Modine Manufacturing (NYSE:MOD) executives said the company closed fiscal 2026 with another record year for revenue and adjusted EBITDA, driven by rapid growth in data center cooling and the continuing reshaping of its portfolio toward higher-growth businesses.
President and Chief Executive Officer Neil Brinker said the year marked Modine’s fourth consecutive year of record revenue and adjusted EBITDA. He pointed to three acquisitions — AbsolutAire, L.B. White and Climate by Design — that collectively added $119 million in incremental revenue during the year, as well as a previously announced $100 million investment to expand U.S. capacity for data center products.
Brinker also highlighted a newly announced long-term capacity agreement with a strategic data center customer. Under the agreement, Modine will guarantee capacity to supply more than $4 billion of data center cooling products during calendar years 2027 through 2029.
“This agreement highlights the confidence our customers have in Modine and validates our need for our current investment in capacity expansion,” Brinker said.
Data center demand drives Climate Solutions results
Modine’s Climate Solutions segment posted a 43% increase in full-year revenue, including acquisitions, while organic sales rose 32%. Brinker said sales to data center customers increased 73% for the year to $1.1 billion, including more than $400 million in fourth-quarter revenue.
Brinker said North American chiller production increased fivefold from the prior year, despite weather-related disruptions that caused the company to lose 20 production shifts in data centers. He said Modine also shipped its first chillers from Jefferson City, Missouri, and shipped air handling units and coolant distribution units from its Franklin, Wisconsin, plant during the fourth quarter.
Executive Vice President and Chief Financial Officer Michael Lucareli said Climate Solutions fourth-quarter sales rose 87% from the prior year. Data center sales increased by $246 million, or 158%, while HVAC technology sales rose $33 million, or 51%, driven by recent acquisitions. Heat Transfer Solutions sales increased $26 million, or 19%, primarily from higher coil sales to commercial HVAC and data center customers.
Adjusted EBITDA in Climate Solutions grew 63% in the quarter, Lucareli said, though margins were down from the prior year and improved sequentially. He said severe weather and storms cost Climate Solutions about 50 to 100 basis points of gross margin, including 20 lost production shifts in data centers and 35 shifts in other areas of the business.
Supply chain issues expected to affect first quarter, not full year
Brinker said the company began seeing shortages of certain components late in the fourth quarter, affecting production schedules and efficiency. He said Modine is working to qualify new vendors and stabilize supply.
“While this will temporarily impact our Q1 production plans, we do not anticipate any impact on our full-year outlook,” Brinker said.
Lucareli said Modine expects first-quarter margins in commercial HVAC and data centers to be down year over year, with favorable margin comparisons beginning in the second quarter and continuing through the rest of fiscal 2027.
Brinker said the demand outlook for data centers remains strong, with hyperscale customers continuing significant investment, particularly in North America. He also cited Modine’s 3-megawatt chiller, which he said provides a 50% increase in cooling capacity with only a 9% increase in footprint, as a product designed for higher chip densities and increasing data center heat loads.
Long-term agreement adds visibility
During the question-and-answer session, Brinker said the long-term agreement is with an existing customer and is specific to chillers. Lucareli said the deal is “absolutely within the target margins” for the data center business and would be accretive to current levels.
Executives said the agreement is included in the capacity expansion plan previously discussed with investors. Brinker said Modine believes its normal annual capital spending cycle in data centers will be sufficient to continue expanding capacity beyond the agreement.
Lucareli said revenue under the agreement will begin ramping in Modine’s fiscal fourth quarter, with the contract covering three calendar years and no more than $2 billion expected in any one year.
Performance Technologies prepares for Gentherm transaction
Modine also continues to prepare for the planned spin-off of its Performance Technologies segment and merger with Gentherm. Brinker said the process remains on track, with the company still expecting the transaction to close before the end of the calendar year, assuming required approvals are received.
Performance Technologies revenue was relatively flat in the fourth quarter, Lucareli said, with lower sales offset by a $12 million positive impact from foreign exchange. Heavy-duty equipment sales declined 5%, primarily from lower genset revenue, while on-highway sales rose 4% on higher sales to automotive and commercial vehicle customers.
Adjusted EBITDA in the segment fell 15% from the prior year due to lower volume and higher material and tariff costs. Lucareli said Modine expects to recover tariffs through surcharges and mitigate metals inflation through pricing mechanisms in customer contracts, though those adjustments typically lag by three to six months.
Fiscal 2027 outlook calls for another record year
For the full company, fourth-quarter sales rose 47%, adjusted EBITDA increased 40% and adjusted earnings per share rose 53% to $1.71, Lucareli said. Free cash flow was $153 million in the fourth quarter, including a $165 million upfront cash payment tied to the long-term capacity agreement. He said the payment was recorded as a contract liability and did not affect the income statement.
For fiscal 2027, Modine expects:
- Total company sales growth of 20% to 35%.
- Data center sales growth of 60% to 80%.
- Commercial HVAC sales growth of 5% to 10%.
- Performance Technologies sales to be flat to up 5%.
- Adjusted EBITDA of $650 million to $680 million, representing growth of more than 40%.
- Free cash flow equal to 4% to 6% of sales.
Lucareli said the outlook includes a full year of Performance Technologies, and Modine will update its guidance once the timing of the pending transaction is known. Beginning in fiscal 2027, the company will report three segments: Data Centers, commercial HVAC and Performance Technologies until the planned spin-off closes.
About Modine Manufacturing (NYSE:MOD)
Modine Manufacturing Company (NYSE:MOD) is a global provider of thermal management solutions serving automotive, commercial transportation, heavy-duty off-highway, industrial, HVAC and refrigeration markets. The company designs, manufactures, tests and markets a broad array of heat-transfer products that manage temperature and energy efficiency for engines, power electronics and building climate control systems.
Its product portfolio includes heat exchangers, condensers, radiators, evaporators, charge air coolers, fan systems and associated controls.
This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to contact@marketbeat.com.
The article "Modine Manufacturing Q4 Earnings Call Highlights" first appeared on MarketBeat.
