Modine shares drop 21.6% after Q2 profit miss despite revenue beat

Modine (MOD) topped revenue estimates but missed on adjusted profit for its fiscal 2027 second quarter, the company said on Nov. 3, and its shares fell 21.6% in regular trading as of 3:59 p.m. ET on Nov. 4.

The quarter ended Sept. 30. The company completed the spin-off of its Performance Technologies business on Oct. 1 through a Reverse Morris Trust transaction with Gentherm.

Here's how the company did:

• Net sales: $994.4 million vs. $738.9 million a year earlier; $953.16 million expected
• Adjusted EPS: $1.35 vs. $1.06 a year earlier; $1.47 expected
• Earnings per share: 56 cents vs. 83 cents a year earlier
• Adjusted EBITDA: $136.2 million vs. $103.8 million a year earlier

Net sales rose 35%. Gross profit rose 25% to $205.4 million, but gross margin fell 160 basis points to 20.7%.

Net earnings fell 32% to $30.3 million. That figure includes $29.5 million of income tax expense related to legal entity restructuring to facilitate the spin-off.

“Data Centers and Commercial HVAC delivered strong quarters, with revenue growth of 95% and 23%, respectively,” said Modine President and Chief Executive Officer Neil D. Brinker.

Brinker also said demand “remains very robust,” pointing to record orders and backlog in Data Centers.

Segment results

Data Centers sales rose 95% to $439.7 million from $225.0 million, mainly on higher sales to hyperscale customers in North America. Gross margin fell to 19.7%, down 470 basis points, mainly because of higher material, component and tariff costs.

Data Centers operating income rose 70% to $61.2 million, and adjusted EBITDA rose 66% to $67.6 million.

Commercial HVAC sales rose 23% to $285.5 million from $232.9 million, on higher sales of coils, coatings, and heating and ventilation products. Its gross margin was 23.1%, 140 basis points lower than a year earlier.

Performance Technologies sales were $287.7 million, up less than 1% from $286.3 million. Operating income rose 8% to $32.1 million.

2027 outlook

The company now expects fiscal 2027 net sales of $3.1 billion to $3.2 billion and adjusted EBITDA of $470 million to $500 million. Both figures exclude Performance Technologies, which will be reported as a discontinued operation starting in the third quarter.

The company expects revenues to increase 50% to 55% from the prior year, excluding Performance Technologies from both periods. It also expects adjusted EBITDA for the continuing business to grow more than 50%.

“We are updating our Fiscal 2027 financial outlook to reflect the higher expectations for our core businesses and the successful spin-off of the Performance Technologies business,” Brinker said.

The company plans to share longer-term revenue and earnings targets at an analyst and investor day on Nov. 18.

Cash flow and debt

Free cash flow for the first six months was a use of $145.6 million, a decrease of $115.3 million from the prior year. The company attributed the decline mainly to higher capital expenditures for Data Centers production capacity and to higher working capital.

Total debt was $724.3 million as of Sept. 30, and net debt was $573.7 million, an increase of $210.9 million from the end of fiscal 2026. Net debt rose mainly because of working capital and stock purchases tied to the equity compensation plan.

Modine received $199 million from Gentherm at the Oct. 1 closing and used it to repay debt, according to the company.

Net income swung from a profit of $44.4 million in the second quarter of fiscal 2026 to a loss of $47.4 million in the third quarter, according to its SEC filings.