Lennox International CEO Todd Bluedorn gave investors an update on the situation Tuesday in a conference call with investors. “For the second half of 2018 we are estimating that the impact from the tornado will cost approximately 100 million in lost revenue, and 55 million in lost profit for our residential business segment,” Bluedorn says.
He says the Marshalltown plant manufactures their two high-end systems that have a larger profit margin — and that contributes to the profit loss. “We are also moving toward the heating season and the furnaces are among our highest margin products,” Bluedorn says. “The final impact to mention is that we want to make sure we maintain our close dealer relationships and keep our sales force intact. So we are making are sale representatives financially whole during this temporary shortage of enough high-end systems to sell.”
He says the tornado will cost an additional $80 million in charges in 2018. “Which includes site cleanup costs, asset write offs and factory inefficiency costs. Over the course of 2018 and 19 we expect business interruption and property insurance proceeds to offset both the earnings impact from lower revenue and the special non-core charges resulting from the tornado,” according to Bluedorn.
The company has a stock of 40 days for some products and 90 days for others, and he says a tight supply could be felt until they are back at top production. “We expect some of our high-end business to be borrowed by others in the short term — but we have a loyal Lennox dealer base — and we expect the business to return as our high-end volume returns through production at our other factories and Marshalltown ramps up,” Bluedorn says.
Bluedorn says even with all the damage to the Marshalltown plant, they have started limited production. “It’s just a matter how quickly we can ramp up,” he says, “it’s amazing when you look at the photos of the damage that took place and how quickly our guys are back up. We brought back 150 hourly employees, we have our full salaried workforce back.” The plant has around 1,400 workers at the time of the tornado. Bluedorn says the company has $1 billion in insurance with a $250,000 deductible. He says they have already seen some insurance payments as they work toward recovery. Marshalltown’s plant accounted for around 25% of the company’s production, and some of the manufacturing of the high-end products has been moved to Lennox’s plants in Mexico and South Carolina while the reconstruction is underway.
“I would tell you that I hope I never live through another tornado in my business career,” Bluedorn says. “But again it shows the benefits of having multiple factories producing different products at multiple locations.” Bluedorn says they are not sure if some of the high-end production will stay at those other plants, and says they will evaluate all their systems and needs as they move forward with the rebuilding of the Marshalltown plant.