Oct 30, 2014
Executives
Kathy Powers – VP, Treasurer and IR Tom Burke – President and CEO Mick Lucareli – VP-Finance and CFO
Analysts
David Leiker – Robert W. Baird & Co Robert Kosowsky – Sidoti Walt Liptak – Global Hunters Securities
Operator
Good morning ladies and gentlemen and welcome to the Modine Manufacturing Company’s Second Quarter Fiscal 2015 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.
Kathy Powers
Thank you. And thank you for joining us today for Modine’s second 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.
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 second quarter results and review our revenue and earnings guidance for fiscal 2015.
At the end of the call, there will be a question-and-answer session. 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’s my pleasure to turn the call over to Tom Burke.
Tom Burke
Thank you, Kathy, and good morning everyone. This morning we reported our earnings for the second quarter which included adjusted earnings per share of $0.05, adjusted operating income of $8.9 million and sales of $377 million.
Our sales were up 4% from the prior year driven by growth in our building HVAC Europe and Asia segments. Looking at the top-line by segment, our building HVAC segment is performing well led by strong North America heating sales and the addition of the Barkell business in the UK.
In Europe, our higher market share in the commercial vehicle space is driving our sales increases above market levels. In Asia, increased launch activity and sales growth in India are driving year-over-year revenue increases more than offsetting the impact of a weak excavator market in China and slowing sales to our highway customers in Korea.
We are benefiting from a strong – stronger commercial vehicle market in North America, but that has been offset by weakness in the North America off-highway market. Finally, our South America segment continues to be impacted by weak economic conditions in Brazil.
Although our sales were up in the prior year, earnings were down due to several factors, primarily mix and operational inefficiencies. Strength in two of our major markets, namely, North America commercial vehicle and Europe Premium Auto resulted in higher than planned volumes in certain plants that serve these particular markets.
In order to keep up with customer demand, we had to add temporary labor expand the seven-day operating plants and increased inbound and outbound expedited freight all of which increased our cost. I’ll cover these inefficiencies and other factors impacting our bottom-line during my segment review.
As usual, I’ll also provide an update to our market outlook for the remainder of fiscal 2015. And after that, Mick will go through our consolidated results and full year guidance.
Turning to Page 6, sales decreased 2% in the North America segment, with lower sales to our highway customers and lower tooling sales more than offsetting an increase in sales to commercial vehicle customers. Our highway sales were down about 20% year-over-year, while sales to commercial vehicle customers were up by about the same percentage.
Tooling sales were down about $4 million accounting for the total year-over-year decrease. Excluding this drop in tooling, sales would have been up about 1%.
Gross margins declined 260 basis points to 14.5% due to a number of factors including unfavorable sales mix, operational inefficiencies, and higher warranty expenses. The unfavorable sales mix resulted from the increase in sales to commercial vehicle customers and a decrease in sales primarily to off-highway customers.
Inefficiencies included cost related to the transfer of production from our McHenry, Illinois facility to other North America plants and temporary inefficiencies from increased over time, scrap and expedited freight costs resulting from the higher commercial vehicle volumes further complicated with high seasonal service part demand. We are working through these issues related to the increased volumes and they will normalize through the balance of the year.
We also had a temporary quality issue with a little bit of extrusions player during the quarter that resulted in additional expense. We are working with the supplier to recover these expenses.
SG&A expense was down from the prior year primarily due to lower engineering and development costs. Operating income for North America was down $3.8 million from the prior year to $7.9 million due primarily to the decline in gross profit.
Our outlook for North American commercial vehicle market continues to be positive and we expect this to be a source of sales growth through the remainder of the year. Our outlook for the off-highway market is down 5% to 10% which is slightly lower than the previous quarter.
So far this year, our sales decline for this market has exceeded the bottom end of this range due to our particular mix of business. We have seen modest increases in construction programs, but this has been more than offset by decreases in agriculture and mining.
We currently expect these markets to remain weak throughout the balance of 2015 and for our sales will be at or below the low end of the range. Please turn to Page 7.
Sales for our Europe segment increased 5% for the second quarter, driven by higher sales to commercial vehicle and automotive customers. Sales to commercial vehicle customers were up 19% driven by higher launch volumes of components for Euro 6 vehicles.
Sales to automotive customers in Europe were up 7% with higher sales of automotive components more than offsetting the decrease in BMW modules as those programs continue to wind down as planned. These increases were partially offset by lower tooling sales which were down about $5 million from the prior year.
Gross margin increased by 80 basis points primarily due to a $2.1 million of accelerated depreciation in the prior year. The increased profit from higher sales line was somewhat offset by a unfavorable sales mix as well as operational inefficiencies related to our ongoing project to consolidate manufacturing operations in Germany and other volume-related inefficiencies.
As I explained last quarter, we are experiencing an unfavorable impact on our margins in Europe as we increased volumes for our Euro 6 commercial vehicle programs. These programs continue to operate at margins lower than our original expectations, although they are improving and we expect them to continue to improve.
In addition this quarter, we had higher operating cost as high automotive demand is forcing us into seven day operation plants at two of our European facilities. This is resulting in higher labor cost, increased scrap and greater reliance in expedited freight.
We have taken actions to address these issues and expect to see improvements later this year. The German plant consolidation project remains on track with major equipment transfer activity occurring during the second and third quarters of this year.
Operating income in Europe was up $1.3 million to $4.6 million primarily due to higher gross profit. Our outlook for Europe is very similar to last year although the commercial vehicle market is expected to be down 5%, we expect to have year-over-year sales growth to this market as we continue to increase volumes of our Euro 6 commercial vehicle programs launched last year.
We also continue to benefit from solid premium automotive market in Europe. We expect to see continued growth from our new automotive component programs.
Moving to South America on Page 8, sales were down 14%, primarily due to lower sales to commercial vehicle, agricultural and automotive customers as the weak economic conditions in Brazil continue to impact this segment. Our gross profit and operating income were both down $2.2 million versus last year due to the decrease in sales.
As I mentioned last quarter, we took quick action and we saw the Brazilian markets start to soften. Implementing headcount reductions and other cost saving initiatives as quickly as possible.
So far this year, we have reduced our headcount by approximately 130 individuals, primarily to right size production workforce in response to lower sales volumes. We are evaluating through the structural cost savings opportunities as the outlook for the Brazil markets continues to look soft.
We have revised our outlook downward for the South American markets for the remainder of fiscal 2015 to reflect expected further declines in the commercial vehicle market. We are hopeful that the agricultural market may start to recover by the end of our fiscal year and anticipate new program launches to begin in the fourth quarter of this fiscal year.
Please turn to Page 9. I am very pleased to report that our Asia segment reported a 17% increase in sales this quarter.
Higher sales to automotive, commercial vehicle and off-highway customers at India are partially offset by lower sales from our Korea joint venture as a result of softening off-highway market. India has been a key source of growth for us this year.
In fact, this quarter our sales in India were more than double our sales in the second quarter of last year. In China, sales to the construction equipment customers were down 29%, but this was fully offset by increased sales to automotive customers as oil cooler launch volumes increased significantly year-over-year.
Gross margin improved 40 basis points from the prior year on the higher sales volumes this quarter. We continue to see year-over-year margin improvements in the Asia region as volumes increase.
We had an operating loss for the quarter of $700,000, but this is a $400,000 improvement versus the prior year. We have moved our outlook for the Asia excavator market as we expect additions in China and Korea to remain weak.
We expect India to continue to grow and I am pleased that we are finally seeing volume increases to the automotive customers in China, as our important oil cooler program start to launch. This will be an important source of sales growth and diversification for this region in the future.
Also on the subject of Asia diversification, our new business wins in this segment continue to be encouraging. I draw your attention to a press release we made earlier this week.
While we are not in a position to provide many details, this quarter we are very pleased to announce that we won a significant commercial vehicle award with JEC, a premier China commercial vehicle manufacturer. Turning to Page 10, sales in our building HVAC segment increased $10.7 million or 31% in the quarter.
Of this amount, $4.2 million related to the North America business driven by a 16% increase in heating products sales. Our Airedale business in the UK accounted for the balance of the sales increase including $3.8 million in sales contributed by a recently acquired Barkell business.
The year-over-year comparison also benefited from the lost sales in the second quarter of last year resulting from the fires in the UK in 2013. Gross margin for this segment increased 110 basis points to 29.2% due to higher sales volumes and favorable sales mix resulting from the higher contribution from the North America heating sales.
SG&A was up $1.4 million including $1 million of expenses from Barkell. Operating income increased $2 million to $3.2 million for the second quarter as compared to the prior year on the increased sales volume.
Our outlook for the building HVAC markets has improved slightly from the prior quarter as early season restacking orders for the North American hearing market indicate that we should have another strong heating season. So, with that, I’d like to turn it over to Mick for an overview of our consolidated financial results and guidance.
Mick Lucareli
Thanks, Tom and good morning everyone. Please turn to Slide 12.
As Tom mentioned, our second quarter yielded a 4% increase in sales, our building HVAC, Europe and Asia segments all contributed to the increase offsetting continuing weakness in South America. In the quarter, the gross margin declined slightly to 15%.
The change in gross margin is due to several factors that came together in the quarter. These include an unfavorable sales mix, plant consolidation activities and temporary production inefficiencies at a few of our plants.
During the quarter, we had to manage sizable volume increases in certain areas of our business and decreases in other areas. These changes had a negative mix impact on our margin.
In addition, most of the volume increases were flowing through a few select manufacturing facilities in North American and Europe. All of this was happening while we are executing on plant consolidations in those two segments.
I’d like to provide some additional color on each of these items beginning with mix. We talked about the year mix impact last quarter, margins on our Euro 6 commercial vehicle components are lower than we originally expected due to changes in manufacturing processes.
Therefore its volumes increased we are seeing a negative mix shift from Euro 5 to Euro 6. Also there is a slight negative mix shift in our automotive sales.
In North America, we experienced a similar unfavorable mix. This is resulting from our volume increases to commercial vehicle customers and decreases to off-highway customers.
As you know, we are in the middle of our plant consolidation in North America and Europe, as expected, the plant closures added cost and inefficiencies such as overtime and scrap that impacted our results. We estimate that our Q2 results include approximately $1 million of plant consolidation, inefficiencies, and project costs.
However, we have not adjusted our results for these costs. Last but not least, we also had $2.5 million of unexpected cost in North America and Europe.
We incurred approximately $1 million of additional cost due to warranty adjustments and a supplier issue in North America, plus we had some unexpected operational cost related to volume increases in certain plants. We estimate that these costs were approximately $1.5 million during the quarter and that they will decrease significantly through the balance of the year.
Moving on to SG&A, our costs increased $1.8 million or 4% over the prior year. The majority of that increase of $1 million was the result of our Barkell acquisition that was completed late last fiscal year.
Also note, we recorded $1 million or restructuring expenses during the quarter. $800,000 is for equipment transfer and plant consolidation charges in the Europe.
The remaining $200,000 relates to the closure of our McHenry plant in North America. Despite the earnings decline, we had a $1 million increase in our income tax expense line this quarter.
This was expected since we are now recording tax expense and income generated in the US for fiscal 2015. Based on all these factors, adjusted operating income of $8.9 million and earnings per share of $0.05 are down versus the prior year.
We fully expect earnings improvement in the coming quarters as we work our way through these challenges and I’ll discuss that more in just a moment. Turning to Slide 13.
As anticipated, our free cash flow was positive in the quarter but below prior year. The year-over-year change is due to several factors including a decline in our cash earnings, a portion is also due to lower tooling collections and changes and other assets and liabilities.
And the balance is due to higher capital spending in the quarter driven by the expansion of our Nuevo Laredo plant. We continue to have a strong balance sheet position.
We ended the quarter with a net debt-to-capital ratio of 17%. Our cash balance was $71 million includes about $15 million related to insurance proceeds from the Airedale fire.
Now let’s turn to our full year outlook and guidance on Slide 14. Our full year outlook is as follows; revenues up 3% to 6% from the prior year.
Adjusted operating income in the range of $65 million to $73 million. Adjusted earnings per share of $0.63 to $0.73.
We are lowering the top-end of our revenue growth to 6%. Previously, we had expected revenue growth in the range of 3% to 8%.
The change is driven by two primary factors, first, we’ve seen a negative impact from foreign exchange rates and have reflected this in our guidance. Second, we have lowered the market forecast for Asia construction.
North America off-highway and overall Brazil. Along with the volume change we anticipate spending less on SG&A than previously expected.
Our SG&A forecast is now $185 million to $195 million and our adjusted EPS and operating income guidance is unchanged. After the first six months, we are at $0.35 of adjusted earnings per share.
Thanks impart to a strong first quarter. From a quarterly run rate perspective, our third quarter typically has lower revenues due to shut downs and fewer overall working days in most segments.
We expect that many of the items that impacted Q2 earnings will improve or be eliminated in the second half. So we expect to see earnings improvement sequentially from Q2 to Q3.
In addition, we anticipate a solid Q3 earnings improvement in building HVAC consistent with last year. Then we expect to see further sequential earnings improvement in Q4 as this is typically a strong quarter for revenue with our benefit of production days were turning to normal.
Also during Q4, we will see some additional program launches in the wind down of our plant consolidations. Just to summarize and wrap up, we clearly had some anticipated and unanticipated costs in the quarter.
However with year-to-date earnings of $0.35, we remain comfortable with the full year guidance. With that, Tom, I’ll turn it back to you.
Tom Burke
Thanks, Mick and although what’s a choppy quarter end, we are confident in our outlook going forward. I would like to highlight a couple of things I am particularly excited about.
First, as Mick said, our restructuring programs are almost done. We are close to completing the consolidation and manufacturing operations in Germany and the closure of McHenry Illinois manufacturing facility.
These are complicated projects and they will take us a long way towards reducing our cost structure and improving the global competitiveness of these segments. Second, our diversification strategy is working.
In North America, we are winning business with new customers and in new markets which will provide future revenue growth. Last quarter, I told you about the wins with power sports customers.
We are also getting exciting opportunities on vehicle markets and look forward to increasing our presence in this space. In Asia, we are launching automotive programs that will reduce our concentration on excavators and we are making progress on our commercial vehicle strategy in China.
All of these efforts in more gives me great confidence in our future as a company. And with that, we’ll take your questions.
Operator
(Operator Instructions) Our first question is from the line of David Leiker of Baird. Your line is open.
David Leiker – Robert W. Baird & Co
Good morning.
Tom Burke
Good morning David.
Mick Lucareli
Good morning.
David Leiker – Robert W. Baird & Co
Can you just walk through – you did a great job of detailing a lot of things. So, some of this is maybe catch-up, because you went fast.
Could you just kind of walk us through where you are on the plant consolidation and the restructuring actions and the timing of – it sounds like you expect most of those be wrapped up by the end of March.
Tom Burke
Really they will be wrapped by the end of March.
David Leiker – Robert W. Baird & Co
So, you have how many locations?
Tom Burke
We are consolidating our two main German facilities.
David Leiker – Robert W. Baird & Co
Right.
Tom Burke
One in the Pliezhausena and combine its Kirchentellinfurt plant is going to consolidate into that plant in Germany. McHenry Illinois plant that we are closing and distributing that business into several plants in North America.
As far as the Germany consolidation project, I’d say, we’ve got about 80% of the actual physical equipment relocated which has been a huge challenge of building inventory of – building equipment, consolidating the workforce, integrating them together. We have our one last piece of machinery which is radiator tube mill which is the big issue that we have to move and that’s going to be focused around the Christmas shut down period.
So, we are on track. It’s – but it’s – the last step is the big one and but we feel very confident about that.
But – then we have to get that restarted coming into the Q1 or fourth quarter of next year and by the end of that quarter, we will clearly have that consolidation in kind of a really good spot.
David Leiker – Robert W. Baird & Co
Okay, and then McHenry?
Tom Burke
Yes, McHenry, again, we are in the inventory buildup plan. We’ve had the initial let’s say 25% of the equipment moved into the right places.
That there are going to actually three facilities in Missouri, Tennessee and Nuevo Laredo will be expanded. The plant, as Mick described, in Nuevo Laredo with another 80,000 square feet of operating space down there to bring some of the key products to give us the scale facility in the PF tube building segment of our portfolio.
So, but we got about 80%, 75% of the machinery to move to go and that’s going to be kind of a process again it’s going to take us through the first quarter of next calendar year, fourth quarter of our fiscal year. But we are off to a good start, but it is two big projects, but I feel really good about the status.
David Leiker – Robert W. Baird & Co
Okay, and then on China, the oil cooler ramp, as you are doing that, where are you in the ramp phase there? How much more revenue is there to flow through?
Tom Burke
Oh, there is a significant amount of revenue will be coming over the next couple fiscal years. Now the launches for those programs have all been kind of delayed over the last, let’s say 12 months.
So there has been this kind of project deferral from our OE customers mainly on our engine programs to push those back a bit to launch. They are now starting, will come in earnest.
I think in the next fiscal year, we will see a significant growth and that’s say over the next three years, we are going to up to pushing five about 4.6 million oil coolers that I think by fiscal 19 or 18 Mick?
Mick Lucareli
Yes, right to 19.
Tom Burke
Fiscal 18. So you are going to see, let’s kind of call it 1 million a year, 1 million a quarter a year starting to ramp up, starting in the end of this fiscal year going into next.
David Leiker – Robert W. Baird & Co
Okay, and then the second item here, I know your hands are tied a bit and what you are going to say about the JEC contract, but can you give us some color about the process of winning that contract and what the opportunities are to expand that either with JEC or with other manufacturers in China?
Tom Burke
Well, if you think back, I’ll kind of take you back on it to something we talked a couple of years ago about the conversion of the China market to Euro 4 emission standards.
David Leiker – Robert W. Baird & Co
Right.
Tom Burke
That was coming and that’s closer and as a part of that strategy was that they will have to convert while the copper brass to aluminum products because of the demand of emissions driven by things like EGRs adding – energy or heat into the system that needs to be cool. So as that happens, so the conversion to aluminum was we knew what happened and that’s exactly what happened with this sourcing opportunity.
So, I can’t give color on the specific models. But we are very pleased this puts us right where we want to be in the commercial truck space.
Somewhere at where we are have its ground positions in North America and Europe with aluminum product and very pleased with how this developed and with the relationship that’s going forward.
David Leiker – Robert W. Baird & Co
But what happened with other truck makers over there?
Mick Lucareli
Yes, David, it’s Mick. I was just going to add to what Tom said, two things.
From – one thing that’s really nice to see a lot of hard work by the team over there, but both on the automotive side and truck side. Our cost position is continuing to improve and we are competing with local companies there and very favorably from a cost structure and margins, we are very content with and I think that is leading to, is going to lead to additional opportunities.
We are proving out to ourselves our ability to really compete there locally in that market. Not just with the large multinationals, but in that region in itself.
Tom Burke
Yes, it’s good point, Mick, you know that Scott Bowser and his team in Asia worked a lot on really understanding their cost bases and what they had to do compete and we are getting confidence in that. So in our portfolio of commercial trucks, we have one multinational in our customer base now, one domestic Chinese OEM and talking and involved with others along the way.
So, I feel very good about our position going forward.
David Leiker – Robert W. Baird & Co
Okay, great. Thank you much.
Tom Burke
Thank you.
Operator
(Operator Instructions) Our next question comes from the line of Robert Kosowsky of Sidoti. Your line is open.
Robert Kosowsky – Sidoti
Good morning guys and Kathy, how are you doing?
Tom Burke
Good morning.
Mick Lucareli
Hey, good morning.
Kathy Powers
Good morning.
Robert Kosowsky – Sidoti
Yes, just I wanted to dive in a little bit on North America truck. I was wondering when you saw the maximum amount of inefficiencies during this past quarter?
Tom Burke
Yes, well, it’s – as I noted, obviously, the market is up and we are very pleased with our share of the markets specifically who are tied to in the marketplace really gaining share. So that’s been a real good plus.
And we plan for that. One of the things that maybe what is surprising is we had a very high seasonal spike in service products and we have been in this business for decades.
We have a long tale of service requirements and the summer season is typically when that pops up as little bit higher than normal and it really complicated things that maybe that’s what caught us by surprise little bit. So, service products, just familiarize with that even though things like you can make you build those on weekends or something that the demand for making sure trucks are up in the commercial trucks spaces very, very high point for our OE customers.
So, that demand is really focused on highly and we got to make sure we deliver those parts on time. So that whole phenomenon of service support along with the high OE customer demand for production trucks really spike through this quarter.
So, we are handling that. We’ve got things that balanced out in our breathing capacity now and let’s say more of a better flow.
We are getting back into a 5, 5.5 shift assembly and pack operations. So we are going to see that that cost trend in a positive direction.
But it spiked on us this summer.
Robert Kosowsky – Sidoti
Okay, but is it fair to say those inefficiencies have kind of keeps and they are coming down and that you have a lot of confidence in being able to, so do you still see rising build rates per day going off the next two quarters and I just worry about not being able to catch up for this cycle?
Tom Burke
No, I should answer that more clearly. We are definitely on top of it.
The costs are going to go in the right direction.
Robert Kosowsky – Sidoti
Okay.
Tom Burke
They are going in the right direction, maybe more clear, okay.
Robert Kosowsky – Sidoti
Okay, so that means, shedding on the next few quarters you should see better income on the margins flow thereof?
Tom Burke
Yes, that will normalize over this quarter and definitely through the end of the year.
Robert Kosowsky – Sidoti
Okay, and then what was the thought process on taking in SG&A a little bit and what did you – what did you curb and just kind of more clarity on that?
Mick Lucareli
When we start every year we go through the budget and we’ve got as a rollup we’ve got targets we want to do and then there is a range around it like everything else, that’s why we give all of you a range internally and when we saw the top end of our revenue range coming down a little bit, it was really across the board. So there was no massive one area, there were no massive lay-offs or anything like that.
This was across the board asking everyone to really look at pulling in more of the discretionary items.
Robert Kosowsky – Sidoti
Okay, so just curbing the spending a little bit.
Mick Lucareli
Yes.
Robert Kosowsky – Sidoti
All right, then finally…
Mick Lucareli
And I think about 3%.
Tom Burke
And I just echo Mick’s point and I want to give the team a lot of credit. This is something we keep track of where we are on and as we saw this change, we put our head together we want to make sure we have alignment on what’s the priority and what we can tie it on.
So the team did a great job of that.
Robert Kosowsky – Sidoti
Okay, that’s helpful. And then finally, do you see any other major regulatory changes on the horizon that might increase content for you either on – it doesn’t matter what type of vehicle – but on the horizon from regulatory standpoint that you are excited about coming into flow?
Tom Burke
Definitely, I think, China, I just mentioned, okay, with Euro 4 conversion going into the developing countries there is going to be a big opportunity for us and one that we are prepared for with – and have been prepared for a couple of years now as part of our strategy going into Asia. Additionally, let’s say, other markets in North America and Europe, this whole drive for CO2 emissions and essentially as fuel efficiency is driving all sorts of content opportunities for additional heat exchangers where it might be turbocharged engine for this eco boost type system that they are smaller displacement engines, but with a boosted air intake through turbo charging requires a liquid charger cooler is one option which we have a great product for that.
And we are winning business in both Europe and potentially in US with additional heat exchangers going into power train devices, we call them TMUs that can heat the transmission or differential oil actually heat that up faster at get cold startups, so that become more – less viscous and be rolling with distances and improves, so fuel efficiency goes up. Waste heat recovery is another big item that we are focused on a research project on commercial trucks.
And as I mentioned on electric vehicle, we are very pleased with the business wins we are getting in that space and we’ve talked about the test as in the past and being able to supply that. And the new model exits coming out, we are pleased to be on that vehicle as well with additional content and with product platforms that we are looking to expand into that space even further with others.
Robert Kosowsky – Sidoti
Okay. That sounds good.
Do you have any sense as to market out growth rate you could do, I guess, ex the BMW impact?
Mick Lucareli
Yes, a tough, complicated question. I think we said for a while, we think if you factor it all in, the core business we have and then the new opportunities going, I think organically that, Tom and I talk about probably in the 5% plus or minus long-term top-line growth rate with that.
We got the new market opportunity Tom mentioned in more mature markets and then obviously I will set the balance the continuous pressure we are under from competitions and customers on pricing. So, that’s we’ve been pretty consistently thinking that mid single-digit 5% type of long-term revenue growth rates and then anything we can do over the top looking into new markets, adjacencies or acquisitions to boost that.
Robert Kosowsky – Sidoti
All right, that’s helpful and then, one final question. What is the BMW impact going to be in 2016 would you say?
Tom Burke
Oh, great question. I’ve got it here.
2016?
Robert Kosowsky – Sidoti
Yes, fiscal 2016.
Tom Burke
Yes, about €13 million.
Robert Kosowsky – Sidoti
All right, cool. Thank you very much and good luck.
Tom Burke
Thank you.
Mick Lucareli
Thank you.
Operator
Our next question comes from the line of Walter Liptak of Global Hunter. Your line is open.
Walter Liptak – Global Hunter Securities
Hi, thanks. My question is on Europe.
I wonder if we can get some of the sequential trends that you saw throughout the quarter and obviously, Europe – it looks like it’s slowing down here. And I just – when I address the risk that your market outlook might be too aggressive?
Tom Burke
Well, I think, commercial truck, I think we are actually saying it’s going to go down a bit, the balance of this fiscal year but because of our content and the volumes that are rising, our sales are actually going to go up. That’s the point why we look at that as far as a revenue line.
And on the premium auto side, what I tell you, the models that we are on and we are very fortunate to be on some key programs, automotive we are going to say it’s flat to up 5% and that’s really driven a lot because it’s premium auto segment that we are highly participating in. So, we’ve got programs that are well overstated planned volumes from our customers and that’s put us into the seven day operation at a couple of our plants both on condensers and oil coolers.
Now we are managing those issues through balancing out with other plants and capacity and working with customers on things like that. But, clearly getting – get a hold of the operating constraints through improvements with some investment.
But, right now, I’d say that the focus we have is commercial vehicle down 5%, automotive up flat to up 5% because of our sub-segment that we are in inside of auto is pretty good projections for the balance of the year.
Walter Liptak – Global Hunter Securities
Okay, and the off-highway?
Tom Burke
Yes, off-highway we are showing plus 5%, plus 10% for the balance of the year, but that’s gone up a very little comp base of last year and again it’s a smaller part of our portfolio in Europe. So, it’s not that influential quite frankly to the overall top line.
But I think that the comps from prior year kind of what’s driving that.
Walter Liptak – Global Hunter Securities
Okay. What was the actual amount of the foreign currency this quarter and what you have forecasted for the rest of the year?
Mick Lucareli
Yes, so, on a year-over-year basis, Walter, FX impact was immaterial on a year-over-year basis. From a total company standpoint on sales, $1 million to $2 million operating income, couple hundred thousand.
We are using, for our forecast, we are using a euro rate in about the – about 1.25, that’s the biggest driver for the company and then obviously, the Brazilian Real about 2.45 is what we are using. Going back to when we provided full year guidance at the end of Q4, and the run up in the dollar that’s the impact from our original guidance and where we are sitting today, it’s been about 2% on sales.
Walter Liptak – Global Hunter Securities
Okay, okay, thanks guys.
Mick Lucareli
Yes, thanks, Walt.
Operator
Thank you and we have a follow-up question from the line of David Leiker of Baird. Your line is open.
David Leiker – Robert W. Baird & Co
Yes, couple of things, just to follow-up. The volumes that you saw fall off during your quarter.
What end-markets that you see that coming from?
Tom Burke
Yes, the off-highway, heavy equipment, specialty and mining and the agricultural equipment has been the biggest factor as we said, it’s down about 20% year-over-year.
Mick Lucareli
Yes, I think when we go through it, David from throughout the quarter, for sure across South America and Brazil. So, all of those end-markets including even the aftermarket which tends to be a little bit more stale – or stable – I am sorry, is then dropping.
Off-highway a little bit in Europe and then the heavy duty construction and large excavators in Asia has softened through the last quarter and then what Tom started with the answer, in North America, it seems to be the really large off-highway. We know, there is a big mix when people talk about Ag and off-highways construction, like construction seems to be doing okay.
It’s the large horse power and obviously large items like mining where we saw that’s the largest drops.
David Leiker – Robert W. Baird & Co
Okay, and then on the capacity shortages that you are running into. How much is this related to the plant consolidations as opposed to just not having the right capacity there?
Tom Burke
Yes, no, they are actually separate issues. The capacity constraints are on the automotive side.
They are linked to strong vehicle launches in Europe – excuse me – based on our premium customers there. So, condensers, on certain luxury lines with the German premium cars are just running way over, okay, they are stated projection lines.
So, we are – by the tune of like 30%. So we are working with customers in that regard on how to add capacity and get support from them.
But, it’s really put the challenge to our cutting room planned in Austria on condensers. And the same with oil coolers and liquid charger coolers for our Uden plant in the Netherlands.
So, volumes that are – again, it will be double-digit over what was released from the customer and what we have planned for. So, both those cases that we are having moved some products.
So we have some capacity available and balance that out and we got – obviously have to work with the customer and that’s we are doing. So, it’s a little bit long, and actually making some new investments to give us capacity we need on certain stamping presses and that type of things.
So, that’s in hand, but that’s just going to take a while to work through this quarter and into next to get that.
David Leiker – Robert W. Baird & Co
So, do you run the rest of the capacity in place and that falls off and it’s just beginning of the run type volumes that’s not sustainable?
Tom Burke
I didn’t catch the question, David. You come back with that please.
David Leiker – Robert W. Baird & Co
So, are you seeing a ramp up in volume here in the initial launch phase that then normalizes and you end up getting caught with the excess capacity? How…
Tom Burke
We are going to be – so we are not going to add, what I would say is big ticket capital. Okay, this is specific stamping, let’s say could be tools and that type of things where we need to add additional, maybe one additional press which you could bring in from someplace else.
So, we are going to be careful on the capital not to get over invested in. But, we are not adding brace furnaces for that, which will be the big ticket item.
David Leiker – Robert W. Baird & Co
Okay, and then on the Euro 6 launches in Europe, are you keeping market volume aside, but have you launched – I presume, you launched other programs that you are going to launch over there, right?
Tom Burke
Yes, we have.
David Leiker – Robert W. Baird & Co
And those volumes are probably running, around 20% below what you thought they were going to?
Tom Burke
Yes, that’s that rate. So, and they are some still kind of coming up little bit further on the related launching, but they are about where they are and I think the run rate is close to where we are going to be and that – but that added content is going to make a difference on the top-line for us.
David Leiker – Robert W. Baird & Co
And then we are seeing some of the truck makers, particularly the European truck makers take their product portfolio and go to global sourcing. Have you – they’ve done it on brakes, they’ve done it on some other products and these engines are getting close to being harmonized from a regulations perspective.
What kind of opportunity you are seeing in terms of taking what you have in Europe and taking it global those – particularly Daimler and Volvo and people like that?
Tom Burke
Exactly, now we are working with programs both heavy and medium duty opportunities on global programs in the future, right along those lines. So, that’s exactly right.
So we see, in that – in the next couple fiscal years of that switching over with an opportunity to gain share.
David Leiker – Robert W. Baird & Co
But I am not sure, you – I mean, correct me if I am wring, but I am not sure you actually have a contract that’s global across a single product, are you?
Tom Burke
No.
David Leiker – Robert W. Baird & Co
Okay.
Tom Burke
On the truck side, well, on the power train cooling side, no. EGR, yes.
David Leiker – Robert W. Baird & Co
Okay, great. Thank you.
Operator
And I am showing no further questions at this time. I would now like to turn the conference back to Kathy Powers.
Kathy Powers
Thank you. That concludes the call for this morning.
Thank you for joining us and thanks for your interest in Modine. Good bye.
Operator
Ladies and gentlemen, thank you for participating in today’s conference. You may now disconnect.
Everyone have a wonderful day.