Resideo Announces Third Quarter 2022 Financial Results

Company News

11/01/22

SCOTTSDALE, Ariz., Nov. 1, 2022 /PRNewswire/ -- Resideo Technologies, Inc. (NYSE: REZI), a leading global provider of home comfort and security solutions and distributor of commercial and residential security and audio-visual products, today announced financial results for the third quarter ended October 1, 2022.

Third Quarter 2022 Highlights

Net revenue of $1.62 billion, up 8% from $1.50 billion in the third quarter 2021
Gross profit margin of 26.6%, compared to 28.1% in the prior year comparable period
Operating profit of $155 million, or 9.6% of revenue, compared to $167 million, or 11.2% of revenue, in the third quarter 2021
Fully diluted earnings per share of $0.42, compared to $0.46 per share in the same quarter last year

Management Remarks

"Financial results were mixed in the third quarter as continued growth at ADI was offset by headwinds to Products & Solutions' revenue and profitability," commented Jay Geldmacher, Resideo's President and CEO. "As the third quarter progressed, we saw softer-than-expected orders and sales across Products & Solutions, with customers looking to normalize inventory levels as macro uncertainty grows. Performance remained strong within Air products, particularly in connected thermostats, and we are well positioned across the portfolio as energy management and energy efficiency become even more critical to end users. We continue to navigate the changing macro environment and we are taking actions to ensure we protect profitability while staying focused on our strategic priorities."

"ADI delivered another solid quarter with revenue growth in North America driven by demand in commercial product categories. We continue to make targeted investment at ADI, which is delivering results in key strategic areas of e-commerce and touchless revenue, private brands, and digital experience. Even as ADI makes these investments, operating profit and operating margin expanded year-over-year."

Products & Solutions Third Quarter 2022 Highlights

Revenue of $707 million, up 12% compared to the third quarter 2021
Operating profit of $124 million, down 21% compared to the third quarter 2021
Continued strong realization on pricing actions taken over the past year with over $60 million of year-over-year revenue improvement
Growth in Air products of 14% year-over-year, driven by connected thermostats

Products & Solutions delivered revenue of $707 million in the third quarter 2022, up 12% compared to the third quarter 2021, including $112 million revenue contribution from acquisitions in the past twelve months and approximately $30 million of unfavorable impact from foreign exchange movements. End demand indicators for Air products remained solid in both the distribution and retail channels, driven by interest in connected thermostats. Energy, traditional Security and Water products all saw reduced orders and sales in the quarter. Integration of First Alert is progressing well with commercial opportunities emerging at key retail and home builder customers

Gross margin for the quarter was 36.2%, compared to 41.5% in the third quarter 2021. Gross margin was negatively impacted by the inclusion of lower margin First Alert revenue, continued input inflation, and lower volumes, partially offset by strong realization on pricing actions. Operating profit for the quarter was $124 million, or 17.5% of revenue, down 21% compared to the third quarter 2021. The $27 million year-over-year growth in operating expense in the third quarter 2022 was driven by $26 million of costs associated with First Alert.

ADI Global Distribution Third Quarter 2022 Highlights

Revenue of $911 million, up 5% compared to the third quarter 2021
Gross margin of 19.3%, up 70 basis points compared to the third quarter 2021
Operating profit of $78 million, up 7% compared to the third quarter 2021
E-commerce sales growth of 22%, accounting for 18% of ADI total revenue

ADI third quarter 2022 revenue of $911 million was up 5% compared to the third quarter 2021, driven by 9% year-over-year growth in North America. During the third quarter 2022, acquisitions completed in the past twelve months added $23 million and foreign exchange was a headwind of approximately $22 million compared to prior year period. Demand and pricing were again strong in categories that typically serve commercial end markets including Fire, Video Surveillance and Access Control. Sales through ADI's e-commerce channel grew 22%, representing 18% of total ADI revenue, with overall touchless revenue reaching 37% of ADI total revenue. Private brands sales grew 23% compared to the third quarter 2021.

Gross margin of 19.3% in the third quarter 2022 was up 70 basis points compared to the third quarter 2021. Benefits from the current inflationary pricing environment, progress on ADI specific price optimization efforts, and expansion of private brands all contributed to margin expansion in the third quarter. Operating profit of $78 million for third quarter 2022 was up 7% from $73 million in the third quarter 2021.

Third Quarter 2022 Financial Performance

Consolidated revenue of $1.62 billion in the third quarter 2022 grew 8% compared with the prior year of $1.50 billion. Gross profit margin for the third quarter 2022 was 26.6%, down 150 basis points compared to 28.1% in the prior year quarter. Resideo's operating profit of $155 million in the third quarter 2022 compared to the prior year quarter's operating profit of $167 million. Total Corporate costs were $47 million, down from $63 million in the prior year period due to an $8 million benefit associated with an indemnification accrual release in third quarter 2022 and a $9 million impairment charge related to the Austin, Texas office relocation in the third quarter 2021. Net income for the third quarter 2022 was $63 million, or $0.42 per diluted common share, compared with $68 million, or $0.46 per diluted common share, in the prior year. Included in third quarter 2022 other expense was $13 million related to settlement of a litigation matter that arose prior to Resideo's spin-off from Honeywell.

Cash Flow and Liquidity

Third quarter 2022 net cash provided by operating activities of $37 million compared to cash provided by operating activities of $104 million in the prior year comparable period. The lower cash generation was primarily due to higher working capital. At October 1, 2022, Resideo had cash and cash equivalents and restricted cash of $255 million and total outstanding debt of $1.4 billion.

Updated Outlook

The company expects fourth quarter 2022 revenue to be in the range of $1.55 billion to $1.60 billion, gross profit margin in the range of 26.5% to 27.5% and operating profit in the range of $130 million to $140 million.

Based on the current outlook for the fourth quarter, the company now expects full year 2022 revenue to be in the range of $6.36 billion to $6.41 billion, gross profit margin in the range of 27.0% to 28.0% and operating profit in the range of $645 million to $655 million.

Conference Call and Webcast Details

Resideo will hold a conference call with investors on November 1, 2022, at 5:00 p.m. ET. An audio webcast of the call will be accessible at https://investor.resideo.com, where related materials will be posted before the call. A replay of the webcast will be available following the presentation. To join the conference call, please dial 888-660-6357 (U.S. toll-free) or 1-929-201-6127 (international), with the conference title "Resideo Third Quarter 2022 Earnings" or the conference ID: 7301399.

About Resideo

Resideo is a leading global manufacturer and distributor of technology-driven products and solutions that provide comfort, security, energy efficiency and control to customers worldwide. Building on a 130-year heritage, Resideo has a presence in more than 150 million homes globally, with 15 million systems installed in homes each year. We continue to serve more than 110,000 professionals through leading distributors, including our ADI Global Distribution business, which exports to more than 100 countries from nearly 200 stocking locations around the world. For more information about Resideo, please visit www.resideo.com.

Forward-Looking Statements

management intend, expect, project, believe or anticipate will or may occur in the future are forward-looking statements. Although we believe forward-looking statements are based upon reasonable assumptions, such statements involve known and unknown risks and uncertainties, which may cause the actual results or performance of the Company to differ materially from such forward-looking statements. Such risks and uncertainties include, but are not limited to, (1) our ability to achieve our outlook regarding the fourth quarter 2022 and full year 2022, (2) the duration and severity of the COVID-19 pandemic and the disruption to our business and the global economy caused by it, including its effect on our and our business partners’ supply chains, (3) the amount of our obligations and nature of our contractual restrictions pursuant to, and disputes that have or may hereafter arise under the agreements we entered into with Honeywell in connection with our spin-off, (4) the likelihood of continued success of our transformation programs and initiatives, (5) risks related to our recently completed acquisitions, including First Alert, including our ability to achieve the targeted amount of annual cost synergies, successfully integrate the acquired operations (including successfully driving category growth in connected offerings), and the expected net present value of tax benefits resulting from the First Alert transaction and (6) the other risks described under the headings “Risk Factors” and “Cautionary Statement Concerning Forward-Looking Statements” in our Annual Report on Form 10-K for the year ended December 31, 2021 and other periodic filings we make from time to time with the Securities and Exchange Commission. Forward-looking statements are not guarantees of future performance, and actual results, developments, and business decisions may differ from those envisaged by our forward-looking statements. Except as required by law, we undertake no obligation to update such statements to reflect events or circumstances arising after the date of this press release and we caution investors not to place undue reliance on any such forward looking statements.