Modine Reports Third Quarter Fiscal 2012 Operating Income of $16.2 million and Diluted Earnings Per Share of $0.18

RACINE, Wis.--()--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, 2011. Highlights versus the same period last year include:

  • Sales of $373.3 million, up 3.7 percent;
  • Operating income of $16.2 million, up 77.4 percent;
  • Other expense included $2.1 million of losses due to changes in foreign currency rates; and
  • Net earnings of $8.3 million, resulting in diluted earnings per share of $0.18, up 50 percent.

"We had another solid quarter, with a $7.1 million or 77 percent improvement in earnings from operations," said Modine President and Chief Executive Officer, Thomas A. Burke. "Our net earnings were negatively impacted by $2.1 million of foreign exchange losses and a $2.2 million asset write-off. Despite these impacts, our earnings per share increased 50 percent.

"Also during the quarter, we began to see softening in the European truck and premium automotive markets, and our Asian customers began working down inventory levels in the construction equipment market. These factors, combined with the foreign exchange losses, are prompting us to lower full year fiscal 2012 guidance for revenue growth and earnings per share."

Third Quarter Financial Results

Net sales in the third quarter of fiscal 2012 improved $13.2 million, or 3.7 percent, from the third quarter of fiscal 2011. Excluding foreign currency, net sales increased 4.7 percent from the prior year. The most significant improvements were within the commercial vehicle and off-highway markets in North America, South America and Asia as well as in our Commercial Products segment. Gross profit increased 5.7 percent, or $3.2 million, on the increased sales volumes, resulting in a gross margin of 16.0 percent. Selling, general and administrative (SG&A) expense decreased $3.9 million year over year, primarily due to a decrease in management compensation expense and the impact of a reversal of a contingent liability related to a previously reported trade compliance issue that has been successfully resolved, partially offset by a $2.2 million asset write-off in Europe. Operating income increased $7.1 million or 77.4 percent from the third quarter of fiscal 2011 to $16.2 million, as a result of the higher gross profit and lower SG&A expenses. Other expense of $1.7 million represents a $1.9 million decrease from other income of $0.2 million during the same period last year due to unfavorable foreign currency losses on intercompany loans and other transactions denominated in foreign currencies. Net earnings of $8.3 million represents a $2.7 million improvement, or a 49.5 percent increase, from net earnings of $5.6 million for the same period last year.

Net debt was $139.4 million at the end of the quarter, a decrease of $1.7 million from the end of the second quarter of fiscal 2012, including $26.1 million of cash at the end of the quarter.

Third Quarter Segment Results

Original Equipment - North America segment sales increased 2.2 percent to $139.2 million, compared to $136.2 million one year ago. The increase was driven primarily by higher volumes in the heavy duty truck market, partially offset by decreases in the specialty vehicle market and in the automotive sector. As previously announced, volumes in our automotive sector are decreasing as certain North American automotive programs wind down. Gross margin improved 40 basis points, driven primarily by increased plant performance efficiencies. Operating income increased $4.5 million or 73.3 percent to $10.6 million compared to the prior year due to higher gross profit and lower SG&A expense.

South America segment sales increased 15.7 percent to $42.2 million, compared to $36.4 million one year ago, primarily in the commercial vehicle and off-highway markets. Sales continued to benefit from the pre-buy of commercial vehicles ahead of the 2012 change in emissions standards. Operating income of $4.0 million more than doubled from the prior year due to higher gross profit on the higher sales volume and lower SG&A expense.

Original Equipment - Europe segment sales were flat at $139.9 million and gross margin improved 60 basis points from the same period last year. Operating income decreased $1.6 million from the prior year to $5.8 million, primarily due to an asset write-off related to a change in manufacturing strategy associated with the OrigamiTM heat exchanger assembly.

Original Equipment - Asia segment sales increased 23.7 percent to $20.9 million, while gross margin fell to 6.2 percent compared to a gross margin of 7.6 percent one year ago. This performance reflects the continued sales growth driven by increased program launch activity and the additional costs related to the conversion of the Shanghai plant from assembly to manufacturing. Operating income decreased $0.6 million to a loss of $1.5 million compared to a loss of $0.9 million in the prior year, as a result of higher SG&A expenses to support future sales growth and heavy launch activity.

Commercial Products segment sales increased 10.5 percent to $39.3 million compared to $35.6 million one year ago, primarily due to volume increases in both North America and the United Kingdom. Gross margin decreased by 170 basis points, primarily due to higher material costs. Operating income increased $0.3 million from the prior year to $5.8 million. This increase is primarily due to improved gross profit on the higher sales.

Outlook

"The decline in certain foreign exchange rates has resulted in nearly $8 million of losses in the first nine months of this fiscal year," Burke commented. "Our exposure to these foreign exchange changes, combined with the recent softness in our European and Asian markets, is causing us to adjust our full year expectations."

The company is adjusting full year fiscal 2012 guidance, as follows:

  • Year-over-year sales growth of 8 to 10 percent;
  • Earnings per diluted share at $0.70 to $0.75;
  • Operating income margin in the range of 4.1 to 4.5 percent; and
  • Capital expenditures in a range of $70 to $75 million.

"With one quarter remaining, and despite some economic headwinds, we continue to see this fiscal year as another positive step in Modine’s repositioning," Burke commented. "Based on our current outlook, we will deliver a year of solid revenue growth, margin improvement and significant earnings growth."

Conference Call and Webcast

Modine will conduct a conference call and live webcast, with a slide presentation, on Friday, February 3, 2012 at 8:00 a.m. Central Time (9:00 a.m. Eastern Time) to discuss its fiscal 2012 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 800.435.1398 (international dial-in 617.614.4078); access code 11769218. 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 3, 2012. A call-in replay will be available through midnight on February 3, 2012, at 888.286.8010 (international replay 617.801.6888); access code 43491369. The company will furnish a transcript of the call to the U.S. Securities Exchange Commission, and post it on to the company's website, after February 5, 2012.

About Modine

Modine, with fiscal 2011 revenues of $1.4 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, refrigeration systems, and fuel cells. The company employs approximately 6,800 people at 27 facilities worldwide in 14 countries. For more information about Modine, visit www.modine.com.

Forward-Looking Statements

This press release contains statements, including information about future financial performance and market conditions, including the information provided under "Outlook," accompanied by phrases such as "believes," "estimates," "expects," "plans," "anticipates," "intends," and other similar "forward-looking" statements, as defined in the Private Securities Litigation Reform Act of 1995. Modine's actual results, performance or achievements may differ materially from those expressed or implied in these statements because of certain risks and uncertainties, including, but not limited to, those described under "Risk Factors" in Item 1A of Part I of the company's Annual Report on Form 10-K for the year ended March 31, 2011 and under Forward-Looking Statements in Item 7 of Part II of that same report and in the company's Quarterly Reports on Form 10-Q for the quarters ended June 30, 2011 and September 30, 2011. Other risks and uncertainties include, but are not limited to, the following: operational inefficiencies as a result of program launches and product transfers; economic, social and political conditions, changes and challenges in the markets where Modine operates and competes, including currency exchange rate fluctuations (particularly the value of the euro and Brazilian real relative to the U.S. dollar), tariffs, inflation, changes in interest rates, recession, and restrictions associated with importing and exporting and foreign ownership, and in particular the recent slowing of certain markets in China and the economic uncertainties in the European Union; the impact on Modine of increases in commodity prices, particularly aluminum and copper, and its ability to pass these prices on to customers; Modine's continued ability to successfully execute its strategic and operational plans; the nature of the vehicular industry and the dependence of this industry on the health of the economy; costs and other effects of environmental remediation or litigation; and other risks and uncertainties identified by the company in public filings with the U.S. Securities and Exchange Commission. The company does not assume any obligation to update any forward-looking statements.

Financial Disclosures

Net debt and free cash flow (which are defined below) as used in this press release are not measures that are defined in generally accepted accounting principles (GAAP). These non-GAAP measures are used by management as performance measures to judge liquidity. These measures provide a more consistent view of performance than the closest GAAP equivalent for management and investors. Management compensates for this by using these measures in combination with the GAAP measures. However, these measures are not, and should not be, viewed as substitutes for the GAAP measures. The presentations of the non-GAAP measures in this press release are made alongside the most directly comparable GAAP measures.

Definition - Net debt

The sum of short- and long-term debt, less cash on hand. This is an indicator of the company's debt position after considering on hand cash balances.

Definition - Free cash flow

The sum of net cash provided by (used for) operating and investing activities adjusted to exclude prepayment penalties on senior notes. This is a liquidity measure of the cash available after funding ongoing operations and capital expenditures.

- Financial tables follow -

       
Modine Manufacturing Company
Consolidated statements of operations (unaudited)
(In thousands, except per share amounts)
 
Three months ended December 31, Nine months ended December 31,
  2011   2010 *   2011   2010 *
Net sales $ 373,282 $ 360,043 $ 1,188,435 $ 1,051,477
Cost of sales   313,539   303,496     997,242   880,185  
Gross profit 59,743 56,547 191,193 171,292
Selling, general & administrative expenses   43,523   47,405     143,036   136,323  
Operating income 16,220 9,142 48,157 34,969
Interest expense 2,893 2,602 9,180 30,239
Other expense (income) - net   1,667   (179 )   7,552   (2,191 )
Earnings from continuing operations before income taxes 11,660 6,719 31,425 6,921
Provision for income taxes   3,618   1,134     9,642   10,000  
Earnings (loss) from continuing operations 8,042 5,585 21,783 (3,079 )
Earnings (loss) from discontinued operations (net of income taxes)   364   (34 )   737   (3,042 )
Net earnings (loss) 8,406 5,551 22,520 (6,121 )

Less: Net earnings attributable to noncontrolling interest

  110   -     139   -  
Net earnings (loss) attributable to Modine Manufacturing Company $ 8,296 $ 5,551   $ 22,381 $ (6,121 )
 
 
Earnings (loss) from continuing operations attributable to Modine common shareholders:
Basic $ 0.17 $ 0.12 $ 0.46 $ (0.07 )
Diluted $ 0.17 $ 0.12 $ 0.46 $ (0.07 )
 
Net earnings (loss) attributable to Modine common shareholders:
Basic $ 0.18 $ 0.12 $ 0.48 $ (0.13 )
Diluted $ 0.18 $ 0.12 $ 0.48 $ (0.13 )
 
Weighted average shares outstanding:
Basic 46,533 46,235 46,457 46,114
Diluted 46,828 46,892 46,889 46,114
 
Comprehensive earnings (loss), which represents net earnings (loss) adjusted by the post-tax change in foreign-currency translation, the effective portion of cash flow hedges and change in benefit plan adjustment recorded in shareholders' equity, for the three month periods ended December 31, 2011 and 2010 were ($349) and $3,584, respectively, and for the nine month periods ended December 31, 2011 and 2010, were ($12,439) and ($1,164), respectively.
                 
 
Condensed consolidated balance sheets (unaudited)
(In thousands)
    December 31, 2011   March 31, 2011

Assets

Cash and cash equivalents $ 26,098 $ 32,930
Trade receivables - net 185,867 219,189
Inventories 129,526 122,629
Other current assets   56,448   52,877  
Total current assets   397,939   427,625  
Property, plant and equipment - net 397,176 430,295
Other noncurrent assets   52,717   59,019  
Total assets $ 847,832 $ 916,939  
 

Liabilities and shareholders' equity

Debt due within one year $ 15,962 $ 9,087
Accounts payable 132,587 177,549
Other current liabilities   111,791   129,905  
Total current liabilities   260,340   316,541  
Long-term debt 149,550 138,582
Deferred income taxes 10,774 9,988
Other noncurrent liabilities   72,155   88,876  
Total liabilities   492,819   553,987  
Total equity   355,013   362,952  
Total liabilities & equity $ 847,832 $ 916,939  
 
* Prior period results have been revised to reflect the correction of errors identified in fiscal 2011 which were immaterial to prior periods, but too significant to correct in the fourth quarter of fiscal 2011.
 
Modine Manufacturing Company
Condensed consolidated statements of cash flows (unaudited)
(In thousands)
Nine months ended December 31,     2011   2010 *
   
Cash flows from operating activities:
Net earnings (loss) $ 22,520 $ (6,121 )
Adjustments to reconcile net earnings (loss) with net cash provided by (used for) operating activities:
 
Depreciation and amortization 43,368 42,127
Other - net 17,102 7,398
Net changes in operating assets and liabilities   (64,687 )   (44,824 )
Net cash provided by (used for) operating activities   18,303     (1,420 )
 
Cash flows from investing activities:
Expenditures for plant, property and equipment (45,262 ) (31,119 )
Proceeds from dispositions of assets 1,281 12,418
Settlement of derivative contracts (1,762 ) (48 )
Other - net   610     3,709  
Net cash used for investing activities   (45,133 )   (15,040 )
 
Cash flows from financing activities:
Net increase in debt 20,381 12,592
Other - net   923     543  
Net cash provided by financing activities   21,304     13,135  
 
Effect of exchange rate changes on cash   (1,306 )   83  
 
Net decrease in cash and cash equivalents (6,832 ) (3,242 )
 
Cash and cash equivalents at beginning of the period 32,930 43,657
   
Cash and cash equivalents at end of the period $ 26,098   $ 40,415  
 
                 
 
 
Condensed segment operating results (unaudited)
(In thousands)
 
Three months ended December 31, Nine months ended December 31,
  2011     2010 *   2011     2010 *
Sales:
Original Equipment - Asia $ 20,861 $ 16,859 $ 62,115 $ 41,623
Original Equipment - Europe 139,891 139,946 458,721 396,990
Original Equipment - North America (a) 139,201 136,188 444,684 417,632
South America 42,161 36,429 138,177 114,513
Commercial Products (a)   39,326       35,593     108,544       95,339  
Segment sales   381,440       365,015     1,212,241       1,066,097  
Corporate and administrative 263 379 577 1,157
Eliminations   (8,421 )     (5,351 )   (24,383 )     (15,777 )
Total net sales $ 373,282     $ 360,043   $ 1,188,435     $ 1,051,477  
 
Operating income/(loss):
Original Equipment - Asia $ (1,488 ) $ (883 ) $ (1,425 ) $ (2,530 )
Original Equipment - Europe 5,791 7,421 25,219 21,473
Original Equipment - North America (a) 10,643 6,140 32,361 24,425
South America 3,951 1,182 9,828 9,972
Commercial Products (a)   5,796       5,458     12,064       11,194  
Segment income from operations   24,693       19,318     78,047       64,534  
Corporate and administrative (8,448 ) (10,158 ) (29,765 ) (29,576 )
Eliminations   (25 )     (18 )   (125 )     11  
Income from operations $ 16,220     $ 9,142   $ 48,157     $ 34,969  
 
* Prior period results have been revised to reflect the correction of errors identified in fiscal 2011 which were immaterial to prior periods, but too significant to correct in the fourth quarter of fiscal 2011.
 
(a) Segment operating results were retrospectively adjusted for comparative purposes to reflect the realignment of the Nuevo Laredo, Mexico facility into the Original Equipment - North America segment from the Commercial Products segment for the three and nine months ended December 31, 2010.
Modine Manufacturing Company
Net debt (unaudited)
(In thousands)
       
 
December 31, 2011   March 31, 2011
Debt due within one year $ 15,962 $ 9,087
Long-term debt   149,550     138,582  
Total debt   165,512     147,669  
 
Less: cash and cash equivalents   26,098     32,930  
Net debt $ 139,414   $ 114,739  
                 
 
Free cash flow (unaudited)
(In thousands)
 
Three months ended December 31, Nine months ended December 31,
  2011       2010     2011       2010  
Net cash provided by (used for) operating activities $ 15,147 $ 14,444 $ 18,303 $ (1,420 )
Net cash used for investing activities (14,395 ) (3,051 ) (45,133 ) (15,040 )
Prepayment penalties on senior notes   -     -     -     16,570  
Free cash flow $ 752   $ 11,393   $ (26,830 ) $ 110  
                                 

Contacts

Modine Manufacturing Company
Kathleen Powers, 262-636-1687
k.t.powers@na.modine.com

Sharing

Contacts

Modine Manufacturing Company
Kathleen Powers, 262-636-1687
k.t.powers@na.modine.com