Modine Manufacturing pany(US:MOD)2025-10-29 16:40Financial Performance - Net sales for the second quarter of fiscal 2026 increased by $80.9 million, or 12 percent, to $738.9 million compared to the same quarter last year, driven primarily by higher sales in the Climate Solutions segment [113]. - Year-to-date net sales for fiscal 2026 reached $1,421.7 million, an increase of $102.2 million, or 8 percent, compared to the same period last year [124]. - Climate Solutions net sales increased by $88.0 million, or 24%, from Q2 FY2025 to Q2 FY2026, driven by higher sales volume and a favorable foreign currency impact of $5.1 million [134]. - Year-to-date net sales for Climate Solutions rose by $128.1 million, or 18%, compared to the same period last year, primarily due to higher sales volume and a favorable foreign currency impact of $11.2 million [140]. - Performance Technologies net sales decreased by $11.2 million, or 4%, from Q2 FY2025 to Q2 FY2026, primarily due to lower sales volume in North America [147]. - Year-to-date net sales for Performance Technologies decreased by $34.7 million, or 6%, compared to the same period last year, primarily due to lower sales volume and market weakness [154]. Cost and Profitability - Cost of sales increased by $81.6 million, or 17 percent, leading to a gross profit decrease of $0.7 million and a gross margin decline of 290 basis points to 22.3 percent [113][116]. - Year-to-date cost of sales increased by $100.1 million, or 10 percent, resulting in a gross margin decline of 170 basis points to 23.2 percent [125][126]. - Climate Solutions cost of sales increased by $82.3 million, or 32%, from Q2 FY2025 to Q2 FY2026, attributed to higher sales volume and temporary operating inefficiencies [136]. - Year-to-date cost of sales for Climate Solutions increased by $110.3 million, or 21%, primarily due to higher sales volume and an unfavorable foreign currency impact of $8.8 million [141]. - Operating income for Climate Solutions in Q2 FY2026 was $62.2 million, a decrease of $2.5 million from Q2 FY2025, primarily due to higher SG&A expenses [139]. - Year-to-date operating income for Climate Solutions was $129.1 million, an increase of $4.6 million from the same period last year, driven by higher gross profit [144]. - Operating income for Performance Technologies in Q2 FY2026 was $29.7 million, a decrease of $1.1 million from Q2 FY2025, primarily due to lower gross profit and an impairment charge [153]. Expenses and Impairments - SG&A expenses decreased by $1.6 million, or 2 percent, as a percentage of sales decreased by 160 basis points, primarily due to lower compensation-related expenses in the Performance Technologies segment [117]. - The company recorded a $4.1 million impairment charge in the Performance Technologies segment during the second quarter, impacting operating income, which decreased by $1.8 million to $73.5 million [121][120]. Acquisitions and Investments - The company completed three acquisitions in the Climate Solutions segment, including AbsolutAire for $11.3 million, L.B. White for $110.5 million, and Climate by Design for $64.4 million, expanding its product portfolio and customer base [109][110][111]. - Cash payments totaling $182.1 million were made for acquisitions of L.B. White, Climate by Design, and AbsolutAire in the first half of fiscal 2026 [163]. - Borrowings on credit facilities, net of repayments, totaled $224.6 million, primarily used to fund acquisitions of L.B. White and Climate by Design [164]. - The company announced a plan to invest $100.0 million over the next twelve months to expand manufacturing capacity for data center products [162]. - Capital expenditures increased by $19.1 million to $59.4 million during the first six months of fiscal 2026, with a new plan to invest an additional $100.0 million to expand manufacturing capacity in the U.S. [162]. Cash Flow and Financial Position - The company reported cash and cash equivalents of $83.8 million as of September 30, 2025, with an available borrowing capacity of $128.8 million under its revolving credit facility [160]. - Net cash provided by operating activities for the six months ended September 30, 2025, was $29.1 million, a decrease of $68.7 million compared to the prior year, primarily due to unfavorable net changes in working capital [161]. - As of September 30, 2025, the company was in compliance with its debt covenants and expects to remain compliant throughout fiscal 2026 [168]. - The leverage ratio covenant requires consolidated indebtedness to be no more than 3.5 times Adjusted EBITDA [167]. Market Risks - The company faces various market risks, including potential adverse developments in the global economy, inflation, and supply chain challenges [172].