Lennox International Inc. (LII) Q4 2021 Earnings Report, Transcript and Summary

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. [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 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. 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 to 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 to 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 a $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 a $102 million compared to a $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 [Indiscernible] 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 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 emergency - excuse me, 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 continue 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 a 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 continued 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 $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 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, $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 in 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. And 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 of -- in 2022, we still expect a $110 million headwind from commodities. A headwind of $60 million from components have 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 more -- 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 deluded 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. [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 last two or three go all the way back to tornado. I think if you go back past pre - COVID 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, saw that you guys maintained exactly what you said at the analyst day last month. Commodity cost 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 goes 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 kind of 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 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 -- production constraints. But everything we can see, it still feels very strong and [we’re charged](ph) when we talk to our large national accounts. Obviously [Indiscernible] fourth-quarter [Indiscernible] year on the margins. There's a couple of reasons for that. One is we have one factory, it is in Stuttgart, Arkansas been very hard hit by COVID. There were days in fourth quarter where over 25% over quarter the 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, 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 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 fourth quarter but that's driven by a couple things. That's driven by the increased cost of components and labor so the inflationary pressures and also we have a lot of WIP in raw material. So 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 go 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 -- I think their distribution is the same way. 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 continuing changing picture, if you will. I -- back in December when we spoke, I was confident and remain confident. But Omicron, I think -- I don't think I know had an impact. Backed everybody up a bit. And specifically in our factories, Omicron hit hard in January. We still feel confident for the quarter, but had an impact in January. The supply chain is healing. Although I would tell you there's still a card or two on Omicron that has to be turned over on the impact that's had on the supply chain. We're having fewer issues on the things. We had big issues with controls, steel, aluminum packaging, sort of all those things, I think are in the rearview mirror. We have a great team focused on this. We're doing all the things you'd expect us to do, and I talked about were in supplier's locations. We're investing in inventory. We're spending millions of dollars air-freighting in components from Asia, and make sure we have safety stock. We're doing all the right things. I just think every time I wanted a clear victory -- excuse me, COVID takes a slightly different direction or a large direction. I think Omicron is the last piece. I think that's now behind us in our factories. I think it's broadly behind our supply base, and I think we heal quickly because again what our factories have seen with Omicron [Indiscernible] went up like a rocket, coming down like a rocket. But you tell me what COVID is going to do then I'll be certain what [Indiscernible] going to do.

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 guide's to guide, I mean -- and again, it's as you know multi-variable equation we hope to do better. And they will see.

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 a product and we have some great new product 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, or 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 on 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 [Indiscernible] 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 roll out 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, mechanically, people back or something. I think it's more of the stores we opened this year start to kick in and -- or excuse me, in 2021 kick in and have some revenue and back, we typically are back and 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.

Appreciate it. I'll turn it back.

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?

Yeah, it's the same placeholder answer that may be given since it began. And it will be -- it's the -- independent directors have -- are engaged in the search, and when they have somebody as my replacement, we'll announce it. And Adam Schefter may say something different, but when we have somebody we'll announce. That's for the football fans out there.

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 is 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 resi space relatively 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 to 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 start 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 requirement.

Thank you.

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 the specific question. I'm not going to get to tightened into answer because I don't want to get into habit of giving quarterly guidance. I think if I was [Indiscernible] a model, I would normalize it based on our track record pre - COVID, pre tornado. That's roughly what it's going to be. I think Q4 may have some strength compared to prior Q4s, if there's any prebuy. But right now I don't -- my best guess is there won't be much of one. Q1 demand strong, but were supply constrained, and so I don't -- I think that will hinder what we can do in Q1 and some will [Indiscernible] into Q2. I think it's always with us. It's going to be a second and third quarter game.

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

No, I don't think it pre -buys factors in a major way, because I just said we're not counting much on that. I think maybe there's some conservatism in that number. I mean, we just got to get our -- as you know, our -- at least what I've spoken about our Mexico factories performed the best for us. And that's where we tend to have more the entry-level product. We've turned on some of our mid-tier and high-tier product that we hadn't allowed certain dealers to buy, that's now turned on. If we continue to ramp up in our Marshalltown factory, then maybe we have some positive news on 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 think what happens is you lap part of that. So part of the price that we got in the fourth quarter on a year-over-year comp goes away as we go into 2022, because it was the price increase that we announced in -- early in first quarter of 2021. So the answer is we still got to go stick price and we've announced it and we're confident we're sticking it. If again the numbers were giving your fourth quarter numbers, first quarter we're confident that we're going to get the price that we need as you suggested. We had 8% or so in fourth quarter in resi and that's an order of magnitude the number for next -- for 2022. Full year we need to get six. I think Joe said 5%, that's 6% on my notes so it's probably 5.5 price in 2022, and we're confident we're going to able to do that.

Yeah. It is 5 1/2, Todd.

Okay. Great.

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 seem to be building over the course of the year.

I mean, not on that one.

I think Joseph can answer that one. Joseph price up one, I think for the quarter and up three for the year. Maybe I wrote that down wrong.

And what's yours question about that?

I just want to confirm that's correct?

Yes.

It is. Okay.

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 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 order of magnitude 10 million of EBITDA. And then the other impact in [Indiscernible] was the COVID impact. And I think that will be less in first quarter than it was in fourth quarter. And that was order of magnitude another 10 million. So there's sort of 20 million of headwind between COVID and 6% fewer days on a year-over-year basis that -- that don't impact 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, and Commercial and one year, I think 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 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] (ph) for Josh. How are you?

Good. How are you?

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

I think we lost share. I don't think there's any doubt about that. [Indiscernible] I [Indiscernible] the numbers. I don't give the exact numbers, but we lost share. I don't -- it's less than a point of share because share moves slowly in commercial. But we lost share. And I think in our residential businesses, we are flat to slightly up but the production issue is in commercial artists.

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?

No, I don't have that in front of me. I'll have Steve dig that up and get back. I think the answer is for that -- but I have in the math in front of me is we didn't have the normal mix up in replacement, that we typically would because we were able to produce more products in our Mexico facility, which is more entry level. And so we steered customers to more entry-level product and we typically would. And so I think on a full year basis, replacement mix was probably flat to 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 and challenging conditions Lennox International team is executing well, capitalize 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.