Modine moving forward with sale of automotive business

Market represents quarter of company revenue

Modine Manufacturing Co. made significant progress in the strategic review of its automotive business and will move forward with the sale of operations that represent more than $542 million of the company’s annual revenue, the company’s president and chief executive officer said.

Tom Burke announced the decision during the company’s fourth quarter earnings call Thursday. He said that while the thermal management manufacturer’s history is tied to the automobile – including providing radiators for the Model T – the capital investment required hampers returns for the company’s vehicle segment.

“This market has changed and is fundamentally different from our other vehicular end markets and from our industrial businesses,” Burke said.

Modine announced in January that it would review strategic alternatives for the business, which provides cooling products like radiators, condensers and chillers and cooling plates for battery thermal management.

The company has been working for the last three years to diversify its business. In fiscal 2016, commercial vehicles, off-highway and automotive represented around 78% of sales. In fiscal 2019 that number was down to 57% following growth in commercial HVAC, data center cooling and industrial markets.

While the automotive market still accounted for nearly 24% of Modine’s revenue in fiscal 2019, Burke said the end market regularly is responsible for 40% to 50% of capital expenditures each year. He also noted automotive margins are lower than the vehicle segment’s gross profit margin of 13.8%.

“Modine’s automotive business has a lot of positive aspects. We have a fantastic brand name and IP portfolio,” Burke said. “However, in reviewing the market dynamics and our corporate strategy, we believe that the value of this business may be maximized through another owner.”

None of Modine’s automotive manufacturing facilities are in Wisconsin and the company said a limited number of employees at its Racine headquarters are involved in the business.

A sale of the automotive business would likely involve 10 of the vehicle segment’s 18 manufacturing locations, Burke said. He added that the separation would be complicated because some of the locations are co-mingled with other product lines.

“If the process is successful, Modine will look quite different,” Burke said. “It will be temporally smaller from a revenue standpoint, but would have improved operating margins. Our overall capital expenditures would decrease and free cash flow would increase significantly, resulting in higher return on capital.”

Proceeds from the sale would be used for organic growth investments, debt repayment and possibly share repurchases if appropriate, Burke said.

Modine Manufacturing Co. made significant progress in the strategic review of its automotive business and will move forward with the sale of operations that represent more than $542 million of the company’s annual revenue, the company’s president and chief executive officer said.

Tom Burke announced the decision during the company’s fourth quarter earnings call Thursday. He said that while the thermal management manufacturer’s history is tied to the automobile – including providing radiators for the Model T – the capital investment required hampers returns for the company’s vehicle segment.

“This market has changed and is fundamentally different from our other vehicular end markets and from our industrial businesses,” Burke said.

Modine announced in January that it would review strategic alternatives for the business, which provides cooling products like radiators, condensers and chillers and cooling plates for battery thermal management.

The company has been working for the last three years to diversify its business. In fiscal 2016, commercial vehicles, off-highway and automotive represented around 78% of sales. In fiscal 2019 that number was down to 57% following growth in commercial HVAC, data center cooling and industrial markets.

While the automotive market still accounted for nearly 24% of Modine’s revenue in fiscal 2019, Burke said the end market regularly is responsible for 40% to 50% of capital expenditures each year. He also noted automotive margins are lower than the vehicle segment’s gross profit margin of 13.8%.

“Modine’s automotive business has a lot of positive aspects. We have a fantastic brand name and IP portfolio,” Burke said. “However, in reviewing the market dynamics and our corporate strategy, we believe that the value of this business may be maximized through another owner.”

None of Modine’s automotive manufacturing facilities are in Wisconsin and the company said a limited number of employees at its Racine headquarters are involved in the business.

A sale of the automotive business would likely involve 10 of the vehicle segment’s 18 manufacturing locations, Burke said. He added that the separation would be complicated because some of the locations are co-mingled with other product lines.

“If the process is successful, Modine will look quite different,” Burke said. “It will be temporally smaller from a revenue standpoint, but would have improved operating margins. Our overall capital expenditures would decrease and free cash flow would increase significantly, resulting in higher return on capital.”

Proceeds from the sale would be used for organic growth investments, debt repayment and possibly share repurchases if appropriate, Burke said.

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