We use cookies to understand how you use our site and to improve your experience.
This includes personalizing content and advertising.
By pressing "Accept All" or closing out of this banner, you consent to the use of all cookies and similar technologies and the sharing of information they collect with third parties.
You can reject marketing cookies by pressing "Deny Optional," but we still use essential, performance, and functional cookies.
In addition, whether you "Accept All," Deny Optional," click the X or otherwise continue to use the site, you accept our Privacy Policy and Terms of Service, revised from time to time.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Modine Q2 Earnings Miss: Is the Stock a Buy, Hold or Sell?
Read MoreHide Full Article
Key Takeaways
Modine's Q2 earnings missed estimates by 12.9%, despite a 34.6% jump in sales to $994.4 million.
Data Centers revenues nearly doubled, but higher material costs and tariffs dragged margins lower.
Modine's negative free cash flow of $145.6 million and rising debt raise concerns despite strong demand.
Modine Manufacturing (MOD - Free Report) reported second-quarter fiscal 2027 results with strong sales but weaker profits. Earnings missed estimates, margins fell and the company burned cash faster. With the stock having declined more than 50% in a month, let's dive deeper to see if this is a buying opportunity or a reason to stay away.
Image Source: Zacks Investment Research
Earnings Miss Even as Sales Grow
Modine posted adjusted earnings of $1.35 per share, below the Zacks Consensus Estimate of $1.55. That is a miss of 12.9%, though earnings were up 27.4% from $1.06 a year earlier. Net sales rose 34.6% to $994.4 million and came in above estimates.
Modine Manufacturing Company Price, Consensus and EPS Surprise
That points to rising costs eating into the benefit of higher volumes. The Performance Technologies spin-off also added one-time costs and tax expenses during the quarter. These are excluded from adjusted earnings, but they did reduce what the company reported. Management expects another $20-$25 million of transaction-related costs in the second half, so these charges are not fully behind the company.
Margins Are Shrinking as Sales Rise
The Data Centers business is the main reason investors own this stock. Segment revenues almost doubled to $439.7 million, and quarterly orders crossed $1 billion for the first time. Profitability, however, went the other way. Gross margin in the segment fell 470 basis points to 19.7%, and adjusted EBITDA margin dropped to 15.4% from 18.1%.
Higher material costs, tariffs and freight were the main reasons. Shortages of key parts such as fans, evaporators and compressors are forcing Modine to pay more and ship faster to keep customers supplied. Material costs alone took about 3.75 percentage points off the segment’s margin.
Commercial HVAC shows a similar pattern. Revenues rose 23%, but gross margin slipped 140 basis points to 23.1%, and adjusted EBITDA margin stayed flat at 15.1%. For the company as a whole, gross margin fell 160 basis points to 20.7%.
In simple terms, Modine is selling more but keeping a smaller share of each dollar. Supply constraints are largely outside its control and can take time to ease, which makes the margin pressure harder to fix quickly.
Cash Flow Is Weak and Debt Is Rising
Cash flow was another weak spot of the earnings report. In the first six months of the fiscal year, operating activities used $57.1 million, compared with $29.1 million generated a year earlier. Capital spending rose to $88.5 million from $59.4 million. Free cash flow was negative $145.6 million compared with negative $30.3 million last year. The company is spending heavily on new capacity and building up inventory, and both are absorbing cash.
Net debt rose by $210.9 million since the end of fiscal 2026 to $573.7 million. Modine received about $199 million from Gentherm (THRM - Free Report) after the spin-off and used it to repay debt. That helped the balance sheet, but it was a one-time payment and does not mean the business is now generating more cash. For the full year, management expects free cash flow of only breakeven to $25 million, against capital spending of $150-$200 million. Expanding at this pace needs a lot of funding, and Modine is relying on debt and working capital to provide it.
The Second-Half Plan Leaves Little Room for Error
Management expects things to improve in the second half. It is targeting a Data Centers adjusted EBITDA margin of at least 20% in the fourth quarter, up from 15.4% now. It has also raised its fiscal 2027 outlook to revenues of $3.1-$3.2 billion and adjusted EBITDA of $470-$500 million.
Reaching these numbers depends on a lot going right. Modine plans to increase chiller production lines from 13 to 20 by year-end, start its third data center facility in Calgary and add air handling unit capacity, all while supplier shortages continue. Management has already said that higher volumes and new launches caused some inefficiencies. If the ramp-up or price increases to recover costs run late, the 20% margin target could be missed. After a quarter in which earnings fell short, it is reasonable to be cautious about these expectations.
Our Take
Modine has genuine positives, including record orders, a new air handling award of more than $400 million and strong demand from hyperscale customers. But the latest quarter showed an earnings miss, lower margins, negative free cash flow and higher debt, and more spin-off costs are still to come.
Analysts have also turned more cautious. Over the past 60 days, earnings estimates for the company have been revised downward, which suggests expectations for profitability are coming down. The sharp decline in the stock reflects some of these concerns.
Image Source: Zacks Investment Research
Given this, existing shareholders may consider selling on any gains, and new investors will be better off staying away until Modine shows it can turn higher sales into steady profit and cash.
Modine currently carries a Zacks Rank #5 (Strong Sell).
View the Zacks #1 Rank List
Image: Bigstock
Modine Q2 Earnings Miss: Is the Stock a Buy, Hold or Sell?
Key Takeaways
Modine Manufacturing (MOD - Free Report) reported second-quarter fiscal 2027 results with strong sales but weaker profits. Earnings missed estimates, margins fell and the company burned cash faster. With the stock having declined more than 50% in a month, let's dive deeper to see if this is a buying opportunity or a reason to stay away.
Image Source: Zacks Investment Research
Earnings Miss Even as Sales Grow
Modine posted adjusted earnings of $1.35 per share, below the Zacks Consensus Estimate of $1.55. That is a miss of 12.9%, though earnings were up 27.4% from $1.06 a year earlier. Net sales rose 34.6% to $994.4 million and came in above estimates.
Modine Manufacturing Company Price, Consensus and EPS Surprise
Modine Manufacturing Company price-consensus-eps-surprise-chart | Modine Manufacturing Company Quote
That points to rising costs eating into the benefit of higher volumes. The Performance Technologies spin-off also added one-time costs and tax expenses during the quarter. These are excluded from adjusted earnings, but they did reduce what the company reported. Management expects another $20-$25 million of transaction-related costs in the second half, so these charges are not fully behind the company.
Margins Are Shrinking as Sales Rise
The Data Centers business is the main reason investors own this stock. Segment revenues almost doubled to $439.7 million, and quarterly orders crossed $1 billion for the first time. Profitability, however, went the other way. Gross margin in the segment fell 470 basis points to 19.7%, and adjusted EBITDA margin dropped to 15.4% from 18.1%.
Higher material costs, tariffs and freight were the main reasons. Shortages of key parts such as fans, evaporators and compressors are forcing Modine to pay more and ship faster to keep customers supplied. Material costs alone took about 3.75 percentage points off the segment’s margin.
Commercial HVAC shows a similar pattern. Revenues rose 23%, but gross margin slipped 140 basis points to 23.1%, and adjusted EBITDA margin stayed flat at 15.1%. For the company as a whole, gross margin fell 160 basis points to 20.7%.
In simple terms, Modine is selling more but keeping a smaller share of each dollar. Supply constraints are largely outside its control and can take time to ease, which makes the margin pressure harder to fix quickly.
Cash Flow Is Weak and Debt Is Rising
Cash flow was another weak spot of the earnings report. In the first six months of the fiscal year, operating activities used $57.1 million, compared with $29.1 million generated a year earlier. Capital spending rose to $88.5 million from $59.4 million. Free cash flow was negative $145.6 million compared with negative $30.3 million last year. The company is spending heavily on new capacity and building up inventory, and both are absorbing cash.
Net debt rose by $210.9 million since the end of fiscal 2026 to $573.7 million. Modine received about $199 million from Gentherm (THRM - Free Report) after the spin-off and used it to repay debt. That helped the balance sheet, but it was a one-time payment and does not mean the business is now generating more cash. For the full year, management expects free cash flow of only breakeven to $25 million, against capital spending of $150-$200 million. Expanding at this pace needs a lot of funding, and Modine is relying on debt and working capital to provide it.
The Second-Half Plan Leaves Little Room for Error
Management expects things to improve in the second half. It is targeting a Data Centers adjusted EBITDA margin of at least 20% in the fourth quarter, up from 15.4% now. It has also raised its fiscal 2027 outlook to revenues of $3.1-$3.2 billion and adjusted EBITDA of $470-$500 million.
Reaching these numbers depends on a lot going right. Modine plans to increase chiller production lines from 13 to 20 by year-end, start its third data center facility in Calgary and add air handling unit capacity, all while supplier shortages continue. Management has already said that higher volumes and new launches caused some inefficiencies. If the ramp-up or price increases to recover costs run late, the 20% margin target could be missed. After a quarter in which earnings fell short, it is reasonable to be cautious about these expectations.
Our Take
Modine has genuine positives, including record orders, a new air handling award of more than $400 million and strong demand from hyperscale customers. But the latest quarter showed an earnings miss, lower margins, negative free cash flow and higher debt, and more spin-off costs are still to come.
Analysts have also turned more cautious. Over the past 60 days, earnings estimates for the company have been revised downward, which suggests expectations for profitability are coming down. The sharp decline in the stock reflects some of these concerns.
Image Source: Zacks Investment Research
Given this, existing shareholders may consider selling on any gains, and new investors will be better off staying away until Modine shows it can turn higher sales into steady profit and cash.
Modine currently carries a Zacks Rank #5 (Strong Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.