Modine Manufacturing Company (NYSE: MOD), a diversified global leader in thermal management technology and solutions, today reported financial results for the third quarter of fiscal year 2018.
Third Quarter Highlights:
- Net sales of $512.7 million, increased 47 percent from the prior year, including an incremental $110.2 million from the Commercial and Industrial Solutions (“CIS”) segment
- Non-CIS sales increased 12 percent on a constant-currency basis
- Operating income of $13.9 million and adjusted operating income of $27.0 million
- Income tax expense of $35.2 million, including $35.7 million related to the recently enacted U.S. tax reform legislation
- Loss per share of $0.57 and adjusted earnings per share of $0.35
- Updates 2018 outlook and now expects adjusted earnings per share to range between $1.44 and $1.52, up from $1.30 to $1.45
“Our sales increased across all of our business segments, driven by strength in our end markets, market share gains and program launches,” said Modine President and Chief Executive Officer, Thomas A. Burke. “The significant growth in adjusted operating earnings resulted from the addition of our CIS business, along with volume-driven earnings growth in the Americas, Asia and Building HVAC, which more than offset higher raw material costs.”
Net sales for the third quarter were $512.7 million, an increase of 47 percent from the prior year. This included a $110.2 millionincrease in CIS sales, which was only owned by the company for one month of the prior year quarter. On a constant-currency basis, non-CIS sales increased $38.8 million, or 12 percent, from the third quarter of the prior year. This increase was a result of sales growth across all business segments.
Gross profit increased in the third quarter to $85.4 million, compared to $59.0 million in the prior year, including an increase of $14.2 million related to the CIS segment. Gross margin decreased 20 basis points to 16.7 percent, primarily due to sales mix.
Selling, general and administrative (“SG&A”) expenses increased $10.1 million to $60.8 million in the third quarter from the prior year, primarily due to a $9.0 million increase in the CIS segment and higher compensation-related expenses, partially offset by lower acquisition-related costs.
During the third quarter, the company recorded $9.4 million of restructuring expenses and a $1.3 million impairment charge, primarily related to the recently announced closure of a manufacturing facility in Austria within the CIS segment.
Third quarter operating income was $13.9 million compared with $6.7 million in the third quarter of the prior year. Excluding acquisition and integration costs, restructuring expenses, and certain other items, adjusted operating income was $27.0 million, up $8.6 million or 47% from the prior year. The increase was due to strong performance in the Americas, Asia and Building HVAC segments, along with the contribution of the CIS segment.
Loss per share of $0.57 declined $0.61 from earnings per share of $0.04 in the third quarter of the prior year, primarily due to $35.7 million of charges to income tax expense related to tax reform legislation. Adjusted earnings per share of $0.35 improved $0.14 or 67% compared to the third quarter of the prior year.
Third Quarter Segment Review
- Americas segment sales were $140.5 million, compared with $123.4 million one year ago, an increase of 13.9 percent, with growth in all major markets. The segment reported operating income of $8.9 million, an improvement of $3.2 million from the prior year, primarily due to higher sales volume more than offsetting higher material costs.
- Europe segment sales were $134.6 million, compared with $119.8 million one year ago, an increase of 12.3 percent. On a constant-currency basis, sales were up 3.1 percent, driven primarily by higher sales to automotive and off-highway customers. The segment reported operating income of $6.3 million, down $2.3 million from the prior year. This decrease was due to end of program pricing adjustments that benefited the third quarter of the prior year and a $1.0 million increase in restructuring expenses.
- Asia segment sales were $42.8 million compared with $28.6 million one year ago, an increase of 49.8 percent. On a constant currency basis, sales were up 44.3 percent, driven by higher sales across all served markets in China, Korea, and India. Operating income of $5.1 million improved $2.5 million from the prior year, primarily due to higher sales volume.
- CIS segment sales were $144.9 million in the third quarter compared to $34.7 million in the prior year. The increase is due to the CIS business only being owned for one month in the prior year quarter. The segment reported an operating loss of $4.6 million, including $9.5 million of restructuring and impairment charges related to the closure of a manufacturing facility in Austria.
- Building HVAC segment sales were $56.1 million in the third quarter compared with $47.2 million one year ago, an increase of 18.8 percent. On a constant currency basis, sales were up 16.1 percent, with increases across all served markets. Operating income of $9.2 million was up $2.5 million compared with the prior year, primarily a result of higher sales volume and lower operating expenses driven by efficiency improvements.
Balance Sheet & Liquidity
Total debt was $485.9 million as of December 31, 2017. Cash and cash equivalents at the end of the third quarter were $47.8 million. Net debt was $438.1 million as of December 31, 2017, a decrease of $38.6 million from the end of fiscal 2017. The decrease in net debt was primarily due to strong cash flow from operations during the second and third quarters.
Net cash provided by operating activities for the first nine months of fiscal 2018 was $105.6 million compared with $35.0 million one year ago. The improvement from the prior year was driven largely by higher earnings from operations and improved working capital. Free cash flow for the first nine months of fiscal 2018 was $50.6 million, a $61.6 million improvement over the prior year.
“For the remaining quarter, we expect continued strength in our major end markets and favorable exchange rates,” commented Burke. “Based on this outlook and our strong year-to-date results, we are raising our sales and adjusted earnings per share guidance ranges.”
Based on current exchange rates, market outlook and business forecast, Modine updates the following guidance ranges for fiscal 2018:
- Full fiscal year-over-year sales up 36 to 40 percent;
- Adjusted EBITDA of $187 million to $192 million;
- Adjusted operating income of $112 million to $117 million; and
- Adjusted earnings per share of $1.44 to $1.52.
Conference Call and Webcast
Modine will conduct a conference call and live webcast, with a slide presentation, on Wednesday, January 31, 2018 at 8:00 a.m. Central Time (9:00 a.m. Eastern Time) to discuss its third 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 January 31, 2018. A call-in replay will be available through midnight on February 2, 2018, at 855.859.2056, (international replay 404.537.3406); Conference ID# 1787078. The company will furnish a transcript of the call to the U.S. Securities and Exchange Commission, and post it on its website, on February 2, 2018.