Modine Manufacturing (NYSE:MOD) raised its revenue growth outlook for its remaining businesses after data center sales nearly doubled in the second quarter of fiscal 2027, though executives said supply chain costs would slow the pace of margin improvement.
The thermal management company reported a fourth consecutive quarter of record data center orders, with quarterly intake exceeding $1 billion for the first time. Chief Executive Officer Neil Brinker also announced an award to supply more than $400 million of custom air handling units to a strategic hyperscaler customer through calendar 2027.
Modine’s revised full-year outlook excludes its Performance Technologies business, which was spun off and merged with Gentherm on October 1. The company said it will report the business as discontinued operations beginning in the third quarter.
Data Center Demand Drives Growth
Second-quarter data center revenue rose 95% from a year earlier, including a 132% increase in the Americas. Sales in Europe, the Middle East and Africa declined 6%, primarily because of shipment timing, Chief Financial Officer Mick Lucareli said.
Adjusted EBITDA for the segment grew 66%, with a margin of 15.4%. Although the margin improved sequentially, it was lower than Modine anticipated as supply chain and material costs persisted longer than expected. Lucareli cited tariffs, raw material inflation, logistics expenses and higher prices paid to suppliers to secure components.
Brinker said demand across the company’s data center cooling portfolio exceeds its capacity. Modine is launching production at its third dedicated data center facility in Calgary and increasing throughput in Franklin, Wisconsin. It has 13 chiller lines operating and remains committed to reaching 20 by the end of the fiscal year.
The CEO said the company has made progress securing supply, including agreements with fan and evaporator suppliers, while negotiations with a compressor supplier continue. Modine achieved 100% on-time delivery from its chiller plants in both September and October, which Brinker attributed in part to improved supply chain stability.
Margin Recovery Depends on Volume and Pricing
Lucareli said Modine expects data center margins to improve by 100 to 200 basis points sequentially in the third quarter, with a further increase to 20% or above in the fourth quarter. Higher production volume and recovery of material costs from customers are the main drivers of that outlook, he said.
Material cost increases represented a headwind of approximately 375 basis points to the segment’s second-quarter margin, Lucareli said. He added that pricing discussions and pass-throughs already agreed upon offered visibility to at least a 250-basis-point improvement, while new programs are being priced to reflect higher costs.
Brinker said customer agreements allow pricing discussions when costs change materially, including for metals, tariffs and expedited freight. He also cautioned that ramping production, labor and supply chains together remains a challenge. “Just making sure that we can continue to meet our customers’ delivery schedules is critical for the future of our success,” he said.
Commercial HVAC and Company Results
Commercial HVAC sales increased 23% in the quarter, helped by demand for coils from data center customers. Adjusted EBITDA rose 22%, while the segment’s adjusted EBITDA margin was flat at 15.1%. Lucareli attributed the margin result to product mix and higher material and tariff costs.
Brinker said Modine is in discussions with a strategic customer about becoming a key coils provider in its supply chain. The application involves liquid cooling and radiator heat exchangers for direct-to-chip cooling, he said. The company’s coatings business, which benefits from demand for corrosion protection, increased revenue 28% from a year earlier.
Total company sales, including Performance Technologies, rose 35% in the quarter. Revenue from the remaining data center and Commercial HVAC segments grew 59%. Companywide gross margin fell 160 basis points to 20.7%, largely because of material cost inflation. Adjusted EBITDA increased 31% to a margin of 13.7%, and adjusted earnings per share rose 27% to $1.35.
Free cash flow was negative in the quarter, primarily because of working capital and capital investments in data centers, as well as spin-off expenses. Modine received approximately $200 million from Gentherm on October 1 and used it to repay debt, Lucareli said.
Full-Year Outlook
For fiscal 2027, Modine expects revenue of $3.1 billion to $3.2 billion, up 50% to 55% from the prior year when Performance Technologies is excluded from both periods. Its outlook calls for data center sales growth of 80% to 90% and Commercial HVAC growth of 10% to 15%; both ranges were raised from the prior quarter.
The company forecast adjusted EBITDA of $470 million to $500 million, representing growth of more than 50%, and expects positive free cash flow for the full year. Lucareli said margins should improve in the second half, but at a slower rate than previously anticipated because of ongoing supply costs.
Modine plans to present updated long-term targets and its fiscal 2028 and 2029 outlook at an analyst and investor day in Chicago on November 18. Lucareli also referred to the company’s next chapter as Modexus Solutions.
About Modine Manufacturing (NYSE:MOD)
Modine Manufacturing Company (NYSE: MOD) is a diversified thermal management company that develops and manufactures solutions for managing heat in vehicles, equipment, buildings and industrial systems. Its products are designed to improve efficiency, reliability and performance across a range of applications.
The company serves the automotive, commercial vehicle, off-highway, power generation, data center, heating, ventilation, air conditioning and refrigeration markets. Its offerings include heat exchangers, radiators, charge air coolers, battery and power electronics cooling systems, liquid-cooling equipment, coils and other thermal management components and systems.
Founded in 1916 by Arthur B.
