Lennox International Inc
NYSE:LII
| US |
|
Fubotv Inc
NYSE:FUBO
|
Media
|
| US |
|
Bank of America Corp
NYSE:BAC
|
Banking
|
| US |
|
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
| US |
C
|
C3.ai Inc
NYSE:AI
|
Technology
|
| US |
|
Uber Technologies Inc
NYSE:UBER
|
Road & Rail
|
| CN |
|
NIO Inc
NYSE:NIO
|
Automobiles
|
| US |
|
Fluor Corp
NYSE:FLR
|
Construction
|
| US |
|
Jacobs Engineering Group Inc
NYSE:J
|
Professional Services
|
| US |
|
TopBuild Corp
NYSE:BLD
|
Consumer products
|
| US |
|
Abbott Laboratories
NYSE:ABT
|
Health Care
|
| US |
|
Chevron Corp
NYSE:CVX
|
Energy
|
| US |
|
Occidental Petroleum Corp
NYSE:OXY
|
Energy
|
| US |
|
Matrix Service Co
NASDAQ:MTRX
|
Construction
|
| US |
|
Automatic Data Processing Inc
NASDAQ:ADP
|
Technology
|
| US |
|
Qualcomm Inc
NASDAQ:QCOM
|
Semiconductors
|
| US |
|
Ambarella Inc
NASDAQ:AMBA
|
Semiconductors
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
401.15
657.69
|
| Price Target |
|
We'll email you a reminder when the closing price reaches USD.
Choose the stock you wish to monitor with a price alert.
|
|
Fubotv Inc
NYSE:FUBO
|
US |
|
|
Bank of America Corp
NYSE:BAC
|
US |
|
|
Palantir Technologies Inc
NYSE:PLTR
|
US |
|
C
|
C3.ai Inc
NYSE:AI
|
US |
|
|
Uber Technologies Inc
NYSE:UBER
|
US |
|
|
NIO Inc
NYSE:NIO
|
CN |
|
|
Fluor Corp
NYSE:FLR
|
US |
|
|
Jacobs Engineering Group Inc
NYSE:J
|
US |
|
|
TopBuild Corp
NYSE:BLD
|
US |
|
|
Abbott Laboratories
NYSE:ABT
|
US |
|
|
Chevron Corp
NYSE:CVX
|
US |
|
|
Occidental Petroleum Corp
NYSE:OXY
|
US |
|
|
Matrix Service Co
NASDAQ:MTRX
|
US |
|
|
Automatic Data Processing Inc
NASDAQ:ADP
|
US |
|
|
Qualcomm Inc
NASDAQ:QCOM
|
US |
|
|
Ambarella Inc
NASDAQ:AMBA
|
US |
This alert will be permanently deleted.
Lennox International Inc
You don't have any saved screeners yet
Ladies and gentlemen, thank you for standing by. Welcome to the Lennox International Third Quarter 2019 Earnings Call. [Operator Instructions]. 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 third quarter of 2019. I'm here today with Chairman and CEO, Todd Bluedorn; and CFO, Joe Reitmeier.
Todd will review key points for the quarter, and Joe will take you through the company's financial performance and outlook. To give everyone time to ask questions during the Q&A, please limit yourself to a couple of questions or follow-ups and requeue for any additional questions. In the earnings release we issued this morning, we have included the necessary reconciliation of the non-GAAP financial measures that will be discussed to GAAP measures. All comparisons mentioned today are against the prior year period. You can find a direct link to the webcast to today’s conference call on our website at www.lennoxinternational.com. The webcast will be archived on the site 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. The company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.
Before I turn the call over to Todd, I would like to announce the date of our Annual Investment Community meeting. The event will be held the morning of Wednesday, December 18, at New York City. Please mark your calendars, invitations and more details will follow. The meeting will also be webcast.
Now let me turn the call today over to the Chairman and CEO, Todd Bluedorn.
Thanks, Steve. Good morning and thank you for joining us. Let me start with an overview on the third quarter, our view on the rest of the year and provide some thoughts on 2020. For the company, overall, in the third quarter GAAP and adjusted revenue was $1.03 billion. GAAP revenue was up slightly including 7% of headwind from the tornado and divestitures, 2% from the tornado and 5% from divestitures. Excluding the impact from divestitures, adjusted revenue was up 6%, including the 2% of negative impact from the tornado and set a new third quarter high.
Foreign exchange was neutral to both GAAP and adjusted revenue. GAAP operating income was $157 million, up 8%. GAAP EPS from continuing operations rose 11% to a third quarter record $2.94. On an adjusted basis, total segment profit was up 15% to a third quarter record of $175 million and segment margin expanded 140 basis points to a third quarter record of 17%.Adjusted EPS from continuing operations is up 26% to a third quarter record of $3.34.
In our Residential business revenue hit a new third quarter high of $638 million. Revenue was up 7% from the third quarter a year-ago in which the tornado damaged a major manufacturing facility and disrupted our high-end business. Revenue from the replacement business was up high single digits and revenue from new construction is up mid-single digits.
Residential segment margin expanded 80 basis points to a third quarter record 19.8% and segment profit rose 12% to a third quarter record of $127 million. Residential business in the third quarter continued to face adverse weather conditions with cooler weather than last year in key swing regions and for the U.S overall. This was a significant headwind to Residential performance on the cooler and wetter weather of the second quarter.
Residential revenue was negatively impacted $23 million or 4% from business not recovered following the tornado. Segment profit was negatively impacted $12 million, offset by $16 million of insurance recovery for lost profits. The net $4 million benefit to segment profit was $3 million below our guidance.
For the full-year of 2019, we continue to expect $99 million of negative tornado impact to Residential revenue, a negative $54 million impact to segment profit, and insurance recovery for lost profits of $94 million. The resulting $40 million of net benefit to Residential segment profit in 2019 is unchanged.
For the fourth quarter, we continue to expect an impact of approximately $14 million to revenue. We expect an $8 million negative impact on segment profit offset by approximately $20 million of insurance recovery for lost profits for net -- for a net benefit to segment profit of $12 million in the quarter.
Taking a step back and looking at the big picture for both core and non-core related to the tornado, we continue to expect total insurance proceeds of approximately $372 million. We've received $262 million of that as of the end of third quarter and we're working towards receiving the remainder by the end of 2019.
The 2019 non-core gain expected for the difference in book value and replacement value of assets remains approximately $91 million or a benefit of approximately $1.73 per share to GAAP EPS. A tornado financial chart is posted on the front page of the company website summarizing the guidance I just discussed.
Turning to Commercial in the third quarter. Revenues was up 7% to $253 million. Commercial profit was up 5% to $47 million and segment margin was down 30 basis points to 18.6%. Commercial revenue in the third quarter was led by double-digit growth in national account equipment business. We won 13 new national account customers in the quarter across medical, fitness, entertainment, education, hospitality and retail end markets. Regional and local equipment revenue was up mid-single digits.
Breaking out the business another way, Commercial new construction revenue was up high teens at constant currency and replacement revenue was up low single digits. Both planned and emergency replacement revenue were up low single digits. Our VRF business was up double digits in the third quarter. On the service side, Lennox national account service revenue was up mid-single digits.
In Refrigeration, for the third quarter, adjusted revenue was flat at constant currency. North America revenue was up mid-single digits and Europe was down mid single digits. Adjusted segment profit was down 10% to $20 million and margin was down 130 basis points to 13.9%/.
Looking at the end of 2019, we're now in the heating season and the fourth quarter is off to a nice start. We continue to expect top line growth and margin expansion year-over-year across each of our businesses to exit the year with strong momentum heading into 2020.
For 2020, a few thoughts. Setting aside the adverse weather impact we saw in the summer months of 2019, underlying market conditions look solid, led by Residential and Commercial. We’ve regained about 85% to 90% of business impacted by the tornado and now -- have now pivoted back to company initiatives to win new market share in 2020 and the coming years.
Many of the cost headwinds we saw in 2019 flip to tailwinds in 2020. We expect commodities to reverse from a $20 million headwind this year to a benefit next year. Likewise, we expect freight to moved from a $15 million headwind this year to a tailwind next year. As it stands today, we expect tariffs to still be a headwind in 2020, but less than the $10 million impact that we saw in 2019. We continue to take mitigating actions as well as -- as well to offset the tariff impact with price.
Just as we capture price in 2019 for a 2% yield to full-year, we plan to capture additional price in 2020. We will continue to make investments and distribution expansion as well as information-technology and research and development, but generally plan to benefit from leveraging SG&A next year. And we will continue to drive our sourcing and engineering led cost reduction initiatives for similar order of magnitude savings as in prior years.
Finally, we plan stock repurchases to maintain our debt to EBITDA ratio of 1.5x to 2x on a normalized basis. We will put numbers to all these elements for 2020 in our investment community meeting this December to just provide some color on our current views of 2020.
Now let me turn it over to Joe.
Thank you, Todd, and good morning, everyone. I will provide some additional comments and financial details on the business segments for the quarter, starting with Residential Heating & Cooling. In the third quarter, revenue from Residential Heating & Cooling was up 7% to a third quarter record $638 million. Volume was up 6%, price was up 1% and mix was flat. Foreign exchange was neutral.
Residential profit was up 12% to a third quarter record $127 million. Segment margin expanded 80 basis points to a third quarter record 19.8%. Segment profit was favorably impacted by a $4 million -- by a net $4 million of benefit from insurance proceeds for lost profits relative to negative tornado impact in the quarter, which was $3 million less than our guidance.
Segment profit benefited from higher volume, favorable price, lower material costs, favorable warranty and tariff rebates for prior periods. Partial offsets included cooler weather, the tornado impact, lower factory efficiency and higher other product costs, unfavorable mix and higher distribution, freight and SG&A expenses.
Turning to our Commercial Heating & Cooling business. Commercial revenue was up 7% to $253 million. Volume was up 4%, price was up 1% and mix was up 2% on the strength of national account growth. Foreign exchange was neutral to revenue. Commercial segment profit rose 5% to $47 million. Segment margin was down 30 basis points to 18.6%.
Segment profit was favorably impacted by higher volume, favorable price and mix and sourcing and engineering led cost reductions. Offsets included higher commodity and other product costs, tariffs, lower factory efficiency and higher distribution, freight and SG&A expenses.
In the Refrigeration segment, adjusted revenue was $142 million, down 2%. Foreign exchange had a negative 2% impact on revenue. Volume was up 1%, price was up 1% and mix was down 2%. Adjusted segment profit was $20 million, down 10% and margin was 13.9%, down 130 basis points.
Adjusted segment profit was impacted by lower factory efficiency, unfavorable mix, higher commodity and other product costs, tariffs, and higher SG&A expenses. Partial offsets included higher volume, favorable price, sourcing and engineering led cost reductions and lower freight costs.
Regarding special items in the third quarter, the company had net after-tax charges totaling $15.3 million. This included $5.9 million for the partial advance in the second quarter of 2019 of insurance recoveries related to lost profits, $28 million for restructuring activities, $2.7 million for other tax items and a net charge of $1.9 million for various other items.
Corporate expenses were $18 million in the third quarter compared to $28 million in the prior quarter. Overall SG&A on an adjusted basis was $143 million, flat with the prior year quarter. Adjusted SG&A was 13.9% and adjusted revenue down from 14.7% in the third quarter a year-ago.
Net cash from operations in the third quarter was approximately $235 million compared to $266 million in the prior year quarter. Capital expenditures, proceeds from the disposal of PP&E and proceeds of property damage totaled $24 million compared to $13 million in the prior year quarter.
Free cash flow was $211 million compared to $253 million in the prior year quarter. The company repurchased $150 million of stock and paid $30 million in dividends in the third quarter. Total debt was $1.45 billion at the end of September and we ended the quarter with a debt to EBITDA ratio of 2.2x. Cash and cash equivalents were $46 million ending the quarter.
Now turning to our guidance for the company, overall for 2019. We're updating guidance for adjusted revenue growth from a range of 2.2% to 5% to a new range of 2% to 4%. We're updating GAAP EPS from continuing operations from a range of $11.91 to $12.51 to a new range of $10.65 to $10.95. This includes a non-cash pension settlement charge of approximately $28.9 million after-tax or approximately $0.73 a share that we expect to recognize in the fourth quarter of 2019.
Similar to what we did in the second quarter, this pension settlement charge relates to an agreement, we entered into with Pacific Life Insurance company in October to annuitize $78 million of our defined benefit pension obligation. As part of this transaction, we also transferred $75 million in pension assets to Pacific Life. This event required a re-measurement of the pension plan and resulted in a non-cash $28.9 million after-tax settlement charge we expect in the fourth quarter to write-off the related accumulated actuarial losses.
We continue to expect a pre-tax gain of $91 million in 2019 related to factory construction costs and the associated gain from replacement value above book value. For adjusted EPS from continuing operations, we're updating guidance for a range of $11.30 to $11.90 to a new range of $11.15 to $11.45.
Now let me run through the other key points in our guidance assumptions and the puts and takes for 2019. First, the guidance elements we're updating. For price, we still expect a 2% yield for the full-year, but with lower volumes through the summer season this now equates to $75 million versus the prior guidance of $80 million.
Corporate expense is now expected to be approximately $85 million, down from our prior guidance of $90 million, primarily due to lower bearable compensation. Free cash flow is now expected to be approximately $320 million for the year compared to guidance of $390 million. The change is due to approximately $15 million of lower earnings and $55 million of inventory.
Given the tight labor market for manufacturing employees instead of reducing direct labor as is typical for a cooler summer, we decided to be more level loaded -- we decided to more level load production from the Iowa factory and pre-build some product for 2020, which will burn off over the course of the year.
For the 2019 guidance elements that remain the same. We still expect a $25 million benefit from sourcing and engineering led cost reductions. We continue to expect $20 million -- a $20 million headwind on a full-year basis from commodities. We still expect $15 million of headwind from freight and $10 million from tariffs. We continue to expect headwinds of $15 million for distribution investments and $15 million from SG&A.
Net interest expense is still expected to be approximately $45 million and we still expect an effective tax rate in the range of 22% to 23% on an adjusted basis for the full-year, most likely on the low-end of that range. The weighted average diluted share count for the full-year is still expected to be between 39 million to 40 million shares, which incorporates the $400 million of stock we repurchased this year. And finally, we still -- still plan approximately $155 million of capital expenditures with $55 million of that funded from insurance proceeds.
And with that, let's go to Q&A.
[Operator Instructions] And our first question is from the line of
Julian Mitchell with Barclays. Please go ahead.
Hi. Good morning.
Hi, Julian.
Hi. Maybe just the first question on the Residential business. Just give us some updates, Todd, on how happy you are with the Commercial side of things in terms of sales and market share traction? And also within resi, any update? It still looks on incremental margins over the next 12 or 18 months. You’ve got perhaps more efficient refreshed operations now in Marshalltown and some tailwinds or normalized cost environment. So just wondered how will that roll together to overall resi incrementals?
On the small C, commercial side, I think we're satisfied where we are at is the way I would put it. I think we are happy with the end markets. I mean, the consumer still feel -- still strong adjusting for the tornado impact, while revenue in resi was up 7 and we had negative 4 of tornado impacts up a 11, if you just for that. So, I think the end markets still feel strong -- or consumer still feel strong. And then what we guided at last call of recovering 85% to 90% of the tornado impact, that’s still where we are at. That’s -- where we will end the year at. In fourth quarter, we're a little less than that and third quarter if you go through all the math more or like 75% and we will end the year at 85% to 90% of it recovered. In terms of the drop through, I think everything you said is true. I think the numbers will be clouded by the fact that the $40 million of net insurance recovery was a one-time item in '19. But if you strip that off, the things you talked about are true and then I'd lay on top of that given some the softness because of weather in second and third quarter, we’ve taken some action on the SG&A side and cost-containment as we go into 2020. And so I think that will help the margin drop through also.
Thanks. And then my second and last question just around the Commercial segment, capital C. You lowered the end market outlook, a touch for North America back on the last earnings call, good revenue numbers today in Commercial, I think particularly in the new construction or OE side. So maybe just give any updates about different verticals, we were surprised by what's happening in Commercial. Any color on backlogs?
Going into fourth quarter our backlog is up slightly in the Commercial segment. I mean, we had a really good third quarter, but it was chunkiness of some large national accounts as you saw in the script that it was driven more by new construction and replacement growth. And again, that’s just timing year-over-year differences. So pleasantly surprised in the third quarter. Again, the verticals that are hanging in there most for us, believe or not, continue to be retail as a both build and replace small office buildings. So, entertainment, theaters and light healthcare. So those verticals continue to stand up and we were pleasantly surprised in the quarter.
Great. Thank you.
Thanks.
Next, we will go to Jeff Hammond with KeyBanc Capital. Please go ahead.
Hey, good morning, guys.
Hey, Jeff.
Just going back on kind of the moving pieces with insurance recovery in the lost EBIT. So I guess on the $54 million of lost EBIT in '19, what -- just given some of the share recapture that you're not getting, how much of that do you expect to get back ultimately and what’s some of the mix dynamics?
I would pausing to make sure I thought about that right way. I would -- out of the $54 million for lost profits, I’m going to sort of fire from the hip and say -- oh, I will look over a 2-year period. So I look at what we lost in '18 and what we lost in '19 and we are going to get 70% -- we are going to get 85% to 90% of that back, both on revenue and on profit. So I would look nearly at the $54 million. I'd have to look at sort of 2 years combined and say we’re going to get 75% or 85% to 90% of that back. That's the average, Steve?
Yes.
Okay. There's no mix dynamic from that being an higher mix share that you're not getting fully back, or …?
No, I think over the longer-term, the mix will be fine. I mean, we will guide it all in 2020. I think there's some absorption and productivity issues that were buried in that $54 million that may not come back, but it will be absence of badness is goodness is one way to think about it.
Okay. And then just a couple on Refrigeration. One maybe just give us a view of the demand outlook into 2020. And I think you mentioned some manufacturing inefficiencies. Just talk about what's going on that? Thanks.
Yes. I mean, in Refrigeration on an end market, we were flat in third -- revenue was flat in third quarter. What we're seeing in North America is the market continues to be hanging in there low single digits, we were up mid-single digits for the quarter. Europe, we're seeing some slowdown, specifically in Germany where we’ve a process cooling business where auto is a large vertical. And as everyone understand that’s slowing down and even in our commercial HVAC business, which is predominately France and Spain, we’ve seen some slowdown. So this continues to bubble along in North America, slowing down in Europe. And then I think there was a question about factory productivity. The issue that we’re seeing in Resident and Refrigeration and then also quite frankly in Commercial is a very tight labor market where our factories are located at. Refrigeration in North America, it's Georgia. In Commercial, it's Arkansas and in the product, the lack of improved efficiency year-over-year in the factory in large part it's driven by the labor scarcity, it's hard to find and hold on to folks and that's impacting what we can do in the factories around productivity.
Okay. Thanks, Todd.
Thanks, Jeff.
Next, we go to the line of Ryan Merkel with William Blair. Please go ahead.
Thanks. Couple of question. So first, I just want to understand the resi profit performance a little bit better, since I’ve missed my model. So is the story simply lower absorption and unfavorable mix and that was offset by positive price cost. Is there anything else to think about?
No, that’s -- I mean, ahead of the Q&A here and you answered it, but I will rattle through, so everybody hears it directly from me. I mean, the margin has been down 300 basis points adjusted for the tornado, really two major drivers you hit them. One is mix, down year-over-year and a big driver of that is our entry-leveled Allied business that has lower margins was up over 20% in Q3, much less impacted by the tornado than what our Lennox business was and also some mix down quite frankly with some customers. And the second was factory productivity due to lack of absorption. Joe talked about on the cash side that we allow the Marshalltown, Iowa factory to continue to throttle level load. But our other North America factories we had to take down production because of Q2 and Q3 we had pretty significant negative absorption that impacted margins. And those are the two major drivers.
Got it. All right. Well, you sort of answered my next question. So, we should be looking at the unfavorable mix to sort of a one-off this quarter, we wouldn't extrapolate that into 2020?
I wouldn’t extrapolate it into 2020. I think what we will do is we’re -- we are going to snap a new baseline and we move forward and I think mix will improve. In fact, our guide will be for mix to improve next year.
Perfect. And then just lastly, maybe just a little color by geography would be helpful, most interested in the Midwest and Southeast, if you can give us anything.
Yes. The key swing regions where we saw the most impact from weather was the Northeast and the upper Midwest. And if you look at degree cooling days since July and August where it really mattered, it was down about 10% and that's sort of the swing areas. Chicago up to Pennsylvania through Ohio up into the Northeast and those were down and had an impact on our revenue. Sort of on the flip side, you look head of state like Texas, cooling degree days were up 9% in Q3 and our revenue was up 10%. So, again, just like in second quarter, where it's cooler, revenue was down. Unfortunately, we're more skewed towards the north than others and where we had warm weather, we -- revenue was up significantly.
Perfect. Thanks.
Thanks.
Next is the line of Steve Tusa with J.P. Morgan. Please go ahead.
Hi, guys. Good morning.
Hi, Steve.
So just want to kind of be clear on this resi margin dynamic. You’re saying that there are things that will flip or at least turn next year. I mean, it sounds though like it would have been worse if you didn't run your factories and kind of level load over time. So shouldn't that be somewhat of a material headwind next year? So, I mean, are we talking about more of a, okay, this will improve off of a lower base, but not necessarily flip next year? So just trying to kind of understand what are the kind of one-time items and on a kind of a net basis, how should we think about this? Maybe just some color around, hey, this on a net basis, it should have been -- the margins would have been 50 basis points higher or something like that to give us some idea given all the moving parts here for next year?
Well, let me directly answer the absorption point. We did one factory that accounts for about 25% of our hours and we level loaded, more level loaded when we normally do. I’d also tell you that it's sort of -- it came down. It just didn’t come down as much as the volume would have -- better stated, production was down year-over-year but it wasn't down as much as the volume with the demand that we do it. And then the other 75%, which is our other three factories in North America, we took those down. And so, sort of on a year-over-year basis, it's going to be more sort of avoidance of bad news and it's going to be having a tough comp year-over-year, if that makes sense. And then, I think I’ve understood your question and I probably won't give you so much granularity as you might want, but if order of magnitude of our margins were down 300 basis points in resi year-over-year adjusting for tornado, order of magnitude about 40%, 45% of that was mix, about 40%, 45% of that was factory productivity and then there were sort of knits and gnats of other things that I won't bother to call out.
Got it. Okay. That's helpful. I guess when we kind of -- why are we -- haven't we kind of anniversaried the tornado comp? I mean, why are we still calling out kind of like lost profits and lost sales from this -- at this stage of the game?
Well, I mean, because we guided for 2019, we thought it would be sort of chicken halfway through the year, if we are talking about it. So we won't talk about it going into 2020, but we gave full-year guidance, we thought it was appropriate to continue to guide through the year.
Got it.
Number one. Number two is sort of the impact of the tornado didn’t follow a calendar that 12 months afterwards everything was completely gone. We guided at the beginning of the year or when the tornado happen that was just going to be order of magnitude an 18-month recovery and that's sort of the guides that were given.
Okay. Any update on the consolidation dynamics over the next 12-months? Any update there on how you're viewing that, or no real change?
No real change.
HVAC consolidation?
Yes, I mean, we -- as you know, think the industry could benefit from consolidation, we’d love to participate. And it's going to require others to sort of make a similar calculation that we'd love to participate.
Got it. Okay. Appreciate the color. Thanks.
Thanks.
Next, we go to Robert McCarthy with Stephens. Please go ahead.
Good morning. Can you hear me?
Yes, I can. Hey, Rob.
Good. Well, I guess, moving on from chicken shit, let's talk about the fourth quarter dynamics, or actually it might be doubling down. Could you talk maybe -- you talked about the strength in the fourth quarter and then also some of the dynamics around the season in terms of obviously anecdotally, I think cooling degree -- excuse me, heating degree days should probably be up given some of these episodic events we've been seeing so far in the month and then also, obviously, the compare in association with the disruption last year. Can you talk about kind of the factors and how that’s shaping up at least qualitatively for the fourth quarter in your Residential business?
Yes. I mean, high level it's -- the elements that you talked about, I said were up to a nice start, which is a calibrated word. We're halfway into the first month and things look good, but when you think about the months and the quarter, it's in essence a third in the third this year between October, November and December for us. And so there's still a lot of work to do. I think the important thing to get through in October is this sort of bridge period. And what I mean by that is it's not really cool enough for dealers to rush out by furnaces, so in some ways, they’re buying on faith and sentiment. And the fact that we're off to a nice start in the case of the dealers are still confident and feel good about things as they go into the furnace selling season. And then as we get deeper into the furnace -- furnaces selling season, November and certainly December, then it's more about the weather driving demand. But, yes, we feel pretty good about things, but there's still long way to go for the quarter.
As a follow-up, I mean, you said some tantalizing things about obviously your rise at -- in growth at Allied and obviously some of that’s due to comps tornado disruption, but you did cite anecdotally some trade down there. Obviously, the cycle still looks good, because excluding kind of the tornado impact you’re kind of comping to close to double-digits. But are you seeing anything on the horizon that’s getting you incrementally nervous about consumer replacement as a whole?
No, and I wouldn't. The Allied point was to mathematically -- explain the mix down. It's not to make a point that overall the consumers mixing down, it just explains our math. I mean, our growth in Allied's across the Board a great story. We are converting distributors from our competitors sort of all the noise of some of our competitors about investments that they are making, is the business going to be sold. How is it going to be handled, allows us to convert this distributors from others, competitors over to our business and that's all good news for us. It's just -- we don't sell Dave Lennox Signature series, we don't sell 26 SEER in Allied. We don’t sell sort of all the high-end products. But net-net it's incremental to our margins, our EBIT margins and very good business for us, and we're just doing very well there.
So actually it's more of a share story given the disruption we are seeing with some of your competitors with these …
Yes, I mean -- yes, that's exactly. So we have the tornado overhang on Lennox, but our Allied business doesn't have that and so all the initiatives that we've talked about are paying off there and we are gaining share.
All right. The last question, I don't want to delve too much into political views, because probably not particularly helpful on a call for a variety of reasons. But given the fact that we could be seeing perhaps some more progressive administration and policies over the next -- with the next election cycle, is there anything that's been on the drawing board for energy efficiency or increased standards of global warming being accelerated, anything around code, standards or practices that could be very stimulative to your business across the board, or anything you would cite?
No. I think the point I would make, and again, in the spirit of being a political is as a business person and certainly in our industry, having clarity and advance warning on regulations is critical. And so quite frankly you tell us the rule book and give us enough advance warning, we will play by it and make good money off it. The danger is when things change quickly and swing one way or another that causes problems. And so I would expect whatever new policies could put in place whoever wins the election, I would hope we'd have advanced warning and clarity of what the changes are going to be.
Thanks for your time.
Thanks.
Next, we go to the line of Robert Barry with Buckingham Research. Please go ahead.
Hey, guys. Good morning.
Good morning.
I just wanted to follow-up on a few earlier things. First, you touched on the weather helping some places, hurting others. Was there a kind of net estimate for what it impacted you buy in the resi segment in the quarter?
We didn’t -- it's hard to know, Robert. We didn't even do that. So I don't think we did that in second quarter. Net-net, it was degree cooling days were down about 5% or so for the quarter and especially in the swing areas that that's where it hurt us.
Got it. And I know you -- I think touched on this briefly earlier, but the price in resi kind of stepping down from what was four last quarter to just one this quarter, what was driving that?
I think that's just lapping on the price increase. We had a midyear price increase last year where we sort of jammed it hard, and we lapped that. And so now we're just, if you will, comping against the beginning of the year price increase, which is a more traditional yield of 1, 1.5.
Got it. So when we think about price for 2020, you seem confident, you will get some, but it sounds like that should be a pretty modest expectation, is that fair?
Well, I think, I go back two years where we had significant commodity deflation and the markets were strong. We still got a half a point of price. And so I -- my expectations would be that’s absolutely the floor, but I think we will do better than that.
Got it. And then I just wanted to clarify how to read the comment about the $23 million impact from the tornado on the resi revenue. Is that how much you are still bound since before the tornado?
Correct. I'm turning to people making sure that’s the answer, yes.
So I think like last year you had a headwind of $50 million. You clawed back an implicit $27 million, so you're still down $23 million?
Correct.
Got it. And so that $27 million versus the $50 million implies about just over 50% recovery?
I think if you add the two years together. I'm looking at the data, to make sure I got it right. I'm sorry, I don't have that.
This is the first year of the recovery?
Yes, when I did the math on the third quarter and I added the two together, I got about 65%. So I will double check the math and we will make sure we gave it to you right.
Right. Well just to clarify, when you say you expect to get 85% to 90% back over, how much time is that?
We are expecting as we go in the fourth quarter when you do the math over 2-year period, you look what we lost fourth quarter last year, what we lost fourth quarter of this year. And then how much of it we clawed back, it will be about 85% to 90%.
Got it. And this $23 million -- sorry, for all the questions on this. The $23 million that is kind of the second year of lost impact here, is that going to be covered by insurance or at what …
Yes.
… what point? Okay. So if next year you're still down 10%, 15%, like where do you just kind of snap the line and it's just the insurance won't recover, won't pay, is that still up for debate?
Yes. We are expecting to have full insurance recovery by the end of the year and we are in negotiations with them about what's transpired so far and then what we're projecting will happen in the future and that's sort of all in the guide that we've given. Now -- so we will work that through with our insurance providers who I assume are listening. In terms of our guidance, going into 2020 and Steve and I sort of talked a little bit about that, when we go in 2020, we're not going to talk about tornado anymore, we will snap the line at the end of '19 on public guidance. And so we will give revenue and we will give EBIT and we will talk about misses and over achievements and tornado won't come up after the end of the year.
Got it. And sorry, just one more. Do you know what year-to-date you're kind of ex tornado margin is -- in resi, I'm calculating like just above '18, but …
I'm turning to the guys. We can get you that answer, Robert, I don't have that math right in front of me.
Yes. Because I was just curious if your expectation would be that next year, whatever that number is, would that be up, flat or down?
Our sense is, it should be up year-over-year.
All right. All right. Thanks a lot.
Okay. Thanks.
Next, we go to good Gautam Khanna from Cowen & Company. Please go ahead.
Hey, thanks. Good morning, guys.
Good morning.
Good morning.
Couple of questions. First, I was wondering on parts plus rollouts, what's the expectation for the number? How many have you done this year and what do you expect in next year?
I'm turning to someone to make sure I got the right number for this year. So on a year-to-date basis, we’ve done a handful this year sort of relatively flat, that we've opened a couple of stores, closed a couple of stores. As we go into 2020, we're still finalizing what we want to do for new store build. I think majority of new stores, next year most likely will be second half of the year. We are also aggressively just looking at, now that we are up to 200, how many stores we have?
236.
Now they were up to -- around 240 store -- 240 stores. We are also sort of looking at what we should prune and what we should get out of and we've identified some stores that were closing between now and the end of the year, because they’re just not covering, they’re not a handful stores, so there will be -- those would be some sort of net eliminations and then some additional stores added.
Okay. In terms of the national account business in Commercial, what sort of -- is the pipeline of opportunity, there is still as robust as it appear to have been going into the third quarter? Just curious, like what are the forward indicators there?
Yes, I mean as I called out earlier, backlogs up slightly in our Commercial business. When we entered the quarter it was up from memory, high single-digits. Customer is still strong, they are still spending money. I think it's -- I don't think I know this time of year, we do some business mostly planned replacement at this point, very little new construction or less new -- excuse me, new construction. And they're looking towards the Christmas -- many of our retail customers towards the Christmas selling season decide what they're going to do. So I think net-net it's still solid. I think it's less solid maybe than it was a year-ago. I don't know about quarter-over-quarter because of the macroeconomic uncertainty. And so there is some risk there, but customers still feel pretty solid.
Okay. And just to round out your comment on pricing, getting some net price next year in resi, have you seen or do you anticipate any change in competitive behavior with Ingersoll splitting with Carrier, splitting what have you? Just anything that you've seen or that you are starting to be concerned about incrementally?
No, haven't seen any changes. Don't expect any changes on that dimension, I mean the people who -- maybe a part of a larger conglomerate or not, they understand that they need the price to offset commodity increases and labor shortages and all the thing, freight and tariffs and all the things we have to price for. And so I -- we are confident, we are going to get price and I don't think the industry dynamics are going to change.
Okay. Joe one last one, Q4 tax rate …
Yes.
… just making sure we are conforming what are you guys implying there?
Yes, for the full-year, I think we will be slightly above the 22% rate, but for the full-year it will be closer to 22%. So that's what I would expect in the fourth quarter.
Thank you, guys. Appreciate it.
Thanks.
Next, we go to the line of Deepa Raghavan with Wells Fargo Securities. Please go ahead.
Hey, good morning.
Hey, Deepa.
Couple of questions for me. So still a pretty wide range coming into Q4, especially since it's a nice start. Just curious what's embedded in the high-end versus low-end, especially for Residential growth? I mean your resi mix margins should get better, you're going into the seasonally margin in a higher margin furnace sales season. I guess where I'm trying to go this is -- is there any scenario where you might have lost some furnace demand because of the limited pre-buy that happened in spring? And also maybe you have this lower overall dealer recapture, any impact? How do I think about the lower end versus higher end given your range?
Hi. Short answer to the back end of the question, no, we don't think we've lost, other than the tornado impact that we publicly called out over and over again, we are not losing furnace share, in fact, when we look at the numbers the public numbers in July and August we think, we're doing well and it's sort of tracking the way we'd expect it to. So I don't think there is any concern there. I think the range on the high-end, it's, we -- residential markets -- we start revenues a little stronger than what we think it might be or could be or better stated the midpoint of our guidance adjusted. And so I think the real swing is Residential revenue. I don’t -- it's not really mix, it's Residential revenue.
Got it. That's helpful. My follow-up is, Todd, how do we think about your market share gains going forward, just given your experience with this dealer recapture coming in slightly below expectation. Is the 50 bps of share gain, still what you're planning albeit from the lower base? Just curious if that's the case, what would -- what drives that confidence now and especially as you're lapping all these stronger market share gains that cumulatively that cumulatively -- you’ve accumulated cumulatively over the years? Thank you.
Yes. Our guide will be half a point of market share. And I get confidence because of strategies that we focused on, continue to work, I think building out distribution, we've taken a pause for that and I suggested we will take a bit more of a pause as we go into beginning of 2020, but that's still a strategy that works. The significant investments we're making on supporting our dealer network through e-commerce and prognosis and diagnostics with our iComfort controllers, our ability to support the dealer on our LennoxPROs portal, all those things are still working. All the investments we make are significant having to put the best product lines. So the strategy still work and we're making significant investments to growth and even in this tornado year, we've continued to make investments and we will see those benefits in 2020. And so, there is a sort of -- and also just quite frankly, we've done our best, even though the numbers have sort of moved around the bit to be a bit of a duck [ph], right? So what we publicly show is every -- or the sailing is clear and we are gliding. But underneath the team has been pedaling very hard and pedaling very hard and going lots of work to offset the tornado, and take care of customers and work through compliance and manage inventory levels to get the right product to the right people and handle a lot of negative phone calls. All that's now goes away because we have the product we can support everybody, and all of a sudden you snap a line and you're back on the offense, rather than on the defense and that's now behind us and so we're doing all the work now quite frankly with many of our customers to convert new dealers to win in 2020 and we're focused on doing that. Thanks.
Next, we go to Nicole DeBlase with Deutsche Bank. Please go ahead.
Yes. Thanks. Good morning.
Hey, Nicole.
Hey. So I guess just two questions around margins into 4Q. On the Commercial segment, I think the expectation was for a return to year-on-year expansion in 3Q, you kind of talked about the reasons why we didn't see that. But can we see Commercial return to year-on-year margin expansion in the fourth quarter? And then, similar question with Refrigeration since the comp gets so easy?
Yes. We expect both Commercial and Refrigeration margins to be up year-over-year in fourth quarter.
Okay. Got it. That's helpful. And then around price cost, I think you guys had a, like a $17 million positive impact in the second quarter and you expected that to be a high watermark, can you just give us a sense of what the price cost impact to us for 3Q and whether it steps down or remain similar in the fourth quarter?
I don't have that number handy, so I'm turning to Steve, to see if he has it.
[Indiscernible].
I think the short answer is, the price element of price cost will be roughly the same in the third quarter -- third and fourth quarter. And then the impact from commodities continues to trail-off in fourth quarter. So my guess is, we might even be a little bit more positive price cost in fourth quarter than what we were in third quarter.
Okay, got it. Thanks, I will pass it on.
Okay.
Next, we go to line of Jeff Sprague with Vertical Research Partners. Please go ahead.
Thank you. Good morning, guys.
Hi, Jeff.
Good morning, Jeff.
Hey, just two quick ones from me. First, I appreciate kind of moving on from the tornado, but if you end up having residual insurance recoveries, kind of just cleaning up the loose ends, will you disclose and let those -- let us know what those are in 2020?
Absolutely. Yes, I mean we're going to be completely transparent on the insurance. We won't pad our number with insurance. We will let you know.
Great. I appreciate that. And then just on the free cash flow, $70 million cut on a $10 million net income cut at the midpoint, is that $60 million all the inventory we're talking about, or is there something else going on there?
Yes, I mean when we -- we lowered the cash guide from $390 million to $320 million as Joe said in his call, I think he said this in his call it's $15 million of that is from lower earnings. So just we are making less money because the earnings went down. And then $55 million is from the inventory and then as Joe talked about that's tied to the tight labor market, it's having more level loaded production of Marshalltown or Iowa factory. And then -- because typically what we would have done would have been or the play -- the tax book if you manage just purely for working capital would have been -- we would have throttle down in August, and then we would have had to throttle back up in January -- December, January it start getting ready for the cooling season, to union workforce and its tight labor market. And so the thought and it's fragile because we just got everything up and running -- the thought of ramping down, having everyone bid out on new jobs reshuffling everybody. And then three months later ramping back up, finding workers reshuffling all the union jobs again, just seems so disruptive to the business. And so the -- and we are not making lettuce. And so everything we're building, we're just building a three or four months early. So one way to think about this is everything being equaled. Cash -- because of inventory will go down by $55 million in '19, but everything being equal, whatever you had in your model will go up by $55 million in 2020 as we burn off that inventory.
And just thinking about kind of the rebuilt footprint, if you will, I mean your inventory turns were drifting down a little bit before we got the tornado, obviously they're lower now on all this disruption. But where do you think you can get your turns to -- once we kind of stabilize everything?
Well, we are going to continue to focus on it. I mean, I haven't publicly given an inventory target or a turn target. I think it's -- I tend to think about it more as -- it's a competitive weapon for us to build our distribution, to build our part stores. We want to keep our turns relatively flat or slightly improving, we certainly don't want them deteriorating like they have been over the last year because it's tornado. But when the cost of debt is so cheap, if we can gain, if it's a driver of gaining half a point of market share and we can win new customers with inventory as a distributor product business, we're going to focus on that. So short answer is, we haven't publicly given the target, but -- and we think about it, but I think more in the whole context of total shareholder return.
Great. Thanks for the color.
Thanks.
Next, we go to Joe Ritchie with Goldman Sachs. Please go ahead.
Thanks. Good morning, guys.
Good morning.
So my first question is just on the commodity tailwind that you alluded to earlier in your prepared comments, Todd. So just any color that you can provide us on how much of the -- how much of your commodity tailwind next year is going to be copper and whether you're locking in a certain percentage of that this year?
When the commodities that we buy in order of importance are steel, copper and aluminum. And steel, we have some fixed pricing, but most of it is variable tied [ph] to market pricing during the prior quarter that we think at a discount on. Copper and then aluminum we hedge or tactically use forward contracts. And 12 months out, we're about 50% hedged, and so we're -- I don't know the exact number, but above 50% hedged. I think at this point for 2020, that we're locking in some of the benefits already.
Got it. Okay. That's helpful. And then just maybe touching on freight a little bit, any qualitative comments you can talk about on obviously a $15 million headwind this year, but what you're seeing in the freight market and how that could swing potentially next year?
A couple of things. One is, we made some system investments in our freight transportation to have better visibility on freight, and I think that's going to help us. I think more fundamental is a softening in the freight market overall, and I think we will be beneficiaries of that as others aren't. So the thinking is, we're in a process and in negotiating rates for next year. And so we will know more as we negotiate those rates. But we look at spot pricing, what's happening in the marketplace where it was a year-ago, it reflects to slowdown in some segments of the economy, auto, for example, which is a major driver of freight rates in North America, and we think we will be a beneficiary of that.
And could you just quickly remind us how much of your freight cost is spot versus contracted?
I don't think I've ever publicly said that, if I had -- guess I'd say, it's 75% contract, 25% spot, but that's a bit of a wild-ass guess.
Okay. Thanks for the color.
I feel like President Trump has sworn twice in a conference call.
I will get back in queue. Thanks again.
Thanks.
Next, we go to Josh Pokrzywinski with Morgan Stanley. Please go ahead.
Hi. Good morning, guys.
Hi, Josh.
I was wondering if you could help out a little bit with the sequential dynamic on mix and resi. So I understand whether kind of played a role in both quarters, obviously at a little bit more time to get your feet underneath you, but anything specifically that we should read into kind of the 2Q to 3Q margin progression? Anything about the market that was heavier on the mix side, or would have shown up in one quarter versus another, and maybe help kind of triangulate that dynamic?
You know, I mean I think we had some mix headwinds last quarter or two. And so I don't think it was -- we had positive mix last -- I don't think we had -- I think we had negative mix last quarter also similar dynamics. It just didn't rise to the level that we spent a whole lot of time talking about it. So, no, I don’t -- I think the other piece would be the part that I called out, that Allied growth was dramatic this quarter and that's just a timing of new distributors that they signed on and when they got the business. And so I think it's, I think it's more about Allied than anything that was happening in Lennox.
Got it. And would price cost have been better sequentially. I know you probably don't want to begin it to have the long-term. Just I would imagine directionally though, that was probably better?
I think price cost is better in second quarter than third quarter, because we hadn't lap the midyear price increase, yet. So I think costs were better in third quarter than second quarter. But from memory, we had 4% of price in resi last quarter and we have a little bit over 1% this quarter on a year-over-year basis.
Got it. And then just one last one from me. I mean we hear a lot about good amount of inventory being out there in the channel, more competitively than necessarily something specific to Lennox, but has that it at all kind of impair the ability to regain share that maybe there is just too much inventory to go after folks this quarter and should that normalize in the next year and make the work easier?
I would broaden -- thematically, I will agree with you, but I will broaden the answer a little bit and just say, it's always tougher to gain share in a soft market than a more robust market. And so certainly even more so in second quarter than in third quarter, that hindered some of the gaining back some of the customer business, because of this tougher to do that in a down market, because the other guys is focused, as you are hanging on the things. And again as Robert, I went back and forth, I mean, where we're not to the 85% yet, but our guide is that in fourth quarter we back to have 85% and 90% of the lost revenue gain back and they were all in the 2020.
Understood. Appreciate the color. Thanks.
Thanks, Josh.
Next, we go to the line of John Walsh with Credit Suisse. Please go ahead.
Hi, good morning. So a lot of ground covered just maybe finer points on a few questions. As we think about the free cash flow bridge into next year. I just want to make sure we're understanding it or I'm understanding it correctly. But we're going to have -- we had from last quarter some push out of CapEx that went from '19 into '20. And then we're going to have this kind of inventory dynamic from this quarter, anything else to be mindful -- were those the two big moving pieces of the bridge?
I think those are the two moving pieces of the bridge, I'm looking at Joe to make …
Yes, those are the big pieces you got.
Okay. And then I guess also around the earlier question about Refrigeration margins, you do have the easy comp, anymore finer point you can put on that? Should we think about normal sequential decrementals, or do you want to kind of throw a range out there just to help with the modeling because it can move around?
For Refrigeration?
Correct, yes, for Q4.
Yes. No, it's the short answer, sorry, John. Again, I think as you said, we had a tough -- we have a much easier comp or we have an easy comp over last year. And we think the margins are going to be up in fourth quarter even on relatively flat revenue.
Got you. And then maybe just one last one here from a high level, as you think about the regulatory environment, a couple of questions earlier on that. I mean should we just think about it as kind of a steady drumbeat of kind of change pushing towards higher efficiency than really anything on the horizon that might be a step function change? Is that the correct way to think about it?
I mean, that's how we think about it, I mean I think anything is possible. But certainly the way the industry has worked with a few minor exceptions over the last 30, 40 years has been a constant increase in efficiency, a constant improvement and the type of refrigerant that we use. And we typically have five, I think by large four years that we have to have advanced warning, and sometimes, oftentimes we have more than that. And again, as long as we know, we can work through the technology with our supplier partners to do what we need to do.
All right. I appreciate it.
Yes. Thanks.
All right. Thank you.
Thanks.
Next, we go to Nigel Coe with Wolfe Research. Please go ahead.
Thanks, guys. Good morning. Thanks for the question. Hey, so just -- I mean, I hate to use the word tornado again, I think we're already at record levels here. But adjusting for the lost market share in 3Q last year, 3Q this year, so roughly 3% like-for-like growth in Residential. Number one, is that kind of like in line with what you're thinking? How does that compare to the markets? And I'm not sure you actually talk about what you thought the actual market did. And if you did, I'm sorry for missing it, but how is that 3% compared to the market?
I'm not sure what the market is going to do. I would -- I think that, I have some math down here somewhere, but when I think about the year, this sort of the 2-year growth, it's about 4%, 5% revenue growth over a 2-year period. And that I think that's obviously less than the market, but that reflects the share loss that we got because it's tornado.
Okay. So you think -- so you are saying 3% would be better than the market this quarter? I mean, I think most people would see this going to be factor down this quarter?
I think we're going to see. Watsco announced earlier, we're certainly in line with them.
Yes. Okay.
For the [indiscernible], and then we will see what the others do.
And just going back to the Allied's performance, 20% up for Allied since. It looks like the core Lennox was probably flattish, that differential between the two brands is that's what we've seen in the past, or I mean, again, just thinking about this potential mix shift with the consumer, but is that differential unusual in time?
Yes, I mean, but again I think what -- I mean it reflects two things, it reflects the tornado impact primarily in the Lennox brand and sort of all the disruption associated with that. And then it shows the lumpiness of selling through independent distribution, and so when Allied gained shares because they have converted a large distributor and significant share accrues with that. And so being up 20% in the quarter just reflects the timing of converting distributors.
Okay. And then a final one for me. The commercial markets is obviously a lot of bull, bear dues on -- on that market, more bears than bulls. What is your view as we go into 2020 on Commercial construction and Commercial HVAC? Flat backlogs you had an easy comp this quarter compared to last quarter, but how do you think about that market in 2020?
We will true everything up in December. I think it's -- I think flat sort of the best scenario we can think off. But we will give better guidance when we get closer to the -- at the December Analyst Day.
Okay. Thank you very much.
Thanks.
And our final question is a follow-up from Steve Tusa with J.P. Morgan. Please go ahead.
Hi, guys. Sorry for the follow-up. I just listening to kind of all the puts and takes and just kind of like -- looking at the model a bit. With the insurance dynamics and then all the other kind of nits and gnats that you highlighted, can you guys -- do you think you will be able to kind of grow earnings in 2020? I mean is that kind of a base case assumption that you will grow earnings in 2020?
Well, I mean, let me just refresh the math for others. For 2020, we've to adjust the $40 million net benefit for insurance recovery -- that was above lost profits for '19, so that means of operationally were $40 million better than we have flat profits year-over-year. Short answer is, our targets to look to grow earnings, but we will guide all that on the 2020 call.
Okay. And then one last one, just on resi, is an unreasonable way to look at it, to look at kind of the 2017 base? And then just kind of assume where we're going to assume on growth for 2020, and then take those two and apply like a 30% to 35% incremental margin on that, or is the business somehow meaningfully different? And there will be different headwinds and tailwinds on kind of that -- kind of just taking the tornado impacts out entirely? Is that a bad way to look at it?
I mean, the way I would build the model would -- I would do it that way. I would take out all the tornado stuff, I would look at '17 as a base case and then I would look at the 2020 revenue. I think, I might have a closer to 30% than 35%. But I would start there.
Excellent. All right. Thanks for the color guys. Appreciate it as always.
Thanks.
And we will be turning the conference back to you Mr. Harrison.
Okay. That's my biggest compliment of this call is to call Steve Harrison. So thank you. To wrap up, as we move into the heating season, the fourth quarter is off to a solid start, and we look forward to a strong finish to the year. The residential market continues to look robust, weather aside, commodity costs are trending down for more price cost benefit moving forward. And the investments we have made in products and distribution set us up well for 2020. I want to thank everyone for joining us.
Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation. You may now disconnect.