RACINE, Wis. — Modine Manufacturing Co. has reported its financial results for the first quarter of fiscal 2009.
First quarter sales from continuing operations increased 12.5 percent to $499.7 million from $444.2 million reported in the first quarter of fiscal 2008. Excluding the impact of foreign currency exchange rate changes, underlying sales increased by $24.2 million, or 5.4 percent. The company said sales volume increase was driven by strong sales in the European, South American, and Commercial Products segments.
First quarter gross profit was $78.3 million, or 15.7 percent of sales, compared to gross profit of $70.4 million, or 15.8 percent of sales, in the same period last year. The first quarter gross margin reflects the impact of annual customer pricedowns and internal operating inefficiencies, offset by purchasing savings and a favorable net impact from commodity pricing. The company is addressing its operating inefficiencies as it moves toward scaled facilities with a greater focus on operational excellence to support its global customers.
First quarter fiscal 2009 Selling, General & Administrative (SG&A) expenses increased $6.4 million from the first quarter of fiscal 2008. Excluding the impact of foreign currency exchange rate changes, first quarter fiscal 2009 SG&A expenses increased $4 million from the first quarter of fiscal 2008, which includes $1.2 million in consulting fees incurred in connection with the company’s previously announced restructuring activities. As a percentage of sales, SG&A decreased to 12.6 percent in the first quarter of fiscal 2009 from 12.7 percent in the first quarter of fiscal 2008.
First quarter fiscal 2009 earnings from continuing operations before income taxes was $14.4 million, compared to earnings from continuing operations before income taxes of $14.7 million in the same period last year. The higher sales volumes in the company’s Original Equipment Europe, South America and Commercial Products segments were offset by continued weakness and restructuring in the Original Equipment North America segment.
First quarter fiscal 2009 earnings from continuing operations was $6.8 million, or 21 cents per fully diluted share, compared to $10.7 million, or 34 cents per fully diluted share, in the same period last year. Consistent with the third and fourth quarters of fiscal 2008, the company continues to be unable to realize deferred tax assets in the U.S. and South Korea, which resulted in a valuation allowance charge of $5.3 million established against these deferred tax assets.
First quarter fiscal 2009 net earnings were $7.8 million or 24 cents per fully diluted share, compared to $11 million or 34 cents per fully diluted share recorded in the first quarter of fiscal 2008. The current year net earnings includes a $0.8 million gain on the sale of the company’s Electronics Cooling business, which was completed on May 1.
Operating cash flows were $17.7 million for the quarter ended June 30, compared with a negative operating cash outflow of $6.8 million for the quarter ended June 30, 2007. The company’s net debt at June 30 was $184.4 million, compared to $193 million at March 31. The debt to capital (debt plus shareholders’ equity) ratio at June 30 of 31.8 percent decreased from 32.4 percent at March 31. The company continues to focus on maintaining its net debt at or below the year-end fiscal 2008 balance and expects to continue to meet its debt covenants and liquidity requirements while it implements its restructuring activities and reinvests in future growth.
As previously announced on July 18, the company closed a new three-year, $175 million unsecured credit facility, which replaces the company’s previous $200 million credit facility, which had been due to expire in October 2009. Although Modine received commitments well in excess of its requested $175 million, the company elected to accept $175 million, consistent with the upper band of its anticipated needs during the term of the facility. The principal financial covenants of the facility, including leverage and interest coverage, remain unchanged from the covenants to which the company was subject prior to entering into this agreement.
Consolidated sales increased 5.4 percent, excluding the favorable impact of foreign currency exchange rates, most notably in the European, South American and Commercial Products segments, which increased 5.9 percent, 17.4 percent and 7.4 percent, respectively.
Commenting on the recent results, Modine President and Chief Executive Officer Thomas Burke said, “Our first quarter fiscal 2009 performance is on track with our expectations and underscores the long-term viability of the Modine business model. During the quarter, we saw underlying sales improvement, excluding the impact of foreign currency exchange rates, of 5.4 percent, reflecting continued solid contributions from our European, South American and Commercial Products segments. Even though our sales pipeline continues to grow, fiscal 2009 remains very much a year of blocking and tackling as we implement our four-point recovery plan and focus on developing a more competitive cost base.
“The announced closures of three manufacturing facilities in North America and another in Europe are proceeding on schedule and should result in annualized benefits in a range of $20 to $25 million when fully implemented by the end of fiscal 2010,” Burke continued. “During the first quarter, we completed the previously announced sale of our electronics cooling business as part of our ongoing portfolio rationalization process. We introduced select, regional price realization initiatives to enhance gross margins. In support of margin-enhanced growth, the Modine board of directors has authorized an investment in the next phase of development of our new Origami ultra-thin-gauged, high-performance heat transfer technology. In addition, we are taking actions to address the continuing underperformance in our Korean business and reaffirm our commitment to update our shareholders on the status of those efforts in mid-fiscal 2009.”
“As we execute on our recovery plan, we are building our pipeline with new program wins that are consistent with our strategic emphasis on thermal management, technological differentiation, and diversification of products, markets, customers and geographies,” said Bradley Richardson, executive vice president, corporate strategy and chief financial officer. “Although our first quarter results on an underlying basis are encouraging, we are mindful of this period of heavy restructuring and the associated execution risks, as well as overall economic and market uncertainties, including the pace of recovery of the North American truck market and softening in the European automotive market. However, with the increased customer emphasis on emissions and fuel efficiency and new program opportunities for our engine products and powertrain cooling solutions, as well as commercial products and fuel cell technologies, the fundamental growth drivers of our business remain sound. We are taking tangible actions and fully aligning our organization toward achievement of our long term (fiscal 2011) goals of four to six percent compounded annual organic growth, an 18 to 20 percent gross margin and an 11 to 12 percent return on average capital employed.”
For more information about Modine, visit: www.modine.com.