TL;DR · 30-second read
The Short Version
Giant computer warehouses run hot and need industrial-scale cooling. Modine, a Wisconsin company that makes that equipment, took more than $1 billion in data center orders in three months, a first. It says customers want more than its factories can build.
The boom has a cost. Parts are getting scarcer and pricier, so profit is growing slower than sales. Data center sales nearly doubled, while profit from them rose about two-thirds.
The artificial intelligence and internet services people use every day depend on this equipment, so its supply problems can affect how fast those services grow.
Modine Manufacturing reported results for its fiscal second quarter, which ended September 30, 2026, in an 8-K filed November 3. Net sales rose 35% to $994.4 million, with data center revenue up 95% and Commercial HVAC (heating, ventilation and air conditioning) revenue up 23%. Adjusted EBITDA, a profit measure that excludes interest, taxes, depreciation, amortization and certain one-time items, rose 31% to $136.2 million. Adjusted earnings per share rose 27% to $1.35, while reported earnings per share fell to $0.56 from $0.83 on higher taxes tied to restructuring for a spin-off.
TipRanks reported from the November 4 earnings call that quarterly data center orders topped $1 billion for the first time, that Modine won a hyperscaler program worth more than $400 million, that 13 of a planned 20 chiller production lines are running, and that demand exceeds capacity across several product lines. TipRanks also listed a $1.52 consensus estimate for adjusted earnings per share. Modine guided to fiscal 2027 sales of $3.1 billion to $3.2 billion and adjusted EBITDA of $470 million to $500 million, both excluding the spun-off business.
Executive Summary
Modine’s quarter gives a direct read on whether data center cooling demand is reaching reported results, and on the revenue line it is. Data center revenue nearly doubled, orders set a record for the fourth straight quarter, and the company now expects full-year data center sales growth of 80% to 90%. Its earnings release also points to a “higher full-year revenue outlook” for the businesses that remain after the Performance Technologies spin-off.
Profit conversion is lagging. Data center adjusted EBITDA grew 66% against 95% revenue growth, and the segment’s 15.4% margin came in below management’s expectations. Modine attributed the shortfall largely to materials and supply chain pressure, with supplier capacity limits pushing prices higher while cost recovery from customers takes time.
That makes the second half of the fiscal year the real test. Modine must add seven chiller lines, lift data center margins to at least 20% in the fourth quarter, and reverse a $145.6 million first-half free cash outflow, all while keeping customer delivery dates.
Why the Supplier Base Is the Pinch Point
Modine is not short of customers. Management said demand for air handling units, chillers, coolant distribution units, dry air coolers and adiabatic coolers (which use water evaporation to boost heat rejection) remains above current capacity. The company is using an 80/20 approach to prioritize customers with strong finances, technology alignment and strategic fit, which means it is choosing among buyers.
The strain shows up in costs. Management said supplier capacity constraints are pushing prices higher alongside material inflation and tariffs, and estimated a 375-basis-point materials headwind on data center margins, including logistics, tariffs, raw materials and supplier pricing. A basis point is one-hundredth of a percentage point, so that is 3.75 points of margin. Revenue growth of 95% and adjusted EBITDA growth of 66% imply the segment’s margin fell to 15.4% from roughly 18% a year earlier. Modine is pursuing cost-sharing and pass-through arrangements, meaning contract terms that hand some increases to customers, but management said these take time to implement and recover costs.
Delivery has improved, and that sharpens the point. Each chiller plant reached 100% on-time delivery in September and October, and CEO Neil Brinker said in the earnings release that Modine entered “long-term agreements with multiple strategic suppliers to secure critical components.” Yet shortages, staggered parts arrivals and expedited freight persisted, so reliability is being bought at a price. Data center buyers may feel this through pass-through terms and allocation decisions, while suppliers with scarce capacity gain pricing leverage. Management also named factory and labor ramps as execution challenges, and one vendor’s quarter does not establish an industry-wide condition. Modine’s numbers do, however, show how the constraint works at a major cooling supplier.
The 20% Margin Goal Leaves Little Room in One Quarter
Management expects data center margins to improve 100 to 200 basis points in the third quarter and to reach at least 20% in the fourth. Measured from 15.4%, the first step lands at about 16.4% to 17.4%. Reaching 20% would then require another 2.6 to 3.6 points in a single quarter, a larger move than the one guided for the quarter before it.
That leap depends on pass-through arrangements taking hold and on ramp inefficiencies fading as new lines mature. Management has already said margin improvement in the second half will come at a slower pace than originally expected because supplier costs keep rising. The full-year outlook points the same way: expected data center earnings growth above 80% sits close to expected sales growth of 80% to 90%, which suggests a full-year margin near last year’s level even with a strong finish.
The pressure extends beyond data centers. Total gross margin fell 160 basis points to 20.7%, with all three segments lower. Commercial HVAC’s 15.1% adjusted EBITDA margin was flat and below expectations, with delayed recovery of copper, aluminum and steel costs among the causes. Costs passed through late appear across the company’s portfolio, not just in one ramping product line.
Seven More Chiller Lines Before March
Modine has 13 chiller lines operating and remains committed to 20 by the end of a fiscal year that closes March 31, a 54% increase in line count in the two quarters remaining. Production is beginning at a third dedicated data center plant in Calgary, and higher throughput in Franklin, Wisconsin adds more than $100 million of capacity. Fiscal 2027 capital spending is guided at $150 million to $200 million.
New lines add output only if parts and trained workers arrive with them. Management identified coordination among supply chain, factory and labor ramps as a key execution challenge and said inefficiencies could temporarily compress margins while delivery commitments are kept. In practice, each added line can raise revenue capacity and near-term cost pressure together.
Commercial HVAC may add another route into the market. That segment is benefiting from coil sales to data center customers, is expanding B-block chiller production, and is discussing a potential strategic supply role with a major customer. Management said this could create significant orders and shift the segment’s revenue mix, but it remains a discussion, not a booked award.
Cash Conversion Is the Second-Half Proof
The earnings release shows growth consuming cash. Free cash flow for the first six months was a use of $145.6 million, driven by capacity spending and higher working capital, including inventory. Net debt rose $210.9 million from the end of fiscal 2026 to $573.7 million. Modine then received about $200 million from Gentherm on October 1 and used it to repay debt, which helps leverage but does not itself show operations generating cash.
Management expects positive free cash flow for the full year. First-half figures imply about $88.5 million of capital spending, leaving roughly $60 million to $110 million against the full-year guide if both are measured on the same basis. On that arithmetic, second-half operating cash flow would need to exceed roughly $205 million to $260 million, after the first half used $57.1 million. Much of that depends on inventory turning into collected sales.
Modine says inventory risk is contained: about 70% to 80% of data center products are scalable and reusable across projects, and most inventory remains in raw form. Backlog extends well beyond two to three years, with strategic programs reaching into 2030 and 2031, although management said projects beyond 2028 carry more uncertainty around locations and campus sizes. That long visibility is valuable, but its later years are less firmly defined than the near-term work tied to permitted projects.
Background
Modine, based in Racine, Wisconsin and listed on the New York Stock Exchange as MOD, describes itself as a diversified global leader in thermal management, the engineering of moving and removing heat. Its 10-Q filed November 4 covers a quarter that still included three segments: Data Centers, Commercial HVAC and Performance Technologies. The October 1 spin-off of Performance Technologies and its merger with Gentherm leave Modine more concentrated on Data Centers and Commercial HVAC.
Cooling has become a central part of data center construction because nearly all the electricity used by computing equipment ends up as heat. Modine’s product range spans air handling units, chillers, coolant distribution units, dry air coolers and adiabatic coolers. Its fiscal year runs through March 31, so its second quarter of fiscal 2027 covers July through September 2026. Source: Modine Manufacturing Earnings Call Signals Data Center Surge, TipRanks’ summary of Modine’s fiscal second-quarter 2027 earnings call. Primary sources: 10-Q filed 2026-11-04; 8-K filed 2026-11-03; Exhibit to 8-K filed 2026-11-03 (Exhibit 99.1, earnings release); Exhibit to 8-K filed 2026-11-03 (Exhibit 99.2, earnings presentation); 8-K filed 2026-10-27.Sources