Steve Harrison - VP, Investor Relations Todd Bluedorn - Chairman & Chief Executive Officer Joseph Reitmeier – EVP and Chief Financial Officer.

Jeff Hammond - KeyBanc Capital Markets Steve Tusa - JPMorgan Securities Rich Kwas - Wells Fargo Securities Jeff Sprague - Vertical Research Shannon O'Callaghan - UBS Julian Mitchell - Credit Suisse Keith Hughes - SunTrust Johnathan Wright - Nomura Securities Walt Liptak - Global Hunter Securities Joshua Pokrzywinski - Buckingham Research.

Ladies and gentlemen, thank you for standing by and welcome to the Lennox International Third Quarter 2015 Earnings Conference Call. At the request of your host, all lines are in a listen-only mode. There will be a question-and-answer session at the end of the presentation. As a reminder, this call is being recorded.

And I would now like to turn the conference over to Steve Harrison, Vice President of Investor Relations. Please go ahead, sir..

Good morning. Thank you for joining us for this review of Lennox International's financial performance for the third quarter of 2015. I'm here today with Chairman and CEO, Todd Bluedorn and CFO, Joe Reitmeier. Todd will review key points for the quarter and year, and Joe will take you through the company's financial performance and outlook.

To give everyone time to ask questions in the Q&A please limit yourself initially 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 financial metrics that will be discussed to GAAP measures.

You can find a direct link to the webcast of today's conference call on our website at www.lennoxinternational.com where will also be our guide for replay. I'd 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 which will be the morning of Wednesday, December 16, in New York City. Please mark your calendars. Invitations and more details will follow. The event will also be webcast. Now, let me turn the call over to Chairman and CEO, Todd Bluedorn..

Thanks, Steve. Good morning and thank you everyone for joining us. With significant margin expansion across all three business segments, Lennox International set a new high for total segment margin on strong revenue growth in the third quarter. Total company revenue was up 11% at constant currency with growth in all three businesses.

Total segment margin for the company expanded 140 basis points to a record 13.7% and adjusted EPS from continuing operations rose 26% to a third quarter record $1.82. In our residential business we set third quarter records for revenue, margin and profit.

Revenue was up 13% at constant currency on broad strength in both replacement and new construction. Residential margin expanded 240 basis points to 17.4% and residential profit was up 30%. Our residential business continued to benefit from favorable price and a richer mix of business year-over-year in the third quarter.

Improved mix benefited from the regulatory transition to 14 SEER air-conditioners in the South and Southwest regions of the United States and for heat pumps nationally. 14 SEER and above air conditioners and heat pumps were 59% of cooling product shipments in the quarter up 17 points from the third quarter last year.

14 SEER pricing in the market has been disciplined. On the operational front we opened five new Lennox PartsPlus stores in the third quarter. We currently have 175 stores across North America and now expect 184 total stores by the end of the year. Our target for 2017 remains 250 locations.

Turning to our Commercial business segment profit margins set new highs on 8% revenue growth at constant currency. Commercial margins expanded 70 basis points to 18.2% in the third quarter. Segment profit rose 6% to a new high of $45 million.

In North America non-national account revenue was up low double-digits at constant currency in the third quarter. We are seeing the broad commercial recovery continue including mid-teens revenue growth in emergency replacement. As previously discussed, national account business in North America has been choppy this year.

National account equipment revenue was flat in the first half of the year, down in the first quarter, up in the second quarter and now down mid single digits in the third quarter. Given the uncertain retail sales environment this year we expect national account equipment business to continue to be soft in the fourth quarter.

The fast growth in our non-national account business compared to the softness in our national account business which features premium high-efficiency systems creates a lower mix that is a headwind on the business in the second half of the year.

Lennox continues to win new national accounts with our high high-efficiency system and advanced controls and has brought 20 new national account customers on board this year including two more in the third quarter. Our national account service business saw strong growth in the third quarter with revenue up mid-teens.

Our VRF business while still small saw solid expansion. In Europe commercial HVAC revenue was up high single digits at constant currency in the third quarter.

On the operational front we opened up another commercial distribution center in North America in the third quarter for a total of 44 commercial dedicated locations, a key element to our growth strategy in the emergency replacement market. In Refrigeration revenue was up 8% at constant currency.

Refrigeration margin expanded 220 basis points to 10.7% and segment profit was up 23% from the prior year quarter. Looking at revenue at constant currency by region, North America and Europe were up low double-digits in the third quarter. South America was up mid-teens. Australia was flat and Asia was down mid single digits.

While the third quarter saw strong topline growth and margin expansion, looking ahead we expect more choppiness in international markets and are applying additional caution to our outlook in those regions.

We expect Refrigeration segment margin to be flat on a full-year basis versus our outlook earlier in the year for segment margin to be up as much as 50 basis points. But I would point out this guidance still indicates solid margin expansion in the fourth quarter for Refrigeration.

Looking at 2015 guidance for the Company overall we are narrowing guidance for revenue growth at constant currency from 4% to 7% to a new range of 5% to 7% and we are narrowing adjusted EPS from continuing operations guidance from $5.25 to $5.50 to a new range of $5.25 to $5.40.

In summary, overall for 2015 we expect another record year for Lennox International strong revenue growth and new highs for total segment margin and profit. Now I will turn it over to Joe..

Thank you, Todd, and good morning everyone. I'll provide some additional comments and financial details on the business segments for the quarter starting with residential heating and cooling. In the third quarter revenue from residential heating and cooling was a third-quarter record $518 million which was up 12%.

Foreign exchange had a negative 1% impact on revenue. Volume was up 10% and price and mix combined was up 3%. Residential profit in the third quarter was a record third quarter $90 million which was up 30% from the prior year quarter. Segment profit margin was a third quarter record 17.4% which was up 240 basis points.

Segment profit was positively impacted by higher volume, favorable price and mix, lower material costs and higher productivity. Partial offsets included unfavorable foreign exchange in investments and SG&A and distribution expansion.

Now turning to our Commercial Heating & Cooling business, in the third quarter commercial revenue was $247 million which was up 2%. Foreign exchange had a negative 6% impact on revenue. Volume was up 7% and price and mix combined was up 1%. North America Commercial HVAC equipment and service revenue was up mid-single digits.

Europe Commercial HVAC revenue was down low double-digits including the negative foreign exchange impact, although up high single digits at constant currency as Todd mentioned. Commercial segment profit in the third quarter was a record $45 million which was up 6% from the prior year quarter.

Segment profit margin was a record 18.2% which was up 70 basis points. Segment profit was positively impacted by higher volume, favorable price and lower material costs with partial offsets from negative mix, unfavorable foreign exchange and investments in SG&A. In Refrigeration, revenue in the third quarter was $190 million which was down 2%.

Foreign exchange had a negative 10% impact on revenue. Volume was up 7% and price and mix combined was up 1%. From a regional perspective, Todd already addressed revenue growth in constant currency.

On a reported basis including the negative impact from currency North America was up high single digits, Europe was down high single digits, Asia-Pacific was down about 20% and South America was down more than 20%. Refrigeration segment profit was $20 million which was up 23% from the prior quarter.

Segment profit margin was 10.7% which was up 220 basis points. Segment profit was positively impacted by higher volume, favorable price, lower material costs, lower SG&A and higher productivity. Partial offsets included negative mix in the North American supermarket business and unfavorable foreign exchange.

Regarding special items in the third quarter, the Company had after-tax charges of $2.9 million including $800,000 for special, legal, contingency charges, $700,000 related to contractor tax payments in a non-U.S. subsidiary and $500,000 for the net change in unrealized losses on unsettled futures contracts.

Corporate expenses were $24 million in the third quarter compared to $18 million in the same period a year ago. Overall SG&A was $144 million in the third quarter compared to $141 million for the prior [year] [ph] quarter. Cash from operations in the third quarter was $159 million which was up $97 million from the prior year quarter.

We continue to monetize 13 SEER inventory we strategically built in the fourth quarter of 2014 to support our customers in the minimum efficiency regulatory transition effective for certain products at the start of 2015. Capital expenditures were $14 million in the third quarter compared to $19 million in the quarter a year ago.

Free cash flow was $145 million for the third quarter compared to $78 million in the prior quarter. Total cash and cash equivalents were $35 million at the end of September and total debt was $918 million and we ended the quarter with a debt-to-EBITDA ration of 2.1. Now turning to our outlook for 2015.

For the residential market in North America we continue to expect HVAC shipments to be up mid-single digits for the industry. For the commercial unitary market in North America we now expect HVAC shipments to be up mid-single digits versus the prior expectation for low single-digit growth for the industry.

As Todd mentioned, the market growth being driven more by non-national account business mix is now a headwind. For the Refrigeration market in North America we continue to expect industry shipments to be down low single digits for the year.

However, we continue to expect our Refrigeration business to do significantly better on the strength of specific national account business. For Refrigeration markets outside of North America we are seeing choppy market conditions and expected this to continue to be the case near-term.

With these underlying market assumptions, our performance year-to-date and one quarter to go left in the year we are narrowing revenue growth guidance at content courtesy from 4% to 7% to a new range of 5% to 7% for the Company in 2015.

We still expected a negative 3 point impact from foreign exchange for revenue growth guidance of 2% to 4% at actual currency versus prior guidance of 1% to 4% for the full year. We are narrowing guidance for adjusted EPS from continuing operations for the full year from $5.25 to $5.50 to a new range of $5.25 to $5.40.

Incorporating this change and $0.06 more of special charges in the third quarter, guidance for GAAP EPS from continuing operations moved to a range of $5.08 to $5.23 for the full-year.

Now looking to the headwinds for 2015 on a full-year basis, we continue to expect foreign exchange to have a $20 million negative impact on earnings net of specific price increases that we've enacted to help mitigate unfavorable foreign exchange movements. Most of this headwind is coming from the Canadian dollar and the Australian dollar.

The mid-2014 repeal of the carbon tax in Australia had a negative $10 million impact on us in 2015. Corporate expense guidance remains $80 million for the full year up $6 million from last year as we make some investments in the businesses to support the Company's growth.

A headwind of $3 million is still expected from investments in the RF for the year and we have ongoing investments in the expansion of our residential and commercial distribution network across North America as well.

Now looking at the tailwinds for 2015 on a full year basis, on the commodities front, we continue to see a $15 million [ph] benefit to earnings from lower metal prices, copper, steel and aluminum as well as lower fuel costs year-over-year.

We continue to expect $40 million of savings from our sourcing engineering-led cost reduction programs and we still expect $10 million of incremental price for the full year and this is separate from the price we are capturing specifically to help offset negative foreign exchange.

We are on track for about $4 million of incremental savings this year in our Residential business from our second plant in Mexico and we continue to expect residential mix to be $5 million benefit in $2015. And now I will finish up with just a few more guidance points. We still expect net interest expense for the year of nearly $25 billion.

Our effective tax rate guidance remains 34% to 35% on a full year basis. We continue to expect the weighted average diluted share count for the full year to be approximately 45 million shares. Capital expenditures are still expected to be $80 million for the year.

And for free cash flow we are now targeting $240 million for the full year compared to our prior target of $265 million and this is primarily due to the residential inventory positioning for the quarter and as we move into 2016 which includes some 13 SEER inventory for the ongoing regulatory transition. And with that, we'll go to Q&A..

[Operator Instructions] Our first question today comes from the line of Jeff Hammond with KeyBanc Capital Markets. Please go ahead..

Hey good morning guys. Hey, so pretty good strength in commercial and you talked about the nuances between national accounts and emergency replacement.

But can you speak to some of the more mixed macro data points we're seeing and anything that gives you pause about kind of just commercial recovery in general?.

You know, Jeff, it continues to percolate for us and it will bubble along and in Commercial we continue to see the broad recovery as we talked about in the call. I think we're certainly gaining share. We are happy with the mid-teens growth and emergency replacement and the overall growth in our non-national account businesses.

We talked about our national accounts. There's chunkiness and softness as some of these replacement projects get pushed out and there have certainly been some headlines from some large customers or certainly with Wal-Mart in the last few days, but we knew a lot of that. They've been in conversation with us and so overall it still feels solid.

As we enter fourth quarter our backlog in Commercial is flat year-over-year and so we're reflecting some caution I think in our guide. But so far things continue be pretty solid..

Okay, and then just on price cost I'm surprised you didn’t take that number up.

Can you maybe just speak to where you are seeing additional opportunity for lower input cost and maybe how some of that rolls into 2016 based on hedges?.

Yes, as commodities have gone down through the year from about July on it has been more of a 2016 story than a 2015 story as the bulk of our hedges in 2016 that we're buying very little on the spot at this point for 2015..

Okay thanks guys..

Good, thanks Jeff..

And we do have a question from the line of Steve Tusa from J.P. Morgan Securities. Please go ahead..

Hey good morning..

Hey Steve..

Hi Steve..

So I am still not quite sure why the top end is clipped.

I mean is that just the mix dynamics in Commercial that you are reflecting there for the EPS guide?.

I think it reflects two things, one is the softness in commercial HVAC and national accounts which results in lower mix. And then the caution that we talked about on international markets, semi-softness in refrigeration in Europe and Brazil and to a lesser degree Australia and China, and so that's what the clip reflects, those two items..

Okay, that makes sense. On the resi front, so volumes were up 10% I guess you are still holding some of the 13 SEER.

I mean how would you describe the demand dynamic there with I guess are you a bit surprised that you haven’t – is the lack of salethrough on 13 SEER a bit of a surprise, I mean a pleasant surprise or is that something that you kind of planned on having a little bit of a tail on the inventory front heading into 2016?.

We planned on having a tail going into 2016 and the demand for 13 SEER has been quite frankly it has been about where we thought it had been. We review that monthly and it is tracking about where we thought it would be.

The pricing support that we've been able to keep with 14 SEER has been a pleasant surprise and we've reflected that in some of the - in the mix number that we raised last call. We always want to quite frankly wanted to go into 2016 with some inventory of 13 SEER.

I think you always want to have the lowest cost option in the marketplace and we have told you why it is solid and one of the advantages of owning our own distribution as this stuff isn’t [indiscernible], if we have some stuff in July we will ship it North and sell it up there..

Got it, makes sense.

And then just lastly on the Wal-Mart front is there any cost that you kind of put up to support that that would be at risk of being an overhang if production becomes a bit of an issue next year or going forward with the Wal-Mart business given you have a bit more leverage there now?.

Can you ask the question one more time?.

Well I guess, was there any kind of cost that was put up to support all this Wal-Mart business and the ramp this year and in Refrigeration and if that remains relatively weak heading into next year and perhaps into 2017 is there something you're going to have to then take out? I guess the bottom line is, is this kind of an unusual one time revenue bond that you had to kind of put cost into that creates some risk going forward?.

In the Refrigeration business specifically to your point we've added some costs certainly at our North American Refrigeration [indiscernible] to support the additional demand from Wal-Mart. The good news is we're seeing everything we thought we'd see second half of the year and we expect to continue to see some increases in 2016.

I think that is all consistent with their public comments over the last week. I mean we've been in conversations with them sort of nonstop over the last six months and sort of know where they are at. But honestly the truthful answer to your question is if volume goes down will rip our costs.

We [indiscernible] and will adjust our cost structure if we had to..

One more quick question for you. There is a bit of concern that I guess oil and gas is kind of hitting everything that is industrial related which is not too much of a surprise given all the CapEx that's involved here.

There is a bit of a concern this is kind of going to leak into the more important parts of the economy like the consumer; I mean you guys are down in Texas, I guess in your business, in your HVAC business, are you seeing anything there from an economic kind of macro perspective that has changed the behavior of consumers or even your Commercial customers that would be all linked to what's happening in oil and gas and regions related to that?.

No, I mean I keep checking, keep pushing, keep asking even in Houston which is more tied to oil and gas than we are here in the Metroplex in Dallas. Builders are still building, there is still new construction. Lots of stuff going on in the Woodlands for example on new construction and so the market continues to percolate.

I understand the question and I understand people are looking, but I mean you'll have to really look hard in our business to think lower oil and gas is bad news for us. I mean it is good news; we’re a distributed product business, our cost to distribute product goes down and it puts more dollars in the consumer's pocket with lower gas prices.

So I understand the macroeconomic implications to many industrials, but not to be too jargonistic, we are sort of safe harbor on this one. I don’t think it really impacts us except in a positive way..

Right, okay, thanks a lot. I appreciate it..

Excellent..

And we do have a question from the line of Rich Kwas from Wells Fargo Securities. Please go ahead..

Hi good morning..

Hi Rich..

So Todd on, so on the non-res stuff as you look at some of the macro indicators here weakened lately and you talked about the non-national account being pretty strong in Q3, just to ask in a different way, what do you look at in terms of your business from a macro standpoint? What has the most influence when you look forward here over the next six to twelve months, is there a particular metric that you follow? I know you obviously have your orders and what not, and you are weighted more toward retail, but what are you looking at right now?.

Now we're looking at the same thing you are, we’re looking at the architectural forecasts, we're looking at new construction being put in.

But the honest answer is we spend a lot of time talking to our customers and so it is a lot of micro rather than macro where we're talking to contractors who know what engineers are working on, who were talking to owners and they get a flavor of what's happening in verticals that we participate in and schools continues to sort of chug along, light manufacturing continues to chug along.

Small rise office buildings continues to chug along and I get it that things can change, but so to be on the headlines things continue to chug along for us in the verticals that we play in..

So the message is with this macro data what – you’re seeing a divergence basically in your business to some degree?.

I think a lot of the macro data is tied to sort of heavier larger projects that we're not involved with. So we tend to, by definition we’re called light commercial, these are light projects and those end markets continue to build..

Okay. And then on the pricing front what are you thinking about in terms of pricing for next year on the resi and then also on the Commercial side, commodity cost you referenced earlier, down, should be a tailwind for you.

It is going to be tougher to put through price next year, what's your…?.

My experience in the industry over the years is you put in price every single year and some years commodities are down and some years they are up and you have to get price every year to be able to offset the big spikes in commodity costs when they bounce back.

So we'll be announcing a price increase as we always do as we get closer to the end of the year, both in commercial and residential and may be to a lesser degree in refrigeration..

Consistent with last year in terms of magnitude?.

Yes. The short answer is yes..

All right last one on buyback now that the sourced on what's the methodology here as you move out the next several quarters?.

Again I'm a bit of a broken record on this, if I was going to, if I was an analyst and I was modeling and I'd look at our debt-to-EBITDA closer to two than to one, model the cash flow, what dividends grow with earnings, we'll do acquisitions if they make sense which is a very narrow focus group as we've discussed will invest in the business with CapEx and then we'll give the rest back to shareholders and the vehicle that we've used in the past has been share buyback.

At the December Analyst Day on December 1, we'll give as we always do give fresh numbers for what we plan on doing in 2016..

Yes, thank you, I'll pass it on..

Thanks..

And we do have a question from the line of Jeff Sprague with Vertical Research. Please go ahead..

Thank you gentlemen, good morning..

Hey Jeff..

Hey Jeff..

Hey just a couple of follow-ups, just on free cash flow, I'm a little confused you are saying 13 SEER is tracking as you thought but you did lower your free cash flow guide by 9% or 10%.

Is there something else going on in the free cash flow number that is creating pressure?.

No I think its harsh to sort of our net income being a little lower as we lowered our guide and so I think that reflects cash from operations being down a bit and our inventory and resi more broadly speaking, is up a little bit, higher than what we thought, but again we're fine with that and sort of minor inventory pre-build as we go into 2016.

So I wouldn’t read much into that other than sort of the cash flow from operations should bounce back next year..

That’s great and then on your hedges and how the raw mets are playing through, I am sure there will be a December 16 conversation, but can you give us some indication if you just kind of snap the line today where commodities are what kind of tailwinds you are looking at into next year?.

I understand the question. I’m going to answer it obliquely and say copper and aluminum is a decent tailwind for us as we go into 2016 because we started the hedges 18 months out and so you can imagine sort of what it looks like on a year-over-year basis. The variable that’s uncertain to us is steel given some of the tariff litigation that’s ongoing.

We'll know better what’s going to happen to steel as we run up to the December meeting. And so our concern is the benefits of copper and aluminum will be partially if not a lot of bit offset with steel pricing year-over-year and again we'll give clear guidance in December..

And then just one other quick one on the non-national accounts stronger are there any particular sub verticals that stand out that’s driving that?.

No, I mean it's not so much a vertical but just a channel which is emergency replacement which has been significant investments we've made in rate or and in our distribution build deliver same day that was up mid teens, that’s across all verticals that’s more of an ownership structure which is the contractors making the decision rather than the owner and is looking for first price and immediate delivery..

Right, thank you very much.

Thanks..

And we do have a question from the line of Robert Barry from Susquehanna Financial. Please go ahead..

Hi good morning guys. This is Philipo [indiscernible] on the call for Rob today.

First question is regarding the furnace season, how would you characterize the start of the winter season?.

It’s early, but sort of the broad commentary is momentum of the business continues. We're off to a solid start in fourth quarter. If you are watching the base ball games I always get excited when we're in play offs and people in many parts of the country have heavy courts on. That’s a good sign and we’re seeing that.

So the weather is starting to cool and that helps us, but dealers are confident as we go into the furnace season..

Okay great and then in terms of the VRF business you mentioned strong performance and if you can help us quantify versus the target of $10 million to $20 million from VRF for 2015 how is it tracking to the target?.

We started slow and we've talked about that, that as we gotten into this business we learned that the sales cycle is longer than what we're used to as we have to be specified and then work with the engineers and the owners as well as the contractor we have existing relationships with, but we're going to be on the lower end of that $10 million to $20 million target.

But third quarter was an important quarter for us as we sort of turned the needle and our pipeline of projects are good and we had some nice wins on the very small business base. And we've talked about five years out being a $100 million business plus or minus and we’re still comfortable with that trajectory..

Okay, that’s great, thanks so much..

Thanks..

And we do have a question from the line of Shannon O'Callaghan with UBS. Please go ahead..

Good morning guys.

Hi, good morning.

Question on the tougher commercial mix, I guess it was present this quarter already national account I think as they were down mid single digits and you still had really strong commercial margin improvement.

Is that going to get tougher from here or can you still put up, that kind of strong margin improvement?.

I mean we'll say as we go into fourth quarter I think it is clearly a headwind both in the third and increasingly in fourth quarter as we see, our national accounts were down mid single digits. We're signaling it to may be even more softness in fourth quarter and that’s all sort of incorporated in the guide.

We'll play it out as it comes, but we thought it was important to highlight it as a risk and reflect it in our guidance along with the weakening, softness we're seeing in our national markets.

But sort of underlying and the fourth quarter is still going to be a really good quarter for us and residential remains strong, our national account business is strong and we put up 200 basis points of margin expansion in refrigeration and we’ll see something similar to that in the fourth quarter.

So, I understand we lowered the guide and you’re right to push on it, but we still feel pretty good about things as we go into fourth quarter..

Okay.

Thanks and then on the Refrigeration international choppiness that you mentioned, how much of that is actual things you’re seeing in those markets in 3Q or exiting versus just kind of a macro caution given the environment maybe just a little more color on those specific markets you mentioned?.

I think it’s a bit of both. I mean we had a nice quarter in Europe, we were up double-digits – double-digits in HVAC and so we looked at the rest of the group and up I think mid-single digits in Refrigeration.

So we did well in Europe, we continue to sort of defy gravity in Brazil where our business was up again in third quarter on a year-over-year basis nicely. But as we talk to our businesses there, there is some concern.

So I think it’s a combination of macro call as well as sort of knowing our customers and they’re showing some caution that our team has done a great job of defying gravity and we’ll see what happens, but again we thought it was appropriate to reflect it in our guide..

Okay, thanks Todd. Thank you..

And we do have a question from the line of Julian Mitchell with Credit Suisse. Please go ahead..

Hi thanks. Just a question sort of longer-term on the approach within Refrigeration, the EBIT I guess in just dollar terms is probably stable or flat this year, year-on-year after the big drop last year.

When you’re looking ahead is there any kind of change in strategy or any approach in terms of potential acquisitions or further cost reduction that you think can reignite earnings growth in that business?.

In many parts of our business, we’ve actually seen nice growth and we’re highly profitable and where we’ve seen the headwinds last years has been in Australia and North American supermarket business or grocery business which is really our Kysor/Warren acquisition.

In Australia, we’ve done some aggressive restructuring over the last six months and we think that will position us well as we go into 2016. We have talked about the regulatory change there, but it’s also more broadly just a soft market in Australia given their exposure to the commodity and mining industry.

Supermarket business in North America, again we've taken aggressive action both on the cost side with restructuring as well as with a big customer Wal-Mart which we publicly talked about and we saw benefits in third quarter and we think we’ll see benefits as we go into fourth quarter and we know we need to get that part of the business turned around and we’re committed to do that or if we can’t, we will look at other options..

Thanks and then just a follow-up on the capital deployment, obviously the Lennox share price is much higher than when you had launched the ASR 12 months ago.

So when you’re talking about sort of target leverage range is there any kind of urgency around that on the buyback or do you think you’ll wait to reassess that for when the price if and when it weakens?.

Unlike our CEOs at least the good ones, not saying I'm a good one, but all good ones sort of assume their stock price is going up, I assume our stock prices going up. I actually believe our three year plans and if we do that we’ll grow our multiple. So short answer is, I’m not afraid of buying stock at 1.20.

What we will do is at the December meeting we will give the guide. I think mechanically you can figure out what I am going to say, so I never want to surprise people on the what, but sort of the how and the when we'll sort of think through the right way to do things and we will communicate that in December..

Very helpful, thank you..

Thanks..

And we do have a question from the line of Keith Hughes with SunTrust. Please go ahead..

Thank you, two questions.

Just shifting back to steel real quick, this has been running more or less spot all year on steel, is that correct?.

Say that one more time?.

On your steel, there were not formal agreements in place for this calendar year, is that correct?.

There were formal agreements, but what we do Keith is we buy off the prior quarter CRU pricing for steel and that we have negotiated agreements with the mills or service centers depending on the grade where we have buy at discounts of the CRU pricing. So it’s prior quarter CRU less the negotiated discount..

Do you expect that to be the case in 2016 the mechanism that way is something more permanent place?.

No, it will be that..

Okay.

And the question back on cash flow usage, you kind of signaled what is going on as you said in several answers on share repurchase, but I guess my question is, are there acquisitions out there that would cause you to change that plan?.

We’ve publicly talked about this and so I will repeat it. The focus would be on consolidating North America HVAC that’s where our strength is at. People who own assets would have to decide to sell assets and so something would have to open up.

On Refrigeration, I think longer-term that’s certainly an area internationally that we could grow through acquisitions in Europe for example in an industry that’s kind of fragmented and we think we have a strong position, but we’ve been pretty clear that until we see some nice improvement in margin expansion Refrigeration and address our issues in North American grocery, we don’t want to put more capital against that segment.

But once we’ve demonstrated externally that we’re on the right trend on margin expansion and I’ve addressed it, then I could see us spend money on acquisitions and Refrigeration maybe in Europe..

And what about commercial?.

I put that under the same category as what I said earlier about consolidating North America HVAC and yes Europe, fair enough when I’m talking Europe I should be talking HVAC at the same time.

I think if we could add some more mass to our business in Europe that could make sense for us and right now given the strength of the dollar it might be a reasonable time to do a deal if we find the right one..

Yes, thank you very much..

Thanks..

And we do have a question from the line of Johnny Wright with Nomura. Please go ahead..

Good morning guys..

Hi..

From the residential side and I have to focus on 13 SEER, 14 SEER is all 22 also a meaningful mix benefit this year just given the shift on the consumption allowance?.

Not in a material way and I think that just reflects it was low, reasonably low last year, it’s reasonably low this year. I think year-over-year it might be a little bit lower mix, but order of magnitude I think it’s close to about the same number..

Okay.

Sure and on the Commercial side from a national account customer, I know you've always given us sort of new customers every quarter, where are we at in absolute number now and kind of what I’m getting at really is there much of an attrition rate that you see customers dropping off or once you have them really kind of sticky for the long-term?.

I don’t have the number off the top of my head. We will find it and make sure we give it to you. I mean, when we give these customers that we win, obviously they’re not all the same, to state the obvious.

But what we want to try and do is convey that given our product innovation and our focus on the segment of the market that we continue to win, yes there are customers we win and we eventually someone else takes them from us, we don’t publicly announce that.

But net-net we’re winning new customers every year and so the big question is which one of them are going to pop and be a big format that really drives revenue and that’s why it’s a bit of a portfolio strategy that we’re involved with as many different customers as we can, but net-net we’re winning new customers year-over-year..

Okay, great thank you..

Thanks..

And we do have a question from the line of Walter Liptak from [indiscernible] Global. Please go ahead. .

Hi, thanks good morning..

Hi, Walter..

I wanted to ask one about the SEER mix 14 plus 59% which is a really good number and if we just get more some color on how much is being driven by the health of the consumer versus the regulations and just any color on the geographic regions that are strong versus weak, et cetera?.

This is a regulatory impact. I mean to see that kind of spike it’s driven by regulations. When there is a non-regulatory environment as there has been last couple of years we've talked about a point or two that we move up every year, each quarter year-over-year in the summer selling season as we mix people up to our high efficiency product.

But I would say this is almost exclusively maybe a point or two for other reasons, but this is tied to the regulatory changes in the South and Southwest..

Okay.

How do you think about the SEER mix I guess from here on now it is 13 SEER up product of the past and its 14 SEER that is going to be the main product for the next couple of years?.

Well, certainly in the South and Southwest where the regulations says after July we can’t sell 13 SEER that is going to be the case. And so as we mentioned earlier we have some inventory that we're going to be carrying into 2016 of 13 SEER and we will continue to sell it till either we run out or the regulatory deadline hits us.

And in the North we’re still going to be selling 13 SEER. We focus on premium and we do mix up and we do this I think as well as anyone in the industry, but half the market is entry level and if entry levels 13 SEER that’s half the market will be 13 SEER in the northern regions..

Okay, thank you.

Thanks..

And our last question of today comes from the line of Josh Pokrzywinski from Buckingham Research. Please go ahead..

Hi Josh..

Good morning, Josh..

This is a follow up on that last question about the 59% in 14 SEER.

If I had to work kind of goal stayed or industry target for once this inventory buffer is behind us what does that 59% go to? I guess in the absence of voluntary mix, just clearing out the 13 SEER in the sunbelt today and converting the rest of that?.

I understand the question. I honestly haven’t worked the math Josh. Let us work the math and we'll get back, but I mean I’m sort of high levels look at HVAC that goes or excuse me air-conditioners and heat pump or air- conditioners that go in the South and Southwest and say half the market is now going to be 14 SEER.

And look at heat pumps nationally and say that’s going to be 14 SEER and or half the market is going to be 14 SEER and then the markets and then the rest of the country for air-conditioner half the market will be 13 SEER and then sort of distribute the rest amongst the SEERs from 14 to 21.

I haven’t done all that yet so I'm not sure what 59 goes to be honestly. I think in many ways the way we'll talk about at next year though will be the portion of our mix that’s above regulatory minimums. I actually think that’s a more useful way to have the conversation right.

So next year we’ll talk about last year what percentage were regulatory minimums and this year what percentage are regulatory minimums and because now that we have regional standards I think that’s a more thoughtful way to have the conversation..

That’s fair. I guess what I’m trying to get at is, you’ve enjoyed some early migration to 14 SEER, may be a little faster than you would have expected.

I'm trying to get maybe what's left in the next year, if we thought was this as an industry three-ish points of price mix, may be four over time, did you get two this year and there is one left, did you get one and a half and there is one and a half left, I'm sure you get the question and it is kind of a different way of asking the same earlier ones they probably don’t know?.

Let me – I from a financial view point I’d say we’ve caught out that we have $5 million mix this year and that in large part we thought that was from the 13, 14 SEER mix up and that’s been good news and that was because we could hold on pricing at 14 SEER.

I also said that, that the mix of or the sale of 13 SEERs about what we thought it would be and we’re going to carry some inventory in the next year. So I, if I was modeling 16 I wouldn’t be, I don’t think it is good news or bad news. I think it will be relatively neutral to 13 to 14 SEER mix.

I think the bigger mix up gets opportunity for us is and has been and will continued to be us selling people up to 16 SEER, 18 SEER, 21 SEER. We've come out with some new products this year in that sort of mid tear range in 18 SEER product, 16 SEER product, and that’s helping us and it will next year too..

Got you and then just back to Commercial margins, I understand that you have some mix headwinds may be coming down the pipe a little bit more from national accounts, but just looking at it sequentially it seems like mix, probably when the wrong direction just given that, yes some healthy pull-through there on national accounts in 2Q less though in 3Q and margins went up quite a bit.

I can't imagine that pricing helped a lot sequentially.

May be can you just kind of mention now is it investment, is it better price costs sequentially, what are the big factors there to keep in mind?.

We’ve had aggressive cost reduction programs in our commercial business on material cost reduction side and we saw some real benefits in third quarter that’s really helped us.

Again, all that was in our guide, so what I’m saying is not inconsistent with our new guide, but we’ve seen aggressive material cost reduction in our Commercial business and that’s helping us..

Okay, so this is just kind of the second half by some of that value engineering and material costs structure [ph] that you target every year..

Correct and it's been more commercial, the commercial number is higher this year than it's been in prior year, so our team has done a really nice job..

And then just one last one, I know you guys don’t give quarterly guidance, but in the spirit of this 50 basis points of margin expansion that you have targeted for the year on Refrigeration, anything we should keep in mind from a seasonal mix perspective 3Q to 4Q in Refrigeration that could make that, kind of easier or harder?.

No, it's playing through in my head.

I mean in our North America business or sort of not, not – or catch [ph] one business, but our traditional heat wrap business, second and third quarter are stronger quarters for us in the sense of the distributed products it has whether impacts that much like it does although to not much like it does in HVAC, but to a lesser degree.

So now I mean the news in the fourth quarter is going to help drive margins is the continued ramp up in our North America grocery business and the benefits from restricting that we've done in Australia in catch [ph] one and again we don’t guide, but when you get full year guidance in three quarters it is sort of easy to connect the dots and the implication is we’re going to get close to another couple 100 basis points of margin expansion in Refrigeration in fourth quarter and that’s where we’re targeting and feel pretty good about..

All right, thanks guys..

Good thanks. Okay so that’s it for Q&A. A few point to leave everyone with. On strength in all three businesses the company posted EPS growth of over 25% in the third quarter on strong revenue growth and significant margin expansion.

We are well positioned for continued momentum in the fourth quarter and as we look ahead to 2016 we remain focused as we always do on capitalizing on end market growth, capturing additional market share and driving operational initiatives for higher profitability. Thanks everyone for joining us today..

And ladies and gentlemen, this does conclude your conference for today. Thank you for your participation and for using the AT&T Executive Teleconference Service. You may now disconnect..