Executive Summary

Modine delivered 12% YoY revenue growth to $738.9M, driven by 42% YoY data center growth within Climate Solutions; adjusted EPS was $1.06 (up 9% YoY) while gross margin compressed 290 bps to 22.3% due to temporary launch inefficiencies tied to rapid capacity expansions .
Guidance: revenue growth raised to +15%–20% (from +10%–15%) while adjusted EBITDA of $440–$470M was reaffirmed; management expects >60% data center revenue growth in FY26 and >90% YoY growth in H2, with margins normalizing in Q4 as new lines ramp .
Beat/miss vs S&P Global consensus: Revenue $738.9M vs $698.4M* (beat); EPS $1.06 vs $1.01* (beat); EBITDA (S&P-defined) $100.3M* vs $103.1M* (slight miss). On company-adjusted basis, EBITDA was $103.8M (+4% YoY) .
Key swing factors: higher build-out costs (1,200 new hires, parallel line launches) and mixed HVAC seasonality weighed on margins; segment cost actions in Performance Technologies improved EBITDA margin +90 bps YoY despite softer end-markets .
Setup into H2: sequential revenue/margin expansion expected as 7+ new chiller lines come online (2+ in Q3; +5 in Q4), with Q4 margins “more in line with prior year”; free cash flow weighted to H2 given inventory build and capex for the ramp .

What Went Well and What Went Wrong

What Went Well

Climate Solutions growth: Segment sales up 24% to $454.4M on 42% data centers and 25% HVAC Technologies growth (incl. $28.1M from M&A); adjusted EPS rose to $1.06 (+9% YoY) .
Strategic capacity ramp on track: Launched chiller production in Grenada, MS; Franklin, WI to launch in Q3; Jefferson City, MO in Q4; secured Grand Prairie, TX; >60% DC revenue growth targeted in FY26 and >$2B by FY28 .
PT margin improvement: Despite -4% revenue, Performance Technologies adjusted EBITDA grew 3%, with margin +90 bps YoY to 14.7% on cost reductions and efficiencies .

Management quotes:

“We now anticipate Data Centers revenue to grow by more than 60 percent year-over-year… keeps us on track to achieve our target of more than $2 billion in Data Centers revenue by fiscal 2028.” – CEO Neil Brinker .
“For Q4, we should begin to see more significant volumes from our new production lines… exit the year at more normalized profit margins.” – CFO Mick Lucareli .

What Went Wrong

Margin pressure from ramp: Gross margin fell 290 bps to 22.3% due to temporary costs from adding capacity, lower HVAC seasonality, and absence of prior-year pricing settlements in heat pumps .
One-time charges: $4.1M non-cash impairment in Europe and $3.1M restructuring weighed on operating income; tax expense also affected by the “One Big Beautiful Bill Act” (+$3.1M) .
Cash flow headwinds: Q2 free cash flow was -$30.5M; YTD FCF -$30.3M on inventory builds and capex for data center expansion; net debt rose to $498.3M to fund acquisitions and growth .

Financial Results

Headline P&L vs prior year, prior quarter, and consensus

Metric	Q2 FY25	Q1 FY26	Q2 FY26	Cons. Q2 FY26
Revenue ($M)	$658.0	$682.8	$738.9	$698.4*
Gross Margin (%)	25.2%	24.2%	22.3%	—
Adjusted EBITDA ($M)	$99.8	$101.4	$103.8	—
EBITDA (S&P-defined) ($M)	—	—	$100.3*	$103.1*
Diluted EPS (GAAP)	$0.86	$0.95	$0.83	—
Adjusted EPS	$0.97	$1.06	$1.06	$1.01*

Notes: Consensus values marked with *; Values retrieved from S&P Global.

Segment performance

Segment	Metric	Q2 FY25	Q1 FY26	Q2 FY26
Climate Solutions	Sales ($M)	$366.4	$397.4	$454.4
	Adjusted EBITDA ($M)	$78.8	$79.4	$76.0
	Adjusted EBITDA Margin (%)	21.5%	20.0%	16.7%
Performance Technologies	Sales ($M)	$297.5	$285.5	$286.3
	Adjusted EBITDA ($M)	$41.0	$37.5	$42.2
	Adjusted EBITDA Margin (%)	13.8%	13.1%	14.7%

KPIs and Balance Sheet

KPI	Q2 FY25	Q1 FY26	Q2 FY26
Data Center sales growth YoY	—	—	+42%
Net Debt ($M)	—	$402.6	$498.3
Free Cash Flow ($M, QTD)	$43.8	$0.2	$(30.5)
Capex ($M, YTD)	$40.3	$27.5	$59.4
Leverage Ratio	—	—	1.2x

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Net Sales Growth	FY26	+10% to +15%	+15% to +20%	Raised
Adjusted EBITDA ($M)	FY26	$440–$470	$440–$470	Maintained
Climate Solutions Sales	FY26	—	+35% to +40%	New detail
Performance Technologies Sales	FY26	—	Flat to (7%)	New detail (raised vs prior range per call)
Data Center Sales Growth	FY26	Approach $2B by FY28 (strategy)	>60% in FY26; >90% YoY in H2	Raised detail
Free Cash Flow (% of sales)	FY26	—	2.5%–3%	New detail
Assumptions	FY26	Int: $28–$30M; Tax: $78–$86M; D&A: $89–$93M	Int: $31–$35M; Tax: $81–$87M; D&A: $79–$83M	Updated mix

Earnings Call Themes & Trends

Topic	Previous Mentions (Q4 FY25 & Q1 FY26)	Current Period (Q2 FY26)	Trend
Data center capacity & growth	Record FY25; expanding US capacity; raised FY26 outlook (revenue +10–15%)	Launched Grenada; Franklin Q3; Jeff City Q4; Grand Prairie secured; >60% FY26 DC growth; H2 >90% YoY; $2B+ FY28 reiterated	Accelerating ramp and visibility improving
Margins & launch costs	Healthy margins; PT cost actions; initial ramp planned H2	Climate margins temporarily depressed by ramp; normalization expected Q4 as lines scale	Near-term trough; improving into Q4
AI-driven demand	Data center investments underpin growth	AI workloads cited as key DC driver; modular DC early shipments	Strengthening driver
Regional expansion	US expansions (announced) , EU facility in FY25	India facility launched (Chennai) for APAC; UK chiller capacity expansion planned	Global footprint broadening
Tariffs & macro	Tariff uncertainty; broader ranges in FY26 outlook	Tariffs remain a challenge in PT; recoveries and surcharges used	Ongoing headwind, partially mitigated
Portfolio actions	PT restructuring & exits	New PT leader; continued cost-out, explore divestiture options (status quo)	Execution continues

Management Commentary

“We are encountering temporary operating inefficiencies [as] we prepare to bring this additional capacity online… We remain on track to begin production in the second half… positioning us to capitalize on recent investments and further drive revenue and margin improvement.” – CEO Neil Brinker .
“For Q4… more significant volumes from our new production lines… allow us to more fully absorb the fixed incremental costs and exit the year at more normalized profit margins.” – CFO Mick Lucareli .
“We added over 1,200 employees to support data centers… added significant additional costs this quarter, with little incremental revenue, resulting in temporary margin erosion in Climate Solutions.” – CEO Neil Brinker .
“To get to Q3 targets, we probably need $40–$50M of incremental capacity… To get to Q4, another $75–$100M… a minimum of another five chiller lines.” – CFO Mick Lucareli .

Q&A Highlights

Climate margin bridge and normalization: ~~225–250 bps headwind from DC expansion (~~$10–$12M costs), ~125 bps from prior-year heat pump settlements, and ~100 bps mix/start-up in HVAC; margins expected to move back toward ~20%+ segment level in Q4 as volume ramps .
Ramp mechanics: 2+ chiller lines in Q3 and 5+ in Q4; sequential capacity adds underwrite H2 revenue/margin lift .
DC TAM and share: Company sees path to 15%–20% share by FY28 (~$2B sales), growing above market; demand visibility improved over last 90 days with stronger order funnel .
Incrementals: At steady-state, ~30% incremental gross profit on existing facilities as volume scales; emphasizes rinse-and-repeat line replication and lean gains .
Customer concentration and pipeline: Two hyperscalers account for majority today; expanding into other hypers, NeoCloud; modular DC products in pilot with design refinements underway .

Estimates Context

Revenue: $738.9M vs consensus $698.4M* → beat by ~$40.5M .
EPS (Primary): $1.06 vs consensus $1.01* → beat by $0.05 .
EBITDA: S&P-defined actual $100.3M* vs consensus $103.1M* → slight miss; company-reported adjusted EBITDA was $103.8M detaching from S&P’s definition (+4% YoY) .
Takeaway: Top-line and EPS beats reflect stronger Climate Solutions growth; EBITDA optics mixed given non-GAAP vs S&P definition and ramp costs.
Values retrieved from S&P Global.

Key Takeaways for Investors

Revenue momentum outpaced expectations, led by data center demand and bolt-on M&A in HVAC; management lifted FY26 revenue growth to +15%–20% while reaffirming EBITDA, signaling confidence in H2 volume ramp despite near-term margin pressure .
Margin trough likely behind in Q2/Q3; normalization in Q4 depends on timely launch of 7+ new chiller lines and absorption of fixed costs; watch execution milestones and Q3–Q4 capacity adds .
Structural DC growth thesis intact: >60% DC revenue growth in FY26, >90% H2 growth, and long-term path to >$2B in FY28; AI workloads underpin demand; modular DC adds optionality .
Cash conversion suppressed near term by inventory and capex for expansions; FCF guided to 2.5%–3% of sales in FY26 with improvement expected in FY27 as ramp matures .
PT resiliency: Margin expansion continues on cost actions despite soft volumes and tariffs; cyclical recovery would provide operating leverage .
Watch items: execution risk on multi-site launches, acquisition integrations in HVAC, tariff/macro headwinds, and tax impacts (e.g., $3.1M Q2 tax headwind from new legislation) .
Near-term trading stance: stock sensitive to margin inflection and Q4 run-rate; catalysts include further DC order disclosures, line commissioning updates, and sustained segment margin recovery .

Additional Detail

One-time/Non-GAAP items: $4.1M non-cash impairment (Germany), $3.1M restructuring; adjusted EPS $1.06 vs GAAP $0.83; non-GAAP EBITDA excludes restructuring, impairments, M&A costs .
Liquidity: Net debt rose to $498.3M on acquisitions and capex; leverage manageable at 1.2x; balance sheet positioned to fund growth .

All company figures and commentary cited from Modine’s Q2 FY26 8-K press release and presentation and the earnings call transcript: revenues, margins, EPS, adjusted EBITDA, segment details, guidance, and qualitative drivers . Prior-quarter comparisons from Q1 FY26 and Q4 FY25 press releases . Consensus values marked with * are from S&P Global (Values retrieved from S&P Global).

MODINE MANUFACTURING CO (MOD)·Q2 2026 Earnings Summary