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Modine Manufacturing pany(MOD) - 2026 Q1 - Earnings Call Transcript
2025-07-31 16:00
Financial Data and Key Metrics Changes - Modine reported a 3% increase in total sales for Q1, driven primarily by growth in the Climate Solutions segment [25] - Adjusted earnings per share was $1.06, a 2% increase compared to the prior year [27] - Adjusted EBITDA margin decreased by 40 basis points to 14.9% due to lower performance in the Performance Technologies segment [26] Business Line Data and Key Metrics Changes - Climate Solutions segment saw an 11% increase in revenue and a 10% improvement in adjusted EBITDA, with an adjusted EBITDA margin of 20% [18] - Data center sales grew by $24 million or 15% from the prior year, primarily due to higher sales in North America [18] - Performance Technologies revenues declined by 8%, with adjusted EBITDA down 14% and adjusted EBITDA margin decreasing to 13.1% [21][23] Market Data and Key Metrics Changes - North America data center business is experiencing extraordinary demand, with expectations to approach $2 billion in revenues by fiscal 2028 [11] - The company anticipates a significant acceleration in data center sales in the second half of the fiscal year, projecting a growth of over 80% [31] Company Strategy and Development Direction - The company is focusing on organic growth through capacity investments and product innovation, with a recent $100 million investment to expand manufacturing capacity [9] - Recent acquisitions are aimed at expanding the product portfolio and creating scale in key climate solutions businesses [5][8] - The company is maintaining a balanced portfolio with a strong focus on high-growth areas like data centers while managing costs in underperforming segments [14][16] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in raising revenue and earnings outlook for fiscal 2026, driven by strong market demand and recent acquisitions [5][30] - The Performance Technologies segment is expected to continue facing market headwinds, but management is optimistic about future profitability as volumes return [14][24] - The company is committed to reinvesting in growth and expects to see margin improvements in the second half of the fiscal year [26][32] Other Important Information - The company generated $200,000 of free cash flow in the quarter, lower than the prior year due to higher inventory levels [28] - Net debt increased by $123 million compared to the prior fiscal year end, primarily due to recent acquisitions [29] - The company plans to invest an additional $100 million in capital expenditures over the next 12 to 18 months [33] Q&A Session Summary Question: Can you talk about the magnitude of unabsorbed cost in the Climate business related to the DC build-out? - Management indicated that core capacity will convert at good margins, but incremental capital investments may convert at a lower rate due to added resources for engineering support [40] Question: How should we think about the fiscal 2027 data center revenue target? - Management suggested a straight-line approach for estimating fiscal 2027 revenue, trending towards a billion this fiscal year [42] Question: Will margins improve in the second half of the year? - Management expects total company margins to improve, primarily driven by Performance Technologies, with significant volume increases anticipated in the second half [45] Question: Can you provide clarity on capacity expansion and expected revenue? - Management stated that to achieve the $2 billion goal for fiscal 2028, approximately $2.5 billion in capacity is needed, with the recent $100 million investment expected to significantly contribute to this capacity [54] Question: What is the expected interest expense for fiscal 2026? - Management estimated interest expense to be in the range of $28 million to $30 million for fiscal 2026 [85]