Lennox International Inc Q4 FY2021 Earnings Call

Ladies and gentlemen, thank you for standing by. Welcome to the Lennox International Fourth Quarter Conference Call. At the request of your host, all lines are currently in a listen-only mode. There will be a question-and-answer session at the end of the presentation. Please follow operator instructions. As a reminder, this call is being recorded. I will now turn the conference over to Steve Harrison, Vice President of Investor Relations. Please go ahead.

Good morning, everyone. Thank you for joining us for this review of Lennox International's financial performance for the fourth quarter and full-year 2021. 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 for the quarter and year, as well as the outlook for 2022. To give everyone time to ask questions during the Q&A, please limit yourself to a couple of questions or follow-ups and re-queue 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 of today's conference call on our website. 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. Now, let me turn the call over to Chairman and CEO Todd Bluedorn.

Thanks, Steve. Good morning everyone, and thanks for joining us. Let me start with the financial highlights for 2021 overall, and then walk through the fourth quarter as the company closed out a year of record revenue and earnings per share. Overall for 2021, revenue rose 15% to a record $4.2 billion; at constant currency, revenue was up 14%. GAAP operating income rose 23% to $590 million. GAAP EPS from continuing operations rose 34% to a record $12.39. Total segment profit for the full year rose 19% to $604 million, and the total segment margin expanded 50 basis points to 14.4%. Adjusted EPS from continuing operations rose 27% to a record $12.60. Turning to fourth quarter, financial results were impacted by 6% fewer days in the prior year quarter as well as the continued impact from COVID-19 and supply chain disruptions that significantly impacted performance. As a benefit to the quarter, tax timing or one-time tax benefits lowered the effective tax rate to 7% on a GAAP basis and 8% on an adjusted basis. That brought the effective tax rate for the full year to 17% on a GAAP basis and 18% on an adjusted basis. Company revenue in the quarter was up 6% to a fourth-quarter record $965 million. GAAP operating income was $98 million compared to $139 million in the prior year quarter. GAAP EPS from continuing operations was $2.27 compared to $2.91 in the prior year quarter. Total segment profit for the fourth quarter was $102 million compared to $139 million in the prior year quarter, and total segment margin was 10.6% compared to 15.2% in the fourth quarter a year ago. Adjusted EPS from continuing operations was $2.35 compared to $2.89 in the prior year quarter. Looking at our business segments for the fourth quarter, residential revenue was up 12% to a fourth-quarter record $620 million. And again, that's with 6% fewer days; both replacement and new construction business were up double digits. Residential segment profit was down 5%, and segment margin was down 310 basis points to 17.8% from the prior year quarter. In commercial, the business continued to be hit the hardest by COVID-19 and global supply chain disruptions in the fourth quarter. Revenue was down 11%, segment profit was down 64%, and segment margin was down 170 basis points to 7.7%. Commercial equipment revenue was down mid-teens in the quarter. Within this replacement, revenue was down mid-teens with planned replacement down low single digits and emergency replacement down more than 40%. New construction revenue was down high-teens in the quarter. Breaking out revenue another way, regional and local business revenue was down mid-teens, national equipment revenue was down high-teens. On the service side, Lennox National Account Service revenue was up low single digits again on 6% fewer days. While the commercial business continues to work through significant disruptions and constraints in the fourth quarter, looking ahead, we expect revenue to resume year-over-year growth in the first quarter and profitability to be up by mid-2022 and for the full year. In refrigeration for the fourth quarter, revenue was up 6% as reported and up 8% at constant currency. North America revenue is up more than 20%. Europe refrigeration revenue was down low single digits as reported, up low single digits at constant currency. In Europe, HVAC revenue was down mid-teens as reported, down low double digits constant currency. Refrigeration segment profit rose 50%, and segment margin expanded by 190 basis points to 8.9%. For the company overall in 2022, we are reiterating guidance for revenue growth of 5% to 10%. We are raising guidance for GAAP and adjusted EPS from continuing operations from a range of $13.40 to $14.40, to a new range of $13.50 to $14.50 for the full year. This reflects a net benefit of lower effective tax rate of 18% to 20%, and higher interest rate expense assumptions. We are reiterating plans for $400 million of stock repurchases in 2022. HVAC and Refrigeration market demand remains high, and as COVID-19 and the global supply chain improve, Lennox International is positioned to further capitalize on the growth opportunities and higher profitability. 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 fourth quarter and the year overall starting with Residential Heating & Cooling. In the fourth quarter, revenue from Residential Heating & Cooling was a fourth-quarter record of $620 million, up 12%. Volume was up 3%, price was up 8%, and mix was up 1%. Foreign exchange was neutral to revenue. Residential profit was $110 million down 5%. Segment margin was 17.8%, down 310 basis points. Segment profit was primarily impacted by 6% fewer days than the prior year quarter, the COVID-19 pandemic, global supply chain disruptions, higher material, freight and other product costs, and higher SG&A. Positive impacts included higher volume, favorable price, mix, foreign exchange, and warranty and distribution efficiency programs. For the full-year, Residential segment revenue was a record $2.78 billion, up 18%; volume was up 13%, price was up 4%, and mix was flat, with foreign exchange being a 1% favorable benefit to revenue. Residential profit was a record $540 million, up 26%. Segment margin was 19.5%, up 140 basis points. Now, turning to our Commercial Heating and Cooling business. In the fourth quarter, commercial revenue was $201 million, down 11%. Volume was down 21%, price was up 2%, and mix was up 8%. Foreign exchange was neutral to revenue. Commercial segment profit was $16 million, down 64%. Segment margin was 7.7%, down 1170 basis points. Segment profit was primarily impacted by 6% fewer days than the prior year quarter, the COVID-19 pandemic, global supply chain disruptions, lower volume, higher material warranty, tariff, freight, and other product costs, and higher SG&A. Partial offsets included favorable price and mix. For the full year, commercial revenue was $865 million, up 8%. Volume was up 3%, price was up 1%, and mix was up 3%. Foreign exchange was a 1% favorable benefit to revenue. Segment profit was $111 million, down 19%, and segment margin was 12.8%, down 430 basis points. In refrigeration, revenue was a fourth quarter record of $143 million, up 6%. Volume was up 4%, price was up 1%, and mix was down 1%. Foreign exchange had a favorable 2% impact on revenue. Refrigeration segment profit was $13 million in the fourth quarter, which was up 29%. Segment margin was 9.2%, up 170 basis points. Segment profit was positively impacted by higher volume, favorable price and mix, and lower SG&A. Partial offsets included 6% fewer days in the prior year quarter, the COVID-19 pandemic, global supply chain disruptions, higher material, freight, and other product costs. For the full year, Refrigeration revenue was $554 million, up 17%. Volume was up 13%, price was up 3%, and mix was flat. Foreign exchange had a favorable 1% impact. Segment profit was $49 million, up 50%, and segment profit margin was 8.9%, up 190 basis points. Regarding special items, the company had net after-tax charges of $3.2 million for the fourth quarter and $7.4 million for the full year. Corporate expenses were $37 million in the fourth quarter, and $96 million for the full year. Overall, SG&A was $152 million in the fourth quarter or 15.7% of revenue, the same as the prior quarter. For 2021, overall SG&A was $599 million or 14.3% of revenue, down from 15.3% in the prior year. Our 2021 income tax rate declined year-over-year, attributable to geographic mix, year-end adjustments of taxes on export sales, and finalization and settlement of our prior-year tax obligations. For 2021, the company had cash from operations of $516 million, compared to $612 million in the prior year. As working capital increased, primarily due to sales growth, increasing accounts receivable, and inventory increasing due to mitigation strategies to combat supply chain disruptions, along with inflationary effects year-over-year on product costs. Capital expenditures were $106 million for the full year compared to $77 million in the prior year. Free cash flow was $410 million for the year compared to $535 million in the prior year. In 2021, the company paid approximately $127 million in dividends and repurchased $600 million of company stock. Total debt was $1.24 billion at the end of the fourth quarter, and we ended the year with a debt-to-EBITDA ratio of 1.8. Cash and cash equivalents were $31 million at the end of the year. Now, before I turn it over to Q&A, I'll review our outlook for 2022. Our underlying market assumptions for the year remain the same. We expect the industry to see low single-digit shipment growth in residential, and mid-single-digit shipment growth in commercial, unitary, and refrigeration markets in North America. Our guidance for 2022, revenue growth remains 5% to 10% with neutral foreign exchange impact. We are raising our guidance for GAAP and adjusted EPS from continuing operations from a range of $13.40 to $14.40, to a new range of $13.50 to $14.50. This reflects the net of a lower expected effective tax rate of 18% to 20% compared to our prior guidance of approximately 20%, as well as higher interest and other expense approximately $40 million compared to prior guidance for $35 million. Now, let me run you through some of the other key assumptions in our guidance and the puts and takes for 2022, all of which are unchanged. Pricing is expected to be a benefit of $235 million for the year, which is about a 5% yield. Factory productivity and production from our third Mexico plant is expected to be a $20 million benefit. We are guiding for residential mix to be neutral. Tariffs are also expected to be neutral, and we assume neutral foreign exchange impact. For the headwinds in 2022, we still expect a $110 million headwind from commodities, a headwind of $60 million from components offset by $30 million of cost take-outs for a net $30 million headwind. Freight is still expected to be a $5 million headwind. We will be at a more normal run-rate with distribution investments this year with 30 new Lennox stores planned. SG&A is expected to be up $45 million this year, including our investments in Research and Development and Information Technology. A few other points: corporate expenses are still targeted at $95 million, and we are planning capital expenditures to be approximately $125 million this year. Free cash flow is targeted at $400 million, and finally, we expect the weighted average diluted share count for the full year to be between 36 to 37 million shares, which incorporates our plans to repurchase $400 million of stock this year. And with that, let's go to Q&A.

And ladies and gentlemen, just a quick reminder. Please follow operator instructions. And first, go to the line of Nicole Deblase with Deutsche Bank. Please go ahead.

Yeah, thanks. Good morning.

Good morning, Nicole.

I guess maybe we could start with looking across 2022. It seems it might be a bit of an unusual year. Any update on your thoughts on the quarterly cadence and earnings and maybe just categorize it relative to the normal seasonality you would see in your business?

The way we plan right now and way we expect it to be is, well, the last couple of years have been abnormal. While the last two or three go all the way back to tornado. I think if you go back past pre-COVID and pre-tornado, I think it's more of a normal cadence. Our best guess is that's how it's going to lay out, normal to prior years.

Okay. Got it. Thanks, Todd. And I guess from a commodity perspective, I saw that you guys maintained exactly what you said at the analyst day last month. Commodity costs have continued to tail off a little bit. Is that a potential source of upside if that trend continues, or is the advanced purchases hedging you guys do, does that make that difficult for 2022?

No. If commodities go down, especially steel, which is our largest, and we don't hedge it, it will certainly be a benefit. I mean, we're not changing that because it wiggles one way or another. And we take guesses on what the balance of the year is based on what futures are predicted to be. Short answer is, if commodities go down, that's good news.

Got it. Thanks. I'll pass it on.

Thanks.

And next we'll go to Julian Mitchell with Barclays. Please go ahead.

Thanks very much. Good morning. Maybe Todd, starting out with your views around volume growth in residential over the year, any commentary on how the year has started out for your resi volumes and any major cadence as we go through the year, I think relative to your low to mid-single-digit volume growth that resi does in the guide?

The short answer is we're starting out strong. I mean, we got lots of orders and backlog, although that's tough in this business. But given supply constraints, we have lots of people telling us they need things. The orders remained strong, but as you well know, it's tough to predict much from January. I think the short answer is the consumer seems strong, still buying. We get to a warm summer; I think it's going to be another record year.

Thanks very much. And then in commercial maybe a couple of things. One is just any finer points on the confidence on that profit expansion by mid-year, other than easy comps on profitability. And then how do you see that backlog in commercial playing out? I think in a lot of industrial-facing and commercial businesses backlogs may be peaking right now and then start to bleed down a bit. Do you see that as likely to happen this year?

I don't think so. Again, I get the years confused, but in 2020, the industry was down 20%, and so the HVAC discretionary spending went way down. It's come back partway this year, and I expect it to continue to grow in 2022 and we certainly have record backlog again, driven by supply constraints and production constraints. But everything we can see, it still feels very strong. Obviously, we're charged when we talk to our large national accounts. There are a couple of reasons for that. One is we have one factory that is in Stuttgart, Arkansas, which has been very hard hit by COVID. There were days in the fourth quarter where over 25% of our hourly workers didn't come in because of COVID, either they had it or they were close contacts. Similar impact we had with Omicron in January. I think the good news is that's starting. It's like the python swallowing the rat. I think it's now going through the system. We're on the downside. Also, we've been hit by supply chain issues; harder there than anywhere else, and I think we worked through those. We have a strong production team there. I think we're focused on the right things. So then you're right. I mean, I got a lower baseline to come from. I feel pretty confident we will be back year-over-year growth and profitability by mid-year.

Great. Thank you.

Our next question is from Jeff Hammond with KeyBanc. Please go ahead.

Hi, good morning everyone.

Hi, Jeff.

Hi, maybe just update us on your inventory levels. What do you think channel inventories look like? I know these seasonal weaker periods you've been trying to catch up.

Yeah. We're still low on inventory, both in residential and specifically in commercial. That's why you saw emergency replacement down 40%, our ability to have the inventory on the ground. So we're focused on driving it up. People who look at the detailed charts will see our inventory levels are up year-over-year for the fourth quarter, but that's driven by a couple of things. That's driven by the increased cost of components and labor due to inflationary pressures, and also we have a lot of WIP in raw material. We're pulling together material, and we'll miss a piece or a part and we won't be able to finish the unit, and so some of that's going in there. Then I think the distributor channel through our Allied business, I still think that's relatively lean, so I don't think we've peaked out in any way. I think there - in our sell-in to competitors, Carrier and Trane, I don't think Watsco has too much inventory yet. I think people are still buying.

Okay. And then just on supply chain, can you talk about where you think you're starting to see some stabilization or relief, versus maybe whereas things are still very problematic?

It's a continually changing situation. Back in December, I was confident and still remain so. However, Omicron had an impact, and I can say it definitely did. It caused some delays. Specifically, our factories were significantly affected in January. Despite that, we still feel confident for the quarter. The supply chain is improving, though there are still some remaining effects from Omicron that we need to address regarding the supply chain. We're encountering fewer issues with the major challenges we faced earlier, like controls, steel, aluminum, and packaging; those seem to be in the past. We have a strong team focused on resolving these issues. We're taking all the expected measures, including being present at supplier locations, investing in inventory, and spending millions to air-freight components from Asia to ensure we have safety stock. We're making the right decisions. However, just when I think we’ve achieved a clear victory, COVID shifts again. I believe Omicron is the final hurdle, and it feels like it's now behind us in our factories and overall supply chain. I expect a quick recovery since the impact of Omicron on our factories rose sharply and then fell just as quickly. But until we know how COVID will evolve, I can’t be entirely certain about the future.

Okay, appreciate the color, Todd. Thanks.

Thanks.

Next, we'll go to Ryan Merkel with William Blair. Please go ahead.

Hey, good morning. Thanks. So first question, Todd, it looks like production was right down the middle in 4Q. Any change to the outlook for production in the first half either way?

I'm not sure I understand the question.

Production rates, meaning factory productivity, any change to how you're thinking about that for first half?

Our guidance is to improve, and as you know, it's a complex situation. We hope to perform better, and they will notice.

Got it. Okay. And then what are the key focus points and opportunities you are looking at over the next couple of quarters? I assume supply chain and solving that's number one, but what else is there?

Supply chain, price, drive productivity in our factories as we stabilize to production and inventory rates. And then the third is our strategic investments, whether it's product and we have some great new products coming out over the next 18 months. Digitization, which you know a lot about, and then continue to build out our distribution, our store strategy in North America. So, first our team is laser-focused on keeping the product flowing, improving production, driving productivity, getting price, and continue to focus on strategic investments.

Perfect. Thanks.

Thanks.

Next question is from Tommy Moll with Stephens. Please go ahead.

Morning and thanks for taking my questions.

Hey, Tom.

Todd, I wanted to focus on labor and wages today. What context can you give us on the level of wage inflation you're seeing here in the U.S., versus maybe in Mexico as well, and the level of difficulty in hiring new employees at this point? What update could you give us there?

We've been fighting that battle for a year-and-a-half, maybe for two years. And we've raised wages in our factories pretty significantly, 10% - 15% depending on the factory, some even more. We pay premiums to get people to work second and third shift in our factories, both in Mexico and North America. I think it's all pre-stabilized at this point. I think the one factory that we've had the most issues with, but I think we're now focused on the right levers is the one that's been hit hardest in the margins, which is our Arkansas factory that may be the most rural of our factories. Just hard to get to employees, but I think we've balanced away traits to get that and that's obviously all in the guide. And again, as you know, our cost of goods sold is less than 10% direct labor. So we have some flexibility to pay what we need to do to get people in.

Thanks. That's helpful Todd. Just to follow up on your stores rollout this year, I think you said 30 earlier. Can you give us any sense of the timing across the quarters and what, if any, revenue benefit from those new locations is embedded in your guidance?

I don't think much revenue. I think, mathematically, it's more of the stores we opened this year that start to kick in. Typically, we are back-loaded on stores just because we start to freeze things up in March as we prepare for the summer selling season, and we don't want to distract the Salesforce. And so, I don't have the list in front of me, but historically it's been 2/3 or so second half of the year and my guess is that's what it will be this year. Thanks.

Next question from Gautam Khanna with Cowen. Please go ahead.

Todd, I got to ask the where are we on the CEO search if you can say anything?

It's the same typical response that has been given since the process started. The independent directors are involved in the search, and when they find my successor, we will make an announcement.

Yes, just confirmed the returns everything. Brady just announced it.

He announced it. Well, I have no announcement.

Just related to the Commercial business, can you update us on your views on IAQ and what the pace of inquiry has been around that? And do you have any view that's changed on what the average ticket size can be in the commercial space in the residential space relative to the cost of the system? Thanks.

Now, I'll answer the second part of the question first. Our point of view, or my point of view personally hasn't changed. I think it's an important product offering to have. I think it's important to talk to your customers about. I think when you sell it, it can improve the ticket by 10%, 15%, 20%. But it's not every application. I think as we get through the pandemic and it becomes an epidemic or whatever the right phrase is, I think some of the focus on this starts to pass. I think it's important that we have it. Now, I'll be honest with you, over the last quarter or two, we are so focused on taking care of core customer requirements given the production issues. We talked about IAQ or selling it. But I would tell you the sales force is spending a lot of time just taking care of base requirements. Thanks.

Next, we'll go to Nigel Coe with Wolfe Research. Please go ahead.

Oh, hi. Good morning. Thanks, Todd. So just going back to Nicole's question on normal seasonality, quote-unquote normal. You mentioned obviously pre-COVID tornado. Scanning the numbers suggest 10% or below. Is that what you're thinking towards in terms of normal seasonality? Second part of my question really is, any expectations we should have around 1Q margins, the recovery, the sequential ramp from 4Q? Would you expect 4Q to be sort of fairly normal, since is 1Q? If that question makes any sense, was wondering a situation about margins and that seasonality for 1Q specifically.

I understand your question. I won’t dive too deep into specifics because I prefer not to establish a pattern of providing quarterly guidance. If I were analyzing a model, I would adjust it based on our historical performance before COVID and the tornado. That seems like a reasonable expectation. I believe Q4 might show some improvement compared to previous Q4s, especially if there’s any pre-buy activity, but currently, I don’t anticipate much of that. Q1 demand is robust, but we are limited by supply, which may affect our performance in Q1 and push some demand into Q2. This will always be a factor, and it’s likely to be a focus for the second and third quarters.

Okay. And then just my follow-on is around the mix being neutral in Residential for FY2022. I think we had some mix down during 2021, so I thought we might get some relief on that, especially with the semi. The semi supply is getting better, so just as curious to know what's driving that assumption for a neutral mix. And I'm just wondering about the pre-buy effect into that.

I don't believe pre-buys play a significant role because we're not relying heavily on that. There may be some caution reflected in that number. As I've mentioned, our factories in Mexico are performing exceptionally well for us. We have started to allow certain dealers to purchase some of our mid-tier and high-tier products that were previously restricted. If we continue to increase production in our Marshalltown factory, we may have some positive developments regarding our product mix.

Great. Thanks Todd.

Thanks.

Next question is from Jeff Sprague with Vertical Research. Please go ahead.

Hey, thanks. Good morning, everyone. Just wondering if we could touch on price a little bit more. Todd, looks like on the exit rate on resi, you're going to be in the ballpark of what you're anticipating for the year on. I just wonder how much incremental price relative to your exit rate do you actually need to get in the market to hit that? What is it? $235 million or so for the year?

I believe that as we compare year-over-year results, we will lose some of the price increase from the fourth quarter as we move into 2022. This is due to the price increase we implemented early in the first quarter of 2021. However, we are committed to maintaining our pricing strategy. Based on our forecasts for the fourth quarter and the first quarter, we are confident in achieving the prices we anticipate. We had an approximate 8% increase in the fourth quarter for residential, and we expect a similar magnitude for 2022. For the full year, we're aiming for a 6% increase. While Joe mentioned 5%, I have it noted as 6%, so it may realistically be around 5.5%. We are confident we will reach that goal.

Yeah. It is 5.5, Todd.

Okay. Good then. And just one more peculiarity and maybe I heard it wrong, but it looks like refrigeration got less price in the quarter, and then in the year, is that correct? Everything else seems to be building over the course of the year.

I mean, not on that one.

I just want to confirm that's correct?

Yes. Joe, you know that?

Yeah.

What I have in my notes is, for the year, we got about 5% pricing. In 2022, we need to get 5% price in Refrigeration, and we're confident we're going to be able to do that. But I think they're confirming the numbers: $1 million in fourth quarter, $3 for the year.

Great. Okay. Thank you.

Next will go to Joe Ritchie with Goldman Sachs. Please go ahead.

Thanks. Good morning, everyone.

Hey Joe.

Guys, can you help me maybe parse out the margin headwinds in 4Q and resi, given you did exit with eight points of price? Just trying to understand what you felt the impact in. And then, should we be anticipating a similar impact in 1Q in the resi business?

I think one thing to think about is on a year-over-year basis, we had 6% fewer days. That was worth an order of magnitude of $10 million of EBITDA. And then the other impact in the margin was the COVID impact. I think that will be less in first quarter than it was in fourth quarter. And that was another order of magnitude of about $10 million. So there's sort of $20 million of headwind between COVID and 6% fewer days on a year-over-year basis that don't impact the first quarter.

Okay. Great. That's helpful. And then I guess maybe just kind of thinking through the commercial business, and getting back to like pre-COVID margin in that business. It's the expectation for 2022, we don't quite get there, but you'll see meaningful improvement in the second half, maybe we start to see those kind of rates in 2-H?

I think that's right. I don't think we get back to where we were pre-COVID in Commercial in one year; I think it will take a couple of years, and that is acceptable, be mid-year when we start the improvement. But again, I think all the pieces are there: we've got the product, we have customer demand, we just got to get the factory Hammond.

Got it, helpful. Thank you.

Thanks.

Our final question will be from Josh Pokrzywinski with Morgan Stanley. Please go ahead.

Hi, this is Brandy for Josh. How are you?

Good. How are you?

Question on commercial market share. I know the timing of business differences makes it a little hard to compare this, but do you have a sense for how your Commercial businesses did in 2021 versus your comparable light unitary markets?

I believe we lost market share, and there's no doubt about that. While I can't provide exact figures, it's evident that we lost share, though it's less than a point since market share changes slowly in the commercial sector. However, in our residential businesses, we are either flat or slightly up, but the production difficulties are in the commercial area.

Okay, that's helpful. And then on resi mix up 1%, do you have an idea of what mix was within replacement, and how 2021 mix within replacement compares to a typical year?

I don't have that information at the moment. I'll ask Steve to look it up and provide a response. What I do have is that we didn't experience the usual replacement mix we typically expect because we were able to increase production at our Mexico facility, which focuses more on entry-level products. As a result, we directed customers towards more entry-level offerings than usual. Therefore, I believe that for the full year, the replacement mix was likely flat or slightly down.

Great. Thanks. Appreciate it.

Thank you.

I'll turn it back here. Go ahead if any closing comments.

Okay. Thanks everyone for joining us. To wrap up, under challenging conditions, Lennox International team is executing well, capitalizing on market opportunities, and we look forward to a year of strong growth and profitability in 2022. Thanks everyone again for joining us.

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation. You may now disconnect.