Modine Manufacturing Company, a diversified global leader in thermal management technology and solutions, has reported financial results for the fourth quarter and fiscal year ended March 31, 2018.
Fourth Quarter Highlights:
- Net sales of $566.6 million increased 16% from the prior year, 8.6% on a constant-currency basis
- Operating income of $27.2 million increased 30% and adjusted operating income of $34.7 million increased 16%
- Earnings per share of $0.34 more than doubled from the prior year and adjusted earnings per share of $0.44 increased 26% from the prior year
Full Year Highlights:
- Net sales of $2,103.1 million increased 40% from the prior year, including strong 8.8% organic sales growth
- Operating income of $92.2 million increased 118% and adjusted operating income of $120.1 million increased 66%
- Earnings per share of $0.43 increased 48% from the prior year and adjusted earnings per share of $1.54 increased 97% from the prior year
"This has clearly been a great year for Modine. We completed our first full year since the addition of the CIS business and I am very pleased with the overall momentum and performance during fiscal 2018," says Modine President and Chief Executive Officer, Thomas A. Burke. "We ended our fiscal year on a strong note, with significant sales and earnings growth for both our fourth quarter and full fiscal year. Over the past 2 years our revenues have grown by more than 50% from $1.35 billion in fiscal 2016 to over $2.1 billion today. Strength in our end markets and share gains in select markets have created a clear tailwind. Additionally, integration of the CIS business has exceeded our expectations."
Net sales for the fourth quarter were $566.6 million, an increase of 16% from the prior year. On a constant-currency basis, net sales increased $42.0 million, or 8.6%, from the fourth quarter of the prior year. This increase was a result of sales growth across all business segments.
Gross profit increased $11.4 million in the fourth quarter to $96.5 million, compared to $85.1 million in the prior year period. Gross margin decreased 40 basis points to 17.0%, primarily due to the negative impact of higher raw material costs.
Selling, general and administrative (SG&A) expenses increased $3.5 million to $63.6 million in the fourth quarter from the prior year, primarily due to the impact of foreign currency exchange rates. SG&A as a percentage of sales decreased 110 basis points to 11.2%.
During the fourth quarter, the company recorded $4.5 million of restructuring expenses, primarily related to severance costs in Europe. In addition, the company recorded a $1.2 million impairment charge in its Building HVAC segment resulting from the decision to exit a product line.
Operating income increased $6.3 million in the fourth quarter to $27.2 million, compared with $20.9 million in the prior year. During the fourth quarter of fiscal 2018 and 2017, acquisition and integration costs, restructuring expenses, impairment charges and certain other items totaled $7.5 million and $9.0 million, respectively. Excluding these items, adjusted operating income of $34.7 million increased $4.8 million compared with the prior year. The increase was due to strong performance in the Europe, Asia and CIS segments.
Earnings per share of $0.34 increased $0.18 from earnings per share of $0.16 in the fourth quarter of the prior year. Adjusted earnings per share of $0.44 improved $0.09, or 26%, compared to the fourth quarter of the prior year, primarily due to higher operating income.
Fourth Quarter Segment Review
- Americas segment sales were $150.0 million, compared with $144.6 million one year ago, an increase of 3.7%. On a constant-currency basis, sales were up 4.2%, driven primarily by higher sales to off-highway and automotive customers. The segment reported operating income of $9.4 million, a decrease of $4.3 million from the prior year, primarily due to higher material costs, negative product mix and higher compensation-related expenses.
- Europe segment sales were $162.9 million, compared with $134.6 million one year ago, an increase of 21%. On a constant-currency basis, sales were up 4.9% year-over-year, driven primarily by higher sales to automotive, commercial vehicle and off-highway customers. The segment reported operating income of $10.8 million, up $3.5 million, or 48%, from the prior year. This increase was primarily due to higher sales volume, favorable currency impacts and other plant efficiencies.
- Asia segment sales were $48.1 million, compared with $33.3 million one year ago, an increase of 44%. On a constant-currency basis, sales were up 35%, driven by higher sales across all served markets in China, Korea, and India. Operating income of $5.0 million improved $2.2 million, or 79%, from the prior year, primarily due to higher sales volume.
- CIS segment sales were $168.4 million in the fourth quarter, compared with $143.0 million 1 year ago, an increase of 18%. On a constant-currency basis, sales were up 10%, driven by higher sales of precision cooling, mobile air conditioning and coatings products. The segment reported operating income of $11.5 million, an increase of $3.7 million or 47% from the prior year, primarily due to higher sales volume and synergy savings, partially offset by higher material costs.
- • Building HVAC segment sales were $43.3 million in the fourth quarter compared with $38.8 million one year ago, an increase of 12%. On a constant-currency basis, sales were up 6.8%, driven primarily by heating sales in North America. Operating income of $1.7 million was down $1.1 million compared with the prior year, primarily due to a $1.2 million asset impairment charge resulting from the decision to exit a product line and higher SG&A expenses, partially offset by higher gross profit on higher sales volume.
Full-Year Fiscal 2018 Overview
In fiscal 2018, net sales increased 40% to $2,103.1 million. On a constant-currency basis, sales were up 36% compared with the prior year. Gross margin increased 10 basis points to 17.0%, as higher sales volume and savings related to cost-reduction initiatives were partially offset by the impact of higher raw material costs.
Operating income of $92.2 million increased $49.9 million, more than double the $42.3 million that was recorded in fiscal 2017. During fiscal 2018 and 2017, acquisition and integration costs, restructuring expenses, impairment charges and certain other items totaled $27.9 million and $29.9 million, respectively. Excluding these items, adjusted operating income of $120.1 million increased $47.9 million compared with the prior year. Earnings per share in fiscal 2018 were $0.43, compared with $0.29 in fiscal 2017, and adjusted earnings per share in fiscal 2018 were $1.54, compared with $0.78 in fiscal 2017, an increase of $0.76, or 97%.
Balance Sheet & Liquidity
Total debt was $479.4 million as of March 31, 2018. Cash and cash equivalents at the end of the fourth quarter were $39.3 million. Net debt was $440.1 million as of March 31, 2018, a decrease of $36.6 million from the end of fiscal 2017. The decrease in net debt was primarily due to strong cash flow from operations partially offset by the impact of currency impacts on euro-denominated debt.
Net cash provided by operating activities for the fiscal year ended March 31, 2018 was $123.8 million compared with $41.6 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 fiscal year ended March 31, 2018 was $52.8 million, a $75.6 million improvement compared with the prior year.
Outlook
"These are exciting times for Modine, as we build on the momentum gained over the past 2 years and look forward to more improvements in the future," comments Burke. "We have delivered on our promises and exceeded our expectations. As we look ahead, we anticipate that continued strength in our end markets will drive further sales and earnings growth in fiscal 2019. Our strengthen, diversify and grow strategy will continue to guide our operations as we transform into an even more diversified, global industrial company."
Based on current exchange rates, market outlook and business forecast, Modine provides the following guidance ranges for fiscal 2019:
- Full fiscal year-over-year sales up 3-8%;
- Adjusted operating income of $135 million to $145 million; and
- Adjusted earnings per share of $1.50 to $1.65, including the impact of a higher year-over-year effective tax rate of 27-28%.
