Modine Says Supplier Costs Will Slow Data Center Margin Recovery Even As It Lifts Revenue Outlook
The CFO said materials cost the data center unit about 375 basis points of margin last quarter, and that the drag is lasting longer than planned.
Modine Manufacturing, which makes thermal management products including data center cooling equipment, raised its revenue outlook but said supplier shortages and higher component prices will slow the recovery of data center margins. CFO Nick Lucareli said on the company's second-quarter earnings call Wednesday that supply chain and material impacts "were larger and are lingering longer than we had expected."
A 375-basis-point materials hit
Data center sales rose 95% in the quarter, and the segment's adjusted EBITDA margin was 15.4%, a sequential improvement Lucareli called "somewhat lower than we anticipated." Labor and overhead came in as expected. Materials were the problem: about 375 basis points of margin, or 3.75 percentage points, in the quarter, he said.
He listed logistics, tariffs, raw material inflation and higher prices paid to suppliers to secure volume as the drivers. Brinker described expedited freight and overseas sourcing when local suppliers missed commitments.
For the full year, Modine now expects sales of $3.1 billion to $3.2 billion, excluding the Performance Technologies business spun off to Gentherm on October 1. It expects data center sales to grow 80% to 90% and commercial HVAC sales 10% to 15%, both raised from last quarter. Adjusted EBITDA is guided at $470 million to $500 million.
The path back to 20%
Lucareli said data center margins should step up 100 to 200 basis points in the third quarter, then reach 20% or above in the fourth. He cited a 16.5% to 17.5% margin in discussing the second half. Volume conversion and recovery of material costs are the two drivers, he said.
Pressed by a Baird analyst, Lucareli said pricing already agreed with customers should add "at least like a 250 basis point lift," and that new programs are being priced up front. Brinker said customers have been willing to reopen agreements on inflation, tariffs and freight costs.
CEO Neil Brinker said the company is adding "100 plus million dollars of capacity" and has 13 of 20 planned chiller lines running, about double a quarter ago. "There's often margin compression in the middle of the ramp," he said. September and October each saw 100% on-time delivery from its chiller plants.
Orders, the stock and Chicago
Brinker said data center orders topped $1 billion for the first time, the fourth straight record quarter, and the company won a hyperscaler program to supply more than $400 million of custom air handling units through calendar 2027.
Shares traded around $96.00 in Wednesday trading, down about 23% from the prior close, for a market value of $6.7 billion.
Modine holds its analyst and investor day in Chicago on November 18, where management said it will present new long-term targets and fiscal 2028 and 2029 outlooks.
Sources
- Modine Manufacturing Company_November 3, 2026 — sec.gov
- Modine: Fiscal Q2 Earnings Snapshot | wusa9.com — Associated Press
- Modine Reports Second Quarter Fiscal 2027 Results – Company Announcement - FT.com — Financial Times
- Modine Stock Before Q2 Earnings: Smart Buy or Risky Move? — Yahoo Finance
- Modine Manufacturing Non-GAAP EPS of $1.35 misses by $0.17, revenue of $994.4M beats by $16.14M (MOD:NYSE) — seekingalpha.com
