Modine Manufacturing pany(MOD) - 2026 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Modine reported a 3% increase in first-quarter sales, driven primarily by growth in the Climate Solutions segment [24] - Adjusted EBITDA margin was 14.9%, down 40 basis points from the prior year, attributed to lower Performance Technologies volume and new investments in Climate Solutions [25] - Adjusted earnings per share was $1.06, a 2% increase compared to the previous year [27] Business Line Data and Key Metrics Changes - Climate Solutions segment revenue increased by 11%, with adjusted EBITDA improving by 10% and an adjusted EBITDA margin of 20% [17] - Data center sales grew by $24 million or 15% from the prior year, driven by higher sales in North America [17] - Performance Technologies revenues decreased by 8%, with adjusted EBITDA declining by 14% and adjusted EBITDA margin decreasing to 13.1% [12][22] 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 [9] - The company anticipates a significant acceleration in data center sales in the second half of the fiscal year, with expected growth of over 80% [31] Company Strategy and Development Direction - The company has completed three strategic acquisitions this fiscal year to enhance its manufacturing capacity and product offerings [4] - Modine is focusing on organic growth in the data center business while also pursuing inorganic growth through acquisitions [4][7] - The company aims to maintain a balanced portfolio with strong organic growth in data centers and complementary solutions in HVAC technologies [4] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in raising revenue and earnings outlook for fiscal 2026 due to strong market demand and recent acquisitions [4] - The Performance Technologies segment is navigating tough market conditions, with expectations of continued challenges in vehicular markets [12] - Management highlighted the importance of strategic partnerships and innovation in meeting evolving customer demands in the data center segment [11] Other Important Information - The company plans to invest an additional $100 million in capital expenditures over the next 12 to 18 months to support growth [33] - Modine's net debt increased by $123 million compared to the prior fiscal year end, primarily due to recent acquisitions [28] 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, while incremental capital investments may convert at a lower rate due to added resources for engineering support [39] 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 [41] Question: Will margins improve in the second half of the year? - Management expects total company margins to improve, driven mainly by Performance Technologies, with significant growth anticipated in the second half [45] Question: Can you provide clarity on capacity expansion and expected returns? - Management confirmed high returns on investment for capacity expansion, estimating over 40% return on invested capital [57] Question: What is the visibility on demand and capacity for the data center business? - Management stated they have visibility extending beyond a year, with commitments from customers driving the need for additional capacity [70] Question: Can you provide updates on divestiture processes? - Management mentioned ongoing efforts to sell the European headquarters and plans to exit the light-duty business, with expected closure later this year [76][77] Question: Are you expanding data center service capabilities alongside production? - Management confirmed that they are building out service capabilities to support the growth in equipment sales [101] Question: What is the outlook for future acquisitions? - Management indicated a pause on acquisitions for a couple of quarters to digest recent acquisitions and focus on data center expansion [98]