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, 2014. Highlights and year-over-year comparisons include:
- Sales of $363.6 million, up 5 percent;
- Operating income of $15.5 million and net earnings per share of $0.20;
- Adjusted operating income of $14.2 million, up $1.9 million;
- Adjusted earnings per share of $0.15, down $0.01.
“We are pleased with the sales increase this quarter despite continued weak market conditions in Brazil and unfavorable foreign currency impacts,” said Modine President and Chief Executive Officer, Thomas A. Burke. “Adjusted operating income increased 15 percent due to sales volume increases, particularly within our Building HVAC segment.”
Third Quarter Financial Results
Sales in the third quarter of fiscal 2015 grew $16.6 million, or 5 percent, from the third quarter of fiscal
2014. On a constant currency basis, sales were up 9 percent, with increases in all segments other than South America, as economic conditions remained weak in Brazil. Gross profit increased $2.6 million, or 5 percent, and gross margin was flat at 16.4 percent, as positive volume impacts were offset by higher materials costs. Selling, general and administrative (SG&A) expenses increased $0.7 million, but were down as a percentage of sales. The company recorded $1.9 million of restructuring expenses, of which $0.6 million related to the ongoing restructuring program in Europe, $0.7 million related to severance expenses in South America, and $0.6 million related to the closure of the McHenry, Illinois manufacturing facility in North America. The company also recorded a $3.2 million gain on the sale of a wind tunnel in Europe during the quarter. Earnings from continuing operations of $9.1 million improved $12.5 million from the prior year. Excluding restructuring expenses and the gain on the sale of the wind tunnel, the company reported adjusted operating income of $14.2 million, up $1.9 million from the prior year, and adjusted earnings per share of $0.15, compared with $0.16 in the third quarter of last year.
Free cash flow in the quarter was $10.0 million. Net debt was $73.7 million at December 31, 2014, a decrease of $3.5 million from the end of fiscal 2014. Cash and cash equivalents at the end of the third quarter were $79.9 million.
Third Quarter Segment Results
North America segment sales increased 2 percent to $131.8 million compared with $128.9 million one year ago. The increase was driven primarily by higher sales to commercial vehicle and automotive customers, partially offset by lower sales to off-highway customers. Operating income decreased $1.8 million to $6.9 million compared with the prior year. Gross profit was up on the higher sales volume, but was offset by higher SG&A expense due to higher engineering and development costs.
Europe segment sales decreased 2 percent to $137.2 million compared with $140.5 million in the prior year, driven primarily by a $12.1 million negative currency impact during the quarter. On a constant currency basis, sales grew 6 percent as compared to the prior year. This growth was primarily due to higher sales to automotive and commercial vehicle customers. Operating income for the quarter of $5.9 million included $0.6 million of restructuring charges related to the plant consolidation in Germany and a $3.2 million gain from the wind tunnel sale, and was negatively impacted by higher metals prices, unfavorable sales mix and lower profits on tooling sales.
South America segment sales decreased 22 percent to $21.5 million compared with $27.4 million one year ago. On a constant currency basis, sales decreased 12 percent, due primarily to lower sales to off- highway, commercial vehicle and automotive customers as economic conditions in Brazil continue to be weak. The segment reported a $1.3 million operating loss, compared to $1.1 million of operating income last year. This decrease was primarily due to lower sales volume and $0.7 million of restructuring expenses.
Asia segment sales increased 18 percent to $20.2 million compared with $17.1 million one year ago as higher sales to automotive customers in China and higher sales across all markets in India were partially offset by lower sales to off-highway customers in China. The segment reported an operating loss of $0.3 million, a $0.3 million improvement from the prior year. This improvement was primarily the result of the higher sales volume.
Building HVAC segment sales increased 52 percent to $56.3 million compared with $37.0 million one year ago. Of this increase, Airedale sales in the U.K. were up $13.0 million. This increase was largely driven by low sales in the third quarter of the prior year due to the September 6, 2013 fire and the inclusion of the newly-acquired Barkell business in the current year. North American heating and school product sales increased as the market for heating products in North America remains strong. Operating income of $9.8 million was up $4.5 million from the prior year on the higher sales volume.
Outlook
“We anticipate that the heating and commercial truck markets will remain strong for the remainder of our fiscal year,” Burke commented. “However, we expect further weakness in South America and in the global off-highway markets and continued, unfavorable currency conditions. Based on these factors and given the proximity to our fiscal year-end, we are lowering our revenue guidance and tightening our earnings guidance range at this time.”
Based on current exchange rates and market outlook, Modine provides the following guidance for fiscal 2015:
- Full fiscal year-over-year sales up 1 to 3 percent, which reflects an approximately 150 basis point reduction in sales growth as a result of unfavorable foreign exchange rates compared to our prior outlook of a 3 to 6 percent annual sales increase;
- Adjusted operating income of $65 million to $70 million, up from $61.3 million in fiscal 2014; and
- Adjusted earnings per share of $0.63 to $0.70, reflecting the impact of higher income tax expense following our reversal of the U.S. valuation allowance in the fourth quarter of fiscal 2014.
Modine Reports Third Quarter Fiscal 2015 Results
