Shares of Modine Manufacturing Co. (NYSE: MOD) fell more than 40% on Friday morning after the thermal management system manufacturer reported worse-than-expected quarterly earnings and provided disappointing guidance. The company is trying to shed underperforming businesses, but that process is taking longer than it had hoped.
After market close on Thursday, Modine reported fiscal second-quarter adjusted earnings of $0.13 per share on revenue of $500.2 million, falling short of consensus expectations for $0.25 per share in earnings on $515 million in revenue. The revenue figure was down 9% from the prior-year quarter, and operating income of $6 million was well below the $22.8 million figure Modine posted in the same three months last year.
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CEO Thomas A. Burke in a statement said the second-quarter results fell because "market conditions deteriorated more significantly than we expected." Modine's business of supplying components for building HVAC systems saw double-digit revenue growth, but its vehicle and industrial units both experienced larger-than-expected declines in customer orders.
In January, Modine announced plans to explore a sale of its vehicle business, which includes thermal management products for automobiles, commercial vehicles, and off-highway vehicles. Burke said he remains committed to divesting the unit, while admitting "the process has taken longer than anticipated due to the challenging economic environment."
Auto stocks and their suppliers have been under pressure all year due to worries about a slowdown.
Modine is looking to cut costs in the meantime, implementing a plan expected to yield between $25 million and $30 million in annual savings within the next 18 months. The company recently overhauled its commercial business in an effort to stabilize operations, and as Burke said, "We continue to invest in growth" for the HVAC operation.
The quarterly miss is going to take its toll on the full fiscal year, with Modine forecasting adjusted earnings of $0.75 to $0.90 per share in fiscal 2020, well short of the $1.36-per-share consensus estimate, and full-year sales down 7% to 12% from fiscal 2019.
Modine shares are now down more than 50% over the past six months, and now trade at five times earning and only 0.1 times sales. Burke sees promise in the HVAC business, and assuming the company can eventually jettison its auto business and focus on stronger units, better days could be on the horizon. It's just going to take some time to get there.
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