Modine (MOD) Q2 2027: Data Center Sales Nearly Doubled, But EPS Disappointed

Modine's fiscal second quarter of 2027 was mixed. Revenue of $994.4 million exceeded the consensus estimate of $978.3 million and climbed 34.6% from the same quarter a year ago. Adjusted earnings per share came in at $1.35, missing expectations of $1.52 and snapping a streak of six consecutive quarters in which the company had topped EPS expectations.

In the Data Centers segment, sales rose 95% on surging demand from hyperscale customers in North America, reaching $439.7 million for the quarter. Commercial HVAC added another strong result, with revenue growing 23% to $285.5 million. CEO Neil D. Brinker noted "record orders and backlog" in the Data Centers segment and called out expanding opportunities to serve the data center cooling market through the Commercial HVAC business as well.

The earnings shortfall was driven in part by margin compression. Gross margin narrowed 160 basis points to 20.7%, pressured by higher material, component, and tariff costs alongside an unfavorable product mix. On a GAAP basis, diluted EPS fell to $0.56 from $0.83 a year earlier, weighed down by $29.5 million in tax charges tied to legal entity restructuring for the separation of the Performance Technologies segment, which closed October 1 in a Reverse Morris Trust transaction with Gentherm.

Free cash flow was deeply negative, at negative $140.6 million, reflecting an inventory build and elevated capital expenditures of $42.1 million as the company expands capacity to meet Data Centers demand. Net debt stood at $573.7 million, and operating cash flow was negative $98.5 million for the quarter. The rapid growth in the highest-demand segment is clearly stretching working capital in the near term.

For fiscal 2027, management guided net sales of $3.1 to $3.2 billion and adjusted EBITDA of $470 to $500 million for the continuing business, representing revenue growth of 50 to 55% when Performance Technologies is excluded from both periods. Those figures reflect only the post-spin company going forward. Longer-term revenue and earnings targets are set to be unveiled at an Analyst and Investor Day on November 18.