MOD - Modine Manufacturing: The Path Towards Balanced Growth
2024-03-10 01:03:48 ET
Summary
- The company plans to make acquisitions within the previous purchase price range, with a focus on data centers rather than automotive industries.
- The acquisition of Scott Springfield Manufacturing aligns with the company's goals and will expand its reach in high-growth markets.
- The company's Q3 FY 24 net sales were flat, but improved efficiency led to better gross profit, EBITDA, and EPS. Operating expenses and inventory levels have increased.
Investment Thesis
Preview & Updates
We previously predicted Modine Manufacturing (MOD) was going to "make an acquisition or two within the previous purchase price tag range, should an appropriate opportunity arise". As it announced in February, it was going to make the acquisition of Scott Springfield Manufacturing. We also predicted it would more likely make acquisitions in data centers than in automotive industries, as we stated "In reality, its cooling technology has no problem finding faster growth downstream applications in the Data Centers than in commercial vehicles and automotive industries." As to the goal of the acquisition, we also speculated "While the previous acquisitions were mostly related to geographical expansion, we expect this coming round will focus more on horizontal integration in specific industries that can consolidate its in-house strength, and vertical acquisitions of some downstream growth to gain more access to customers". Turns out that Scott Springfield as a "leading manufacturer of air handling units (AHU)", will "bring Modine a product line and customer base in high-growth markets that fully complement and expand our current reach, including to hyperscale data center operators". Although we expected one or more deals at a smaller size, just one deal at Scott Springfield's size can probably make up for them. We feel our predictions four months ago were right on....
Modine Manufacturing: The Path Towards Balanced Growth