Modine Manufacturing Co (MOD) 2015 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Modine Manufacturing Company's first quarter fiscal 2015 conference call. (Operator Instructions).. As a reminder this conference call is being recorded.

I would now like to turn this conference over to your host, Ms. Kathy Powers, vice president, treasurer and Investor Relations.

Thank for joining us today for Modine's first quarter fiscal 2015 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. The links are available through both the webcast link as well as the PDF file posted on the investor relation section of our company 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 '15.

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 want to remind you that this call may contain forward-looking statements that's 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. I'm pleased to report that we delivered adjusted earnings per share of $0.30 for the quarter which was $0.03 higher than the first quarter last year.

Our revenues are up 4% with sales growth in each of our segments other than South America where we continue to see year-over-year sales declines due to weak economic conditions.

We are benefiting from a stronger commercial vehicle market in North America and the European commercial vehicle markets appear to be in line with expectations following the pre-buy ahead for the [euro's exchange over].

In Asia we are continuing to see weakness in the excavator market. The new product launches are contributing to sales growth in the segment. In addition, our Barkell acquisition and continued strength in North America heating added to sales growth in our building HVAC segment.

Mick will provide some more details in our financial results in a few minutes but first I would like to comment briefly on our segment results and provide an update on our market outlook for fiscal '15.

Turning to page 6, sales increased 2% in the North America segment with higher sales commercial vehicle customers offsetting a decrease in sales to off-highway customers. We are benefiting from market growth in the North America commercial vehicle market which represents about a third of its segment's business.

We're also benefiting from growth in the power sports market which includes motorcycles and small off-road vehicle, recreational vehicles. We're particularly pleased with this expansion into adjacent markets. This is a great example of our building block product strategy.

We've utilized existing products and platforms to expand our presence in new markets and with new applications. We continue to see weakness in certain sectors of the off-highway market including mining equipment and agricultural combines and lower sales volumes to customers in these markets are offsetting some of the volume increase in the commercial vehicle customer.

Our outlook for the North America commercial vehicle markets continues to be positive. We expect heavy truck production to be up 15 to 20% and medium truck production to be up 5 to 10% versus the prior year which is slightly higher than our previous expectations.

In contrast, our outlook for the off-highway market remains flat, down 10% with agricultural equipment and mining segments of the off-highway market remaining weak throughout fiscal 2015.

Given our current mix of business and our wins with power sports customers, we expect to see continued revenue growth from North America segment. Please turn to page 7. Sales for our Europe segment increased 9% in the first quarter driven by higher sales to commercial vehicle customers and a positive currency impact, excluding currency sales, increased 3%.

Sales to commercial vehicle customers were up 20% driven by higher launch volumes of components for Euro 6 vehicle. From a market perspective we anticipate that overall production volume of commercial vehicles [will be flat to up to] 5% in Europe in fiscal '15 driven primarily by the prebuy and [Euro 5] vehicles prior to the January 1st, 2014 change over.

Despite that, we expect the increased market share of Euro 6 components will result in higher year-over-year production increase for Modine. Sales to automotive customers in Europe were down slightly in the quarter.

These higher sales of automotive components were offset by a decrease in BMW modules as those programs continue to wind down as planned. We expect that the broad European auto sector will be flat to up 5% in fiscal 2015.

Our consolidation of manufacturing operations in Germany is proceeding according to plan. As I mentioned last quarter, this is a very complex move and there will be some added cost of inefficiencies that will impact our results during the consolidation period.

That being said, our dedicated team is working diligently to ensure that we are delivering high quality products for our customers without disruption and that we continue to implement this consolidation according to our plan.

We anticipate that the majority of the move will be completed by the end of the calendar year and continue to expect the total project duration to take approximately 18 months.

This move is a critical component of our European restructuring plan and its success will help us reach our profitability goals in Europe. Although we expect to see profitability improvement in this segment this year, our margins will be somewhat impacted by mix as we increase volumes with some less profitable components.

As I have previously explained, the margin of our Euro 6 [radiator] is lower than we originally anticipated as the manufacturing process changes which required additional labor during assembly.

We are making significant improvement and we believe that our profitability will continue to improve once production has fully moved and stabilized. Our first concern throughout this process had been quality of the product and the satisfaction of our customers.

I am very pleased with the quality of our delivered product and the level of customer approval of all of our Euro 6 components. Moving to South America on page 8. Excluding currency impact, sales were down 21%.

This decrease was primarily driven by lower sales to original equipment customers as a result of significant declines in all of our major end markets. In addition, several customers took extended shutdowns during the quarter due to the World Cup and weakened market demand.

Sales to the aftermarket customers were down slightly from the prior year driven primarily by fewer working days in the quarter due to the World Cup event. We are taking decisive action to lower cost structure in order to maintain profitability at lower production level.

We have implemented headcount reductions and we will continue to look for additional cost saving opportunities. Our outlook for fiscal 2015 for this segment is for market conditions in Brazil to continue to deteriorate and we have lower expectations for the commercial vehicle market and are now projecting the decline of 15 to 20%.

We anticipate that the agricultural equipment markets will be down 10 to 15% and the aftermarket will be flat down 5%. We continue to believe that economic conditions in Brazil will improve during the second half of our fiscal year. However, we still expect that our overall sales in the segment will be lower than the fiscal 2014.

Please turn to page 9. I'm very pleased to report that our Asia segment report a 14% increase in sales [in] the quarter and nearly $1 million in operating profit. This is a significant improvement for the segment, a very positive step for Modine.

The increase in sales is primarily driven by India operations for product launches or the increased volume on off-highway commercial vehicle and automotive products. This was partially offset by lower off-highway export sales from our Korean joint venture.

We are lowering our outlook for the excavator markets in China and Korea and I believe those markets will be flat to down 5%. However, the market outlook for India continues to be positive with an expectation for commercial vehicles to be flat to up 5% and for off-highway markets to be up 5 to 10%.

Incremental business wins that are currently launching will benefit this region but in order to maintain profitability over the long term we must sustain higher volume levels. Although this will be challenging with the current working conditions in China and Korea I am confident that our product launches in China and India will help bridge this gap.

Turning to page 10 - sales in our building HVAC business were up $8.3 million or 26% in the quarter. Of this amount $3.7 million related to the North America business but driven primarily by early seasons of restocking sales as distributors replenish their inventory after the strong heating season last winter.

We also had higher sales of school products in North America as the launch of high efficiency Classmate product let to new business wins. Our UK businesses accounted for the balance of the sales increase including $3.7 million in sales contributed by our recently acquired Barkell business.

We expect Barkell to have annual revenues of approximately $18 million to $20 million, like Airedale, this produce-to-order business, because it's a produce-to-order business and because of (inaudible) amount of revenue in any given quarter can vary due to the timing of the shipments.

Also similar to Airedale, the Barkell product sales and a lower gross margin in the North America heating products and we therefore may see slightly lower gross margins for the segment going forward due to this mixed impact.

That being said, we expect Barkell's SG&A to be lower than the overall segment as sales are generally direct to contractor and through a distributor network. We continue to be pleased with the Barkell acquisition.

Our Airedale business also contributed to the increase in sales for the segment this quarter. (inaudible) focus on reducing manufacturing leadtime in order to maintain competitive time despite the fire last year.

This has been a challenge in our temporary facilities as our overall manufacturing footprint is quite a bit smaller. We added a second production shift as needed and flexed our workforce with overtime and temporary workers in order to keep our leadtimes competitive.

This has proven to be successful from a sales standpoint as our order [and takers] remain stronger in this period but this is adding some additional cost.

Our outlook for the building HVAC markets remains consistent with the prior quarter. With that, I would like to turn to Mick for an overview of our financial performance and guidance.

Thanks, Tom, and good morning. Please turn to slide 12. As Tom mentioned, we had a solid quarter with a 4% increase in sales and generally in line with the outlook. This includes a favorable FX impact of $6.8 million. As a result, our quarter sales were up approximately 3%.

In the quarter our gross margin increased to 17.2%. The improvement is due to higher sales volume, favorable material and lowered depreciation expense. Please note that in the prior year we recorded $2.2 million of accelerated depreciation.

We benefited in the quarter from a $2.6 million gain recorded in SG&A from business interruption insurance related to the Airedale fire. Also note, we recorded $800,000 of restructuring expenses during the quarter - $500,000 is for the severance charges in Brazil, the remaining $300,000 relates to the consolidation of manufacturing facilities in Germany.

As anticipated, we had a $1.8 million increase in our income tax expense this quarter. We explained last quarter that as a result of reversing our valuation allowance against the US deferred tax asset, we will now record tax expense on income generated in the US.

So adjusted operating income of $24.9 million is up $3.2 million or 15% versus the prior year. We recorded [GAAP] EPS of $0.26 in the quarter and adjusted EPS of $0.30.

Turning to slide 13, free cash flow was negative in the quarter which is not uncommon in our first quarter. Our operating cash flow was negatively impacted by approximately $10 million of incentive compensation payment tied to fiscal 2014 performance.

We collected about $3 million less for tooling sales in Europe. Also we had some temporary working capital build ahead of production of transfers in North America and Europe and some higher inventory levels in Brazil resulting from the drop in demand.

We continue to have a strong balance sheet position. We ended the quarter with a net debt to capital ratio of only 17%, a cash balance of $74 million, includes about $14 million related to insurance proceeds from the Airedale fire.

Slide 14 highlights the results for North America and Europe. In North America the first quarter sales increased by $3 million or 2%. The segment's gross margin improved by 130 basis points to 18.5%, primarily driven by favorable materials and lower warranty expenses.

Operating income was up $1.8 million or 13%. Once again, we're quite happy with the level of performance in the segment. Now looking at European segment on the right side, sales were up $5 million or 3% from the prior year on a constant currency basis.

Gross margin improved 80 basis points to 14%. Please note as I mentioned before that the prior year results were impacted by $2.2 million for accelerated depreciation. The benefit to prior sales were partially offset by labor inefficiencies and unfavorable product mix.

We knew there would be some inefficiencies in labor and overhead this year due to the last plant consolidation. In addition, we plan on some temporary product mix changes [and] sales increase with the new [Origami] radiators and condensers.

Excluding the $300,000 of restructuring cost, adjusted operating income was $10.7 million which is roughly flat with the prior year. As we discussed in the past, we need to complete the plant consolidation and achieve a higher capacity utilization before we can see significant margin improvement.

Moving on to slide 15, we have a summary in the South America and Asia business segment. On a constant currency basis, sales in South America were down 21% or $7 million. With that the gross margin declined to 13.8% due to the significantly lower sales volume.

As previously mentioned we've initiated headcount reductions and took half a million in charges - restructuring charges during the quarter. SG&A decreased $300,000 in the quarter, primarily related to the cost reduction effort.

Overall, the lower sales volume in the quarter resulted in a $2.3 million decline in adjusted operating income. So now turning to the right side to look at our Asia segment - first quarter sales increased $2.5 million or 14%.

The gross margin improved significantly - 440 basis points to 17.2%. We experienced good conversion on the higher volume in the segment and benefited from lower material cost. However, we may not be able to maintain margins at this level particularly with our projected change in product mix.

Tom mentioned that we anticipate that recent declines in the off-highway orders will be offset by additional automotive program launches. Until the automotive sales are at a normal level we will see lower margins as compared to the off-highway product sales.

The results show operating income of $900,000 which represents one of our first profitable quarters in the Asia segment. On slide 16 is the building HVAC segment. Sales were up $8 million or 26% including the year-over-year impact of the Barkell acquisition.

The gross margin remains above the company average but decreased due to three main factors. First, we have a one quarter of negative impact from purchase accounting related to the acquisition.

Second, Airedale has some additional year-over-year labor cost due to constraints at our temporary facilities. As Tom mentioned, they have worked hard to reduce leadtimes to pre-fire level. However, that has resulted in additional overtime in temporary workers.

And then third, to a lesser extent was a less favorable sales mix in North America. The primary reason for the SG&A decrease was the recording of the $2.6 million game from business interruption insurance related to the Airedale fire.

This gain specifically relates to the recovery of our lost profit. Operating income was $3.2 million, an improvement of $2.2 million year-over-year. So let's turn now to our fiscal 2015 guidance on slide 17.

We are holding our revenue and earnings guidance at this time. As a reminder the expectations include revenues up 3 to 8% from the prior year, adjusted operating income in the range of $65 to $73 million up from $61.3 million last year; SG&A in $190 to $200 million range.

We anticipate that adjusted EPS will be in the range of $0.63 to $0.73 and we see our full year tax expense in the $22 million to $25 million range, roughly double the tax expenses reported in 2014.

The recap from the last quarter when trying to compare fiscal 2015 and 2014 EPS, [we estimate that the] impact to the tax expense has an $0.18 negative impact on fiscal 2015 EPS.

As outlined by Tom, we continue to expect mixed market conditions in 2015. From a quarterly run rate perspective, our second quarter is typically lower due to some of the shutdowns in Europe with a similar impact in our third quarter.

We will also be doing some heavy lifting in the next two quarters with regards to our plant consolidations in North America and Europe. Last but not least, we are monitoring the recent spike in metal prices particularly aluminum.

We augment pass-through agreements with many of our customers. We have worked hard to get these agreements in place and shortened the duration and there may be a temporary negative impact on margins that prices continue to rise.

So with that, Tom, I will turn it back to you.

Thanks, Mick. We're off to a strong start in fiscal 2015 and I'm happy with other companies performing despite the end market challenges that Mick just described.

I am particularly pleased with the first quarter performance in Asia, the management of plant consolidation in Germany and the speed at which Brazilian operations responded to the market downturn by taking measures the right size across base.

And with that, we would like to take your questions.

(Operator Instructions).. Our first question comes from Robert Kosowsky of Sidoti. Your line is open.

Major question is just on SG&A because if you analyze the first quarter, it comes out about $170 million and you're looking for $190 million to $200 million, I'm just wondering how that builds over the course of the year. Is that [a stair step] all to get to that one kind of quarterly level or are we seeing a little of bit of build in September, a little build in December and then March is going to be the highest, just how [the cadence work out] on that?

The way we see it shaking out for the remainder of the year is we will have really a [stair step] in the Q2 and then more level out in the remaining three quarters, so Q2, Q3 and Q4 of the similar.

Really in Q1 one of the things we need to adjust for is the gain on the insurance [loss] profit shows up as a credit to SG&A, so really our base SG&A was about $2.6 million higher. And then the other factor is beginning around Q2 is really where most of our global salary adjustments take place.

It's the way our system is set up, so if you kind of add that to $2.6 million in Q1 and then factor in beginning Q2 and July is our -- a lot of our salary increases, that will explain the change in our run rate.

Ok, that's helpful. And then I guess within South America, can you talk about why aftermarket may have been down because it seems like car sales [really] pulled a little bit [South American] market might held up a little bit better and just kind of what you're seeing there on that aftermarket slice of the business.

I think we said the aftermarket [was relatively flat] in the fiscal year and I think [the] unique dynamics in South America aren't all understood but right now we think that the flat performances we're looking might be down a little bit but [we think is flat as far as dynamic] and we explained it before, it was aftermarket sales [other than the demand] we see directly.

There's no change in our structure and our distribution [or anything that's] affecting that.

And then finally in Asia, I'm just curious what -- obviously it's been a weak market for construction equipment, I'm wondering what you think the market may have been down versus what your [gross] with some of the new products might have been.

So for instance, without the new products $18.3 million last year, would you actually have been down, say 5, 10% but you're actually [adding] $3 million, $4 million in your business, is that the way to look at it?

Yeah, that's exactly the way to look at it. I don't have the swing in front of me, but [absence of the new launches] with that heavy mix of excavator sales, we would have been down most likely on a year-over-year basis.

If you remember last quarter we talked about the announcement in China about not stimulating the market with more infrastructure investment and that really tapered down the excavator market in China both on [global OEs] that we support and domestics as well as exports out of Korea so that clearly has been an impact on markets and this new balance of diversification investment in the automotive side is going to be very helpful to balance out that.

And then finally, can you maybe elaborate a little more about how you're seeing the productivity in Europe especially in the new products that are coming out? The 14% gross margin was a nice step up versus last year and I'm just wondering sustainability of 14% and if you get Europe (inaudible) second half of the year, do you see a chance to get into that 15% that you are shooting for, for that segment?

Yeah. Well, clearly. We see the trend going the right direction following the launch of the [Origami] radiators for the Euro 6 product, also our other launches, the [Origami] condenser are on track with what we want it to be, but overcoming some of the process issues that we had [are] well on track as I mentioned that we're seeing significant improvements.

We've got ways to go yet [to replace] some of our automation assumptions, so clearly we see that all going in the right direction and of course the consolidation of our [footprint], the two plants coming together in Germany is going to take place over the next six months, so getting through all that we definitely see that way forward to get our gross margins towards our target.

But you see with where we are right now, it's just 14%, as a good base or benchmark to build off [or do you] see wider margins going forward especially with [truck] coming back a little bit?

It's Mick speaking. I think that we're kind of in the range here and it's a good number to work with and there will be a little bit of fluctuation depending on the quarter that there are some shutdowns and where we're at with the move.

But really until we get through the final plant consolidation and everything is into the one plant and it's been leveled out, I think we really won't have a view and more confident about moving above the 14 until that's all done.

So just where we are right now and then hopefully [the stair step] I guess a few quarters down the road.

Right.

Cool. Thank you very much and good luck with the back half of the year.

Thank you. Our next question comes from David Leiker of Baird. Your line is open.

Hi guys. This is (inaudible) in for David. I had a handful of questions on Europe. So first of all, it's nice to see the Euro 6 volumes finally coming through. If I think of the 20% growth in your truck business in Europe, I think the rest of the business has to be down 5% or so to hit the 3% growth. Am in the ballpark and then how much of that 5% decline is purely due to BMW wind downs?

When we look at the increase in the quarter [Joe] we see about - and just in dollars - truck was up about $11 million-ish in sales, then BMW was down about $5.5 million so then you got the balance of really the base automotive business being the difference there.

So I think your math, looking at the percentages, roughly is holding, so the truck was up to 20%, BMW down $5.5 million and then our automotive component business offset most of the BMW loss.

Just on the market development [recorded] there's been some tweaking to the forecast by your [OE] customers and it seems like a lot of it has to do with just geopolitical conditions in the east.

If I think about your business and how that might skew more towards the west with Euro 6 launches, are you looking at your business plans for the remainder of the year as mostly on track and unchanged or does the (inaudible) take a toll at some point?

Right now we're not seeing any impact [Joe] so the guidance we gave is I guess would say taking everything into account that we see it thus far, so as far as directly to the east we have a very small exposure to Russian markets with a small facility that we supply to one specific customer in Russia but again, it's small in numbers and we're not really seeing an impact.

We're doing all the right things to ensure that we mitigate any risk there, but impact-wise, we're not seeing anything yet on that because the numbers are so small. In the western part of the region, things, automotive sales, like we said, [up to] 5% (inaudible) auto sales continue to be an important part of business and growing commercial truck which is coming up from the death of the post/prebuy.

I guess long-winded answer is no, not really seeing (inaudible) at this point.

That makes sense. I just wanted to double check on that. I will maybe switch geographies and focus on Asia. You've talked for quite some time that Asia becomes profitable at 80 million in revenues and this quarter proves you weren't lying about that target. If you grow on top of your current run rates which are at that 80 million revenue level, what sort of profitability is conceivable maybe as the year moves on in longer term kind of a midterm outlook?

I will give a general topline kind of look and let Mick talk about how they converge but we are still in what I would say the bottom end of our assumption of performance on the excavator markets in Asia so we see the upside from here, if we see some improvement in the back half [you were somewhat] projecting and clearly with the launches and the launch activity is significant both in China and in India as I mentioned with the automotive business that were launched and the oil coolers side with nearly two -and-a-half million oil coolers [are launched now and] the next 18 months, so we're going to see that improved with time, but as far as the impact of that, I would let Mick respond to that.

[Joe, you guys are always] pushing us down on that, it's 85 million [great] improvement, but no, you're right. We couldn't be happier with the quarter and the gross margin was actually really surprisingly good in the quarter, so really what I would say is we are bouncing right here at this almost 21 million in the quarter, right around that breakeven point it was a little bit stronger than we thought.

So what we're trying to say is definitely we have a little bit of mix going on Tom walked you through. We have a much more stable, mature product line [and off highway] as those sales are continuing to at least temporarily the markets are softening there.

We are replacing it with our launch of our oil cooler automotive products which are more on a ramp up mode. We won't see the same margin exactly offset. That's a challenge in the short term but we're going to be bouncing around this breakeven point at this call at 20 million, 21 million a quarter range.

Longer term, anything when we get over the 80 million, 85 million range, I think you could think about this business converting at a 25% kind of earnings conversion. We're going to convert nicely because of the all the fixed costs that are in place and also most of the SG&A has been in place there as well.

So the real question and the opportunity is once we get above 85 million we will really see nice earnings flow to the bottom line.

[I work] there over the last few years so it's good to see that the profit is starting to come through. And then just one last one high level strategy question - on some of these new product adjacencies, new market adjacencies you have been exploring, it seems like more and more of these are popping up.

PowerGen has been in [result] the last couple of quarters. Now it's ATVs and motorcycles. Have you tried sizing what these adjacencies might add to the adjustable market opportunity for Modine and are there any sales incentives - incentives for your sales team in place to maybe explore outside of the traditional OE targets or market verticals?

Well, it's a great question. We're spending a lot of time in that space, understanding these adjacent markets and the verticals [as] you described them, so the size, the opportunity, what I would say the market dynamics of what are the barriers that we need to either overcome or once we're there protect.

All that is going into play and looking as we really expand what we call our enduring goals effort to get above market growth in (inaudible) segment. So yes, we're spending a lot of time in that to be very diligent and I would say disciplined in how we evaluate that.

The other thing that goes with that is leveraging what we call this building block strategy. It sounds quaint but it's quite frankly very powerful and we're making sure we leverage design platforms and assets that we have in place to pursue those opportunities.

So number one is leveraging an asset that we can double down on and its impact is also [in a lot of risk] mitigation side of that as far as developing new products in the markets. We know how they perform.

Then the last part of your question is, are we incentivizing? Well, not specifically incentivizing sales teams around that but clearly we all understand the long term benefit of what that means for the company and all of us as employees, what it means to get that above market growth and striving for those enduring goals, so I think we're really getting that really deeply integrated into our strategies both at the corporate level and each of our segments, understanding what the power can provide for us on earnings growth.

Ok, great. I'll leave it there. Congrats on the nice quarter.

Thanks.

Thank you. Our next question comes from Ryan Castle of Global Hunter Securities. Your line is open.

Could you talk about what you guys are seeing in July on heavy duty truck side? Sorry if I missed it.

In July on heavy duty truck, I assume you mean North America.

Yes, North America.

As we said we're projecting 20% upside for the balance for fiscal year. Orders coming into our factories remain right on that track. We upped from the last quarter so I think we're up 10 to 15% last quarter, wrapping it to 15 to 20% so it's an indication that July is strong in supporting that.

Ok. So do you see shipments increasing this quarter or are you looking more towards the back half?

We see shipments [of orders], EDI coming in this quarter [present] as we speak.

And then on Europe, can you talk about automotive X, the things that are going on at BMW, how that's coming in relative to your expectations because I think over in the year you were pretty positive on the potential for auto?

Yes. As an auto [segment] in Europe we're very bullish. We've got a very good what I would say customer base, what we call the premium model space with the German [OEs] excluding BMW.

We're in a [wind down]. Mick mentioned the impact this quarter for the BMW [wind down] is about $5.5 million. We see that [through the year] it's going to be $11 million right on plan which we're planning on but we see the automotive side on our components with oil coolers, condensers and the charger coolers clearly offsetting that to a degree going forward so we're very bullish.

What we're seeing also is with the [Euro six] trucks coming up and a 20% increase in sales. What we're looking at is the diversification for Europe is starting to form a little bit. We used to be much heavier on automotive. I think their segment this quarter shows about 15% automotive percentage in the European segment. That's down from much higher levels before [so we're pleased without] commercial truck diversification [we're working that way] as well.

So we will benefit from automotive but also the commercial truck diversification is working [hard as to our plans].

And on the commercial side you guys had strong sales growth there but the outlook is unchanged. Can you talk about what you're seeing currently in July?

In Europe or commercial truck?

In Europe.

That's a question about vehicular HVAC.

Vehicular.

Vehicular [commercial truck]. So we're showing flat 5% down for the balance of the year in commercial truck. A lot of that is driven because of the big spike that we had in the prebuy in our third quarter last year, fourth quarter calendar year where we had [it] very high, so if you adjust for that, we're down below that because of that prebuy, but we clearly see overall an increase of sales because of the high content in market share we had with the commercial vehicle market now.

So we're positive with the trends that are going in the right direction and we're projecting down from last year. It's actually [personally going forward] we feel it's going to be improving.

Thanks guys.

I am showing no further questions at this time. I'm going to turn the conference back to Ms. Kathy Powers.

Thank you. That concludes today's call. Thank you for joining us this morning and thank you for your interest in Modine. Goodbye.