Modine Manufacturing Company (NYSE: MOD), a diversified global leader in thermal management technology and solutions, today reported financial results for the first quarter of fiscal year 2017.
Highlights:
- Sales of $347.2 million, a slight increase from prior year
- Operating income of $15.1 million, up 30 percent from prior year; adjusted operating income of $17.4 million, up 23 percent from prior year
- Earnings per share of $0.18 and adjusted earnings per share of $0.21, both up $0.07 from prior year
“Modine’s operating income improved significantly year-over-year, despite ongoing weakness in several of our end-markets. As anticipated, our Strengthen, Diversify and Grow (SDG) initiatives contributed to our financial performance during the quarter,” said Modine President and Chief Executive Officer, Thomas A. Burke. “We will continue to maintain a culture of cost discipline for the remainder of fiscal 2017, and will continue to execute in accordance with our SDG strategic framework to create long-term shareholder value.”
Net sales for the first quarter were $347.2 million, compared with $346.1 million in the prior year. On a constant-currency basis, net sales improved by 0.8 percent year-over-year. The increase was primarily related to strong sales to automotive customers globally and to commercial vehicle customers in Europe, offset by lower sales to commercial vehicle and off-highway customers in the Americas segment due to ongoing weakness in those markets.
Gross profit increased $5.0 million during the first quarter on nearly flat sales and gross margin improved by 130 basis points to 17.8 percent, primarily due to favorable material costs, improved plant operating performance and cost savings related to procurement initiatives. Selling, general and administrative (SG&A) expenses increased $1.8 million primarily due to professional services related to business development activities and higher employee benefit and incentive compensation expenses.
The company recorded $2.3 million of restructuring expenses during the first quarter primarily related to employee severance expenses and equipment transfer and plant consolidation costs.
First quarter operating income was $15.1 million compared with $11.6 million in the first quarter of fiscal 2016. The 30 percent increase was driven primarily by the reduction in manufacturing costs and the corresponding higher gross margin. Net earnings per share were $0.18, an increase of $0.07 compared with the prior year. Excluding restructuring expenses, the company reported adjusted operating income of $17.4 million, up $3.2 million from the prior year. Adjusted earnings per share of $0.21 were up $0.07 from the prior year.
First Quarter Segment Review
- Americas segment sales were $140.0 million compared with $159.1 million one year ago, a decrease of 12.1 percent. On a constant-currency basis, sales decreased 10.9 percent year-over-year, primarily related to ongoing weakness in the commercial vehicle and off-highway markets, partially offset by higher sales to automotive customers. Despite the lower sales volume, operating income of $9.3 million was flat compared with the prior year, primarily due to favorable material costs, cost savings related to procurement initiatives, and lower SG&A expenses related to cost-control actions. The company recorded $2.2 million of restructuring charges during the quarter primarily due to equipment transfer, plant consolidation and early retirement costs in the Americas segment.
- Europe segment sales were $146.0 million compared with $131.2 million one year ago, an increase of 11.2 percent. On a constant-currency basis, sales increased 9.0 percent compared with the prior year, driven by higher sales to automotive and commercial vehicle customers. The first quarter operating income of $15.0 million was $9.3 million higher than the prior year, primarily due to higher sales volume, favorable material costs, cost savings related to procurement initiatives and improved plant operating performance.
- Asia segment sales were $24.9 million compared with $19.3 million one year ago, an increase of 28.6 percent. On a constant-currency basis, sales increased 35.3 percent compared with the prior year. The increase was primarily related to higher sales to automotive customers in China as launch volumes continue to increase, higher sales to off-highway customers in China, and incremental sales related to our recently-formed joint venture. Operating income of $1.5 million increased $1.1 million from the prior year, resulting from higher sales volumes and lower SG&A expenses.
- Building HVAC segment sales were $39.9 million compared with $41.3 million one year ago, a decrease of 3.4 percent. On a constant-currency basis, sales were flat as compared with the prior year. Operating income of $0.9 million was down $1.2 million, primarily due to the margin impact of the strong British Pound on previously booked orders, higher manufacturing costs, and restructuring expenses, partially offset by lower SG&A expenses. The company recorded $0.4 million of restructuring charges during the quarter related to early retirement and severance costs in the U.K. and the U.S.
Balance Sheet & Liquidity
Net debt was $107.2 million at June 30, 2016, an increase of $13.5 million from the end of fiscal 2016. Total debt was $171.3 million at June 30, 2016. Cash and cash equivalents at the end of the first quarter were $64.1 million.
First quarter free cash flow was negative $8.1 million compared with negative $13.0 million one year ago. As is typical, first quarter free cash flow was impacted by various benefit and incentive compensation payments. Net cash provided by operating activities was $1.6 million compared with negative $0.1 million one year ago.
Outlook
Based on current exchange rates, market outlook and business forecast, Modine confirms the following guidance for fiscal 2017:
- Full fiscal year-over-year sales down 1 percent to up 3 percent;
- Adjusted operating income of $65 million to $71 million; and
- Adjusted earnings per share of $0.77 to $0.87.
Conference Call and Webcast
Modine will conduct a conference call and live webcast, with a slide presentation, on Wednesday, August 3, 2016 at 8:00 a.m. Central Time (9:00 a.m. Eastern Time) to discuss its fiscal 2017 first quarter financial results. The webcast and accompanying slides will be available on the Investor Relations section of the Modine website at www.modine.com. Participants are encouraged to log on to the webcast and conference call about ten minutes prior to the start of the event. A replay of the audio and slides will be available on the Investor Relations section of the Modine website at www.modine.com on or after August 3, 2016. A call-in replay will be available through midnight on August 5, 2016, at 855.859.2056, (international replay 404.537.3406); Conference ID# 49016590. The company will furnish a transcript of the call to the U.S. Securities and Exchange Commission, and post it on its website, after August 5, 2016.
