Good morning, ladies and gentlemen. And welcome to Modine Manufacturing Company’s First Quarter Fiscal 2016 Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Ms. Kathy Powers, Vice President, Treasurer and Investor Relations.

Thank you. And thank you for joining us today for Modine’s first quarter fiscal 2016 earnings call. With me today are Modine’s President and CEO, Tom Burke; and Mick Lucareli, our Vice President, Finance and Chief Financial Officer. We will be using slides for today’s presentation. Those links are available through both the webcast link, as well as a PDF file posted on the Investor Relations section of our company’s website modine.com. Also, should you need to exit the call prior to its conclusion a replay will be available through our website beginning approximately two hours after the call concludes. On slide two is an outline for today’s call. Tom and Mick will provide comments on our first quarter results and review our revenue and earnings guidance for fiscal ‘16. At the end of the call, there will be a question-and-answer session. On slide three is our notice regarding forward-looking statements. I wanted to remind you that this call may contain forward-looking statements as outlined in today’s earnings release, as well as in our company’s filings with the Securities and Exchange Commission. With that, it is my pleasure to turn the call over to Tom Burke.

Thank you, Kathy, and good morning, everyone. This morning we reported our first quarter results, largely due to foreign currency, sales were down 12% as compared to the first quarter of fiscal 2015. Excluding this currency impacts sales were only down 2%. On a constant currency basis sales increased in our Europe and building HVAC segments and decreased in the Americas and Asia segments. We expect the foreign currency will negatively affect our sales comparisons for the first three quarters of this fiscal year. Adjusted operating income of $14.2 million was down $10.7 million from the prior year. This was due to unfavorable currency conditions, including the impact of material costs in Europe and Brazil, and business interruption insurance recoveries in the prior year. As a result, we reported adjusted earnings per share of $0.14, compared to $0.30 in the prior year. As we mentioned when providing our initial fiscal 2016 guidance last quarter, from a quarterly run rate perspective, we anticipate that the second half of fiscal 2016 will be significantly stronger than the first half, both in terms of absolute earnings and year-over-year comparable. I am pleased to report that our core activity remained high during the quarter resulting in significant business wins. We continue to make progress in our manufacturing footprint both in North America and Europe, and we also continued to focus on our growth strategy, and I will give you updates on all of these topics as I go through the segment results. Mick will go through the consolidated results in greater detail, but first, now I would like to review the segment performance and update our end-market expectations for fiscal 2016. Turning to page six, as I mentioned last quarter, we combined the management of our North and South America operations, they now function…

Thanks, Tom. Good morning, everybody. Please turn to slide 11. As anticipated, we experienced significant market and foreign exchange headwinds. As most of you know, more than half of Modine sales are generated outside of the United States. In addition, last year’s strong start made year-over-year comparables quite difficult. After analyzing the multiple currency impacts, we are pleased with the underlying operating performance. As Tom mentioned, sales decreased 2% on a constant currency basis, excluding unfavorable exchange rate impact of $40 million. We expect currency to be a significant headwind through the first three quarters of the fiscal year, with better comparisons in Q4. On a constant currency basis, improved sales in Europe and Building HVAC were more than offset by decreases in the Americas and Asia. In the quarter, our gross profit decreased $10.7 million. We estimate that approximately $9 million of the decrease relates to the change in foreign exchange rate. First, $4.7 million relates to an unfavorable exchange rate impact on the translation of our foreign earnings. In addition to the translation impact, the stronger US dollar negatively impacted the price we paid for commodities in Europe and Brazil. This resulted in approximately $4 million of higher material costs. Moving on to SG&A, costs were flat with the prior year. The exchange rate impact was favorable about $3.6 million. This was partially offset by the absence of a $2.6 million recovery from business interruption insurance recognized during the first quarter of fiscal 2015. As a reminder, this resulted in a reduction to our SG&A last year and relates to lost profits due to the fire in the U.K. We also recorded $2.6 million of restructuring expenses during the quarter. This was primarily due to severance expenses relating to the planned closure of our Washington Iowa plant, which…

Thanks Mick. There are several challenges impacting our business but we’re meeting them head-on. At this point, we are deeply focused on driving growth and aggressively improving our cost structure. As I mentioned, we're increasing our low-cost country manufacturing capacity by expanding on our campus in Nuevo Laredo, Mexico and by increasing manufacturing capacity in Eastern Europe. Also Mick mentioned our supply chain optimization initiative but we are aiming to consolidate our supply base to focus on strategics by our partnerships that will provide the best quality and service at the lowest total cost. We have significant expectations for this project. We will be able to share more specifics next quarter. On the gross side, we are particularly focused on opportunities that will provide us with an increased market diversification. This includes both organic growth in new markets and strategic acquisitions. I mentioned the potential of our coils business. We’re winning new business and focusing on potential investments. We have a substantial acquisition pipeline and are actively evaluating these targets. To iterate next point, if we're not able to find the right investment in the near future, where we have excess cash after making other investments then we will look at alternative uses for our cash. With that, we’d like to take your questions.

Thank you. [Operator Instructions] Our first question comes from the line of Mike Shlisky with Global Hunter Securities. Your line is open. Please go ahead.

Good morning guys. How are you?

Good morning, Mike.

Yeah, on the questions, I’ll start on with Europe, looking at some of the OEMs in the truck space, you’re getting some rapid order increases here. And you mentioned, you’ve got some additional entire freight and other cost here. But you also have, if I’m not mistaken, pretty high market share and it’s a pretty essential product for compliance with some of the rules over there. So I guess can you pass it along to the customer? And I guess, secondly on that question, I can see you passing -- I can see you’re trying to get some more growth in your capacity in Eastern Europe, that's great but I think these people need their product this quarter and next to get these trucks built. So is there anything you can do primarily to kind of keep the cost under control there? Hello? Hello?

[Operator Instructions] All right, Ms. Powers, you are reconnected.

Thank you.

Mike.

Yeah. Hey guys. You there?

I’m sorry about this. Something happened. We’re you talking about the added demand, did you say truck or was that auto that’s before we get cutoff, I was wondering.

I was actually just thinking about trucks whether say -- it’s going to be a more demand and more intensive environment there as far as truck orders go. I wanted to know if there is any way given the process, so essential to compliance and your shares growing there whether you’ll be able to pass it along some of those costs to customers. And then secondly, while I did recognize that you are trying to look into low cost country sourcing over in Europe, it sounds like these folks in the customer base need their product now. There are some order increases. Can you in any way make some very quick changes to get the cost under control?

Yeah. And it’s obviously what we’re doing. Okay, so the ability to pass on cost is circumstantial depending on what might be grinding that. It’s release, certain release by the customer. It’s up, okay, that we’re going to ask for something because we’ll have added gross requirements within cost that they will negotiate with customers to pass on where we can. If it’s on -- our ability do not meet schedules, obviously that’s a different ball game where we have to make up for that with some premium costs which is order time or expedited freight that typically falls back on our shoulders if it’s a net-net case. The biggest issue and we have on, that I mentioned was on the automotive side with the oil coolers where we’re having this great success with our product and winning the business and are realizing that is that we’re well over heated capacity because of the demand of that product and that is where we definitely are working with customers everywhere we can because it is a good news problem ahead that it’s succeeding in some cases customer estimated volumes. So we’re working very closely with customers to work out expedited freight and order time and cost and sharing them. But it’s a good problem to have but one of them moving to it and obviously moving quickly to added capacity. So we’re talking within months that we have never added capacity on the order approval programs to resolve that issue.

Okay. Great. I also wanted to touch on Building HVAC. I mentioned in your slide that you’ve got some -- the business happening in school here in North America. I was wondering if you guys are seeing school budgets open up a little bit better this year or is it gains in market share? Any color on what’s going on in the school market, I would appreciate it?

Yeah. The school market is something that’s -- it's contamination of retrofitting old schools to closest schools up for new larger requirement for inside your quality requirements in noise and temperature control and that type of things. So that’s where we have strength here. So it’s retrofitting of old schools. And in that case, there are schools around the countries, specific areas that are looking to do that and in the past tax increases on to improved school upgrades and that stuff and it takes a long process. We were closing the school boards and engineers supporting them and we’re very happy with the business that it’s really gaining. And for us, we have a leading market share position in this North America and again it’s very significant contributor to the Building HVAC segment.

Okay. And going on to the guidance, your outlook for tougher second quarter here. I remember last year, you had like $0.05 of earnings, are you suggesting that you might do worse this year than last? Just trying to get kind of sense of the timing of earnings this year little more up precisely?

Yeah. This is Mick. Mike, thanks for the question. Yeah. So I think we see frankly, Q2 is going to be very similar to Q1 in terms of volume. We’re going to see a little bit higher SG&A kick-in in Q2 which happens each year due to the timing of a number of items including the way we do our global salary and benefit adjustments. But we see the typical, call it, summer slowdown in Europe, the preheating season and then acceleration in Q3 and Q4. So we knew, this time I want to make sure we communicate. We knew Q1 would be a very tough comparable in line with what we were expecting. Q2, we’re going to see similar form of volume, slightly higher SG&A and what we are expecting as we said, better comps year-over-year in Q2, which was to your question. We do expect Q2 to be a little bit better than Q1 or Q2 last year. And then the biggest issue is a lot of our cost savings and launch activities is going to happen in the second half of the year, including that heating season, which is significant for a building HVAC last year. Q3 for building HVAC was almost 50% of the full year segment result, just to put some context around that for you. So, hope that answers your question, Mike.

Yeah. Sure. Yeah. Thanks. And what I have you, you had mentioned there are some M&A deals out there looking to put cash to work. If you can, you might put it back to shareholders. Would you consider going to the repatriation process or is there enough cash rather M&A or for any kind of buyback or dividend here in U.S. already?

Yeah. So again, I appreciate the question because we did want to get some color to that. I think one is when we talk about cash, I want to make sure, we provide some color around the fact that a portion of cash is about $15 million plus or minus tied right now to the rebuild of our U.K. facility. So that’s timing of insurance money falling through the company. Then we have a significant amount of money that fits the majority of the remaining cash fits in foreign location. From an M&A standpoint, that’s our preferred -- we think long term, that’s the best for the company as to reinvest in the business for the long term. There is a lots of opportunities and options we have of funding in acquisition. So repatriation wouldn’t be a concern on that side. Then as Tom mentioned, we also have a balance sheet that is under levered or conservative at the current standpoint, which we can use for acquisition support and/or other uses. And certainly we feel at the current stock price, Modine is a value. And if we don’t find an appropriate investment for us to leverage our balance sheet and use the cash appropriately, we’ll look at those other alternatives.

Okay. And then, I guess, one more squeeze in, if you don’t mind, about the Midwest transaction premium. It’s been down or definitely stayed down, do you expect to see benefits there, you’ve outlined in the current quarter and next, depending upon actually of what might that develop?

Yeah. Great question. We have a little bit of a lag and for the -- the others on that call. That doubled in the last year. It has recently come back at the normal range. It’s now back around $0.10, $0.11 a share. And if you think about our run rate, we’re still paid a premium year-over-year for that given our lag. But beginning in our Q2, Q3 and Q4, we’re talking about a 50% year-over-year decline in our transaction premium year-over-year comparability and we’ll start to capture that reduction in our cost of good moving into Q2 and fully in Q3 and Q4.

Great. Thanks for the time, guys. I’ll pass it along.

Thanks, Mike.

Thanks, Mike.

Thank you. And our next question comes from the line of David Leiker with Robert W Baird. Your line is open. Please go ahead.

Good morning, everyone.

Good morning, David.

Couple of things here. The European capacity issues that you’re running into there, what kind of -- what’s the timeline on correcting those? I presume that there is some impact on margins right now, given the way you are running the business relative to what it would be with that volume?

Great. No. Good question and you are right. So we’ve got a couple of things, it is a very global product as you know. We’re able to provide relief from some plants that do have capacity elsewhere in the world that does provide a little bit of logistics cost to us that we -- that's our responsibility. The flat portion of adding actual machine capacity is in process been kicked-off for a couple of months now and that should be resolved in the next three to four months, as far as the oil coolers specific demand that we’re seeing in Europe, part of the OC product line. So, again, inside of all that there is lot of discussions or negotiations with customers in some cases where they’ve above their stated levels for us to capacitize too, so we’re leveraging all of that and minimizing those cost in some cases it still they can impact on others where we’re at stated our volumes. So inside of that we’re really managing that carefully. So the combination of providing products for elsewhere Modine locations that help to meet that need and they added actual machine capacities is in place and should be in the next three or four months if you see that really be resolved.

And Tom, you said, Dave, its Mick. You might want to comment too that the other portion of the additional capacity you talked about it’s on more volume that we’re quoting and running, so that’s the one-two years out…

Right. So on top of that, yeah, let me be clear, we continue to win new business in this product line and others, okay, in our current cooling that we need more not only capacity but plant for space. So this is where we expanding into Eastern Europe that I mentioned to expand existing capacity…

Right.

… that we have now, so that’s not today’s news, but that’s going to be 18 months from now. We’re pretty exciting with those launches coming up in the ‘17 calendar year.

And then the strong volume that you’re getting above like you know what capacitize for than the new wins. Can you talk a little bit what the comment denominator there is in terms of why you’re winning that business?

Yes. I’d go back to the -- use our term, building block strategy, where we’ve really think engine oil coolers, called the LC product line, which is a combination of oil coolers and charge air cooling that’s a same product of building block where we’ve got an asset based so we can leverage on a constant basis and have a lot of flexibility, giving us ability to win that new business, especially as we look forward to our future state model with prior scale and lower costs. So it’s all around this fuel efficiency, drive for optimizing powertrain drive and of course boosted engine support if you look at charger coolers going on the cars and it’s a very encouraging trend.

Okay. So those are -- I mean, I presume those are in gasoline.

Yeah. The gasoline turbos exactly and then of course, diesel oil coolers as well. So it’s both engine sources and then we are starting to see in North America as well, that these devices are being used to actually heat oil early to help to reduce frictional losses and pull starts. So it’s a lot of content opportunity, both in traditional oil cooling, actually they are called thermal management units of heating cooling, heating lubricant or better fuel efficiency under pull start. And of curse the charger cooler impact with smaller displaceable engines where fuel efficiency regions are on petrol engine.

Okay. Great. And then one last item here, in terms of the actions you are taking on the cost side in North America and in Europe. Sounds like you get some of those cost saving come to in the back end of the year. Can you quantify what magnitudes of those savings are and then how those flow in beyond the current fiscal year?

Yes. David, it’s Mick. I can give you an idea of the total savings and to put it in context of the specific programs we’ve done. Just keep in mind, that we’ve got other issues behind here. But from a total savings standpoint in Europe, we’re looking at approximately and incremental $3 million this year in savings year-over-year. First year here, in the Mchenry, as we’re closing that facility and getting ready in the second half of the year to launch that, a lot of that product in Mexico, about $2.5 million of savings. And then incremental savings in Brazil this year, year-over-year, about a $1 million due to a combination of SG&A and then direct and indirect labor reductions. So, those are the major pieces and we said, most of those are second half of the year.

Right. And then is there any carryover with incremental savings in fiscal 2017?

Yeah -- sorry about that. So right now that’s -- the $1 million in Brazil is what we’ve done to date. Stay tuned, the teams are working together on the synergy opportunities. So, I don’t have anything to share yet on that side. They are still diving into how to most efficiently run the combined segments, the one new segment. There is an incremental 2.5. The total savings will be going to Mchenry in the following year in ’17, going to about $7 million. So, about $5 million of the incremental and that will be the first full year impact to the McHenry. And then in Europe about another 1 million in 2017, so I would say going forward in other five to six plus whatever synergy we would see coming between combining the Brazil and North America operations. Go ahead.

No, continue.

Just, Washington, Iowa, which we just announced this year, there we expect annual savings of $9 million, but that closure won’t be completed till 2018.

Okay. And then given where your footprint is today and where your products are and where demand is, do you think that this -- with what you know today obviously that this gets your footprint with where you need to go, or is there other actions that are still contemplated?

This gets us a long way down the road David, that’s for sure.

Yes. I know.

And as you know and follow the OE vehicular world, I mean the demands are going to continue to stay there and I think you sense from a discussions whether it’s footprint or purchasing and synergies on the overhead side. We are committed to get there so, but specifically on your question, our remaining let’s say high cost country footprint is going to be very, very reduced, okay, over this process. So we will have roughly one plant in a two-year period. From one plant operating in Germany, we will have single-digit number of four operations in North America. So it’s going to be a strong position that we’ll have from that standpoint on our footprint.

Yes. David, it’s Mick. One another way, I guess I look at it is, when we look at our quote activity and the success rate and our cost, I feel really good about the competitiveness and our win rate coming out, the economy is down, but in Brazil, North America and expand in Mexico really good success rates and costs. Asia with the China and India, yes, the biggest one we see that’s then an obstacle both the volume but it’s also cost. We need that broader Eastern European footprint. We need a little bit more capacity in Europe that’s low cost, that would be the one that we -- so to your question that’s what we are addressing right now.

And I will make a correction we have two plants in Germany, okay, one on the engine side and one on the powertrain cooling side.

Okay. All right. Great. Thank you very much.

Thank you. I’m showing no further questions at this time. I’d now like to turn the conference back to Ms. Kathy Powers.

Thank you. This concludes today’s call. Thank you for joining us this morning. And thank you for your interest in Modine. Bye.