Lennox International Inc (LII) Q2 2019 Earnings Call Transcript

LII earnings call for the period ending June 30, 2019.

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Lennox International Inc (NYSE:LII)
Q2 2019 Earnings Call
Jul 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 Second Quarter 2019 Earnings Call. [Operator Instructions]

I would now like to turn the conference call 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 second 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 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. 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. The webcast 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 risks and uncertainties that could cause actual results to differ materially from such statements. For information concerning these risks and uncertainties, see Lennox International's publicly available filings with the SEC.

The company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

Now, let me turn the call over to Chairman and CEO, Todd Bluedorn.

Todd M. Bluedorn -- Chairman of the Board and Chief Executive Office

Thanks, Steve. Good morning everyone and thank you for joining us. Let me start with an overview on the second quarter, which was significantly impacted by the adverse weather conditions. I will cover the key points on each of our businesses, our current view on the tornado impact and insurance proceeds and our reduced outlook for commercial and refrigeration end markets and an update 2019 guidance.

For the second quarter, GAAP and adjusted revenue was $1.1 billion. GAAP revenue was down 6% including 8% of negative impact from the tornado, divestitures and foreign exchange. Excluding the impact from divestitures adjusted revenue was down 1% or flat at constant currency. Including a negative 3% impact from the tornado.

GAAP operating income was $214 million, up 10% and GAAP EPS from continuing operations was $2.81, down 17% including a non-cash pension settlement charge of $1.14. On an adjusted basis, total segment profit was $202 million, down 2% and total segment margin was relatively flat at 18.4%.

Adjusted EPS for continuing operations was up 2% to $3.74. Residential revenue was down 3% at constant currency and down 4% on a reported basis with volume down 6% and down 3% adjusted for the tornado impact. Residential profit was flat and segment margin expanded 80 basis points to 22.3%. Price performance was strong at 3.6% yield.

Our residential business in the second quarter was negatively impacted by the significantly core temperatures and higher precipitation across the United States, especially in key central regions were cooling degree days were down more than 30% and precipitation was up more than 60%. Areas that account for approximately 40% of our revenue.

We said over the years at a hot summer could add 10% to residential growth and a cold summer could subtract 10% which was the case in second quarter this year. Adjusted for the tornado, our residential volume was down 3%. If you add 10% today, you get a more normalized number in line with the overall residential market conditions.

Our residential business had negative tornado impact of $28 million to revenue in the second quarter and $16 million to segment profit, offset by $18 million of insurance recovery. Adjusting for the net impact from the tornado and insurance proceeds, residential revenue was flat, profit was down 1% and margin was down 30 basis points to 21.1%.

The adverse weather in the second quarter led slower moving shipments in the industry, which slowed us in regaining market share following the tornado, it extends our recovery timeline to include the fourth quarter. We remain confident, we will resume gaining share in 2020.

For 2019 overall, we now expect $99 million of negative tornado impact residential revenue, up from $70 million previously. We expect a negative $54 million impact to segment profit, up from $40 million previously. We expect insurance recovery for lost profits of $94 million, up from $80 million previously. The resulting $40 million of net benefit to residential segment profit in 2019 is unchanged.

Of the remaining negative tornado impact for 2019, we expect to have an impact of approximately $22 million in revenue and $11 million of segment profit in the third quarter. For the fourth quarter, we expect an impact of approximately $14 million to revenue and $9 million to segment profit.

For the remaining, $36 million in which insurance recovery in our core guidance, we except that to be split evenly between the third and fourth quarters. Taking a step back and looking at the big picture for both core and non-core related to the tornado, we now expect total insurance proceeds of approximately $372 million, up from $358 million previously. We have received $252 million of that as of the end of second quarter and expect to remainder by the end of 2019.

The 2019, non-core gain expected for the difference in the book value and replacement value of assets remains approximately $91 million or a benefit of approximately $1.73 per share to GAAP EPS. We have posted a tornado financial update chart on our website summarizing the guidance I just discussed.

Turning to commercial in the second quarter. Revenue was a second quarter record $261 million, up 4%. Commercial profit was a record $54 million, up 6% and the segment margin expanded 50 basis points to a record 20.6%. Commercial revenue in the second quarter was led by high single-digit growth in national account equipment business. Regional local equipment revenue was up low-single digits at constant currency. Breaking out the business another way, commercial new construction revenue was up low-single digits at constant currency and replacement revenue was up high single digits. Plan replacement was up low double-digits and emergency replacement which also was negatively impacted by cooler weather in the quarter was down low-single digits at constant currency.

Our VRF business is up high single digits in the second quarter. On the service side, Lennox International account services revenue was up low-single digits. And Refrigeration for the second quarter adjusted revenue was up 5% at constant currency. Adjusted revenue profit was down 19% and adjusted segment margin was down 340 basis points to 12.8%. The adverse impacted by unfavorable mix. As North America volume was down and Europe volume was up in the second quarter.

In addition profitability was negatively impacted by the timing, on the sale of refrigerant allocations in Europe compared to the prior year quarter.

Before I turn it over to Joe. I'll review the latest of our outlook for 2019. We provide a few early thoughts on 2020. For the industry overall, we still expect North America residential HVAC shipments to be up mid-single digits. We are reducing the outlook for Commercial and Refrigeration end markets in North America. We now expect commercial shipments to be flat for the industry in 2019 and expect refrigeration shipments to be slightly down for the industry. That's for the market, we still expect our revenue to be up for both businesses in the second half of the year.

We expect year-over-year commercial margin expansion to continue in the second half and Refrigeration margin expansion to resume in the fourth quarter. Looking ahead and thinking about 2020. We are still six months away, but the residential market continues to look robust setting aside the second quarter weather. Commodity costs continue to trail down and that is setting us up nicely for more positive price cost benefit in 2020 than we've had in 2019.

And the investments we've made in equipment, controls and distribution set us up well in 2020 as do the easier comps posted tornado impact to get us back on the share gain path.

Now, let me turn it over to Joe.

Joseph W. Reitmeier -- Executive Vice President and Chief Financial Officer

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 second quarter, revenue from Residential Heating and Cooling was $689 million down 4%. Foreign exchange had a negative 1% impact on revenue. Volume was down 6%, were down 3% adjusted for the tornado impact. Price was up 4% and mix was down 1%. Residential profit was flat at $153 million. Segment margin expanded 80 basis points to 22.3%. Segment profit was favorably impacted by a net $2 million of benefit from insurance proceeds relative to the tornado impact in the quarter as well as favorable price, sourcing and engineering-led cost reductions and favorable warranty.

Offsets included cooler and wetter weather, tornado impact, factory productivity, unfavorable mix, higher commodity, freight, tariff and other product costs, as well as distribution and SG&A investments, and unfavorable foreign exchange.

Turning to our Commercial Heating & Cooling business. Commercial revenue was a second quarter record $261 million, up 4%. Foreign exchange was neutral to revenue, volume was up 2%, price was up 2% and mix was up 4% on the strength of -- national account growth.

Commercial segment profit was a record $54 million, up 6%. Segment margin was a record 20.6%, up 50 basis points. Segment profit was impacted by favorable price, favorable mix and sourcing and engineering-led cost reductions. Partial offsets included lower volume, higher commodity and other product costs, tariffs, freight and distribution in SG&A investments.

In the Refrigeration Segment, adjusted revenue was $149 million, up 2% in the second quarter. Foreign exchange had a negative 3% impact on revenue, volume was up 1%, price was up 2% and mix was up 2%. Adjusted segment profit was $19 million, down 19%. Adjusted segment margin was 12.8%, down 340 basis points.

Profit was impacted by lower mix and the timing of the sale of refrigerant allocations in Europe compared to the prior year quarter. Higher commodity freight, distribution and tariffs and other product costs and unfavorable foreign exchange. Partial offsets include higher volume, favorable price, sourcing and engineering-led cost reductions and lower SG&A expenses.

Regarding special items in the second quarter, the company had net after-tax charges totaling $36.6 million. This included a charge of $45.5 million for pension settlement, a net charge of $1.5 million for various other items and a gain, -- of $10.4 million from insurance recoveries, net of losses incurred.

Corporate expenses were $24 million in the second quarter compared to $23 million in the prior year quarter. Overall, SG&A on an adjusted basis were $152 million compared to $151 million in the prior year quarter.

Net cash from operations in the second quarter was $30 million compared to $49 million in the prior year quarter. Capital expenditures and purchases of short-term investments were $18 million compared to $21 million in the second quarter a year ago. We had proceeds for tornado damage to property and proceeds from the disposal of property, plant and equipment of $6 million in the second quarter of this year.

Free cash flow was $20 million compared to $28 million in the prior year quarter. The Company repurchased $150 million of stock and paid $25 million in dividends in the quarter. Total debt was $1.47 billion at the end of June and we ended the quarter with debt to EBITDA ratio of 2.3. Cash and cash equivalents were $36 million ended in the quarter.

Now turning to our guidance for the Company overall in 2019. We are updating guidance for adjusted revenue for -- for adjusted revenue growth from a range of 3% to 7% to a new range of 2% to 5%. We are updating GAAP EPS from continuing operations from a range of $12.65 to $13.25 to a new range of $11.91 to $12.51. This incorporates special items in the first half of the year, including the $1.14 non-cash pension settlement charge in the second quarter.

As previously discussed, the pension settlement charge relates to an agreement that we entered into with Pacific Life Insurance Company in April to annuitize $106 million of our defined benefit pension obligation. As part of this transaction, we also transfer $100 million of pension assets to Pacific Life. This event required a remeasurement of the pension plan and resulted in a non-cash $45.5 million after-tax settlement charge in the second quarter to write-off the related accumulated actuarial losses.

And as Todd mentioned, we continue to expect a toll 2019 pre-tax gain of $91 million related to factory reconstruction cost and the associated gain from replacement value above book value. For adjusted EPS from continuing operations in 2019, we are updating guidance from a range of $12 to $12.60 to a new range of $11.30 to $11.90.

Let me now run through the other key points of our guidance assumptions and the puts and takes for 2019. First, the guidance, our guidance elements, we are updating. We are lowering the headwind expected from commodities for the full-year from $30 million to $20 million. We are lowering the guidance for factory -- residential factory productivity from a benefit of $8 million to being flat year-over-year due to the weather impacts on production and the corresponding lower fixed cost absorption.

We are updating guidance for 2019 capital expenditures from approximately $195 million to $155 million. As $40 million of capital to fully reconstruct the Iowa manufacturing facility damage by the tornado has moved from from 2019 to 2020. We are updating 2019 guidance for free cash flow from approximately $420 million to $390 million for the full year. There are three moving pieces to the guidance, the two headwinds are lower earnings guidance and higher working capital and the benefit is a reduction in capital expenditures, due to the project timing at the Iowa factory reconstruction between 2019 and 2020.

For the guidance elements that remain the same. We still expect to capture $80 million of price for the full year. We still expect $25 million benefit from sourcing and engineering-led cost reductions. We still expect $15 million of a headwind from freight and $10 million from tariffs and we continue to expect headwinds of $15 million for distribution investments and $15 million for SG&A.

Corporate expenses are still targeted at $90 million for 2019. Net interest expense is still expected to be approximately $45 million and we still expect an effective tax rate in the range of 22% to 23%, on an adjusted basis for the full year.

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.


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Questions and Answers:

Operator

[Operator Instructions] First on the line, we have Julian Mitchell with Barclays. Please go ahead.

Julian Mitchell -- Barclays -- Analyst

Thanks, good morning.

Todd M. Bluedorn -- Chairman of the Board and Chief Executive Office

Good morning.

Julian Mitchell -- Barclays -- Analyst

Good morning. Maybe just a first question around Commercial and Refrigeration demand, you had talked about a temporary pause back in Q1, entered Q2 with good backlog growth in both pieces. So just wondered kind of what changed as you went through the second quarter? And maybe how you're seeing the start to Q3 across the three segments? In terms of the demand?

Joseph W. Reitmeier -- Executive Vice President and Chief Financial Officer

As you can see in, we had a nice second quarter revenue wise in both segments, especially in commercial and we entered third quarter with solid backlog, our commercial backlog is flattish from a year ago and our refrigeration backlog is up mid-single digits. And again, we expect the revenue to grow on both those segments, but in some ways we're just truing up what we're seeing, I mean, when you look at ARI data for commercial through May markets up 0.5% -- 1%. We think it was down in June, in part because of weather. And so we think calling it flat just sort of a more realistic assumption, while we're seeing refrigeration in some of our larger customers sort of differing given some of the macroeconomic uncertainty. But again, it's on the margins we're going from being up low-single digits, market call it a sort of slightly down, should be flattish to slightly down. So it's sort of a toggle of a couple of points, if you will. But again, we still expect revenue in both those segments we have second half of the year.

Julian Mitchell -- Barclays -- Analyst

Thanks. And then sort of tied to that, maybe just any thoughts on residential? How that's trended in the last couple of months, if you've seen any improvement in sell through conditions recently?

Todd M. Bluedorn -- Chairman of the Board and Chief Executive Office

It's certainly warmed up in July from where it was in June, so that's helped. So we're off to a solid start, although I'd remind everybody, third quarter last year was warm. If you recall it was up -- from memory, 25% above the normal and 15% above the prior year. So last third quarter was pretty warm. So the comps aren't too easy, but for residential sort of chugging along and we're off to a nice start.

Julian Mitchell -- Barclays -- Analyst

Thanks. And then my last question on that point would just be, in terms, of the market share efforts at residential, maybe just walk through where you think you falling short or if it's really the external conditions of whether that is sort of held you back on that market share retake?

Todd M. Bluedorn -- Chairman of the Board and Chief Executive Office

Again, we are gaining share back -- we just -- we didn't gain it back as fast as we had hoped in second quarter. And I think it was largely driven by the weather. I think it's just an old business truism, which I've always found to be true. It's harder to get share in a down market than the up market and some of our markets, the area that we're talking about is sort of region in the center of the country. Our revenue was down there even greater than it was overall in the business and it was just tough to gain back share when things are down and so we think that's a majority, vast majority of the impact I think to be honest, we are straightforward about it at full transparency. There are some sort of smaller dealers who quite frankly were probably not going to get back that we protected our most valuable customers and those we did protect when we get to the other side of it. If they had a good experience with the new vendor, some of them aren't coming back. But where we've gotten back to majority of the share. We think by and we've guided that as we go into 2020. We're confident we'll get back on the share gain track again.

Julian Mitchell -- Barclays -- Analyst

Great, thank you.

Todd M. Bluedorn -- Chairman of the Board and Chief Executive Office

Thanks.

Operator

Next we'll move to Steve Tusa with J.P. Morgan. Please go ahead.

Stephen Tusa -- J.P. Morgan Securities -- Analyst

Hey guys, good morning.

Todd M. Bluedorn -- Chairman of the Board and Chief Executive Office

Hi Stephen.

Stephen Tusa -- J.P. Morgan Securities -- Analyst

Just on the commercial side. I mean, you had talked, I think a bit about at a conference in early June, about how you were seeing the order rates come back there at that stage. Did something kind of happened later in the quarter on this front to kind of tweak that lower for the year?

Todd M. Bluedorn -- Chairman of the Board and Chief Executive Office

Again, I think, I'm reflecting a guide on the industry rather than our share. So what I said is, is we had a nice second quarter in revenue and we expect revenue to up the second half of the year a backlog chart is flattish, because we sort of delivered a lot in the second quarter. So we're still optimistic on the segment overall, but we're halfway through the year and the industry is flat and I think, I don't think it's going -- I think the second half, well sort of closer to get to election, the more of these macroeconomic uncertainty hang, the less likely we're going to see growth in the end-market second half of the year.

Stephen Tusa -- J.P. Morgan Securities -- Analyst

All right. Okay. On the resi side, you guys started to disclose in your Q's. The difference between externally sold sales and sell through your own distribution and I think that number was up the external sales were up pretty nicely in the first quarter. Your sell-through is through your own stuff was kind of down moderately. I think Q's going come out today. Can you just talk about, was that the similar trend here in the second quarter and then how should we read into that, is that just you guys kind of restocking the channel from tornado impacts or what's kind of the, the framework with which to kind of look at that around.

Joseph W. Reitmeier -- Executive Vice President and Chief Financial Officer

Yeah, it was even more pronounced in the second quarter, maybe than it was in first quarter. So, our direct business, our Lennox business, which is 80% of what we do revenue wise it's down 6% and our allied in ADP businesses which are direct was up 3%. I think it's a couple of things. I think it's weather exposure our Lennox historic -- well, our Linux branded business is more in the center of the country than our highlight business. I think that's part of it. I also think it's this issue that the independent distributors were able to hang on to their dealers because they had multiple brands and so we're able to juggle brands and sort of keep dealers happy and then as we're able to reload independent distributors with our product and are able to sort of seamlessly move back the dealers with our product line and so no one -- sort of was turned off by -- had our relationship, turn them off, they were able to sort of seamlessly move it back in. So I think that's part of it. So it's both the weather and some of the other issue I talked about regaining share.

Stephen Tusa -- J.P. Morgan Securities -- Analyst

Okay. And then one last one, are you at all considering monetizing some of your distribution or is it still, a very core part of who Lennox is having this much captive distribution.

Todd M. Bluedorn -- Chairman of the Board and Chief Executive Office

Did I'll ask you to ask of me?

Stephen Tusa -- J.P. Morgan Securities -- Analyst

Well, he was it very, very high -- its very, very quick to compliment you guys on the comp score, which is -- did warranted. I mean you guys have done a great job, but just curious --

Joseph W. Reitmeier -- Executive Vice President and Chief Financial Officer

[Indecipherable] there's a compliment, and I thought it was a left. I kept my head off for the right. We absolutely notice to get out distribution, as you've heard me say multiple times. I think it's a differentiator today, it will increasingly be a differentiator, all the investments we've made in digitization, it's gone from a business where you need to local knowledge and sort of moving boxes to this business, we want to be able to leverage investments and then again if I learned anything of business school, I want to have thousands, tens of thousands of small customers rather than one large customer. So we have no desire to get out independent.

Stephen Tusa -- J.P. Morgan Securities -- Analyst

Got it. One last one for resi. What was actual -- was there any major difference in kind of parts versus equipment. Were parts in the quarter, like what were any difference there?

Todd M. Bluedorn -- Chairman of the Board and Chief Executive Office

No, I mean, it sort of the part of the business that was up the most residential new construction.

Stephen Tusa -- J.P. Morgan Securities -- Analyst

Okay.

Todd M. Bluedorn -- Chairman of the Board and Chief Executive Office

Less impacted by the weather, but parts in the add-on replacement trend at the same direction that the cold weather impacting both, in parts and supplies, maybe even a little bit more than equipment.

Stephen Tusa -- J.P. Morgan Securities -- Analyst

Okay. Awesome. Thanks guys.

Todd M. Bluedorn -- Chairman of the Board and Chief Executive Office

Thanks.

Operator

Next question is from Jeff Hammond with KeyBanc. Please go ahead.

Jeffrey Hammond -- KeyBanc Capital Markets -- Analyst

Hey, good morning guys.

Todd M. Bluedorn -- Chairman of the Board and Chief Executive Office

Hey Jeff.

Joseph W. Reitmeier -- Executive Vice President and Chief Financial Officer

Hey Jeff.

Jeffrey Hammond -- KeyBanc Capital Markets -- Analyst

I already knew the answer to that distribution question.

Todd M. Bluedorn -- Chairman of the Board and Chief Executive Office

I was just going to joke, which I would be shocked if I'll ask you to ask a question, but go ahead.

Jeffrey Hammond -- KeyBanc Capital Markets -- Analyst

All right. Just going through the $0.70 cut. I mean, I know you made adjustments to the commercial piece, but can you, can you maybe break out how much of the, how you break out that 70% cut. How much is this kind of soft 2Q residential versus how much is it is the commercial piece being softer. And then it looks like the refrigeration margins seem to be coming in later as well?

Joseph W. Reitmeier -- Executive Vice President and Chief Financial Officer

I think, order magnitude what I think about, Jeff is, as we passed on in the second quarter miss to the full year guide and then we had sort of lowered the second half of the year because of push out of the share gain, but that's offset by insurance and then the third piece would be sort of a lowering in the end markets and corresponding revenue of the Commercial and Refrigeration businesses.

Jeffrey Hammond -- KeyBanc Capital Markets -- Analyst

Okay, that's helpful. And then can you just explain this refrigeration allocation dynamic and how big it was, and I think you said refrigeration in the margins, you'll get expansion in the fourth quarter which would suggest that maybe margins are down in the third quarter and so what's going on there?

Joseph W. Reitmeier -- Executive Vice President and Chief Financial Officer

The issue, I'll do in reverse order. The issue in third quarter is the mix and I referred to this mix, it's just as dynamic that our business in Europe is growing quicker than our business in North America. I think part of that is market, part of is sort of flattish share in North America refrigeration organic share in Europe and that hurts it. The refrigerant issue was second quarter a year ago, we had about a $3 million gain on refrigerant, I'll come back to that in second. In second quarter, this year we had about $1 million. So net, net a $2 million difference year-over-year and as you may recall, it's simplified, it's a cap and trade program in Europe for F-gases, fluorine-based gases and we had an allocation you're able to resell the allocate -- parts of the allocation. You don't use and we are able to sell those again $2 million -- of the $3 million gains last year second quarter, a $1 million gain this year. So, year-over-year, $2 million swing.

Jeffrey Hammond -- KeyBanc Capital Markets -- Analyst

Okay. So the third quarter margin comment on refrigeration is that this mix dynamic continues and then it normalizes in 4Q?

Joseph W. Reitmeier -- Executive Vice President and Chief Financial Officer

Correct.

Jeffrey Hammond -- KeyBanc Capital Markets -- Analyst

Okay.

Joseph W. Reitmeier -- Executive Vice President and Chief Financial Officer

I would broaden the answer also self-help will kick in the fourth quarter.

Jeffrey Hammond -- KeyBanc Capital Markets -- Analyst

Okay. And then last one on this distribution growth versus direct decline in the first half of the year. How should we think about that impacting the second half of the year. Just with kind of the pre-buy dynamic?

Todd M. Bluedorn -- Chairman of the Board and Chief Executive Office

Which pre-buy dynamic you're talking about -- furnaces?

Jeffrey Hammond -- KeyBanc Capital Markets -- Analyst

Yeah.

Todd M. Bluedorn -- Chairman of the Board and Chief Executive Office

I haven't quantify. I'm -- the reason I'm pausing because I have quantified it yet in my own mind. So I'm going to real-time to think. I think obviously the way you asked the question, you're right, it will in/on -- in the direct side, we'll have more of a sell -- we'll be selling furnaces were indirectly sort of stock that already. Although, I would tell you, because of the tornado impact. We didn't do as much pre-stocking of our distributors, as our competitors have done. I also think there will be normalization as we get away from the weather impacts, especially in second quarter.

Jeffrey Hammond -- KeyBanc Capital Markets -- Analyst

Okay. Thanks a lot.

Operator

Our next question is from Ryan Merkel with William Blair. Please go ahead.

Ryan Merkel -- William Blair -- Analyst

Hey, thanks. So first question for me, I'm guessing you don't want to give numbers by geography, but I'd just like to get a better sense of how weak the Midwest was in the quarter?

Todd M. Bluedorn -- Chairman of the Board and Chief Executive Office

I won't give the exact number that you suggested, but we do -- it was about 40% of our revenue and and it was maybe 2 or 3 points down in revenue in the add-on and replacement versus the overall market. I would contrast that I will give you -- I will give the exact numbers for something. I want to say, which is in a market like Florida where we had warm weather, our Lennox replacement revenue was up 12% and so a market we had good weather we did well in large parts of the country where we didn't have good weather, we didn't do well.

Ryan Merkel -- William Blair -- Analyst

Okay. That's helpful. And then just a follow-up to a prior question. So it sounds like you didn't assume that you would make up some of the 2Q, resi shortfall in the second half. Am I hearing that right?

Todd M. Bluedorn -- Chairman of the Board and Chief Executive Office

I think that's what the guide says. Yes.

Ryan Merkel -- William Blair -- Analyst

Okay.

Todd M. Bluedorn -- Chairman of the Board and Chief Executive Office

So the short answer is, yes, and that's what's in the guide. Now, again we -- I often don't like to talk about weather, but I almost half two now given everything we've said so far, but sort of the conventional wisdom that I also believe true is sort of the weather that you want now is hot, cool, hot, cool. So they sort of, sell out and then they cools down -- they can better say, it gets hot. Our dealers get really busy sometimes a week or two weeks planned out. And then you want it cool, so they can catch their breath, get caught up and ready to take on new business and then its gets hot again, they get the business they order from you and then as we get into September, were we want weather to break and sort of stay cool. So, it'll start loading up for furnaces. So it's not just record heat now for, now for the balance of the quarter. We going to have to sort of have some things move, but it's hard to make up -- us, the miss we had in second quarter due to weather.

Ryan Merkel -- William Blair -- Analyst

Got it, OK. Just lastly, residential price yield up 3.6%, that's a little better than I was thinking. Is this just a function of a double price increase still helping and maybe you didn't discount equipment to try to sell through just given the lower shipments this quarter?

Joseph W. Reitmeier -- Executive Vice President and Chief Financial Officer

It's primarily the first point, its just the double price increase since the second quarter was the sweet spot where we are sort of getting repeat, carryover both of them if you will. And the year, we -- year, we're going to get two points might be slightly better than that given the performance in the second quarter, but second quarter sort of the high water mark of year-over-year price increases and look we were competitive in the marketplace and so it's not like we said look, we're not going to do any pricing to protect to regain share just at some point, you realize that's not the lever to pull. So we tried to pull a lot of other levers and stuff.

Ryan Merkel -- William Blair -- Analyst

Got it. Okay, thanks. I'll pass it on.

Operator

And we'll go to Jeffrey Sprague with Vertical Research Partners. Please go ahead.

Jeffery Sprague -- Vertical Research Partners -- Analyst

Thank you. Good morning guys.

Todd M. Bluedorn -- Chairman of the Board and Chief Executive Office

Hi, Jeff, how are you?

Jeffery Sprague -- Vertical Research Partners -- Analyst

Doing well, thank you. Hey, just coming around to kind of cash flow and absorption. So I'm kind of those three pieces, Joe mentioned early working capital is going to be a chunk. Inventory looks high, I guess, I really have to kind of two questions. Was there some kind of absorption benefit in the quarter actually from building inventory?

Todd M. Bluedorn -- Chairman of the Board and Chief Executive Office

No, there was -- Jeff, there was some inventory build, but there's also some raw materials that are at higher levels given the increased production between Marshalltown and Saltillo.

Jeffery Sprague -- Vertical Research Partners -- Analyst

And then conversely, I guess your guide would assume some under absorption in the back half. As you're burning inventory down. Can you give me any context on the margin impact there, if there's any?

Joseph W. Reitmeier -- Executive Vice President and Chief Financial Officer

Once again, I think the margin impact is de minimis and we're going to continue to level our production to optimize the impact on absorption.

Jeffery Sprague -- Vertical Research Partners -- Analyst

And then just back to the price is harder, Joe. I mean, can you see any indication anywhere that there is some pushback. We've heard that in some industrial channels Watsco kind of mentioned that around some parts pricing obviously Walmart's are coming down. Volumes, maybe not as good as people thought?

Joseph W. Reitmeier -- Executive Vice President and Chief Financial Officer

No, we've seen price stick in marketplace, obviously, from the results we've had and we as always plan on passing on an annual price increase in commodities that trail down a bit, but labor is extremely tight in North America and we've had to raise wages in our factories, our suppliers did have to raise wages in their factories, the tariff situation is still not settled, freight and transportation is still while down a little bit from last year is still high versus the last couple of years. So there is still inflation in the system and the need for us to pass on prices and our competitors are doing the same thing.

Jeffery Sprague -- Vertical Research Partners -- Analyst

So, it would be fair to assume the double-dip was obviously a bit unusual, but kind of normal year-end beginning a year list price increase should kind of rule the day again in the 2020?

Joseph W. Reitmeier -- Executive Vice President and Chief Financial Officer

Yeah, I mean, what we'll do going into 2020, just I'll repeat what you just said we'll be announcing a price increase at the end of 2019, that set us up for realizing in the 2020 and that's historically how the industry did it. Not to bash Watsco, but when Watsco is talking about price, they may be talking to their supplier and letting them know what they want to hit -- what they want them to hear. But from our perspective, we're still getting price in the marketplace.

Jeffery Sprague -- Vertical Research Partners -- Analyst

Great, thank you.

Operator

Our next question is from Robert McCarthy with Stephens. Please go ahead.

Robert McCarthy -- Stephens Inc. -- Analyst

Good morning, everyone. How are you today?

Joseph W. Reitmeier -- Executive Vice President and Chief Financial Officer

Good.

Todd M. Bluedorn -- Chairman of the Board and Chief Executive Office

Bob, How are you?

Robert McCarthy -- Stephens Inc. -- Analyst

Good. May be since you broke hearts a little bit on 2020 for your outlook, Todd, I mean, could you talk a little bit about just maybe the current environment? Are you seeing any checks in the armor of the cycle and how do you think about '20? How do you think about your long-term targets from where you are sitting now, just so we get some comfort because obviously some investors think that this could precede something worse than just bad weather?

Todd M. Bluedorn -- Chairman of the Board and Chief Executive Office

No, I think, it's bad weather. I think it's two things. It's bad weather in terms of cool and wet weather and bad weather in terms of the tornado. But those are the dynamics, I mean from a residential viewpoint the market still robust, US consumer is still strong, US consumer is still spending. I think you just sort of see that in all, all the surveys and macroeconomic data and as we go into 2020, we expect that to continue. We sort of toggle down just a bit the Commercial and Refrigeration end markets and I think that just reflects reality. But we continue to gain share and expect our revenue to be up in those end markets. So we think 2020's end-markets are going to be good. 2021 my crystal ball is a little less clear but our three-year target still stand up even with this second quarter drop because of weather.

Robert McCarthy -- Stephens Inc. -- Analyst

And then in terms of the residential, excuse me, in terms of Refrigeration & Commercial lowering. I mean, you did answer the fact that you do expect to grow and that there should be share increase. I mean do you think this is some conservatism that you're baking into the guide or do you think is you're just call the market as you see it?

Todd M. Bluedorn -- Chairman of the Board and Chief Executive Office

Yeah. I mean the guide, is the guide. In a way, I sort of think about and I hope we're wrong and I hope it does better, but that's sort of our best call right now.

Robert McCarthy -- Stephens Inc. -- Analyst

I'll spare you a question on your distribution and whether you want to sell it?

Todd M. Bluedorn -- Chairman of the Board and Chief Executive Office

No, matter what happens. You going write that debt as we do not want to sell distribution. Thanks.

Robert McCarthy -- Stephens Inc. -- Analyst

Thanks, Todd.

Operator

Next, we'll go to Gautam Khanna with Cowen & Company. Please go ahead.

Gautam Khanna -- Cowen and Company -- Analyst

Yeah. Thanks, good morning guys.

Todd M. Bluedorn -- Chairman of the Board and Chief Executive Office

Hey, Gautam. How are you?

Gautam Khanna -- Cowen and Company -- Analyst

Doing well. Thanks. Couple of questions, first, I was wondering any change that you would expect in the competitive environment given the CCS spin or anything else that climate the Ingersoll break up. It doesn't sound like you've seen anything but what might you expect in an environment that's going to be unfolding over the next year?

Todd M. Bluedorn -- Chairman of the Board and Chief Executive Office

I don't think I'd expect any change in Trane Co. or whatever the new business is going to be called, I mean the management is, as I understand that, Lamach and the management team had pack, the parent company are going to go with TrainCo, right. And so I assume, they are going to compete the same way they've competed now. At Carrier Co., it's unclear exactly. I think one way, one thing I think about is sort of the distractions aren't going to stop because Carrier Co., in -- in itself, a multi-industrial conglomerate that probably needs to be broken up. And so, I think there will be continued internal discussions about what do they do with refrigeration, what do they do with some of the lower profit international businesses? What do they do with security business? And so I think all of that will continue to be a distraction. And I think that's good for us.

Gautam Khanna -- Cowen and Company -- Analyst

Okay, that's helpful. And also just what are your latest thoughts on North American, HVAC consolidation. Do you think it happens? Do you think there is, if it happens when does it happen?

Joseph W. Reitmeier -- Executive Vice President and Chief Financial Officer

Yeah, I -- my answer, Gautam, you've heard me say a 1,000 times. I'll say for people who are listening and do we don't need to do anything we're a scale, but I think value can be created and if something would happen we'd love to participate, we think will be a good player to help drive the value. I think over the long term, if there's value to be created, markets -- financial markets find a way to have assets be combined. But right now, its only handful of assets and someone who's in the business would have to decide they want to get out of the business, and I can't really control that, that's -- that question is better asked to somebody else rather than me.

Gautam Khanna -- Cowen and Company -- Analyst

Fair. And then you mentioned, you're not going to retain a 100% of the customers that you lost and related to the tornado. Can you quantify that? What sort of the net of the dealers -- of the customers who had previously, what percentage do you think don't come back? Is there any way to quantify? So we can understand, the hurdle you're overcoming as you -- as you do recover?

Joseph W. Reitmeier -- Executive Vice President and Chief Financial Officer

Again with some degree of uncertainty, sort of the quarter of magnitude is, we keep 90%, we get back 90%, we lose 10%. And if you do some of the backward math on that, that implies a 0.5, 2 points of resi revenue maybe one away at the end of the tornado versus closer to 10 points of resi revenue that was totally impacted by it. And I think of that kind of revenue changes, 1.25 point or so of share, maybe 3 FIS [Phonetic]. Yeah, 1.3 points [Phonetic] of market share and that's why I'm comfortable to go into 2020, it's now, well, sort of pivot away from just putting out this piece that we still haven't gotten to more broadly talking about our market share gains.So, we've gained 0.5 point to more of market share and resi up to the tornado, during the prior five or six years, since we go into 2020, we'll do the same thing and this will be behind us.

Gautam Khanna -- Cowen and Company -- Analyst

And last one, sorry. Commercial time -- is it fully operational, fully up to speed, there is no lingering production interruption there?

Todd M. Bluedorn -- Chairman of the Board and Chief Executive Office

No lingering production, interruption throughout the speed. I mean the push-out of the capital no one's asked the question, but I'll anticipate it. Push out of the capital has nothing to do with sort of being up to speed on production. It's building sort of the admin lingering of the factory adding in parking lots and sort of lesser priority things of what we needed to do to make it an up a full time factory again, but production wise we're where we need to be.

Gautam Khanna -- Cowen and Company -- Analyst

Thanks a lot guys. Appreciate it.

Todd M. Bluedorn -- Chairman of the Board and Chief Executive Office

Thanks.

Operator

Next, we'll go to Deepa Raghavan with Wells Fargo Securities. Please go ahead.

Deepa Raghavan -- Wells Fargo Securities -- Analyst

Good morning. Can you talk about what's embedded in the high-end and low-end of your revenue or EPS guide? Is that now all just resi weather playing out next few months because it looks like you've already factored in some weakness in commercial end of duration?

Joseph W. Reitmeier -- Executive Vice President and Chief Financial Officer

It's that -- it's also just sort of, there's always a range around commodities, there is a range around freight and transportation, there is a range around some of our execution in the factories and so, I think it's sort of a stacking of the operational bell shaped curve, the range of outcomes around lots of initiatives that we have in place. I think the most important thing is maybe the weather impact or more broadly steady overall residential market. But there is other things that got.

Deepa Raghavan -- Wells Fargo Securities -- Analyst

Okay, got it. Can you comment on a few puts and takes to Q3. I mean how should we think about your EPS contribution versus prior years? Anything you think it's worthy of being called out just given all the noise this quarter and last year?

Joseph W. Reitmeier -- Executive Vice President and Chief Financial Officer

No, I mean, as you know, we don't keep quarterly guidance. I know, I don't want to give you a number, and you know that. I think as I said earlier, we're off to a solid start. I gave the backlog outlook sort of flat and commercial up mid-single digits in refrigeration, I've talked about residential. You can read a weather map, but you also got to read a weather map from last year to sort of understand, it was hot last year, its hot this year. And operationally, we're executing. So, I think that's sort of the color commentary.

Deepa Raghavan -- Wells Fargo Securities -- Analyst

Okay, lastly from me. Can you give us some color on what you're seeing in non-res? I mean some recent data point is not very favorable, you gave us pretty good color on a mark -- I mean you talked about market, you obviously talked about your growth. But generally, is there anything also on a broad basis that you would like to talk about in terms of office versus retail versus institutional? And is that concerning to you or just any viewpoints there? Appreciate it. Thank you.

Todd M. Bluedorn -- Chairman of the Board and Chief Executive Office

No, macro views that I would share that you couldn't get elsewhere. I mean, again it's sort of overall call unitary markets flat. So, no additional color. Thanks.

Deepa Raghavan -- Wells Fargo Securities -- Analyst

All right, thanks.

Operator

Our next question is from Joe Ritchie with Goldman Sachs. Please go ahead.

Joe Ritchie -- Goldman Sachs -- Analyst

Hey, good morning guys.

Todd M. Bluedorn -- Chairman of the Board and Chief Executive Office

Hey, Joe.

Joe Ritchie -- Goldman Sachs -- Analyst

Can we just kind of dive a little bit deeper into this market share dynamic? So, I just want to make sure I understand it, your production was back and running in 4Q. It seems like the recovery was getting better than expected last quarter. I mean, is the way to think about your resi growth rate right now. Just choking it up to weather and where you guys are based regionally? Or is there more to do within that?

Joseph W. Reitmeier -- Executive Vice President and Chief Financial Officer

Well, I think it's -- the more true it is, is what we called out for the revenue tornado impact. For the tornado revenue impact in the quarter which is $28 million. So there is $28 million revenue impact in second quarter associated with the tornado. And part of that was being in full production early in the quarter, and then part of it was, as I said earlier that, there is a portion of the share that left us that we haven't regained it all back yet and so that's tied to the $28 million, that the larger number in the quarter is weather and that's by definition, it's weather -- it was 100% weather.

Joe Ritchie -- Goldman Sachs -- Analyst

Got it, OK. And then so I guess, as I'm kind of thinking about the portion you've discussed with the smaller dealers, as a portion that you're not going to get back. I'm trying to understand, I guess just is, so the increase in the expenses related to the tornado. Is it related to the portion that you're not going to recapture? In terms of your share, is that fair?

Joseph W. Reitmeier -- Executive Vice President and Chief Financial Officer

I'm not sure, I understand the question. You mean the additional gain of insurance proceeds?

Joe Ritchie -- Goldman Sachs -- Analyst

Yeah, the gain on the insurance proceeds and the impact of the insurance proceeds this quarter. So it's expected -- it's expected to go up by $14 million for the year. I guess what is that related to?

Joseph W. Reitmeier -- Executive Vice President and Chief Financial Officer

That's lost revenue associated with the tornado.

Joe Ritchie -- Goldman Sachs -- Analyst

Okay. And then I guess, as we think through 2020 and just this concept, that the whole business interruption insurance and how that's calculated is? Is there an expectation that there is going to be additional recovery in 2020? Or do we get a clean slate in 2020 and we can just look at the core business and how the core business is doing in 2020?

Joseph W. Reitmeier -- Executive Vice President and Chief Financial Officer

It's a fair question. We're in the process of negotiating with all the insurance companies and they've worked very closely with us and have been fair and we continue to sort of get back the money, we expect to get back. Our current expectation now would be that we would wrap things up by the end of the year with some forward look maybe into 2020, but that will be a negotiation. But at some point, we're just going to collect the money and move on. And right now, the guide expects that to be in all happen in that 2019, but it may bleed over into 2020. But I understand that need to have clean numbers -- the desire to have clean numbers in 2020.

Joe Ritchie -- Goldman Sachs -- Analyst

Got it. That makes sense. Okay, thanks guys.

Operator

Next, we'll go to Nicole DeBlase with Deutsche Bank. Please go ahead.

Nicole DeBlase -- Deutsche Bank -- Analyst

Yeah. Thanks, good morning guys.

Joseph W. Reitmeier -- Executive Vice President and Chief Financial Officer

Hi Nicole.

Nicole DeBlase -- Deutsche Bank -- Analyst

So I just want to start on Europe. I think during the first quarter, you talked about -- low double-digit growth FX. A lot of that was driven by commercial HVAC and it sounded like Europe was kind of strong again this quarter. So if you could just give us a little bit of updated on what you're seeing in the region?

Joseph W. Reitmeier -- Executive Vice President and Chief Financial Officer

In Europe, we were up mid-single digits, our HVAC was -- was sort of low-end of that and our Commercial Refrigeration was the high-end, but sort of on average mid-single digits in Europe and we're primarily in France and Spain and in Germany. Those are our major end markets and that's what we've seen our strength.

Nicole DeBlase -- Deutsche Bank -- Analyst

Okay. Got it. And then commercial HVAC margins. I think when we got the last update in the first quarter, you had guided for flat to down in the second quarter, but we saw some improvement there. What was better? Was it the top line was a little bit better than you expected or was it that the operational improvement was the driver of the upside?

Joseph W. Reitmeier -- Executive Vice President and Chief Financial Officer

It was both. I'd say its equally split between the two. We did better in the factory and then we did a little bit better on revenue and mix than we had hoped [Speech Overlap].

Nicole DeBlase -- Deutsche Bank -- Analyst

Understood. Okay. And then last one from me just price cost. Impact on margins in the second quarter and then if you still expect to see improvement there in the second half?

Todd M. Bluedorn -- Chairman of the Board and Chief Executive Office

I'm turning the focus to see if we have that in front of us. I got too many numbers in my head right now. Will be back. I mean the answer is we were positive, see I'm turning it, I got it right in front of me. For the quarter, we had $32 million in price and $15 million headwind of commodity spreading tariffs. So we were positive $17 for the quarter. And that's obviously the high watermark for the year.

Nicole DeBlase -- Deutsche Bank -- Analyst

Got it. Thank you. I'll pass it on.

Todd M. Bluedorn -- Chairman of the Board and Chief Executive Office

Thanks.

Operator

And we'll go to Robert Barry with Buckingham Research. Please go ahead.

Robert Barry -- Buckingham Research Group -- Analyst

Hey guys, good morning.

Joseph W. Reitmeier -- Executive Vice President and Chief Financial Officer

Hi, Robert.

Todd M. Bluedorn -- Chairman of the Board and Chief Executive Office

Good morning.

Robert Barry -- Buckingham Research Group -- Analyst

Lots of ground covered, I guess just a few things to follow-up on. So Todd, I think earlier in the quarter or late in the quarter in June, you had alluded to at a conference, potentially price and also material costs tracking better, but, so that you kind of kept the guide for those two components, the same any kind of reason for that?

Todd M. Bluedorn -- Chairman of the Board and Chief Executive Office

I think we, I think we lowered commodities. So, it went from a $30 million headwind to a $20 million headwind.

Robert Barry -- Buckingham Research Group -- Analyst

Sorry, the material costs. It was price commodity and material costs.

Todd M. Bluedorn -- Chairman of the Board and Chief Executive Office

I think maybe I tried to lump all those together just by saying that the total of the three would be better. I didn't mean to say each element would be better. And so that all three of them, I think used to be $55 million and are now $45 million, if I have the math right.

Robert Barry -- Buckingham Research Group -- Analyst

Got it, got it. And then that number you gave for the replacement volume in Florida that up 12. Is that like how same store is that sort of same-store number are you adding stores in Florida contributing to that growth?

Todd M. Bluedorn -- Chairman of the Board and Chief Executive Office

I don't know, if we had -- I don't think we had any parts plus stores if that's the question because I don't think we added in Florida, but I know, I don't really think about it for our business quite that way Robert. I mean it's -- I think we had more dealers than we did last year because that's how we gain market share and so I just. I don't view to sort of same-store sales. I view it is did we gain share or not, we did.

Robert Barry -- Buckingham Research Group -- Analyst

Got it, got it.

Todd M. Bluedorn -- Chairman of the Board and Chief Executive Office

And the market was up.

Robert Barry -- Buckingham Research Group -- Analyst

Right. I guess, just lastly, following up, I think, which was question about the way the share recapture is included in the numbers. So that $28 million of revenue in this quarter. It's not just volume lost its net of what you've estimated is recaptured share. Is that right?

Todd M. Bluedorn -- Chairman of the Board and Chief Executive Office

Correct.

Robert Barry -- Buckingham Research Group -- Analyst

And I guess two same thing with the -- at the EBIT line?

Todd M. Bluedorn -- Chairman of the Board and Chief Executive Office

Correct.

Robert Barry -- Buckingham Research Group -- Analyst

So, the fact that the EBIT track a little bit better on insurance recoveries, even though the revenue was, or the share recapture was lower is just kind of out-of-period?

Todd M. Bluedorn -- Chairman of the Board and Chief Executive Office

Correct. And some way and we gave rough guide last time. But the $18 million of insurance proceeds in Q2, I'd tied to the $18 million lost profits we had in Q1. So it's sort of lag, not sort of it lagged the prior quarter.

Robert Barry -- Buckingham Research Group -- Analyst

All right, thanks for clarifying all that.

Todd M. Bluedorn -- Chairman of the Board and Chief Executive Office

Thanks.

Operator

Next, we go to 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 Office

Hey, Josh.

Josh Pokrzywinski -- Morgan Stanley -- Analyst

Todd, wonder if you could calibrate something for me. We've kind of touched around a few of these elements with the pre-buy around the furnace standard and some of the growth differential between the independents and the company-owned. I guess how should we think about that into the second half to then the independents go the other direction like can you size up the magnitude of what you thought was maybe pre bought there versus underlying?

Todd M. Bluedorn -- Chairman of the Board and Chief Executive Office

I don't have the map in front of me, Josh. We will put it together, I -- the pre-buy versus our competitors was dramatically less just because we didn't have the factory capacity to be building the pre-regulatory furnaces like others may have done. And so I think that's part of it, but I think, how I doing better? Are independent distribution doing better during the second quarter and was that thing more driven by the ability not to be impacted by the tornado to the same degree that the independent distributors were able to hang on to dealers with other brands, which are Lennox distribution by definition wasn't able to.

Josh Pokrzywinski -- Morgan Stanley -- Analyst

Got it. So that's kind of where I was going with this is, obviously, your competitors who don't have substantial company distribution are able to fill the channel, a little bit more I think Carrier was still taking pre-buy orders through May. So does that mean then, it's not just a timing flip where they've already made the sale in the first half, they came in the second half through the company-owned you can make that in the second half. I guess in the absence of a big pre-buy or the notion of that maybe not as big of a flip into the second half is how I should read that?

Todd M. Bluedorn -- Chairman of the Board and Chief Executive Office

I'm not sure, I followed the question. I think, if you are --

Josh Pokrzywinski -- Morgan Stanley -- Analyst

Yes, so the --

Todd M. Bluedorn -- Chairman of the Board and Chief Executive Office

If you're a company like Carrier who is selling to independent distribution, the revenue, first half of the year, we'll be over inflated in a revenue second half of the year will be deflated by that fact. If you're a company-owned distribution like we are in Lennox, our revenue would have been -- versus competitors would have been understated during the first half for the year and overstated during the second half of the year. Reason I haven't spent a lot of time talking about that is -- that's like a third order equation after the tornado after the weather that I think that's sort of a rounding issue of a couple of points here there and I think on Allied again there was a -- we got some tailwind from selling furnaces first half of the year and that will be a headwind second half of the year, but I think the amplitude of that was less than our competitors, because we didn't build as -- pre-build as much and that the greater the driver of the disparity between our Lennox brands and our Allied brands during the second quarter was driven more by this issue of regaining with the loss share more seamlessly through independent distribution the company on distribution because independent distributors were able to avoid losing dealers by using alternative brands.

Josh Pokrzywinski -- Morgan Stanley -- Analyst

Got it. And then just one more point on this. I don't mean to belabor it, but thinking about the -- I'm trying to get the port out, you know, I will follow-up on it. It's little more complicated. I'll leave there. Thanks for the color.

Todd M. Bluedorn -- Chairman of the Board and Chief Executive Office

Thanks.

Operator

And we'll go to John Walsh with Credit Suisse. Please go ahead.

John Walsh -- Credit Suisse -- Analyst

Hi, good morning.

Todd M. Bluedorn -- Chairman of the Board and Chief Executive Office

Hey, John.

John Walsh -- Credit Suisse -- Analyst

Just a question around the strong price realization. I mean, obviously, a lot of different things are going into price, right now, whether it's general inflation, tariffs right. But you mentioned earlier about consumer confidence wanting to kind of understand how much of that price is driven by maybe people mixing up to a higher -- or going kind of beyond that opening price point anyway you kind of want to articulate it would be helpful.

Todd M. Bluedorn -- Chairman of the Board and Chief Executive Office

I think most of it's just straight price. I mean, there's a little bit of mix in the quarter, but given the tornado impact, given the weather, the mix sort of wasn't on its normal trajectory. I mean that's just two price increases being passed on.

John Walsh -- Credit Suisse -- Analyst

Got you. And then, I guess, I think in refrigeration you made this comment you're seeing the customers defer some spending just kind of given the macro. I need color around that? Is it which kind of vertical, you're seeing that in and if it's kind of, we're pushing it, one to two quarters or if it's kind of, they're actually waiting to see if the capital project moves forward?

Todd M. Bluedorn -- Chairman of the Board and Chief Executive Office

I think, it's just on the margins and I think it -- we're primary exposed to grocery in cold storage and the question is do you build new, not so much on stores but on cold storage facilities, do you build new cold storage facilities to invest the capital. I think it's sort of the macro investment decisions we're seeing across sort of corporate or industrial America?

John Walsh -- Credit Suisse -- Analyst

All right. Well, thank you.

Todd M. Bluedorn -- Chairman of the Board and Chief Executive Office

Thanks.

Operator

Our next question Nigel Coe with Wolfe Research. Please go ahead.

Nigel Coe -- Wolfe Research -- Analyst

Thanks guys, good morning.

Todd M. Bluedorn -- Chairman of the Board and Chief Executive Office

Hi, Nigel, how are you?

Nigel Coe -- Wolfe Research -- Analyst

Good, thanks. Obviously, you cover a lot of ground here. Can we just, I mean, I hate to maybe betray my [Indecipherable] but, just wanted to stand the market share dynamics into Q3. You didn't actually lose any share in 2Q '18. So therefore to be talking about regaining share, it seems illogical. So I'm just wondering, are we talking here about dealers that went away in the second half of the year. That hasn't come back, is that how you're measuring the market share loss in 2Q?

Todd M. Bluedorn -- Chairman of the Board and Chief Executive Office

Thanks Nigel. So the 28th in that number and so dealers who we lost in fourth quarter if we hadn't gain them back the impact in second quarter would have been significantly greater than 28 million.

Nigel Coe -- Wolfe Research -- Analyst

Okay, that's great. And then, that I think you got a 40% exposure to the Central States, Midwest states. Would that include the Central Southwest as well, so we're talking here about Texas, Oklahoma, both is, on not just the classic Midwest?

Todd M. Bluedorn -- Chairman of the Board and Chief Executive Office

Yeah, I mean, the swing regions, I'll call it out, is to traditional Midwest, which is, be it football fans out there, the big 10 such, Illinois, Indiana, Michigan, Ohio, Wisconsin, the Central Plains, which is really Missouri, Iowa, Minnesota, Nebraska and obviously too much lesser degree the Dakotas and then South Central to your direct question, Texas, Louisiana, Arkansas, Oklahoma.

Nigel Coe -- Wolfe Research -- Analyst

Okay, that makes little sense. And then just two more quick ones to tick off here. Just, you talked about the insurance negotiation for FY '20. I mean, just, I mean I understand this is somewhat sensitive topic, but conceptually, do you get compensated for one full year of lost profits. So is it not that simple.

Todd M. Bluedorn -- Chairman of the Board and Chief Executive Office

It's not that simple. So we're in detailed negotiations where we're justifying everything. Both sort of impact of the factory plus lost revenue. I mean in some ways, I would call speculative lost revenue and it all gets done up in a mix sort of end of the day, we'll work out a number. And we've guided sort of the best of our ability, publicly of what that number is and how much we said -- how much we gained so far and what we expect that number to be looking around. So I got so many numbers. I think, its 472, right?

Joseph W. Reitmeier -- Executive Vice President and Chief Financial Officer

372.

Todd M. Bluedorn -- Chairman of the Board and Chief Executive Office

372. Not, a 372 [Speech Overlap] and we've received 252 to dates. We still have 122 to negotiate that and that's our best estimate.

Nigel Coe -- Wolfe Research -- Analyst

Okay, great. And then just a quick one on pricing. The cover pricing, this time in detail. There's been a little bit of chatter about dealer incentives picking up during 2Q, to within 2Q. Have you seen that and is that a risk in any dimension for the back half of the year?

Joseph W. Reitmeier -- Executive Vice President and Chief Financial Officer

It's not a risk for the back half of the year. It's when the weather is that cool and the volumes had soft and people start spiffing to trying to volume, quite frankly, we did the same thing.

Nigel Coe -- Wolfe Research -- Analyst

Okay. Thanks guys. Good luck.

Joseph W. Reitmeier -- Executive Vice President and Chief Financial Officer

Thank you.

Operator

Our final question will be from Damian Karas with UBS. Please go ahead.

Damian Karas -- UBS Securities -- Analyst

Hey, good morning guys.

Joseph W. Reitmeier -- Executive Vice President and Chief Financial Officer

Hi, Damian.

Damian Karas -- UBS Securities -- Analyst

Appreciate your fitness in here. Just a clarification on client capacity. So you had shifted some additional production down to Mexico, as a result of the tornado. Where exactly do things stand now, with respect to the production split across your three facilities comparing to that before the tornado Marshalltown? And is there still some shifting that you'll be looking to do in the future?

Todd M. Bluedorn -- Chairman of the Board and Chief Executive Office

Yeah. We're always looking to shift in the future. So that's still out there and that continues to be out there and we'll continue to look at our footprint to try and drive, the lowest cost. In terms of the shifted volume for the tornado, we move capability both to South Carolina and to Mexico that capability still remains there, but we're up and running all the products in Marshalltown that we were producing prior to the tornado also.

Damian Karas -- UBS Securities -- Analyst

Got it. And just curious, have you felt any push back from customers on having some of that they've one signature branded product coming out of Mexico now?

Joseph W. Reitmeier -- Executive Vice President and Chief Financial Officer

Zero pushed back, I mean, we've been building in the Mexican facility for almost a decade now and many of our largest dealership visited facility, they know the quality is and they don't care where whether it's made in Mexico or whether it's made in the US, it's exact same quality.

Damian Karas -- UBS Securities -- Analyst

Very helpful, thanks.

Todd M. Bluedorn -- Chairman of the Board and Chief Executive Office

Thanks.

Operator

And with that, I'll turn it back to the company for any closing comments.

Todd M. Bluedorn -- Chairman of the Board and Chief Executive Office

Thanks a lot, Operator. To wrap up, we've reset guidance after significantly adverse weather in the second quarter and have reduced the outlook on Commercial and Refrigeration end markets in North America for the year. Looking ahead, weather side, the residential market continues to look robust, commodity costs are trending down for more price cost benefit moving forward and the investments we have made in products and distribution set us up well for 2020 and for the second half of 2019. Thank you all for joining us today.

Operator

[Operator Closing Remarks].

Duration: 63 minutes

Call participants:

Steve L. Harrison -- Vice President, Investor Relations

Todd M. Bluedorn -- Chairman of the Board and Chief Executive Office

Joseph W. Reitmeier -- Executive Vice President and Chief Financial Officer

Julian Mitchell -- Barclays -- Analyst

Stephen Tusa -- J.P. Morgan Securities -- Analyst

Jeffrey Hammond -- KeyBanc Capital Markets -- Analyst

Ryan Merkel -- William Blair -- Analyst

Jeffery Sprague -- Vertical Research Partners -- Analyst

Robert McCarthy -- Stephens Inc. -- Analyst

Gautam Khanna -- Cowen and Company -- Analyst

Deepa Raghavan -- Wells Fargo Securities -- Analyst

Joe Ritchie -- Goldman Sachs -- Analyst

Nicole DeBlase -- Deutsche Bank -- Analyst

Robert Barry -- Buckingham Research Group -- Analyst

Josh Pokrzywinski -- Morgan Stanley -- Analyst

John Walsh -- Credit Suisse -- Analyst

Nigel Coe -- Wolfe Research -- Analyst

Damian Karas -- UBS Securities -- Analyst

More LII analysis

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