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Modine Manufacturing Company (MOD), a diversified global leader in
thermal management technology and solutions, today reported its
financial results for the fourth quarter ended March 31, 2012.
Highlights versus the same period last year include:
Sales of $388.7 million, down 2.0 percent;
Gross margin of 16.8 percent, up 160 basis points;
Operating income of $18.5 million, up $10.7 million or 136 percent;
Net earnings of $16.2 million, up $4.2 million or 35 percent; and
Diluted earnings per share of $0.34, up 36 percent.
"We finished the year with another solid quarter, including significant
improvements in gross margin and earnings from operations," said Modine
President and Chief Executive Officer, Thomas A. Burke. "We delivered
earnings per share of $0.83 for the full year, a substantial improvement
over the prior year."
Fourth Quarter Financial Results
Net sales in the fourth quarter of fiscal 2012 decreased $8.0 million,
or 2.0 percent, from the fourth quarter of fiscal 2011. Excluding the
impact of foreign currency translation, net sales increased 0.2 percent
from the prior year. As expected, sales decreased in the South America
segment after the strong pre-buy of commercial vehicles ahead of the
January 1, 2012 change in emissions standards. In addition, sales in
Europe were below prior year, largely due to the impact of foreign
currency translation and the expected wind down of some non-strategic
business. Gross profit increased 8.2 percent, or $5.0 million, resulting
in a gross margin of 16.8 percent, up 160 basis points from the prior
year. The increase was largely due to improved plant performance, lower
material costs, and higher tooling profits in the current quarter, and
$2.7 million of unfavorable inventory adjustments in the fourth quarter
of fiscal 2011. Selling, general and administrative (SG&A) expense
decreased $5.7 million or 10.8 percent year over year, primarily due to
lower pension expense and higher customer reimbursement of development
costs. Operating income increased $10.7 million to $18.5 million, a 136
percent improvement from the fourth quarter of fiscal 2011, as a result
of the higher gross profit and lower SG&A expense. Other income of $0.4
million represents a $1.0 million decrease from other income of $1.4
million during the same period last year. Net earnings of $16.2 million
represent a $4.2 million or 35 percent improvement, from net earnings
attributable to Modine of $12.0 million for the same period last year.
Net debt was $132.8 million at the end of the quarter, a decrease of
$6.6 million from the end of the third quarter of fiscal 2012, including
$31.4 million of cash on hand at the end of the quarter.
During the quarter, the company discovered that it was incorrectly
applying value added tax ("VAT") in the Original Equipment -- Europe
segment on certain complex cross border transactions. The company
continues to work through the assessment of these errors and has
estimated a cumulative liability of $10.0 million, spread over 8 years,
of which $0.2 million relates to the fourth quarter, $0.2 million
relates to the first three quarters of fiscal 2012 and $9.6 million
relates to prior years. The company has revised prior period financial
statements to correct for these errors and is developing plans to ensure
that VAT is properly assessed on all future cross border transactions.
Fourth Quarter Segment Results
Original Equipment - North America segment sales increased 1.1 percent
to $157.3 million, compared to $155.6 million one year ago. The increase
was driven primarily by higher volumes in the heavy duty truck and off
highway markets, partially offset by lower tooling sales and decreases
in the specialty vehicle market and in the automotive sector. As
previously announced, sales volumes in the automotive sector are
decreasing as certain North American automotive programs wind down.
Gross margin improved 360 basis points to 17.2 percent, driven primarily
by increased plant performance, lower materials and benefits costs, and
unfavorable inventory adjustments in the fourth quarter fiscal 2011
results. Operating income increased $8.0 million or 105 percent to $15.5
million compared to the prior year, due to higher gross profit and lower
SG&A expense. SG&A expense was lower mainly due to lower pension expense
and higher prototype and testing recoveries.
South America segment sales decreased 15.6 percent to $37.4 million,
compared to $44.3 million one year ago. Excluding the impact of foreign
currency translation, sales decreased 10.5 percent from the prior year.
The sales decline was expected due to the pre-buy of commercial vehicles
in the third fiscal quarter ahead of the January 1, 2012 change in
emissions standards. Operating income of $0.5 million was lower than the
prior year by $2.5 million on the lower sales volumes.
Original Equipment - Europe segment sales decreased 3.7 percent to
$144.1 million, compared to $149.7 million in the prior year. Excluding
the impact of foreign currency translation, sales increased 0.5 percent
over the prior year. Gross margin improved 120 basis points to 14.6
percent from the same period last year, primarily due to mix of
relatively higher margin products, lower material costs and higher
tooling profits. Operating income increased to $10.9 million, a $4.4
million improvement from the prior year, due to higher gross profit and
lower SG&A expense. SG&A expense was lower mainly due to higher customer
reimbursement of development costs in fiscal 2012 and lower impairment
charges versus the prior year.
Original Equipment - Asia segment sales decreased 1.1 percent to $22.0
million, while gross margin fell to 8.0 percent compared to a gross
margin of 9.4 percent one year ago. This performance reflects an
expected decrease in non-strategic vehicular HVAC sales from the
Shanghai China plant, partially offset by sales increases from other
Asian facilities. Operating income decreased $0.4 million to a loss of
$1.0 million compared to a loss of $0.6 million in the prior year, as a
result of lower gross profit and higher SG&A expense.
Commercial Products segment sales increased 8.6 percent to $33.6 million
compared to $30.9 million one year ago, primarily due to market share
gains from new product introductions in the United Kingdom. Operating
income increased $0.6 million from the prior year to $2.2 million and
operating margin increased 150 basis points, from 5.1 to 6.6 percent.
The operating income improvement is primarily due to increased gross
profit on the higher sales. The operating margin increase was driven
largely by leveraging flat SG&A expense against the higher sales volume.
Full Year Fiscal 2012 Overview
The company completed fiscal 2012 with strong year-over-year results. In
fiscal 2012, sales increased 8.9 percent to $1.577 billion and gross
margin improved 30 basis points from 16.0 percent in fiscal 2011 to 16.3
percent in fiscal 2012. The improved sales and gross margin resulted in
net earnings attributable to Modine of $39.1 million or $0.83 per fully
diluted share.
"These results show continued improvement over the prior year," Burke
commented. "Our North American business is strong, and the launch
activity in Europe has us on a positive path to meet our objectives in
the segment. As stated last quarter, we will need to restructure our
European operations over the next two to three years to align our cost
structure with our strategy of growing the commercial vehicle segment as
non-strategic automotive module programs wind down."
Outlook
"In fiscal 2013, new business wins will roughly offset the impact on
sales from the wind down of automotive module programs," Burke
commented. "However, we expect that revenues will also be impacted by
continuing weak end markets around the globe and unfavorable foreign
currency conditions. This will be a transitional year for us in Europe,
as we feel the most significant impact from the planned wind down of the
BMW business, continue the transition from automotive to commercial
vehicle business, and begin implementing our restructuring plan.
However, we are confident in the long-term benefits of these actions."
The company has the following expectations for fiscal 2013, excluding
European restructuring:
Weaker economic conditions in several key markets, including Europe,
South America, and Asia;
Year-over-year sales down 5 to 10 percent, including approximately $80
million of planned program reductions;
Operating income margin in the range of 3.5 to 4 percent; and
Earnings per diluted share of $0.60 to $0.70.
The company is implementing a restructuring program designed to align
the cost structure in Europe with the strategic focus on the commercial
vehicle market. The company expects actions will include exiting certain
non-core product lines, reducing manufacturing costs, implementing
headcount reductions, and disposing of or selling certain fixed assets.
The company will implement this plan over the next two years, with the
goal of achieving the following financial targets thereafter:
Gross margin in the 15 to 17 percent range;
Annual SG&A savings of EUR5 million to EUR7 million (approximately $6
million to $9 million);
Operating margins of 8 to 10 percent; and
Return on average capital employed of 15 percent for the segment.
The company anticipates cash costs related to the restructuring program
spread over multiple years to range from EUR10 million to EUR20 million
(approximately $13 million to $25 million) plus some additional non-cash
charges.
"There are exciting times ahead for Modine," Burke commented. "While
fiscal 2013 will be a transitional year, we have net new booked business
of over $250 million at current market expectations, the bulk of which
will benefit the company in fiscal 2014 and 2015. This new business,
combined with market improvements and the benefit of our strategic
business initiatives, gives me great confidence in Modine’s future."
Conference Call and Webcast
Modine will conduct a conference call and live webcast, with a slide
presentation, on Friday, June 1, 2012 at 8:00 a.m. Central Time (9:00
a.m. Eastern Time) to discuss its fiscal 2012 fourth 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
800.510.0146 (international dial-in 617.614.3449); access code 75576493.
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 June 1, 2012. A call-in replay will be available through midnight
on June 8, 2012, at 888.286.8010 (international replay 617.801.6888);
access code 11290777. 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 June 4, 2012.
About Modine
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 29 facilities worldwide in
15 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,
September 30, 2011, and December 31, 2011. Other risks and uncertainties
include, but are not limited to, the following: operational
inefficiencies as a result of program launches and product transfers;
uncertainties regarding the costs and benefits of Modine’s European
restructuring program; 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; the possibility that other or
more significant issues may be identified in the ongoing assessment of
errors in applying VAT in the Original Equipment- Europe segment; 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, free cash flow and return on average capital employed (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 profitability and 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.
Definition -- Return on average capital employed (ROACE)
Operating income, less a 30 percent income tax rate, less minority
interest; divided by the average of debt plus Modine shareholders’
equity. This is a financial measure of the profit generated on the total
capital invested in the company.
- Financial tables follow -
Modine Manufacturing Company
Consolidated statements of operations (unaudited)
(In thousands, except per share amounts)
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Three months ended March 31, Twelve months ended March 31,
2012 2011 * 2012 2011 *
------- ------------------ --------- --------------------
Net sales $ 388,717 $ 396,758 $ 1,577,152 $ 1,448,235
Cost of sales 323,429 336,442 1,319,605 1,215,979
------- ------- --------- ---------
Gross profit 65,288 60,316 257,547 232,256
Selling, general & administrative expenses 46,745 52,453 189,296 189,335
------- ------- --------- ---------
Operating income 18,543 7,863 68,251 42,921
Interest expense 3,303 3,484 12,483 33,723
Other (income) expense - net (422 ) (1,432 ) 7,130 (3,625 )
------- - ------- - --------- --------- ----
Earnings from continuing operations before income taxes 15,662 5,811 48,638 12,823
(Benefit from) provision for income taxes (629 ) (6,163 ) 10,013 4,543
------- - ------- - --------- ---------
Earnings from continuing operations 16,291 11,974 38,625 8,280
Earnings (loss) from discontinued operations (net of income taxes) 87 (5 ) 824 (3,047 )
------- ------- - --------- --------- ----
Net earnings 16,378 11,969 39,449 5,233
Less: Net earnings attributable to noncontrolling interest 204 - 343 -
------- ------- --------- ---------
Net earnings attributable to Modine Manufacturing Company $ 16,174 $ 11,969 $ 39,106 $ 5,233
======= ======= ======= ======= ==== ========= ==== =========
Earnings from continuing operations attributable to Modine common
shareholders:
Basic $ 0.35 $ 0.26 $ 0.82 $ 0.18
Diluted $ 0.34 $ 0.25 $ 0.81 $ 0.18
Net earnings attributable to Modine common shareholders:
Basic $ 0.35 $ 0.26 $ 0.84 $ 0.11
Diluted $ 0.34 $ 0.25 $ 0.83 $ 0.11
Weighted average shares outstanding:
Basic 46,537 46,330 46,477 46,167
Diluted 46,858 47,055 46,881 46,729
Comprehensive earnings (loss), which represents net earnings
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 March 31, 2012 and 2011 were ($17,658) and
$34,358, respectively, and for the twelve month periods ended March
31, 2012 and 2011, were ($28,692) and $32,647, respectively.
Condensed consolidated balance sheets (unaudited)
(In thousands)
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March 31, 2012 March 31, 2011 *
------------------ ------------------
Assets
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Cash and cash equivalents $ 31,445 $ 32,930
Trade receivables - net 216,103 219,189
Inventories 121,450 122,629
Other current assets 59,082 53,680
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Total current assets 428,080 428,428
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Property, plant and equipment - net 412,059 430,295
Other noncurrent assets 53,871 59,019
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Total assets $ 894,010 $ 917,742
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Liabilities and shareholders’ equity
------------------------------------------------------------------
Debt due within one year $ 19,721 $ 9,087
Accounts payable 156,907 177,549
Other current liabilities 118,505 141,348
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Total current liabilities 295,133 327,984
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Long-term debt 144,560 138,582
Deferred income taxes 12,297 9,988
Other noncurrent liabilities 115,589 88,876
------- -------
Total liabilities 567,579 565,430
------- -------
Total equity 326,431 352,312
------- -------
Total liabilities & equity $ 894,010 $ 917,742
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* Prior period results have been revised to reflect the
correction of errors which are immaterial to prior periods, but too
significant to correct in the fourth quarter of fiscal 2012.
Modine Manufacturing Company
Condensed consolidated statements of cash flows (unaudited)
(In thousands)
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Twelve months ended March 31, 2012 2011 *
---------------------------------------------------------------------- ------- ----------------
Cash flows from operating activities:
Net earnings $ 39,449 $ 5,233
Adjustments to reconcile net earnings with net cash provided by
operating activities:
Depreciation and amortization 57,690 56,492
Other - net 14,032 5,799
Net changes in operating assets and liabilities (65,413 ) (46,712 )
------- ---- ------- ---
Net cash provided by operating activities 45,758 20,812
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Cash flows from investing activities:
Expenditures for property, plant and equipment (64,352 ) (55,061 )
Proceeds from dispositions of assets 1,300 12,556
Settlement of derivative contracts (2,716 ) (7 )
Other - net 758 1,369
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Net cash used for investing activities (65,010 ) (41,143 )
------- ---- ------- ---
Cash flows from financing activities:
Net increase in debt 18,181 7,837
Other - net 573 767
------- -------
Net cash provided by financing activities 18,754 8,604
------- -------
Effect of exchange rate changes on cash (987 ) 1,000
------- ---- -------
Net decrease in cash and cash equivalents (1,485 ) (10,727 )
Cash and cash equivalents at beginning of the period 32,930 43,657
Cash and cash equivalents at end of the period $ 31,445 $ 32,930
==== ======= === =======
Condensed segment operating results (unaudited)
(In thousands)
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Three months ended March 31, Twelve months ended March 31,
2012 2011 * 2012 2011 *
------------ ------------------ --------- --------------------
Sales:
Original Equipment - North America (a) $ 157,282 $ 155,601 $ 601,966 $ 573,233
South America 37,405 44,337 175,582 158,850
Original Equipment - Europe 144,127 149,718 602,848 546,709
Original Equipment - Asia 22,012 22,267 84,127 63,890
Commercial Products (a) 33,614 30,943 142,158 126,282
------------ ------- --------- ---------
Segment sales 394,440 402,866 1,606,681 1,468,964
------------ ------- --------- ---------
Corporate and administrative 501 325 1,078 1,482
Eliminations (6,224 ) (6,433 ) (30,607 ) (22,211 )
------------ - ------- ---- --------- ---- --------- ----
Total net sales $ 388,717 $ 396,758 $ 1,577,152 $ 1,448,235
============ ============ ==== ======= ==== ========= ==== =========
Operating income/(loss):
Original Equipment - North America (a) $ 15,531 $ 7,570 $ 47,892 $ 31,821
South America 525 3,003 10,353 12,975
Original Equipment - Europe 10,896 6,526 37,666 28,262
Original Equipment - Asia (1,032 ) (552 ) (2,457 ) (3,082 )
Commercial Products (a) 2,219 1,570 14,282 12,764
------------ ------- --------- ---------
Segment income from operations 28,139 18,117 107,736 82,740
------------ ------- --------- ---------
Corporate and administrative (9,631 ) (10,283 ) (39,396 ) (39,859 )
Eliminations 35 29 (89 ) 40
------------ ------- --------- ---- ---------
Income from operations $ 18,543 $ 7,863 $ 68,251 $ 42,921
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* Prior period results have been revised to reflect the
correction of errors which are immaterial to prior periods but too
significant to correct in the fourth quarter of fiscal 2012.
(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 twelve months ended March 31,
2011.
Modine Manufacturing Company
Net debt (unaudited)
(In thousands)
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March 31, 2012 March 31, 2011
------------------ ------------------
Debt due within one year $ 19,721 $ 9,087
Long-term debt 144,560 138,582
------- -------
Total debt 164,281 147,669
------- -------
Less: cash and cash equivalents 31,445 32,930
------- -------
Net debt $ 132,836 $ 114,739
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Free cash flow (unaudited)
(In thousands)
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Three months ended March 31, Twelve months ended March 31,
2012 2011 2012 2011
------- ------- ------- -------
Net cash provided by operating activities $ 27,455 $ 22,232 $ 45,758 $ 20,812
Net cash used for investing activities (19,877 ) (26,103 ) (65,010 ) (41,143 )
Prepayment penalties on senior notes - - - 16,570
------- ------- ------- -------
Free cash flow $ 7,578 $ (3,871 ) $ (19,252 ) $ (3,761 )
==== ======= ==== ======= ==== ==== ======= ==== ==== ======= ====
SOURCE: Modine Manufacturing Company
Modine Manufacturing Company
Kathleen T. Powers, 262-636-1687
k.t.powers@na.modine.com
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