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 Manufacturing Company (MOD) and Gentherm Incorporated (THRM) are both involved in thermal management technologies for the automotive sector, with Modine also serving other markets such as HVAC and construction equipment [1][2] - The analysis aims to compare the fundamentals of both companies to determine which is better positioned to meet investor expectations amid tariff-related uncertainties [2] Modine Manufacturing Company (MOD) - Modine has consistently exceeded earnings expectations for the last four quarters, reporting net sales of $682.8 million in Q1 fiscal 2026, a 3% increase from $661.5 million the previous year, driven by strong performance in the Climate Solutions segment [3][9] - The company anticipates a significant volume ramp-up in the second half of the year, projecting full-year fiscal 2026 net sales growth of 10-15% year over year and adjusted EBITDA growth of 12-20% [3][21] - Modine has implemented the 80/20 principle, leading to transformative operational and financial improvements during fiscal 2025 [4] - Recent acquisitions, including AbsolutAire, L.B. White, and Climate by Design International, are aimed at addressing thermal management challenges and expanding into high-growth adjacent markets [5] - Modine announced a $100 million investment over 12-18 months to enhance U.S. manufacturing of data center cooling products, expecting data center revenues to approach $2 billion by fiscal 2028 [6] - The company boasts a high return on equity (ROE) of 24%, significantly above the industry average of 7.2%, indicating strong profitability relative to shareholder equity [7] Gentherm Incorporated (THRM) - Gentherm reported stable revenues of $375 million in Q2 2025, with a 3.8% year-over-year growth in Automotive Climate and Comfort Solutions, outperforming S&P Global's light vehicle production report by 10 basis points [8][11] - The company secured $620 million in new automotive business awards in Q2, raising its 2025 revenue outlook to between $1.43 billion and $1.5 billion [11] - Gentherm is focusing on narrowing the gap in Asia, with 70% of year-to-date awards going to domestic OEMs in China, compared to 50% in the previous two years [10] - The company is diversifying into the medical sector, enhancing its European distribution through a partnership with DUOMED [12] - However, tariffs have posed a challenge, resulting in a narrowed EBITDA margin guidance range of 11.7-12.5% [13] - Gentherm's ROE stands at 9.9%, which, while respectable, is lower than Modine's [13][22] Price Performance and Valuation - Year-to-date, Modine shares have increased by approximately 31.5%, while Gentherm's stock has decreased by 11% [14] - Modine is trading at a forward sales multiple of 2.62X, close to its five-year mean of 2.72X, whereas Gentherm's forward sales multiple is at 0.73X, significantly below its median of 2.85X [16] Earnings Estimates - The Zacks Consensus Estimate for Modine's fiscal 2026 EPS indicates a year-over-year growth of 14.3%, with estimates trending upward [18] - Conversely, the Zacks Consensus Estimate for Gentherm's 2025 EPS suggests a year-over-year decline of 4.3%, although estimates have also been trending upward [19] Conclusion - Modine is positioned for solid top-line growth with projected double-digit revenue and EBITDA gains for fiscal 2026, supported by strategic acquisitions and investments [21] - Gentherm shows resilience with steady revenues and strong automotive business wins, but its lower ROE and margin pressures from tariffs present challenges [22] - Overall, Modine's stronger financial performance and clearer growth strategy make it a more attractive investment option compared to Gentherm [23]

Financial Performance - Modine achieved a third consecutive record year, driven by strong Q4 performance[7] - Net sales for FY25 reached $25835 billion, up from $24078 billion in FY24[5, 27] - Adjusted EBITDA for FY25 was $3921 million, compared to $3143 million in FY24[5, 28] - Adjusted EPS grew by 45% due to higher earnings in Q4 FY25[19] - Free cash flow for FY25 was $129 million[20] Climate Solutions Segment - Climate Solutions saw a 30% increase in revenues and a 45% increase in adjusted EBITDA in FY25[10] - Data center revenue increased by 119% to $644 million, including $197 million from the Scott Springfield acquisition[10] - Climate Solutions net sales in Q4 FY25 were $3563 million, an 80% increase in Data Centers sales[15] - Adjusted EBITDA margin for Climate Solutions in Q4 FY25 improved by 290 bps to 214%[15] Performance Technologies Segment - Performance Technologies net sales for FY25 were $11635 billion, down from $13213 billion in FY24[12] - Adjusted EBITDA for Performance Technologies in FY25 was $1572 million, compared to $1524 million in FY24[12] - Performance Technologies Q4 FY25 sales decreased by 12%[16] - Adjusted EBITDA margin for Performance Technologies in Q4 FY25 increased by 220 bps to 150% due to improved operating efficiency[16] Fiscal Year 2026 Outlook - The company anticipates revenue growth of 2% to 10%, projecting net sales between $264 billion and $284 billion[23, 24] - Adjusted EBITDA is forecasted to grow by 7% to 15%, reaching $420 million to $450 million[23, 24] - Climate Solutions sales are expected to increase by 12% to 20% in FY26[23]