Modine Manufacturing Company, a diversified global leader in thermal management technology and solutions, has reported financial results for the second quarter of fiscal year 2018.
Second Quarter Highlights:
- Net sales of $508.3 million, up 60% from the prior year, including $149.2 million of sales from the Commercial and Industrial Solutions (CIS) segment
- Non-CIS sales increased 11% on a constant-currency basis
- Operating income of $23.5 million and adjusted operating income of $26.8 million
- Earnings per share of $0.31 and adjusted earnings per share of $0.36
- Increases 2018 outlook and now expects adjusted earnings per share to range between $1.30 to $1.45, up from $1.20 to $1.35
"Continued positive momentum in all of our business segments led to significant sales and earnings improvement this quarter," says Modine President and Chief Executive Officer, Thomas A. Burke. "Higher sales volumes, strong operational efficiencies and cost savings drove solid gross expansion that more than offset higher raw material costs. We also continued to see accretive contribution from our new CIS segment."
Net sales for the second quarter were $508.3 million, up 60% from the prior year. This included $149.2 million of sales from our CIS segment. On a constant-currency basis, non-CIS sales increased $33.9 million, or 11%, from the prior year. This increase was a result of sales growth across all business segments.
Gross profit increased in the second quarter to $86.1 million compared to $48.0 million in the prior year, including $22.5 million contributed by the CIS segment. Gross margin increased 190 basis points to 17.0%. The increase was primarily due to higher sales volume in all segments and the benefits from cost savings initiatives, partially offset by the temporary impact of higher raw material costs prior to making pricing adjustments in accordance with our contractual pass-through agreements.
Selling, general and administrative ("SG&A") expenses increased $14.0 million to $62.2 million in the second quarter from the prior year, primarily resulting from the addition of the new CIS segment, which reported $14.4 million of SG&A expenses in the second quarter.
Second quarter operating income was $23.5 million compared with an operating loss of $1.1 million in the second quarter of the prior year. Excluding acquisition and integration costs, restructuring expenses, and certain other items, adjusted operating income was $26.8 million, up $22.4 million from the prior year. Each of our business segments contributed to this improvement, including the new CIS segment, which reported $8.1 million of operating income.
Earnings per share of $0.31 improved $0.40 from the second quarter of the prior year. Adjusted earnings per share of $0.36 improved $0.37 compared to the second quarter of the prior year, driven largely by the increased operating earnings, partially offset by increased interest expense from the acquisition debt.
Second Quarter Segment Review
Americas segment sales were $141.9 million compared with $126.0 million one year ago, an increase of 12.6%. On a constant-currency basis, sales increased 12.2% year-over-year, primarily due to improved off-highway, specialty vehicle and automotive sales in North America and stronger commercial vehicle and aftermarket sales in Brazil. The segment reported operating income of $7.8 million, an improvement of $8.9 million from the prior year, primarily due to higher sales volume and lower SG&A expenses.
Europe segment sales were $134.5 million compared with $123.9 million one year ago, an increase of 8.5%. On a constant-currency basis, sales were up 3.0%, driven primarily by higher sales to automotive and off-highway customers. The segment reported operating income of $8.6 million, up $1.6 million from the prior year. This increase was driven by higher sales volume and improved plant performance.
Asia segment sales were $39.5 million compared with $24.7 million one year ago, an increase of 59.7%. This increase was driven by higher off-highway sales in all markets and automotive sales in China and India. Operating income of $4.2 million improved $3.4 million from the prior year, primarily due to higher sales volume.
CIS segment sales were $149.2 million in the second quarter. The segment reported operating income of $8.1 million. In addition, the segment results included a total of $3.2 million of intangible asset amortization expense and fixed asset step-up depreciation expense related to purchase accounting for the acquisition of Luvata HTS, which was completed on November 30, 2016.
Building HVAC segment sales were $48.8 million compared with $45.7 million one year ago, an increase of 6.7%. This increase was due to higher sales of ventilation and heating products in North America, partially offset by lower sales in the U.K. Operating income of $6.3 million was up $3.5 million compared with the prior year, primarily a result of higher sales volume and lower operating expenses driven by efficiency improvements and cost-savings initiatives in the prior year.
Balance Sheet & Liquidity
Total debt was $505.5 million as of September 30, 2017. Cash and cash equivalents at the end of the second quarter were $50.5 million. Net debt was $455.0 million as of September 30, 2017, a decrease of $21.7 million from the end of fiscal 2017. The decrease in net debt was primarily due to strong cash flow from operations during the second quarter.
Net cash provided by operating activities for the first 6 months of fiscal 2018 was $71.1 million compared with $13.6 million 1 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 six months of fiscal 2018 was $34.3 million, a $52.7 million improvement over the prior year.
"As we look forward, we expect to continue to benefit from cost saving initiatives, operational efficiencies and improving markets," comments Burke. "As a result, we are raising our sales and earnings guidance ranges as we look to build upon our recent success during the second half of fiscal 2018."
Based on current exchange rates, market outlook and business forecast, Modine updated the following guidance for fiscal 2018:
- Full fiscal year-over-year sales up 32 to 36 percent;
- Adjusted EBITDA of $182 million to $192 million;
- Adjusted operating income of $107 million to $117 million; and
- Adjusted earnings per share of $1.30 to $1.45.