Good day, ladies and gentlemen. And welcome to the Modine Manufacturing Company’s Third 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. Thank you for joining us today for Modine’s third 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 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 2 is an outline for today’s call. Tom and Mick will provide comments on our third quarter results and provide an update to our review revenue and earnings guidance for fiscal 2016. At the end of the call, there will be a question-and-answer session. On slide 3 is our notice regarding forward-looking statements. I want 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. On today's call I will discuss our third quarter results and provide an update on the various activities taking place with regard to our strengthen, diversify, and grow strategic transformation that we announced last quarter. After that Mick will provide a more detailed review of our financial results and then I will provide final remarks prior to opening up the call for questions. Sales in the third quarter were down 2% on a constant currency basis. The decrease was in the Americas, Building HVAC and Asia segments more than offsetting increases in the Europe segment. We continue to see significant weakness in the heavy duty construction and agriculture equipment markets and are also beginning to see some softening in the North America commercial vehicle market. In addition the warm winter weather had a negative impact on heating sales on our Building HVAC segment. Brazil remains in the deep recession and the economy in China continues to stagnate. Offsetting some of these headwinds have been strong auto sales in Europe and North America. German premium auto sales which remained one of the true bright spots of our markets helped drive the strong performance in Europe segment this quarter. Despite an overall decrease in sales this quarter I am pleased to report that our adjusted operating income of $17.2 million was up 21% from the prior year. On a constant currency basis adjusted operating income was up 30% from the prior year. This increase was driven by 140 basis point improvement in gross margin which benefited from favorable materials cost, improved plant performance, and savings from the closure of the McHenry, Illinois manufacturing facility. The restructuring initiatives we have taken over the past few years have clearly benefited our margins and provide an excellent foundation…

Thanks, Tom. Please turn to slide 12. Our third quarter sales decreased 10% and we continued to experience significant foreign currency headwinds and weakness in certain end markets. Early winter, warm weather along with declines in the North American commercial vehicle and off highway orders contribute to the sales decline. However the vast majority of our sales decline was due to changes in exchange rates. As Tom mentioned, sales decreased 2% on a constant currency basis, excluding an unfavorable currency exchange rate impact of 26 million. Fortunately we expect the year-over-year impact of foreign currency to be less significant starting in Q4. I am pleased to report that our gross margin improved by a 140 basis points to 17.8% despite the decline in sales. This improvement was driven by lower commodity prices and operational improvements. Similar to last quarter a portion of the lower material cost was attributed to the significant drop in aluminum transaction premium. In addition we delivered operational improvements at our plants. As expected and discussed last quarter we had better conversion in our Europe segment driven by production efficiencies. Excluding the 3.4 million negative foreign currency exchange impact, our gross profit was up 4% in the quarter on the lower sales. Moving on to SG&A, costs were lower than the prior year by 4%. The exchange rate impact was 2 million favorable in the quarter but this benefit was offset by 2 million from business interruption insurance recoveries last year. Cost control efforts continue at each of our global locations and they will continue further as we execute on our strengthen, diversify, and grow initiatives. Our reported SG&A number includes several items that were backed out to arrive at our adjusted operating income. These include 900,000 non-pension settlement loss related to our lump sum payout program…

Thanks, Mick. There is no doubt that the markets we serve are facing some challenges, some of them are quite significant. However, despite the decrease in the sales during fiscal 2016, I am very pleased by the performance of our company. We are in a strong competitive position because of our product portfolio and cost structure. We have significant core activity in our vehicular business and are winning our fair share of new programs. Just this past quarter we won several new auto programs in North America and in Europe, some of which will have production both in region and in China. We also won business with agricultural equipment customer and especially vehicle customer in North America and with two commercial vehicle customers in Europe. In Asia, in addition to the incremental aluminum oil cooler awards, we won multiple new Genset awards and an agricultural equipment award that will include production from our new joint venture. In Brazil we have been awarded multiple agricultural and construction consumer -– customer awards. There are a lot of 2016 market uncertainties, but we are encouraged by our win rate and our strengthen, diversify, and grow initiatives. We're in the middle of our planning process and will provide fiscal 2017 guidance in our fourth quarter, but we fully anticipate an increase in our earnings next year. With that we’d like to take your questions.

[Operator Instructions]. Our first question comes from the line of David Leiker of Baird. Your line is now open.

Hi, good morning, it’s Joe Vruwink for David.

Hey Joe.

Hey Joe.

Handful of questions on gross margins, maybe to begin, do you have finer details on the year-over-year improvement split between maybe pure materials versus any early procurement savings versus some of these operational gains you sighted?

Yes, Joe it is Mick. The high level -– there's clearly an impact of materials and we have to -– you got to kind of think of that between the transaction premium and then just a pure LME, because last year, if you recall we absorbed really the doubling of the transaction premium and this year we've benefited as that comes down and that’ll stay as part of our operating performance going forward. The LME has been more traditional pass through portion, so about $3.5 million was the benefit, the benefit from the LME portion of that. We had over $4 million of plant performance and an year-over-year plant improvements and performance in the quarter. Also in that gross margin which is a negative is about 1.3 million of our procurement expenses and so far that has been a net cost to the company. We do expect Q4 will start to turn that corner and start moving towards not only neutral but beginning in the Q4 and into certainly next fiscal year, a net positive from the procurement project. So hopefully that answers your question.

Yes, that’s great detail. I think when you go region by region you’re seeing a margin improvement, gross margin improvement in a lot of the areas, the markets, and a lot of investors are worried about the more so America is facing, the Brazil headwind margins are up, Asia margins are up, Europe is arguably one of the stronger regions from an end market standpoint and margins are way up. When you look into next year as you said, the end market have one is down subsided but you are already at the point where things are pretty dicey in a lot of those markets and there is margin improvement. So it is probably not too much of a stretch correct me if I am wrong to think that a lot of these gains you are realizing already continue at the gross profit line and to next year?

Yes, I think what is really encouraging to us is we been talking for a while about getting the company to 16% to 18% gross margin and this quarter getting awfully close to an 18% gross margin. And that’s due to the hard work everybody has been doing at the company to reduce our operating cost, manufacturing cost, SG&A. There is a portion of this year year-to-date of our gross margin that’s going to be materials pass through. But as we look at the numbers, the first two quarters were basically neutral from materials and then as I said Q3 portion of materials was about 3.5 million, that means to us eventually we’ll pass that through to the customer. But everything else from my side is sustainable. Tom would you...

No, I think it’s pretty good and I think we are getting much more confidence in continuing this momentum with our strengthen, diversify, and grow initiatives. We are going to keep that momentum on margins increasing despite potential headwinds.

And then just one last question from an odd -- the fiscal 2018 targets and getting EBIT margins to 7% to 8%, that’s quite a bit of improvement in essentially two years time so any detail maybe on timing, is it equal between fiscal 2017 and 2018 and then source whether we should expect maybe equal between COGS and SG&A or concentrated one way or another, just any detail on kind of the ramp and margin improvement?

Joe, it is Mick again. When we announced this, we discussed the program internally. We had always targeted that we had a fiscal 2018 goal and a ramp to get there. We think we can get about a quarter of the savings in fiscal 2017 for the next fiscal year. But our goal is to have in fiscal 2018 the 40 million to 50 million of savings. So about a quarter, we think we can get next fiscal year and Tom walked you through. We’ve got a really good run rate, or about a quarter of the way of our targeted procurement savings. About 7 million run rate of personnel related cost reductions and already we see significant improvement just from our plant closure and our ramp up in the Nuevo Laredo moving from Illinois to Nuevo Laredo, Mexico. It is going -- so the 40 million to 50 million is about 50% of it we’re thinking of is roughly procurement. So clearly that’s in a cost of goods line. The other part is fairly equally split between so say a quarter of it from our plant consolidation operational improvement that will show up obviously in the gross profit line and then another quarterish of the 40 million to 50 million is SG&A and personnel cost and that will be split between SG&A and overhead. So I -– a good piece up in cost of goods sold, Joe, and also at least a quarter or so in SG&A.

And it seems like you have a lot of visibility on a large dollar piece of a lot of these items. I'm just thinking, if you already had a $7 million personnel run rate and SG&A as a quarter of total $7 million of $11 million, you are most of the way there. Obviously, procurement’s not a given, but it seems like you have visibility there and then the operational gains from plant consolidation, I think Europe in this quarter shows you're getting those. So it would seem like while nothing’s easy there is a visibility on each or three of these things.

Yes. That’s well -– good summary, Joe. And that’s why I said I'm very confident in our ability to hit these targets going forward.

And Joe, one other thing to add to that, the biggest challenge for us is the ramp rate on any of the savings. So we launched an early retirement program here and that was very well received and that gives us a very good run rate. What we're working through now is when all of those individuals, what each of those retirement dates are over the next, it can be anything from a month out to six months out, some of those positions will have to be back filled as well. So those are the things we need when we talk about the run rate between now and fiscal 2018. And then on procurements it is the same thing. Even though we’ll complete a negotiation with a supplier, there's the whole process of ramping down, if it’s a transition to one supplier or away from one, there's a whole process obviously of working off existing inventory and beginning to ramp up and then you have to get a full year’s worth of volume to reach that annualized savings.

Great, that’s very helpful. Thanks, guys.

And our next question comes from the line of Brian Sponheimer of Gabelli & Company. Your line is now open.

Hi, good morning guys.

Hey Brian.

Just one question, you mentioned with Europe, German auto being a bright spot and we've clearly seen some real excess inventory building in the U.S. and elsewhere on the German sedan side. Any concern as you kind of look into the fiscal 2017 that you're going to have to potentially dial back your expectations for what you're seeing from Europe auto just based on the German luxury makers?

But we did not see any indications there, Brian. Right now we're running 24x7 at two of our facilities that really support those German premiums almost 100%. And so we've been able to get on top of that, and that’s been a big reason for the improvement in Europe’s performance because of getting through the operating inefficiencies of that. But right now we do not see anything that’s giving us signal to pull back at all, clearly from the release there's clearly we don’t have signaling at all.

Do you have any -– remind me, do you have any more exposure to diesel versus gas when it comes to the German luxury manufacturers?

Well we have -– we supply both, okay, as there is a significant diesel proportion in Europe that we support. But yes, it’s the -– I think it’s pretty evenly distributed between, proportionally between the German OE split between diesel and petrol.

Okay, alright. One thing is very clear that you have some very defined run way for cost improvement over the course of the next couple of years and it’s budgeted very well. But if you take a step back and kind of take a look at where your shares are trading and where you kind of expect them to trade and you’ve got a Building HVAC business that you're currently -– early shareholders currently are being effectively paid for in the market would it ever occur to the Board or to you Tom, to consider separating the two businesses to potentially surface that value for that HVAC business?

First, let me say that the stock is not trading anywhere near where we expect it to trade, to your opening comment. Building HVAC and coils business we are kind of terminating industrial business as a key part of our diversification play. And yes it is a different business versus the B2B aspect to the vehicular side but it is a more controllable channel that we really like and enjoy and enjoy the higher margins, less capital intensity, more flexibility we have in bringing new products through those channels. So we feel we really have the right to expand that side of the business and grow that diversification benefit across the whole company. There are a lot of things that relate between the thermal aspects of components going to vehicular and systems that we create on the Building HVAC side. And natural synergy we feel makes it very natural for us just to build off that strategy and build a better diversified company getting higher mix and thus a better return to our shareholders that’s more identified and clear to our shareholders.

Alright, thank you very much.

And our next question comes from the line of Mike Shlisky of Seaport Global. Your line is now open.

Good morning guys. I’ll start with a two part question. I guess first part of it will be on the U.S. class eight markets. Could your fiscal fourth quarter or calendar first quarter be worse than the 20% that you are talking about for the full 2016 given some of the OEMs need to balance their dual [ph] inventories with their production? And then the other part of the question will be on the Building HVAC side, perhaps some of the heating business may have been lost back in your fiscal third quarter, but was there any catch up thus far in your fiscal fourth quarter, it got a little bit colder at least in some parts of the country.

Okay, so I want you to repeat the second part of that question because I was still thinking about the first part when you jumped to second?

Okay sure. I just was wondering on the HVAC side whether, sure you did lose some business perhaps in the fourth quarter because it was a bit warmer than normal but things have normalized a bit in the first quarter or first calendar quarter here. So could you see a catch up on the HVAC side in your fiscal fourth quarter?

Okay I’ll let Mick take the second part of that. On the commercial truck in North America, yes, I know there is some reports out that there is inventory issues out there potentially that may slow production rates. Potentially I haven't seen anything. We have not seen anything to say that we are suggesting anything below what we’ve identified but I know there is some reports that that’s possible, that it could normalize through the second half of the year. Right now our mix to who we supply, we feel comfortable with what we have guided on this 20% number, we see that in our releases thus far. Mick you want to talk about the second portion.

Yes, clearly from the early part -– say the fall preheating season and when we were with you last in October too and now there is a significant drop in the outlook for not just our sales but the overall really heating market now it’s due to the early warm winter first part. We’ve lowered part of -- a big portion of our lowered top line and earnings guidance was due to trying to reflect that both Q3 and Q4, Mike is who we try to take down both numbers. Frankly, one of the things we are watching and we’re concerned about we’ll need to make sure is that how full that channel is. In the heating season everybody works overtime, preheating sales and you fill the channel from our warehouse to our distributors warehouse and the challenge we’ll have right now even though the weather has started to cooperate, it is how full the entire channel is from the distributor back to Modine. So we are not planning on any kind of recovery. We hope we have a conservative forecast but we have to watch this channel, how much pull through we will see.

Okay great. I also wanted to turn to Europe for a moment. I might have misread this but it sounded like you got some quarters to go here before your Hungary expansion is up and running, maybe even two years if I heard it right. Are you concerned at all that the market could turn by the time this is all up and running and that the auto market and truck markets don’t last for more than a couple of years here. Or do you feel pretty confident that you are long enough for those market…

Well the expansion is driven by business wins directly Mike so I mean we are expanding based on business wins that we are getting right now. So really I could kind of say that it’s a share increase in our part that we need to expand our capacity to meet the demand that is coming now. Where the market goes at that time as far as off peak or below is a question but this is not speculative building, it's tied to program wins. So that’s the two year timeframe we had to prepare for the launch of new programs.

Okay, and I also wanted to ask about the share repurchase, so you bought back at $9 but you clearly were thinking $9 might have been a little bit on the value side and now it looks like we are about $5.50 or less at this point. Have you considered buying back more shares in pretty short order here or perhaps entering into some kind of accelerated share repurchase program?

Yes, it is Mick, Mike. Well clearly while we balance any of the obviously organic growth but also acquisition opportunities, well balancing those will clearly be more aggressive on the share buyback side.

Okay, and I have got one last one for you on M&A, can you give us a sense as to how that is looking right now, are you able to with your good cash generation find some good deals out there on some of the smaller companies out there given where the overall market is today?

Well, we have been for a couple of years now really been aggressively evaluating opportunities in this space and being very disciplined about it. And there are opportunities. Obviously we are very pleased to announce that Puxin although smallish it really fits the portfolio need that we have in the Asia segment. So, yes we see opportunities and we are aggressively pursuing those and we will report when we can as appropriate what we see. But yes, we think there are clear opportunities.

Okay, fair enough. I will leave it there guys. Thank you.

Thank you.

I am showing no further questions at this time. I would now like to turn the call back over to Ms. Kathy Powers.