Modine Manufacturing Company (MOD) 首席执行官 Thomas Burke 在 2020年 第一季度业绩 - 收益电话会议记录

Modine Manufacturing Company (NYSE:MOD) Q1 2020 Earnings Conference Call August 1, 2019 9:00 AM ET

Modine Manufacturing Company(纽约证券交易所代码:[MOD])2020年第一季度收益电话会议2019年8月1日美国东部时间上午9:00


Kathleen Powers - Vice President, Treasurer, Investor Relations and Tax
Thomas Burke - President and Chief Executive Officer
Michael Lucareli - Vice President, Finance, and Chief Financial Officer

  • Kathleen Powers - 财务主管,投资者关系和税务副总裁
  • Thomas Burke - 总裁兼首席执行官
  • Michael Lucareli - 财务副总裁兼首席财务官


David Leiker - Robert W. Baird & Co Inc.

  • David Leiker - Robert W. Baird&Co Inc.


Good morning, ladies and gentlemen, and welcome to Modine Manufacturing Company’s First Quarter Fiscal 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [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.

女士们,先生们,早上好,欢迎来到Modine制造公司的第一季度财政2020年收益电话会议。 此时,所有参与者都处于只听模式。 之后,我们将进行问答环节,届时将提供相关说明。 [操作员说明]提醒一下,正在录制此电话会议。

我现在想把会议转交给您的主持人,Kathy Powers女士,副总裁,财务主管,投资者关系和税务。

Kathleen Powers

Good morning, and thank you for joining our conference call to discuss Modine’s first quarter fiscal 2020 results. I’m here with Modine’s President and CEO, Tom Burke; and Michael Lucareli, our Vice President, Finance and Chief Financial Officer.
We will be using slides for today’s presentation, which can be accessed either through the webcast link or by accessing the PDF file posted on the Investor Relations section of our website
This morning, Tom and Mick will present our first quarter results for fiscal 2020 and will provide an update to our outlook for the rest of the year. At the end of the call, there will be a question-and-answer session.
On Slide 2 is our notice regarding forward-looking statements. This call may contain forward-looking statements as outlined in our earnings release as well as in our company’s filings with the Securities and Exchange Commission.
With that, it is my pleasure to turn the call over to Tom Burke.

早上好,感谢您参加我们的电话会议,讨论Modine的2020财年第一季度业绩。 我和Modine的总裁兼首席执行官Tom Burke在这里; 和Michael Lucareli,我们的副总裁,财务和首席财务官。


今天上午,汤姆和米克将公布2020财年的第一季度业绩,并将对今年剩余时间的前景进行更新。 通话结束时,会有一个问答环节。

幻灯片2是关于前瞻性陈述的通知。 此次电话会议可能包含我们的收益发布中以及我们公司向美国证券交易委员会提交的文件中所述的前瞻性陈述。

有了这个,我很高兴把电话转到Tom Burke。


Thank you, Kathy, and good morning, everyone. Overall, first quarter sales decreased 7% or 3% on a constant-currency basis. Our Building HVAC segment had another strong quarter with sales up 11% on a constant-currency basis versus the prior year. However, both our VTS and CIS businesses had year-over-year sales declines, primarily due to currency impacts and softening end markets.
Our first quarter adjusted operating income was $28.4 million, down $7.6 million, or 21% from the prior year. Operating margins in our VTS and CIS segments were negatively impacted by lower sales volumes.
While our performance this quarter wasn’t too far off our internal expectations, we did see some recent softening that caused us to adjust our expectations for the rest of fiscal 2020. This has been driven by a number of trends in macroeconomic factors.
First, the stronger U.S. dollar is having a significant impact in our year-over-year revenue comparisons. Second, in recent weeks, we’ve experienced a significant slowdown in some of our key vehicular end markets, including the global automotive in off-highway highway markets. In addition, we’re now expecting slower growth in our served data center markets, particularly related to the timing of sales to our large data center customer in the CIS segment.
Finally, we are benefiting from lower commodity prices. They continue to be somewhat offset by the negative impact of tariffs on our earnings. As a result, we’re taking a number of actions to reduce this negative impact in the fiscal 2020, and I’ll highlight those in a few minutes. We’re focused on improving what we can’t control and I’m pleased with the improvements within our operations group and the procurement team is currently exceeding our cost savings targets.
Before reviewing the segment results, I would like to provide a brief update on a potential sale of our automotive business. As I previously communicated, we have launched a formal sale process to further evaluate the best strategic alternative for Modine to automotive business. This process is well under way, including a lot of work to prepare for a separation, while engaging with all interested parties.
As you can appreciate, I can’t provide any more information at the current time, given that we’re in the middle of a process. We will be able to provide a more in-depth update once the process is completed or we reach a definitive agreement. In the meantime, I can assure you that we will move forward with the best option to maximize long-term shareholder value.
Turning to Page 5. Sales for the VTS segment were down 7% from the prior year, or down 4% on a constant-currency basis. The most significant driver of the lower sales in this segment was in Europe, where sales were down 15% from the prior year. A large component of this decrease was currency driven by the stronger U.S. dollar versus the euro as compared to the prior year.
In addition, sales were down across all end markets, with an 11 percent drop in automotive sales, as global light vehicle production volumes have fallen significantly. This is the first quarter in a long time that we’ve experienced a sales decline in Asia. Sales in Asia were down 12%, driven primarily by lower off-highway sales in China and Korea.










Auto and commercial vehicle sales in India were down slightly, while sales to these end markets were slightly up in China year-over-year. Vehicular sales in the Americas region were up 2% from the prior year, primarily due to higher commercial vehicle sales. After a long period of stable or growing vehicular markets, we’re starting to see some significant softening.
As I mentioned, automotive markets are slowing globally and sales of this end market were down 11% versus the prior year. We expect the automotive market to be down 3% in the Americas region, 5% in Europe, and 7% in Asia in fiscal 2020. We have recently revised this market outlook and have updated our forecast to reflect these weakening conditions.
In addition, we expect in the off-highway market to slow considerably this year, off-highway sales were down 12% as compared to the prior year. We’re expecting off-highway market to be down 6% in the Americas, 2% in Europe and 4% in Asia in fiscal 2020. We are also clearly seeing the results of this market slowdown this quarter in Asia and have also updated our expectations for the balance of the year.
Adjusted operating income for the VTS segment was $19 million for the quarter, which is $7.5 million lower than the prior year. Adjusted operating margin was down 170 basis points to 5.8%. This decrease was primarily due to lower sales volume, currency and higher labor costs.
We also had costs related to tariffs this quarter, but this was offset by lower commodity metal costs. We spoke a great deal about the impact of tariffs had on the businesses last year. So I would like to give an update on some of the actions that we have taken to mitigate these costs.
First, in certain situations, we have been able to partially offset the direct costs of tariffs by negotiating cost sharing agreements with our key customers. We began to see some of the initial benefits of these agreements in the fourth quarter of last year.
Second, we’ve applied for exclusions. In certain cases, we have seen progress with the government granting these exclusions and are working with our suppliers to recover the costs of the tariffs that had previously been paid.
Last, our procurement team is continuing to work on strategic sourcing initiatives. We have been able to resource much of our raw materials supply to the lower-cost overseas suppliers.
As previously mentioned, we are focusing on improving what we can control, and this group in particular is doing a great job. Although these actions won’t allow us to fully recover our costs, they have clearly led to lower tariff-related costs this quarter and we’ll continue to drive improvements in subsequent quarters.
Turning to Page 6. As we anticipated and as Mick discussed last quarter, we had some revenue challenges within our CIS segment in Q1. Sales decreased 8% from the prior year, or 6% on a constant-currency basis. Data center sales were down 29% from the prior year, driven by both lower sales to a large cloud computing customer and by lower sales of coils to other customers that sell into the data center end market.











Last year, we saw a growth of coolers sales to the data center end market in excess of market growth. In this quarter, we’re going to see the opposite. It’s often difficult to forecast these sales more than three to six months out. And as we have mentioned many times, project-based sales to this market tend to change drastically quarter-to-quarter.
Last year, we had record breaking sales in this market and this year there has been a pullback, driven primarily by a slowdown in data center expansion by our major customer.
Overall, we expect our data center revenue to be down this year, even though we expect the market to be generally flat. The segment reported adjusted operating income of $9.2 million, down 31% from the prior year. This decrease was primarily due to lower-margins, driven by negative sales mix and higher labor costs, particularly in Mexico. The adjusted operating margin was down 170 basis points year-over-year to 5.5%, primarily due to lower gross profit on sales.
Please turn to Page 7. Sales for our Building HVAC segment increased 9%, or 11% on a constant-currency basis, driven primarily by higher sales of school ventilation products and heating products in North America and higher data center sales in the UK, partially offset by lower non-data center air conditioning-related product sales in the UK.
Operating income increased 66% from the prior year to $5.3 million and operating margin increased 360 basis points to 10.7%. This increase was driven by higher sales volume and favorable sales mix. We continue to be encouraged by strong performance and our competitive position in this segment.
With that, I’d like to turnover to Mick for an overview of our consolidated results and an update for outlook for fiscal 2020.







Michael Lucareli

Good morning, everyone. Please turn to Slide 9. As Tom previously mentioned, we anticipated a difficult first quarter comparisons based on year-over-year volume and cost variances. First quarter sales decreased $37 million, or 7%. As covered in previous slides, this is mostly due to weakness across our vehicular markets, a difficult year-over-year data center comparison and negative foreign currency impact. On a constant-currency basis, sales were down 3%.
Gross profit of $83 million was lowered by 12%, resulting in a gross margin of 15.8%. The downside conversion was generally in line with our expectations based on typical fixed cost absorption. In addition, foreign exchange had a negative impact on our gross profit compared to the prior year.
Within VTS and CIS, gross margins were down due primarily to lower volumes, combined with the doubling of our Mexican labor rate and negative tariff impacts. Building HVAC had strong gross margin improvement, up 200 basis points on higher sales and volume and favorable pricing.
I want to take a moment to review our reported SG&A costs of $63.5 million. Please note, this includes $8.4 million of consulting and advisory fees related to the potential automotive business sale. In order to help offset the volume and tariff challenges, we are reducing other SG&A costs. As an example, excluding the unique costs related to our automotive business sale, SG&A would be down significantly from the prior year.
Last, please note these items have been excluded from our adjusted operating income and you can see the detail in our appendix. Adjusted operating income was $28.4 million, which is down $7.6 million from the prior year. As Tom reviewed the earnings growth in Building HVAC was offset by the decline in VTS and CIS. In addition to the volume decline and tariffs, operating income was negatively impacted by the change in foreign exchange rates.
As usual, the appendix includes an itemized list of adjustments and a full reconciliation to our U.S. GAAP results. These adjustments totaled $10.3 million. As I previously mentioned, there was $8.4 million relating to the potential sale of our automotive business, another $1.8 million was primarily employee severance costs in Europe and the Americas within the VTS segment. Our adjusted earnings per share was $0.31, which is down $0.10 from the prior year.
Turning to Slide 10. As anticipated in customary, our first quarter free cash flow was negative. Operating cash flow was minimal, but with $4.6 million higher, as compared to last year. Capital expenditures were slightly lower than the prior year. Full-year capital spending is expected to be slightly higher, largely due to the costs related to the anticipated sale of our auto business. Some additional capital spending will be necessary to prepare for a potential separation.
I want to point out that first quarter cash flow includes $13 million of payments related to consulting, advisory, restructuring and environmental costs. With regards to our outlook for the balance of the fiscal year, we do expect positive full-year free cash flow with an improvement over fiscal 2019.









Finally, our net debt increased $20 million during the quarter and our leverage ratio is 2.2.
Now let’s turn to our fiscal 2020 guidance on Slide 11. Based on the latest trends and customers’ feedback, we are reducing our guidance to reflect additional market weakness, primarily in the second-half of the year. In particular, we are seeing further softening in the global automotive and off-highway markets, along with some slowing in data center sales.
To summarize, our updated fiscal 2020 guidance, we now project sales to be down 5% to flat, which was previously flat to up 5%. In Building HVAC, we’re expecting the sales growth to continue, although somewhat slower in the second-half.
With regards to CIS, we’re now expecting sales to be slightly down this year, primarily due to a negative foreign exchange impact, combined with slowing data center sales. We also anticipate a decline in our VTS segment sales versus the prior year. The largest challenge remains in Europe with a weakening of the automotive market and the continued wind down of certain commercial vehicle programs.
We have also reduced our Asia market forecasts, but expect modest sales growth for the year. And finally, we expect sales in the Americas region to decrease due to lower automotive and off-highway markets.
The updated adjusted operating income is expected to be in the range of $120 million to $130 million, compared to our previous guidance of $135 million to $145 million. Based on the expected tax rate of approximately 26%, we anticipate our adjusted earnings per share will be between $1.35 and $1.50.
And before turning the call back over to Tom, I want to reiterate my outlook for the overall run rate of quarterly earnings this year. As I reviewed in May, we expected significant challenges in the first quarter and our results were generally in line with these expectations. We also discussed challenges in Q2 due to difficult VTS and CIS comparisons.
In the CIS segment, we continue to expect lower revenue year-over-year in the first-half, primarily due to robust data center sales in fiscal 2019. The second-half of fiscal 2020 should be more favorable with projections for orders ramping up later this year. For VTS, we anticipate a reduced volume impact and more favorable cost comparisons in the second-half of the year.
Lastly, I want to point out that our current outlook includes the full-year results for our automotive business. If a transaction is completed this fiscal year, it will obviously have an impact on our fiscal 2020 financial results. Once we have certainty regarding deal, detail, timing and outcome, we will address this further.
With that, Tom, I’ll turn it back to you.


现在让我们转到我们在Slide 11上的2020财年指导。根据最新趋势和客户的反馈,我们正在减少我们的指导,以反映更多的市场疲软,主要是在今年下半年。特别是,我们看到全球汽车和非公路市场进一步疲软,数据中心销售也有所放缓。










Thanks, Mick. With that, we will take your questions.

谢谢,米克。 有了这个,我们会回答你的问题。


[Operator Instructions] Our first question is from David Leiker from Baird. Please go ahead.

[操作员说明]我们的第一个问题来自Baird的David Leiker。 请继续。

David Leiker

Good morning, everyone.



Good morning, David.


Michael Lucareli

Hey, good morning.


David Leiker

A couple of things on the data center business. We’re hearing mixed things, some people talk about it being really strong, other people talking about it being a little bit weaker. Can you talk a little bit about what you’re seeing in particular? And is this something that’s just a soft spot we’re going through, or is there something more structural there?

数据中心业务的几个方面。 我们听到混合的东西,有些人说它真的很强大,其他人谈论它有点弱。 你能谈一谈你特别看到的吗? 这是我们正在经历的一个情有独钟的事情,还是那里有更具结构性的东西?


Yes. I think it’s – as we’ve said all along, David, we kind of used the word lumpy to describe data center sales. If you look at it, when we close the deal with the acquisition of Nevada, the sales have increased significantly from a lower point in initial year to the record high of last year, which capacity build out with one customer and others that we supply through components, growing significantly, that the drop is really kind of focus on the capacity needs.
So, there’s no – as we have communication with – through the customer and we had a team out there just the last couple weeks, so that everything appears to be normal just as they look at their capacity, their capacity needs, they drop projects or add projects. And right now they – and there was this thing that they’re going to drop their capacity needs a little bit in the near-term. That could change, but we don’t see anything from a general market standpoint describing, let’s say, a macroeconomic change there. It just happens to be timing right now based on all the feedback we received.

是。我认为 - 就像我们一直说的那样,大卫,我们用lumpy这个词来描述数据中心的销售情况。如果你看一下,当我们收购内华达州的交易时,销售额从第一年的较低点大幅增加到去年的历史最高点,这个能力是由一个客户和我们提供的其他客户建立的。组件,显着增长,下降实际上是关注容量需求。

所以,没有 - 正如我们通过客户沟通 - 我们在过去几周就有一个团队,所以一切看起来都很正常,就像他们看到他们的能力,他们的能力需求,他们放弃项目或添加项目。而现在他们 - 而且有一件事他们将在短期内放弃他们的能力需求。这可能会改变,但从一般市场角度来看,我们没有看到任何描述,比方说,那里的宏观经济变化。根据我们收到的所有反馈,它恰好恰好是时间安排。

David Leiker

We – I mean, we have some other companies with exposure into that segment and they seem – they don’t seem to be experiencing the same thing. So is this a customer mix issue or is more of a concentration as opposed to the whole space?

我们 - 我的意思是,我们还有一些其他公司接触过该细分市场并且看起来似乎 - 他们似乎并没有遇到同样的事情。 那么这是一个客户组合问题还是更集中而不是整个空间?


No doubt, it’s where we’re concentrated. We have a high mix with a certain customer and that’s kind of driving with the changes near-term right now. There is some – a little bit of on the other side with the general components we supply into engineering firms and contractors who supply there, but that’s not a significant. Mick, do you want to add anything to that?

毫无疑问,这是我们集中的地方。 我们与某个客户有很高的组合,而且现在正在推动近期的变化。 还有一些 - 另一方面,我们向工程公司和承包商供应的一般组件提供了一些,但这并不重要。 Mick,你想添加任何东西吗?

David Leiker

Okay. And then on the guidance in the end markets, what are you – you directionally gave some comments in terms of those end markets. But the big swing factor, as we’ve been gone through things right now has been China. So what are your assumptions there as you look at the vehicular markets there in China in terms of…?

好的。 然后在最终市场的指导下,你是什么 - 你在这些终端市场方面给出了一些评论。 但是,正如我们现在经历过的事情一样,重要的因素是中国。 那么在你看中国的车辆市场时你的假设是什么?


Yes. So we – for the balance of the year, we see China Automotive, Asia Automotive, but let’s just talk about China specifically right now, it’s about 7% down for the balance of the year. I think that pretty much ties in with your estimate. I think you’re at 8% down.

是。 所以我们 - 在今年的余额中,我们看到了中国汽车,亚洲汽车,但我们现在只是谈谈中国,它在今年的余额中下降了约7%。 我认为这与你的估计很相关。 我认为你的比例下降了8%。

David Leiker




We’re also seeing a pretty significant drop in India, okay, which isn’t as big as a China market, obviously. But we have a pretty good concentration there with a large customer that we actually export from India with and they’re seeing a significant drop in India, but 9%, which is really kind of tied to some of the banking changes we’re making on financing availability that type of things what we think so. But overall, a pretty high single-digit number across Asia on the automotive side.

我们也看到印度有一个相当大的下降,好吧,这显然没有中国市场那么大。 但我们有一个非常好的集中在一个大客户,我们实际上从印度出口,他们看到印度大幅下降,但9%,这实际上与我们正在进行的一些银行业务变化挂钩 关于融资可用性我们认为是什么类型的事情。 但总的来说,亚洲汽车方面的个位数非常高。

David Leiker

And then some of the regular – regulatory things going on in China that’s disrupting some of the end markets. Is that having any ripple effect on terms of your product and launches and new technologies you bring to market for China six?

然后,中国正在发生的一些常规监管事件正在扰乱一些终端市场。 这对您的产品和推出的新产品以及为中国市场推出的新技术产生了什么影响?


Well, not new technologies. You’re talking regulatory changes in China you are talking about or in India? I didn’t…

好吧,不是新技术。 您在谈论您正在谈论的中国或印度的监管变化? 我没有......

David Leiker

Yes. China has gone from the [indiscernible] emission standards right now and there’s some – it looks like a little bit of a stutter step in terms of how that’s going to get implemented.

是。 中国现在已经从[音频不清晰]的排放标准中脱颖而出,而且还有一些 - 就如何实施这一标准来说,它看起来有点不稳定。


Yes. So we’re seeing some push out on launches because of that. So with Europe, with that China six being delayed a little bit, we had some planned launches, specifically on commercial vehicle programs that are being delayed. So yes, we’re – there’s an impact there. On technology, no, just a delay.

是。 因此,我们看到一些推出发布的原因。 因此,对于欧洲而言,由于中国有六家公司被推迟了一段时间,我们有一些计划推出,特别是在推迟的商用车计划上。 所以是的,我们 - 那里有影响。 关于技术,不,只是延迟。

David Leiker

And then the last item here and this gets at a strategic review process that you’re going through. So sometimes when companies announce a strategic review for a certain part of their business, customers become reluctant of bidding new contracts or learning new business. Is any of that happening that – with you in that business right now?

然后是这里的最后一项,这将得到您正在经历的战略审核流程。 因此,有时当公司宣布对其业务的某个部分进行战略审查时,客户不愿意竞标新合同或学习新业务。 是否有任何相关的事情发生在你身边?


That’s a great question. It was, of course, one of the concerns we had after publicly announcing that. We’ve actually one business, okay, since the announcement. And you can’t give more specifics, but a significant global supplier customer, excuse me, that sources with a significant program and even a second opportunity.
So right now I think – what I’d like to think is because of our transparency and getting it out there and really forming a strong automotive team, that’s clear to the marketplace and they’ve been engaged with our current customers and current pursuits, I think, there’s kind of a confidence that is being built that this transaction will be successful. So knock on wood right now, we’re not seeing any negative impact.

这是一个很好的问题。 当然,这是我们在公开宣布之后所关注的问题之一。 自宣布以来,我们实际上只有一项业务。 而且你不能给出更具体的信息,但是一个重要的全球供应商客户,请原谅我,有重要计划的来源甚至是第二次机会。

所以现在我想 - 我想要考虑的是因为我们的透明度并将其推向市场并真正组建了一支强大的汽车团队,这对市场来说很明显,他们已经与我们现有的客户和目前的追求相关, 我认为,正在构建这种交易会成功的信心。 所以现在敲木头,我们没有看到任何负面影响。

David Leiker

Okay. I was on another call, so I missed the very beginning part of it. But did you give any update on the process, timing or anything along those lines?

好的。 我正在接听另一个电话,所以我错过了它的最开始部分。 但是你是否提供了关于这些过程,时间或任何内容的任何更新?


No. Just generally that we’re in process, can’t give any updates. We’re moving along as planned and soon as we can get something, we will. So – but nothing new to report.

不,通常我们正在进行中,无法提供任何更新。 我们正在按计划前进,我们很快就会得到一些东西。 所以 - 但报道并不新鲜。

David Leiker

Okay. Thank you.

好的。 谢谢。


Thank you.



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

[操作员说明]我现在没有再提出任何问题。 我现在想把会议转回Kathy Powers。

Kathleen Powers

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

谢谢,谢谢你今天早上加入我们。 我们的网站将在大约两小时内重播电话会议。 我们希望你有一个美好的一天。 再见。


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