Modine Manufacturing Company

Modine reported first-quarter fiscal 2027 sales up 28% year over year, gross margin of 20.8% (down 340 basis points), adjusted EBITDA up 5% to a 12.2% margin, and adjusted EPS of 1.53, up 44%. Data Center sales increased 90%, Commercial HVAC sales increased 22%, and Performance Technologies sales were pressured by end-market softness. For fiscal 2027, management kept guidance unchanged: 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 flat to up 5%, adjusted EBITDA of $650 million to $680 million, and free cash flow at 4% to 6% of sales. Management also said it expects a step up in margins from Q1 to Q2 and continued sequential improvement through the year.

Neil Brinker emphasized that Modine is in the middle of a major growth phase, especially in Data Centers, where demand remains “unprecedented” and backlog has now set a record for three consecutive quarters. He said the current margin pressure is a timing issue tied to supply chain shortages and ramp costs, not a structural problem, and he remained confident the company can meet its long-term capacity commitments and fiscal 2027 targets. He also highlighted new leadership in Commercial HVAC, ongoing 80/20 actions, and the planned Performance Technologies spin/merger with Gentherm, which remains on track to close before year-end.

Mick Lucarelli focused on the financial bridge behind the quarter: Data Center adjusted EBITDA margin was 14.8%, with temporary impacts from a 150-basis-point warranty comparison and 450 to 550 basis points of margin pressure from excess labor and under-absorbed overhead tied to shortages. He said corporate SG&A included $7.1 million of spin-off-related expenses, total company gross margin was 20.8%, total company SG&A was 11.8% of sales, net debt was $433 million, and leverage was 0.9. He also said free cash flow was slightly negative in the quarter, weighed by higher capex, more than $60 million of other cash flow items, and $14.9 million of restructuring/disposition cash payments, while still expecting leverage to decline further by year-end.

Analysts focused on how quickly Data Center margins can recover, how much backlog is already covered by firm orders, and whether customer timing shifts or supply chain constraints could push demand to competitors. Management said Q2 Data Center margin should return to the 19% to 20% range as volume rebounds, with another step-up in Q3 and Q4, and that June was already back near the desired profitability range. On backlog and customer demand, management said the largest hyperscaler and neocloud customers are driving orders, lead times are typically four to six months, and the company is also securing longer-term supply LTAs to support fiscal 2028 and 2029.