Madison Air Raises 2026 Outlook as Q3 Sales Rise 25%

Madison Air (NYSE: MAIR) raised its full-year 2026 outlook after third-quarter sales increased 25%, supported by broad-based commercial demand and continued AprilAire market penetration. Orders rose 26% year over year and backlog reached $3.2 billion, providing the air-quality systems company with visibility into 2027, though its adjusted EBITDA margin narrowed as data-center growth affected the business mix.

For the quarter ended September 30, Madison Air reported net sales of $1.13 billion, up from $898.4 million a year earlier. Organic growth included 22 percentage points from volume and three points from pricing.

GAAP net income increased to $107.4 million from $56.8 million, lifting the net income margin to 9.5% from 6.3%. Adjusted net income nearly doubled to $199.3 million from $99.5 million.

Adjusted EBITDA rose 19% to $298.3 million, but adjusted EBITDA margin declined to 26.5% from 28.0%. The company said incremental margins were in line with its expectations.

Commercial Growth Led by Data Centers

Commercial segment sales climbed 39% to $772 million, with broad-based growth led by data centers and continued strength across other end markets. Segment orders increased 37% to $1.05 billion.

Commercial adjusted EBITDA rose 24% to $200 million. The segment’s adjusted EBITDA margin fell 332 basis points to 26.0%, reflecting the mix effect of data-center growth. Madison Air said it made progress on production ramps and price-cost management during the quarter.

The company also reported growth in commercial services and aftermarket activity as it sought to generate more revenue from its installed base. Its commercial portfolio includes air handling, cooling, purification, humidity control and air-movement systems serving data centers, healthcare, manufacturing, logistics, cleanrooms, life sciences and education.

Residential segment sales increased 3% to $356 million, driven by further market penetration of AprilAire’s Healthy Air System. Adjusted EBITDA advanced 12% to $105 million, while the segment margin expanded 225 basis points to 29.5%. Madison Air attributed the margin improvement to pricing, productivity, fixed-cost leverage and tariff refunds.

The residential business also launched a patented next-generation air-purification product and continued investing in artificial intelligence and digital capabilities to improve commercial insights and support market share.

Full-Year Guidance Increased

Madison Air now expects full-year 2026 net sales of $4.05 billion to $4.13 billion, compared with its previous range of $3.83 billion to $3.93 billion. The company raised its adjusted EBITDA forecast to between $1.04 billion and $1.07 billion from $1.02 billion to $1.07 billion.

The updated outlook assumes low-20% sales growth in the Commercial segment and low-single-digit growth in Residential. Management expects fourth-quarter net sales to grow at a low-double-digit rate and said demand remains healthy. Orders are expected to decline year over year in the fourth quarter because a large order booked in the prior-year period will not repeat.

The company expects full-year free cash flow conversion to exceed 100% of net income. Capital expenditures are projected at less than 1.5% of sales, compared with the previous assumption of 1% to 2%. Madison Air also expects net cash interest expense of about $210 million, central costs of approximately $35 million and an effective tax rate of roughly 27%.

Cash Flow, Leverage and Pending Acquisition

Free cash flow totaled $158 million in the third quarter, up sequentially from $89.6 million but slightly below $160 million a year earlier. For the first nine months, free cash flow was $298 million, representing conversion of about 135% of net income, compared with $312.4 million in the prior-year period.

Adjusted net leverage was approximately 2.6 times at quarter-end, improving by about 0.25 turn sequentially. Madison Air said it remains on track to finish 2026 below 2.5 times. Available liquidity was about $1.8 billion excluding proceeds from a September private placement, consisting of $400 million in cash and a $1.4 billion undrawn revolving credit facility.

The private placement generated $2.25 billion in gross proceeds, which the company expects to use for its pending acquisition of ebm-papst. Madison Air values the transaction at about $5 billion and estimates that the combined businesses would produce approximately $6.9 billion in 2026 net sales. The company expects the deal to be accretive to adjusted earnings per share.

The transaction remains subject to risks including regulatory clearances, timing uncertainty, potential integration difficulties and the possibility that expected cost, operational, tax and commercial synergies may not be realized. Madison Air also identified its indebtedness and interest costs, material weaknesses in internal control over financial reporting, tariffs and trade-policy changes, raw-material and supplier disruptions, competitive pressure and shifts in end-market demand among its principal uncertainties.