis hit in 2009.

It feels like people are just deferring, and we're reasonably confident that second half of the year is going to pick up, and that's what's baked into our guidance, and we feel pretty good about that.

And last on resi, is there any way to parse out if people, maybe they saw units fail, or pushed off replacement at the end of last summer, and that's starting early this spring or is that too -- I know the new is higher than the replacement.

I'm just curious if you can parse out anything on where that basis started to fail and people started to come into it?

It's hard to know is the honest answer, Rob.

We'll know more, again without being cute, in September, because then you're able to do more of a postmortem of what drove demand and where it came from.

To me, the way I think about the residential market right now is RNC continues to be strong, that we had a good quarter in add-on replacement, I think in large part driven by, we had a cooler winter than we did a year ago, and in combination with that, with our share gains, with what we're doing in the marketplace.

And in April, given that we've on the year-over-year basis it was much warmer last year than it was this year, we're off to a solid start.

But 50% of the volume, or 45% of the volume is in June, and so we'll know a lot more in June.

Agreed.

Okay.

Thanks very much.

(Operator Instructions)

Nicole DeBlase, Morgan Stanley.

I just have one left.

You answered all the others.

Can you talk a little bit about the magnitude of any recent price increases, and the degree to which those are sticking in the market?

We, in both our Lennox residential and our Allied residential, as well as our commercial HVAC and refrigeration business, we've announced price increases in all those businesses within the last -- they have gone into effect over the last six months.

Our major HVAC competitors, Carrier, Trane, Goodman, and Nordyne on the entry-level product, have all announced similar price increases.

The price umbrella that we announced was 6%.

We're obviously not going to get 6%, it depends on the business, it depends on the market.

But so far, so good.

It feels like it's sticking in the marketplace, and we'll know more as we go through the summer season, but as we gave in our guidance, we're still saying $20 million net price and commodities, which reflects confidence that we're going to get some price.

Great.

Thank you.

Steve Tusa, JPMorgan.

One other none.

The new product that you're going out with, what are the -- who's serving that market right now, and what are the competitive dynamics?

Is this an area that you believe is not being served the right way?

It's underserved?

How are you going to plan to march in here and take share?

I think about it this way.

Emergency replacement is driven by two things.

It's having low costs and having equipment on the ground to be able to serve it.

This is Frank's Bowling Alley, and the unit breaks, and it's August, and Frank has to replace it within 24 hours to do business.

And there is often an intermediary which is a building owner, who is not really caring about -- cares Frank's operating costs, he just wants to contractually put an air conditioner back on the roof.

Sso you have to have low first cost, trade-off efficiency, and you have to have it in the field.

This market -- the other point to think about is, different manufacturers have different footprints of their units, different inlet and outlet, airflow piping, and they're not the same.

So, if you have a unit that has a different footprint than the existing unit that's on there, you have to do what's called a curve adapter.

And depending on the size of the unit, that can be up to 15% of the total first cost, you have to spend on this adapter.

And historically, our units only fit on our roofs.

They didn't match up against anybody else's.

This new Raider unit no longer needs a curve adapter for Carrier footprints.

And we think Carrier is the industry leader, probably has -- not probably, has the largest share of this installed emergency replacement base.

So we now have a unit that fits right on a Carrier roof with no curve adapter, and we're no longer a 15% penalty.

Plus we've redesigned the product to make it low-cost, even without the curve adapter being into consideration.

Okay.

That's great.

One last question on the consumer behavior dynamic.

It sounds like they are -- repair versus replace -- that's been going on, it sounds like you've seen a little bit of a turn in that.

I don't know if I'd put that much color on it, Steve.

We had a good first quarter, but really, the repair-replacement arm is really a summer thing.

So I think what we saw year-over-year was colder, more furnaces had to be replaced than a year ago and that was good news for us.

But I think we'll have a better feel on repair and replace when we get into the summer season.

Okay.

Thanks.

Sanjay Shrestha, Lazard Capital Markets.

It's [Bidis Abguri] in for Sanjay today.

Two questions.

A follow-up to your prior comments on the Raider product in the light commercial market, can you elaborate in terms of what has been some of the competitive response from other folks in the market.

And you touched on Carrier, but we also understand that folks like Ingersoll-Rand are going out there and talking a lot about multiple plug-and-play products, especially designed for the light commercial market.

So, is there any comments on competitor response?

No.

That's the short answer.

We have, we think we have a great quality product, that even though we've taken costs out, there's a level of quality that's associated with Lennox.

We're also supporting it over a multi-year period, tripling our commercial wholesale distribution points.

By the way, all of these residential PartsPlus stores we've been bragging about also carry commercial parts, and so our ability to service and support dealers who sell our rooftop product line has been very successful.

And what we've found is, we've won national accounts for a long time, and people know what we do, and we still win.

So, if you build a good product and you service it, and you have a good sales force, and you're focused on it, you can win.

So, we have a lot of contractors that want to do business with us in this segment of the market, where we haven't had the product.

We now do.

So, let's see what happens.

Thanks.

That's all we had.

Most of the questions have been answered.

Thank you.

And then turning it back to Todd Bluedorn for final remarks.

Great.

A few points to leave you all with.

Our largest seasonal periods are still ahead of us, and there's still lots of macroeconomic uncertainty, but with good business momentum, and the year's off to a good start with growth across all our businesses, led by strength in Residential, both New Construction and Replacement business.

We look forward to the summer selling season, and remain focused on driving our growth initiatives and capitalizing on the market opportunities before us in 2013.

Thank you for joining us today.

Have a good day.

Thank you.

And that concludes our conference for today.

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