Modine Manufacturing Company, a diversified global leader in thermal management technology and solutions, has reported financial results for the quarter ended June 30, 2018.
First Quarter Highlights:
- Net sales of $566.1 million increased 10% from the prior year, 6% on a constant-currency basis
- Operating income of $34.8 million increased 26% and adjusted operating income of $36.0 million increased 14%
- Earnings per share of $0.43 increased 26% from the prior year and adjusted earnings per share of $0.41 increased 5% from the prior year
“We are off to a good start in fiscal 2019,” says Modine President and Chief Executive Officer, Thomas A. Burke. “Robust sales and earnings growth in our vehicular markets has been driven by strong end markets and significant share gains in Asia. The CIS and Building HVAC segments grew mid-single digits and we continue to be optimistic about our booking rates in all three of our business segments.”
Net sales increased 10% in the first quarter to $566.1 million, compared with $515.5 million in the prior year. On a constant-currency basis, net sales increased 6% from the prior year. This increase was a result of sales growth across all business segments.
Gross profit increased 7% in the first quarter to $94.3 million, compared with $88.5 million in the prior year. Gross margin decreased 50 basis points to 16.7%, primarily due to the negative impact of higher raw material costs and temporary operating inefficiencies largely related to increased volumes.
Selling, general and administrative (SG&A) expense was $59.3 million in the first quarter, flat from the prior year. SG&A as a percentage of sales decreased 100 basis points to 10.5%.
Operating income increased 26% in the first quarter to $34.8 million, compared with $27.6 million in the prior year. During the first quarter of fiscal 2019 and 2018, acquisition and integration costs, restructuring expenses, and certain other items totaled $1.2 million and $4.0 million, respectively. Excluding these items, adjusted operating income increased 14% to $36.0 million, compared with $31.6 million in the prior year. The increase was due to strong performance in the newly-formed Vehicular Thermal Solutions (VTS) and Commercial and Industrial Solutions (CIS) segments, as well as ongoing success with cost improvement initiatives across the business.
Earnings per share increased 26% in the first quarter to $0.43, compared with $0.34 in the prior year. Adjusted earnings per share increased 5% to $0.41, compared to the prior year. This increase was primarily due to higher operating income partially offset by higher income tax expense.
First Quarter Segment Review
- VTS segment sales were $352.8 million, compared with $315.3 million one year ago, an increase of 12%. On a constant-currency basis, sales were up 8%, driven primarily by higher sales to automotive customers across all regions. Sales also increased to off-highway customers in Asia and the Americas. The segment reported operating income of $25.5 million, an increase of $3.3 million, or 15%, from the prior year, primarily due to higher sales volume partially offset by higher material costs and operating inefficiencies resulting from increased volumes.
- CIS segment sales were $183.9 million, compared with $171.4 million one year ago, an increase of 7%. On a constant-currency basis, sales were up 4%, driven primarily by higher sales to data center customers, which were partially offset by lower sales to industrial customers. The segment reported operating income of $13.2 million, an increase of $1.8 million, or 16%, from the prior year, primarily due to higher sales volume and synergy savings.
- Building HVAC Systems segment sales were $45.0 million, compared with $43.0 million one year ago, an increase of 5%. On a constant-currency basis, sales were up 2%, driven primarily by heating sales in North America. Operating income of $3.2 million was up $0.1 million compared with the prior year, primarily due to higher sales volume.
Balance Sheet & Liquidity
Total debt was $506.3 million as of June 30, 2018. Cash and cash equivalents at the end of the first quarter were $41.4 million. Net debt was $464.9 million as of June 30, 2018, an increase of $24.8 million from the end of fiscal 2018. The increase in net debt was primarily due to the timing of incentive compensation and other employee benefit payments.
Net cash provided by operating activities for the quarter ended June 30, 2018 was negative $4.1 million compared with $20.6 million one year ago. Free cash flow for the quarter ended June 30, 2018 was negative $26.7 million, which was $25.7 million lower than the prior year. This decrease was primarily due to unfavorable net changes in working capital versus the first quarter of the prior year as a result of higher sales growth, and higher incentive compensation and other employee benefit payments.
Based on current exchange rates, market outlook and business forecast, Modine confirms 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.