Modine Q1 FY26 slides: Data center growth drives raised guidance, segment performance diverges

Modine Manufacturing Company (NYSE:MOD) presented its first quarter fiscal 2026 results on July 31, 2025, highlighting strong performance in its Climate Solutions segment while facing challenges in Performance Technologies. The company raised its full-year guidance on the strength of recent acquisitions and accelerating data center demand.

Quarterly Performance Highlights

Modine reported Q1 FY26 net sales of $682.8 million, a 3.2% increase from $661.5 million in the same period last year. Adjusted EBITDA reached $101.4 million, slightly up from $100.9 million in Q1 FY25, while adjusted earnings per share rose to $1.06 from $1.04 year-over-year.

"Our first quarter results demonstrate the success of our strategic focus on high-growth markets, particularly in data centers," said Neil Brinker, President and CEO, as indicated in the presentation materials.

As shown in the following consolidated financial results:

The company's gross profit increased slightly to $165.4 million from $162.6 million in the prior year, while SG&A expenses rose modestly to $84.9 million from $82.8 million. Operating income improved to $75.7 million compared to $74.4 million in Q1 FY25.

Free cash flow was slightly positive at $0.2 million, impacted by a significant inventory build. Net debt stood at $403 million as of June 30, with a leverage ratio of 1.0x, reflecting an increase of $123 million year-over-year primarily due to acquisitions.

Segment Analysis: Divergent Performance

The company's two main segments showed markedly different results, with Climate Solutions driving growth while Performance Technologies faced market headwinds.

Climate Solutions

The Climate Solutions segment delivered strong results with an 11% increase in revenue to $397.4 million and a 10% rise in adjusted EBITDA to $79.4 million. The segment maintained a robust adjusted EBITDA margin of 20.0%, nearly matching the 20.1% achieved in the prior year despite ongoing investments in acquisitions and resources to support data center growth.

Data center sales grew 15%, primarily driven by North American hyperscale and colocation customers, while HVAC Technologies sales surged 34%, boosted by recent acquisitions and organic growth in heating and indoor air quality products.

As illustrated in the Climate Solutions financial results:

Performance Technologies

In contrast, the Performance Technologies segment experienced an 8% decline in revenue to $285.5 million and a 14% decrease in adjusted EBITDA to $37.5 million. The adjusted EBITDA margin contracted to 13.1% from 14.1% in the prior year.

Heavy-Duty Equipment sales fell 4% due to ongoing market softness for agriculture and construction customers, while On-Highway Applications decreased 8% amid lower global demand for commercial vehicle products and continued softness in electric vehicle auto demand.

The segment's financial performance is detailed in the following chart:

"Market downturn continues in Performance Technologies, but we're maintaining tight cost controls and reallocating talent to Climate Solutions," noted Mick Lucareli, Executive Vice President and CFO. "The team remains lean and focused on key customers, positioning us well to capitalize with strong incremental margins when volumes return."

Strategic Initiatives & Acquisitions

Modine is prioritizing organic growth in data centers, with a $100 million capacity expansion underway in North America. The company is developing custom modular data center solutions to allow rapid deployment and scalability, while collaborating with strategic customers on next-generation technologies.

Recent acquisitions have strengthened Modine's Climate Solutions portfolio:

• AbsolutAire and L.B. White offer complementary heating products
• Climate by Design International (CDI) provides desiccant dehumidification capabilities

These strategic moves align with the company's focus on higher-margin, higher-growth markets, particularly in data centers where cooling solutions are critical for infrastructure reliability.

Forward-Looking Statements & Guidance

Based on strong performance in Climate Solutions and recent acquisitions, Modine raised its fiscal 2026 outlook. The company now anticipates net sales growth of 10% to 15%, up from previous guidance, equating to $2.84 billion to $2.97 billion. Adjusted EBITDA is projected to reach $440 million to $470 million, reflecting 12% to 20% growth.

The updated guidance includes:

• Climate Solutions revenue growth of 25% to 35%
• Performance Technologies revenue decline of 2% to 12%
• Data center sales growth exceeding 45%
• Free cash flow of approximately 3% of sales, impacted by the announced data center manufacturing capacity expansion

This outlook is visualized in the following guidance table:

"We're raising our revenue and earnings outlook due to recent acquisitions and an increase in our data center sales projection," explained Lucareli. "We're particularly excited about the higher growth in Climate Solutions driven by our acquisitions and the more than 45% growth we expect in data center sales."

The company expects free cash flow to return to normal levels and improve in fiscal 2027 after the current year's investments in manufacturing capacity expansion.

Following the earnings release, Modine's stock has performed strongly. According to available market data, the shares have traded near their 52-week high of $159.54, reflecting investor confidence in the company's strategic direction and growth prospects in the data center cooling market.

Full presentation:

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