MOD - Earnings call transcript Q4 2019 | Modine Manufacturing Company

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Operator

Good morning, ladies and gentlemen, and welcome to Modine Manufacturing Company's Fourth Quarter Fiscal 2019 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded.

Now I would now like to turn the conference over to your host, Ms. Kathy Powers, Vice President, Treasurer, Investor Relations and Tax.

Kathleen Powers

Good morning and thank you for joining our conference call to discuss Modine's fourth quarter fiscal 2019 results. Modine's Vice CEO, Financial President, with Mick Burke Officer. here our Lucareli, Finance am President Tom and and I and Chief

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

Thomas Burke

everyone. Kathy, our finished a good of in second morning, and businesses strong We our you, Thank a year fiscal XXXX capping sales record row quarter in and earnings. with industrial

transformation of in XX% fact, total announcing of now and sales. become XXX% matter company. adjusted we're higher a to As operating increased a more up industrial sales our Further, fiscal on SDG since have strategy XXXX, income XX%, performing businesses our accelerating increased our make and focused industrial

segment. at constant building strong on in currency a fourth basis, increased HVAC by sales growth X% Looking driven our the quarter,

impact as another CIS solid offset impact for segment Building Strong margins million vehicular our in in provide business XX% of negative progress we was our VTS report constant basis year I’m the costs impact XXXX that headwinds complete fairly on VTS fourth outlook by Overall, about performances the and despite additional segment. operating I continued a prior strategic early a HVAC was fiscal excited will segments raw income reported results on currency million, XXXX. adjusted quarter. and our increased Our was earnings fourth especially in tariffs sales $XXX and from a flat $XX Fiscal successful Modine. to the a purchases. negative in and X% and after business pleased of we year I’m very details on side unfortunately Mick from with due have industrial happier quarter automotive the couldn’t XXXX revenue the for and to adjusted challenges significant of the our have tariffs our growth business. increased our Material made future, direct Overall, we’ve of year. the the on the We were income prior-year. review and to the significant of quarter reviews from indirect material fiscal our resulting announced that operating of fourth be

of million in constant from down the off-highway for currency material tariffs raw down VTS Americas for automotive Americas Throughout was prior lower in higher in was margin Asia margins year. sales our lower Adjusted in indirect $X operating vehicle fiscal the automotive Adjusted than prior customers quarter, VTS but higher basis basis. on points which year, the direct Page million for offset segment were slightly X. income the and negatively and a our Europe. by cost. XXXX, segment in to the VTS were by customers to impacted in the Sales to commercial $XX and was the were X% XXX the X.X%. operating impact on lower and were Turning to sales Growth sales segment region the the sales

are case, suppliers quarter continue cost has our major diligently increased supply one of by specific some meet customers. the altogether. cost supply quarter, more In supplier exchanger our in resource during demand, to our to tariffs by We're with which increased to direct of imbalance leveraging fabrication customer XX%. demand order last tariffs of the a the our and the our than working agreements the also mentioned cost created sharing by We’ve negotiating decided worked have offset cost. and key As exit business heat to

business. basis the constant The reported diligently volume of increased Building this XXX us XX% we driven strong adjusted fiscal but While points by forward. and HVAC our X. very currency U.K expect continues favorable it's this be Please operating higher with higher prior adjusted a center the currency Page somewhat driven center increase constant XX% to for been performance XX% supply air-conditioning XX% The of was on U.K in sales million, both the up of million U.K quarter cooling our on for We've hard will data in primarily to can XXXX. by was and remain CIS X% volume Page The to year chain and up of sales market how prior and mix. pressure. The are basis, $X customers. segment improvement seeing customers several year. X% from and market X% Mick for or precision this a sale moving agreements drive chillers for to an did for basis wins was This that, and benefit reach primarily XXXX. to the sharing for costs, we has basis, our from to products income to Please turn prior points operating adjusted With and an increased to and recover portion cost a cost operating a turn and decreased results in cost business of we we was This segment. fiscal outlook products in from able for This predict strong quickly margin to business. volatility data these over lower SG&A situation the to increase now new due operating our our the a these significant quarter our year by of sales expenses. segment strong our by exceptionally to CIS mitigate winning $XX our to driven our sales to been recover for in customers fiscal service market Sales overview Sales I X%. year-over-year and our benefit This increased coolers Adjusted into XX.X%. consolidated income provide segment X. remains the margin XXX we’re working but year, fluid, a like strong results. some of turn would increased to to

Michael Lucareli

of to margins On sales X. currency lower had Fourth Gross profit turn X% million decreased $XX was $XX a Please largely everyone. morning, good and X%. the of in XX.X%. X% or quarter due gross to a constant $XX up impact Tom, and million a Building million. by Slide sales strong negative Thanks, basis, resulting HVAC in were of quarter. gross slightly CIS margin FX

costs. incurred sales, primarily impact the tariffs gross a tariff negative decrease related with flat combined side, in sizable On of the margin to and due VTS we

million extremely addition, the prior to help material VTS on To the quarter experienced the and year. cost focused we compared offset SG&A and cost In warranty costs, higher were volume in labor challenges, consulting automotive The million advisory to related review charges. flat $XX in SG&A of of included the million relatively costs quarter. and were and fees for business which $X environmental $X the

prior-year. was Excluding million, flat $XX.X these SG&A was which operating significantly. relatively to Adjusted items, down the income was

to recorded environmental location. includes earnings consulting costs of growth the tax million point GAAP and results. the a reviewed, facilities. manufacturing to fees owned The adjustments restructuring appendix mostly which Building charges strategy prior than was in related significantly and restructuring decline and Tom As also are expenses I the offset of out $XX.X that we is pertain income HVAC higher expenses, CIS These The manufacturing totaled reconciliation a our year. itemized previously $X.X full at an list expense, by in adjustments European to to severance VTS. and million U.S want

XX% the compared was XX% year. same rate in tax period effective adjusted prior the to Our for

As Hungary. development prior to in we previously the rate over due the tax in was a year, discussed the adjusted lower credit last year

Our rate. adjusted $X.XX due or down to which tax was share prior X% year the the higher is from $X.XX, earnings per

Turning flow was 'XX cash our XX. operating million. $XX Fiscal $XXX million Slide cash free to and flow was a

million carrying As I of items, was of explained cash flow primarily higher year's higher and including and been previous working calls, impact in payments a $XX by our the to cash In $XX domestic also like free this cash the levels due preparing restructuring on program negative launches inventory would we’ve issues. potential along negatively I particular, of number for compensation with capital levels. incentive to impacted materials our note included primarily million payments, that of activities. to impact Brexit about flow of tariffs related supply of

$XX during to debt million the of net leverage our and Finally, X.X our year is ratio which range was X.X, X.X. target within decreased our

to currently challenging fiscal to project year some we're our pleased growth, market. be we forecasting turn to another earnings sales let's guidance that up X%. summarize XXXX our Slide Now report on flat XX. to fiscal 'XX despite I'm of To guidance,

strong the HVAC First, to our we growth in segment. continue expect Building

anticipate sales will negative we're be flat off Last, continued the down vehicle prior market due to a in largest foreign center sales slowing level of Europe CIS, the leveling our more on growth certain versus of and expect VTS year, commercial Next automotive data growth with due to lower markets we challenges down impact. a to and expecting a the to with year we this in programs. regards wind moderate combined currency

in in Asia continued generally a expect With interest we we growth We three adjusted approximately equates $XX be assumptions, and XX% fiscal the our growth rate operating to be anticipate region in earnings between million. segments to fiscal tax flat. our expect key all to Based rate, income and the $X.XX. EPS Americas of other adjusted XX% range to to rate million XX%. adjusted compared expected X% with approximately to regards $XXX We expect $X.XX This 'XX. tax to for we of expense growth be to annual be and on 'XX year-over-year anticipate in million to in $XXX of the

expecting Before some and rate run the With year, the in I see the through significant especially quarterly will challenges, first of run wrapping comparisons, result the half we're first quarter. overall we to in earnings the to which regards difficult up, for how year. want

the expecting very both weak of that and main the VTS the top on year. first as the is quarter One a prior drivers bottom to line from we're compared

the line our fabrication domestic to we cost of with this of the addition to tariffs earlier. significant volumes, recent increase Tom the expect that quarters, most business in margins impact lower reflecting be the In in and mentioned

to due center primarily CIS have the to revenue XXXX. fiscal expect We in segment half, very the robust year-over-year a data lower in first sales

more for The and on half up comparisons year. the will second favorable later be easier in projections orders ramping

Lastly, completed details Once on will that the financial timing, If outlook business. have automotive outcome, I transaction we’ve our address fiscal an fiscal deal, year, results. out fully this it regarding further. want this full-year to our a impact will includes is obviously 'XX certainty point we our and

Before With to earnings passing we're to in reporting that, look report throughout turn summarize you. flow and I year another in record back 'XX. forward fiscal it Tom, growth anticipate will fiscal pleased saying to to results XXXX. I back our I 'XX, would by and cash Tom, fiscal additional in

Thomas Burke

turn Thanks, Slide Please Mick. to XX.

laid Modine. beginning Diversify management Growth led which at more Few for fiscal the stronger we’re groundwork said has of call, for the XXXX the us our I company. we Strengthen, today, a and year another was years strategy, thermal to ago As diversified success

we end at made clearly not the progress, are of this we’ve Although journey. great

automobile, is for the Modine supplying of T from chillers moving radiators business sales fourth strategic of history our a and position our been competitive have always has Model improve battery includes the the progressed We The to significantly. which This business. that the to we early will vehicles, of quarter, tied in providing automotive strategic business for electric automotive portion forward announced continue actions. to our significant with review the

our and investment capital from market required returns from However, level and of end in segment. our this significantly hampers is our changed different remain industrial The this competitive vehicular other businesses. markets to fundamentally has

of positive As I've discussed lot before, has Modine's automotive a aspects. business

fantastic have IP name We brand portfolio. and a

of business electric addition, and leader In work a lot vehicles. leading engine we're a to new cooling, on in development

owner. The strategy, in the of may maximized is $XXX corporate our value revenues, approximately representing this reviewing we dynamics market be believe million. more However, another business than and our of business that through the automotive XX%

VTS are report margins in as segment total Although margins market, we by don't a margins whole. end customer the auto on lower than sales

more significantly markets. is intensive the our addition, In industry capital automotive than other end

our In our programs year. forward total and automotive made strategic fact, our given significant to with on of We’ve process. business in generally evaluation a of XX% sale the progress is on XX% moving CapEx spent are automotive

be As you the the scale the and given car business. route imagine, of and size extremely can separation will complicated

will a our Although comprehensive has include these working some This manufacturing some are teams on are business cases, are segment programs others building. the the dedicated campus and XX concentrated separation manufacturing plan. In our of on our be our auto where manufacturing locations. facilities be separation co-mingled. we’ve complex, to anticipate but locations of of would one the automotive multiple Currently sales, automotive we in buildings approximate XX can VTS

complete steps guarantee to any is interest the successful, standpoint, and far smaller as in the outcome, this confident from level operating quickly the shareholders. business are will quite have possible but to cannot process, be as taking process would It but the in for So we the value process committed we look particular by pleased will still are If are a of maximize improved Modine different. necessary our temporally revenue margins. with

decrease expenditures higher flow free significantly, on would would Our resulting cash and capital. overall in increase return capital

balanced a to maintain allocation. will capital approach We

use a of of will We the consider number proceeds. for options the

We and sheet as are of balance opportunistically our will the organically debt our through platforms, shareholders return repurchases other cash repayment invest growing to share to continue appropriate. ways consider to manage in

take We and/or growth. businesses other grow markets vehicle for And markets We industrial Modine's maintains is In clear that off-highway key see future Modine returns review increase of our well. in value. and drive markets positions and our look is the company of a more as shareholder markets next we diversified our is performance that stronger, Modine's future of the a emerge we on as will component thermal With shareholders. that acquisitions the more questions. as focus value to performing by this well company. would announcing our opportunities. that to automotive and we commercial our like for industry-leading It complete, industrial Once XX%. confident these of We're as further strategic shareholder be would excited addition, October Since adjacent continue where market SDG in and we as the increased our potential able demonstrate even a accretive VTS further XXXX, to cap that, this within goal platform the has best expect will phase to created of are businesses. are with Modine believe in business industrial option even to your industrial management

Operator

[Operator Baird. ahead is David from line the Leiker of And first Go our question please. from Instructions]

is line open. Your

Joe Vruwink

for is Hi. Joe Good This Vruwink morning. David.

Thomas Burke

Hi, Joe.

Joe Vruwink

could a bit I fiscal was we do of retrospective wondering a if on XXXX.

numbers, you But cost $XXX the million million guidance control started Can up actions those and some you of bridging So a up being that operational what generating about $XXX the in Modine's then ended substantial two $XXX to year discuss allow went actions fiscal to that as million. EBITDA mitigate 'XX you at material impact? more headwind on. in that there quantify ended thinking in that much was arose ultimately

Michael Lucareli

Hey, Mick. Yes. stab Tom and operations of kind on the Joe, side. will take the cost material at then I it's let a comment impacts

as items it several combination So for often just I others. 'XX in was fiscal a think reminder of the

of from any net the $X customers impact direct of the was approximately. first about that million we recovery got The tariffs was and that

of the domestic impact the talked tariffs increase another that prices with or cost towards a in and past, of suppliers the transaction about was had only X% that the year. to were X% a about about about one net or calendar addition, impact. -- LME than metals, year some underlying started on that And while In challenges end The the XXX% the aluminum million. create particularly more two $X Thomas a and premium about up then million doubled, last up was the it's

at operation least or to year, the that the -- we where absorb cost million we standpoint. step material where offset try needed to of we started from finished, So increase $X from

Thomas Burke

the we CIS actions, the over where Yes, HVAC other year. versus started from Building performed plan and clearly

So again leverage effectively. growth demonstration it focus the was that we being if diversified that and convert of a could

year launch offset significant in ramp activity at procurement XX/X our on our on made that by hole And expectations back last China, say over with the dug team the where progress, as through then the year performing amounts we Our be. where had savings we one the we kind to we did job budgeted are beginning as amount. of beating know a we should nearly America, significant for had specifically type procurement plant fantastic plant for well a progress to year, into one -- well a coming into coverage launches of North of pleased you significant ourselves as up that the I’m in we year

Specifically -- near in the plant in right lot got going operating China, our at the there and change feel level. again, direction. And we’ve a of very with America, North at with our strong reversed where expected KPIs focus Shanghai. we’re It’s trend in discipline at

CIS, and the the some in, that what end at invested towards resource say, HVAC turning around of the momentum back effectiveness offsetting help of year with starting us Building turned described, those we've let's get So, challenges to procurement talent then and with as Mick well.

Joe Vruwink

vehicular. in receding we we’re it contemplated It in Can similar cyclically to tough from in of helpful. feel so XXXX seems could and pressures should the commercial -- CIS of to some XXX be later have XXX Unfortunately that's maybe like dealing ultimately relative just in you so operationally possibility, HVAC terms was think projection? in pretty offset see always some it's a in that you the with vehicular and like better that much year the call, volumes outlook. -- markets and includes you going but buffer really the feel like again, off-highway to if range, XXXX to in you're then sounds XXXX. that’s And Do a conversation what's contemplated be the the vehicle a new

Michael Lucareli

run Yes. we will Joe, that. I its Yes, you think a there good. through it's Mick. but There's covered, lot

of Just out kind we it. as see it lay

think the So -- guys We right the the not the volume in are that the dynamics challenge from back indirect tariffs, the area VTS standpoint. biggest same see now is lift market do I seeing and yes, of direct tariffs. have seeing challenge to we a VTS, market full-year impact you

and operations in we expect to improvement normal improving margin so us direct traditional cost an numbers for be actual are is that to go to see or impact while million year, The So this us the tariff to and metal full-year a incremental to the indirect you'd will as slightly like year. of the some tariff. about positive see we exchange $X neutral

strong year comps. rate run the other So and bit we're Europe. headwind heading the a first Building a on strong And difficult we continue really tariff the The the we biggest on into side, obviously off HVAC we've volume in to the and the the HVAC then indications in probably the Building across about standpoint, a From markets. year and the are little of our will start U.S of lower more feel U.K is all and half from CIS good -- we got really ended and impact. QX side in both

year. sales data last of record level business have center We

and about We second in from pickup customers second CIS half indications our some standpoint. are expecting half the the the from year markets of a good and

dynamics to a data but So, bit combined it would Tom, little there as whether add cushion feel year, the we challenge we that offset. this have that’s into or you CIS I’m the feeling turn flat from globally. HVAC centers to standpoint, Tom, back head I think anything? the way when with thinking a comps on way Building the seems and tailwind we need about guess, like about And VTS tougher we is just a more and to markets comfort, is we tariffs good. its have find biggest then markets before to it I

Thomas Burke

to those see have in little you advantage in Yes, right. bit the to now that it I North megatrend continuing of that pleased data both maybe -- and with think America centers. directly really as both want about indications are whole Really I a the good we engagement higher sales good take of that and regions U.K our that said some That’s XXX businesses on onto tied year. we this said make we two Mick with grow sure we when digitalization.

efficiency, year, laid with, to productivity continue so will VTS this focus challenge I’m to procurement some out. in gaining expect be offset again to our significantly to be We and pleased Mick very I on of those that which

the So best put for we summary that. I can together that’s think

Joe Vruwink

great. Okay,

that that’s on Specifically took your share on that a seems order fiscal HVAC, what's like place the of lot based continuing of fair share. on sticking that you’re happening and it to commentary, the in 'XX book based business? Is grow in gains maybe market that characterization

Thomas Burke

gained really in products we 'XX on business we as the on a there. chillers definitely we’re the and precision standpoint and share cooling U.K year regions fiscal those market share also in with well, strong And from pick up data a center where over which that are Yes, heating. 'XX, related seeing gaining specifically was

potential customers. that, concentrating opportunities share chiller we see well on a America have focus that on regions develop continuing and by North in U.K with the we as certain as U.S on gain where from forward, capitalizing on heavy moving from sales chiller may So, in needed transatlantic possible

across good within within really momentum again, So, segments -- all sub-segments HVAC. all Building

Joe Vruwink

start that against trend you And XXXX. of the of half compare so growth second XX%, thinking in for revenue XX% to the business when

It year-on-year? share, be necessarily you’re and market you that down? sound though you you share maintaining you're would maintain to of moderation, growth market be continuing to even expect there if doesn't grow, like is course If down probably would

Thomas Burke

that slightly same up be of that not expect forward, your had because point we jump up. maybe we have quite year last will to but we think look to we the we the and share Yes, gain

Joe Vruwink

still more much question, How business then a Europe? off roll is of last of my to left commercial housekeeping Okay, in vehicle great. item. And

Michael Lucareli

little million, fiscal bit the there's Europe Yes, in a in U.S on service approximately Joe, 'XX. and $XX

Joe Vruwink

is And … that

Thomas Burke

ahead. Go

Joe Vruwink

ahead, No, sorry. Tom. Go

Thomas Burke

and was model still activity I just going on course, going European new wins with America North and recent of for quote to some that to customer. starting with are business launches we’ve good prepare say,

roll -- yet, roll year but behind I a coming is year this this be net off with off, it. So yes, yet going to gains in

Joe Vruwink

Okay, one, great. I will I to it have wanted get over might another queue. someone back but I in to turn else.

very thanks So much.

Kathleen Powers

one actually Joe, in think you’re the I queue right only now.

have you questions, why if other So don’t you keep going?

Joe Vruwink

Okay.

If one you more, two last humor my with me question.

On the automotive value market. it having on what ramifications this communicated able what the segment? would imagine bookings with you in business, might feedback to has the obviously decision? on having customers, business? retain the you intends are conversations so you've I any ultimately that the been spillover to get Modine for to VTS effects ultimately And the activity the then, are any to influence Is

Thomas Burke

the second me I understand first sure will and the later. let part I Well, make part handle

of diving into of we as we could -- being valuable prospective and value watch. thermal have that are curious are management. thinking able yes, integration we together But necessarily they think in maybe part the is, would, and any people say of Clearly going close think very off is with they in add So to that to taking are put that us how discussion we buyers staying are It and kind I close, nobody they’re with to a proceed. there's is as will first this that subsystem customers, with obviously supplier platforms. asset this

close So the was still -- just really And customers. we part I what not one second not hampering in a contact but question, think watch it's with and that moment, like this your stay the of at being Joe? close

Joe Vruwink

think yes. I --

and you committed transparent what retain VTS to you’re very fact and been off-highway? intend fully about that you’ve vehicle the in commercial think I explicit to

Thomas Burke

clearly I Great standpoint. an point. customer was Yes, automotive from thinking

capital to sure side, clear whether positive I strategy On capability, off-highway human resource, the from our that, to that and not portion several it's resource want make we tucks more us visited off-highway do to nicely they this personally industrial saw the able or think in very just to feedback is I to focus of very we long-term customers. focus sure be it's give business, on have. the commercial a vehicle make business. industrial but commercial in within there's the vehicle

feedback positive very off-highway from So and truck customers.

Joe Vruwink

great. time. you much. Thank Okay, I very your appreciate

Thomas Burke

Thank you.

Operator

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

Kathleen Powers

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

Operator

conference. This concludes today’s

may You disconnect. now

Modine Manufacturing (MOD) 23 May 192019 Q4 Earnings call transcript