Modine Manufacturing Company (NYSE:MOD) Q3 2023 Earnings Call Transcript

Mick Lucareli: Yes, Brian. Yes, I mean, we feel very confident that based on where we are 9 months to date, as you point out and where we see the year that we’re going to come in at the very high end of our guidance. And the opportunities to exceed it really if our EDI or order rates remain solid in Q4 on our vehicular customers. The data center business is going to have one of its strongest quarters of the year in Q4 and those can be a little bit lumpy as far as when actual shipments go out of those. But those would be a couple of the drivers that we would see that allow us to actually overdrive our forecast.

Brian Sponheimer: Yes, that makes sense to me. I want to just in regards to — with regards to your balance sheet. I think the reaction today probably has some algo trading aspect to it given the headline EPS and the year-over-year comparison. The balance sheet is at 1.6x levered. You’re going to take another $20 million now and eventually in working cap and all you’re really doing is really positive from a momentum perspective. Where down the line, would you start to consider something like a buyback where you can really be opportunistic on a day like today? Where would that start to enter your thinking, Neil?

Mick Lucareli: Brian, it’s Mick. I’ll go first and Neil wants to add anything. I think back to the previous question, where we’ve been on cash flow. We’ve been a little bit lumpy this year, primarily driven by working capital. As things stabilize here and we expect to see that working capital stabilized in Q4 and next year, we had anticipated based on the targets we’ve set to have even better cash flow. At that point, I think, Brian, when we’ve got the relatively stable quarter-to-quarter free cash flow. And as you pointed out, we wanted to really work our leverage ratio down this year, I think a full point. We’re at a point then when we enter 24 here, ’23, calendar ’23 or fiscal ’24 is the point where we can look at both acquisition opportunities but also in between there opportunistically look at buybacks when needed.

Brian Sponheimer: Appreciate that. Just one more anecdote really quickly, if I could. CNH had a pretty significant strike at one of their facilities in Racine. Were you able to do any hiring from workers that may have gotten tired of being on strike, any opportunity there that you were able to take advantage of from a labor perspective?

Neil Brinker: Yes, that’s a good question, Brian. This is Neil. Not that I’m aware of. We do very little manufacturing in racing. It’s primarily our R&D center for — and testing and development. Most of our manufacturing footprint is in the United States is — was in Tennessee, Rhode Island. It’s in Missouri. So it’s in locations outside of the Wisconsin area but that’s a fair point.

Brian Sponheimer: Understood. And best of luck.

Operator: Our next question comes from Steve Ferazani with Sidoti & Company.

Steve Ferazani: I do want to run through a couple of more specific questions on guidance. As I — I’m trying to match up your previous presentation just to see the shifts on revenue. When I look at Climate Solutions, the only real change I see here is HTP, you’re actually — you raised the lower end. HVAC and Refrigeration down very modestly but I’m in New York and we haven’t had winter. I mean we’ve skipped it. I know the ground hog said 6 more weeks. But how much of an impact is that when parts of the country are just skipping winter this year?