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Modine Manufacturing: Modine Reports Second Quarter Fiscal 2016 Results

Reiterates full year earnings guidance

Announces new Strengthen, Diversify & Grow strategic transformation

Board of Directors authorizes $50 million share repurchase plan

“As expected, second quarter results were impacted by seasonally slow sales and challenging market conditions. We continue to anticipate a much stronger second half of the fiscal year due to volume increases related to new program launches and increased heating season sales, positive results from our past restructuring actions and continued cost control efforts. While our results continue to be impacted by unfavorable exchange rates and economic conditions in certain markets, we remain on track with our full year outlook,” said Modine President and Chief Executive Officer, Thomas A. Burke. “We are also excited about our new Strengthen, Diversify & Grow strategic transformation, which we announced in a separate press release today. We expect this to guide the Company for the foreseeable future. In addition, our board has authorized a new $50 million share repurchase program.

We believe that with our strong competitive position, solid balance sheet and outlook, we can provide a return to our shareholders and make significant investments to grow and diversify our business for long-term shareholder value.”

Net sales for the second quarter were $334.0 million, compared to $377.3 million in the second quarter of the prior year, a decrease of 11.5 percent. On a constant currency basis, net sales declined by 2.3 percent year-over-year with decreases in the Americas segment more than offsetting increases in all other segments.

Gross profit decreased $11.0 million during the second quarter, and gross margin declined 130 basis points to 13.7 percent, primarily due to $8.3 million of expenses related to the recent pension lump sum payments and $1.3 million of consulting charges related to our global procurement project. Excluding the impact of the pension lump sum payments, second quarter gross margin increased 120 basis points year-over-year to 16.2 percent, primarily due to favorable material cost and strong performance in our Americas and Building HVAC segments.

Selling, general and administrative (SG&A) expenses increased $29.0 million. SG&A expense includes $30.9 million of the non-cash charge associated with the pension lump sum payments. Excluding the non-cash charge and $3.1 million of favorable currency impact, SG&A was up 2.5% from the prior year.

During the second quarter, the company recorded $1.0 million of restructuring expenses, primarily related to plant consolidation costs in the Americas segment. In addition, the company recorded a non-cash charge of $39.2 million related to the pension lump sum payments. The company offered this lump sum program to eligible former employees in an effort to reduce the size, risk, volatility and cost associated with the U.S. pension plans and succeeded in reducing the company’s projected benefit obligation by $69.2 million.

Operating loss was $32.1 million and net loss per share was $0.47 in the quarter. Of this amount, $0.50 per share related to the pension lump sum program. Excluding the restructuring expenses and the non-cash charge, the company reported adjusted operating income of $8.1 million, down $0.8 million from the prior year, primarily related to $1.2 million of unfavorable foreign exchange impacts and $1.3 million of global procurement project consulting costs, partially offset by cost reduction savings and performance. Adjusted earnings per share of $0.04 were down $0.01 from the second quarter of the prior year.

Second Quarter Segment Review

Americas segment sales were $144.2 million compared with $170.8 million one year ago, a decrease of 15.6 percent. On a constant currency basis, sales decreased 11.0 percent compared with the prior year, with lower sales in both North America and Brazil. Sales in Brazil were down $12.7 million, with $7.8 million related to currency exchange and the remaining due to continued weak conditions in all end markets. North America sales were down 9.7 percent, primarily related to continued weakness in the off-highway markets and lower sales to commercial vehicle customers. Operating income decreased $0.4 million to $7.8 million compared with the prior year, due primarily to higher restructuring expenses versus the prior year, partially offset by favorable material costs, improved operating performance and savings from the closure of the McHenry facility. The company recorded $0.9 million of restructuring charges during the quarter relating to ongoing restructuring activities in the Americas segment.

Europe segment sales were $127.7 million compared with $146.4 million one year ago, a decrease of 12.8 percent. On a constant currency basis, sales increased 3.7 percent compared with the prior year. Increases in sales to automotive and commercial vehicle customers were partially offset by lower sales to off-highway customers. Operating income of $5.0 million was higher than the prior year by $0.4 million. Positive impacts from higher sales and lower material and restructuring costs were partially offset by an unfavorable exchange rate impact and volume-related manufacturing inefficiencies.

Asia segment sales were $18.1 million compared with $19.0 million one year ago, a decrease of 5.0 percent. On a constant currency basis, sales increased 1.1 percent compared with the prior year...


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