Ladies and gentlemen, thank you for standing by. Welcome to the Lennox International 2020 Investment Community Meeting. At the end of the presentation, there will be a question and answer session. You may now begin to submit your question by clicking on the questions and answers tab located below the video screen. If you experience any web issues during the broadcast, we suggest you first refresh your browser. If that does not resolve the issue, please message through the technical questions panel and a webcast engineer will assist you. As a reminder, this call is being recorded. I would now like to turn the conference over to Todd Bluedorn, Chairman and Chief Executive Officer. Please go ahead.
Good morning, everyone. It's good to be here with you today and share with you our thoughts on LII, even if it is virtual. Joining me today on the call are Joe Reitmeier, our Chief Financial Officer, and Steve Harrison, our VP of Investor Relations. Given the weather in New York today, I would not have looked forward to fighting our way from Midtown to LaGuardia, maybe it's good that we're here. Let's take a lead with what we always do, a forward-looking statement. Let's continue with the presentation. Three things we'd like to do today. One is I'm going to lead off and do a quick business overview and get into some details of the initiatives within the segments. Joe's going to follow me with review of 2020 guidance, and then give you the 2021 overview.
Finally, we'll open it up for Q&A at the end. The operator gave a quick overview of how to post questions. I might encourage you to wait till we get a little further into the presentation to see if I don't preempt some of your questions. I think 10 months into pandemic, everyone understands how you post it. At the end, Steve will curate the questions. Let's go ahead and get started on the material. Those of you who are familiar with our story have seen this chart over the last decade or so. It's consistent, and it's a strategy that works. We're capitalizing on growth markets. The resiliency of the North America residential market really seen this year, even in the face of a pandemic. Then a market bounce back in both our North America commercial and our refrigeration business in 2021.
Well-positioned for margin expansion, material cost reduction, another year planned for material cost reduction next year. Factory productivity of $20 million to include a new factory, our third factory in Saltillo that we've already broken ground on and will be completed next year. Continuing leveraging technology to drive leverage in our SG&A spend. Third is winning in the marketplace with investments in product and distribution. We're excited to be reinstituting our store growth strategy in 2021. We're going to be opening 30 new stores. A great year for new products. We're going to be launching a 28 SEER residential product line, as well as our new Model L commercial rooftop, which will be the highest energy efficient unit in the marketplace. Driving shareholder value with disciplined use of free cash flow. We'll go back to growing dividends with earnings in 2021.
After a hiatus because of the pandemic on the share buyback, we'll start the share buyback up, and Joe will get into some of the detail, but it's $400 million that we're indicating that we're going to do in 2021. Let's talk a little bit about the business. Again, a consistency chart. It takes a look at the revenue on the left and segment profit on the right, residential in red, commercial in green, refrigeration segment in blue. We're now given the pullback in the commercial and refrigeration end markets and continued growth in residential. We're now about two-thirds residential, and the balance of our business is commercial and refrigeration. Our business mix. Again, we're primarily a North America business with almost 95% of our revenue. We're about three-quarters of our business replacement, which obviously we like.
As I said earlier, about two-thirds of our business is residential. This is our standard chart that shows revenue and EBIT ROS on the left and free cash flow on the right. For 2019, we're also calling out a pre-tornado ROS number to allow for a better comparison to 2020 and 2018. Joe will be discussing the updated guidance for 2020 in a bit more detail later. You can see on this page, it's a core EPS of $9.55-$9.75, and our revenue guidance of a decline of revenue of 4%-6%. You can also see our 2021 guide on this page. It's core EPS of $10.55-$11.15, where you can see a revenue number of $3.8 billion on this page. Later, Joe will walk through the revenue guide of 4%-6%.
If you do all the math on the midpoint of these numbers, it will be revenue up 6%, return on sales of 90 basis points, and an incremental drop through of 30%, in line with our traditional drop-through performance. On the right-hand side of the chart, you see free cash flow and outsized performance in 2020, about 135% of net income, reflecting our focus on cash in a tough operating environment, combined with the natural reduction of working capital in down markets. In 2021, our free cash flow is forecasted to be $325 million, approximately 80% of net income, lower percent than normal for a couple reasons. One is 50% of CapEx is tied to our-- About half of that, $50 million is tied to our new Saltillo facility, and then about half of it is finishing the Marshalltown construction post-tornado that got disrupted in 2020 because of the derecho.
About $50 million of that CapEx spend is more than normal and as you might remember, the $25 million or so that we're spending on Marshalltown, we're using insurance proceeds to spend. The second major reason, along with that $50 million of additional CapEx, is we'll be re-inflating working capital as we have revenue growth as an enterprise in 2021. Over a two-year period, so between 2020 and 2021, about a little under 110% free cash flow as a percent of net income. Over a six-year period, almost exactly 100%, which is our target. Material cost reduction, a major initiative across LII, as we talk about internally forever and ever, amen. As we spoke about multiple years, a couple major prongs of our initiative. One is continued leveraging of low-cost supply base. Approximately half of our components are sourced outside U.S. and Canada.
Extending the global supply chain and qualifying the best global supplier is important to us. The tariffs were a proximate cause, but we've continued to move out of China into Southeast Asia, India, and Mexico. We think this will continue to be the case. Even if the new administration revisits tariffs, we're going to continue to move from China to other low-cost sources. Second prong of our material cost reduction continues to be designing costs out of our products, a significant key enabler for us. We make continued investments in our capabilities to do that. On the right-hand side of the page, you see some of the examples of designing costs out of things like variable speed drive technology and optimizing our combustion chamber designs. Joe Reitmeier will talk about it more when he gives the 2021 guide, but we're targeting $25 million of savings in 2021.
Again, this is outside of commodities, which Joe will talk about, but we expect commodities a $30 million headwind, and we expect our progress in material cost reduction to continue in future years. We continue to make significant investments in digital across our entire enterprise, and we leverage it across LII. Three broad areas that we focus on, e-commerce, controls, and factory productivity. We continue to make investments in 2020, and we will in 2021. These investments continue to drive market share gains, supporting our dealer, contractor, customer, and margin expansion. Again, I will go into more detail a little bit later in the presentation. Factory productivity initiatives. 2021, we are targeting $20 million incremental EBIT from factory productivity initiatives across LII. Three buckets of focus area. One is Mexico expansion.
As I mentioned earlier, we have started building a third factory on our Saltillo campus, approximately 325,000 square feet. We will be moving indoor coil production from our Grenada, Mississippi factory, and also moving some sheet metal fabrication in-house. In 2020, while over 50% of units were produced in Mexico, only approximately 40% of the residential production hours were in Mexico. When we're done with this, what we're calling building 3, we will be up to 50% of production hours in Mexico. This project is worth approximately $0.20 of EPS spread over 2021 and 2022. Automation. We continue to make automation investments in both fabrication and the assembly portion of our factories to drive down conversion costs. Information flow, again, we continue to make significant investments to allow our team to see the information that they need to manage the factories.
All these are important factory productivity initiatives will pay dividends in 2021 and beyond. As I mentioned earlier, 2021 is going to be a nice year for us for product innovation. First is residential. We call our top-of-the-line system the Ultimate Comfort System. In 2021, we are making it even ultimater, if that's a phrase. In the second half of 2020, we launched our new SLP 99 furnace, a 99 AFUE, that's a measure of efficiency furnace. The most efficient in the industry, as well as being the quietest unit in the marketplace. In early 2021, we will launch our new top-of-the-line 28 SEER air conditioner with variable capacity inverter compression. Our new SL28XCV, write that down if you like, will be our most energy efficient and precise air conditioner in the market. In our commercial business, we will launch a new premium rooftop lineup in late Q1 of 2021.
The Lennox Model L rooftop line will redefine the premium segment with industry-leading efficiency, variable speed technology, and a completely redesigned control system. All Model L rooftops feature the all-new Lennox CORE Control System and service app that goes with it. The innovative unit controller drives advanced variable speed technology to maximize energy savings and space comfort. Premium diagnostic features reduce installation service and maintenance expenses to provide the lowest total cost of ownership in the industry. The Model L will also have advanced IAQ package that will allow building owners to purify air, ventilate, and control humidity better than any product in the marketplace. Also leading into IAQ. Just like our competitors who've spoken quite a bit about it, we have an industry-leading IAQ offering.
Our PureAir S is a residential filtration system with a filter that removes from the air over 99% of the virus that causes COVID-19 based on independent third-party testing. We also have a full line of residential IAQ products to include UV lights, humidity control, and outdoor air ventilation. We do a little under $100 million in residential IAQ revenue with only approximately 25% of our new replacement systems having an attachment rate of the IAQ product lines. We see this as a continued growth opportunity. In October, Lennox Commercial introduced a Building Better Air initiative, which helps facilities evaluate the state of their HVAC systems by using an IAQ survey and create solutions tailored to the needs of the building. We have a full product lineup of high-efficiency filters, UV lights, bipolar ionization, energy recovery, and dedicated outdoor units and humidity control.
We work with our unitary commercial customers to meet their IAQ needs. Another area that I haven't traditionally talked about, and quite frankly, our competitors talk about it more than we do, is our position in ESG, and we think we're an industry leader. Over the last decade, we've made significant progress in our environmental sustainability initiatives. As you can see on the chart, a 69% reduction in greenhouse gases and a 32% reduction in energy usage, both adjusted for revenue, so volume adjusted, while at the same time producing the most energy-efficient product line in the industry. As you can also see in the chart, we have made great strides in our diversity representation and our safety recordable and lost workday frequency rates. We take great pride in our focus in these areas. We spend a lot of time discussing it and communicating in the results internally.
Quite frankly, haven't done quite as good a job as our competitors of communicating our achievements to investors. We're changing that. We released, yesterday online, our new ESG report on lennoxinternational.com. I'd ask you to check it out, again, we're going to be more aggressive on communicating all the good work that we have done and continue to do in this area. Let me now go to the segments. Let me lead off with residential. On the left-hand side of the chart, you see our revenue and ROS. Over the last four year, our revenue has grown at a 4% CAGR. That includes a major tornado, a pandemic, and a derecho. Our 2021 ROS is up 50 basis points when compared to the 2019 pre-tornado, 17.6. Our mix of business in 2020 is approximately 80% replacement, 20% new construction.
Lennox makes up 80% of our equipment sales, selling directly to dealer contractors, while Allied makes up the balance, selling exclusively through independent distribution. This is a pretty important chart, so I'm going to spend a little bit of time on it. On the left-hand side, it says industry information on year-over-year change in units. We are forecasting the overall market to be up mid-single digits in 2020. It's hard, quite frankly, to call exactly what the number's going to be because of the difference between AHRI industry numbers, which measures the sales from OEMs to include sales to independent distributors, and HARDI numbers, which measure sales from distributors to dealers. For example, for the months of September and October, AHRI data showed the industry up 45%. September, October, AHRI up 45%, which is sales from OEMs. Our larger competitors, that's sales to independent distributors.
While HARDI data shows the industry up approximately 8% in September and October. That's sales from distribution to dealer, and that's more in line with our model. This difference is obviously driven by the loading of independent distributor with products to both reload what was sold in 2020, but also distributors stocking their warehouses for 2021 given supply uncertainties. We don't sell toilet paper, but the same phenomenon that's taking place in homes across the country is taking place with independent distribution as they're concerned about the impacts of pandemic to the supply chain, and independent distribution is pulling in volume from 2021 into 2020. Since we are primarily directly to dealer, we don't have that pull-forward effect from loading up independent distribution. There's been lots of discussion on this point, so let me reiterate. Given our direct-to-dealer model, we haven't pulled forward demand from 2021 into 2020.
Again, saying that necessarily for those who have independent distribution models, that's true for Lennox. For 2021, we are calling for the market to be at mid-single digits. We expect to see continued growth in both new construction, where we're still seeing the last few years of the echo of the housing boom play out in the replacement market. 2021, with our new product launches, we expect positive mix, and we have announced up to a 6% price increase in all our businesses effective in the first quarter of the year. As always, with a consumer-based business like residential, macroeconomic political uncertainty remains a risk. We're also assuming a COVID glide path that we're on now. If that changes, all bets are off.
Taking a slightly longer view of the market, the new housing bubble of the early mid-2000s will drive our replacement business, as we said, over the next few years. Through this installed base, we believe our end markets will grow at a multiple of GDP. Let's talk about Lennox store strategies. After taking a two-year hiatus in building new stores due to a tornado, a derecho, and COVID-19 pandemic, and shutting down sub-par performing stores, we are back on the attack in 2021. We'll be opening 30 new stores. For those of you new to our store story, our Lennox store strategy is an important driver of our market share growth. An average store is about 10,000 square feet, about 80% warehouse, 20% front-end wholesale. About 80% of the sales are equipment and accessories, with 20% of the sales being parts and supplies.
These wholesale distribution points allow us to sign up new dealers and serve our existing dealers more effectively. Costs about approximately $150,000 of capital and one-time expenses to open a new store. Operating expenses are about $300,000 a year. We're operational break even in a little over 12 months. Revenue per store open at least three years is about $3 million, with half of it incremental and half of it business with existing customers. Our goal is to fill out the North America market with store locations with a 30-minute drive of dealers in the markets that can support a dealer. Right now, our intermediate goal is to have 350 dealers in place by 2025, starting with 30 new stores next year. This strategy works. This is a great growth vehicle for us.
Our one-step model allows us to be selective where we open stores and have a scalable backroom to support our network. We're excited to be back on the attack here. Another initiative that's been on hold due to the tornado and pandemic has been our parts and supplies initiative. It's an initiative to leverage this brick-and-mortar that we've built. As you can see on the chart, in 2017, 16% of our revenue was parts and supplies. The initiative was showing real traction. We were up to 20% in 2019, but due to the tornado and the pandemic, we stalled in 2020. We have set a target to get that number up to 24% by 2024, growing our parts and supplies revenue at a 15% CAGR. When we do that, it will be worth about $300 million of revenue for us.
Revenue is similar to profitability to our equipment business. To accomplish this, there are a handful of initiatives we'll be driving, initiatives we showed in 2017-2019 work. New business efforts in the stores have primarily been virtual in 2020, as you can imagine. As we begin to enter a more normal post-COVID environment, the store teams will regain their focus on walking traffic, as well as specifically targeting account growth. Two, our marketing teams, along with our category managers, consistently drive focus on merchandising opportunities to drive additional sales in our showrooms. Third, a key pillar for our same-store sales has been defined focus on operational excellence. Continued focus on adding to the systems and support we have to drive growth within our stores.
The overall strategy of Lennox stores in driving a higher penetration of parts and supplies is exciting. The results are clear. Again, we're really glad to be on the attack here. Our residential digitization strategy continues to be a major area for us. Again, I'm going to spend a little bit of time on this chart. Our strategy is focused on building better service or better serving our customers, making it more productive and profitable, our customers being our dealer contractors, increasing their entanglement with us. Starting on top, you have screenshots of our repair parts finder and our product detail page. Here, we're showing our latest investments to drive a more intuitive experience on LennoxPros to buy parts and equipment.
The repair parts finder is moving to an exploded view of our equipment and makes it much easier to identify the right repair part when needed. We continue to improve our product detail pages to ensure the customer has all the information that they need. This includes imagery, specifications, and manuals. It also includes suggestions on installation parts and accessories, thermostats and other equipment that it's often sold with. It will soon leverage AI to make recommendations based on geography as well. Just like every retailer says they're Amazon, our investments in things like the repair parts finder, and product detail page allows us to drive a user experience unlike others. On the bottom are examples of digital tools designed to assist customers in selling, installing, and service Lennox equipment.
The bottom left is our tech experience on Lennox Pros launching earlier next year. Here, a technician can scan a barcode and gather all the necessary information to troubleshoot that product. With a single barcode, you can access the service literature, determine warranty status, and review re pair parts exploded view. If a product is communicating, you can access system performance information and error codes with corresponding troubleshooting steps. On the bottom right is our service dashboard that was launched in 2020. It's a command center that allows the dealer service manager to stay very connected to the homeowner, where they can, A, monitor, B, proactively diagnose, and three, troubleshoot Lennox equipment without having to enter the home. The purpose of these tools is for dealer success and dealer entanglement. Lennox will continue to invest in digital strategies that deliver value for our dealers.
We'll focus on areas where we can deliver differentiated value, such as e-commerce, which help dealers buy and track purchases or digital tools that I've talked about. We're excited by the progress we're making in this area, and we'll continue to make investments. Let me switch gears, talk about another segment. Let me talk about commercial. Starting on the right side of the page, the Commercial segment is comprised of two businesses, HVAC business in North America, 75% of the revenue, and National Account Services, or NAS, as we call it internally, which is 25% of revenue. We are in a replacement cycle, with about 70% of our revenue coming from planned or emergency replacement. This is good and brings stability to market demand. Moving back to the left side of the page, the green bars are revenue, and the blue line, again, is EBITDA ROS.
In 2020, our top line was significantly impacted by the COVID-19 slowdown, with revenue down a little over 15%, most predominantly driven by a slowdown in planned replacement with our national account customers. Nice cost containment actions by the team limited the ROS deterioration to just 70 basis points. Similar chart to what I showed on resi. The left side shows industry shipment information. 2020 North America unitary commercial market will be down mid-teens. The market reached its nadir back in Q2 with the industry being down 30%, and has been bouncing back off that low for the balance of the year. Looking at Lennox data, we are exiting the year with backlog up double digits. Our experience during the Great Recession is that pent-up demand is created through the postponement of planned replacement, like we saw in 2020, and is released over the next few years.
We're calling for the market in 2021 to be up mid-single digits. Maybe with a little luck, maybe even better. We in the industry expect price leverage to continue, as we continue to drive mix up with customers with our new Model L. On the downside, macroeconomic and political uncertainty and the risk of slower than expected recovery from COVID-19 continue to bring potential volatility to the market. Our national account customers continue to fight for capital dollars for rooftop replacements versus spending on e-commerce initiatives. Over time, Lennox has been recognized as the market leader in national accounts, with hundreds of accounts in our portfolio. National account HVAC equipment sales is roughly half of our equipment sales. We'll keep adding to the list of customers with over 26 new accounts this year on top of the 26 that we added last year.
Lennox has the most efficient rooftop product line in the industry, and it's even going to get more efficient with our Model L launch. Our configured order factory with the shortest lead times in the industry is part of our success in national accounts. Increasingly, our national account customers want units installed, commissioned, and maintained. In those cases, we're able to provide that with our national account services arm. On the right side, we're experiencing a lot of success by extending our national account program into non-retail verticals. In 2016, traditional retail represented 25% of our overall equipment sales in North America commercial. Now it represents slightly under 15%. Other important verticals that we target include DIY, restaurants, supermarkets, and discount. We're continuing to grow the critical distribution vertical. We have a strong relationship with Amazon. Business more than doubled in 2020.
We have established national account programs with key distribution property owners like Prologis. We're excited that we continue to win in national accounts. Our diversification efforts are paving the way for continued success. National account services. We have over 100 service branches across North America, and so the footprint to provide self-performing service to more than 94% of the North America customer sites. We perform planned maintenance, planned replacements, and provide asset management services for national accounts with the benefit of HVAC performance certainty and budget certainty. We have recently started to offer EMS monitoring and technical support for our national account customers who have legacy EMS systems installed. Because of what we offer, we have tremendous relationships with many well-known customers or brands, some of which you see on this page.
We have strong customer retention and are successfully acquiring new customers as we continue to scale the operation. After a lull in growth through the pandemic, in 2020, we'll be back on the growth path in 2021 with a revenue target in 2023 of $250 million. The other major equipment segment is what we call our local regional share, or local regional market, which is things other than national accounts. We think this market accounts for about 2/3 of the North America unitary market, and it only makes up 50% of our revenue. You can see we have an opportunity to continue to grow share there. Local contractor service business verticals like schools, office buildings, and mixed-use development, to name a few. Local contractors also perform the majority of emergency replacement, which we focused on over the last six or seven years.
As well as building owners reach out to the contractor they trust to take care of their urgent needs. Moving to the left of this chart, our investments in products, driving specifications with engineers, local availability, dedicated support have all been part of our growth strategy and continues to be where we will focus in 2021 to grow our share in this market. Our third segment is refrigeration. Over the last few years, we've made adjustments to our refrigeration portfolio. When you look on the right-hand side of the slide, you can see that the makeup of the segment, just over half of its sales in North America commercial refrigeration space, while the remaining portion of it's in Europe, include exports to the Middle East and Africa. About two-thirds of our sales in Europe are commercial HVAC, while the balance is refrigeration.
From an end market standpoint, you can see we have a pretty balanced portfolio of solid and stable applications with good long-term potential. Moving to the left side of the slide, revenue and ROS of the refrigeration segment. As in commercial, the profitability of refrigeration segment has been negatively impacted by COVID-19. Lower volume, factory inefficiencies, and we were hardest hit due to factory inefficiencies in Europe and our Georgia refrigeration factory. It had the most negative impact there. A negative mix impact driven by a more profitable North America business down more than our European business. 2020 was a tough year for our refrigeration segment. We expect 2021 to be a better year. After the markets being down mid-teens in 2020, we expect a bounce back in 2021 of mid-single digits. Like I said at commercial, with a little bit of luck, maybe even better.
Looking at our refrigeration backlog, we are exiting 2020 with our backlog up double digits. We have the right portfolio of businesses, and the keys to driving growth and profitability are clear. Continued investments in product innovation, which I'll discuss here in a moment, but also increased focus on operational improvement in our factories and digitization across the segment to drive profitability and better support our customers. One initiative in refrigeration I want to talk about, refrigeration product leadership. This page gives some flavor to that. Our Department of Energy, or DOE, compliant product line, we revamped 80% of our total product line in North America due to these new minimum efficiency standards that went into effect earlier this year. The transition has gone very smoothly, and we feel we're in a good position to grow share with this revamped product line.
Our new Magna industrial refrigeration product, a more industrial-grade product than our traditional North America offering. It's a nice organic expansion for us into an adjacent market we weren't currently serving. We've begun quoting on the new product line. Sales will begin in mid-year of 2021. We're also working with our Turkish partner, or better stated, working with our Turkish partner. We have established a low-cost Turkish factory for our European rooftops. We're looking at opportunities to expand our product offering there and grow our business in low-cost countries in Europe. Finally, our European process cooling business. We're a market leader and continue to make investments to improve our product line, and equally important, leverage our investments in North America to automate engineering tools to improve effectiveness and speed of the engineer to order process.
With that, I'll turn it over to Joe to walk us through financial guidance and updates, and I'll be back on for Q&A later. Thanks. Joe.
Thanks, Todd, and good morning, everyone. I'll start by updating our 2020 guidance points, which were included in the press release that we issued this morning. Collectively, revenue is projected to be down 4%-6%, GAAP EPS within a range of $8.85-$9.05, and adjusted EPS within a range of $9.55-$9.75. Corporate expenses will be approximately $90 million. We expect our full-year tax rate to be between 19%-20%, and our guidance for key free cash flow is increasing to $475 million, resulting from strong residential demand and driving inventory levels down. capital spending will be approximately $85 million for the year, and we've completed $100 million of share repurchases for 2020, and we'll be resuming share repurchases in 2021. Now let's turn to 2021 and an overview of what we have planned.
Todd gave you an overview of our 2021 plan. These are some of the dynamics driving the plan, starting with end market growth. We expect to see end markets in all three segments continue to rebound in 2021. Residential markets remain resilient, as Todd mentioned, and bounced back quickly in 2020, and we expect to see the continued growth in 2021. In commercial HVAC and refrigeration markets, we continue to see steady improvement, and that's evidenced by order rates and backlogs that continue to climb. Market share gains will complement end market growth. We have share gain initiatives in all three segments in 2021. Share gains are driven by our continued investment in distribution, industry-leading innovative products and advancing digital capabilities that further enhances the value that we deliver to our customers.
Announced price increases will provide a $50 million benefit in 2021, which is approximately a 1.5% top-line yield. Productivity is always a priority and increasing on several fronts. We anticipate sourcing and engineering-led cost reduction efforts to generate $25 million in net savings in 2021. In addition, productivity gains from manufacturing initiatives will deliver approximately $20 million in benefit across the businesses. Now let's turn to the headwinds that we anticipate. SG&A will increase in 2021. Discretionary SG&A spending will remain tightly controlled until we see how markets are behaving. However, we will be reinstituting advertising and incentive programs that drive top-line growth, and there will be inflationary effects relating to employee compensation next year. Commodity costs, including tariffs and freight rates, are escalating in 2021 and creating a $40 million headwind. Commodities in the form of raw metals will be a $30 million increase.
Tariffs will add another $5 million, and increasing freight rates will be an additional $5 million. Strategic initiatives and investments remain focused on driving profitable growth. The initiative to expand our share in parts and supplies is projected to continue to grow at a mid-teens pace with very attractive margins. We will be resuming our investment in Lennox stores and our residential distribution network and adding new stores to drive growth. Over the years, we have demonstrated success with our continued investment in distribution, industry-leading product innovation, and superior customer support capabilities as we continue to digitize the businesses. This momentum will continue in 2021 and complements the end market growth. Finally, macroeconomic uncertainty, no surprise here, remains a bit of a wild card.
Hopefully, the pandemic is behind us in early 2021, and the political environment stabilizes so we can get back to really some semblance of normalcy. Turning to our 2021 guide points. Top-line growth is expected to be between 4%-8%. Top-line growth is both from market growth and the share gains we've discussed. Price yield will contribute approximately 150 basis points to the top-line. GAAP and adjusted earnings per share are planned to be within a range of $10.55-$11.15. Corporate expenses are expected to be approximately $90 million. Our effective tax rate will be approximately 21%, and capital expenditures are planned to be approximately $135 million.
We continue there with investments in high return on investment projects, focused on fueling growth, driving innovation with industry-leading technologies and capabilities that enhance the value proposition to our customers, and increasing profitability with continued investment in cost reduction initiatives. It also includes $25 million for the final Marshalltown reconstruction that is funded with insurance proceeds that we've already received, and approximately $25 million for the reconstruction of a third facility in Saltillo, Mexico. Free cash flow will be approximately $325 million and includes replenishment of residential inventory, and share repurchases are targeted at $400 million for 2021. When you boil down all the guide points for next year, the plan will be to deliver our targeted 30% incremental margins. I'll now touch on our capital deployment philosophy. Our philosophy on cash deployment remains consistent. We plan to deliver free cash flow that approximates net income.
We will have a targeted debt-to-EBITDA ratio of 2.0. Interest, pension, and other expenses will be approximately $35 million. We will continue to drive investments in our businesses focused on profitable growth. Organically, we continue to identify growth opportunities that enable us to seize market share, continue to support distribution expansion, and innovative new products and solutions that enable us to outpace the competition, along with continued investments to lower our product costs. Then inorganically, we will consider acquisitions where they make sense, and we maintain flexibility in our capital structure to invest efficiently. Lennox remains shareholder-friendly, and we look for efficient ways to return cash to shareholders. We will continue to grow our dividend steady with earnings.
We've returned $1.5 billion to shareholders in the form of share repurchases over the last five years, and we'll continue to return cash to shareholders, supplementing a competitive dividend with share repurchases. Now I'll turn to a history of our performance and our 2023 targets. This chart reflects, once again, historical trends in revenue and return on sales and our projections for 2023. After a few years of navigating through disruptions, first, the tornado that hit in 2018 and the recovery that took place through 2019, and now the pandemic. We will be returning to our more normalized trends of 6% top-line growth, delivering 30% incremental margins that drive margin expansion. Now turning to margin targets. Here are our long-range targets for each segment. For our HVAC businesses, both residential and commercial, 2023 targets are between 19%-21%.
In our refrigeration segment, our most geographically dispersed business, margins are targeted between 12%-14% by the end of 2023. Now I'll end where Todd began, with our investment thesis. In summary, our momentum continues with the effective execution of our core strategies that deliver value centered on innovation on multiple fronts, enabling Lennox to continue to outpace our competitors, enhance profitability, and deliver superior returns to our shareholders. Thank you again. That concludes the formal part of our presentation this morning. Now we'll go to Q&A.
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Hi, Todd. We already have some questions in. The first one's from Julian Mitchell. Any initial thoughts on seasonality for 2021 on sales or margins?
2021 is going to be different than prior years have been given the impact of the pandemic. Right now, the way you should build your models is we expect about half of the EPS to come in the first half of the year and about half of the EPS to come in the second half of the year. EBIT can sort of be answered the same way. We're ending fourth quarter in a good position. The momentum in the market continues in residential, and I talked about backlog up in both our businesses. Obviously, second quarter was depressed this year. Third quarter in residential had a huge bounce back. We'll see more profitability in second quarter or second half than we did this year, and less there in the second half of the year.
Thank you. The next question's from Nigel. He's asking, can we talk about investment spend in a little more detail? Trane is upping investment, and we're hearing something similar from Carrier. Is investment spend on an upward curve from here?
Yeah. We don't give dollar spend on those sort of things. What we do is talk about the initiatives that we have in place, and we've continued to make significant investment in new products. I can give you the number. I can point to the Model L and point to the 28 SEER, the most efficient product line we have in the marketplace. I can talk about.
Digital investments in the dollar, or I can just point to the things that we're having around e-commerce and digitization. We're armed, we're ready to go. We're making 30 new stores, we're absolutely on the attack. Yes is the short answer.
The next question also from Nigel, and Julian as well on this topic. "Why is refrigeration a core business? No real channel synergies and the outlook on margins continues to decline. Alternatively, do you want to scale in refrigeration?" Julian's question related is bridging the margins between current refrigeration and our targets down the road.
This is sort of a funny way to do Q&A, because one, when I answer the question, I look at Steve, and he has a pleasant look on his face like he believes everything I said, which he should. Then the others, when he asked a question, there's a cynicism and sarcasm in the question on that question. Look, I think our position on refrigeration has been consistent and clear, which is, at some level, everything's core, at some level, nothing's core. If you walked into a refrigeration factory, you'd see the same kind of compressors we use in HVAC business. You'd see the same kind of sheet metal processes, same kind of heat exchanger processes. You would see the same kind of controls because we leverage across all our businesses.
The actual product, the design of the product, the manufacturing of the product is very, very similar. Where it differs, obviously, is customers in the channel and how they use the product. I think that's, we're not selling washers and dryers here. It's a lot of overlap with what we do. I think that's point number one. Point number two is we've shown a discipline that we identify where we think we can win, where we can compete, and that's where we'll. We've sold things where we didn't think that was the case, China, Brazil, Australia, Kysor Warren display cases. In the businesses we have left, Europe, North America, we think the fundamentals are strong that allow us to make money there. We think we have the right teams. We think we're critical mass. I said in the comments, 2020 was obviously a tough year.
The pandemic hurt our refrigeration business more than anywhere else. Our factories in Europe were shut down for a couple of weeks. Our factories in Georgia were shut down. We also had an impact of mix down. We're confident that we have the right team and the right initiatives in place, and we're going to focus on turning around the factory performance once we get to the other side of COVID, driving volume across the business with investments in product and digitization. We like our refrigeration business. Now, in terms of growing it, I think we're already in scale in the markets we play. As I talked to the team about it, I think you have to earn the right to do acquisitions. We're not looking to throw a whole lot of new capital in this segment by doing acquisitions right now.
As we continue to grow the margins of the business then maybe if the right opportunity came along, we'd look at it. Next question, Steve.
Remind everyone as well, if you have any questions for Todd, please submit them in the investor Q&A section. There's also a technical Q&A box that goes to another location. Please enter your Q&A in the investor Q&A section. The next question, Todd, is from [TN Sanlucas]. "Do you expect high inventory in the independent distributors to pressure pricing in the overall market next year? Will it be more of a first half event?
No. Our experience in this industry is distributors and dealers don't panic when they have a little bit of inventory. It's not lettuce. Toilet paper is a good example. It lasts. If their warehouses are full, they don't panic. I don't expect any pressure on pricing. I think we're passing on price. I think the other OEMs have announced price increases, even for things that are being bought here at the end of the year. We have commodity inflation, we have tariffs, and we have freight inflation, we'll be passing on price as will others. I don't expect it. In terms of the phenomena, yeah, I would expect it to be first quarter, excuse me, first half of the year. As we get through the summer selling season, I think inventories will be righted, and people will reload as needed.
Next question's from Jeff Sprague, regarding the AHRI and HARDI color that we provided. "Do dealers hold much inventory or is it LII sale to dealer effectively a sale to the end customer with very little lag?
Just what you said. A sale from LII to dealer to customer is almost simultaneous. To be a little in the weeds, some dealers or large dealers may carry a couple weeks of inventory. Over the last six or seven years, they carry less and less because of our ability to supply them with our parts, our Lennox stores, or direct distribution or direct delivery the same day or next day. We model and demand very closely.
The next question's from Gautam Khanna. "Todd, can you elaborate on your view of how long the resi HVAC echo boom may last and how much that adds to resi unit growth? I.e., how much may unit demand growth soften once the boom subsides?
Yeah. I have to be consistent with what I've said over the years, which is, I think we're getting to the point where there's another year or two left. As I've publicly said before, we build a model because there's these sequential set of bell-shaped curves around installed demand. There's never a year where it crashes, but there's going to be a year in the next year or two. We don't think it's 2021. I don't think it's 2022. Beyond that, there'll be a year where the market starts to flatten out. Our model actually says that it goes down a couple percent, 2% or 3%, but I think that's false precision. If it's the hot summer, we won't see it. If there's other forces at work that drives the volume that year, we won't see it.
I think longer term, once we get through this echo, I think that we'll have a sort of a decrease in the market, a flatten out for a couple of years, and then what our model shows is after a couple of years of flat that it starts to grow, low single digits, sort of a GDP market. We're real confident even in those years where the market's flat in a couple of years. If we gain half a point of market share, that's worth three points of revenue. We get a little bit of price, we get a little bit of mix. We're mid-single digits, maybe six, seven points of revenue growth in residential, sort of on a normal year, if you will, once we get past this echo boom.
We think this is a great end market and will continue to be a very good end market for us.
Gautam was also asking, with 30 new PartsPlus stores, how much incremental market share will that drive in 2021 and 2022?
I don't know how much Well, I think I know. The answer is 2021, it won't be a major driver. Some of the stores we open up beginning of the year will have some impact, but stores we open up second half of the year don't have a major impact. The way the algorithm I think about is if you do the math of 30 stores and you have the flywheel going, you get about a quarter of a point a year in market share in residential. Do all the math of $3 million a store, half of it incremental. I think that's the impact that'll have in 2022. The investments we're making this year will have some impact in 2021, but more 2022 and beyond.
I think that the share gains in 2021 are going to be driven by the new product, leveraging all the digitization tools that I spoke about, as well as continuing to grow on the share that we gained this year from dealers because we were able to handle the pandemic better than others in terms of supply assurance.
This question's from Ryan, and again, I probably can't capture the tone of the question correctly, but commercial margins have declined for a few years. What happened and what drives margins higher beyond this?
Yeah. I'm going to spin it the other way. If you'd have told me that commercial markets were going to be down 15% and that you're going to have COVID-19 impacts to your factories, i.e., absenteeism in Stuttgart, Arkansas, and that margins would only be down 70 basis points, I'd say sold. Over the last few years, they've been down because we've just been making significant investments in the business in digitization and new product. Again, we're real comfortable as we end the year around 17% operating margins that on our three-year target of getting it to 19%-21%. Again, it's leveraging factory productivity with the increased volume that we're going to have next year, material cost reduction, and then the share gains that we're going to make with the Model L and our new product line. I understand the jab on refrigeration on commercial.
I'm a bit more defensive. I think they've done a very good job on margin in a very tough market.
Questions from Nigel and Julian. Are you able to quantify SG&A headwinds as a placeholder? How big will SG&A headwinds be in 2021?
Yeah. We're not going to put a number on it. The way I think about it is we initially said we're going to have 115 of cost takeout this year, now we're saying it's half of that. It's $58 million or so. The big difference was a major one-time cut this year was salary reduction and no incentive bonus, and we're paying all those now this year. You're not going to have the bounce back next year that you typically have. I would think about it more as SG&A growing a little less than revenue. Typically, we say as a fraction of sort of half of revenue, and I think a year like this, I would sort of build a model. Having it grow with revenue would be how I would model it.
Question from Ryan Merkel as well. Can you frame the commercial outlook in 2021 by business type? What is your view on structural challenges in office, retail, and hotels?
I'm going to slice it differently than the verticals that you asked. I'm going to slice it more on how we think about it internally. The area that's going to bounce back the most is going to be the one that was down the most to 2020, which is planned replacement. Sort of at the nadir in second quarter, our planned replacement business order rates were down 60%. That's discretionary spend. That's national accounts who just say, "We're not going to spend on replacement this year." Our experience is that comes back, it comes back quickly, and once they have a green light to spend, they not only reach back to what they deferred during a prior period, during a pent-up period, and then they make investments that were scheduled for the current time period.
That's what comes roaring back, and we think that will come back maybe not all the way back or all the roar in 2021. Some of it will be in 2022. Our national account business was down materially more than our non-national account business this year, and that's what we think bounces back. You sort of look at the verticals in national accounts to support that. It's the large retailers that are doing well, who are major customers for us, people like Lowe's, people like Home Depot, people like Best Buy, people like Walmart. Those are the verticals that come back. I talked about in my comments that distribution's a major market for us, and obviously a rooftop market. Amazon's a major customer. Those are the verticals that we expect the most in.
I think the area that will continue to be soft would be mid-rise office buildings, until we get to the other side of COVID. I think that would be a softer end market. Yeah, planned replacement I think is more of it.
Julian's asking, How is LII thinking about the margin expansion by segment in 2021 relative to the overall LII goal?
Yeah. We don't give segment targets. I understand the question. We don't give segment targets. I think the one thing I would say is they're all going to have similar 30% incrementals. We don't give segment targets.
[Steve O'Brien], I think, just needs a clarification around the expectations for price costs next year, mentioned price increases.
I think the headlines are commodity inflation of $30 million, headwinds from freight of $5 million, headwinds from tariffs $5 million. A total of $40 million between commodities, freight, and tariffs. We're targeting a $50 million benefit of price, which is about a 1.3-1.4 yield on revenue. We've announced up to a 6% price increase. A few years ago, you may recall, we got $75 million in price. I think that's the power of this business, that in good markets and bad markets, we're able to get price. Next year, we're going to have volume up in our end markets. We're going to have commodity headwinds. Also, when we talk to our customers, although we haven't quantified the number for investors, COVID obviously has been a tax to all manufacturers.
There's this COVID inefficiency that's built into our cost structure that we're also going to need to pass on to customers. Our competitors have announced similar price increases, some maybe even more. We're confident that we're going to get price in 2021.
Nicole's asking, "Can you give more color around investment spending in 2021? Perhaps quantify. What level of steel copper price is embedded in your commodity outlook?
I'll answer the second question first. We hedge copper and aluminum, and we're about 50% hedged out 12 months out. Then steel, we buy based on the market spot price during the prior quarter. We also have some discounts negotiated with the mills, and service centers off that price. What's baked in there is that, what our hedges are. Then for the unhedged portion, we take a look at what the future spots are, or the futures are, and that we bake into our number. In terms of investments, I think I broadly covered it on our prior question. We're not going to give an exact number. I would assume that our SG&A investment this year will be, because we're going to have some bounce back, will be something short of revenue growth, but in that ZIP code.
John Walsh has a question. "You talked about raw materials. What about inflation in components, with a focus on what you still source in China or Asia more broadly?
The $25 million of material cost reduction, that's always in that number. After all the price increases we get, we have to take out that much more cost to get there. If there's $10 million of price increases, we have to take $35 million of costs out to get to a net $25 million. That's all baked in. The answer is, yeah, there's more inflation right now than in prior years, but that's obviously a good thing. That means the economy's heating back up. We have a handful of agreements with some major suppliers where we have commodity escalators or de-escalators if there's a lot of copper, steel in their product.
Some of that's contractual and some of it is suppliers want to raise prices, and obviously our ability to have everything be second sourced and be able to move at other low-cost sources is a big part of our opportunity to head all that off. The answer is, it's in the $25, and we're aggressively looking to minimize it.
Next question's from Walt Liptak. He's asking about the new stores. I believe we covered the sales aspect to his question, but he's asking, is there a specific geographic location that we're focused on with the new stores?
No. Not one I'm going to talk about. What our team does is, I've publicly spoken about before, we understand all the dealer contractors in North America, those that we do business with, but also those that we don't do business with. We have an algorithm set up that scores them, A, B, C, of how high quality they are for us, or how the ease of us to convert them. We understand what the issues are and why we're not converting them. We understand what our market share is in each market and what the opportunity is for growing. With that high-level algorithm, we're able to rank how we want the stores to be entered for the next 18 months.
We then put that against sitting down with sales leadership team, they look at the list, and then it's sort of an auction, if you will, where, if you get a new store, you got to raise your quota. That's sort of an acid test to salespeople of whether they really want the store and then we work through that, and then we come up with a list of how we roll them out. That's what we've done for 2021.
[Tim Wojs] is asking, "Goodman has had operating challenges in 2020. There's some concern that they'll be more aggressive to regain share in 2021, and that the industry has borrowed share from Goodman in 2020 that reverts in 2021. Can you frame how this may impact LII next year?
Yeah. We sort of have a PhD on borrowed share, right? After all the conversations we've publicly had about what happened with us in the tornado. We understand the dynamic, I think, pretty well, of what happens when you have a catastrophic event like this, and you lose share and how you hang on to it or how, in the end, you lose it. We were pretty clear-eyed when we took advantage of Goodman's issues of who we signed on. What I mean by that is, if you sign up a dealer who may have volume, but is a very tight Goodman dealer, and you have a sense of once you meet their needs, they're going to go back to Goodman. That's not what we did.
We signed up or we supplied dealers who we were confident would stay with us, or high confidence they would stay with us. The other thing is what we did was, we armed our own traditional dealers to go out at the homeowner level and take business from Goodman dealers. If Goodman didn't have product, we could win it through existing Lennox dealers, or we could support the Goodman dealers. We always opted where we could to support existing Lennox dealers to win the business. They grew their share in the marketplace. Again, the dealers that we did sign up, we did it with our eyes wide open of what we needed to hang on to them. We're pretty confident we're going to hang on to a lot of it. Again, Goodman has the dilemma of being the market share leader.
Are they really going to try and start a price war to gain back a little bit of share that they lost, when they're the market leader? I mean, that's self-defeating. We're not even the market leader, and we certainly didn't do that after the tornado. We matched other people's deals, and gave some back-end rebates in line with what they had with the current supplier that had taken them from us. We didn't get in a price war. I'm pretty certain Goodman won't either.
Next question is from Jeff Sprague. We touched on this perhaps a bit earlier, but can you size the magnitude of the temporary cost returning on compensation, advertising, et cetera?
Approximately $5 million. If you do all the math of the things we give publicly, it's, I think, $7 million or so of incentive comp bounces back. The rest of it or headcount reduction and what we call discretionary spending, and quite frankly, we'll throttle that as need be as the markets behave.
The next question is from Jeff Hammond. Based on your comments on distributor stocking, would you say we have gone from understocked to now overstocked in the industry? Also, how is furnace season shaping up giving more mild weather?
Yeah. I think the answer is we're either overstocked or we're heading that way with independent distribution. Again, I don't know for certain because they're not our customers. We have a little bit of a lens through Allied, which is 20% of our business. What you see is, as we've talked about almost all the OEMs, in fact, I'll just say all the OEMs, to some level or another, had issues during summer selling season, either because of their own factory issues or because of the supply base, and had trouble meeting demand. You have that in the distributor's head, and so they want to have as much inventory as they can have going into the selling season to protect themselves.
Yeah, I think when you look at a number of September and October of AHRI being up 45%, that's just not reloading for last year. That's pulling some forward. I don't know how much more is in independent distribution, but I think there's some. Was there a second part of that question, Steve? I forget.
How furnace season is going so far?
Yeah. Furnace season's fine. Again, I think the weather matters, but obviously matters much less than have it be hot in the summertime. The fact that it's not as cool as normal, I think on the margins has some impact. You saw we raised our guide for fourth quarter, so we're doing fine as we end the year.
Also from Nicole, "What is driving the confidence in 12%-14% margins in refrigeration by 2023?
Again, it's our taking a look at the business and understanding the impact of improved factory productivity. We've changed the leadership in all our factories in the last 18-24 months. The negative impact from COVID-19. Make sure I have the right notes here. As we exited 2020, excuse me, as we exited 2029, our margins were near 12% in refrigeration, 11.5% or so. We had this significant downturn in 2021, that's in large part because of COVID-19, 15% lower volume, impact to the factories, a negative mix impact because North America was harder hit. You sort of play all that back, we're back to the close to 12%, which is spitting distance to where we need to be for our targets of 12%-14%. We've got to get some volume across the business. We have to improve our factory productivity.
We have to gain some share. I think we're set up to do that.
The next question is from John Walsh regarding the 25% attach rate in IAQ. What is the experience more recently? How high can it go? Does IAQ drive 10 points of incremental price versus a standard unit?
Well, I don't know what cause and effect is. Well, yes, the cost of an IAQ system's $500-$1,000, depending on what they buy, and the normal system's $5,000. It's maybe 10% to the top-line number. I think more importantly, if you're selling IAQ, you're getting high mix, too. No one buys, or very few people buy, I don't know of anyone buys an entry-level SEER unit with an IAQ package. We focused on IAQ for years, and we think we're as good as anybody. Some of our competitors, I think, have breathlessly talked about IAQ with response to COVID-19. I've always, I think, been a bit more balanced publicly on this. I think it's an opportunity.
The thing to always remember is, with all the good things we do on mix and new products, that the industry is over half percentage entry level. I don't think you ever get higher than that on IAQ, because half the people just want to buy the lowest cost unit that they can. We continue to focus on mix up. I think longer term, because I'm optimistic on COVID, that we'll get to the other side of this reasonably quickly. It's going to be the more traditional IAQ conversations about, "My children have asthma. I have animals in the house. There's dust particles that I'm sensitive to." That's where IAQ helps out longer term.
Todd, this question's from Jeff Hammond. The compound annual growth rate in parts and supplies is steep versus a much more modest ramp over the past few years. What needs to change here strategically to up your mix and hit these aggressive growth targets?
I think it's, in part, what happened in 2020 is, I think the actual parts market's down. I think people replaced units maybe at a higher rate than what they'd typically done. I think we're down with the market. I think there's a bounce back in market growth of parts and supplies. I also think we, quite frankly, haven't been focused on parts and supplies in the stores. We haven't been able to go out and call on customers. We haven't been able to bring them into the stores. They've wanted to take delivery or pick up equipment at our windows. I think it's the areas that we spoke about. I think it's a focus on new business development. It's a focus on the operating system, it continues to be a focus on making sure we have the SKUs to support it.
If you look from 2017 to 2019, we took it from 16% to 20%, and now we're going to go from 20% to 24%. I think it's roughly the same growth rate of what we need to do.
Another question from [Tim Wojs]. Are there higher costs related to higher efficiency standards for 2023 that are embedded in 2021 or expected to be in 2022, or can existing productivity, et cetera, offset that?
I think it's that existing productivity can offset it. We always use, the industry does too, so it's not us. We use these break points in efficiency standards to revamp your product line. We're talking about the Model L, highest energy efficient rooftop product line. That's part of the broader strategy as we revamp everything for 2023. That's the new high end. You talk about when your minimum efficiency standards go up, you need to raise your high end or you'll be compression and mix down. The Model L is a way of doing that, similar on residential. That's all just baked into the normal cadence of the business. There's not a big-ticket investment that we're going to talk about in 2022 to get ready for 2023.
The next question from Christopher Dankert. How do you think work from home impacts the appetite for commercial property improvement and investment going forward?
I think that's probably a better question for our larger competitors who are involved in applied. We're in a building, I'm in a building that's nine stories high or eight stories high, so we need an applied system. I think those are the buildings that are going to be more impacted. I think the verticals that we play in, it's not going to affect distribution, not going to affect retail. Obviously, has affected restaurants, but those will come back. In terms of working from home, I think that's more of an applied large office question. I don't know what's going to happen with Midtown Manhattan, but we don't sell any equipment there, so it's not my concern.
Also from Chris, With new residential SEER standards on the horizon in 2023, your long-term targets assume a similar 2022 boom like with the last round of standard increases.
Ask that question again, Steve.
Sorry. With new residential SEER standards on the horizon in 2023, do your long-term targets assume a similar 2022 boom like the last round of the efficiency increases? Or how will it be similar?
Yeah. The 2023 targets encompass the 2023 regulatory change if that's the question. I don't know what's meant by the boom that we saw last time. We didn't have, I don't think, much of a boom last time. We had a boom in 2006 to 2007 when there was minimum efficiency standard, but there wasn't much of a boom last time.
Question from Jeff Sprague, "Is over-absorption in the factories as you rebuild inventories a significant margin driver?
It's all baked into guide. Maybe a more responsive question would be the $20 million of factory productivity. We called out that we had $10 million, and I think it was just residential $10 million. All right, let me look at my notes, make sure I say the right thing here before I give away a number. That we called out that we had $10 million of headwind from factory inefficiencies this year. Part of that's under absorption and the pandemic, and the $20 million of factory productivity next year is all the good things we're doing, but it's also greater volume that's going to flow through the factories. The short answer is yeah, it's good news, and it's part of the $20 million.
Next question from Steve Volkmann, "How much volume is needed to hit the low end of the 2023 refrigeration margin target? Is it more around cost controls or improvement?
Well, I think it's both. We don't give segment guidance, but I would tend to think about it as the overall revenue guide of 6% supports the mid-range or the midpoint of the targets that we gave. If it's below six for refrigeration, we're closer to the lower number, and if it's more than six, we're closer to the higher end of the range.
This question from Steve Tusa at JP Morgan, "What are the segment growth rate assumptions through 2023?
Yeah. I understand the question. We don't give them, right? We don't give segment growth rates. We just give the overall enterprise growth rate for the three years.
The next question's from Nigel. Question on the free cash flow bridge for next year. "Are you able to more finely run through the moving pieces between inventory, working capital, CapEx, et cetera?
Yeah. Well, inventory's part of working capital, right? High level, I think is what Joe said, let me pull my notes, make sure I have the exact right numbers in front of me. Our guide is $325 of free cash flow, and there's $50 million of CapEx that's greater than this year. We did $85 million in 2020. We're going to do $135 in 2021. $50 million, about half of that is new factory, about half of that's rebuilding Marshalltown, where we already have the insurance money for. One way to think about it, which I know is unfair, but I'll say it this way, is if you take the $325 and add $50 million to it, you get $375.
That's sort of what our number would be if we weren't having these major factory rebuilds or if our new factory build and a rebuild where we already have insurance proceeds. The delta between that, which I think if you do the math is about 90%-91% of net income, the delta between that and 100% of net income, I would just assume is working capital. Again, it's the three elements of working capital state the obvious, inventory, payables, receivables, and they're all intertwined. That's sort of how I would think about it given what we've said.
A question from Brian Loftus, "Could you talk about the longer-term market demand shift toward the heat pumps? Do you believe that will happen and/or is it mainly a new construction or some replacing furnace for heat pump in some regions?
Heat pumps in the Southeast has grown over the last 20 years, and we have a competitive product line there, an important part of our product offering. Having cooler weather heat pumps, I think support for energy efficiency, we're focused on that also. I think it's both. It's obviously a new construction product, but it's also a replacement product because if you have to replace the furnace and the condensing unit, you can just replace them both with a heat pump and then bring in an indoor AHU or fan coil that they handle for you. It's a replacement product also, and we play there and have a strong product offering. It continues to grow.
We have another question from Steve Tusa. We answered some of this earlier, but "How big is warehouse as a % of the market? And is data center a factor or is that served by a different type of product?
Yeah. I don't think we've ever sort of broke out warehouse distribution as its own segment, but it's increasingly an important part of what we do. As I said, we doubled our business with Amazon, growing part of what we do. What was the second part of this question, Steve?
Related to data center and also warehousing companies.
Warehouse is distribution. I just answered. In terms of data center, we do a little bit there, primarily in refrigeration, because we sell refrigeration components into CRAC units and other people who are focused on cold rooms. I'm going to make sure I got it, Steve. Was it cold storage or IT facility?
Data centers. IT, I believe.
Yeah. I'm anticipating questions. Yeah. Data centers, we sell through refrigeration to CRAC, who provides equipment. It's a different type of product line. I would also tell you, it's obviously an interesting market because the first blush you'd say, man, you want to be in data centers because it's growing. There's so much more footprint going in, which is true. I don't know, 10, 15 years ago, they cooled the whole rooms. They were just cooling the computers, the racks, and now they're moving to precision cooling, where they're just cooling the chips. Even though the total capacity of data centers continues to grow dramatically, the cooling requirements isn't growing near that amount, in fact, may even be shrinking for the reasons I just said.
We've looked at it over the years, but it's a different type of product and there's already players there, and it doesn't appear to be, for the reasons I said, that good a market.
We have a question from Joe Ritchie at Goldman Sachs. If growth turns out to be slower in 2021, what happens to free cash flow in 2021? Is your expectation to get back to 100% conversion by 2022?
Tough audience on free cash flow. If you back out the CapEx, we're at 91% next year, and we're 135% this year. We'll definitely get back to 100%. The target will be get back to 100% in 2022 unless there's a reason not to. The question will be, what will happen if the markets turn? If the markets turn again from where they are now, working capital won't be re-inflated, and therefore, we won't be taking that out of free cash flow. Again, we're a distributed product business, and so when markets are soft or down, we continue to generate cash, and we would do that in 2021 if the markets turn down.
Another question. Could you talk about the VRF market progress in general? Is that getting some traction in the market with experience? Could VRF help drive the commercial recovery in 2021?
No. The last part of the question. Look, VRF, there wasn't a chart in the presentation, and that wasn't by accident. We continue to offer the product. It continues to be a part of what we offer. It allows us to meet with engineers. It's $20 million or so revenue for us. We think it's a growing end market, 10% or so. It's not going to drive the recovery in 2021. What's going to drive the recovery in 2021 for us is going to be our large national accounts who deferred planned replacement in 2020, make the decision to buy in 2021. They are. That's why our backlog's up, and that's why the order rates are up. That's what's going to drive our revenue in 2021.
Next question's from Gautam. What is the long-term goal for percentage of product produced in Mexico in 2023 or 2020? However, you'd like to discuss that.
Yeah. For obvious reasons, we don't publicly talk about that, right? We're going from 40% to 50% of ours. Half of all our labor for residential is going to be in Mexico. We think it's a great option. I would tell you that a tornado later, a pandemic later, having multiple factories for a business is probably a good thing. I don't want to speculate too much on Goodman's issues, but when you have one factory, and it's whatever it is, 5 million sq ft, and you have everybody in one factory and COVID-19 hits, you're in trouble. Where we had COVID-19 hit one factory, and we produce it in the other, or have absenteeism in one factory and produce it in another. Having multiple factories will continue to be our strategy in residential.
From Ryan Merkel for robotics, what inning are you in on this rollout? Discuss the benefits that you've seen so far.
I think we're third or fourth inning. When you walk into one of our factories, broadly speaking, you'll see about a third of the factory is fabrication, sheet metal, cutting, slitting, forming, bending of copper tubing, stamping of aluminum onto the copper tubes or aluminum tubes to make heat exchangers. Then the balance of the factory is final assembly and test. What we have done with automation to date has primarily been in fabrication. Auto brazers, auto sheet metal, auto fabricating of copper and aluminum. Where we still have big opportunities is automating assembly. It's high SKU, different parts, and we don't have the same kind of volume as washing machines or autos. We're just getting to the right price point of robots to be able to do that for us. That's still in front of us.
We still have lots of opportunities. We've taken some good steps. We're doing some pilots on the areas I've talked about, so that's still in front of us. When I think about 2020, the $20 million of productivity, that's obviously a combination of leverage, as I said earlier, that Jeff asked about more volume flowing through the factory. Some of that's the investments that we've made in robotics, in fabrication, that's going to help us in 2021.
Back on refrigeration from Steve Volkmann. He's working on some math and assumes a 7.5% compound annual growth rate on refrigeration sales at a 30% incremental would be needed to hit the low end of the 2023 target. Your view or comments on that?
Yeah. Thanks.
Okay. I think we're at the end of our questions and time. Todd, if you'd like to close?
Good. I want to thank everybody for the interest. Thank everybody for taking time out. Be safe. I will tell you, I will be ready to travel and be back out once we get the vaccines. I got to tell you, I am glad that when I turn off my computer, I'm in my office, and I'm not fighting traffic to get to LaGuardia. Everybody be safe, and if we don't talk here in the next few weeks, we'll talk to you at the beginning of the year. Thanks.