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Lennox International Inc (LII 0.17%)
Q1Â 2019 Earnings Call
April 22, 2019, 9:30 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Ladies and gentlemen, thank you for standing by. Welcome to the Lennox International First Quarter 2019 Earnings 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 now like to turn the conference over to Steve Harrison, Vice President of Investor Relations. Please go ahead.
Steve L. Harrison -- Vice President, Investor Relations
Good morning. Thank you for joining us for this review of Lennox International's financial performance for the first quarter of 2019. I'm here today with Chairman and CEO, Todd Bluedorn; and CFO, Joe Reitmeier. Todd will review key points for the quarter, and Joe will take you through the Company's financial performance 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 requeue for any additional questions. In their earnings release we issued this morning, we have included the necessary reconciliation of the non-GAAP financial measures that will be discussed to GAAP measures. All comparisons mentioned today are against the prior-year period. You can find a direct link to the webcast to today's conference call on our website at www.lennoxinternational.com. The webcast also will be archived on the site for replay.
I would like to remind everyone that in the course of this call, to give you a better understanding of our operations, we will be making certain forward-looking statements. These statements are subject to numerous 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.
Todd M. Bluedorn -- Chairman of the Board and Chief Executive Officer
Thanks, Steve. Good morning, everyone, and thanks for joining us. Let me start with an overview on the first quarter and key points in each of our businesses, and then discuss the accelerating recovery in our residential business from the tornado impact, and also insurance proceeds for this year.
On a GAAP basis, Company revenue with $790 million, down 5%, including 10% of negative impact from the tornado and divestitures. Foreign exchange had a negative 1% impact on revenue growth. On an adjusted basis, excluding divestitures, Company revenue was a first-quarter record $756 million, up 1% including negative tornado impact of 5%. Foreign exchange had a negative 1% impact on revenue growth.
GAAP operating income rose to 79% to a first-quarter record $95 million. GAAP EPS from continuing operations was up 92% to a first-quarter record at $1.73. On an adjusted basis, total segment profit rose 34% to a first-quarter record of $99 million, and total segment margin expanded 330 basis points to a new first-quarter high of 13.1%. Adjusted EPS from continuing operations rose 38% to first-quarter record of a $1.68.
On our Residential business in the first quarter, revenue set a new first-quarter high of $466 million, up 3% including 8% of negative tornado impact. Revenue was up in both replacement and new construction business. Residential segment profit was 69% to $87 million. Adjusted for a $22 million net profit, resulting from a $40 million of insurance proceeds against $18 million of negative tornado impact. Residential segment profit was up 26% in the quarter. Residential segment margin expanded 730 basis points to 18.6%. Adjusted for the tornado impact and insurance recovery, segment margin expanded 160 basis points to 12.9%.
Turning to Commercial in the first quarter. Revenue was down 3%. Segment profit declined 31% and segment margin was down 360 basis points to 8.7%. Commercial revenue in the first quarter was driven by a mid-teens decline in new construction, well known for being a lumpy business. In both 2017 and 2018, for example, we had two quarters of strong growth and two quarters of a decline in new construction revenue. In replacement business, revenue was flat in the quarter, with planned replacement down a couple of points but solid growth in emergency placement of mid single digits. In both new construction and planned replacement, we saw some national account customers temporarily pause investment in the context of all the government and macro economic uncertainty in the market in the first quarter. Currently, however, we are seeing backlog up nicely, heading into our seasonally largest quarters.
Operationally, we continue to focus on productivity improvements at our factory in Arkansas. We have been addressing labor shortages and inefficiencies in recent quarters. In the first half, we are continuing to focus on training for all the new employees brought on board full time and ramping up productivity further.
Our VRF business saw strong double digit growth in first quarter, and on the service side, Lennox National Account Services revenue was up mid single digits. We continue to expect Commercial segment growth and margin expansion on a full-year basis, with revenue up the remainder of the year and margin expansion in the second half.
In Refrigeration, for the first quarter, revenues up 2% at constant currency, but we had 4% of negative foreign exchange impact in quarter. Regionally, North America was down mid single digits, due to the same dynamics as I mentioned for Commercial. We saw some customers temporarily pause investment in the context of all the government and macroeconomic uncertainty in the market. As in Commercial, Refrigeration backlog is building and up nicely as we enter our strongest seasonal periods.
In Europe, revenue was up low double digits at constant currency, with Refrigeration down slightly and commercial HVAC up more than 20%. Both of these businesses can be lumpy on a quarter-to-quarter basis. Refrigeration segment profit was down 20% in the first quarter and segment margin was down 180 basis points to 8%. Lower mix is a factor with a fast growth in Europe and volume was down for the segment overall. We continue to expect Refrigeration segment growth and margin expansion a full-year basis, with revenue up the remainder of the year and margin expansion in the second half.
For the Company, overall, the second quarter is off to a solid start. We are reiterating our revenue and adjusted EPS guidance as we look ahead to another year of strong growth and profitability. We are raising our guidance for stock repurchases this year from $350 million to $400 million.
Before I turn it over Joe for a more financial details on the quarter and our outlook, let me summarize where things stand on the tornado impact and insurance coverage this year. Big picture, for core and non-core related to the tornado, we now expect total insurance proceeds of approximately $358 million, about the same as the $356 million of previous guidance. We've received $124 million of that in 2018, and expects approximately $234 million in 2019. The non-core gain expected for the difference in book value and replacement value of assets is now approximately $91 million, down from the previous guidance of $109 million for 2019, due to lower estimated construction costs, approximately $1.79 benefit the GAAP EPS versus a benefit about $2.30 in previous guidance.
From core perspective, our Residential business continues to make significant progress. We're seeing acceleration in the recovery from the tornado. As I mentioned previously, we were back to full production across all three of our residential factories for cooling product by the end of fourth quarter of 2018 and there as well for heating products, as the end the first quarter 2019. We are taking back business as the market, as we resupply dealers and our focus on fully refilling our Company-owned regional and local distribution network.
The expected negative impact from the tornado is down from our prior guidance, as the team continues to perform operationally and take back business for Lennox in the market. From a core perspective in the first quarter, the negative tornado impact on revenue was $35 million versus guidance of about $42 million. The negative tornado impact on segment profit was $18 million in first quarter versus guidance of around $21 million.
For revenue in 2019, we now expect $70 million of negative tornado impact down from the prior guidance of $85 million. We estimate $40 million of negative segment profit impact down from a prior estimate of $43 million. From the business interruption in insurance recovery for lost profits is expected to be about $80 million in 2019 compared to $83 million in prior guidance. This results in a net segment profit impact of positive $40 million in 2019, the same as in prior guidance.
Of the remaining negative tornado impact for 2019, we expect ahead of approximately $21 million in revenue and $13 million in profit for the second quarter. For the third quarter, we expect ahead of approximately $14 million to revenue and $9 million to profit. For the remaining $40 million in insurance recovery in our core guidance, we expect that to flow evenly across the three remaining quarters. A lot there. We've posted tornado financial update chart on our website with the details reflecting prior guidance and the current view.
Now, I'll turn it over to Joe.
Joseph W. Reitmeier -- Executive Vice President & Chief Financial Officer
Thank you, Tood, and good morning, everyone. I'll provide some additional comments and financial details on the business segments for the quarter, starting with Residential Heating & Cooling. In the first quarter, revenue from Residential Heating & Cooling was a first-quarter record $466 million, which was up 3%. Volume was flat, price was up 2%, and mix was up 1%, and foreign exchange was neutral to revenue. Residential profit of $87 million was up 69%. Segment margin was 18.6%, up 730 Basis Points. Segment profit was favorably impacted by a net $22 million of benefit from insurance proceeds relative to negative tornado impact in the quarter, as well as higher volume, favorable pricing mix and sourcing and engineering-led cost reductions. Partial offsets included higher commodity, freight, tariffs, and warranty costs, lower factory productivity, distribution investments, and higher SG&A expenses.
Turning to our Commercial Heating & Cooling business, Commercial revenue was $173 million in the first quarter, down 3%. Volume was up 6%, price was up 2%, and mix was up 1%. Foreign exchange was neutral to revenue. Commercial segment profit was $15 million, down 31%. Segment margin was 8.7%, down 360 basis points. Segment profit was impacted by lower volume and factory productivity, higher commodity, freight, tariffs, warranty, and other product costs, distribution investments, and higher SG&A expenses. Partial offsets included favorable pricing mix, and sourcing and engineering-led cost reductions.
In the Refrigeration segment, revenue was down 2% in the first quarter. Volume and mix were flat, and price was up 2%. Foreign exchange had a negative 4% impact on revenue. Refrigeration segment profit was $9 million, down 20%. Segment margin was 8%, down 180 basis points. Segment profit was impacted both by lower volume and factory productivity, unfavorable mix, higher commodity, tariffs and freight costs, distribution investments, and higher SG&A expenses. Partial offsets included favorable price, and sourcing and engineering-led cost reductions.
Regarding special items in the first quarter, the Company had a net after-tax benefit totaling $2.2 million, that included a gain of $5.2 million from insurance recoveries, net of losses incurred; a benefit of $4.4 million for excess tax benefits from share-based compensation; a loss on the sale of business of $5 million; $1 million for non-core business results; and a net charge of $1.4 million for various other items. Corporate expenses were $12 million in the first quarter. On a GAAP basis, overall SG&A was $146 million or 18.4% of revenue, down from $155 million or 18.6% in the prior-year quarter.
Net cash used in operations in the first quarter was $141 million compared to a use of $84 million in the prior-year quarter. Capital expenditures were $37 million compared to $23 million in the first quarter a year ago. We also had proceeds for tornado damage to property, plant and equipment that totaled $7 million. In the first quarter, we used $171 million of free cash flow compared to a use of $106 million in the prior-year quarter. The increase in use of cash for the quarter was the result of timing of payments tied in the reconstruction of Marshalltown and was in line with our expectations.
Given our business seasonality, we use cash in the early part of the year and generate cash in the latter part of the year. The Company paid $26 million in dividends in the first quarter and repurchased $100 million of stock. Total debt was $1.3 billion at the end of March, and we ended the quarter with the debt-to-EBITDA ratio of 2.0. Cash and cash equivalents were $32 million ending the (inaudible).
Before I turn it over to Q&A, I'll review our outlook for 2019. Our underlying market assumptions for the year are unchanged. For the industry overall, we expect North American Residential HVAC shipments to be up mid-single-digits. We expect North American Commercial unitary shipments to be up low-single-digits, and we expect North America Refrigeration shipments to be relatively flat.
For the Company in 2019, we are reiterating revenue growth of 3% to 7% with neutral foreign exchange. We are updating GAAP EPS from continuing operations from a range of $14.30 to $14.90, to a new range of $12.65 to $13.25. This incorporates the benefit from special items in the first quarter, lower estimated factory reconstruction cost, and the associated gain approximately $91 million, which was the $109 million in the previous guidance for 2019, that results from the replacement of value above book value, and a non-cash pension settlement charge of approximately $61 million pre-tax in the second quarter of 2019. The pension settlement charge relates to an agreement we entered into Pacific Life Insurance Company in April to a new ties (ph) $106 million of our defined benefit pension obligation. As part of this transaction, we also transferred $100 million in pension assets to Pacific Life. This event required remeasurement of the pension plan that will result in a $61 million non-cash pre-tax settlement charge in the second quarter of 2019 to write-off the related accumulated actuarial losses.
For adjusted EPS from continuing operations in 2019, we are reiterating guidance for a range of $12 to $12.60. And now let me run through our key points in our guidance assumptions, and the puts and takes for 2019. We still expect to capture $80 million of additional price for the year. We are planning for a $25 million benefit from sourcing and engineering-led costs reductions, and an $8 million benefit from residential factory productivity. We still expect $30 million headwind from commodities, and that's $15 million from freight and $10 million from tariffs. We continue to expect headwinds of $15 million from distribution investments and $15 million from SG&A. Net interest expense is still expected to be approximately $45 million. Corporate expenses are still targeted at $90 million for 2019 and we still expect an effective tax rate in the range of 22% to 23% on an adjusted basis for the full year.
Now a couple of updates. Capital expenditures are now expected to be $195 million, down from the $215 million in the previous guidance. The change is due to lower reconstruction costs to complete the Iowa manufacturing facility. We now expect this to be $95 million versus the prior guidance of $115 million and will be funded by insurance proceeds. And finally, we continue to expect the weighted average diluted share count for the full year to be between 39 million to 40 million shares, which incorporates our plans to repurchase $400 million of stock this year.
And with that let's go to Q&A.
Questions and Answers:
Operator
(Operator instructions) First on the line, we have Julian Mitchell with Barclays. Please go ahead.
Julian Mitchell -- Barclays -- Analyst
Hi. Good morning.
Todd M. Bluedorn -- Chairman of the Board and Chief Executive Officer
Good morning.
Julian Mitchell -- Barclays -- Analyst
Hi. Maybe just the first question around the Commercial margins. I know you talked on the last call about headwinds in Q1 from labor inefficiencies and the factory productivity. I just wondered if the margin decline in Q1 that you saw was worst than you thought? And how you think about the timetable of getting through those productivity issues over the balance of the year?
Todd M. Bluedorn -- Chairman of the Board and Chief Executive Officer
Yes. Quite frankly, they were worse than what we thought, and we now think it's going to be second half of the year before we see the margin expansion. I mean, there are a couple things though in the quarter for Commercial above and beyond the factory. We had lower volume, as well as lower factory productivity as we discussed, and the lower volume hurt us on absorption. And as I talked about in scrap operation, we continue focus on productivity improvements at our factory in Arkansas; we've been addressing these labor shortages and we continue to focus on training and ramping everybody up.
Also in second half of '19, we expect to have a larger positive gap between price and commodities, freight and tariffs. So, on a full-year basis, we're ahead as a corporation; in, commercial, on a full-year basis, we're ahead. But in first quarter, in Commercial, we were negative price cost, the elements I just said, because it takes a little longer for Commercial to get price in the marketplace from the price increases they announce at the end of the year. So second half of the year will have a positive gap between those two. As I mentioned on the script, margins are up nicely, which is up mid-single-digits as we enter the quarter, and as we enter the quarter in Commercial, about 50% of our revenues already in backlog and 50% we have to book and ship.
Julian Mitchell -- Barclays -- Analyst
Thanks. And then my second question on the Residential business. Any update on sort of broad and market conditions, how you're feeling about Q2? And also, if the market share progress you're making is in line with what you'd hope coming out of the tornado impact?
Todd M. Bluedorn -- Chairman of the Board and Chief Executive Officer
Short answers is -- or short and long answer is, we're actually slightly ahead of where we thought coming out or when we guided last time of winning back share and you saw that in a lower tornado impact to core earnings. On other words, we sort of over delivered on the revenue and EBIT side for Residential ex the tornado. I'd look at our results, our first quarter revenue was up 3%, at actual and residential, and then we -- so we had 8% of tornado impact, which implies, we we would've been up 11%. Residential is still going very strong, and we're getting ready for the summer selling season. We continue to gain back the share that was borrowed (ph) from us, and we're confident as we go through the year, we'll do that.
Julian Mitchell -- Barclays -- Analyst
And market conditions, as you thought as well?
Todd M. Bluedorn -- Chairman of the Board and Chief Executive Officer
Yes, I mean -- it's always a little hard to tell as you go -- in Europe this early in second quarter. But we have events, we call them Lennox LIVE, but they are really dealer meetings where we meet with thousands of our largest dealers in four or five locations around the country. The mood was extremely positive, people are excited, both loyal to us, and we said they tell us in the room, we bring them in. But they're selling that with their spending, but more importantly people are confident, going into the spending season. I think you saw -- well, I don't think, you saw in our Commercial and Refrigeration numbers, which I think are more tied to sort of concerns that you get by watching cable news, and I think there are some softness that was attributable to our softness in Commercial and Refrigeration, it was tied to sort of this macroeconomic overhang in North America and certainly in the US. I think that's now behind us, and all three of our businesses as we go into summer selling season feels pretty good.
Julian Mitchell -- Barclays -- Analyst
Thank you very much.
Todd M. Bluedorn -- Chairman of the Board and Chief Executive Officer
Thanks.
Operator
Next, we'll go to Jeff Hammond with KeyBanc Capital Markets. Please go ahead.
Jeff Hammond -- KeyBanc Capital Markets -- Analyst
Hi, good morning, Todd. How are you?
Todd M. Bluedorn -- Chairman of the Board and Chief Executive Officer
Good. How are you?
Jeff Hammond -- KeyBanc Capital Markets -- Analyst
Good. So just going back to the kind of share recapture, you -- are you finding -- just what are your experiences as you've talk to dealers and are you expecting some dealer attrition, because it just seems like some of your competitors were suggesting that they would be able to hold some of this share shift?
Todd M. Bluedorn -- Chairman of the Board and Chief Executive Officer
Yes. I mean, short answer is, yes. There's some dealers we lost that won't come back. But at the same time, every year -- and we have met hundreds of dealers that we bring on, we lose some, we bring new ones on. So sort of -- when it's all set and done, they can't hold all their dealers. They can't hold all their dealers plus the ones they took from us. So we're attacking on a broad front, both winning back our dealers, who they borrowed share from, but also going after their existing dealers. And so we're attacking on all fronts; we're real confident at the end of the year we're going to be in a good share position and we're seeing it in the numbers.
Jeff Hammond -- KeyBanc Capital Markets -- Analyst
Okay. And then just on Refrigeration, just confidence that steps up given some of the -- I guess pause or concern, as we move into the latter part of the year.
Todd M. Bluedorn -- Chairman of the Board and Chief Executive Officer
Yes. I mean, it's confidence, you can be when you have 50% of backlog for the quarter and you still have to book and ship, but we're up double digits in Refrigeration backlog entering the quarter, and like Commercial, 50% of it, we start to book and ship and 50% of it's in backlog. Like Commercial, it can be lumpy where we saw the softness was in North America, which was down mid single digits; our European business was actually up. And I think that ties to the theory of the case that I said earlier and so again we're confident going into the balance of the year. Like Commercial, there'll be a lag on price cost and so margin expansion will be second half of the year, but we expect revenue to be up second quarter.
Jeff Hammond -- KeyBanc Capital Markets -- Analyst
Okay. Thanks a lot.
Todd M. Bluedorn -- Chairman of the Board and Chief Executive Officer
Thanks, Jeff.
Operator
Our next question is from Ryan Merkel with William Blair. Please go ahead.
Ryan Merkel -- William Blair -- Analyst
Hi, thanks. So first question is on second quarter, your said it is off to a solid start. I just want to confirm, is this true across all segments?
Todd M. Bluedorn -- Chairman of the Board and Chief Executive Officer
Yes. So, I'll give you the math again. Commercial backlog up mid-single digits, Refrigeration backlog up double digits, and Residential backlog doesn't much matter. We're off to a solid/strong start, but again the reminder obviously that you know, right now I'll say to others is, April is about 20% of what we do, May is about a third, and June is half. So bottom of the first, we're doing well, but we still have (inaudible).
Ryan Merkel -- William Blair -- Analyst
Got it. Okay. And secondly, Commercial margin expansion in the second half of 2019. Maybe just give us some context on the second quarter though. Should we be lowering our expectations, is that what we're sort of hearing?
Todd M. Bluedorn -- Chairman of the Board and Chief Executive Officer
Yes. What I'm trying to tell you is, I think margins -- I would guide that margins will be flat to down in second quarter,and they'll be up second half of the year, and it's a combination of still ironing out some of the factory productivity issues we have, roadmaps in place we're executing, it just a matter of -- when you have 1,500 people in a factory, and a lot of them are new, getting everyone trained up, and then second is price cost, was negative in Commercial first quarter, will be relatively flat in second quarter, and at second half of the year, we have positive price cost.
Ryan Merkel -- William Blair -- Analyst
Got it. And then, maybe, just quickly, lastly, it's good to hear taking back share in the resi business, but are you having to do less discounting than you expected?
Joseph W. Reitmeier -- Executive Vice President & Chief Financial Officer
I think, I'd answer it this way, we've got 2% price in a quarter. We see it in the numbers and we're real confident, we're going to get 2% price. So I won't necessarily get into what we expected, but we're holding -- we're getting the price increases that we had hoped for and what we guided to and we're sticking to price.
Ryan Merkel -- William Blair -- Analyst
Okay. Great. Thanks so much.
Todd M. Bluedorn -- Chairman of the Board and Chief Executive Officer
Thanks.
Operator
Next, we'll go to Nicole DeBlase with Deutsche Bank. Please go ahead.
Nicole DeBlase -- Deutsche Bank -- Analyst
Yes, thanks. Good morning.
Todd M. Bluedorn -- Chairman of the Board and Chief Executive Officer
Hi, Nicole.
Nicole DeBlase -- Deutsche Bank -- Analyst
Hi. So with respect to the margin improvement that you guys expect to for Commercial and Refrigeration for the full-year, is it possible to get a sense of the magnitude? Are we're talking about, you know, 10 bps, 20 bps, 30 bps, just to give us some conviction around what's embedded in the second half.
Joseph W. Reitmeier -- Executive Vice President & Chief Financial Officer
I'm not -- this early in the year, I'm not going to guide to margins. I think, you know, I've given more than I normally do on segment guide. So we are guiding that both will be up year-over-year for the full-year, will be up second half of the year and will be down first half.
Nicole DeBlase -- Deutsche Bank -- Analyst
Okay, understand.
Joseph W. Reitmeier -- Executive Vice President & Chief Financial Officer
The way I frame it, I mean -- I'm not breathless about the margins, but we're confident, they're going to be up.
Nicole DeBlase -- Deutsche Bank -- Analyst
Okay, got it. And then, on capital allocation, I know you guys raised the buyback guidance, makes a lot of sense, it seems like it's deployment of Kysor proceeds. But does that -- what does that indicate with respect to the M&A pipeline, if you could talk about that a little bit?
Joseph W. Reitmeier -- Executive Vice President & Chief Financial Officer
I think it's -- there's no read through to the M&A pipeline or M&A pipeline, as we've talked about. We'll sort of most likely be -- we think we'd be interested in with the HVAC North America, that would be large and lumpy, and when that time comes -- if that time comes, then we'll figure out how to finance it and take care of it in a shareholder-friendly way. But in lieu of that, we're not going to let the balance sheet grow, and we'll give money back to shareholders.
Nicole DeBlase -- Deutsche Bank -- Analyst
Got it. Thanks.
Joseph W. Reitmeier -- Executive Vice President & Chief Financial Officer
Thanks.
Operator
Next question is from Robert McCarthy with Stephens. Please go ahead.
Robert Paul McCarthy -- Stephens Inc. -- Analyst
Good morning, everyone.
Todd M. Bluedorn -- Chairman of the Board and Chief Executive Officer
Hi, Rob. How're you?
Robert Paul McCarthy -- Stephens Inc. -- Analyst
Good. I guess, maybe just to augment some of your comments around the homebuilding channel, I think you said positive growth there and what you're seeing there, and then, not to beat a dead horse but it sounds like you're really typifying this is a pause as opposed to something worse particularly in the Commercial channel in North America. Obviously, you have a limited visibility, but maybe you could just reiterate, what the strength your argument is there?
Todd M. Bluedorn -- Chairman of the Board and Chief Executive Officer
Construction -- new construction in Residential was up low-single digits for the quarter. And again, that's on -- that's with the tornado impact. We didn't break out the 8% tornado impact between the construction and replacement, although I would tell you that the vast majority of that was replacement. So new construction is up sort of low- to mid-single digits, roughly in line with what we expected for a full year. And again, when we talk to the builders going into the summer building season, they'd remain confident.
In terms of Commercial -- and and also I'd extend it to Refrigeration, was an industry phenomena. There are three or four months where the industry was down and we were part of that. We saw industry data for February that started to recover, and as I said, we can see it in our order book and our backlog where our Commercial business is up mid-single digits, and we talked to the customers, they're confident. So we've seen -- last year in '18, we had a couple quarters where we were down and a couple of quarters that we were really strong, and so it's not unusual for that to be the case with this business.
Robert Paul McCarthy -- Stephens Inc. -- Analyst
Any comments you can make up around the segments in terms of how -- is there any change that we could see in terms of underlying incremental margin lift at Refrigeration and Commercial? Obviously, given the fact that you changed margin targets of Refrigeration that should be the case, but any kind of color how we should be thinking about incremental margins at the sub-segment level for those two and then just in the context of resi?
Todd M. Bluedorn -- Chairman of the Board and Chief Executive Officer
You know, I'm not going to give -- at least I don't have any guide points that I am going to share right now for 2019; the three-year targets, no. And I would -- the three year targets for resi are 19% to 21% and for Commercial 19% to 21%, and for Refrigeration 15% to 17%, and I think about a roughly is a straight line between 17% and 21% to get there -- excuse me, 18% and 21% to get there. But I think I've been pretty clear about I've said it three or four times that Commercial and Refrigeration will be back half of the year this year.
Robert Paul McCarthy -- Stephens Inc. -- Analyst
Congrats for the solid start.
Todd M. Bluedorn -- Chairman of the Board and Chief Executive Officer
Okay. Thanks.
Operator
Next, we will go to Jeffery Sprague with Vertical Research Partners. Please go ahead.
Jeffery Sprague -- Vertical Research Partners -- Analyst
Thanks. Good morning, everyone.
Todd M. Bluedorn -- Chairman of the Board and Chief Executive Officer
Good morning, Jeff.
Jeffery Sprague -- Vertical Research Partners -- Analyst
Just back to the the share recovery part if we could?
Todd M. Bluedorn -- Chairman of the Board and Chief Executive Officer
Yes.
Jeffery Sprague -- Vertical Research Partners -- Analyst
Could you still elaborate a little bit actually how you're calculating that at this point, right? I would imagine it's somewhat imprecise, but we're talking relatively precise numbers. I mean, is the 8%, you know, unfilled order or is it some other kind of mathematical construct?
Joseph W. Reitmeier -- Executive Vice President & Chief Financial Officer
I mean, it's a couple of ways. I mean -- and we sort of triangulate and it's quite frankly how we're talking to the insurance company also. I mean, we understand what the market does and we understand what our share was going into the tornado. And so then, we understand the delta between what quote-unquote our revenue would have been and what it was, so that's top down. The other way we do it is, we know literally by customer, who took -- who left us, who we allow to leave, how much business they took and then we can tell how much we're winning back as we get it back. So we have a pretty clear line of sight of what was lost, who was lost with, how much was lost, quite frankly who took it, borrowed it from us. So when it comes time, as it is now to get it back, we know exactly whose door to knock on and how to get back.
Jeffery Sprague -- Vertical Research Partners -- Analyst
And to the extent that -- this is business may be a struggle for dealers, as opposed to a struggle for volume within a dealer. Are there other non-priced, priced things going on in your business kind of pledges the dealers, give backs rebates things like that that shows up some point in the future or do the numbers fully reflect the competitive dynamic that's going on?
Joseph W. Reitmeier -- Executive Vice President & Chief Financial Officer
It fully reflect that dynamic that's going on, in other words just from the accounting, I mean, if we make a promise on some kind of split (ph) for kickback, then that sort of reflected in the economics as we accrue the revenue against it. So that's all in there. I mean, we're doing the basic things. Quite frankly, we always do when we convert dealers. In this case, it's getting back share, but somebody switched over to competitor X and they have a handful of furnaces or air conditioners, we will buy them out, we'll take over the units from them, but they need some marketing support, we'll do that. There's lots of creative things we'll do and we've reflected in the P&L. But as I said earlier, we're where -- we did better on revenue and getting back to share in the first quarter than we initially guided and we start the 2% price. And so, I would be nervous, if we weren't sticking price, but we're sticking price.
Jeffery Sprague -- Vertical Research Partners -- Analyst
Great. Thank you.
Joseph W. Reitmeier -- Executive Vice President & Chief Financial Officer
Thanks.
Operator
Our next question is from Robert Barry with Buckingham Research. Please go ahead.
Robert Barry -- Buckingham Research -- Analyst
Hi, guys, good morning.
Todd M. Bluedorn -- Chairman of the Board and Chief Executive Officer
Hi, Robert. How are you?
Robert Barry -- Buckingham Research -- Analyst
Good thanks. Maybe just to start with the weather, anything notable to call out there, is either a headwind or a tailwind in the quarter?
Todd M. Bluedorn -- Chairman of the Board and Chief Executive Officer
No. I mean, it was a little bit cooler than it had been last year, but sort of on the round the same number. So weather really didn't impact much.
Robert Barry -- Buckingham Research -- Analyst
Got it. And then, if I pull out that $22 million net benefit from the tornado and resi, which I think as you highlighted was kind of more than you expected, had it be underlying contribution margin there looks kind of, I don't know, kind of mid teens-ish maybe, I don't know if that's just seasonality or if there's anything mix going on in the quarter that you'd want to call out?
Todd M. Bluedorn -- Chairman of the Board and Chief Executive Officer
Here's how I think about it, -- you're just talking resi over all, right -- you're talking resi?
Robert Barry -- Buckingham Research -- Analyst
Yes.
Todd M. Bluedorn -- Chairman of the Board and Chief Executive Officer
Yes. I mean, I would subtract the $40 million of the insurance proceeds, add back to $18 million of tornado impact, and then add $35 million of revenue. And I think if you do that it shows incrementals of 28%, 29%. So, I'm not sure where you get 13%, I think it's only 28%, 29% and I think it shows margins up 150 basis points and 160 basis points.
Robert Barry -- Buckingham Research -- Analyst
Got it. Got it. Yes, no I'll definitely revisit the math there. On the Commercial...
Todd M. Bluedorn -- Chairman of the Board and Chief Executive Officer
I think you were just testing my conviction, Robert.
Robert Barry -- Buckingham Research -- Analyst
All right. Well, I was also doing the math on the fly. So, I'll check it. On the Commercial, just anything from a vertical perspective in terms of pressure, any particular vertical under pressure?
Todd M. Bluedorn -- Chairman of the Board and Chief Executive Officer
No. I mean, it's across the board. I mean, we're half national accounts, so predominantly the story as you would expect would be national accounts, but I wouldn't believe that over to the broader concern that we all have longer term about what's going to happen to retail. This is more people just sort of pulling back in and deferring -- as you know, in replacement, for national accounts, the majority of the time it's planned replacement so they have discretion that they can make decisions on and it was just a matter of sort of pulling back a bit and then new construction same thing.
Robert Barry -- Buckingham Research -- Analyst
Got it. Got it. Just lastly, and I apologize in advance for kind of a more esoteric accounting question, but just looking the K, for last year, I think there was a fairly significant headwind in this kind of other product cost category, which I think a lot of that was LIFO adjustments.
Todd M. Bluedorn -- Chairman of the Board and Chief Executive Officer
Correct.
Robert Barry -- Buckingham Research -- Analyst
Curious if there's any visibility there on -- I guess that just going expected to be neutral this year or reverse or just any thoughts on how that might play in the P&L?
Todd M. Bluedorn -- Chairman of the Board and Chief Executive Officer
I mean, I'll give a layman's answer and then I got Joe here just in front of me, I mean, LIFO is just an accounting attempt to true-up at the end of the year what should or could have flown through the P&L during the year, and it has to do the timing of when the cost of inventory flows through the P&L. It had perfect information. Obviously, it sort of set it up, so there was no LIFO adjustment. The negative LIFO that you saw -- we saw last year was really more of we had really good -- or significantly good news in '17, we had less good news in '18. So it showed -- the change -- the change was negative. When we think about LIFO during the year, we never guide to it. So we just sort of expect that it's going to be neutral during the year and that's hard to think about it.
Joseph W. Reitmeier -- Executive Vice President & Chief Financial Officer
Yes. What we expected to be -- and quite frankly, the way that we planned it and we're guiding is, no impact in 2019, at this point. If that changes in future periods, we'll give you some heads up.
Robert Barry -- Buckingham Research -- Analyst
Got it. All right. Thanks.
Todd M. Bluedorn -- Chairman of the Board and Chief Executive Officer
Thanks.
Operator
Our next question is from John Walsh with Credit Suisse. Please go ahead.
John Fred Walsh -- Credit Suisse AG -- Analyst
Hi. Good morning.
Todd M. Bluedorn -- Chairman of the Board and Chief Executive Officer
Hi, John.
John Fred Walsh -- Credit Suisse AG -- Analyst
So, talking with some dealers, we heard that there's some new fan efficiency rating requirements that are going to be coming online this summer, I believe it's more related to the heating side instead of the AC side. But just wanted to maybe understand that dynamic a little bit, and if you're seeing anything outside of kind of the normal share recapture that would distort the way to think about this cooling season?
Todd M. Bluedorn -- Chairman of the Board and Chief Executive Officer
Well, why don't I talk about the regulatory change and talk about how it will impact us and then I'll make sure I capture the share impact at the end, because the answer to that is, yes, there's some things that will take place with those independent distribution. So on July 3rd of this year, there's a furnace fan -- furnace fan efficiency rating, FER, furnace -- excuse me, fan efficiency rating, FER regulation, that is scheduled to go in effect. This requires some move from standard efficiency, what I call, PSC motors to a higher efficiency, what are called, constant torque or variable speed motors, despite more technology than anyone called once. But, from a business point of view, the regulatory change is going to add about $25 to $50 to the cost of a furnace. This regulation is based on manufacturing start date for the standard efficiency units and companies continue to sell that after that date i.e. you can build up inventory at independent distribution or company distribution to sell later.
And like we've done on other regulatory transitions, we're going to have a pre-build of the standard units, as well -- or as are our competitors, and we'll continue to sell them past July 3rd, and the goal -- and we're pretty confident we're going to do it, will be the same thing that happened on the 13 to 14 share transition that, you sell -- your feather-in the new units at a higher cost over time, and so there is an a step function change in pricing or better stated, there isn't this erosion of pricing on the older units and these sort of feathered-in over time. So we're confident we're going to be able to protect margin and pricing as we go through this transition.
I think the impact that you'll see in share will be -- and you'll be able to pick it up on the AHRI data, that April, May, June aren't big furnace seasons compared to the wintertime, but some of our competitors or some independent distributors you'll see a big spike in furnace share, furnace volume for them during that time period, that's then stocking independent distributors with these standard units that they can't build after July 3rd. You don't see that in our numbers, because we'll carry the inventory ourselves and we'll sell through dealers during the furnace selling season that will come later in 2019. Was clear enough, John?
John Fred Walsh -- Credit Suisse AG -- Analyst
Yes. No, that was a great detailed answer, I appreciate that. And then maybe just a quick follow up here. I mean, given the move in copper, wouldn't necessarily expect any impact to '19 giving your hedges, but how do you think about that move and maybe further or around pricing potential?
Joseph W. Reitmeier -- Executive Vice President & Chief Financial Officer
We continue to remain confident that we can get price offset (ph) commodities and so I prefer that all the commodities go down rather than up, but if they go up, we'll price in the out years to do it. As of April, we're 73% hedged on copper for 2019. So we're pretty locked in and again as copper moves, we'll adjust.
John Fred Walsh -- Credit Suisse AG -- Analyst
Okay. Thank you.
Joseph W. Reitmeier -- Executive Vice President & Chief Financial Officer
Thanks.
Operator
Next, we'll go to Steve Tusa with JPMorgan. Please go ahead.
Stephen Tusa -- JPMorgan -- Analyst
Hi, guys. Good morning. So what was price in the first quarter for Residential -- price realized?
Todd M. Bluedorn -- Chairman of the Board and Chief Executive Officer
And (inaudible) make sure we got the right number.
Joseph W. Reitmeier -- Executive Vice President & Chief Financial Officer
It was a little more than 2% for the quarter.
Todd M. Bluedorn -- Chairman of the Board and Chief Executive Officer
Yes, so it was 2% for the quarter, I know that, I don't know the exact number, but 2% for the quarter.
Stephen Tusa -- JPMorgan -- Analyst
Okay. And then just kind of like better understand the -- how you're calculating the tornado impact. I mean, your revenue was...
Todd M. Bluedorn -- Chairman of the Board and Chief Executive Officer
(Multiple Speaker) somebody, it's $11 million.
Stephen Tusa -- JPMorgan -- Analyst
Okay, your revenue was up, you know 3% or whatever, but you're just kind of like looking it -- just stripping out the impact of the insurance proceeds, which you could consider to be like totally non-operational, if you will, your profits were down. So I guess, if we're not adjusting -- I guess, the point is like, you have extra costs, it is just running through from all these things that kind of skews that kind of profit performance. It's not just kind of an incremental margin on the lost volume, is that the correct way to kind of think about it?
Joseph W. Reitmeier -- Executive Vice President & Chief Financial Officer
No. I mean, I'll tell you, I think about -- and I mean, we've been clear from the beginning that the drop through on the lost revenue was going to be a rich drop through. So the guide for the quarter -- the actual for the quarter, which is better than our guide was $35 million -- tornado impact, $35 million -- someone in the background is yelling and agreeing with me. It was $35 million of revenue impact and $18 million of EBIT impact from the tornado. And that's because it's our highest margin product, it's really rich mix coming out of Marshalltown. So, if you take what our reported results were and subtract $40 million from the insurance proceeds, and add back $35 million of revenue and $18 million of EBIT, what you'll see is that our earnings were up 25% in resi and that our margins expanded 150 basis points, 160 basis points, we had a 28%, 29% incremental. So that's how I do the math, and it's -- just what I thought it would be, I think your math isn't taken into consideration, $35 million of revenue, yielded $18 million of EBIT, and that's because it's such a rich mix of product.
Stephen Tusa -- JPMorgan -- Analyst
Okay. Got it. So -- but I guess, if we just look at it and kind of on a real world basis, that would suggest that your profits would have been down on kind of these lower mix units -- on growth, those lower mix units?
Joseph W. Reitmeier -- Executive Vice President & Chief Financial Officer
Yes, exactly. So in (inaudible) the tornado impact we lost the cream off of, but that's right. So, yes, we had lower margins.
Stephen Tusa -- JPMorgan -- Analyst
Okay, great. That's really helpful. Thanks.
Joseph W. Reitmeier -- Executive Vice President & Chief Financial Officer
Yes. Thanks.
Operator
Our next questions is from Joe Ritchie with Goldman Sachs. Please go ahead.
Joe Ritchie -- Goldman Sachs -- Analyst
Thanks. Good morning, guys.
Todd M. Bluedorn -- Chairman of the Board and Chief Executive Officer
Hi, Joe.
Joe Ritchie -- Goldman Sachs -- Analyst
Hi. So, Todd, your comments earlier on resupplying your dealers, I'm just curious, when you think about sell-in versus sell-through in the resi channel, how far along are you on the sell-in process?
Todd M. Bluedorn -- Chairman of the Board and Chief Executive Officer
We're 75%, 80% own distribution. So we only have -- they don't sell-in, sell-out, we just sell-up, so we don't recognize it, until we sell the product. On our Allied business, there's some inventory loading with selling-in. But the sell-in, sell-out is really for people who are dominated or have large independent distribution, that's not us. Our numbers are 80% sell-through, that's all we report.
Joe Ritchie -- Goldman Sachs -- Analyst
And maybe asking that a little bit differently, in terms of getting your inventory levels back to where they need to be, do you feel like you're there at this point or is there still some room to go?
Todd M. Bluedorn -- Chairman of the Board and Chief Executive Officer
There's still some room to go. I mean, we turned on full production at the end of first quarter, it's now April. And so we're still sort of running our Residential factories hard to get ready for the summer selling season.
Joe Ritchie -- Goldman Sachs -- Analyst
Okay. And then maybe one follow-on, as it kind of think about some of the cost headwinds that you guys outlined for the year, whether that's commodities, freight, tariffs. I guess, how should we be thinking about the cadence, was there any -- like was there potentially a disproportionate impact in 1Q or how are you guys thinking about as the year progresses?
Todd M. Bluedorn -- Chairman of the Board and Chief Executive Officer
We're thinking about it as -- that, about a third of the benefit of -- we've said that price will be $80 million in commodities, freights and tariffs will be $55 million. So we're going to be plus $25 million. We think order of magnitude, a third of that will be first half of the year, and two-thirds of that will be second half of the year. And so that's going to be back-end loaded.
Joe Ritchie -- Goldman Sachs -- Analyst
Okay. And do you guys have a number from 1Q at your fingertips for further cost impact?
Todd M. Bluedorn -- Chairman of the Board and Chief Executive Officer
1Q, we were slightly negative.
Joe Ritchie -- Goldman Sachs -- Analyst
Slightly negative? Okay. Thanks guys.
Todd M. Bluedorn -- Chairman of the Board and Chief Executive Officer
Thanks.
Operator
And next we go to Deepa Raghavan with Wells Fargo Securities. Please go ahead.
Deepa Raghavan -- Wells Fargo Securities -- Analyst
Good morning.
Todd M. Bluedorn -- Chairman of the Board and Chief Executive Officer
Good morning.
Can you comment on your Residential momentum in the quarter? I know backlogs don't matter, you spoke pretty extensively about Residential, but just curious how was the progression from March to April, much of the big month, and also like some other distributors called out, was Easter a benefit in the quarter and therefore probably a pull forward from Q2? Or just curious in any other puts and takes from a year-on-year perspective or a seasonality perspective as we think about Q2?
Yes. I don't Easter much matters. I mean, I understand, Good Friday is a selling day, but -- so I don't think Easter -- it's not like Christmas, where it's a week of activity gets delayed or deferred, it's like a day of activity and not for lapsed Christians. I think in terms of the timing and the momentum of the business, I think the end markets remain strong and solid. But, it's more about our performance, I mean, the factories are roaring. We're producing all the product lines, we're sort of out there gaining back share and so the momentum in the Residential business is strong as we go into second quarter.
Deepa Raghavan -- Wells Fargo Securities -- Analyst
Got it. Can you -- this is probably just a forward-looking question; can you comment on, if you would be impacted by any Mexico border closure if that happens at all? And what could some of the steps be that you should be taking to work around such an event? Thank you.
Todd M. Bluedorn -- Chairman of the Board and Chief Executive Officer
Yes. We would be impacted by the Mexico border shutdown, and parenthetically, so would most of corporate America. And so, obviously, we produce a lot of production in steel, and as a percentage of our business even more than it was a year ago. And we source components from Mexico for our North America factory. So a shutdown would impact us. And so we're doing the things you might expect to do looking at different options about buffering inventory in and different ways to get it across the border. But, the short answer is, if the border gets shut down, we're all going to be impacted and wall (ph) scramble.
Deepa Raghavan -- Wells Fargo Securities -- Analyst
Okay, thank you. That's all I had.
Todd M. Bluedorn -- Chairman of the Board and Chief Executive Officer
Thanks.
Operator
And next go to Tim Wojs with Baird. Please go ahead.
Timothy Wojs -- Robert W. Baird & Co. -- Analyst
Hi, gentlemen. good morning. Just two quick ones for me. So, first just on the CapEx reduction, is there any reason why that that $20 million shouldn't flow down into free cash flow for the year? And then secondly just what's the right quarterly DNA number once Iowa was kind of fully in the -- the reconstruction at Iowa plant fully in the P&L?
Todd M. Bluedorn -- Chairman of the Board and Chief Executive Officer
It's a multi (inaudible) capital spend comment, that's really tied to the reconstruction in Marshalltown. So there'll be a direct reduction in insurance proceeds as well for the capital expenditures there.
Joseph W. Reitmeier -- Executive Vice President & Chief Financial Officer
Depreciation and amortization, we have $80 million for the full year. That will impact us more as we get into 2020, but not so much in 2019.
Timothy Wojs -- Robert W. Baird & Co. -- Analyst
Okay. Great.
Todd M. Bluedorn -- Chairman of the Board and Chief Executive Officer
Thanks, Tim.
Operator
And next question is from Gautam Khanna with Cowen and Company. Please go ahead.
Gautam Khanna -- Cowen and Company -- Analyst
Thanks. Good morning, guys.
Todd M. Bluedorn -- Chairman of the Board and Chief Executive Officer
Hi. Gautam, how are you?
Gautam Khanna -- Cowen and Company -- Analyst
Doing well, thanks. A follow up question on the Commercial productivity comment you made in the warranty expense, just isn't really amplifying color you can give on what's at the root of the problem there is?
Todd M. Bluedorn -- Chairman of the Board and Chief Executive Officer
I don't remember...
Gautam Khanna -- Cowen and Company -- Analyst
That's behind us.
Todd M. Bluedorn -- Chairman of the Board and Chief Executive Officer
I don't remember anything about warranty. But, I mean, the issue has to do with productivity and it has to do with...
Gautam Khanna -- Cowen and Company -- Analyst
Productivity.
Todd M. Bluedorn -- Chairman of the Board and Chief Executive Officer
You know, we're a seasonal business, we bring it in a significant amount of temp workers every year into the factory and when unemployments are -- record -- not record lows, but lows that none of us have seen in our business lifetime, it's much harder to get workers. And so it has to do with attrition and absenteeism and training workers we've had. We made some adjustments. Quite frankly, we've raised the wage rates; we've changed the way we're operating with direct labor in the factory. And you know, I'll be frank, I thought at the end the first quarter to be behind us, it's lingered longer than what we had hoped. But, I'm confident we're doing the right things and we'll get it better.
Gautam Khanna -- Cowen and Company -- Analyst
Okay. No, the warranty reference was in the release, higher warranty year-over-year and other product costs, but OK.
Todd M. Bluedorn -- Chairman of the Board and Chief Executive Officer
Yes, that's really before the absence of good news versus bad news in the year. And that's what...
Gautam Khanna -- Cowen and Company -- Analyst
Fair enough.
Todd M. Bluedorn -- Chairman of the Board and Chief Executive Officer
Yes. Good catch.
Gautam Khanna -- Cowen and Company -- Analyst
Okay. No, no, that's helpful. I appreciate it. And then just -- if you could just comment on the competitive environment across the three segments. If there's been any change more. Obviously, we understand the shift the resi dynamic of temporarily donating some share. But, if you could just talk about, have you seen any incremental price pressure? Is the industry still quite disciplined in terms of kind of raising price to offset commodity and holding at? Anything you've seen that would signal any sort of change relative to a quarter or two ago?
Joseph W. Reitmeier -- Executive Vice President & Chief Financial Officer
No. I mean, price realizations are always (inaudible) an industry dynamic and we continue to get price in the marketplace across all three of our segments and we're confident that we'll do it. I mean, Residential sort of now fine again, I mean, I think about the analogy on next two or three metaphors here, but you think about a fighter with an arm tied behind his back and that's what our sales force felt like and now their arms released. And you know they're wild dogs chasing after raw meat in the marketplace after being held back, and so we're excited going into the second quarter.
Gautam Khanna -- Cowen and Company -- Analyst
And last one for me, just now that Marshalltown is back online, any change to how you guys -- the production system, if you will, and how you're going to source more or less from Marshalltown relative to South Carolina and Mexico? Anything you can comment about how that might change relative to pre-tornado?
Todd M. Bluedorn -- Chairman of the Board and Chief Executive Officer
No, I think it's what I said earlier about this that, we've build capability at our other two factories, Ukrainian (ph) product and we're glad we now have that capability there, and we don't plan on sort of eliminating that capability. But, we're really glad we had the Marshalltown team. They've done a heroic job and and having all that experience allowed us to come back. And so we're excited about the Marshalltown team. But obviously, we're excited about continuing to grow our Mexico facility and our South Carolina facility also.
Gautam Khanna -- Cowen and Company -- Analyst
Thank you, guys.
Todd M. Bluedorn -- Chairman of the Board and Chief Executive Officer
Thanks.
Operator
Next, we will go to the line of Josh Pokrzywinski with Morgan Stanley. Please go ahead.
Josh Pokrzywinski -- Morgan Stanley -- Analyst
Hi, good morning, guys.
Todd M. Bluedorn -- Chairman of the Board and Chief Executive Officer
Hi, Josh.
Josh Pokrzywinski -- Morgan Stanley -- Analyst
Todd, can you just talk a little bit about the 2Q, 3Q, I guess, both changes and just how you're thinking about the lost profits there? It seems like with Heating & Cooling now being both at full strength, I get that there's some temporary share shift that comes back and forth. But just any reason why those numbers couldn't be lower still. I think just case in point in the -- in your table, you had it, actually going up in 2Q in terms of lost profits. So anything you want to kind of monologue about there would be helpful.
Todd M. Bluedorn -- Chairman of the Board and Chief Executive Officer
I mean, (inaudible) to guide. So, I mean, it could be better, it could be worse, that's the nature of guide. I mean, we're attacking or winning it back, but I mean, it takes time and it also takes time and I think you understand this is -- our competitors have smart when they win any business. They had (inaudible) tied to to sort of buying so much product or they tried to get dealers to buy cooling product early in first quarter before we had the full capacity to meet people's needs. And so it's going to take us some time to win back. But if we do better like -- in second or third quarter, then -- like we did in first quarter, that's obviously very good news.
Josh Pokrzywinski -- Morgan Stanley -- Analyst
Got it. And then, I guess just related to that, I think Joe said that mix was up in resi in the first quarter. I guess a little surprising, just given that some of the higher mix product was most impacted. Is that something that was more of an anomaly or how should we think about mix over the balance of the year because I think both price and mix, if you didn't know that the high margin stuff was the one that was off line, it would read like any other quarter the past few years?
Joseph W. Reitmeier -- Executive Vice President & Chief Financial Officer
Yes, mix was up just slightly. The majority of it was price. But we did have a slight favorable mix within this quarter.
Todd M. Bluedorn -- Chairman of the Board and Chief Executive Officer
And we would expect -- and again it was negatively impacted from the lost revenue of $35 million because that was skewed to the highest profitable. So I think the point is we've had significantly better mix, if we had in the past the tornado impact.
Josh Pokrzywinski -- Morgan Stanley -- Analyst
Your mix should accelerate over the balance of the year, I guess, this is one other way to interpret that.
Todd M. Bluedorn -- Chairman of the Board and Chief Executive Officer
I think I'd interpret it, we will have a strong mix here in 2020.
Josh Pokrzywinski -- Morgan Stanley -- Analyst
Got it, all right. Thanks for color.
Todd M. Bluedorn -- Chairman of the Board and Chief Executive Officer
Thanks.
Operator
The final question will be from the line of Nigel Coe with Wolfe Research. Please go ahead.
Nigel Coe -- Wolfe Research -- Analyst
Thanks guys. Good morning. Hi, Todd.
Todd M. Bluedorn -- Chairman of the Board and Chief Executive Officer
Hi, Nigel. How are you?
Nigel Coe -- Wolfe Research -- Analyst
Yes. Good, thanks. So just want to -- just go back to inventories. Quite a build up year-over-year and obviously these were unusual backdrop with the rebuild at Marshalltown. But maybe just speak to that, Todd, and how you see inventories playing out, especially given this (inaudible) especially all that's happening in July.
Todd M. Bluedorn -- Chairman of the Board and Chief Executive Officer
Well. I think part of what's in than -- I think our inventory was up 7%, -- order magnitude last first quarter versus the prior year quarter, we were up 18%. So when your revenues growing, you tend to build inventory; you also lay in the cost impacts that we've had on commodities. That's also part of what's building into our inventory number and the pre-build of the furnaces. So we're still ramping up our factories, still driving production and inventory will continue to build, until we get to the other side of the summer silences.
Nigel Coe -- Wolfe Research -- Analyst
Okay. That's great. And then just quickly on new construction. We've seen housing starts down double digits through the first quarter, March less than February; February less than January. Does that suggest that your new build channel will get worse, will get better? I understand, you've said low to mid single digits growth in the full year, but does it get worse, it will get better?
Todd M. Bluedorn -- Chairman of the Board and Chief Executive Officer
We were low to mid-single digits. I think is low-single digits in first quarter for us. So we had a solid first quarter and we think it's going to be up low single digits for the balance of the year, again we'll see what happens.
Nigel Coe -- Wolfe Research -- Analyst
And where -- what is that mix right now, Todd, between newbuild and replacement for resi?
Todd M. Bluedorn -- Chairman of the Board and Chief Executive Officer
But will try 15%, 20% new construction and the balance out on replacement.
Nigel Coe -- Wolfe Research -- Analyst
Great. Okay, thanks a lot.
Todd M. Bluedorn -- Chairman of the Board and Chief Executive Officer
Thanks.
Operator
I'll turn it back to the Company for any closing comments.
Todd M. Bluedorn -- Chairman of the Board and Chief Executive Officer
Thanks, operator. To wrap up, our recovery from tornado impact continues to accelerate, as we enter our largest seasonal quarters. Overall, for the Company, second quarters is off to a solid start. We're reiterating our 2019 revenue and adjusted EPS guidance. Look forward to another year of strong growth and profitability. I want to thank you all for joining us today.
Operator
Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation. You may now disconnect.
Duration: 58 minutes
Call participants:
Steve L. Harrison -- Vice President, Investor Relations
Todd M. Bluedorn -- Chairman of the Board and Chief Executive Officer
Joseph W. Reitmeier -- Executive Vice President & Chief Financial Officer
Julian Mitchell -- Barclays -- Analyst
Jeff Hammond -- KeyBanc Capital Markets -- Analyst
Ryan Merkel -- William Blair -- Analyst
Nicole DeBlase -- Deutsche Bank -- Analyst
Robert Paul McCarthy -- Stephens Inc. -- Analyst
Jeffery Sprague -- Vertical Research Partners -- Analyst
Robert Barry -- Buckingham Research -- Analyst
John Fred Walsh -- Credit Suisse AG -- Analyst
Stephen Tusa -- JPMorgan -- Analyst
Joe Ritchie -- Goldman Sachs -- Analyst
Deepa Raghavan -- Wells Fargo Securities -- Analyst
Timothy Wojs -- Robert W. Baird & Co. -- Analyst
Gautam Khanna -- Cowen and Company -- Analyst
Josh Pokrzywinski -- Morgan Stanley -- Analyst
Nigel Coe -- Wolfe Research -- Analyst
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