Record Climate Solutions Growth Spurs Higher 2026 Revenue Outlook
Modine reported robust results for the second quarter of fiscal 2026, powered by a 12% year-over-year jump in net sales to $738.9 million. This momentum came largely from its Climate Solutions segment, where revenue surged 24%, fueled by a 42% leap in data center sales. Responding to accelerating demand—especially in the data center market—Modine raised its full-year net sales growth forecast to 15–20%, up from a previous 10–15% range. The company also reaffirmed its adjusted EBITDA outlook at $440 to $470 million, aiming for up to 20% growth over last year.
| Q2 FY2026 ($M) | Year-Over-Year Change |
|---|---|
| Net Sales | +12% |
| Climate Solutions Segment Sales | +24% |
| Data Center Sales | +42% |
| Performance Technologies Segment Sales | -4% |
| Adjusted EPS | +9% |
Margins Tighten as Modine Invests for the Future
Despite impressive top-line growth, Modine’s profitability came under pressure. The company’s overall gross margin fell to 22.3% from 25.2% last year, mainly due to higher costs associated with rapidly expanding manufacturing capacity for data center products. In the Climate Solutions segment, margins slipped to 24.6%, down 440 basis points. While these operating inefficiencies are temporary, Modine expects continued pressure as it brings new capacity online to meet demand.
| Segment | Q2 Sales ($M) | Gross Margin (%) | Adjusted EBITDA Margin (%) |
|---|---|---|---|
| Climate Solutions | 454.4 | 24.6 | 16.7 |
| Performance Technologies | 286.3 | 18.9 | 14.7 |
Investing for Long-Term Growth But Cash Flow Turns Negative
While revenue prospects look strong, Modine is shouldering higher capital expenditures to support its data center expansion and acquisitions. Free cash flow for the first six months of fiscal 2026 swung to a negative $30.3 million—an $87.8 million deterioration year-over-year. Higher inventory balances and working capital needs contributed to this outflow, along with $182.1 million spent on acquisitions and a notable $224.6 million net increase in debt over the same period.
| Financial Position (Sept 30, 2025) | Value ($M) |
|---|---|
| Net Debt | 498.3 |
| Cash & Equivalents | 83.8 |
| Free Cash Flow (6M) | -30.3 |
| CapEx (6M) | 59.4 |
| Acquisition Spend (6M) | 182.1 |
Data Center Opportunity Remains a Core Driver
Management is clearly betting on data centers for sustained growth. The company now expects data center revenue to jump over 60% year-over-year in the second half of fiscal 2026, supporting an ambitious target of more than $2 billion in annual data center sales by fiscal 2028. Recent acquisitions and added manufacturing capacity underpin this forecast, though Modine notes these investments are still driving up costs in the near term.
Key Takeaway: Revenue Growth and Data Centers Shine, but Watch Margins and Cash Flow
Modine’s aggressive investments are paying off in market share and revenue growth, especially within data center solutions. The higher outlook is a strong sign of confidence, but investors and analysts should monitor margin trends and the pace of cash flow recovery. If Modine’s capacity expansion and integration of new acquisitions go as planned, it could be well-positioned for long-term gains—provided it can translate rising sales into sustainable profits and healthy free cash flow.
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