Modine Raises FY2027 Revenue Outlook on Data Center Growth

Modine (MOD) raised its fiscal 2027 revenue outlook for its continuing businesses after second-quarter sales climbed 35%, led by a 95% increase in Data Centers revenue and 23% growth in Commercial HVAC. The company now expects full-year net sales of $3.1 billion to $3.2 billion and adjusted EBITDA of $470 million to $500 million, excluding the Performance Technologies business that was spun off on October 1.

For the fiscal second quarter, Modine reported net sales of $994.4 million, up from $738.9 million a year earlier. Operating income increased to $97.8 million from $73.5 million, while adjusted EBITDA rose 31% to $136.2 million. Adjusted earnings per share increased 27% to $1.35.

Gross profit grew 25% to $205.4 million as higher volumes offset pressure from material costs. Gross margin declined to 20.7% from 22.3%. Selling, general and administrative expenses rose to $104.6 million, including $14.1 million of disposition costs, but decreased to 10.5% of sales from 11.4% as revenue expanded faster than spending. Adjusted EBITDA margin narrowed to 13.7% from 14.0%.

Data Centers drives growth

Data Centers sales reached $439.7 million, nearly doubling from $225.0 million in the prior-year quarter. Modine attributed the increase to strong hyperscale customer demand across chillers, air handling units and indoor products. Quarterly order intake exceeded $1 billion for the fourth consecutive record quarter, and the company received a $400 million program award from a strategic hyperscale customer.

Adjusted EBITDA for the segment increased 66% to $67.6 million, although margin fell to 15.4% from 18.1%. Production growth improved overhead utilization sequentially, but logistics expenses, tariffs, raw-material inflation and higher supplier prices weighed on profitability. Modine said it is seeking to recover material-cost increases through commercial actions.

The company launched production at a third dedicated data center facility in Calgary and had 13 active chiller lines in North America, with plans to reach 20 by the end of the fiscal year. It also said it stabilized its supply chain and entered long-term agreements with key suppliers to support the production ramp.

Modine expects Data Centers revenue to grow 80% to 90% in fiscal 2027. It also anticipates segment earnings growth of more than 80%, based on its current sales and margin outlook. Chiller shipments outside the Americas were lower in the quarter because of timing, with the company expecting a significant increase in the second half.

Commercial HVAC benefits from data center demand

Commercial HVAC revenue rose 23% to $285.5 million from $232.9 million. HVAC Technologies benefited from recovering Canadian heating demand and a rebound in commercial chillers and ventilation, while Heat Transfer Solutions gained from stronger demand for coils and coatings. Revenue from anti-corrosive coatings increased 28% year over year.

The segment also expanded its role in Modine’s data center supply chain. It qualified as a supplier of evaporators to the Data Centers segment and is evaluating additional opportunities to provide coils to data center customers.

Commercial HVAC adjusted EBITDA increased to $43.0 million from $35.2 million, entirely due to organic sales growth. Margin was unchanged at 15.1%, as product mix, material costs and tariffs were mostly offset by commercial actions. Management expects continued revenue and earnings growth, with incremental adjusted EBITDA margin improvement during the second half. Fiscal 2027 segment sales are projected to increase 10% to 15%.

Performance Technologies separation completed

Performance Technologies generated second-quarter sales of $287.7 million, compared with $286.3 million a year earlier. Tariff recovery and commercial actions offset difficult end-market conditions. Higher generator-set revenue was partly offset by lower sales to off-highway agricultural customers, while weaker automotive demand was partially balanced by higher commercial-vehicle sales.

Adjusted EBITDA declined to $40.9 million from $42.2 million, and margin contracted to 14.2% from 14.7% due mainly to lower sales volume and higher material costs.

Modine completed the spin-off of Performance Technologies and its merger with Gentherm on October 1. Beginning in the fiscal third quarter, the business will be presented as a discontinued operation. The company’s fiscal 2027 guidance excludes Performance Technologies for the full year.

Modine received $199 million from Gentherm when the transaction closed and used the proceeds to repay debt in accordance with the Reverse Morris Trust requirements. The company expects another $20 million to $25 million of transaction-related costs in the second half of fiscal 2027.

Outlook and cash flow

The continuing businesses are expected to generate fiscal 2027 sales growth of 50% to 55% and adjusted EBITDA growth of more than 50%. Management expects second-half margin improvement in both Data Centers and Commercial HVAC.

Year-to-date free cash flow was negative $146 million, reflecting working-capital investment to support data center growth and $27.7 million of cash payments primarily related to restructuring and disposition activities. Net debt stood at $574 million as of September 30, up $211 million from the end of the previous fiscal year, while the leverage ratio was 1.1 times.

Modine expects fiscal 2027 free cash flow between breakeven and $25 million and capital expenditures of $150 million to $200 million. Those ranges include Performance Technologies for the first half of the year.

The outlook remains subject to risks including customer and construction delays, the company’s ability to add production capacity and manage working capital, tariffs, raw-material inflation, supplier constraints and broader geopolitical or economic disruptions. Modine also identified potential opposition to data center development and uncertainty surrounding technology adoption, regulation and trade policy as factors that could affect future results.