Press Release: Modine Reports Third Quarter Fiscal 2021 Results

· 02/04/2021 16:30

-- Full fiscal year-over-year sales down 7 to 12 percent; -- Adjusted EBITDA of $155 million to $165 million.-- CIS segment sales were $129.0 million, compared with $147.5 million one year ago, a decrease of 13 percent. The decrease was driven by an anticipated sales decrease to the company's largest data center customer and was partially offset by a favorable currency impact. The segment reported gross margin of 9.8 percent, down 560 basis points compared with the prior year, primarily due to lower sales volume, unfavorable sales mix and, to a lesser extent, temporary operating inefficiencies associated with the consolidation of manufacturing operations in China. The segment reported an operating loss of $1.7 million, representing a $10.0 million decline, primarily due to lower gross profit on lower sales. Adjusted EBITDA for the CIS segment was $5.0 million, a decrease of $10.1 million from the prior year. -- Building HVAC Systems ("BHVAC") segment sales were $68.7 million, compared with $64.9 million one year ago, an increase of 6 percent. This increase was driven primarily by higher sales of heating products in North America and data center products in the U.K. The segment reported gross margin of 37.3 percent, which was 180 basis points higher than the prior year, primarily due to higher sales volume, favorable customer pricing and sales mix. The segment reported operating income of $15.8 million, an increase of 17 percent, primarily due to higher gross profit. Adjusted EBITDA for the BHVAC segment was $16.6 million, an increase of $2.2 million, or 15 percent, from the prior year. -- HDE segment sales were $185.6 million, compared with $164.9 million one year ago, an increase of 13 percent. This increase was primarily driven by higher sales to off-highway and truck customers globally. The segment reported gross margin of 14.0 percent, 380 basis points higher than the prior year. This increase was primarily due to higher sales volume and savings from procurement and other cost-reduction initiatives. The segment reported operating income of $12.8 million, an increase of $10.0 million, primarily due to higher gross profit on the higher sales volume. Adjusted EBITDA for the HDE segment was $19.7 million, an increase of $9.1 million, or 86 percent, from the prior year. -- Automotive segment sales were $113.9 million, compared with $110.5 million one year ago, an increase of $3.4 million, or 3 percent. The increase was primarily driven by favorable currency impacts, which totaled $6.7 million, and higher sales volume in Asia, partially offset by lower sales volume in Europe and North America. The segment reported gross margin of 16.1 percent, up 510 basis points compared with the prior year, primarily due to lower depreciation expense and improved operating performance. The Company ceased depreciation of the long-lived assets within the liquid-cooled automotive business when it was classified as held for sale in November 2020. The segment reported an operating loss of $124.9 million, including $134.4 million of impairment charges related to the assets held for sale. Adjusted EBITDA for the Automotive segment was $12.3 million, an increase of $5.6 million, or 84 percent, from the prior year, primarily due to higher gross profit and lower SG&A expenses.-- Net sales of $484.3 million increased 2 percent from the prior year, primarily due to favorable currency impacts -- Impairment charges related to assets in the automotive segment and income tax valuation allowance charges resulted in a GAAP operating loss of $108.7 million and net loss per share of $3.81 -- Adjusted EBITDA of $46.7 million, up 7 percent from prior year on a 160 basis point improvement in gross margin -- Adjusted earnings per share of $0.41, up $0.04 from prior year -- Strong cash flow, with $146.5 million of cash flow from operating activities and $122.8 million of free cash flow on a year-to-date basis

Modine Reports Third Quarter Fiscal 2021 Results

Continued market recovery and disciplined cost controls drive higher margins and cash flow

PR Newswire

RACINE, Wis., Feb. 4, 2021

RACINE, Wis., Feb. 4, 2021 /PRNewswire/ -- Modine Manufacturing Company (NYSE: MOD), a diversified global leader in thermal management technology and solutions, today reported financial results for the quarter ended December 31, 2020.

Third Quarter Highlights:

"I appreciate our employees, suppliers and customers who continue to drive performance during this difficult and uncertain time, while remaining equally focused on workplace safety," said Modine President and Chief Executive Officer, Neil D. Brinker. "The improvements this quarter were driven by the ongoing rebound in our heavy duty markets and another excellent quarter in our Building HVAC segment, resulting from share gains in both heating and data center markets. We remain focused on accelerating our transformation to a diversified industrial company, which includes finalizing the exit of our automotive business. Cash flow remains strong on lower capital spending and working capital control. After my first several weeks with Modine, I see great potential for us to leverage our technical leadership and innovation in thermal management to drive long-term growth and earnings improvements."

Financial Results

Net sales increased 2 percent in the third quarter to $484.3 million, compared with $473.4 million in the prior year. The increase was primarily driven by favorable currency impacts, which totaled approximately $11.0 million, and higher sales volume in our Heavy Duty Equipment ("HDE") segment. These favorable drivers were partially offset by lower sales volume in the Commercial and Industrial Solutions ("CIS") segment.

Gross profit increased 13 percent in the third quarter to $82.7 million, and gross margin improved 160 basis points to 17.1 percent, primarily driven by savings from procurement and other cost-reduction initiatives and lower depreciation expense in the Automotive segment.

Selling, general and administrative ("SG&A") expenses were $56.1 million in the third quarter, which was $7.4 million, or 12 percent, lower than the prior year. This decrease was primarily driven by lower automotive separation and exit strategy costs compared with the prior year.

The operating loss in the third quarter was $108.7 million, compared to $8.2 million of operating income in the prior year. This decline was driven primarily by $134.4 million of impairment charges recorded to write down the long-lived assets in the Automotive segment's liquid-cooled automotive business in connection with its pending sale, partially offset by higher gross profit and lower SG&A expenses in the third quarter of fiscal 2021 as compared to the prior year. In addition, automotive exit strategy, restructuring, CEO transition and environmental charges totaled $4.7 million. In the prior year, automotive exit strategy and restructuring expenses, net of a gain on the sale of assets, totaled $15.8 million. Excluding these items and depreciation and amortization expense, Adjusted EBITDA of $46.7 million was up 7 percent compared with $43.5 million in the prior year, primarily due to the improvement in gross margin.

GAAP loss per share was $3.81 in the third quarter, compared with earnings per share of $0.02 in the prior year, driven primarily by the aforementioned impairment charges. The Company recorded a $116.5 million valuation allowance on its deferred tax assets in the U.S. and for certain foreign subsidiaries, including a valuation allowance on the $37.7 million tax benefit recorded for the impairment charges during the quarter. The net impact to income tax expense in the third quarter was $78.8 million. Adjusted earnings per share was $0.41 in the third quarter, compared with adjusted earnings per share of $0.37 in the prior year. The increase was primarily due to higher gross profit compared to the prior year.

Third Quarter Segment Review

Balance Sheet & Liquidity

Net cash provided by operating activities for the nine months ended December 31, 2020 was $146.5 million, an increase of $100.6 million compared with the prior year. Free cash flow for the first nine months of fiscal 2021 was $122.8 million, a $135.1 million improvement from the prior year, primarily resulting from improved working capital, in part due to improved inventory management, lower capital expenditures, and lower cash restructuring and strategy payments. Cash payments for restructuring activities and automotive strategy and separation costs during the first nine months of fiscal 2021 were $15.7 million.

Total debt was $364.6 million as of December 31, 2020. Cash and cash equivalents as of December 31, 2020 were $72.9 million. Net debt was $291.7 million as of December 31, 2020, a decrease of $119.8 million from the end of fiscal 2020.

Outlook

"We are maintaining our fiscal 2021 outlook," concluded Brinker. "We anticipate the ongoing recovery in certain end markets, partially offset by new tariffs and rising raw material costs, along with the reversal of temporary COVID-related cost reduction measures."

Based on current exchange rates, market outlook and business forecast, Modine confirms the following guidance ranges for fiscal 2021:

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February 04, 2021 16:30 ET (21:30 GMT)