MODINE MANUFACTURING CO

Modine Manufacturing Company operates in the thermal management industry, providing mission-critical thermal solutions that heat, cool, and ventilate across commercial, industrial, and building HVAC&R markets, as well as engineered heat transfer systems for on- and off-highway OEM vehicular applications. The company serves customers including developers and operators of data centers, healthcare facility operators, K-12 school systems, heating and cooling OEMs, construction architects and contractors, wholesalers of heating equipment, agricultural and industrial equipment OEMs, and truck, bus, automobile, and specialty vehicle OEMs. The industry is shaped by secular mega-trends including digitalization, climate change, and urbanization, which are increasing demand for energy-efficient cooling solutions and HVAC technologies, with significant data center growth fueled by artificial intelligence.

The company's ten largest customers accounted for 49% ¹ of net sales in fiscal 2026, with one global technology customer in the Climate Solutions segment accounting for approximately 11% ² of sales. Primary competitors include many manufacturers of heat transfer and HVAC&R solutions, some of which are divisions of larger companies, and competition is dynamic with data center customers expanding globally and consolidation within the supply base introducing new or restructured competitors. Competitive advantages include more than 100 years of thermal management expertise, proprietary technologies, a global manufacturing presence, standardized processes, state-of-the-art technical resources, and the application of 80/20 principles to focus resources on products and markets with the highest sustainable growth opportunities.

The company generates revenue by designing, engineering, testing, and manufacturing mission-critical thermal solutions, selling customer-centric thermal management solutions across commercial, industrial, and building HVAC&R markets, and engineered heat transfer systems for on- and off-highway OEM vehicular applications. Revenue is recognized based upon consideration specified in a contract and as performance obligations are satisfied by transferring control over products to customers, with the majority recognized at a point in time based upon shipment terms, and a limited number of contracts for highly-specified products recognized over time. Primary customer segments include data center operators, healthcare facilities, K-12 schools, HVAC OEMs, construction contractors, heating equipment wholesalers, agricultural and industrial equipment OEMs, and truck, bus, automobile, and specialty vehicle OEMs.

The Climate Solutions segment, which represented 65% ³ of fiscal 2026 net sales, provides energy-efficient, climate-controlled solutions and components and is aligned around three primary market-based verticals: Data Centers, Heat Transfer Solutions, and HVAC Technologies. The Data Centers business provides innovative thermal management solutions including chillers, dry coolers, precision air handling units, CRAC and CRAH units, fan walls, rear-door heat exchangers, coolant distribution units, and immersion solutions, and in fiscal 2026 data center product sales increased $468 million ⁴ compared to the prior year. The Heat Transfer Solutions business provides heat exchanger coils, anti-corrosion coating products, commercial and industrial refrigeration products, and power generation and transmission cooling solutions, with sales increasing $45 million ⁵ in fiscal 2026. The HVAC Technologies business provides an array of heating and indoor air quality solutions including unit heaters, roof-mounted makeup air units, duct furnaces, infrared units, perimeter heating products, unit ventilators, ceiling cassettes, modular chillers, air handling units, condensing units, and desiccant dehumidifiers, with sales increasing $102 million ⁶ in fiscal 2026 including $119 million ⁷ of incremental sales from acquired businesses.

The Performance Technologies segment, which represented 35% ⁸ of fiscal 2026 net sales, provides products and solutions that enhance performance and provide mission-critical energy for vehicular, stationary power, and industrial applications, aligned around two primary product groups: Heavy-Duty Equipment and On-Highway Applications. The Heavy-Duty Equipment business provides heat exchangers and cooling modules for off-highway markets including agricultural and construction, and cooling module generator sets for mission-critical stationary power, with sales decreasing $13 million ⁹ in fiscal 2026. The On-Highway Applications business provides heat exchangers and cooling systems for commercial vehicle, automotive, bus, and specialty vehicle markets, including products for traditional powertrains and solutions for zero-emission and hybrid vehicles, with sales decreasing $4 million ¹⁰ in fiscal 2026.

During fiscal 2026, the company significantly expanded its Data Centers business and production capacity, acquired three businesses — AbsolutAire, Inc. for $11 million ¹¹, LBW Holding Corp. (L.B. White) for $111 million ¹², and Climate by Design International for $64 million ¹³ — which contributed to growth in the HVAC Technologies business. In January 2026, the company entered into definitive agreements with Gentherm Incorporated to spin-off and simultaneously combine its Performance Technologies segment businesses with Gentherm in a Reverse Morris Trust transaction, with the company to receive cash proceeds of $210 million ¹⁴ immediately prior to closing and the transaction valued at approximately $1 billion ¹⁵ when the agreement was entered into. The company also recorded a $116 million ¹⁶ non-cash pension termination charge in connection with the termination of its primary U.S. pension plan, and entered into a long-term capacity agreement with a strategic data center customer receiving a $165 million ¹⁷ up-front deposit, expecting to sell more than $4 billion ¹⁸ of data center cooling products to this customer during calendar years 2027 through 2029.

Fiscal 2026 consolidated net sales were $3,181.1 million ¹⁹, a 23% ²⁰ increase from $2,583.5 million ²¹ in fiscal 2025, primarily driven by higher sales in the Climate Solutions segment. Operating income was $342.4 million ²² in fiscal 2026, an increase of $59 million ²³ from $283.5 million ²⁴ in the prior year, primarily due to higher gross profit. Net earnings attributable to Modine were $121.5 million ²⁵ in fiscal 2026, compared to $184.0 million ²⁶ in fiscal 2025, with diluted EPS of $2.26 ²⁷ versus $3.42 ²⁸ in the prior year, and the decrease was primarily due to the $116 million ²⁹ non-cash pension termination charge.

The company is strategically focused on growing its Data Centers business, expecting strong growth in fiscal 2027 supported by sustained global reliance on digital technologies including hyperscale platforms, NeoCloud and AI-focused cloud providers, colocation services, edge infrastructure, and rapidly expanding AI computing workloads. In North America, the company expects data center markets will experience strong growth benefiting from significant capital investments in data center infrastructure in the U.S. by both Hyperscale and NeoCloud data center providers, while in EMEA moderate growth is anticipated tempered by power and land availability and stricter sustainability regulations, and in Asia strong growth is expected driven by AI and high-performance computing demand. The company recently entered into a long-term capacity agreement with one strategic data center customer, receiving a $165 million ³⁰ up-front deposit, and expects to sell more than $4 billion ³¹ of data center cooling products to this customer during calendar years 2027 through 2029.

The pending Reverse Morris Trust transaction with Gentherm, expected to close by the end of calendar 2026, will transform the company into a pure-play climate solutions company focused on the data center and commercial HVAC&R markets, with the company retaining its Climate Solutions segment businesses. Under the terms of the agreement, at the time of the spin-off of the Performance Technologies segment businesses, shareholders will receive newly-issued Gentherm stock representing ownership of approximately 40% ³² of the combined company, and the company will receive cash proceeds of $210 million ³³ subject to adjustment, which will be used to pay down long-term debt obligations. The company expects to incur significant fees for transaction advisory, legal, accounting, tax and other professional services, currently estimated to total approximately $45 million to $55 million ³⁴.

Gross margin declined 190 basis points ³⁵ to 23.0% ³⁶ in fiscal 2026, negatively impacted by temporary operating inefficiencies associated with the rapid expansion of the Data Centers business and higher material costs including the impact of tariffs. The company expects to achieve production efficiency improvements as a result of applying 80/20 principles within manufacturing facilities, and is focused on cost containment measures including lowering SG&A expenses in the Performance Technologies segment which benefited from recent restructuring actions.

The company began experiencing supply shortages of certain data center product components in the fourth quarter of fiscal 2026, which are negatively impacting production schedules for the first quarter of fiscal 2027, and is actively working with the supply chain including qualifying new vendors to mitigate the supply constraints. The company is rapidly expanding manufacturing capacity for data center products, including leasing new manufacturing facilities in the U.S. and in Canada and purchasing equipment necessary for new and expanded production lines. R&D expenditures totaled $29.3 million ³⁷ in fiscal 2026, and the company is strategically expanding its technology and product portfolio in the Data Centers business, having expanded its chiller line and introduced a 3-megawatt chiller, the TurboChill 3+MW, to handle higher heat loads.

Capital expenditures were $143.3 million ³⁸ in fiscal 2026, an increase of $59 million ³⁹ compared to fiscal 2025, primarily due to higher capital spending in the Climate Solutions segment including investments to support expanding production capacity for data center products. The company did not pay dividends during fiscal 2026 or 2025 and currently does not intend to pay dividends in fiscal 2027. As of March 31, 2026, the company had $82 million ⁴⁰ of share repurchase authorization remaining under the repurchase program, which does not expire, and did not purchase any shares under the program during fiscal 2026.

The company faces structural headwinds including supply shortages of certain data center product components that began in the fourth quarter of fiscal 2026 and are negatively impacting production schedules for the first quarter of fiscal 2027, with demand for certain key components currently outpacing supplier capacity. The company also faces risks related to the pending Reverse Morris Trust transaction with Gentherm, including the possibility that it may not be completed on the terms and timeline planned, if at all, and that it will result in significant costs estimated at approximately $45 million to $55 million ⁴¹. Additionally, the company is subject to risks from changes in U.S. or international trade policies including tariffs, with the U.S. Supreme Court ruling in February 2026 that tariffs imposed in 2025 under the International Emergency Economic Powers Act were invalid, though other tariffs remain in effect and trade policies remain unpredictable.

The company faces material risks from supply shortages of certain data center product components that began in the fourth quarter of fiscal 2026, negatively impacting production schedules for the first quarter of fiscal 2027, as demand for key components is currently outpacing supplier capacity. The pending Reverse Morris Trust transaction with Gentherm, valued at approximately $1 billion ⁴² when the agreement was entered into, is subject to various risks including the possibility it may not be completed on the terms and timeline planned, and the company expects to incur significant fees estimated at approximately $45 million to $55 million ⁴³. The company's balance sheet includes goodwill and intangible assets totaling $489 million ⁴⁴ at March 31, 2026, and an impairment of a significant portion of these assets would adversely affect financial results. The company is subject to risks from changes in U.S. or international trade policies including tariffs, with the U.S. Supreme Court ruling in February 2026 that tariffs imposed in 2025 under the International Emergency Economic Powers Act were invalid, though other tariffs remain in effect and trade policies are unpredictable. As of March 31, 2026, the company had total outstanding indebtedness of $436 million ⁴⁵, and failure to comply with debt covenants could result in an event of default requiring repayment before due date.

Management's message emphasizes the company's purpose of Engineering a Cleaner, Healthier World and its strategic transformation through the application of 80/20 principles, which have achieved significant improvements in profit margins since the transformation began. Key themes include capitalizing on deep expertise in thermal management, leveraging the portfolio of highly engineered mission-critical thermal solutions, focusing on opportunities fueled by secular mega-trends, elevating 80/20 discipline, and evolving the portfolio to compound shareholder value. Management's strategic priorities for fiscal 2027 include further expanding the Data Centers business, completing the Reverse Morris Trust transaction with Gentherm which is expected to close by the end of calendar 2026, and continuing to apply strategic pillars to drive value creation.