Thesis. A former auto-parts supplier reinventing itself as a datacentre cooling pure-play — Data Centers revenue up 90% to $348.6M in a single quarter, backlog nearly doubled, and the legacy business being spun off into Gentherm by year-end. The catch is that the growth segment's gross margin fell 960bps.
Reviewed 19 Sep 2026, after Q1 fiscal 2027 results on 29 Jul. Next review after Q2 FY2027 earnings on 29 Oct 2026.
What it does
Modine makes thermal management equipment — heat exchangers, coils and cooling systems. Historically an automotive and HVAC supplier, it is now rapidly becoming a datacentre cooling company through its Airedale brand: chillers, computer room air handlers and liquid cooling for AI datacentres.
It now reports three segments: Data Centers, Commercial HVAC and Performance Technologies (the legacy automotive business). That reporting change is itself informative — a company only breaks out a segment when it has become the story.
Note the fiscal calendar. Fiscal 2027 began in April 2026, so "Q1 FY2027" is the quarter ended 30 June 2026. Figures labelled fiscal 2026 are a year older than they sound.
The datacentre business is growing 90% and its gross margin fell 960 basis points in the same quarter. Both facts are the story; neither is the whole one.
Bull case
- Q1 FY2027 Data Centers revenue $348.6M, +90% YoY from $183.7M, driven by higher sales to hyperscale customers in North America
- Total net sales $874.1M, +28% YoY; adjusted EPS $1.53, +44%; net earnings $74.3M
- Backlog nearly doubled over the past year, following two consecutive quarters of record order intake
- The spinoff is real and dated. Performance Technologies spin-off and merger with Gentherm remains "firmly on schedule to close in the fourth calendar quarter of this year" — removing the legacy automotive drag entirely
- FY2027 guidance reaffirmed at +20% to 35% net sales growth and $650–680M of adjusted EBITDA
- Commercial HVAC sales $261.6M, +22%, with adjusted EBITDA +7%
- Targeting $2B+ of datacentre revenue by fiscal 2028
- A much smaller base than VRT on the same demand curve — which means more room to move on positive datacentre surprises
Bear case
- Data Centers gross margin fell 960bps to 20.2%. Segment operating income rose only 33% and adjusted EBITDA only 27% against 90% revenue growth — the growth is being bought, and this is the number that decides whether the transformation is worth owning
- Group adjusted EBITDA rose just 5% to $106.5M on 28% revenue growth, for the same reason
- Performance Technologies sales −3% and adjusted EBITDA −3%, still inside the numbers until the spin closes
- The spinoff is announced, dated, but not complete — execution and timing risk remain until Q4 2026
- Competes against much larger, better-resourced players: VRT, Schneider, ETN (which bought Boyd Thermal for $9.55B), NVT, Munters and SMCI
- Vertiv offers hyperscalers an integrated power-and-thermal stack; Modine sells cooling alone — a weaker position when customers want one vendor
- Datacentre orders are large and lumpy, making quarterly results volatile
- Has re-rated substantially, leaving limited margin for error
Major customers
- Hyperscalers and colocation datacentre operators — the Airedale business, and specifically hyperscale customers in North America, named as the driver of the 90% growth
- Datacentre developers and contractors — chillers and air handling equipment
- Automotive OEMs and commercial vehicle makers — the legacy Performance Technologies business being separated into Gentherm
- HVAC distributors and building owners — commercial heating and cooling
Individual customer concentration is not disclosed.
Read-through. Modine tracks the same hyperscaler capex that drives VRT, NVT and ETN, and its 90% datacentre growth and near-doubled backlog independently corroborate the thermal demand Vertiv reports — which matters unusually much right now, because Vertiv has stopped disclosing backlog. Modine is currently the better forward indicator for the category despite being the smaller company. Because rising rack power density is what forces the shift from air to liquid cooling, NVDA's rack roadmap is the upstream driver for the whole thermal group. The 960bps margin decline is also worth carrying across: if that is competitive pricing rather than mix, it is evidence that Eaton and Schneider entering liquid cooling is already showing up in the economics.
What would change the view
- Data Centers gross margin — whether the 960bps decline is mix, ramp costs or price competition. This matters more than the growth rate now
- Spinoff execution, with the Gentherm merger due to close in Q4 calendar 2026
- Order intake and backlog after the near-doubling
- Progress toward the $2B+ fiscal 2028 datacentre revenue target
- Group adjusted EBITDA growth reconverging with revenue growth
- Whether it wins liquid cooling design slots against Vertiv and Eaton/Boyd
Update log
19 Sep 2026 — Converted to the standard template and brought current through Q1 FY2027 (29 Jul), resolving the "verify the latest quarter before sizing" flag the page had been carrying. The stale fiscal-2026 figures are replaced: Data Centers is now a reported segment at $348.6M (+90%) rather than a $1.1B annual line, backlog has nearly doubled, FY2027 guidance exists (+20–35% sales, $650–680M adjusted EBITDA), and the spinoff is specifically a merger with Gentherm closing in Q4 calendar 2026. New bear point: Data Centers gross margin fell 960bps to 20.2%, and group adjusted EBITDA grew only 5% on 28% revenue growth. Backlog and Dominant Risk properties updated.
29 Jul 2026 — Q1 FY2027 reported. Net sales $874.1M (+28%); net earnings $74.3M; adjusted EPS $1.53 (+44%); adjusted EBITDA $106.5M (+5%). Data Centers $348.6M (+90%), operating income $46.3M (+33%), adjusted EBITDA $51.7M (+27%), gross margin 20.2% (−960bps). Commercial HVAC $261.6M (+22%). Performance Technologies $277.8M (−3%). FY2027 guidance reaffirmed.
Probabilities: strengthen ~55% / weaken ~30%. These predate the Q1 FY2027 margin disclosure.
Research and education only — not investment advice.
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