Modine Manufacturing Company (NYSE: MOD) today reported first quarter sales of $346.1 million compared to $392.5 million one year ago. The year-over-year decline was primarily due to a $40 million negative foreign currency impact. Operating income was $11.6 million and adjusted operating income was $14.2 million in the quarter. Net earnings per share were $0.11 and adjusted earnings per share were $0.14. First-quarter results were in line with company expectations, as sales and earnings were impacted by unfavorable conditions in several key markets and the negative impact associated with the strong U.S. dollar.
“Although the business was challenged by weak demand in certain markets and unfavorable exchange rates, we delivered solid operating performance and continued to demonstrate excellent cost control,” said Modine President and Chief Executive Officer, Thomas A. Burke. “Despite the expected, difficult year-over-year comparables in the first half of this year, we are on track to achieve our full-year earnings guidance.”
First Quarter Financial Results
Sales in the first quarter of fiscal 2016 were down $46.4 million, or 12 percent, from the first quarter of fiscal 2015. The decrease was primarily due to the strengthening of the U.S. dollar, which negatively impacted sales by $40.2 million as compared to the prior year. On a constant currency basis, sales were down 2 percent, with decreases in the Americas and Asia segments more than offsetting increases in the Europe and Building HVAC segments. Gross profit decreased $10.7 million, and gross margin declined 70 basis points to 16.5 percent primarily due to unfavorable currency impacts, including the impact on material costs in Europe and Brazil. Selling, general and administrative (SG&A) expenses remained flat from the prior year, as favorable currency impacts were offset by the inclusion of $2.6 million in business interruption insurance recoveries that reduced SG&A expense in the prior year. During the first quarter, the company recorded $2.6 million of restructuring expenses primarily related to severance and plant consolidation costs in the Americas. Excluding the restructuring expenses, the company reported adjusted operating income of $14.2 million, down $10.7 million from the prior year, approximately $8 million of which related to unfavorable currency impacts and the prior-year business interruption recovery. Adjusted earnings per share of $0.14 were down $0.16 from the first quarter of the prior year.
Net debt was $90.8 million at June 30, 2015, an increase of $12.6 million from the end of fiscal 2015. Cash and cash equivalents at the end of the first quarter were $60.7 million. Free cash flow was negative $13.0 million, impacted, as is typical in the first quarter, by various benefit and incentive compensation payments.
First Quarter Segment Results
Americas segment sales decreased 10 percent to $159.1 million compared with $176.8 million one year ago. On a constant currency basis, sales decreased 7 percent compared with the prior year, with lower sales in both North America and Brazil. Sales in Brazil were down 12 percent on a constant currency basis, with decreases to both vehicular OE and aftermarket customers. North America sales were down
2 6 percent, as lower sales to off-highway and commercial vehicle customers were partially offset by higher sales to automotive customers. Operating income decreased $6.6 million to $9.3 million compared with the prior year, due primarily to lower sales volume, higher material costs and higher restructuring expenses. The company recorded $2.7 million of restructuring charges during the quarter relating to ongoing restructuring activities in North America and Brazil.
Europe segment sales decreased 17 percent to $131.2 million compared with $158.6 million one year ago driven primarily by a $31.3 million negative currency impact in the quarter. On a constant currency basis, sales increased 2 percent compared with the prior year. Increases in sales to automotive and commercial vehicle customers were partially offset by lower sales to off-highway customers. Operating income of $5.7 million was lower than the prior year by $4.7 million, primarily due to unfavorable currency impacts, including the impact on the cost of materials.
Asia segment sales decreased 7 percent to $19.3 million compared with $20.8 million one year ago as lower sales to off-highway customers in China and lower tooling sales more than offset higher automotive sales in China and higher sales in India. Operating income of $0.4 million decreased $0.5 million from the prior year. This decrease was primarily the result of higher SG&A expenses as compensation-related expenses increased.
Building HVAC segment sales increased 1 percent to $41.3 million compared with $40.7 million one year ago. On a constant currency basis, sales grew 6 percent as compared with the prior year. This increase was primarily due to higher sales of cooling products to the school market in North America. Operating income of $2.1 million was down $1.1 million due to $2.6 million of business interruption insurance recoveries in the prior year partially offset by higher sales volume in the current year.
Outlook
“Our first quarter results were consistent with our market and exchange rate expectations, and we confirm our previously reported full year outlook,” Burke commented. “After the seasonally slow second quarter, we anticipate a much stronger second half of the fiscal year due to new program launches and increased heating season sales.”
Based on current exchange rates and market outlook, Modine confirms the following guidance for fiscal 2016:
- Full fiscal year-over-year sales flat to down 5 percent, or up 1 to 6 percent on a constant currency basis;
- Adjusted operating income of $65 million to $70 million, including approximately $3 million of negative year-over-year currency impacts; and
- Adjusted earnings per share of $0.75 to $0.82.
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