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Modine Reports Third Quarter Fiscal 2013 Results; Continues European Restructuring; Affirms Guidance

Modine Manufacturing Company (NYSE: MOD), a diversified global leader in thermal management technology and solutions, today reported its financial results for the third quarter ended December 31, 2012. Highlights include:  Sales of $326.1 million; GAAP basis loss per share of $0.19; Impairment and restructuring charges of $9.7 million; and Earnings per share excluding impairment and … Continued

Modine Manufacturing Company (NYSE: MOD), a diversified global leader in thermal management technology and solutions, today reported its financial results for the third quarter ended December 31, 2012. Highlights include:

  •  Sales of $326.1 million;
  • GAAP basis loss per share of $0.19;
  • Impairment and restructuring charges of $9.7 million; and
  • Earnings per share excluding impairment and restructuring charges of $0.02.

“Most of our end markets remain below prior year levels,” said Modine President and Chief Executive Officer, Thomas A. Burke. “Although our revenues are down, we aggressively managed our costs resulting in positive free cash flow during the quarter. We are on track with our critically important restructuring program in Europe, and expect to see benefits from this program in the new fiscal year.”

Third Quarter Financial Results
Net sales in the third quarter of fiscal 2013 decreased $47.2 million, or 12.6 percent, from the third quarter of fiscal 2012. On a constant currency basis, net sales decreased 10.2 percent from the prior year. Sales in Europe continue to be impacted by the planned wind down of the non-strategic automotive module business, while sales in all regions were affected by weak end market demand. Gross profit decreased $11.9 million or 19.8 percent, resulting in a gross margin of 14.8 percent, down 130 basis points from the prior year. The margin decrease was largely due to lower sales volume. Selling, general and administrative (SG&A) expense increased $1.6 million, or 3.9 percent, primarily due to the impact of the reversal of a trade compliance-related reserve in the prior year. The company recorded $8.3 million of impairment charges and $1.4 million of restructuring expenses primarily related to the ongoing restructuring in Europe. Operating income decreased $21.0 million to a loss of $3.8 million as a result of lower gross profit and the $9.7 million of impairment and restructuring charges. The net loss attributable to Modine of $8.7 million compares to net earnings attributable to Modine of $9.0 million for the same period last year, and represents a loss per share of $0.19 on a GAAP basis. Earnings per share excluding impairment and restructuring charges was $0.02, compared to $0.24 in the third quarter of last year. Net debt was $131.8 million at December 31, 2012, a decrease of $1.1 million from the end of fiscal 2012. Cash on hand at the end of the quarter was $32.9 million.

Third Quarter Segment Results
North America segment sales decreased 7.9 percent to $128.2 million compared to $139.2 million one year ago. The decrease was driven primarily by lower sales to off-highway customers as orders slowed during the quarter. Operating income decreased $2.4 million, or 22.6 percent, to $8.2 million compared to 2 the prior year due to lower gross profit on the lower sales and higher SG&A expense. SG&A was lower in the prior year due to the reversal of a $2.3 million trade compliance-related liability.

Europe segment sales decreased 17.3 percent to $115.7 million compared to $139.9 million in the prior year. On a constant currency basis, sales decreased 13.8 percent from the prior year primarily due to the planned wind down of the automotive module business and lower sales to commercial vehicle and off-highway customers. Market demand in Europe continued to be impacted by weak economic conditions, affecting both mature programs and launch volumes. The segment operating loss was $5.7 million during the quarter compared to $6.8 million of operating income in the prior year. The decrease was primarily due to $9.7 million of restructuring and impairment charges, including $8.3 million of non-cash asset impairment charges and $1.4 million of restructuring costs.

South America segment sales decreased 24.9 percent to $31.7 million compared to $42.2 million one year ago. On a constant currency basis, sales decreased 14.0 percent from the prior year. The decrease in sales was due to the continued weakness in the commercial vehicle market following the pre-buy ahead of the January 1, 2012 change in emissions standards in Brazil. Operating income of $2.6 million was lower than the prior year by $1.4 million due to lower gross profit on lower sales volume. Asia segment sales decreased 36.8 percent to $13.2 million compared to $20.9 million one year ago due to lower sales to off-highway customers as production schedules have been reduced in response to low demand and high field inventory levels caused by weak economic conditions. The operating loss in the region increased by $1.0 million to $2.5 million compared to a loss of $1.5 million in the prior year, as a result of lower gross profit on the lower sales volume.

Commercial Products segment sales increased 5.1 percent to $41.3 million compared to $39.3 million one year ago due to an increase in chiller sales in the UK, partially offset by a decrease in heating and cooling product sales in North America. Gross margin was down on a year-over-year basis due to unfavorable product mix changes. Operating income decreased $1.1 million from the prior year to $4.7 million due primarily to changes in sales mix and higher SG&A expense from the integration of the Geofinity business and other spending to support future growth.

Outlook
“Our primary markets remained weak during the quarter, resulting in lower volumes than we had originally expected,” Burke commented. “While we believe that the commercial vehicle market is stabilizing in most regions, end market demand and high inventory levels may keep production levels relatively low during the next several quarters. We are confirming our guidance for fiscal 2013, with a narrowed band for earnings per share.”

The company has the following expectations for fiscal 2013, excluding impairment and restructuring charges:

  • Year-over-year sales down 10 to 12 percent, including approximately $80 million of planned program reductions;
  • Operating income margin in the range of 2.75 to 3.25 percent; and
  • Earnings per diluted share of $0.40 to $0.45.

“We are encouraged by industry projections for market recoveries later in calendar 2013,” Burke commented. “With this in mind, we remain focused on cost control, including our restructuring program in Europe, while also identifying opportunities for profitable growth.”

Conference Call and 3 Modine will conduct a conference call and live webcast, with a slide presentation, on Friday, February 1, 2013 at 8:00 a.m. Central Time (9:00 a.m. Eastern Time) to discuss its fiscal 2013 third quarter results. The webcast and accompanying slides will be available on the Investor Relations section of the Modine website at www.modine.com. The dial-in phone number for the audio portion of the call is 800.901.5241 (international dial-in 617.786.2963); access code 98660400. 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 the slides will be available on the Investor Relations section of the Modine website at www.modine.com after February 1, 2013. A call-in replay will be available through midnight on February 8, 2013, at 888.286.8010, (international replay 617.801.6888); access code 88114390. The company will furnish a transcript of the call to the U.S. Securities Exchange Commission, and post it on its website, after February 6, 2013.
Modine, with fiscal 2012 revenues of $1.6 billion, specializes in thermal management systems and components, bringing highly engineered heating and cooling technology and solutions to diversified global markets. Modine products are used in light, medium and heavy-duty vehicles, heating, ventilation and air conditioning equipment, off-highway and industrial equipment and refrigeration systems. The company employs approximately 6,600 people at 30 facilities in 16 countries.

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