Modine Manufacturing Company (NYSE: MOD), a diversified global leader in thermal management technology and solutions, today reported its financial results for the second quarter ended September 30, 2014. Highlights and year-over-year comparisons include:
- Sales of $377.3 million, up 4 percent;
- Operating income of $7.9 million, down $2.7 million;
- GAAP earnings per share of $0.04, down $0.06;
- Adjusted earnings per share of $0.05, down $0.11.
“Sales continue to show year-over-year increases despite mixed market conditions,” said Modine President and Chief Executive Officer, Thomas A. Burke. “However, our earnings during the quarter were negatively impacted by sales mix and inefficiencies related to plant consolidations and volume shifts.”
Second Quarter Financial Results
Sales in the second quarter of fiscal 2015 grew $13.1 million, or 4 percent, from the second quarter of fiscal 2014, driven by increases in our Europe, Asia, and Building HVAC segments. Gross profit decreased $0.5 million, or 1 percent, and gross margin decreased 70 basis points to 15.0 percent, largely due to mix of lower margin product and plant inefficiencies, including overtime, scrap and expedited freight. Selling, general and administrative (SG&A) expenses increased $1.8 million, due primarily to higher compensation-related expenses, including the additional SG&A of the Barkell business acquired last year. The company recorded $1.0 million of restructuring expenses, of which $0.8 million related to the ongoing restructuring in Europe and $0.2 million related to the closure of the McHenry manufacturing facility in North America. Net earnings attributable to Modine of $1.7 million decreased $2.9 million from the prior year, and represents GAAP earnings per share of $0.04 compared to $0.10 last year. Excluding restructuring and accelerated depreciation expenses, the company reported adjusted earnings per share of $0.05 in the second quarter of fiscal 2015, compared with $0.16 in the second quarter of last year.
Free cash flow in the quarter was $5.7 million. Expenditures for property, plant and equipment were up $5.6 million to $16.8 million compared to the prior year. Net debt was $88.5 million at September 30, 2014, an increase of $11.3 million from the end of fiscal 2014. Cash and cash equivalents at the end of the second quarter were $71.3 million.
Second Quarter Segment Results
North America segment sales decreased 2 percent to $143.8 million compared with $146.0 million one year ago. The decrease was driven primarily by lower sales to off-highway customers and lower tooling sales, partially offset by higher sales to commercial vehicle customers. Operating income decreased $3.8 million to $7.9 million compared with the prior year, due to unfavorable sales mix, higher warranty costs, production inefficiencies and expenses related to the McHenry plant closure.
Europe segment sales increased 5 percent to $146.4 million compared with $138.9 million in the prior year. This growth was primarily due to higher sales to commercial vehicle and automotive customers. Operating income for the quarter of $4.6 million included $0.8 million of restructuring charges related to the plant consolidation in Germany. Operating income improved $1.3 million, compared with the second quarter of the prior year, primarily due to $2.1 million of restructuring-related accelerated depreciation expense in the prior year partially offset by unfavorable sales mix and production inefficiencies.
South America segment sales decreased 14 percent to $27.2 million compared with $31.8 million one year ago due primarily to lower sales to commercial vehicle, off-highway and automotive customers as economic conditions in Brazil continue to be weak. The segment reported $0.3 million of operating income, $2.2 million less than the prior year, due primarily to lower sales volume.
Asia segment sales increased 17 percent to $19.0 million compared with $16.2 million one year ago as higher sales in India were partially offset by lower off-highway export sales from our Korean joint venture. The segment reported an operating loss of $0.7 million, a $0.4 million improvement from the prior year. This improvement was primarily the result of the higher sales volume.
Building HVAC segment sales increased 31 percent to $45.5 million compared with $34.8 million one year ago. Of this increase, Airedale sales in the U.K. were up $6.4 million, including $3.8 million related to the newly acquired Barkell business. North American heating and school product sales also increased on a year-over-year basis. Operating income of $3.2 million was up $2.0 million from the prior year on
the higher sales volume.
Outlook
“We expect market conditions in Brazil to remain weak, and are not yet planning for significant improvement from the present levels in the off-highway markets in China and North America,” Burke commented. “However, the commercial vehicle market in North America and the automotive market in Europe remain strong, and we expect the production inefficiencies related to both increased volumes and plant consolidations in these regions to improve through the balance of the year.”
Based on the current market outlook and expectations, Modine provides the following guidance for fiscal
2015:
- Full fiscal year-over-year sales up 3 to 6 percent;
- Adjusted operating income of $65 million to $73 million, up from $61.3 million in fiscal 2014; and
- Adjusted earnings per share of $0.63 to $0.73, reflecting the impact of higher income tax expense subsequent to the U.S. valuation allowance reversal in the fourth quarter of fiscal 2014.
