Steve Harrison – Vice President-Investor Relations Todd Bluedorn – Chairman and Chief Executive Officer Joe Reitmeier – Chief Financial Officer.

Jeff Hammond – KeyBanc Capital Markets Tim Wojs – Robert W. Baird & Co. Steve Tusa – J.P.

Morgan Gautam Khanna – Cowen and Company Ryan Merkel – William Blair Julian Mitchell – Credit Suisse Robert Barry – Susquehanna Rich Kwas – Wells Fargo Securities Walter Liptak – Seaport Global Robert McCarthy – Stifel Jeffrey Sprague – Vertical Research Partners John Morales – Morgan Stanley.

Ladies and gentlemen, thank you for standing by. Welcome to the Lennox International First Quarter 2017 Earnings Conference Call. At the request of your host, all lines are in a listen-only mode. There will be a question-and-answer session at the end of the presentation. As a reminder, this call is being recorded.

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

Good morning. Thank you for joining us for this review of Lennox International's financial performance for the first quarter of 2017. I'm here today with Chairman and CEO, Todd Bluedorn; and CFO, Joe Reitmeier. Todd will review the key points for the quarter and Joe will take you through the Company's financial performance and outlook.

To give everyone time to ask questions during the Q&A, please limit yourself to a couple of questions or follow-ups and 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.

In addition, 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. We will archive the webcast on that 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 risk and uncertainties that could cause actual results to differ materially from such statements.

For information concerning these risk 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..

Good morning and thanks, Steve and thanks everyone on the call for joining us. Lennox International posted strong revenue growth and margin expansion for another record first quarter, despite some headwind from the weather. New first quarter records include revenue, total segment profit and margin, as well as earnings per share.

Revenue was up 11% in the first quarter on growth across all three of our businesses. On a GAAP basis operating income rose 39% to a first quarter record of $61 million. GAAP EPS from continuing operations was up 79% to a first quarter record of $1.

On an adjusted basis, total segment profit rose 39% to a first quarter record of $65 million, and total segment margin expanded 170 basis points to a new first quarter high of 8.2%. Adjusted EPS from continuing operations rose 50% to a first-quarter record of $0.90. A couple of points to make here on the first quarter.

First as we pointed out the press release, the Company had five more days, or approximately 6% more days in the first quarter of this year compared to last year. This balances out for the full-year with the fourth quarter having 6% fewer days this year than last year.

We usually don't talk about the number of days between quarters, but this year the difference is notable and we want to make sure everyone keeps this in mind in thinking about the year overall. Second, as you know there is a required change this year in GAAP accounting in regard to excess tax benefits from share-based compensation.

This now flows to the P&L instead of directly into equity. We expect this item to have some volatility during the year from movements in stock price, the timing of share exercises and the best thing of our share-based compensation plans.

Accordingly, we have excluded this in looking at our adjusted earnings give investors a better view on operational performance. For the fourth quarter, this is a benefit of $0.17 to GAAP EPS. We excluded that benefit from adjusted EPS and we aren't attempting to forecast it in the out quarters.

We’re only adjusting the guidance for 2017 GAAP EPS by the first quarter net benefit. We will report the impact on future quarters after we close and report for each period, it’s a mouthful.

The Company's effective tax rate guidance for the year on an adjusted basis remains 32%, but we currently expect a benefit and lower effective tax rate on a GAAP basis as reported under this new requirement. Turning to the highlights in our business segments for the first quarter.

In residential first quarter revenue and profit were up 11% to a new first quarter highs. Weather was warmer than normal and warmer than prior year in the quarter, which is a headwind to the replacement business, specifically our furnace business. Even without revenue from replacement business was up 10%, the new construction was up mid-teens.

Residential margin was relatively flat at 10.1% in the quarter, warmer weather and faster new construction growth led to mix not being as favorable as expected and are seasonally lightest quarter of the year.

In addition, we continue to make strategic investments in distribution expansion, including four new PartsPlus store in the quarter, as well as information technology, research and development and other SG&A investments.

As we move into our largest seasonal period, we continue to expect strong residential margin expansion for 2017 and another record year. Turning to our commercial business, revenue, profit and margin all set first quarter records. Commercial revenue was up 15% and profit rose 35% as segment margin expanded 150 basis points to 9.8%.

In North America, commercial equipment revenue was up more than 20%. New construction revenue was up mid-teens and replacement revenue is up more than 25% on strong growth in both planned and emergency replacement business. And we continue to see nice revenue growth in our VRF business.

Another cut at revenue, our national account equipment business is up more than 30% in the quarter. And we had a great start to the year winning new businesses of 14 new national accounts in the quarter including retailers, restaurants, hotels, medical facilities and real estate firms.

On the service side, national accounts services revenue was up mid-single digits. In Europe commercial HVAC revenues was flat at constant currency and down low single-digit as reported. In refrigeration, revenue was up 5% at constant currency in the first quarter.

From a regional perspective at constant currency North America, Europe and Asia-Pacific were up mid-single digits and South America was down mid-single digits. Refrigeration profit rose 57% and segment margin expanded 250 basis points to 7.9%. We continue to expect segment margin to be up 50 to 100 basis points for the full year.

With our strong balance sheet, we continue to make key investments, in the first quarter to drive the future growth and profitability of the Company. Beyond that, the Company paid $19 million in dividends and $75 million for stock repurchases in the first quarter. We continue to target a total of $250 million of stock repurchases for the year.

Now I’ll turn it over to Joe..

Thank you, Todd and good morning everyone. I'll provide some additional comments and financial details on the business segments for the quarter, starting with residential heating and cooling. In the first quarter, revenue from residential heating and cooling was a first quarter record $420 million up 11%.

Volume was up 10% and price and mix combined was up 1%. And foreign exchange was neutral to revenue. Residential profit was a first quarter record $43 million, up 11%. Segment profit margin was 10.1% compared to 10.2% in the prior year quarter. Segment profit was positively impacted by higher volume, lower material costs and favorable foreign exchange.

Offsets included investments in distribution expansion, information technology, research and development and other SG&A investments. Turning to our Commercial Heating and Cooling business, commercial revenue was a first quarter record $196 million, up 15%. Volume was up 14%, and price and mix combined was up 1%. Foreign exchange was neutral to revenue.

Commercial segment profit was a first quarter record $19 million, which was up 35%. Segment profit margin was a first quarter record 9.8%, which was up 150 basis points. Segment profit was positively impacted by higher volume and lower material cost with a partial offset from SG&A investments.

In our Refrigeration segment, revenue in the first quarter was $178 million, up 6%. Volume was up 4% and price and mix combined was up 1%. Foreign exchange had a positive 1% impact on revenue. From a regional perspective, Todd addressed revenue growth in constant currency.

On a reported basis, South America was up 20%, Asia-Pacific was up low double-digits, North America was up mid-single digits and Europe was up low-single digits. Refrigeration segment profit was $14 million, up 57%. And segment profit margin was 7.9%, which was up 250 basis points.

Segment profit was positively impacted by higher volume, lower material cost and favorable mix with a partial offset from SG&A investments. Overall for the company on an adjusted basis the first quarter excludes a net benefit of $4.6 million.

Based on the new GAAP accounting requirements on excess tax benefits from share-based compensation, the company had a $7.4 million benefit in the first quarter. Net against this we had $2.8 million of after tax charges for special items in the quarter.

Corporate expenses were $11 million in the first quarter, down $4 million from the prior quarter and consistent with our guidance for corporate expenses to be down $12 million for the full year. Overall SG&A was one $152 million in the first quarter or 19.2% of sales, compared to 19.6% in the prior quarter.

Net cash used in operations in the first quarter was $108 million, compared to $102 million in the first quarter year ago. Capital spending was $25 million, compared to $24 million in the prior quarter. With respect to free cash flow, we used approximately $133 million in the first quarter, compared to using $126 million in the prior quarter.

Due to the seasonal nature of our business the company uses cash in the first half of the year and generates cash in the back half of the year. And we continue to target $285 million of free cash flow for 2017 overall. Total debt was $1.1 billion at the end of the first quarter. And we ended March with a debt to EBITDA ratio of 2.0.

Cash and cash equivalents were $49 million at the end of March. Now before I turn it over to Q&A, I'll review our outlook for 2017. Our underlying market assumptions for 2017 remain the same. For the industry overall, we expect North American Residential HVAC shipments to be up mid-single digits.

We expect North America Commercial unitary shipments to be up low-single digits. And we expect North America Refrigeration shipments to be up low-single digits.

Based on this underlying market environment and our targets for market share gains, revenue growth guidance for Lennox International remains 3% to 7% for 2017 with a minimal impact from foreign exchange.

Our guidance for GAAP EPS from continuing operations for the full year moves up by the net $0.10 benefit that we realized in the fourth quarter to a range of $7.65 to $8.25. Our guidance for adjusted GAAP EPS from continuing operations for the full-year remains $7.55 to $8.15.

Now let me run through the key points in our guidance assumptions and the puts and takes for 2017. All of them remain the same from what we have previously discussed. We continue to expect $35 million in savings from our sourcing and engineering-led cost reduction programs.

We expect $6 million in savings from our manufacturing operations in Mexico from actions already taken. Residential mix is expected to be a $5 million benefit for the year. We continue to expect $10 million of headwind from commodities in 2017 and are targeting $20 million in price increases for the full-year.

We expect a minimal impact from foreign exchange. A few more other guidance points that are unchanged. Corporate expense is expected to be approximately $85 million. We still expect net interest expense for the year of about $32 million. And our effective tax rate guidance remains approximately 32% on a adjusted basis for the full-year.

We continue to expect the weighted average diluted share count for the full-year to be between 42 million to 43 million shares, which incorporates plans for total of $250 million of stock repurchases for the full-year. Capital expenditures are expected to be $100 million, and we are targeting free cash flow of $285 million for 2017.

And with that, let’s now go to Q&A..

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

Hi, good morning guys..

Hi Jeff..

Good morning Jeff..

Hi, so just residential, can you just talk about how you think about incrementals playing out certainly weaker this quarter, how do mix dynamics normalize? And just as you think about your price targeting, how are you doing capturing price thus far?.

Yes, I mean I’ll start with a leave what I said in the script we expect and are planning for another strong growth and record year for residential in 2017. What we saw in the quarter and then I talked about it in the script is we didn't have a stronger mix as expected because of the warm weather.

It was warmer both versus last year, but also normally degree heating days were down double digits. And it impacted us not only that RNC grew faster than add on and replace residential, new construction grew faster than add on and replacement, but even with add on and replacement our mix of furnaces were down while we make higher margins.

That’s sort of all the reasons. Now the good news is within our replacement business we had nice mix up the premium products all that looks strong. And we've implemented the price increases we announced at the beginning of the year and as we entered the large selling season we'll start to see back again.

And so it's our lightest quarter and so all the investments that we make weight on the margins, but end with where I started we expect strong margin expansion in residential as we move into the seasonally largest quarters of the year..

Alright.

And then commercial any good lumpiness around timing of national accounts in the quarter or was that kind of all pure core growth?.

It was broad strong growth across all our commercial business, as I said our every Len’s I looked at during my script was good news whether it's national accounts, not national accounts VRF emergency replacement, planned replacements, new construction. It was all strong.

And again as I called out on the national account conversations, we continue to sign up new national accounts uniquely important a diverse range of end markets. Sort of every day there was a new headline about the pressure on retail and the journal but we continue to diversify our end markets and we think some of that strength is playing through..

Great, thanks a lot..

Thanks..

The next question comes from the line of Tim Wojs with….

You there Tim?.

One moment please..

Just anything that you've seen in terms of change in how you view the replacement cycle or how you're reviewing pent-up demand as you can enter the seasonal stronger period of the year..

No, I mean we're excited I mean I think you saw it. Even when you adjust the 11% revenue growth for the extra days we still – and you adjust for the weather, I think we had a very strong revenue quarter for residential in the first quarter and that's on top of what we've done, did last year and I think the momentum continues.

Had all our dealer meetings and our contractor customers seem strong and encouraged and optimistic in the U.S. consumer seems strong. And so I think all that's queued up, we get the right weather pattern I think we're set up for another very good year..

Okay.

And then just on the investments in the resi segment, is it the right way to think about it that’s evenly weighted through the years so just the fact that you have lower profitability in the first quarter just abnormally weighs on the margin and we'll see that kind of get leverage through the rest of the year?.

Yes, it’s a right way to think about it..

Okay, great.

And then any indication on April?.

We're off to a solid start I mean the momentum we saw and first quarter around revenue continues and second quarter and it's early and as you know June is sort of the big, the money month and is about half of the quarter but things are trending well. And we're happy where we sit this far into the quarter..

Great. Good luck..

Thanks..

The next question is from Steve Tusa at J.P. Morgan..

Hey guys..

Good morning, Steve..

Good morning..

So I know you guys are a little bit different given your distribution profile but can you just give us a little bit of color on how the comps are going to kind of play out in the second and third quarter given the pretty extreme weather conditions that we had last year I know for some second quarter was a lot weaker than third quarter.

So maybe if you just want to help us position for what's to come in the next couple of quarters, just directionally?.

Yes, well I think I stamped my foot as hard as I could to say take fourth quarter down, right because it's going to have fewer days..

Yes, sure. I mean the second and third..

I think high levels which you called out I mean the weather came late last year. But we still had a pretty good second quarter but I think the weather came late last year and so I think net-net the comp in third quarter is a little higher harder than the comp in second quarter.

But that being said we're getting some weather already and we're starting off good..

Is it possible that the comp in the third quarter is – it doesn't grow because of that? Would you be concerned if you didn’t see growth in the third quarter, about kind of this cycle from that perspective?.

I would be concerned if we didn't have growth in the third quarter unless there was a huge weather comp that got in the way..

Okay, got it. And then just lastly on the commercial side where specifically could you just unpack the growth a little bit more – in more specifics you mentioned kind of the retail concerns out of the Wall Street Journal I mean I kind of have the same retail concerns watching, watching what’s happening out there with Amazon.

So maybe if its unpack the verticals and maybe where you're seeing the backfill related to retail or maybe retail is still relatively strong?.

I think it's across the board without being too cute about and trying to avoid your question but what I talked about in the script is overall commercial equipment was up 20% both in planned and emergency replacements, so emergency replacement is not sort of big box retail.

We continue to see just our national account business up 30% and it was not only retailers, it was medical, restaurants, hotels, real estate firms, all verticals that we've been focused on I mean look, retail still our largest vertical of national accounts but we're used to be that vertical we've significantly diversified.

And so our growth in other verticals has been significant. But I'd also say even retailer spend on planned replacement the article in The Wall Street Journal the one I'm referring to they talked about J. C. Penney and RadioShack and I think The Limited, we haven't sold a whole lot of rooftops of RadioShack, The Limited and J. C.

Penney in the last few years. So I mean there’s still other formats that are growing and some big boys, big businesses that are spending on planned replacement and we do very, very well there..

So I assume this year’s Kmart exposure is relatively minimal?.

I mean I haven't got an electronic kit from RadioShack in years..

I got a really cheap charger there on the closure and are down a couple of weeks ago, so I'm pumped about that.

So what – why is this growing so fast I mean that seems like a pretty big number are you just taking a ton of share here or is – or do you think this is market related that maybe this is – maybe a little bit of pent-up demand perhaps on the commercial side?.

I don’t know if its pent-up demand again sort of not to get too breathless I think you knock off 6% for the extra days and then you're mid-teens and then I think there's probably some it's tough to say share gains for a quarter. But I think we've got sort of an outsized piece of the business.

I do think again this is going to be anecdotal in nature but just like you've seen the stock market pick up after the election is there sort of confidence about we can debate whether that's right or wrong but confidence about what the new administration is going to do with pro-business policies.

I think some of our larger commercial customers sort of have the same sense and are willing to spend money maybe in a way that they might not normally..

Okay. Thanks a lot. I appreciate it, guys..

Thanks..

Thanks..

Question is from the line of Gautam Khanna with Cowen and Company. Please go ahead..

Yes, thank you good morning..

Good morning..

I was hoping if you could talk a little bit more about how trends are at Kysor/Warren and just kind of your confidence on refrigeration margins, it looks like you might be able to do better than the guidance.

So how is Kysor doing, how is the Walmart new business order kicked in yet and any comments on your conviction around maybe exceeding the refrigeration margin guide for the year?.

I’ll take KW first then I’ll talk more broadly about refrigeration. I mean, we continue to drive performance improvements and focus on share gains within the Kysor/Warren business. And we have and have had a significant chunk of the Walmart business and we continue to deliver on that.

More broadly on our refrigeration up 250 basis points for the quarter and top of the 210 that we had last year for entire year, driven by some additional volume, lower material costs and some strong mix improvement with some of the selling are more of a higher margin mix across the entire refrigeration segment.

Back in December as you – I think you're suggesting we guided 50 to 100 basis points. I still think that's the right guide for now, let us get further into the year and revisit it. If you recall last year, we raised margin guidance, I think a couple times during the year, but we continue to make good progress on refrigeration..

One point, you were waiting on a new contract award from Walmart that might confer better mix.

At refrigeration, has that happened yet? And did Kysor – what was it in the black in the quarter?.

We're still waiting for Walmart to make a decision on sort of the new contract..

And Kysor within the black?.

I don't know. I think given that the seasonal low point of the business my guess is not, because we were profitable last year, but not strongly profitable. So my guess is we didn't make money in the first quarter..

Okay. Thank you very much..

Although, I parenthetically point out as a corporation, up until about three years or four years ago we didn't make money as a parent corporation for the first quarter and so sort of being at $0.90 EPS given where we used to be in a very seasonally low quarter, I think underlines the improvement of the business. That's my victory lap..

Yes, very strong start..

Okay. Thanks..

Thank you..

Next question is from the line of Ryan Merkel with William Blair. Please go ahead..

Thank you. So Todd, first question.

If having extra days in the first quarter versus the fourth quarter, is that a net negative for you?.

No..

I think it doesn't matter..

I think it's net neutral..

Net neutral, okay.

And then can you talk about sales performance in March on a date adjusted basis?.

I’m just pausing because I'm not sure I know the answer off of my head..

Okay..

Give me more, what are you looking for?.

Well, I'm just trying to get a sense, I heard March was a pretty solid month based on my surveys and then you mentioned that April is off to a solid start. So I'm just wondering if April is as good as March or is it April picked up, just trying to get a sense of the trends..

You're right about March being strong. So January and February is when we had the warm weather and March it started to get cold in some places and also it's switched to loading for the cooling season. And then to state the obvious, I mean April's an artificial construct.

I mean, the momentum that we saw at the end of March sort of rolled into the first four weeks and now we're now starting to get some warm weather in parts of the country which again sort of gets dealers excited to get ready for the cooling season..

Right, okay. And then lastly, can you just comment on price capture for both residential and commercial? It sounds like everything's on track, but just want a little bit more clarity..

Yes, our senses of things are on track, we'll know a lot more we get into the summer selling season that sort of when you really know. But we're pretty confident going into the seasonally significant parts of the year that the $20 million of price that we put out there we're going to get..

Okay, great. Thank you..

Thanks..

And the next question is from Julian Mitchell with Credit Suisse. Please go ahead..

Hi, good morning..

Good morning..

Just I want to drill in a little bit on the helpful color you gave on the cost base in the sense that it sounded as if a lot of the cost efforts or cost step up in Q1 was in the OpEx line, SG&A investments, distribution, R&D and so on. But if I look at just the cogs in the SG&A they both grew about 9% or 10% year-on-year.

So I'm just trying to understand – is the implication from that at the SG&A to sales over the balance of the year should full even more than it did in Q1?.

Yes. I think what it's saying is that SG&A in our investments on a full year basis aren't penciled out to grow 10%..

Understood. And then on the cogs line, what the input cost pressures relative to price get heavier in the second half still..

They get heavier in the second half. Although, the price take up will happen more second half of the year than the first half of the year, because we're now setting – we've set price or implemented price first quarter. The other issue for the balance of the year that should be a positive compare to first quarter was mix.

So we didn't – I sort of kicked it a couple times, but the furnace sales as a percent of total revenue wasn't where it was last year because of the warmer weather that we had first quarter versus last year and versus normal.

And as we get into the balance of the year, the mix sort of swings our direction, as well as AOR grown closer to our residential new constructions growing where, and first quarter residential new construction grew 500 basis points quicker than add-on replacement which is a negative impact of mix..

That's very helpful. Thank you. And then I guess my second question is just around refrigeration and the sort of competitive landscape in that. One of your main peers obviously changed hands a year ago, one of your other peers has had some production manufacturing issues for 12 months or 18 months, now they may be coming to the end of that.

I just wondered how you saw the competition in refrigeration if there was any difference at all today, good or bad versus 12 months or 18 months ago..

No, I think it's very similar. And again, when we – the portion of our competitor base that people are able to see publicly is really just Kysor/Warren intends to be Hill PHOENIX part of Dover and Hussmann now part of Panasonic and we've talked about KW and I talked about it earlier.

The other parts of our refrigeration business, different sets of competitors, we continue to make investments and grow significantly there. So I think I just pointed in the margin expansion 200 basis points last year, 200 plus basis points first quarter. We feel like we're heading the right direction of refrigeration..

Great, thank you..

Thanks..

[Operator Instructions] The next question comes from Robert Barry with Susquehanna. Please go ahead..

Hey guys, good morning..

Robert..

So how many selling days were there in the quarter?.

Going to from memory 91 versus 85, or 91 versus 86, correct..

91 versus – okay. So that's the 6% impact. So if we wanted to just kind of level said everyone we could save about 6 points of growth off of each of the segment growth rates..

Order magnitude, the other thing that I would do to sort of level said everybody is. We've always talked about our drop through being 30% target.

Now reflects sort of all the actions that we're taking in multiple parts of the business appear in number just to use for revenue drop through for incremental revenues more or like 20 to 25 depending on the segment. So if I was going to model the EBIT impact or EPS impact that have that incremental revenue drop at 20% to 25%..

Got you. So maybe it added about $0.15 from the quarter..

Plus or minus..

Got you, okay. And I think you said earlier you'd expect a similar impact to be taken out of fourth quarter..

Correct..

So it sounded like mix tracked weaker.

You're keeping the outlook for mix the same for the year is that just less upside to the original outlook on mix or if it's not significant enough because its shoulder period?.

I think its sad, but it's also what we were encouraged by was within the product categories, the amount of mix up that we had the premium product. And so we think that will offset sort of the quote unquote miss that we had on first quarter from the furnace sales..

Got you. How – what is them extracting now of like above 2014, versus a year ago or….

I still think it's a squarely metric just because of the regulatory change last year. And so I think it starts become….

Yes..

…metric when we revisit it after the transition which was in June. So we had a number written down here, but it's meaningless..

Got you. And then Todd could you just talk about pricing in Resi, we've been hearing that pricing pressure has been rising in Resi. Different views on who's starting it, but I – it sounds like it might be trickling through, sounds like maybe more intense in the builder channel, but could be more broad.

Just any thoughts on what you're seeing there?.

There's always my line is I like to say there's always skirmishes on the edge of the empire and I think that's the case now, that's always the case. I just underline we're confident, we're going to get to $20 million price as an enterprise.

I think if I had to take over or under on commodities, I might take the over, which is different than I would do 30 days ago and over being bad news..

Yes..

So we understand we got to get price. And I assume our competitors do too. And if the commodity stay in place and everybody's hedges roll over and no one's got a price 2018 is going to be painful on price increases. So I think we need to get it now and I assume our competitors think the same thing..

Yes.

Given the comments on price and I've been seeing some of the same headlines especially on steel, I mean what's the history of and potential to do mid-year pricing if you need to?.

We've done it and again we're protected this year in large part from copper and aluminum because of the hedges. And our guide assumes forwards on cold rolled steel that's sort of in line with where it's at now. So it have to move up before we'd sort of aggressively take action, but we've done it before and if we needed to, we do it again..

Got you. Thank you..

The next question is from Rich Kwas with Wells Fargo Securities. Please go ahead..

Hi, good morning. Just a couple question on the commercial side. Todd, when you look at the quarter relative to where we were back in February when you reported Q4. You mentioned the billing days I mean it does seem the commercial came in better than expected relative to maybe internal projections.

Is that right or how would you characterize it expectations beginning of the year for the quarter?.

Again we don't give quarterly guidance. So hopefully I didn’t guide you on what we're doing commercial for the quarter even take it from my comments. I think as we could see the backlog and so coming into the quarter, we knew we're going to have a pretty good quarter. And I remain strong to the whole thing.

So yes, I think incrementally is probably better than where we started in December and February we had pretty good visibility. And so we hoped it would be a good quarter and it turned out that way..

Anything on the national accounts that you've decided in terms of I think you said 14 new accounts anything that rolled through that was immediate….

No. I think really the good thing about it for the quarter is there wasn't a lumpiness. It wasn't like Wal-Mart did this or company x did that.

It was broad-based and as I suggested whether we look to the Len’s emergency replacement, planned placement, national accounts, non-national accounts, VRF sort of across the board we did well, which was positive sign..

Okay. And then – and just across the three segments anything we should be mindful of with regards to the commodity in terms of protection whether it's hedges or be able to get price et cetera anything, any deviations..

No. I think broadly speaking it's the same. I think Downey [ph] Nuance would be as a percentage of cogs we use less steel in Refrigeration. So I think you could argue they're going to be less impacted by it, but then on the flipside I think they're less likely to get pricing in the marketplace and net, net should be a neutral problem..

And then last one in terms of the competition follow-up on Rob's question. You have a major competitor that’s going through a merger right now and integrating that.

Yes, anything that you've seen out in the marketplace on the [indiscernible] side from them or anyone else, but yes, from a share standpoint that you would highlight are you seeing?.

No, no. I mean I think we're gaining share. And I think any time one of our competitors is consolidating what 4 million square foot of factory in Houston, good luck.

Other competitors going through a major if you said acquisition and having sort of been involved in those over the years that always turns into a Game of Thrones from people are worried about, where to go and who they work for and what’s going on. So I think those are all good things for us.

That being said we have set of competitors and they’re all good. But I think we’re gaining share and our strategies are well known and which continue to pound on them..

Thanks..

Thanks..

Next question is from the line of Walter Liptak with Seaport Global. Please go ahead..

Hi, thank you, good morning..

Hi, Walter..

I wanted to ask – the weather around better this year, warmer this year. What’s your experience with how weather impacts the business? If you there – I’m sensing a little bit of tone of caution I think in kind of the back half of the year. And I wonder if you think you’re going to really nice second quarter and maybe tougher in the back half.

Or it’s your experience or when you talk this warmer weather that starts early in the year that it flows through the full year. I wonder if you can help us with that..

Let’s just be clear up, what I said or what you thought I said. I wasn’t trying to show caution for the back half of the year. I was trying to make a mathematical point of. We had 6% more days in first quarter and 6% less days in fourth quarter..

Yes, yes, I get that. I get that..

Yes, and then the other point I was making I think direct answer to your question is cost of steels going to be higher second half of the year than first half. And cost of copper and aluminum is going to be higher second half..

Okay, all right. Fair enough..

And in terms of – and then I was trying to say that we had warm weather in first quarter. So in your rearview mirror I was complaining if you will that we didn’t sell as many furnaces. We’re confident going into second and third quarter.

And Dan’s answer your question is, if you have a warm second quarter you don’t necessarily pull volume from third quarter. Third quarter tends to be – second quarter tends to be they’re stocking it and they’re getting ready, third quarter tends to be they buy, because they’re running out of inventory and they need to fix customer problems.

And so there’s hot weather will get units breaking and the field will see units breaking in second quarter and units breaking in third quarter in the flow will continue. And so we’ve had years where sort of the summer selling season rolls all the way to Labor Day. So short answer is it can carry through..

Okay, that’s great. I wonder if you notice in your numbers the difference geographically like in the Midwest, it’s been really nice warm spring. And people have had their AC’s on already in the southeast I think it has been really hot already.

Is there differences you could see like in the stocking in the northern part of the United States versus new builds and sell through in the southeast?.

I think broadly speaking everybody stocks up at the end of March and then they have to sell through and most people take a little bit of time to sell through. The other thing I have to sort of be careful as you have to look at year-over-year comps, I mean it’s always heightened the southeast. Midwest is different.

But, yes, I think you’re right we’re getting warmer weather this year in the Midwest than we did last year. So I think we should go out at all play out..

Okay, all right. Fair enough. If I get in just one last one, on the corporate expenses were a little bit lower than I thought. Was that adjusted for the seasonal, for the actually selling needs to or in corporate expense and I apologize if you already said this, what you’re expecting for 2017..

Corporate expenses usually aren’t significantly impacted by volume number one. And what we saw there was lower long-term incentive compensation expense year-over-year. And then some better fits from lower health and welfare benefits year-over-year.

Some of those we expect to continue for the full year like I said to target a $12 million reduction in corporate cost..

Yes, I think that’s a high level, everything Joe said is right. Our guide is to be to $85 million, which is $12 million lower than last year and third option in first quarter a large part was in line with them..

All right. Thank you..

Thanks..

Next question is from the line of Robert McCarthy with Stifel. Please go ahead..

Can you hear me?.

Yes, I can Rob.

How are you?.

Good. How are you today? So I guess the first question again on the commercial strength. Is there – and this is probably so we questioned the last – is there any kind of countervailing weather that kind of helps you in that business.

You think there is – because it was a little warmer in the quarter, think you can help down there?.

I think that’s a fair question, Rob. I think short answers on the margin is, yes. I think you’re right. I think, when you think about planned replacement for national accounts, the fact that you have decent weather sort of supports that new construction supports that. I don’t think it was a major driver, but as it might have been worth of point or two..

And then in terms of thinking about kind of the share loss sharing and obviously lot of questions have been asked. But I guess from what you’ve been seeing I mean about this trend, you would be fair to say given the – I think the magnitude either planning for the days.

You would expect directionally, probably your competitive set have a pretty good quarter commercial across the board..

I think what I said was will better stated. Our revenues up 20% even you adjust for number of days. It’s up mid-teens. That was an all share gain that shows end market strength. And so yes, let’s put it this way. If they don’t then we gain hell a lot of share in first quarter..

All going according to plan. Now the last question is of course your favorite topic, which is the Internet of Things. And perhaps, can you just talk about kind of an update terms of some of the technology investments and obviously have been called out some of the investment overall in residential.

But could you – is there any you can give to kind of quantify – kind of the level investment and how you’re thinking about for the course of year, any kind of return there..

We never unlike lots go. We are not going to put a dollar figure on the investment. I mean that’s part of our SG&A spend. And if revenue started to go down we sort of adjust SG&A. So I think you can look at the business overall. I think it’s all the things we talked about December that you saw at the Analyst Day, Rob.

We continue to make investments to support our dealer customers with Lennox Pros, our online support system. We continue to make investments to support the end customer with iComfort and all the things we can do with our digital homeowner control system and allows for prognostics and diagnostics.

And as we talked about in December, we’re taking all those investments quite frankly that we’ve sort of led the way in res and rolled it over to other parts of our business whether it’s refrigeration or whether it’s our Allied business or whether it’s our national accounts service business in commercial.

And so we’re leveraging the investments that we’re making and – repeat myself, if you look back 15 years from now and the way this industry – well, though the industry is going to increasingly differentiate as that the fact that we own our own distribution allows us to leverage it and we’ll look back 15 years and be very happy we made all these investments..

Well, despite what people may say I think a strong solid start to the year and congratulation for the good quarter..

Thank you again, thanks..

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

Thank you. Good morning, gentlemen..

Good morning, Jeff..

Hey, just a couple cleanup things here I just want to grounds and covered. Todd just on your comment about the incrementals, just the one clear to me if today’s actually benefited your incrementals in the quarter or were negative.

And the reason I say that is just at the segment level, looks like your incrementals were about 18% right all in consolidated low 20%s so inside that 20% to 25% range.

You just clarify exactly how you’re defining incrementals and what if any impact the days have?.

I mean when I talk about incrementals, I’m including corporate. So I think that maybe one difference, I roll up the total delta in revenue versus – what I would model I’ll like to EBIT drop through us on that incremental revenue.

So that’s point number one, point number two is, so that typically we guide 30% sort of as our medium and long-term target and this year on a full year basis, we’re a little bit lower than 30% if you take the midpoint of our full year guide just because of the headwind of commodities on a year-over-year basis.

And so what I was suggesting was if you take peer revenue drop through without all the material cost reduction and the things we’re doing, it’s more like 20% or 25% sort of traditional volume drop through.

And so I would – the way I would model what is – I would take the incremental revenue from the extra days 5.5%, 6%, I would multiply times 20% to 25% and I would say that’s the incremental EBIT drop there..

Okay. Thank you for clarifying that. And then just on the cost side, can you update us a little bit more explicitly on how far your hedges roll out and kind of at what level you’re hedged..

Broadly speaking, we start hedging 18 months out, 12 months out we’re 50% hedged, we’re a little over hedged right now. Yes, the full year we’re probably pretty close to 80% between 77% to 80% on copper and aluminum for the balance of 2017..

Great. Thank you very much guys. That’s it for me..

Okay, thanks..

Next question is from John Morales with Morgan Stanley. Please go ahead..

Hey, good morning guys. Question on resi margins was the peso – even if it was a modest headwind.

Was it a headwind in the quarter?.

The what?.

It’s peso..

No, quite frankly no significance with respect to the pesos..

Okay. And then just another question to – there’s a lot of questions on the commercial segment but and I don’t know if you commented on it, but what is the backlog look like at end of the quarter..

We entered second quarter with strength in commercial. I mean, we saw sort of strong growth both in revenue that you saw but also the build out of the backlog, but as always we enter a quarter and more than 0.5% we have to book in ship first quarter so it was an indicator we still have work in front of us. But the momentum continues in commercial..

How does it look like compared to the fourth quarter? Is that you signaled there was strength in the back half of the year?.

I’m not sure, I understand the question..

What is the first quarter backlog look like versus the fourth quarter backlog at the end of the quarter?.

I don’t know the percentage, I don’t think we’ve ever guided it. I think it’s up just because we’re seasonal business and so people are booking for the summer selling season..

Yes, it’s corporate leads up slightly, however it so early to gauge the fourth quarter backlog at this point given sort of lead times of commercial products..

I know, he is asking for fourth quarter last year..

I thought you’re asking this year..

No, no I meant – you signal that there were strength coming out of the fourth quarter of last year..

Okay..

And did that carried through end of the quarter. So I just wanted to get a sense of how that’s looking now for – how it was rolling in the second quarter..

Yes. I understand the question, I’m not going to give you math to answer, maybe a qualitative..

Yes, yes, qualitative is fine. Yes..

It feels good and the momentum continues..

All right. Thank you, guys..

Thanks..

The last question comes from the line of Robert Barry with Susquehanna. Please go ahead..

Hey guys, thanks. Just a quick follow-up, did you say or could you say how much you think the weather impacts impacted the revenue in resi in 1Q..

Good question, Robert. I’ll be honestly that we didn’t try and model it. I don’t know, I think if you just for days were still up 5%, 6% that’s still a pretty good quarter maybe a point, if I had the guess..

Yes. I mean I asked because I agree with you it’s would normally be considered pretty good but you’re comping against a 5% last year and frankly a 7% the year before, so the comp and the stack are both really helpful..

Yes..

So if it’s a point, it’s kind of like, 11% minus the 6% plus 1% is 6%. Okay, good just wanted to – I mean, it feels a little slower, but it’s shoulder period..

Yes. I guess I don’t want to leave you with that, right..

Yes..

And I don’t want to speak for my competitors they may say something different, I mean we want to call this day point out, because we thought it was material to the results. I think most people are on same kind of financial calendars we are. So I would just sort of ask you to think about that as you see some of our competitors report.

So I think we had a strong quarter..

Yes. Fair enough. Thank you..

Good, okay, thanks..

Yes..

There are no other questions in queue..

Okay. Great, thanks for all the questions. A few points to leave you with it’s early in the year with 2017 it’s off to a strong start with momentum continuing into the second quarter.

So we head into our largest seasonal period, we continue to expect strong revenue growth and margin expansion across all three of our businesses a new record high to revenue and profit in 2017 for the company. Thank you for joining us today..

And ladies and gentlemen, that does conclude our conference for today. Thank you for your participation for using the AT&T teleconference. You may now disconnect..