Modine Manufacturing (NYSE:MOD) reported first-quarter fiscal 2027 sales growth of 28% and adjusted earnings per share growth of 44%, while reiterating its full-year revenue and adjusted EBITDA outlook. The company said supply-chain shortages in its Data Center segment constrained production and pressured margins during the quarter, but management expects conditions and profitability to improve sequentially.
The quarter marked Modine’s first reporting period under a new three-segment structure consisting of Data Centers, Commercial HVAC and Performance Technologies. President and Chief Executive Officer Neil Brinker said the company continues to see exceptional underlying demand for data-center cooling products, logging its third consecutive quarter of record order intake and another significant increase in backlog.
Data-center growth tempered by supply constraints
Brinker said the shortages prompted Modine to resequence capacity rollouts, shift available components toward its highest-producing lines and temporarily carry labor and overhead costs while some expansion sites operated below planned utilization. The company is negotiating supply commitments for fiscal 2027 and beyond, while existing suppliers expand capacity.
Data Center adjusted EBITDA rose 27%, but the adjusted EBITDA margin declined to 14.8%. Chief Financial Officer Mick Lucareli said the margin was affected by a 150-basis-point year-over-year warranty variance related to a large prior-year settlement, as well as a 450- to 550-basis-point impact from excess labor and unfavorable overhead absorption tied to lower production volumes.
Modine expects Data Center margins to recover to a range between 19% and 20% in the second quarter, supported by an expected roughly $100 million sequential increase in revenue. Lucareli said the company expects further margin improvement in the second half as capacity comes online and throughput rises. For the full fiscal year, Modine expects Data Center earnings growth in excess of 85%.
The company said it has secured supply for the remainder of the fiscal year, assuming suppliers meet agreed commitments. Brinker added that Modine is pursuing longer-term supply arrangements with critical vendors and is considering vertical integration in one instance as part of its supply-risk mitigation efforts.
Commercial HVAC sales rise on acquisitions and coils demand
Commercial HVAC revenue increased 22% during the first quarter. HVAC Technologies revenue rose $24 million, or 45%, with acquisitions contributing $20 million. Heat Transfer Solutions revenue increased $11 million, or 7%, led by North American coil sales supporting data-center customers.
Adjusted EBITDA in Commercial HVAC increased 7%, while margin declined 220 basis points year over year. Lucareli cited the mix effect from recently acquired businesses, manufacturing inefficiencies during integration work, and a greater proportion of lower-margin coil revenue relative to higher-margin heating and cooler products.
Modine recently named Michael Mahan president of Commercial HVAC. Brinker said Mahan will lead the segment’s next phase of 80/20 initiatives, including vertical segmentation, acquisition integration and operating improvements. The company is consolidating certain product lines into its Owatonna, Minnesota, facility and consolidating coils production in Grenada and Juarez. Management also said it is taking pricing actions to offset material inflation and tariffs.
Lucareli said Commercial HVAC is expected to deliver double-digit earnings growth for the year, with adjusted EBITDA margin improving each quarter. He said the business could finish fiscal 2027 with an EBITDA margin between 18% and 20%, compared with approximately 16.7% in the prior year.
Performance Technologies transaction remains on track
Performance Technologies revenue remained affected by weaker end-market demand. Heavy-duty equipment sales rose 1%, helped by genset product sales, while on-highway application sales fell 5% because of lower automotive and commercial-vehicle demand. Segment adjusted EBITDA declined 3%, and margin slipped 10 basis points to 13%.
Management said cost-savings initiatives reduced segment SG&A by $2 million during the quarter. The company expects commodity metals trends to become more favorable in future quarters and remains focused on improving Performance Technologies margins and earnings for the year.
Modine continues to prepare for the planned spin-off and merger of Performance Technologies with Gentherm. Brinker said Gentherm has submitted its S-4 filing to the Securities and Exchange Commission, while Modine has completed the filing required for an IRS determination letter regarding the Reverse Morris Trust transaction. The company expects a favorable ruling before closing and continues to target completion before the end of the calendar year, subject to shareholder approval and other closing conditions.
Outlook unchanged despite first-quarter margin pressure
At the consolidated level, first-quarter adjusted EBITDA rose 5% to produce a 12.2% margin, down 270 basis points from the prior year. Gross margin declined 340 basis points to 20.8%. Lucareli said the lower margin reflected the Data Center supply-chain disruption, unfavorable Commercial HVAC mix, and lower market volumes and higher costs in Performance Technologies.
Adjusted EPS was $1.53, including a favorable tax benefit related to stock-based incentive compensation awards. The company said the benefit is expected to be largely offset by other items during the rest of the year, with its full-year effective tax rate generally in line with prior expectations.
Free cash flow was slightly negative in the first quarter, reflecting higher capital expenditures and more than $60 million of other cash-flow items, including contract assets, cash taxes and incentive compensation. Net debt was $433 million, and the company reported a leverage ratio of 0.9.
- Total fiscal 2027 sales growth outlook: 20% to 35%.
- Data Center sales growth outlook: 60% to 80%.
- Commercial HVAC sales growth outlook: 5% to 10%.
- Performance Technologies sales outlook: flat to up 5%.
- Adjusted EBITDA outlook: $650 million to $680 million, representing growth exceeding 40%.
- Expected full-year free cash flow as a percentage of sales: 4% to 6%.
Management said the outlook includes Performance Technologies for the full fiscal year and will be updated once the timing of the proposed transaction is known. Modine expects margins and earnings to increase sequentially through fiscal 2027 and said achieving its targets would represent a fifth consecutive year of record results.
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.
