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Will BHVAC Segment Strength Buoy Modine's (MOD) Q4 Earnings?

Zacks Equity Research

Modine Manufacturing Company MOD is slated to release fiscal fourth-quarter 2020 results on May 28, after the closing bell. The Zacks Consensus Estimate for the quarter’s earnings is pegged at 13 cents per share on revenues of $489.7 million.

The thermal management system manufacturer reported better-than-expected earnings in the last reported quarter on the back of strong contribution from the Building HVAC Systems ("BHVAC") segment. Over the trailing four quarters, Modine beat earnings estimates twice and missed the same on the other two occasions, with the average positive surprise being 7.6%. This is depicted in the graph below:

Modine Manufacturing Company Price and EPS Surprise

 

Modine Manufacturing Company Price and EPS Surprise

Modine Manufacturing Company price-eps-surprise | Modine Manufacturing Company Quote

Which Way are Estimates Headed?

The Zacks Consensus Estimate for first-quarter earnings per share has been revised downward by 3 cents in the past 30 days. The figure indicates a year-over-year decrease of 67.5%. Further, the Zacks Consensus Estimate for revenues suggests a year-over-year decline of 12%.

Factors at Play

Modine’s Vehicular Thermal Solutions ("VTS") is likely to have felt the heat from lower sales to all vehicular end markets served and the closure of certain commercial vehicle programs. As it is, auto suppliers are facing tough times amid the COVID-19 pandemic due to depressed demand for vehicles and factory closures. These factors are likely to have negatively impacted the firm’s revenues and earnings from the VTS unit. Sales volume is expected to have declined in its Commercial and Industrial Solutions ("CIS") segment amid falling business and consumer confidence due to coronavirus woes. 

However, Modine's business of supplying components for building HVAC systems has been recording growth over the last several quarters. Higher sales of heating and ventilation products are likely to have buoyed revenues and earnings of the BHVAC unit. Further, cost-saving efforts implemented by the company are also likely to have aided margins.

All in all, Modine is expected to have benefited from solid BHVAC unit and cost discipline, partly offset by lower contribution from VTS and CIS segments.

What the Zacks Model Says

Our proven model does not conclusively predict an earnings beat for Modine this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here. You can see the complete list of today’s Zacks #1 Rank stocks here.

Earnings ESP: Modine has an Earnings ESP of -25.00%. This is because the Most Accurate Estimate of 10 cents per share is 3 cents lower than the Zacks Consensus Estimate. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Modine — whose peers include Meritor Inc. MTOR, Dana Incorporated DAN and Unique Fabricating Inc. UFAB — carries a Zacks Rank of 3 currently.

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