RACINE, Wis. — Modine Manufacturing Co. has reported its financial results for the fourth quarter of fiscal 2010.
“Given the overall business climate and the headwinds we had anticipated heading into the fourth quarter, we are pleased with our overall results as we finished out fiscal 2010,” said Modine President and CEO Thomas Burke. “Our fourth quarter sales increased 28 percent versus a year ago, and were up seven percent sequentially, reflecting continued modest recovery in our end markets. As anticipated, gross margins came under pressure from increased commodity metals prices and the lagging nature of materials pass-through agreements with our customers, the seasonal wind-down of the heating season for our Commercial Products segment and costs associated with our plant closure activities. Despite these near-term pressures, we reported adjusted EBITDA of $21.4 million for the quarter, an increase of nearly $20 million from a year ago. We continue to execute our Four-Point Plan, which consists of portfolio rationalization, manufacturing realignment, SG&A cost containment and capital allocation discipline, to build on our momentum and position Modine for the future. We are proud of the efforts of our 6,000 global employees, who significantly contributed to the improved financial results in fiscal 2010. Through their commitment and effort, Modine has established a solid foundation on which to build in fiscal 2011.”
Sales volumes in the fourth quarter increased 28 percent year-over-year and rose 7 percent compared to the third quarter of fiscal 2010, reflecting new program launches and modest market recovery. The company recorded a pre-tax loss of $4.2 million in the fourth quarter compared to a loss of $37.4 million a year ago and a profit of $2.4 million in the third quarter of fiscal 2010/
As of March 31, the company’s net debt was $95.5 million, substantially lower than the $205.7 million balance at March 31, 2009.
“With a substantially reduced net debt balance versus a year ago, we are pleased with our progress in improving the company’s liquidity and financial position,” said Robert Kampstra, vice president, corporate controller and chief accounting officer. “During the fourth quarter, we reported a free cash outflow of $5.3 million, which improved from an outflow of $19 million in the fourth quarter of last year. During the quarter, the timing of capital expenditures exceeded our operating cash flows, which contributed to the negative free cash flow. We had $167 million in available borrowing capacity at March 31, 2010, and, combined with $44 million of cash on hand, we believe we have ample liquidity and are well positioned to support the growth of our business as we move forward into fiscal 2011.”
Sales for the fiscal year ended March 31 decreased 17 percent to $1.2 billion from $1.4 billion reported in fiscal 2009, reflecting a significant reduction in global production volumes in the second half of fiscal 2009 and continuing into fiscal 2010.
Since the bottom of the recession, the company says it has experienced modest sequential sales growth in each of the last three quarters of fiscal 2010. Despite the year-over-year reduction in sales, gross profit improved by 130 basis points to 14.6 percent and selling, general and administrative expense decreased by $42 million, primarily attributable to a significant reduction in manufacturing and administrative costs through the execution of the company’s Four-Point Plan.
Looking forward to fiscal 2011, Modine believes current economic conditions support a level of adjusted EBITDA relatively consistent with fiscal 2010. The company said it expects to see an improvement in sales volumes as its end markets continue to show modest recovery from the recession. The positive impact of this sales volume improvement is anticipated to be largely offset by higher metals prices and unfavorable foreign currency exchange rate changes, as well as an increase in selling, general and administrative expenses. Specifically, the company has the following expectations for fiscal 2011:
• An 8 to 12 percent increase in sales, based on an expected recovery in the commercial vehicle markets in North America, growth in the off-highway markets in Asia as the company launches new programs, continued growth within the company’s Commercial Products segment, and slight improvement in the commercial vehicle, off-highway and light vehicle markets in Europe;
• The positive impact of these sales volume improvements is expected to be largely offset by a less favorable foreign currency translation environment, particularly the euro, and higher year-over-year metals costs and the lagging nature of the company’s materials pass-through agreements with its customers. As a result of these factors, Modine expects the company’s gross margin to remain relatively consistent year over year;
• An approximate $10 to $15 million increase in selling, general and administrative expense due in large part to increased pension expense; and
• Capital expenditures in a range of $60 to $70 million.
“We are pleased with Modine’s performance during the fourth quarter and our incremental progress throughout the past fiscal year,” Burke concluded. “We will continue to manage our business conservatively with a focus on the fundamentals of our Four-Point Plan, which served us well over the past several years. Supported by our refocused product strategy and strong balance sheet, we enter fiscal 2011 with confidence and a clear sense of momentum building within our business.”
