Modine Manufacturing CFO lays out profitability plan
Modine Manufacturing Co. (NYSE: MOD) CFO Brad Richardson said the struggling maker of thermal management products has been hurt by macroeconomic issues, including a rapid rise in commodity prices and a drop-off in the North American truck market. He said the company plans to achieve a higher return on investment by closing plants. Richardson made the comments during a midday conference call.
“These decisions, no doubt, have a significant impact on our employees, who have worked extremely hard to ensure the viability of our North American and European manufacturing base,” Richardson said. “However, to be responsible to you, the investors, we believe that the program has very strong returns.”
The chief financial officer also said the Racine, Wis.-based firm plans to reduce its capital expenditures to between $70 million and $80 million. In addition, he said Modine plans to restructure its portfolio, but that “specific dollar amounts are still under review.” Also, the company wants to reduce sales, general and administrative expenses down to 11.5% of revenue.
Before the opening, Modine reported that it swung to a third-quarter loss of $47.4 million, or $1.48 per share, compared with earning $16.3 million, or $0.51 per share, a year earlier. During the quarter, Modine incurred write-down charges related to underperforming businesses and overall weakness in the American truck market. The quarterly results included a $40.4 million tax-related charge and a $31.5 million asset-impairment charge.
Brad Richardson, Modine’s chief financial officier, said he recognized that Modine’s Dec. 13 statement that warned of restructuring was a “destabilizing” event for investors.
“It was an obligation that we had to you as the investors,” Richardson said. “We’re focused on providing greater clarity as to the issues and our response to address the underlying business performance, which is primarily related to our North American [original equipment] business and our Asia business.”
Richardson noted that the firm had strong sales outside of North America, but the sales were offset by a 22% decline in Modine’s original equipment business. The decline was prompted by “significantly” lower truck-build rates, he said.
Excluding the charges, Modine’s third-quarter earnings from continuing operations were $16.4 million. Wall Street analysts were predicting earnings of $0.16 per share.
Modine’s quarterly sales totaled $495.3 million, up 8% from $458.1 million during the year-ago period. Analysts, on average, expected sales of $454 million.
In a cost-cutting move, the firm plans to close three American plants and one German facility. Charges related to the closures are anticipated to be between $40 million and $45 million during the fourth quarter. Within 18 to 24 months, CEO David Rayburn said the closures will provide Modine with $20 million to $25 million in annual savings.
“It’s very difficult to make these incremental decisions, especially for me as a former plant manager,” Rayburn said. “We’re going to have a dedicated restructuring team that will be focused on these closures. A separate team will be focused on the ongoing business and product launches.”
The chief executive said Modine has hired The Highland Group, a management consulting firm, to help execute and plan its business strategy.
Going forward, Modine anticipates fiscal 2008 net sales of $1.8 billion, which is on the high end of its previous guidance. The firm projects pretax earnings of $35 million, below Modine’s guidance. Wall Street analysts project net sales of $1.77 billion and earnings of $0.93 per share.
For fiscal 2009, Richardson said Modine expects continued strength in Europe, South America and within its commercial products segment. The company expects the heavy duty truck market in North America to make a gradual recovery, he said. Additionally, fiscal 2009 will be a heavy year in terms of restructuring and Richardson said Modine’s effective tax rate will be higher than historical levels.
In afternoon trading, MOD shares are down 4.50%, or $0.72, at $15.28. Over the last 52 weeks, shares have ranged from $13.46 to $29.95.
