MOD - Earnings call transcript Q4 2018 | Modine Manufacturing Company

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Operator

Good morning, ladies and gentlemen, and welcome to Modine Manufacturing Company's Fourth Quarter Fiscal 2018 Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Ms. Kathy Powers, Vice President, Treasurer, Investor Relations and Tax.

You may begin.

Kathleen Powers

you us thank today's and morning, for for joining call. Good Financial and here President Burke; Chief with am CEO, of Modine's and Vice I our President Tom Lucareli, and Finance Officer. Mick

call and for fiscal presentation for as provide today's outlined contain website, today's our will either will Slide Commission. will the there full X modine.com. session. the Mick forward-looking Investor file On earnings link guidance call, in On webcast it's in Relations Exchange using well the call. PDF and release, with the At We With by the Tom This call 'XX. on pleasure X results filings is of presentation, Slide through year that, accessing fourth be regarding our our is or my Burke. posted our may can the for a and over quarter be turn which section to Securities Tom notice company's earnings question-and-answer revenue end an accessed statements outline slides the be our present of as of the our and and statements. to forward-looking

Tom Burke

morning detailed our review positive prior for good business I of prior was for guidance our XXXX results for the XXXX. to more successful and today's Kathy, questions. call earnings financial will the will closing very provide up strategic your and On initiatives. and discuss revenue a continuing fiscal momentum and our segments you, Thank year. provide year opening a an update I then will the Mick will fourth a few remarks from Modine, Fiscal provide call, full-year and our quarter everyone. including on After results that, consolidated

increase has more fiscal total, well and operating note over Looking from an operating HVAC This growth billion years prior is and our back meaningful Asia business where $X.X in in the adjusted our the $X.X reported fiscal XX% Of by increased almost doubled building $XXX.X In EPS income nearly years, million. revenues XXXX vehicular billion the full-year XXXX increasing today. particular and our over jointly addition is local team of have of past was due the segment, adjusted increase CIS and of to revenues double over in we executed two $XX our to two past sales - we increased earnings the very $X.XX, by year. than of XX%; which segments. million,

sales with pleased to segments. sales Moving to and significant results, Asia, Europe, quarter earnings largest strong report from improvements. with quarter our the CIS I'm another and fourth contributions Overall, increased the XX%

quarter, adjusted operating million prior up the year. $X.XX the the quarter share fourth prior Our were and per a was $X.XX from million for earnings from or adjusted improvement year, $XX.X $X.X income XX%

Now review I’d segment for to like quarter. results briefly the the fourth

the contracts million tough Turning in to currency many XXX by driven for as sales declined X, to quarter. in negative was a including which anticipated impact have our to Gross decrease should factors long last subsequent higher quarter the customers. fourth this prior as the prices several a had pass-through XX.X% increased provisions sales $XXX Americas material year. extremely the quarters, due comparison higher alleviate Material strong segment on by to metal and year. of to margin $X.X points would costs driven primarily basis impact automotive We particularly we basis Page as off-highway to This of stabilize. compared a negative million customer X% during constant

business prepare to Laredo, future Mexico growth. expense that benefit as plant we had new for sales addition, in lead In and launches Nuevo we higher will labor our

Mexican had peso. impact currency Lastly, negative stronger the from a we

having price to to While we downs. in are subject offset to increases customer addition labor cost

are offset improving efficiency impacts We our and chain and controlling by costs productivity. working continually to these supply

one the We to in improve two to Americas quarters. the expect in margins next

million, of prior Americas profit primarily decrease the lower result $X.X the a than offset million these partially expense. As factors and the $X.X year lower operating income related tough to adjusted the SG&A in was segment comparables, gross by for

I Our continue on the of markets. are expected commercial launching through segment but on a as of programs XX.X%. Europe still Americas vehicle markets. working margin X% in We're wind our new with in improvements Please $XXX.X to to strong off-highway, X. increased XX to business Page across time markets mentioned our down all constant basis in automotive, turn all segment be some growth Gross earlier. end to to to us to with of for allow sales specialty with The primarily production over Higher basis increased increased our in gross a in million in million programs. will due margins points increase and increase customer and concern recover volume, contracts vehicle impact procurement short pricing efficiencies. improved currency commercial new foreign material $XX.X cost exchange the term, much continue higher and sales to due margin rates. margin million this our income was mechanisms higher will $X cost be and currency to Adjusted the vehicle prices operating but the along favorable savings Sales plant

strong region quote leveraging manufacturing our is managing Our activity each high and the is of case portfolio in for product as footprint. electric European vehicles level team,

allowing completed and turn the of also for lines credits our facility this seen have we expense know, footprint in product to plant have to our in advantage country construction We've certain low in of Please our Austrian you charger take from transfers Hungary year, investment and those our been to automotive oil going cost tax transferring smoothly. our plant benefit expansion we're as As to Hungary. We're development us expand coolers. X. coolers able income of in production Page this Hungary of

constant currency continues increases significant China, Korea and sales in basis. a the Our on sales to grew in We earnings in China. led and volume and growth. with increase This off-highway XX% in Asia increased prior $X.X $X Asia $X.X sales for a automotive income the sales Overall to most significant to Operating year sales segment gross Higher compared this report resulted India $X.X to to Asia year or point profit million year. to to last XX margin segment a million higher in million the due million basis million increased XX% volume. improvement gross XX.X%. from $X.X segment in sales

our the be ground quarter, To site intention and announced Changzhou construction the last We of broken mentioned China. volumes stretch anticipate for I to had construction. we growth to facility our calendar XXXX. construct by region, our in the As higher for have at on building end continued sales of that allow in further finalized the second building will complete design the capacity

reach currency X, up of Turning sales products. Gross or resulted in profit was basis towards this of increased been the synergy of This $XX $XXX.X years sales due We’ve our CIS manufacturing will year margin two plans cost of synergy to this which improvement XX.X%, goals. million savings further turn track. $XX.X the procurement goal on higher a basis to XX% segment we to $X.X precision Page sales the operating and million, great in constant to a obtain million a and $XX.X of able cooling, on a mobile primarily segment our to for done air the coatings in on million XX% our gross outlined we've over evidences job the now to improvement savings higher our over million operation year. synergy which year The as work XX savings volume. obtaining we achieving is cost first adjusted points income conditioning savings reported prior

plant closed and our we step, in footprint As a expanding in first a Australia Serbia.

add increases. will additional to an capacity we in to Mexico our Second, Juarez, for allow lease production facility

margin is Gross higher production driven solid X% to capabilities million compared Juarez by scaled conversion XX. sales. and sales income prior a and heating to from building points at This driven segment gross continue Our goal manufacturing American its on to a for plant The and currency to favorable Please increased coils increase the driven to was the due sales on turn to constant North [ph] a by HVAC prior up improved XX% $XX.X profit strong by over operating the Sales XX% adjusted increased in by to development enhance XXX year profit time higher facility. million. in of basis Page basis XX% season. year resulted gross pricing. improved mix $X.X to

our of expectations not less broader competitive in and part critical As we below sales were line our line Sales size quarter. annual with geothermal product our strategic be discontinued fourth we portfolio reach during than this continually to million. was in market of this a $X to able product analysis, growth the

will be were Europe we have to on this Solutions Asia reminder, And African business fiscal entity, XXXX have a this Fiscal the segment sales quarter VTS we or that that than local the as addition, business will of success. greater one quarter XXXX, just report Vehicular allow to decided include and we first will five current In business which $X on called to segments. last less Thermal Starting opportunities the report million. our particular the Americas, with segments. for business South year will a for sell finally

outlook our results, Mick consolidated as segments of I'd Building in that, the will for and to to fiscal overview three segment. BTS, turn guidance an financial for CIS well So XXXX. HVAC forward over going With our be like then our as

Mick Lucareli

sales Reported million XX. X%. increased positive includes $XX or FX sales a or XX% million $XX Slide a increased constant to turn Please Tom. basis currency impact. Thanks which On

favorable metals XX%. pricing up Our profit topline benefited again this quarter gross and pass-through, foreign-exchange tied million rates market, of $XX.X was to from

currency rates to by Please margin the reviewed. foreign restructuring at adjustments Total income which rate, million increase challenges increased which HVAC of item higher XX% up due in due the for constant margin the profit down exchange relates included slightly The accounted improved our and for change initiatives. to mainly Our $X.X Europe, as gross the primarily the company million the represents results to table segment. impacted of ongoing in CIS sales Europe. primarily was with FX rates. million quarter. building Gross to temporary and on $X.X Asia, the to a severance largest were justX%. Unfavorable expenses million operating totaled and SG&A just in Tom a we've $X.X bottom SG&A purchasing our positively exchange gross note page basis in was Americas the $XX.X volume than of

adjusted line quarter. the for expenses fees, million also previously for environmental strategy remaining The closed. that to was in of to discontinued income quarter adjusted related its Fourth along was a impairment costs, XXX,XXX Americas $XX.X during operating integration HVAC which segment million building adjustments the charge XX%. related the the acquisition X.X plant up XXX,XXX with for consulting product We and geothermal

X U.S. This our tax as tax a by that quite earnings compared Our tax the be a not of result to in our legislation earnings provisional charges that XXXX share expected again million GAAP recorded will an previously legislative taxable improvement an million foreign the Also U.S. the per at Note enacted charge this of U.S. adjusted forecast. earnings was recorded $X.XX, guidance $X.X have for $X.X closely. included higher is expense U.S. The tax impacted monitoring the We income which fluid, been December. taxed additional quarter. environment earnings is to of in quarter in was U.S. on quarter. transition per was tax a deferred benefit reform share XX%. of $X.XX million in

development into our one-time fiscal in we 'XX million to expansion. a a related will is $X credits not that As reminder, during XXXX. carry-over tax benefited Hungary benefit fiscal This from

In reversed million China. our a the EPS, in in on allowance we our adjusted a valuation presentation our made full to reform our benefit that tax reversal in assets earnings including this tax in we $X.X statement tax in GAAP note the addition, allowance adjustments income income portion included China resulting expense. tax of In income the related a release is U.S. Last, reconciliation. valuation in please and of and deferred

prior year XX, in was than This year. expenditures foreign million the were spending year $XX.X than million Turning $XXX.X to our higher in by or capital unfavorable new prior to $X.X fiscal Full XXXX million. segment flow changes. cash primarily rate due exchange the is higher operating CIS Slide capital

strategy capacity related fiscal million of In environmental includes million Please China in a launches. impact to integration addition, to flow in this costs, negative payments we cost, and expand for support new reported cash manufacturing made of activities, equipment We Hungary note XXXX. cash $XX.X acquisition free expenses. that $XX.X product restructuring purchases and

fiscal and end debt million of the down our Finally, net XXXX. is by at the declined at ratio $XX from during X.X our year X.X leverage

XX. market Slide guidance, I'm XXXX to Now our let's be to our guidance earnings pleased growth continued turn by report sales of margins to expecting we driven and growth. To fiscal we're project year improving to another X% summarize on that X%. up good

as offset Tom earlier expect down We programs. market ongoing truck wind partially described multiple growth vehicular by of the

and mid industrial we single-digit expect growth. low our market markets, For HVAC to

In are business all addition drive earnings planning to segments. to the through growth, improvements we across revenue margin

expect the income to year-over-year the to million We equates to of be This adjusted XX% range million. XX%. $XXX operating in growth at $XXX

want to an assumptions, first I this will have review of and continued ongoing briefly usual, some to we our key headwind. that metals increase As prices be anticipate

interest approximately of expense million. Second, we $XX expect annual

Hungarian significant to complicated using benefit tax are result repeat in will exchange not and I foreign we current XXXX development will reviewing tax To related benefit Also in to a in our which fluid environment. Third, that year-over-year. added slight start, very want rates XXXX. a fiscal we credit spend moment

lowering tax change 'XX. of have significant we earnings our impacts new related those tax rate mix $X U.S. we to to specific provision have 'XX. to valuation we in have our to however due are last, the is increase rate now this We we expected federal expected to Next, U.S. rate, of estimate the in our impact tax previously which from the where expecting drop U.S. tax about allowances. have a fiscal fiscal And of We the additional of causing reform to to be million a particularly legislation jurisdictions in law. related the the

'XX. adjusted $X.XX. tax we be a and XX% to our approximately our tax fiscal adjusted rate, to on versus fiscal be in Given rate factors, expect 'XX XX% in to we Based all the XX% between EPS these $X.XX expected anticipate

we reporting XXXX. momentum I So continued to to of value. shareholder our throughout and in back a forward fiscal strong financial one results year. terms finished years Closed our up, of wrap out increased look Tom? on best

Tom Burke

Mick. turn Thanks to Please Slide XX.

have performing we of to As time, past kept that I resources this as and review our back significant and strategy we portfolio assessed mentioned X.X progress on strategic guided and what focused as year our this years. is the our we last quarter, product SDG, strategic the coming diversify a decisions refer successfully we strength to grow over over

consistent. Although long-term and will will new actions we the for new our strategy define reaching remain goals, targets overall

business of forward on global our be details leader, to many demand capabilities, operational thermal to improve I near expanding working process. our cost As how of world to will we SDG global to future. manufacturing more become global Today advantage the oil continue the in a diversified clear, we But I strive products. competitively footprint sharing for order around business our outlined management in examples hard to continue meet look country to we're to continually our next phase our strengthen by optimizing

to developing and the has advantage along approach a proven be phrase operating our to size on This consistently global around team scale. Modine competitive their the growing Our discipline with operations coined recently One system deeply and describe world. Modine powerful

time market allow will by for to us down diversification add to finally, our to opportunities to portfolio, customer success and continue by to our This continue acquisitions into the the deliver company's we’ll we proved generate industrial CIS flow of the sufficient following accretive in our other And business will that the for biggest the will our free on range. can of reducing and completing to back diversify targeted to acquisition us be bring cyclicality. cash earnings success grow our we decreasing to history allowing Secondly, the I will We those as this making concentration ratio year, may our right described decisions organic our deemphasize choose having segment. first we acquisition embrace capital. the opportunities business. markets. we've capital. we increasing win a our our leverage look we technological HVAC making in been as proven returns societal thrive. our the promises exposure Whether on have or to our But the high inorganic This these past where markets with choices to of or is a to investments where the seeking comes but in products cases we several wise new changes growth some special will in advancement growth end building be or continually invested disruptive that Modine seek will is types years, certain from earlier and capability, in In our for from

to provide thermal our to This that is meet its need energy at leader advanced will a As deliver and electric able questions. refrigerants fuel with technology higher will take and your we customers vehicles. Modine introduction solutions best. enable be we And efficiency products the for requirements, that of the

Operator

[Operator Instructions] the comes of of question from Seaport line Our Amberger Global. first Ryan

now line open. Your is

Ryan Amberger

is on This Ryan Amberger Shlisky. Mike for

Just two ones. quick

up for and at Do XXXX. for or a for there's you your leader the was looking margins were XX% reasonable segments, more nearly Margins the XX%. is points to range number year So in Asia Asia, ahead fiscal expansion four were the forward? XX% still going think above

Mick Lucareli

That’s Ryan operating would first I the I’m the they surpassed expect have going we’ve it's existing the leveraged put say you that and Mick. and natural I so this some at point say it's forward. think range - I are we’ll probably level think our expectations, additional know in to here, as we'd but reach scale, range. starting now a to XX% capacity, we or XX% in

Ryan Amberger

That's levels, materials raw operating come profits quick. maybe sense last for improvement Is we matter we could at back still to guidance, are point? be costs to high looking this raw XXXX? of two could just material a XXXX. where a normalized fiscal margins one more an get see the other were but a incremental the could it of your be they if And like one at for teens then And over better. fiscal In little look or year

Mick Lucareli

Yes, on year great if look a in lot guidance you to at question, there a From profit gross and and with in regards going standpoint, this year. next outlook our our profit for have percent next a plus we’re range. at think operating line XX I you And really must nicely gross planning representing a convert year income. in pretty to then the

headwinds of metals. of part year do we is that’s have One next it and the

on all and trade the price. and as wars about the discussion really but We’re LME not on the it’s material the raw concerned tariffs

and new year another that the of we this And $XX $XX especially on spring million most materials, that. to we’re here $XX will million prices. aluminum saw passing the another and and about start we will in million be lag looking For $XX a raw are copper in Really XXXX, fiscal there we that run up at in but it to in million through around there increase through, talked headwind we costs passing year.

So that bit margin sense? through the the would of pull pass Does year little change. this that until we a the make balance down material

Operator

Leiker David And our from next of the question Baird. of comes line

Your line open. now is

David Leiker

of First is in the market there new to to great, great of those as contract the break awards, there all, a opposed content, way are great the revenue what's the way is year. and numbers much two? growth are of to on go a look On returns separate to finish apart going how share? that market forward. China, to These more for Is

Tom Burke

our lower new for about but it's market construction clearly excavators, breaks wins, great this that, given and any has also - sales - quantify that’s content content back growth again, place new down. as bulk a of products, increase qualify, and we where of driven, of we China business when engine strong is China really could Yes, awards. Korea. [indiscernible] are the have that big out really of --? real I’d supplying construction so of driving takes India markets in wins also are that's with boosted that really is out engine the some kind displacement, benefiting as that around but that the heavy do talk seeing of performance of a so traditional that And markets bounce as phenomenon far you from in off-highway opportunity The they specifically engine automotive way kind how Mick, side there our

Mick Lucareli

Yes, would maybe market, say its than a less half David, I it’s third.

and it all we excavator in in in So data by board. Asia India, China. auto XX% growth, our XX% out just the rate our The so across XX% the up pretty and pretty or of of then XX%, by in end And was markets the XX% Asia, India growth most in look across markets quarter market low across XX% auto to were was in a sales Modine market the XX%, China. on and of our to in - external up the data construction

XX% Our And auto were our XX%, up vehicles. sales were XX% to then off-highway XX% or to sales off-highway commercial XX%. sales construction another up were XX% to or India on sales depending

the winning growth of be third So say launching programs us market is I would the new and and about a balance new would then programs.

David Leiker

bumping ratchets some look constraints. capacity that? at it growth little against we like at would up a seems that, opportunities If bit are before you it you that down up slow again? look incremental How Is

Tom Burke

driven that’s is driven that we’re in looking Mick are the for as right those completely the look said, taking participation, ahead, same campus of other China that many can clearly and so it opportunity. to how looking to positive, really is yes, We looked kind Well, leverage But obviously forced market at on on management we truck infrastructure and Changzhou that we this also growth to options and decided facility where by business build there. we’re markets wins that. there solve structure acceleration us the well the our on growth has the

the So it be last it percentage growth, be year not going growth but to still like the been growing I’d has say is continued or two, may the double-digit.

Mick Lucareli

win sure. or that’s activity quote our limiting or rate, prohibiting not it’s David, And for

the productivity conversion ramp the up next - it. six with existing up the think the and in just is and six volumes keep probably the challenge the facilities, months, in months to last I as

Tom Burke

as share kind we’re It’s for kind the really well which - encouraging. of of opportunities more more open success wallet certain they we for getting so is success door customers have

Operator

comes of Matthew Instructions] the Gabelli. of next Our Paige line question [Operator from

Your now open. line is

Matthew Paige

quarter. leverage that all? this at the strong cash in Does had flow You up thoughts change your on target? go Does your

Mick Lucareli

does No, we’re think but as going to in builds confidence it I it our stay disciplined what two on things. the leverage,

will comments on the have gone to Tom integration a at are look back the with we where I'd in you his sheet Luvata where now we’re say getting And at acquisition. acquisitions look right secondly, position commented the then go continue We and balance we to we that really do out But anything has points well your set and tough your opportunities. to achieved. everything know quite always

So is flow, I we’re the success position think it's good sheet of a a reasonable in combination we building with cash and the had balance Luvata.

don't we strong Luvata X.X X.X with ratio. to quickly to commitment it leverage again, for a spike opportunity would the like go to a I right came, think But want did long-term again look it going at So if we temporary the we’re we stay ratio. our under get to with target to back

Matthew Paige

areas color into What And a you little maybe provide expand? along could those M&A guess multiples? seen have you looking your lines valuation pipeline? lines. those of then you along are And reasonable Kind I to

Tom Burke

function so Yes, - set a looking of development markets. new through key on and strategy up office office search business up manned that we that’s and a an

solid to what a of intensity we thermal core and quality our is between to of across less a with momentum more on management and of that, on of in is again to vehicular of XX/XX markets earnings, customer. on go strength that parity focus diversification technical see ratio diversification the We our two capital split mentioned and because lots again now focus gives both going. way diversification between advantages benefits I more my being Right - as As at we earnings, we’re keep the think that us call industrial. the comments a improving that that

us clearly which So and be opportunities be - look lot an wisely. could industrial in going a we’re we’re spending to shopping for time to and seeing of space

Mick Lucareli

had each there few talked going depends Luvata really some reasonable quite about are and don't with ones maybe then either we well or be the that there our we And be us before that and justify it or goes we opportunity about see before multiples synergy more fit on took - and we that quarters will the competencies. quite And a or participate won't are year we Luvata the to valuations announced cost. pass we’ll up benefits to like

answer So particular really on about. it will talking depends be really we’re the company

Matthew Paige

All presentation expected it Through market you your right. then from some one improvements guidance? the you continued seems margin forecasting are end is much question EPS How And noted baked expansion. more like and into me. conservatism

Mick Lucareli

really we always Well CFO be and deliver will teams try it we for. and the stretched guidance right We talking forward with to the shareholders to here. team the we’re is always go in what hard with pushing tried that line

the all the have With launches, metal’s headwinds really pushed the and year volume teams this of hard. we

right hit the sandbagged. do all so to year a of team to going really in of to is pushed say at, numbers. So can’t build is where numbers ever I will work we and no management hard hit they are the think the you strong another growth that an expectation trying there those leave with down lever it I don't you we lot this we're But we're middle year’s think have coming deliver to any - I - management to of ever

Operator

questions this I'm showing I like no further conference at the to Powers. Kathy now time. to back would turn

Kathleen Powers

will available website great Thank two be replay you this us day. you. in call have a We hope of joining through hours. Thank you our this morning. for about A

Operator

our for Everyone all gentlemen, presentation. a disconnect. conclude may day. in does today's And and you you thank have great Ladies conference. This participating

Modine Manufacturing (MOD) 24 May 182018 Q4 Earnings call transcript