Modine Manufacturing Company (MOD) Earnings & Analysis

Latest quarter

Modine reported Q2 FY2027 revenue of $994.4 million, above the consensus estimate of $974.6 million and up from $738.9 million a year earlier. The company reported adjusted earnings per share of $1.35, while diluted earnings per share fell to $0.56 from $0.83.

The filing attributed the sales increase primarily to data center growth, particularly among North American hyperscale customers, and higher Commercial HVAC sales. Performance Technologies sales rose by less than 1 percent, as higher prices offset lower volumes, according to the filing.

Modine’s gross margin fell to 20.7% from 22.3%; the filing attributed the decline largely to higher data center material costs. The filing also reported income tax expense related to legal entity restructuring for the Performance Technologies transaction.

Free cash flow was −$98.5 million, compared with −$30.5 million a year earlier. CFO Nick Lucareli attributed the quarterly cash use primarily to working capital and data center capital investments, along with expenses related to the spin-off.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

CEO Neil Brinker said data center order intake exceeded $1.0 billion in the quarter and that demand had pushed the backlog higher. He said Modine had also won a program to supply more than $400.0 million of custom air-handling units to a hyperscaler through calendar 2027.

Brinker said Modine was launching production at another Calgary data center facility and increasing throughput in Wisconsin. He said the company remained committed to having 20 operational chiller lines by the end of the fiscal year. In Commercial HVAC, he said coil sales to data center customers were supporting growth, and Modine was discussing a potential role as a heat-coil supplier for a strategic customer.

CFO Nick Lucareli said data center margin improvement in the quarter was less than expected because supply-chain and material costs were larger and lasted longer than anticipated. He said those costs included tariffs, raw-material inflation and higher prices paid to secure supplier volumes. Modine was pursuing commercial actions to recover the costs, he said.

Asked about continuing supply disruptions, Lucareli described late deliveries and shipments from Europe to North America to keep production moving. Brinker said local supplier shortfalls had also required expedited international freight. Brinker said Modine had signed agreements with key suppliers, although other disruptions could still create delays.

In response to questions about the next quarters, Lucareli said he expected sequential data center margin improvement, driven by higher production volumes and material-cost recovery. Brinker said customer agreements allowed discussions about variable pricing when costs changed. He also said the Performance Technologies spin-off and merger with Gentherm had closed; Lucareli said Modine used proceeds from the transaction to repay debt.

Guidance

Modine updated its FY2027 outlook to exclude Performance Technologies for the full year. CFO Nick Lucareli said the company expects revenue of $3.1 billion to $3.2 billion and adjusted EBITDA of $470.0 million to $500.0 million on that basis. He said Modine raised its sales-growth outlook for both Data Centers and Commercial HVAC, but expects margins to improve more slowly than previously anticipated because of supply costs.

Lucareli now expects data center earnings growth in excess of 80.0% for FY2027, compared with his earlier expectation of more than 85.0%.