Modine Manufacturing Co., a diversified global leader in thermal management technology and solutions, has reported financial results for the quarter ended Sept. 30, 2020.
Second Quarter Highlights:
- Net sales of $461.4 million decreased 8 percent from the prior year
- Operating income of $28.5 million up $22.5 million and net earnings of $8.9 million up $13.7 million
- Adjusted EBITDA of $55.4 million, up 40 percent from prior year on a 240 basis point improvement in gross margin and lower SG&A expenses
- Earnings per share of $0.17 and adjusted earnings per share of $0.43
The company reported significant year-over-year improvement in cash flow, with $75 million of cash flow from operating activities and $69.5 million of free cash flow in quarter; lowered leverage ratio to pre-pandemic levels
“We are very pleased with our second quarter results, which well exceeded our expectations. Higher than anticipated sales combined with cost reduction measures allowed us to deliver much improved margins, earnings and cash flow,” said Modine Interim CEO Michael B. (Mick) Lucareli. “We are seeing slow but steady recovery in most of our end markets and geographies. This, along with continued controls over capex spending and positive working capital performance, led to record cash flow this quarter. We also recently announced that we reached a definitive agreement to sell the majority of our automotive business to Dana Incorporated. This is a critical step in our strategic transformation and allows us to avoid significant liabilities and cash investments to complete necessary restructuring in our automotive business.”
Net sales decreased 8 percent in the second quarter to $461.4 million, compared with $500.2 million in the prior year. The decrease was primarily driven by market-related volume declines in the Commercial and Industrial Solutions (CIS), Heavy Duty Equipment (HDE) and Automotive segments.
Gross profit increased 7 percent in the second quarter to $80.8 million, and gross margin improved by 240 basis points to 17.5 percent, primarily driven by temporary and permanent cost saving initiatives taken earlier this year.
Earnings per share was $0.17 in the second quarter, compared with a $0.09 loss per share in the prior year. Adjusted earnings per share was $0.43 in the second quarter, compared with adjusted earnings per share of $0.13 in the prior year. These increases were primarily due to higher operating earnings compared to the prior year.
Automotive segment sales were $109.9 million, compared with $115.7 million one year ago, a decrease of 5 percent. This decrease was driven by lower sales in Europe and North America due to lower end market demand, partially offset by higher sales in Asia.
Balance Sheet & Liquidity
Net cash provided by operating activities for the six months ended September 30, 2020 was $87.3 million, an increase of $69.8 million compared with the prior year. Free cash flow for the first six months of fiscal 2021 was $72.7 million, a $96.6 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 six months of fiscal 2021 were $11.6 million.
Total debt was $404.4 million as of September 30, 2020. Cash and cash equivalents as of September 30, 2020 were $62.5 million, and the company maintained $191.4 million of capacity under its revolving credit facility, resulting in total available liquidity of $253.9 million as of September 30, 2020. Net debt was $341.9 million as of September 30, 2020, a decrease of $69.6 million from the end of fiscal 2020.
Lucareli concluded, “Based on the strong second quarter results, we are providing our outlook for the full fiscal year. Like many companies, our sales and earnings outlook remains highly uncertain, but based on current market conditions, we expect sequential revenue improvement in the third and fourth quarters. We expect some cost increases in the second half of our fiscal year, particularly related to higher metals prices and employee compensation expense, as we reverse some of the temporary cost control measures taken earlier in the year.”
Based on current exchange rates, market outlook and business forecast, Modine provides the following guidance ranges for fiscal 2021:
- Full fiscal year-over-year sales down 7 to 12 percent;
- Adjusted EBITDA of $155 million to $165 million.