Company Commits to Strengthen, Diversify & Grow to Transform Modine for Long-Term Market Leadership
Modine Manufacturing Company (NYSE: MOD), a diversified global leader in thermal management technology and solutions, today announced its new strategic platform for the future. This platform is based on commitments to strengthen, diversify and grow the business, ultimately elevating Modine’s long-term financial performance and enhancing shareholder value. The Company also announced that its Board of Directors has authorized the repurchase of up to $50 million of its common stock over the next year.
“Our industry continues to evolve and we believe now is the time to take action to transform Modine for long-term success,” said Modine President and Chief Executive Officer, Thomas A. Burke. “We must leverage our strong leadership position and balance sheet to become a more diversified thermal management company, with a higher growth and profitability profile. Our strategic plan is designed to strengthen our foundation, better diversify our business portfolio, and to grow, both organically and through strategic acquisitions. We believe that this strategy will unlock value for our shareholders by creating an even stronger Modine.”
The three core components of the Company’s transformation strategy include the following:
Modine plans to strengthen its foundation in three critical ways. The first includes the implementation of a global, product-based organization to optimize its market focus. This organization is being designed to improve the Company’s speed to market by better linking both the commercial and product organizations under common, global structures focused on Vehicular and Industrial Products (includes current Building HVAC and Coils businesses). By doing so, the Company expects to capture improved synergies across its core businesses.
The second component of Modine’s strengthen initiative is to better leverage its global scale in an effort to improve the long-term competitiveness of its Vehicular business. This will include a renewed effort to optimize the Company’s global manufacturing operations through greater standardization, low-cost manufacturing footprint, and scale. Further, our global procurement project will reduce Modine’s total spend on materials and services. We expect that the net result of these efforts will be a significant reduction in operating costs and SG&A expenses.
Third, the Company will optimize its vehicular product portfolio to drive higher operating margins. Through this initiative, the Company will better prioritize its global product platforms based upon their long-term potential to create value, accelerate global operational improvements, and leverage broad technology drivers, utilizing the Company’s market-leading technology building blocks.
- Cost reductions of $40-$50M within 18 months
- Operating margin expansion from 4-5% to 7-8% by end of FY18
Next, the Company believes that it is imperative to create better long-term diversification of its customer profile, its business mix, and its end markets. Modine’s diversification strategy calls for a significant financial and human resource investment across the Company’s current Industrial Products businesses to build a more balanced portfolio.
In order to bring this balance, Modine will pursue higher-margin organic and inorganic growth opportunities, primarily in the Industrial Products businesses. These businesses have high growth profiles, low levels of customer concentration, and leverage the Company’s core thermal management strengths and leadership positions. Through these efforts, Modine plans to achieve appropriate market recognition and value for the Industrial Products businesses as they grow and become a larger component of the Company’s offerings.
- Reduced customer concentration and cyclical exposure
- Shift revenue mix from 80-85% Vehicular and 15-20% Industrial Products, to 60-70% Vehicular and 30-40% Industrial Products
Lastly, the Company will focus on improving its growth profile through both organic and inorganic means. First and fundamentally, Modine will better focus its research and development, product development and commercial pursuits in high growth vehicular areas where it has the ability to improve market share. Those efforts will then be enhanced by aggressively pursuing industrial acquisitions to achieve its Diversify goals. The Company believes that these transformative actions will strengthen and enhance the Company’s growth and profitability profile.
- Target at least $100 million in incremental Industrial revenue by the end of FY18
- Expand target leverage ratio (net debt-to-EBITDA) to between 1.5 and 2.5x
Share Repurchase Authorization
The Company also announced today that its Board of Directors has authorized the repurchase of up to $50 million of its common stock through November 3, 2016. The authorization does not require the repurchase of a specific number of shares. Decisions to repurchase shares or suspend the program will be made at the Company’s discretion, based upon a number of factors, including ongoing assessments of the capital needs of the business, share price, and general market conditions.
Burke concluded, “Our Board of Directors and management team believe that our stock is undervalued based on our confidence in the future of our business and in our ability to execute against the strategic initiatives we have laid out. Our disciplined management of the balance sheet will allow us to return value to our shareholders both through execution of our transformational framework and through opportunistic repurchases.”