Core Insights - Modine Manufacturing Company's shares fell over 4% following the release of its fiscal Q2 2026 results, despite a year-over-year revenue increase and an upward revision in revenue forecasts for fiscal 2026 [1][10] Financial Performance - Modine reported net revenues of $738.9 million for fiscal Q2, marking a 12% increase from the previous year, and adjusted earnings per share (EPS) of $1.06, which is a 9% year-over-year growth [3][7] - The Zacks Consensus Estimate indicates year-over-year growth of 11.3% in sales and 14.8% in earnings for fiscal 2026, with EPS estimates having increased by 14 cents over the past 90 days [14] Segment Performance - The Climate Solutions segment experienced a significant revenue increase of 24% year-over-year, driven by recent acquisitions and operational improvements [5][10] - Performance Technologies revenues declined by 4% year-over-year, with expectations of flat to a 7% decline for fiscal 2026 due to weak demand in certain markets [11] Growth Drivers - The company is expanding its capacity with new production lines in Grenada, MS, and Franklin, WI, and has secured a new facility in Grand Prairie, TX, expected to be operational early next fiscal year [7][8] - Modine aims for over 60% revenue growth in its data center business this year, targeting more than $2 billion in revenues by fiscal 2028 [9] Valuation - Modine's forward price-to-sales (P/S) ratio stands at 2.63, higher than the industry average of 1.96 and above its peers, with Aptiv at 0.90 and Dana at 0.38 [13] Market Position - The company competes with Aptiv PLC and Dana Incorporated, with both competitors reporting varying degrees of revenue and EPS growth in their recent results [4]

Financial Performance - Net sales for the second quarter of fiscal 2026 increased by $80.9 million, or 12 percent, to $738.9 million compared to the same quarter last year, driven primarily by higher sales in the Climate Solutions segment [113]. - Year-to-date net sales for fiscal 2026 reached $1,421.7 million, an increase of $102.2 million, or 8 percent, compared to the same period last year [124]. - Climate Solutions net sales increased by $88.0 million, or 24%, from Q2 FY2025 to Q2 FY2026, driven by higher sales volume and a favorable foreign currency impact of $5.1 million [134]. - Year-to-date net sales for Climate Solutions rose by $128.1 million, or 18%, compared to the same period last year, primarily due to higher sales volume and a favorable foreign currency impact of $11.2 million [140]. - Performance Technologies net sales decreased by $11.2 million, or 4%, from Q2 FY2025 to Q2 FY2026, primarily due to lower sales volume in North America [147]. - Year-to-date net sales for Performance Technologies decreased by $34.7 million, or 6%, compared to the same period last year, primarily due to lower sales volume and market weakness [154]. Cost and Profitability - Cost of sales increased by $81.6 million, or 17 percent, leading to a gross profit decrease of $0.7 million and a gross margin decline of 290 basis points to 22.3 percent [113][116]. - Year-to-date cost of sales increased by $100.1 million, or 10 percent, resulting in a gross margin decline of 170 basis points to 23.2 percent [125][126]. - Climate Solutions cost of sales increased by $82.3 million, or 32%, from Q2 FY2025 to Q2 FY2026, attributed to higher sales volume and temporary operating inefficiencies [136]. - Year-to-date cost of sales for Climate Solutions increased by $110.3 million, or 21%, primarily due to higher sales volume and an unfavorable foreign currency impact of $8.8 million [141]. - Operating income for Climate Solutions in Q2 FY2026 was $62.2 million, a decrease of $2.5 million from Q2 FY2025, primarily due to higher SG&A expenses [139]. - Year-to-date operating income for Climate Solutions was $129.1 million, an increase of $4.6 million from the same period last year, driven by higher gross profit [144]. - Operating income for Performance Technologies in Q2 FY2026 was $29.7 million, a decrease of $1.1 million from Q2 FY2025, primarily due to lower gross profit and an impairment charge [153]. Expenses and Impairments - SG&A expenses decreased by $1.6 million, or 2 percent, as a percentage of sales decreased by 160 basis points, primarily due to lower compensation-related expenses in the Performance Technologies segment [117]. - The company recorded a $4.1 million impairment charge in the Performance Technologies segment during the second quarter, impacting operating income, which decreased by $1.8 million to $73.5 million [121][120]. Acquisitions and Investments - The company completed three acquisitions in the Climate Solutions segment, including AbsolutAire for $11.3 million, L.B. White for $110.5 million, and Climate by Design for $64.4 million, expanding its product portfolio and customer base [109][110][111]. - Cash payments totaling $182.1 million were made for acquisitions of L.B. White, Climate by Design, and AbsolutAire in the first half of fiscal 2026 [163]. - Borrowings on credit facilities, net of repayments, totaled $224.6 million, primarily used to fund acquisitions of L.B. White and Climate by Design [164]. - The company announced a plan to invest $100.0 million over the next twelve months to expand manufacturing capacity for data center products [162]. - Capital expenditures increased by $19.1 million to $59.4 million during the first six months of fiscal 2026, with a new plan to invest an additional $100.0 million to expand manufacturing capacity in the U.S. [162]. Cash Flow and Financial Position - The company reported cash and cash equivalents of $83.8 million as of September 30, 2025, with an available borrowing capacity of $128.8 million under its revolving credit facility [160]. - Net cash provided by operating activities for the six months ended September 30, 2025, was $29.1 million, a decrease of $68.7 million compared to the prior year, primarily due to unfavorable net changes in working capital [161]. - As of September 30, 2025, the company was in compliance with its debt covenants and expects to remain compliant throughout fiscal 2026 [168]. - The leverage ratio covenant requires consolidated indebtedness to be no more than 3.5 times Adjusted EBITDA [167]. Market Risks - The company faces various market risks, including potential adverse developments in the global economy, inflation, and supply chain challenges [172].

Financial Data and Key Metrics Changes - The company reported a 12% increase in total sales for the second quarter, driven primarily by growth in the Climate Solutions segment [19] - Adjusted earnings per share (EPS) was $1.06, reflecting a 9% increase compared to the prior year [20] - The gross margin declined by 290 basis points to 22.3%, primarily due to increased costs associated with data center capacity expansion [19][22] Business Line Data and Key Metrics Changes - Climate Solutions segment revenue increased by 24%, with data center sales growing by 42% [14][24] - Performance Technologies segment revenue declined by 4%, but adjusted EBITDA improved by 3%, with adjusted EBITDA margins increasing by 90 basis points to 14.7% [10][18] - HVAC technologies within Climate Solutions saw a 25% increase in sales, driven by acquisitions, but faced lower margins due to a negative mix impact [14][15] Market Data and Key Metrics Changes - The company anticipates data center sales to grow in excess of 60% for the fiscal year, with expectations of over 90% year-over-year growth in the second half [24] - The Performance Technologies segment is expected to see revenue flat to down 7%, improving from a prior range of down 2% to 12% [24] Company Strategy and Development Direction - The company is focused on expanding its U.S. manufacturing capacity for data center products and has secured additional facilities in Texas and the UK [3][5][8] - The strategy includes integrating recent acquisitions to enhance product offerings and improve margins through the application of 80/20 principles [3][11] - The company aims to transition from low-volume, high-mix manufacturing to high-volume production to meet the demands of large data centers, particularly those specializing in AI applications [8][9] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability to meet customer demands and execute on strategic plans despite current challenges in hiring and training a workforce [7][9] - The company expects significant revenue growth in Q4 as new production lines come online, with a path to achieve over $2 billion in revenues by fiscal 2028 [8][24] - Management acknowledged temporary margin erosion due to increased costs from capacity expansion but anticipates a return to normalized margins by Q4 [15][21] Other Important Information - Free cash flow was negative $31 million in the second quarter, primarily due to higher inventory builds and capital expenditures [22] - The company raised its revenue outlook for fiscal 2026, expecting total sales growth in the range of 15% to 20% [24][25] Q&A Session Summary Question: Can you parse out year-over-year margin contraction on the climate side of the business? - The margin contraction was primarily driven by data center expansion costs, accounting for about 225 to 250 basis points, with additional impacts from HVAC technologies and mix issues [31][32] Question: What gives confidence that margins should normalize going into Q4? - Confidence stems from learning and efficiency improvements from previous product launches, which will enhance margins as production ramps up [50][51] Question: How does the company view the total addressable market for data centers? - The company estimates that reaching $2 billion in sales could represent 15% to 20% of the available HVAC market, indicating significant growth potential [60] Question: What is the expected contribution of liquid cooling to the business? - Liquid cooling is seen as a complementary product to air cooling, with ongoing developments expected to enhance its market presence [95]

Financial Data and Key Metrics Changes - The company reported a 12% increase in total sales for the second quarter, driven primarily by growth in the Climate Solutions segment [19] - Adjusted earnings per share (EPS) was $1.06, reflecting a 9% increase compared to the prior year [20] - The gross margin declined by 290 basis points to 22.3%, primarily due to increased costs associated with the data center capacity expansion [19][22] Business Line Data and Key Metrics Changes - Climate Solutions segment revenue increased by 24%, with data center sales growing by 42% [14][24] - Performance Technologies segment revenue declined by 4%, but adjusted EBITDA improved by 3%, with adjusted EBITDA margins increasing by 90 basis points to 14.7% [10][18] - HVAC Technologies revenue increased by 25% due to acquisitions, offset by lower indoor air quality sales [14] Market Data and Key Metrics Changes - The company anticipates a significant increase in data center sales, projecting over 60% growth for the fiscal year [8][24] - The company is expanding its manufacturing capacity in the U.S., U.K., and India to meet growing demand in the APAC region [7][8] Company Strategy and Development Direction - The company is focused on expanding its U.S. manufacturing capacity for data center products and investing in its fastest-growing businesses [3] - The strategy includes integrating recent acquisitions to improve margins and capacity utilization while unlocking new commercial opportunities [3][4] - The company aims to evolve from a low-volume, high-mix manufacturing operation to a high-volume producer, particularly in the data center segment [8][9] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability to meet targets and customer commitments despite current challenges, including workforce hiring and training [7][9] - The company expects a significant jump in revenue between Q3 and Q4, driven by new capacity coming online [7][21] - Management raised the revenue outlook for fiscal 2026, expecting total company sales to grow in the range of 15%-20% [10][24] Other Important Information - Free cash flow was negative $31 million in the second quarter, primarily due to higher inventory builds and capital expenditures [22] - The company plans to fully fund its U.S. pension plan prior to a planned annuitization in the third quarter [26] Q&A Session Summary Question: Can you parse out year-over-year margin contraction on the climate side of the business? - The margin contraction was primarily driven by data center expansion costs, accounting for about 225-250 basis points, with additional impacts from HVAC Technologies and heat pump settlements [31][32] Question: What gives confidence that margins should normalize going into Q4? - Confidence stems from learning and efficiency improvements from previous product launches, which will help improve margins as production ramps up [50][51] Question: How do you view the total addressable market in calendar 2027? - The company anticipates that reaching $2 billion in sales by fiscal 2028 could represent 15%-20% of the available HVAC market [60] Question: How is customer concentration evolving in the data center area? - The company is building strong relationships with hyperscalers and neo-cloud providers, which is expected to drive further demand [86] Question: What is the outlook for liquid cooling business? - The liquid cooling market is evolving, and the company sees potential for growth in this area, complementing existing air cooling solutions [95]

Financial Data and Key Metrics Changes - The company reported a 12% increase in total sales for Q2, driven primarily by the Climate Solutions segment [19] - Adjusted earnings per share (EPS) was $1.06, reflecting a 9% increase compared to the prior year [20] - Free cash flow was negative $31 million, primarily due to higher inventory builds and capital expenditures in Climate Solutions [21][22] Business Line Data and Key Metrics Changes - Climate Solutions segment revenue increased by 24%, with data center sales growing by 42% [13][24] - Performance Technologies segment revenue declined by 4%, but adjusted EBITDA improved by 3% [10][18] - HVAC technologies within Climate Solutions saw a 25% increase, driven by acquisitions, while indoor air quality sales were lower [13] Market Data and Key Metrics Changes - The company anticipates a significant increase in data center sales, projecting over 60% growth for the fiscal year [8][24] - The Performance Technologies segment is expected to see revenue flat to down 7%, improving from a previous range of down 2% to 12% [24] Company Strategy and Development Direction - The company is focusing on expanding its U.S. manufacturing capacity for data center products and has secured additional facilities in Texas and India [5][7] - The strategy includes integrating recent acquisitions to enhance product offerings and improve margins through the application of 80/20 principles [3][11] - The company aims to achieve over $2 billion in revenues from data centers by fiscal 2028, with a strong emphasis on meeting the growing demand for AI applications [8][39] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in overcoming current challenges related to workforce hiring and training, which have temporarily impacted margins [6][10] - The company expects a significant jump in revenue between Q3 and Q4, driven by new capacity coming online [6][20] - Management highlighted the importance of learning from recent product launches to improve efficiency and margins moving forward [43][44] Other Important Information - The company is undergoing a strategic transformation, including potential divestitures in the Performance Technologies segment [11][61] - The balance sheet remains strong with a leverage ratio of 1.2, and the company expects this to decline further by fiscal year-end [23] Q&A Session Summary Question: Can you parse out year-over-year margin contraction on the climate side of the business? - The margin contraction was primarily due to data center expansion costs, accounting for about 225 to 250 basis points, and a negative mix impact from HVAC technologies [30][31] Question: What gives confidence that margins should normalize going into Q4? - Confidence stems from learning and improving efficiency from new product launches and the expectation of higher volume absorption in existing facilities [43][44] Question: How is customer concentration evolving in the data center area? - The company is building strong relationships with hyperscalers and expanding its customer base, which is expected to drive further demand [76] Question: How does the liquid cooling business evolve? - Liquid cooling is seen as a complementary product to air cooling, with ongoing development to differentiate offerings in the market [82]

Financial Performance Overview - Net sales increased to $738.9 million, up from $658.0 million, representing a growth of approximately 12.3%[13] - Adjusted EBITDA grew by 4% to $103.8 million, compared to $99.8 million in the prior year[15] - Adjusted EPS increased by 9% to $1.06[15] Climate Solutions Segment - Climate Solutions revenue increased by 24%, driven by acquisitions and organic growth[6] - Organic growth within Climate Solutions was 15%, including a 42% increase in Data Centers[6] - Recent acquisitions contributed $28 million in sales to HVAC Technologies[10] - Climate Solutions adjusted EBITDA margin was 16.7%, down from 21.5% due to investments in Data Centers and integration costs[10] - The company expects data center sales to grow more than 60% this year[20] - The company is targeting more than $2 billion of data center revenue in FY28[6] Performance Technologies Segment - Performance Technologies revenues decreased by 4% to $286.3 million, aligning with market conditions[9, 12] - Adjusted EBITDA for Performance Technologies increased by 3% to $42.2 million, improving the margin by 90 bps to 14.7%[9, 12] - Cost reduction actions resulted in nearly $7 million lower SG&A expenses[12] Fiscal Year 2026 Outlook - The company raised its net sales outlook to +15% to +20%, projecting $2.97 billion to $3.10 billion[19] - Climate Solutions revenue outlook raised to +35% to +40%[20] - Performance Technologies revenue outlook adjusted to flat to (7%)[20] - Adjusted EBITDA outlook reaffirmed at $440 million to $470 million, representing a growth of 12% to 20%[19]

Core Insights - Modine reported revenue of $738.9 million for the quarter ended September 2025, reflecting a 12.3% increase year-over-year and a surprise of +7.02% over the Zacks Consensus Estimate of $690.47 million [1] - Earnings per share (EPS) for the quarter was $1.06, compared to $0.97 in the same quarter last year, resulting in an EPS surprise of +9.28% against the consensus estimate of $0.97 [1] Revenue Performance - Net Sales in Climate Solutions reached $454.4 million, exceeding the estimated $424.63 million, marking a 24% increase compared to the previous year [4] - Net Sales in Performance Technologies were $286.3 million, slightly below the estimated $269.59 million, representing a decrease of 3.8% year-over-year [4] - Corporate and eliminations reported net sales of $-1.8 million, better than the estimated $-5.2 million, showing a significant improvement of 69.5% compared to the year-ago quarter [4] EBITDA Analysis - Adjusted EBITDA for Climate Solutions was $76 million, slightly below the average estimate of $79.81 million from two analysts [4] - Adjusted EBITDA for Corporate and eliminations was $-14.4 million, better than the estimated $-17.82 million [4] - Adjusted EBITDA for Performance Technologies was $42.2 million, exceeding the average estimate of $37.04 million from two analysts [4] Stock Performance - Modine's shares have returned +15.5% over the past month, outperforming the Zacks S&P 500 composite's +3.6% change [3] - The stock currently holds a Zacks Rank 3 (Hold), indicating potential performance in line with the broader market in the near term [3]

Core Insights - Modine (MOD) reported quarterly earnings of $1.06 per share, exceeding the Zacks Consensus Estimate of $0.97 per share, and showing an increase from $0.97 per share a year ago, resulting in an earnings surprise of +9.28% [1] - The company achieved revenues of $738.9 million for the quarter ended September 2025, surpassing the Zacks Consensus Estimate by 7.02% and increasing from $658 million year-over-year [2] - Modine's stock has increased approximately 40.6% since the beginning of the year, outperforming the S&P 500's gain of 16.9% [3] Earnings Outlook - The current consensus EPS estimate for the upcoming quarter is $1.12 on revenues of $708.52 million, while for the current fiscal year, the estimate is $4.65 on revenues of $2.88 billion [7] - The estimate revisions trend for Modine was mixed prior to the earnings release, resulting in a Zacks Rank 3 (Hold) for the stock, indicating expected performance in line with the market [6] Industry Context - Modine operates within the Zacks Automotive - Original Equipment industry, which is currently ranked in the top 29% of over 250 Zacks industries, suggesting a favorable industry outlook [8] - The performance of Modine's stock may be influenced by the overall industry outlook, as research indicates that the top 50% of Zacks-ranked industries outperform the bottom 50% by more than 2 to 1 [8]

Financial Performance - Net sales increased by 12% to $738.9 million, compared to $658.0 million in the prior year, driven by strong demand in the Climate Solutions segment and strategic acquisitions[3]. - Net earnings decreased by $1.6 million, or 3%, to $44.8 million, while adjusted earnings per share increased by 9% to $1.06[6][8]. - Adjusted EBITDA rose by 4% to $103.8 million, with a projected range for fiscal 2026 of $440 million to $470 million, indicating growth between 12% and 20%[6][12]. - Gross profit decreased by $0.7 million to $164.9 million, with gross margin declining by 290 basis points to 22.3% due to increased costs from capacity expansion[4]. - Operating income decreased by $1.8 million to $73.5 million, impacted by a $4.1 million impairment charge on real estate held for sale in Europe[7]. - Adjusted EBITDA for the six months ended September 30, 2025, was $205.2 million, compared to $200.7 million for the same period in 2024[29]. - Adjusted EBITDA for the six months ended September 30, 2025, was $205.2 million, compared to $200.7 million for the same period in 2024, reflecting a growth of 2.2%[31]. Segment Performance - Climate Solutions segment sales grew by 24% to $454.4 million, with data center sales increasing by 42% year-over-year[13]. - Modine's Climate Solutions segment net sales increased to $454.4 million in Q2 2025, up from $366.4 million in Q2 2024, representing a 24% growth[28]. - The Performance Technologies segment reported net sales of $286.3 million in Q2 2025, a decrease of 3.9% from $297.5 million in Q2 2024[28]. - Organic sales growth for Climate Solutions was 15% for the three months ended September 30, 2025, while Performance Technologies experienced a decline of 4%[34]. - The adjusted EBITDA margin for Climate Solutions was 18.2% for the six months ended September 30, 2025, compared to 14.4% in the same period of 2024[31]. Cash Flow and Debt - Free cash flow for the six months ended September 30, 2025, was negative $30.3 million, a decrease of $87.8 million from the prior year[10]. - Total debt as of September 30, 2025, was $582.1 million, with net debt increasing by $219.1 million to $498.3 million due to borrowings for acquisitions and capital expenditures[11]. - Cash and cash equivalents increased to $83.8 million as of September 30, 2025, up from $71.6 million at the end of March 2025[26]. - The Company reported a net cash provided by operating activities of $29.1 million for the six months ended September 30, 2025, down from $97.8 million in the same period of 2024[27]. - The Company reported a free cash flow of $(30.5) million for the three months ended September 30, 2025, compared to $43.8 million in the same period of 2024[33]. - Total debt increased to $582.1 million as of September 30, 2025, up from $350.8 million on March 31, 2025[32]. Acquisitions and Impairments - The company incurred $182.1 million in payments for business acquisitions during the six months ended September 30, 2025[27]. - The Company recorded a $4.1 million non-cash asset impairment charge related to its technical service center in Germany during Q2 of fiscal 2026[30]. - Acquisition and integration costs for the first six months of fiscal 2026 amounted to $1.3 million due to inventory purchase accounting adjustments, with total costs of $3.4 million in Q2[30]. Tax and Other Expenses - SG&A expenses decreased by $1.6 million to $84.2 million, primarily due to headcount reductions in Performance Technologies[5]. - The Company faced a $3.1 million increase in income tax expense in Q2 of fiscal 2026 due to the One Big Beautiful Bill Act enacted in July 2025[30].

Core Insights - Modine reported strong revenue growth driven by the Climate Solutions segment and strategic acquisitions, raising its full-year revenue guidance [1][2][7] - The company anticipates a significant increase in Data Centers revenue, projecting over 60% year-over-year growth [7][9] Financial Performance - Net sales for the quarter increased by 12% to $738.9 million, compared to $658.0 million in the prior year [3][9] - Net earnings decreased by 3% to $44.8 million, down from $46.4 million in the previous year [4][9] - Adjusted EBITDA rose by 4% to $103.8 million, compared to $99.8 million in the prior year [4][9] - Earnings per share decreased by 3% to $0.83, while adjusted earnings per share increased by 9% to $1.06 [4][9] Segment Performance - The Climate Solutions segment reported sales of $454.4 million, a 24% increase from $366.4 million a year ago, with data center sales up 42% [10] - The Performance Technologies segment saw a 4% decline in sales to $286.3 million, primarily due to lower sales in On-Highway Applications [10] Cost and Margin Analysis - Gross profit decreased slightly to $164.9 million, with a gross margin of 22.3%, down 290 basis points from the prior year [4][10] - The Climate Solutions segment's gross margin fell to 24.6%, impacted by costs related to capacity expansion and the absence of prior year pricing settlements [10] Balance Sheet and Liquidity - As of September 30, 2025, total debt was $582.1 million, with cash and cash equivalents at $83.8 million, resulting in net debt of $498.3 million [7][32] - Net cash provided by operating activities for the first half of fiscal 2026 was $29.1 million, a decrease of $68.7 million from the prior year [6][33] Outlook - Modine raised its fiscal 2026 revenue outlook to a growth range of 15% to 20%, up from the previous 10% to 15% [7][9] - Adjusted EBITDA is projected to be between $440 million and $470 million for fiscal 2026 [7][9]