Modine Manufacturing Company (MOD) Bundle
Understanding Modine Manufacturing Company (MOD) Revenue Streams
Understanding Modine Manufacturing Company’s Revenue Streams
The primary revenue sources for Modine Manufacturing Company stem from two key segments: Climate Solutions and Performance Technologies. As of the second quarter of fiscal 2025, the breakdown of net sales reflects significant contributions from these areas.
| Segment | Net Sales (in millions) | Year-over-Year Change (in millions) | Percentage Change |
|---|---|---|---|
| Climate Solutions | $366.4 | $77.2 | 27% |
| Performance Technologies | $297.5 | ($39.8) | (12%) |
For the fiscal year ending September 30, 2024, total net sales amounted to $1,319.5 million, representing a 6% increase from $1,242.9 million during the same period in the previous year. This growth is primarily attributed to the Climate Solutions segment, which saw a net sales increase of $147.8 million or 26% compared to the prior year.
The Climate Solutions segment's growth was driven by higher sales volume, including $94.5 million from the acquired Scott Springfield Manufacturing and Napps businesses. However, this was partially offset by a $73.9 million decrease in the Performance Technologies segment, largely due to the sale of three automotive businesses in Germany, which accounted for $46.2 million of the decline.
Year-over-Year Revenue Growth Rate
The year-over-year revenue growth rate for Modine Manufacturing Company has shown a positive trend in the Climate Solutions segment while the Performance Technologies segment has faced challenges. The following table summarizes the year-over-year revenue growth rates for each segment:
| Fiscal Period | Climate Solutions (Growth Rate) | Performance Technologies (Growth Rate) |
|---|---|---|
| Q2 FY 2025 | 27% | (12%) |
| Q2 FY 2024 | 15% | 5% |
In the Climate Solutions segment, sales of data center cooling products increased by $174.5 million, while heat transfer products declined by $44.8 million. This reflects a shift in market demand toward data center solutions.
Contribution of Different Business Segments to Overall Revenue
The contribution of each business segment to total revenue illustrates the shifting focus of Modine Manufacturing Company. For the six months ended September 30, 2024, the contribution is as follows:
| Segment | Net Sales (in millions) | Percentage of Total Revenue |
|---|---|---|
| Climate Solutions | $723.7 | 55% |
| Performance Technologies | $606.5 | 45% |
This data indicates that the Climate Solutions segment now accounts for a majority of the company’s revenue, emphasizing the strategic importance of this area moving forward.
Analysis of Significant Changes in Revenue Streams
Significant changes in revenue streams have been noted, particularly with the acquisition of new businesses that have bolstered sales in the Climate Solutions segment. The following points summarize key changes:
- Incremental sales of $94.5 million from acquired businesses.
- Overall sales in Climate Solutions increased by $147.8 million or 26% year-over-year.
- Performance Technologies experienced a decline of $73.9 million due to asset disposition.
The overall growth in net sales has been driven by favorable market conditions in the data center cooling and HVAC&R product markets, which have seen significant demand increases. Conversely, challenges in the Performance Technologies segment highlight the need for strategic adjustments to address declining sales.
A Deep Dive into Modine Manufacturing Company (MOD) Profitability
Profitability Metrics
Gross Profit Margin: As of September 30, 2024, the gross profit margin was 25.2%, up from 21.8% in the same quarter of the previous year. This improvement reflects a gross profit of $165.6 million on net sales of $658.0 million for the three months ending September 30, 2024 .
Operating Profit Margin: The operating income for the same period was $75.3 million, resulting in an operating margin of 11.4%, compared to 10.6% in the previous year .
Net Profit Margin: The net earnings attributable to shareholders for the three months ended September 30, 2024, were $46.1 million, leading to a net profit margin of 7.1% .
Trends in Profitability Over Time
Examining the fiscal year-to-date results, net sales of $1,319.5 million for the six months ending September 30, 2024, represented a 6% increase from the previous year. Gross profit increased to $328.2 million, yielding a gross margin of 24.9%, which is higher than 21.2% from the prior year .
| Metric | FY 2024 Q2 | FY 2023 Q2 |
|---|---|---|
| Net Sales | $658.0 million | $620.5 million |
| Gross Profit | $165.6 million | $135.1 million |
| Operating Income | $75.3 million | $65.7 million |
| Net Earnings | $46.1 million | $46.5 million |
Comparison of Profitability Ratios with Industry Averages
In comparison to industry averages, the company’s gross profit margin of 25.2% exceeds the industry average of approximately 22%. The operating margin of 11.4% is also above the sector average of 9%, indicating strong operational efficiency .
Analysis of Operational Efficiency
The selling, general and administrative (SG&A) expenses for the three months ended September 30, 2024, were $85.8 million, which is 13.0% of net sales, compared to 11.1% in the previous year. This increase reflects higher compensation-related expenses, which rose by approximately $13.0 million .
Restructuring expenses increased to $4.5 million, indicating a rise in operational adjustments . Despite these increases, the company achieved an operating income growth of $9.6 million, underscoring effective cost management amid rising expenses .
Debt vs. Equity: How Modine Manufacturing Company (MOD) Finances Its Growth
Debt vs. Equity: How Modine Manufacturing Company Finances Its Growth
Debt Levels
As of September 30, 2024, the company reported long-term debt totaling $359.1 million, a decrease from $399.9 million in March 2024. This long-term debt is composed of:
| Debt Type | Amount (in millions) | Maturity Year |
|---|---|---|
| Term Loans | $200.3 | 2028 |
| 5.9% Senior Notes | $100.0 | 2029 |
| Revolving Credit Facility | $65.0 | 2028 |
| 5.8% Senior Notes | $25.0 | 2027 |
| Finance Lease Obligations | $3.0 | N/A |
Additionally, the company has a current portion of long-term debt of $32.3 million as of September 30, 2024.
Debt-to-Equity Ratio
The debt-to-equity ratio as of September 30, 2024, is calculated as follows:
Debt-to-Equity Ratio = Total Debt / Total Equity
Total Equity as of September 30, 2024, is $867.4 million.
Calculating the ratio gives:
Debt-to-Equity Ratio = $393.3 million (Total Debt including current liabilities) / $867.4 million (Total Equity) = 0.45
This ratio is below the industry average of approximately 0.6, indicating a relatively lower reliance on debt financing compared to peers.
Recent Debt Issuances
In July 2024, the company issued a $184.1 million term loan to finance the acquisition of Scott Springfield Manufacturing, enhancing its Climate Solutions segment.
Credit Ratings
The company maintains a credit rating of B+ from S&P, reflecting a stable outlook due to its consistent operational performance and manageable debt levels.
Balancing Debt and Equity Financing
The company has been strategic in balancing its debt and equity financing. As of September 30, 2024, it reported cash and cash equivalents of $78.6 million and an available borrowing capacity of $190.8 million under its revolving credit facility. This approach allows the company to finance growth initiatives while maintaining financial flexibility.
In fiscal 2025, net cash provided by operating activities was $97.8 million, providing a solid foundation for covering short-term obligations.
Overall, the company’s financial strategy reflects a commitment to prudent debt management while leveraging equity to support growth opportunities.
Assessing Modine Manufacturing Company (MOD) Liquidity
Assessing Modine Manufacturing Company's Liquidity
Current Ratio: As of September 30, 2024, the current ratio stands at 1.46, calculated from current assets of $785.9 million and current liabilities of $536.9 million.
Quick Ratio: The quick ratio is measured at 0.85, with quick assets (current assets minus inventories) of $471.6 million and current liabilities remaining at $536.9 million.
Analysis of Working Capital Trends
Working capital, defined as current assets minus current liabilities, is $249.0 million as of September 30, 2024. This indicates a decrease from $245.6 million reported in the previous fiscal year, reflecting a slight tightening in liquidity.
Cash Flow Statements Overview
The cash flow statements for the six months ending September 30, 2024, reveal the following:
| Cash Flow Type | Fiscal 2024 (in millions) | Fiscal 2023 (in millions) |
|---|---|---|
| Net Cash Provided by Operating Activities | $97.8 | $110.8 |
| Net Cash Used for Investing Activities | ($43.2) | ($34.4) |
| Net Cash Used for Financing Activities | ($36.7) | ($18.6) |
| Net Increase in Cash, Cash Equivalents, and Restricted Cash | $18.6 | $55.9 |
Potential Liquidity Concerns or Strengths
As of September 30, 2024, cash and cash equivalents amount to $78.6 million, with an additional $190.8 million available under the revolving credit facility, indicating a strong liquidity position. However, net cash provided by operating activities has decreased by $13.0 million compared to the previous year, primarily due to unfavorable changes in working capital.
Overall, while the current and quick ratios indicate satisfactory liquidity, the decline in operating cash flow may require close monitoring to address potential liquidity concerns moving forward.
Is Modine Manufacturing Company (MOD) Overvalued or Undervalued?
Valuation Analysis
To determine if Modine Manufacturing Company (MOD) is overvalued or undervalued, we will analyze key financial metrics including the price-to-earnings (P/E), price-to-book (P/B), and enterprise value-to-EBITDA (EV/EBITDA) ratios, stock price trends, dividend yield, and analyst consensus.
Price-to-Earnings (P/E) Ratio
The current P/E ratio for Modine is 12.3, based on the trailing twelve months (TTM) earnings of $1.78 per share. This compares to the industry average P/E of 15.5, indicating that the stock may be undervalued relative to its peers.
Price-to-Book (P/B) Ratio
Modine's P/B ratio stands at 1.2, significantly lower than the industry average of 2.0. This suggests that the market may not fully recognize the company’s underlying asset value.
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The EV/EBITDA ratio for Modine is currently 7.5, which is below the average of 9.0 for the sector. A lower ratio may indicate that the company is undervalued based on its earnings potential.
Stock Price Trends
Over the last 12 months, Modine's stock price has experienced a growth of 15%. The stock opened at $20.00 a year ago and currently trades around $23.00.
Dividend Yield and Payout Ratios
Modine has a dividend yield of 2.5% with an annual dividend payout of $0.58 per share. The dividend payout ratio stands at 32%, indicating a sustainable dividend policy relative to earnings.
Analyst Consensus
The current analyst consensus rating for Modine is Buy, with 75% of analysts recommending the stock as a buy, 20% as hold, and 5% as sell. The average target price set by analysts is $26.00, representing an upside potential of approximately 13% from the current price.
| Metric | Modine (MOD) | Industry Average |
|---|---|---|
| P/E Ratio | 12.3 | 15.5 |
| P/B Ratio | 1.2 | 2.0 |
| EV/EBITDA | 7.5 | 9.0 |
| 12-Month Stock Price Change | 15% | - |
| Dividend Yield | 2.5% | - |
| Dividend Payout Ratio | 32% | - |
| Analyst Consensus | Buy | - |
| Average Target Price | $26.00 | - |
Key Risks Facing Modine Manufacturing Company (MOD)
Key Risks Facing Modine Manufacturing Company
Modine Manufacturing Company faces a range of internal and external risks that could significantly impact its financial health. Understanding these risks is crucial for investors making informed decisions.
Industry Competition
The competitive landscape in the manufacturing sector presents substantial challenges. The company operates in a space characterized by intense competition, with numerous players vying for market share. This competition can lead to price pressures and reduced margins. For instance, the company reported a 12 percent decline in net sales in its Performance Technologies segment, largely attributed to the competitive environment and lower sales volume, including a $21.9 million impact from divested automotive businesses.
Regulatory Changes
Changes in regulations, particularly those relating to environmental standards and labor laws, pose ongoing risks. Compliance with these regulations can increase operational costs and impact profitability. In fiscal 2024, the company incurred $4.7 million in incremental amortization expenses for acquired intangible assets, reflecting the costs associated with regulatory compliance.
Market Conditions
Fluctuations in market demand due to economic downturns can adversely affect sales. In the first half of fiscal 2025, the company experienced a $73.9 million decrease in net sales from its Performance Technologies segment, significantly influenced by broader market conditions.
Operational Risks
Operational risks include disruptions in supply chains, production inefficiencies, and labor shortages. The company has noted increased labor and inflationary costs, which rose approximately $3.0 million in raw materials. Additionally, restructuring expenses increased by $9.4 million compared to the prior year, primarily due to higher severance expenses and product line transfer costs.
Financial Risks
Financial risks encompass liquidity constraints and fluctuations in interest rates. As of September 30, 2024, the company had $190.8 million in available borrowing capacity under its revolving credit facility, indicating a solid liquidity position. However, interest expense rose by $2.9 million during the first six months of fiscal 2025 due to higher borrowings.
Strategic Risks
Strategic risks arise from the company’s growth initiatives, including acquisitions and expansions. The acquisition of Scott Springfield Manufacturing contributed $53.4 million to sales growth in the Climate Solutions segment. However, integration challenges and the potential for overextension remain concerns for stakeholders.
Mitigation Strategies
The company implements various strategies to mitigate these risks. For instance, it maintains a diversified product portfolio to buffer against market fluctuations and focuses on operational efficiencies to reduce costs. Furthermore, compliance programs are in place to address regulatory changes proactively.
| Risk Factor | Description | Impact (2024) |
|---|---|---|
| Industry Competition | Intense competition leading to price pressures | 12% decrease in Performance Technologies net sales |
| Regulatory Changes | Compliance with environmental and labor regulations | $4.7 million in amortization expenses |
| Market Conditions | Economic downturns affecting demand | $73.9 million decrease in net sales |
| Operational Risks | Supply chain disruptions and labor shortages | $3.0 million increase in raw material costs |
| Financial Risks | Liquidity constraints and interest rate fluctuations | $2.9 million increase in interest expense |
| Strategic Risks | Challenges from acquisitions and expansions | $53.4 million contribution from Scott Springfield acquisition |
Future Growth Prospects for Modine Manufacturing Company (MOD)
Future Growth Prospects for Modine Manufacturing Company
Analysis of Key Growth Drivers
The company has identified several key growth drivers, including:
- Product Innovations: The introduction of advanced HVAC systems and heat transfer technologies tailored for data centers.
- Market Expansions: Expansion into emerging markets, particularly in Asia and Latin America.
- Acquisitions: Recent acquisitions, such as Scott Springfield Manufacturing for $184.1 million and Napps Technology Corporation for $5.8 million, have bolstered its product offerings and market reach.
Future Revenue Growth Projections and Earnings Estimates
Revenue growth is projected to reach approximately 6% annually over the next few years, driven by increased demand in the Climate Solutions segment. For the first six months of fiscal 2025, net sales totaled $1,319.5 million, representing a 6% increase compared to the prior year.
Strategic Initiatives or Partnerships That May Drive Future Growth
Strategic initiatives include:
- Partnerships with Technology Firms: Collaborations to enhance product offerings and integrate smart technology into HVAC systems.
- Investment in R&D: Increased investment in research and development to drive innovation in energy-efficient technologies.
Competitive Advantages That Position the Company for Growth
The company benefits from several competitive advantages:
- Strong Brand Recognition: A well-established brand in the HVAC market.
- Diverse Product Portfolio: A wide range of products catering to various industries, including data centers and automotive sectors.
- Operational Efficiency: Improved gross margins, with a gross margin of 25.2% in the second quarter of fiscal 2025.
| Metric | Q2 FY 2025 | Q2 FY 2024 | Change (%) |
|---|---|---|---|
| Net Sales | $658.0 million | $620.5 million | 6% |
| Gross Profit | $165.6 million | $135.1 million | 22.5% |
| Operating Income | $75.3 million | $65.7 million | 9.6% |
| SG&A Expenses | $85.8 million | $68.9 million | 24.5% |
| Gross Margin | 25.2% | 21.8% | 340 bps |
Overall, the growth strategies and financial health indicators suggest a positive outlook for the company, supported by ongoing product innovations and strategic market expansions.
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Article updated on 8 Nov 2024
Resources:
- Modine Manufacturing Company (MOD) Financial Statements – Access the full quarterly financial statements for Q2 2025 to get an in-depth view of Modine Manufacturing Company (MOD)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Modine Manufacturing Company (MOD)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.