Modine Manufacturing Company, a diversified global leader in thermal management technology and solutions, has reported financial results for the first quarter of fiscal year 2017.
Highlights:
- Sales of $347.2 million, a slight increase from prior year
- Operating income of $15.1 million, up 30% from prior year; adjusted operating income of $17.4 million, up 23% from prior year
- Earnings per share of $0.18 and adjusted earnings per share of $0.21, both up $0.07 from prior year
"Modine's operating income improved significantly year-over-year, despite ongoing weakness in several of our end-markets. As anticipated, our Strengthen, Diversify and Grow (SDG) initiatives contributed to our financial performance during the quarter," says Modine President and Chief Executive Officer Thomas A. Burke. "We will continue to maintain a culture of cost discipline for the remainder of fiscal 2017, and will continue to execute in accordance with our SDG strategic framework to create long-term shareholder value."
Net sales for the first quarter were $347.2 million, compared with $346.1 million in the prior year. On a constant-currency basis, net sales improved by 0.8% year-over-year. The increase was primarily related to strong sales to automotive customers globally and to commercial vehicle customers in Europe, offset by lower sales to commercial vehicle and off-highway customers in the Americas segment due to ongoing weakness in those markets.
Gross profit increased $5.0 million during the first quarter on nearly flat sales and gross margin improved by 130 basis points to 17.8%, primarily due to favorable material costs, improved plant operating performance and cost savings related to procurement initiatives. Selling, general and administrative (SG&A) expenses increased $1.8 million primarily due to professional services related to business development activities and higher employee benefit and incentive compensation expenses.
The company recorded $2.3 million of restructuring expenses during the first quarter primarily related to employee severance expenses and equipment transfer and plant consolidation costs.
First quarter operating income was $15.1 million compared with $11.6 million in the first quarter of fiscal 2016. The 30% increase was driven primarily by the reduction in manufacturing costs and the corresponding higher gross margin. Net earnings per share were $0.18, an increase of $0.07 compared with the prior year. Excluding restructuring expenses, the company reported adjusted operating income of $17.4 million, up $3.2 million from the prior year. Adjusted earnings per share of $0.21 were up $0.07 from the prior year.
First Quarter Segment Review
Americas segment sales were $140.0 million compared with $159.1 million one year ago, a decrease of 12.1%. On a constant-currency basis, sales decreased 10.9% year-over-year, primarily related to ongoing weakness in the commercial vehicle and off-highway markets, partially offset by higher sales to automotive customers. Despite the lower sales volume, operating income of $9.3 million was flat compared with the prior year, primarily due to favorable material costs, cost savings related to procurement initiatives, and lower SG&A expenses related to cost-control actions. The company recorded $2.2 million of restructuring charges during the quarter primarily due to equipment transfer, plant consolidation and early retirement costs in the Americas segment.
Europe segment sales were $146.0 million compared with $131.2 million one year ago, an increase of 11.2%. On a constant-currency basis, sales increased 9.0% compared with the prior year, driven by higher sales to automotive and commercial vehicle customers. The first quarter operating income of $15.0 million was $9.3 million higher than the prior year, primarily due to higher sales volume, favorable material costs, cost savings related to procurement initiatives and improved plant operating performance.
Asia segment sales were $24.9 million compared with $19.3 million one year ago, an increase of 28.6%. On a constant-currency basis, sales increased 35.3% compared with the prior year. The increase was primarily related to higher sales to automotive customers in China as launch volumes continue to increase, higher sales to off-highway customers in China, and incremental sales related to the company's recently-formed joint venture. Operating income of $1.5 million increased $1.1 million from the prior year, resulting from higher sales volumes and lower SG&A expenses.
Building HVAC segment sales were $39.9 million compared with $41.3 million one year ago, a decrease of 3.4%. On a constant-currency basis, sales were flat as compared with the prior year. Operating income of $0.9 million was down $1.2 million, primarily due to the margin impact of the strong British Pound on previously booked orders, higher manufacturing costs, and restructuring expenses, partially offset by lower SG&A expenses. The company recorded $0.4 million of restructuring charges during the quarter related to early retirement and severance costs in the U.K. and the U.S.
Balance Sheet & Liquidity
Net debt was $107.2 million at June 30, 2016, an increase of $13.5 million from the end of fiscal 2016. Total debt was $171.3 million at June 30, 2016. Cash and cash equivalents at the end of the first quarter were $64.1 million.
First quarter free cash flow was negative $8.1 million compared with negative $13.0 million one year ago. As is typical, first quarter free cash flow was impacted by various benefit and incentive compensation payments. Net cash provided by operating activities was $1.6 million compared with negative $0.1 million one year ago.
Outlook
Based on current exchange rates, market outlook and business forecast, Modine confirms the following guidance for fiscal 2017:
- Full fiscal year-over-year sales down 1% to up 3%;
- Adjusted operating income of $65 million to $71 million; and
- Adjusted earnings per share of $0.77 to $0.87.
