Important Points
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Modine reported another record financial yearwith revenue and adjusted EBITDA hitting record highs for the fourth consecutive year. Growth was led by a rapid increase in data center cooling and acquisitions that added $119 million in revenue.
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The company announced a a long-term power agreement with a data center customer includes more than $4 billion in cooling products for calendar years 2027 to 2029. Modine said the deal supports its continued expansion in the US and will begin entering fiscal Q4.
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Modine was issued a bullish financial outlook 2027calls for gross sales growth of 20% to 35% and adjusted EBITDA of $650 million to $680 million. It also expects data center sales to increase 60% to 80%, despite some supply chain and margin pressure in Q1.
Modine Manufacturing (NYSE: MOD) executives said the company closed fiscal 2026 with another record year of revenue and adjusted EBITDA, driven by rapid growth in data center cooling and continued redesign of its portfolio into high-growth businesses.
President and CEO Neil Brinker said the year marks Modine’s fourth consecutive year of record revenue and adjusted EBITDA. He pointed to three acquisitions — AbsolutAire, LB White and Climate by Design — that combined added $119 million in incremental revenue during the year, as well as a previously announced $100 million investment to expand US capacity for data center products.
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Brinker also highlighted a recently announced long-term power agreement with a data center customer. Under the agreement, Modine will guarantee the ability to supply data center cooling products in excess of $4 billion during the calendar years 2027 to 2029.
“This agreement highlights our customers’ confidence in Modine and confirms our need to invest in capacity expansion,” said Brinker.
Data center demand drives Climate Solutions’ results
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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% year-over-year to $1.1 billion, including more than $400 million in fourth-quarter revenue.
Brinker said North American chiller production increased fivefold over the previous year, despite weather-related disruptions that caused the company to lose 20 production shifts at data centers. He said Modine also shipped its first chillers to Jefferson City, Missouri, and shipped air handling units and coolant distribution units to its Franklin, Wisconsin, plant in the fourth quarter.
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Executive Vice President and Chief Financial Officer Michael Lucareli said that Climate Solutions’ fourth quarter sales were up 87% over the previous year. Data center sales increased $246 million, or 158%, while HVAC technology sales increased $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 at Climate Solutions grew 63% in the quarter, Lucareli said, although margins were lower than a year ago and improved sequentially. He said severe weather and storms cost Climate Solutions about 50 to 100 points in downtime, including 20 lost production shifts in data centers and 35 shifts in other business areas.
Supply chain issues are expected to affect the first quarter, not the full year
Brinker said the company began seeing shortages of certain parts 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 have a temporary impact on our Q1 production plans, we do not expect any impact on our full-year outlook,” Brinker said.
Lucareli said Modine expects first-quarter margins in commercial HVAC and data centers to decline year-over-year, with favorable first-quarter margin comparisons in the second quarter and continuing through fiscal year 2027.
Brinker said the demand outlook for data centers remains strong, with hyperscale customers continuing to make significant investments, particularly in North America. He also mentioned Modine’s 3-megawatt chiller, which he said provides a 50% increase in cooling capacity with only a 9% increase, as a product designed for high chip density and increased data center heat.
A long-term agreement adds visibility
During a question-and-answer session, Brinker said the long-term deal is with an existing customer and is specific to cool people. Lucareli said the deal is “completely within the target parameters” of the data center business and will be consistent with current standards.
The management said that this agreement is included in the plan to increase the capacity which was discussed earlier with the investors. Brinker said Modine believes his normal annual spending cycle on data centers will be sufficient to continue to increase capacity beyond the agreement.
Lucareli said that the income under the agreement will begin to increase in the fourth quarter of Modine’s finances, and the contract covers three calendar years and is expected to not exceed two billion dollars per year.
Performance Technologies is preparing the Gentherm transaction
Modine also continues to prepare for the planned exit of the Performance Technologies segment and the merger with Gentherm. Brinker said the project is still ongoing, and the company still expects the project to close before the end of the calendar year, assuming the necessary permits are obtained.
Performance Technologies’ revenue was flat in the fourth quarter, Lucareli said, with lower sales offset by the positive impact of $12 million from imports. Heavy equipment sales were down 5%, mainly from lower genset sales, while highway sales were up 4% on higher sales to car and truck customers.
Adjusted EBITDA for the segment decreased 15% from the prior year due to lower volume and higher freight and tax costs. Lucareli said Modine expects to restore prices through additional fines and reduce metal inflation by using pricing mechanisms in customer contracts, although those adjustments are usually delayed by three to six months.
The fiscal outlook for 2027 calls for another record year
For the full company, fourth-quarter sales rose 47%, adjusted EBITDA rose 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 prepayment related to a long-term energy agreement. He said the payment was recorded as a contract liability and did not affect the income statement.
For fiscal 2027, Modine expects:
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Total company sales growth of 20% to 35%.
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Data center sales growth of 60% to 80%.
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Commercial HVAC sales growth of 5% to 10%.
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Performance Technologies’ sales will drop by up to 5%.
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Adjusted EBITDA of $650 million to $680 million, representing over 40% growth.
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Free cash flow equals 4% to 6% of sales.
Lucareli said the outlook covers a full year for Performance Technologies, and Modine will update its guidance once the timing of the pending transaction becomes known. Starting in fiscal year 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 the automotive, commercial transportation, heavy-duty highway, industrial, HVAC and refrigeration markets. The company designs, manufactures, tests and markets a wide range of heat transfer products that control the temperature and energy efficiency of engines, electric power and building climate control systems.
Its product portfolio includes heat exchangers, condensers, radiators, evaporators, charge air conditioners, fan systems and associated controls.
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The article “Modine Manufacturing Q4 Earnings Call Highlights” was first published by MarketBeat.
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