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22-05-2025
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Q4 2025 Modine Manufacturing Co Earnings Call
Kathleen Powers; VP, Treasurer, Investor Relations; Modine Manufacturing Co Neil Brinker; President, Chief Executive Officer, Director; Modine Manufacturing Co Michael Lucareli; Chief Financial Officer, Executive Vice President; Modine Manufacturing Co Chris Moore; Analyst; CJS Securities Matt Sumerville; Analyst; DA Davidson Brian Drab; Analyst; William Blair Noah Kaye; Analyst; Oppenheimer Operator Good morning, ladies and gentlemen, and welcome to Modine's fourth-quarter and fiscal year 2025 earnings conference call. (Operator instructions). As a reminder, this conference call is being recorded. I would now like to turn the call over to your host, Ms. Kathy Powers, Vice President, Treasurer and Investor Relations. Thank you. You may begin. Kathleen Powers Good morning, and welcome to our conference call to discuss Modine's Fourth Quarter and Full Year Fiscal 2025 Results. I'm joined by Neil Brinker, our President and Chief Executive Officer; and Mick Lucareli, our Executive Vice President and Chief Financial Officer. The slides that we will be using for today's presentation are available on the Investor Relations section of our website, On slide 3 of the deck is our notice regarding forward-looking statements. This call will contain forward-looking statements as outlined in our earnings release as well as in our company's filings with the Securities and Exchange Commission. With that, I'll turn the call over to Neil. Neil Brinker Thank you, Kathy, and good morning, everyone. We closed out the year with a strong fourth quarter performance. This was another record year for Modine with the highest reported sales and profitability in our history for the third year in a row. For the past three years, our strategy has been to shift our business mix to drive top line growth and expand EBITDA margin. We've made significant investments in order to spur this growth. And for the first time in our history, the Climate Solutions segment reported higher revenues than Performance Technologies. The rate of earnings growth has far outpaced revenue growth, driven by 80/20 and the favorable business mix shift. This year, our adjusted EBITDA was up 25% on a 7% sales increase. Mick will cover our fourth quarter financial results and provide our outlook for fiscal '26. But first, I'd like to reflect on some of our accomplishments over the past year. Please turn to slide 5. Climate Solutions delivered another outstanding year. The segment reported a 30% increase in revenues including the benefit of the Scott Springfield acquisition and a 45% increase in adjusted EBITDA. This resulted in a 220 basis point improvement in adjusted EBITDA margins to 21%. Sales growth in the segment was driven by data centers, which were up 119% to $644 million. That Springfield data center sales were $197 million in fiscal 2025, meaning that about half of the increase came from organic data center growth. Most of the organic growth was in North America, and demand for our chillers continues to be extremely strong. The past quarter, we announced an exciting business with a new cloud customer who is building out AI infrastructure for a new hyperscaler. This is an important win for us as this is planned to be a multiphase multi-location project. Because of this and other orders for chillers in North America, we are increasing production capacity both at our Rockbridge Virginia facility and in Grenada, Mississippi. In Grenada, we are adding new production lines for the chillers and end-of-line testing capabilities. This is primarily in response to orders in hand and will also support growth for opportunities in our pipeline. We're also excited to launch a new modular data center cooling solution and are preparing to take our first order in North America. The powerful combination of Airedale Modine data center cooling solutions incorporated into a modular approach allow us to address the market's need for high-density compute infrastructure that's flexible, scalable, cost-effective, energy-efficient and can be deployed rapidly to meet the evolving demand for customers. And finally, we are making progress on our India expansion and are on track to launch production in Q2. We are actively quoting for multiple customers as we plan to service Southeast Asia and the Middle East for this location. Data centers have been a focus of our investment for some time, but we're also working to grow our commercial indoor air folding and heating businesses. We recently completed the acquisition of AbsolutAire, a heating products company with a complementary product line and distribution channel to our own. Our business development team is also working on other opportunities for bolt-on acquisitions (technical difficulty). There's a great deal of activity in the Climate Solutions segment, and the key to our success will be executing on all the growth initiatives in front of us. Please turn to page 6. The Performance Technologies segment delivered a strong fourth quarter performance despite challenging market conditions. The segment reported a 15% adjusted EBITDA margin in the fourth quarter resulting in a 13.5% adjusted EBITDA margin for the fiscal year, a 200 basis point year-over-year improvement. Our vehicular markets have been an extended downturn that is currently projected the last several more quarters. In addition, we are experiencing delays in the launch and ramp of electric vehicle programs using our EV systems products with further uncertainty ahead. This is causing us to lower our expectations for near-term growth for the Advanced Solutions product group. In response, we are making several changes to our business. First, we had previously announced the change of our product groups in the segment and are moving forward with that, but are now pivoting to two groups rather than three. Heavy-duty equipment will include off-highway and stationary power products and on-highway applications will include automotive, commercial vehicle and specialty vehicle products for both ICE and EV powertrain. Next, we are taking a renewed critical look at the business processes to streamline operations and lower costs. This involves further cost reductions throughout PT with redeployment of key resources to open positions and climate solutions wherever possible. These actions, along with the simplified org structure will provide better focus on our customers and end markets while reducing operating costs, allowing us to continue improving margins during this downturn leading to even greater conversion once the markets recover. It is challenging to improve margins on flat or lower revenue, but that's exactly what we've been doing in the PT segment. Since we started on this journey three years ago, we've improved adjusted EBITDA margins by 800 basis points on flat revenue. We are making great progress towards the EBITDA margin targets introduced at our Investor Day last September and we are not backing away from those targets despite these challenging and uncertain market conditions. During this period of heightened global uncertainty and trade concerns, we are focusing on controlling what we can and taking decisive actions where necessary. It is difficult to predict the impact of tariffs on our supply chain as well as on our customers in the broader economic environment. Our market position is strengthened by our global manufacturing footprint and local-for-local approach. In addition, our supply chain team has navigated these hurdles in the past, and we will continue to refine their sourcing strategies to keep us cost competitive. It is clear that the execution of our strategic plans and the investments to grow in key markets have resulted in our third consecutive year of record performance, while equally setting the stage for better things to come. With that, I'll turn the call over to Mick. Michael Lucareli Thanks, Neil, and good morning, everyone. Please turn to slide 7 to review the Q4 segment results. Climate Solutions delivered another strong quarter. with a 28% increase in sales, a 48% improvement in adjusted EBITDA and an adjusted EBITDA margin of 21.4%. Data center sales grew $69 million or 80% from the prior year, driven by higher North American sales and the Scott Springfield acquisition. HVAC sales rose by $21 million or 27%, driven by a surge in late season demand for heating products and improvements across indoor air quality and refrigeration products. Fee transfer product sales declined 11% or $12 million due to lower volume to commercial and residential HVAC and commercial refrigeration customers. Overall, we're very pleased with Climate Solutions strong earnings and conversion, which resulted in a 290 basis point improvement in adjusted EBITDA margin to 21.4%. This quarter completed another great year for Climate Solutions. We anticipate continued revenue and earnings growth in the new fiscal year. And as Neil said, our business development team is actively pursuing additional acquisitions. Please turn to slide 8. As we anticipated, Performance Technologies delivered strong sequential earnings and margin improvement despite weakness we are experiencing across most of our end markets. Foreign exchange rates were an additional headwind this quarter, negatively impacting sales by nearly $8 million or 2%. Advanced Solutions sales were lower by 12% or $4 million driven by a decline in EV auto and EVantage system sales partially offset by higher sales to specialty vehicle customers. Liquid cooled application sales decreased 7% or $8 million due to the previously mentioned lower end market demand. Lastly, Air-Cooled application sales were lower by 13% or $22 million, also driven by market dynamics. Partially offsetting the lower market demand for our air cooled product was a 29% increase with GenSet customers. Adjusted EBITDA improved 5% from the prior year despite the lower sales, adjusted EBITDA margin increased 220 basis points. This segment is clearly benefiting from the proactive restructuring and other cost initiatives taken earlier in the year. As Neil mentioned, we're reorganizing this business and taking further actions to simplify the org structure and reduce costs. We expect these actions to generate more than $15 million in annual savings as we continue to reallocate our costs and resources to the highest growth businesses. To wrap up, Performance Technologies segment achieved another year of earnings improvement and significant margin expansion. Modine's 80/20 approach is a critical element of these results and we will lean on these principles to drive continued improvement in the upcoming fiscal year. Despite the difficult market conditions and uncertainties around the global trade situation, we anticipate higher margins and earnings for this segment in fiscal '26. Now let's review total company results. Please turn to slide 9. Fourth quarter sales increased 7%, driven by revenue growth in Climate Solutions, the Climate Solutions growth was partially offset by market-related volume declines in Performance Technologies. Our gross margin improved 330 basis points to 25.7% driven primarily by higher sales volume and favorable mix, along with the benefits from restructuring and cost savings initiatives in the Performance Technologies segment. We continue to invest in incremental SG&A to support the strong climate solutions growth. In addition, SG&A includes expenses related to the SSM acquisition, including incremental amortization related to intangible assets. Adjusted EBITDA was exceptional this quarter with an increase of 32% or $25 million, and the adjusted EBITDA margin was 16.1%, representing a 300 basis point improvement from the prior year. This now represents the 13th consecutive quarter of year-over-year margin improvement and we achieved our highest adjusted EBITDA margin since beginning Modine's strategic transformation. Adjusted earnings per share was $1.12, 45% higher than the prior year. We are pleased with the strong finish to the fiscal year. Momentum in our key growth markets allowed us to overcome challenges in others. Our full year adjusted EBITDA margin ended at 15.2% and which is 210 basis points above fiscal '24. These results are on track and aligned with our Investor Day targets for fiscal '27. Now moving to cash flow metrics. Please turn to slide 10. The business has generated $27 million of free cash flow in the fourth quarter, and this included $6 million of payments primarily related to restructuring. This puts our full year free cash flow at $129 million, allowing us to further strengthen the balance sheet. Net debt of $279 million was $92 million lower than the prior fiscal year-end and $8 million lower than last quarter. With a leverage ratio of 0.7, our balance sheet remains in great shape, and we anticipate another year of excellent free cash flow in fiscal '26. During the quarter, we announced a $100 million stock buyback program and completed $18 million of share repurchases. Now let's turn to slide 11 for our fiscal 2016 outlook. As Neil mentioned, there's a great deal of uncertainty across all markets and the global economy. And our team is continually assessing the tariff impact on our business. We're analyzing a number of factors that may, in some way, have an impact this fiscal year. These include the impact on material costs of imported products through our supply chain. Any tariffs paid to ship finished products from one location to another, the cost sharing and/or price adjustments to address these costs and the overall impact on product demand for Modine or our customers. Beyond the trade and tariff risks, there are some positive elements for Modine. First, we estimate that less than 10% of our annual purchases are subject to new tariffs based on our regional supply chain strategies. Second, and with regards to shipping of finished goods, we have commercial agreements with many customers that proactively address the tariff. And last, we have a global footprint and that is allowing us to help customers with their new sourcing strategies, which could lead to increment revenue. Given the volatility and uncertainty in the market, we are providing wider-than-usual ranges for our outlook. We have factored all known information at this time into our revenue and earnings outlook. We'll provide updates each quarter and tighten the ranges as the year progresses and adjust as we gain more information and certainty. In the appendix, we provided a table summarizing the current tariff situation and Modine exposure. For fiscal '26, we currently expect total company sales to grow in the range of 2% to 10%. For Climate Solutions, we expect full year sales to grow 12% to 20%. This growth is largely driven by our outlook for the data center and commercial IAQ product group. With regards to this product group, we remain quite optimistic in the full year outlook for data centers with anticipated revenue growth in excess of 30%. While the European market appears to be adjusting to changing hyperscaler plans, we're not seeing any slowdown in North America. In fact, our challenge remains the ability to keep up with demand. For Performance Technologies, we're anticipating sales to be down 2% to 12%. Based on the assumption that the end market will remain depressed and that the current trade conflict may have a negative impact on those market recovery. As Neil mentioned, we've reorganized the PT segment into two product groups. The first product group heavy-duty equipment was presented at our Investor Day, and we'll serve the agriculture, construction, mining and GenSet markets. The second group will be on-highway applications, which will serve the automotive, commercial vehicle and specialty vehicle markets, including electric vehicles. Consolidating the Performance Technologies segment into two product groups, will help the team to further focus on key end markets and customers, which is a critical element of 80/20. And this will allow us to reduce our cost structure and further improve profit margins. Our strategy remains consistent in the segment to exit nonstrategic businesses, which we believe will be in the best interest of all stakeholders, including our employees, customers and suppliers. The team is actively working on this, and we'll provide more information on (technical difficulty). With regards to our full year earnings, we currently expect fiscal '26 adjusted EBITDA to be in the range of $420 million to $450 million. Using the midpoint of this range, this results in an increase of 11% and another year of solid earnings growth. In addition, we anticipate that we'll generate a higher level of free cash flow in fiscal '26, continuing to increase our cash generation in line with our IR day target. Before wrapping up, I want to remind everyone about the planned product group changes we reviewed at our Investor Day and during the call today. For Climate Solutions, we will report revenues under the three product groups, data centers and commercial IAQ, HVAC technologies, which will include heating and school indoor air quality businesses and heat transfer solutions, which will include our coil coatings and commercial refrigeration coolers business. As I previously covered, Performance Technologies will be broken down into two product groups, heavy-duty equipment and on-highway applications. To assist everyone with modeling and analysis, we'll provide a restatement for fiscal '25 revenue using these new product groups and will begin showing the new product groups with our first quarter results. To wrap up, we're extremely pleased with the results from the fourth quarter and '25. The Modine team worked extremely hard to deliver a third consecutive year of record results, despite some significant market headwinds. In addition, this team has demonstrated their ability to manage all the levers that they can control, including the successful addition of several acquisitions. We've delivered on our financial targets over the last several years and remain on track to achieve our fiscal '26 and '27 goal. With that, Neil and I will take your questions. Operator (Operator instructions) Chris Moore, CJS Securities. Chris Moore Hey, good morning guys. Congrats on another good quarter. Thanks for taking a couple. So maybe we'll start with data centers. So talking about 30% growth on fiscal '26. As you said Europe, maybe a little more cautious North America is strong. Can you maybe just talk a little bit about the data center visibility? How far out are your customers sharing their build schedules. 24 months, 36 months? Just trying to get a sense as to kind of how far out they give you inclination to their plant? Neil Brinker Hey, Chris, this is Neil. Thanks for the question. Yes, we're very confident in the opportunities we have in the data center market. We continue to build strong relationships both with our best colocation customers as well as the hyperscalers that we've built relationships with over the years. As you know, we've gone from one significant relationship with a single hyperscaler to in a short period of time where we have opportunity to do business. As we build those relationships with our customers, both on colocation as well as on the hyperscaler side, we have visibility of upwards of five years. We have high confidence in a year outlook. We have moderate to high confidence in two years out, but we have visibility with some of our customers that go out three to five years. Chris Moore Very helpful. Thanks. The tariff disclosure slide penis very helpful. A couple of things. Is there anything that you source from China that is especially hard to find elsewhere? Neil Brinker That's a good question. Thanks for that, Chris. We've worked on this over the last three to four years in terms of a local-for-local strategy relative to our supply chain. Having 38 facilities in 14 different countries, it's really important to do that for one, making sure that we have a redundant supply chain and funnel also because of just total landed costs. So we've reduced the dependency on supply chain from China significantly over the last few years. If there are with COVID and the reduction of supply chain and moving more domestically for regional supply chain support and then with the port strike in LA and then the Suez Canal. There's all kinds of reasons that we needed to reduce our dependency on China. So we feel very comfortable where we're at with our local-for-local supply chain. And we think that's going to be an advantage for us as we move forward in this tariff environment. Chris Moore Perfect. Maybe just last one on that note. So you kind of went through the different areas on the tariffs that could be an issue. It sounds like ultimate product demand is probably the biggest uncertainty. Is that a fair statement? And is it in one segment more than another? Michael Lucareli Yeah. Chris, it's Mick. With regards to the outlook, Chris around volumes, I think the largest uncertainty for us will definitely be about the rate of market recovery and specifically in Performance Technologies that you and Neil covered on the climate side, the heating and school IAQ business, we expect to have steady double-digit growth this year, which is great. the 30-plus percent top line for data center. And then back on the PT side, it really will be about the rate of recovery or stability across ag, construction and commercial vehicle. Chris Moore Got it. I appreciate it. I'll jump back in line. Operator Matt Sumerville, DA Davidson. Matt Sumerville Thanks. A couple of questions. Back on the DC business. Can you put a little bit of finer point on your comment regarding having a hard time keeping up with demand in North America. Is that primarily being driven by these newer relationships? And then Neil, you mentioned five hyperscalers. I just want to make sure that, that count is accurate. And then also if you could address in Europe, some of the tentativeness you're seeing on spend. Is that a function of macro or repurposing of original build plans to include AI? And then I have a follow-up. Neil Brinker Yes, Matt, thanks for the question. Really, it's a matter of execution in North America for us. We have tremendous opportunity. We recently put out a press release where we're going to add additional capacity and employment in Mississippi to keep up with that demand. We're seeing incredible need to continue to ship and produce products in DC, particularly around chillers. And we had that dedicated plant in Virginia that we've already maxed the capacity, and we're going to now have to increase capacity in Mississippi as well to add additional (inaudible) lines. So we've been able to win commercially with very, very good product. We've got a lot of attention in North America, particularly with our growth with our hyperscalers as well as colocation. So it's a matter of execution at this point. We feel very comfortable with the relationships. We feel very comfortable with the pipeline. We understand the need. We understand the growth schedules with these customers. And again, it comes down to us being able to simply produce and ship the product has been -- that our customers are standardizing around. Matt Sumerville Thanks, Neil. And then I just wanted to put a little finer point on what the comments with respect to Europe, whether or not the tentativeness on spend there is more macro driven or more reflective of repurposing of original build plans to include AI. And then I just want to make sure we have the hyperscale customer count, right? I thought you mentioned five, and I was kind of thinking that number was maybe four. Neil Brinker Yes, thanks. We're seeing that in terms of the trends in the EU versus North America, definitely, the growth is on the North America side. Certainly, with our hyperscalers, there is an element where they're thinking about the different technologies and opportunities. So as we have -- as we've grown with some of these folks in our hyperscalers in Europe, we're having technical conversations in terms of what it looks like for the next generations and the current generations of the builds. And certainly, some of these projects can be delayed a quarter or two. No doubt about that. We're also recognizing that we've got a very strong brand in Europe. It's a premium brand and at times. We're not going to concede relative to pricing because of who we are and the product that we have. So Europe is good -- is in somewhat of a good position. We're seeing some downturn there relative to some of our customers based on the technologies that they're adjusting to. But again, it comes back to North America. And what we can do in North America with the relationships that we've been able to build there and that we can keep this ramp schedule. If we can execute or over-deliver on the ramp schedule, then we feel very confident in the data center business. Matt Sumerville And then lastly, maybe just spend a minute talking about M&A funnel actionability and sort of your views on whether or not you think you might have a reasonable chance of being successful in moving on from the businesses that you had previously publicly identified as being nonstrategic to Modine? Thank you. Michael Lucareli Yeah. Hey, Matt, it's Mick. That's been a huge focus for us. And we have talked in the last call or two about kind of sharing with everybody incrementally how we're feeling about both the buy side and any exit feeling really confident right now in the funnel, and it's grown more from the last time we all connected. I think from our side, we're gaining a lot of confidence that we can execute at least one transaction on the buy side in the first half of the year, which is really great. We'll keep filling that funnel and pursuing those. And then on the strategic exits of the divestitures, we've been public, Neil came in and in our IR Day about the strategic exit from automotive, and we think that really is in the best long-term interest of employees, the customers, our shareholders and make sure that business is in the right long-term hands. We're -- our focus this year is going to be heavy on executing on that strategy. And we've been really transparent and public about the goal would be to do that in one transaction versus a series of smaller ones. So I'd say a short answer on the strategic exits, gaining a little more confidence and energy to execute there. And then as I mentioned, building a lot more confidence of getting at least one by another acquisition done here in the next quarter or two. Matt Sumerville Thanks. Operator Brian Drab, William Blair. Brian Drab Hi, thanks for taking my questions. The first one on my mind is just can you tell us what your split in data center revenue was roughly for fiscal '25 between US and Europe? Michael Lucareli I will see if I can grab that at my fingertips, well Neil can address any other questions you have. If not, I'll just give you a back (inaudible), but let me see if I've got it nearby. Brian Drab Okay. Yes. I'm assuming it's like 80/20, but in line with your often mentioning 80/20, I thought that's the answer, but -- and then can you talk at all about the cadence of data center revenue expected in fiscal '26? You had a great year of data center performance and the kind of the average quarterly revenue run rate was like $160 million per quarter. And it's a big ramp up if you're going to grow 30%, it's going to average like $210 a quarter, but how does that potentially ramp throughout fiscal '26. Neil Brinker Yeah. I can explain the process and what we're working on when I talk about execution and the ramp cycle and that can come with some more specific numbers. But we have a large opportunity. We have built great relationships with customers. We have a very good product set. We have a complete solution that solves for the problems that our customers are experiencing. And we just -- we continue to invest capital and resources, redeploying some of our most talented people across the organization in order to ramp. If we can get our Grenada, Mississippi fiscally up faster, then obviously, it would accelerate even more. But it's a matter of equipment. It's a matter of getting our labs in place. It's a matter of getting people trained. And we're going to have more than double our capacity that we currently have once we get Mississippi up and running. Now we would expect to have probably a 12-month cycle to get to that point. Some of these things can accelerate. We could potentially move a little bit faster based on hiring based on equipment coming in early. But it's -- the relationships are there. We have demand. It's a matter of ramping these facilities each quarter. Michael Lucareli Yeah. Brian, I just (inaudible). You're good guess. You're close, but with the mix last year is about 75%, 25%, 75% being North America. Brian Drab Okay. Thanks very much. And just on the second question I asked, I'm just wondering, should we expect data center revenue to be more back-end loaded in fiscal '26. Does it ramp up throughout the year as you bring on that capacity? Or do we kind of step function up from $160 million a quarter to $210 million a quarter right away? Michael Lucareli No. I'm glad you asked that with two weeks. we expect Q1 to be the softest quarter and with it ramping. So we do see Q1 being lower growth rate lower than what we've been experiencing, and it really goes back to the discussion Matt and Neil had. So we saw some volume declines in Europe based on the market conditions there in Q1. And at the same time, we are rapidly ramping up capacity in North America in this quarter. So we're adding capacity. I think we're getting daily reports. So it's building. But as you can imagine, in our Q1, we won't have -- we won't have had all the capacity in place. For the full year, as Neil said, and certainly as you get to Q3 and Q4, we're going to be running not at full capacity, but we're going to have meaning we'll have excess capacity, but we're going to be being able to keep up with all the demand by the second half of the year. Brian Drab Okay. Thanks very much for taking my question. Operator (Operator instructions) Noah Kaye, Oppenheimer. Noah Kaye Hey, good morning. Thanks for taking the questions. I would like to unpack the growth outlook for Clean Solutions a little bit more. So data center revenue at at least 30% growth. I think of the revenue base, you just said that implies, I don't know, close to 14% total growth for the segment. And then you got about 2 points, almost 2 points of the M&A contribution. So is sort of the assumption close to the midpoint of the guide that all of the revenues besides those are kind of flat. And importantly, I think is that kind of consistent with the trajectory you're seeing in those other businesses. Michael Lucareli Yeah. So yes, generally, the heating in the school business, while it's smaller, relatively speaking about a $200 million business, we see that growing low double digits this year. The heat transfer products area, a much larger business, we're planning on that to being flat and maybe down slightly call it, 0% to maybe 5%. And for there, it's a lower visibility business that Neil talked about right now, still excess coil capacity in the market. We talked last quarter about some customers deciding to make more coils on internal in-sourcing those using those to their capacity to fill that production. And so that would be the balance. So you've got the 30-plus percent data center growth, low double digit on HVAC heating. And then we're taking a pretty cautious stance on the coil side. Noah Kaye Okay. It sounds like what sort of unlocks the upside of the plus the 30% data center is your ability to add or liberate more capacity in North America. So correct me if I'm mischaracterizing that. But Neil, I think you said that you will have more than double your current revenue capacity in data center. Was that in reference to North America specifically? Or is that global? Because I think when we last spoke, the company's revenue capacity was north of $1 billion. Neil Brinker Yes, it is. It's north of $1 billion of global capacity, but we have such a demand in North America, the capacity that we had built out in North America, that surge has exceeded the North American capacity. So in general, if you look at it across globally, if all the orders were to come in, one-third, one-third, one-third then we would be okay, but that's not the case. So we have to double the capacity in North America. Noah Kaye Okay. So it's North America. Great. And then I think -- yes, go ahead, Mick. Sorry. Michael Lucareli I'm just going to say, to ramping up the air side versus the chiller side, different requirements. Noah Kaye Yeah. Makes sense. And then can we understand your -- to the point around PT, just what divestitures or kind of planned business exits are embedded in the guide for the year? Michael Lucareli Yeah. Right now, we anniversaried the last three or four divestitures. And so in the guidance, we don't have any divestitures built into that. What the area I talked about a little while ago, which would be the area we've been focused on would be that last portion of automotive, which has been running, I would say, between $200 million and $250 million. If we execute on a transaction this year, will come back. At that point, we would have certainty of something. We have timing and we'd be able to look at how that will impact the fiscal year. But just to be clear, we have the automotive business in here for the full year. Noah Kaye Got it. So there's no like bleed down of that in the guide? Okay. Last one for me. I think all in for the company implied incrementals are kind of around 20%, I think, that's right at the midpoint of the guide. The business did close to 45% incremental this past year. I guess given the mix tailwinds and some of the 80/20 actions that you're clearly getting some traction on those incrementals seem a little conservative. So can you maybe help us understand how to think about the margins by segment within the guide? What kind of operating leverage in Climate Solutions, what's the trajectory for margins in PT? Michael Lucareli Yeah. So there's a lot to unpack there. And maybe I'll give you some color around it. On the Performance Technology side, a lot of conversion we've been seeing there, and it's really been on 80/20 and cost reduction for -- you're referencing fiscal '25 on down revenue, we were able to increase EBITDA and add the 200 basis points heavy gross margin lift there this year on Performance Technologies. As we look to the new year, we're expecting to do more of the same, especially while the markets are staying down and probably target 125 to 175 basis point type of improvement in Performance Technologies. And right now, based then you can tell in our guidance and our assumptions that's going to be heavily based on cost reduction activity and productivity improvements through 80/20. Climate Solutions, probably more flat margin, and that's not a surprise to us, might be up a little bit -- but as Neil is just covering the balance we have is every time we see increasing demand on the data center side. There will be a few quarters where we're reinvesting not only in the people and engineering, but in the fixed cost to support that future growth. So I don't see it being a headwind for Climate Solutions, but we should -- we're really driving growth, and we're okay having a 20-plus percent type EBITDA margin. If you wrap that move up a little bit, yes, you kind of blend that in, we should be up a little bit but higher conversion on PT and then the standard conversion on climate. Noah Kaye Very helpful. Thanks. Operator Matt Summerville, DA Davidson. Matt Sumerville Thanks, Just a couple of quick follow-ups. With this new modular data center system, if that's the right word Neil, does that unlock incremental TAM for you guys? And can you help me maybe understand the use case versus a system like that versus maybe the legacy, if you will beat the offering? Neil Brinker No, that's a great question. I don't believe it unlocks additional TAM. I think this is -- well, I'm certain it's a different product solution to solve for the speed at which the data center wants to add capacity in the global market. So traditionally, we would sell our systems to a system integrator. We would sell our systems to the end user, and they would have a group of engineers and trades people that would assemble our product in the data center. Because the data center customers want to move quickly because it's literally a race to build capacity here. They are looking for a more convenient way to start up their data centers. So they're looking for us to build modular DCs that they can plug and play. So essentially, our product in addition to some supply chain that they would traditionally buy, we would take that supply chain internally, we would put the product together into a modular data center unit. It would go to the DC and it would be more of a plug-and-play versus more of a -- versus the assembly process that they go through today. So it's a conversion in terms of the data centers, and it will allow them to move much quicker. So similar TAM, but just the speed in which they can start-up of data center is accelerated because we do a lot of the work internally, and we build more of a system and advanced system for them that is easier for them to install. Matt Sumerville Thank you for that color. Just a couple of additional ones. As you sit here looking at that $1 billion data center target you have in terms of top line for fiscal '27. Are you more confident in attaining and/or beating that target? Is that maybe part of the signal here with the doubling of chiller capacity in North America? How should we interpret that in the context of that target? And over time, Neil, do you start to think about strategic optionality for the DC business? Neil Brinker Yeah. Thanks, Matt. Yes, for sure, I mean, the rate of capacity that we're deploying, it's about execution. I've become more confident every day as we've gone through the hard part. The hard part was building the relationships. The hard part was getting the customer profile. The hard part was providing and developing highly engineered products for our customers that are specific for their need purpose-built specific highly engineered products for these customers. And we're through that. We've got that, and it's a matter of execution, build, produce, ship. And the more capacity that we put inside of North America, the more confident that I get. Matt Sumerville And then, Neil, just the question on potential strategic optionality as you further scale this business realizing that the vision extends beyond '27, certainly, given, in some instances, you have a three- to five-year broad look ahead. How are you thinking about that? Neil Brinker I'm really focused on execution right now and making sure that we can deliver on the needs of our customers today. The pipeline is extremely healthy. And we're focused on the next 24 months because that's paramount. We have to stay in execution mode. Matt Sumerville Understood. Thank you. Operator I am showing no further questions at this time. I'd like to turn the conference back to Kathy Powers. Kathleen Powers Thank you and thanks to everyone for joining us this morning. A replay of the call will be available on our website in about 2 hours. We hope everyone has a great day. Operator This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
18-05-2025
- Business
- Yahoo
Was Jim Cramer Right About Modine Manufacturing Company (MOD) Stock?
Back in 2024, on May 14, a caller asked about Modine Manufacturing Company (NYSE:MOD), an industrial company specializing in thermal management and HVAC systems. Cramer said this was exactly the kind of industrial stock that's working in the market back then: "Okay, that kind of metal-bending industrial company is precisely what's working here. And it's what we preach at the club. And that is a club-like name. Well, not club, I mean like the group of people. Not a club. But I like the concept." Cramer's endorsement had limited effect, as the stock declined slightly by 0.55% since the call. Modine Manufacturing Company (NYSE:MOD) engineers thermal management and HVAC solutions for vehicles, data centers, and commercial buildings. Earlier in March, Cramer mentioned that the stock was getting hit by a swarm of sellers: 'Yeah, I gotta tell you… people decided that that is part of the data center and the CFO sold a lot of stock so people are itching to get out. It has come down so much. I don't know what they're itching about.' While we acknowledge the potential of MOD to grow, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and have limited downside risk. If you are looking for an AI stock that is more promising than MOD and that has 100x upside potential, check out our report about this cheapest AI stock. READ NEXT: 20 Best AI Stocks To Buy Now and 30 Best Stocks to Buy Now According to Billionaires. Disclosure: None.
Yahoo
10-05-2025
- Business
- Yahoo
Modine Manufacturing Company (MOD): Among Billionaire Mario Gabelli's Small-Cap Stock Picks with Huge Upside Potential
We recently published a list of Billionaire Mario Gabelli's 10 Small-Cap Stock Picks with Huge Upside Potential. In this article, we are going to take a look at where Modine Manufacturing Company (NYSE:MOD) stands against other small-cap stock picks with huge upside potential. Mario J. Gabelli founded Gabelli Asset Management Company in 1977. The firm is now called GAMCO Investors and is an American firm headquartered in New York. It specializes in providing investment advice and brokerage services to mutual funds, institutional clients, and select investors. It is majority-owned by Mario Gabelli, who is the Chairman and CEO of it. GAMCO Investors includes two businesses: GAMCO Asset Management, with institutional and separate accounts; and Gabelli Funds. The last reported 13F filing for Q4 2024 included $9.55 billion in managed 13F securities and a top 10 holdings concentration of 16.81%. Gabelli stayed true to the principles of value investing and used a solid base created by Warren Buffett and Ben Graham, while adding some of his elements to the mix. He believes that value investing isn't focused on short-term market movements. He looks for the ignored and unloved companies that nobody covers for whatever reason, with a good business, solid management, and a good price. As January was ending, Gabelli joined 'Squawk Box' on CNBC to discuss a range of topics. He explained how the stock market's performance is tied to company earnings, revenue growth, gross margins, expenses, and taxes, but most importantly to the market multiple, which is influenced by interest rates. These are shaped by debt, deficits, and overall confidence. Gabelli also mentioned that strategic corporate M&A was returning after a freeze caused by regulatory uncertainty and some failed deals. Activist investors are also seeking greater visibility and pushing for changes at companies. He argued against reducing the corporate tax rate below 21% but advocated for a minimum tax on a cash basis. He called for the restoration of 100% bonus depreciation, which would allow businesses, such as farmers, to fully write off new equipment purchases immediately, thereby encouraging investment in technologically advanced machinery. Gabelli mentioned that similar incentives should apply to capital expenditures in sectors like cable and referenced comments from Hans Vestberg. He noted that while corporations currently receive tax deductions for capital expenditures, these are spread over longer periods, and accelerating them would provide more immediate benefits. Gabelli graduated summa cum laude in 1965 from Fordham University's College of Business Administration in 1965 and holds an MBA from Columbia University Graduate School of Business. He has received honorary doctorates from Fordham University and Roger Williams University. He also serves on the Boards of Boston College, Roger Williams University, Columbia University Graduate School of Business, the American-Italian Cancer Foundation, and the Foundation for Italian Art & Culture. He is a Trustee of the Winston Churchill Foundation of the US and the EL Wiegand Foundation. Gabelli was honored as Morningstar's Portfolio Manager of the Year in 1997, named Money Manager of the Year by Institutional Investor in 2011, and is a member of Barron's All-Star Century Team. To compile the list of billionaire Mario Gabelli's 10 small-cap stock picks with huge upside potential, we sifted through the Q4 2024 13F filings of GAMCO Investors from Insider Monkey. From these filings, we checked the upside potential from CNN for the top 50 stock picks that were trading between $1 billion and $10 billion and ranked the stocks in ascending order of this upside potential. We have also added GAMCO Investors' stake in each company and the hedge fund sentiment around each stock. Note: All data was sourced on May 8. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter's strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here). A technician in a factory, assembling a gas-fired unit heater. GAMCO Investors' Stake: $139.62 million Number of Hedge Fund Holders: 43 Market Capitalization as of May 8: $4.95 billion Average Upside Potential as of May 8: 49.62% Modine Manufacturing Company (NYSE:MOD) provides thermal management products and solutions. It operates through Climate Solutions and Performance Technologies segments. It also provides data center products that consist of IT cooling solutions, such as precision air conditioning units for data center applications and computer room air conditioning & handler units. The company recently secured a $180 million order from a leading AI infrastructure developer for its specialized Airedale by Modine data center cooling systems. This system is an AI-enhanced version of Modine's Cooling System Optimizer that offers energy consumption reductions of up to 40%. To fully capitalize on this, Modine is making Cooling AI available as a new system and as a retrofit option for existing Airedale by Modine Cooling System Optimizers. DA Davidson reiterated a Buy rating on the stock on March 31, while lowering its price target to $140 from $155. Modine Manufacturing Company (NYSE:MOD) now projects to grow data center sales by 110% to 120% for the full FY2025. In FQ3 2025, Modine's data center revenues grew by 176% year-over-year. This was fueled by the acquisition of Scott Springfield, which contributed $63 million to this revenue. SouthernSun Small Cap Strategy is positive on the company and stated the following regarding Modine Manufacturing Company (NYSE:MOD) in its Q1 2025 investor letter: 'Modine Manufacturing Company (NYSE:MOD) is an over 100-year-old thermal management company based in Racine, WI. The company started out producing heat exchangers for tractors but quickly expanded into the automotive market and became a major supplier of heat exchangers to leading car manufacturers. As demand for automobiles increased significantly throughout the 20th century, Modine expanded operations globally. However, as the automotive market matured and became more competitive, MOD's growth slowed, and the company went through numerous restructurings to take cost out of the business. The company attempted to diversify into the HVAC industry by buying Airedale in 2005 and Luvata in 2016, but management lacked a clear strategic vision, and the legacy automotive business continued to attract most of the time and resources. Overall, MOD ranks 2nd on our list of billionaire Mario Gabelli's small-cap stock picks with huge upside potential. While we acknowledge the potential of MOD as an investment, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter time frame. There is an AI stock that went up since the beginning of 2025, while popular AI stocks lost around 25%. If you are looking for an AI stock that is more promising than MOD but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock. READ NEXT: 20 Best AI Stocks To Buy Now and 30 Best Stocks to Buy Now According to Billionaires. Disclosure: None. This article is originally published at Insider Monkey.
Yahoo
07-05-2025
- Business
- Yahoo
Is Modine Manufacturing (MOD) A Hidden AI Stock to Buy Right Now?
We recently published a list of the 11 Hidden AI Stocks to Buy Right Now. In this article, we are going to take a look at where Modine Manufacturing Company (NYSE:MOD) stands against other hidden AI stocks. David Grain, Founder & CEO of Grain Management, joined CNBC on May 1 to discuss the AI-driven demand for data centers and tariff uncertainty. The main concerns regarding tariffs are the potential impact on costs, the resilience of supply chains, and the overall effect on business operations and their expansion. He also shared his perspective on why investors are still confident in the broadband and digital infrastructure sector. He characterized broadband as universally essential and emphasised that the demand for faster connectivity has not slowed, which is why the regulatory support for broadband expansion is globally robust. Grain noted that the administration has also met expectations for lighter regulation in the infrastructure sector, which makes it easier to advance projects and close deals. He described the admin's stance as pro-growth and supportive of secure and competitive networks. Grain also observed that infrastructure, especially broadband, is an area where there is bipartisan support, given its positive impact on economic growth at both the state and local levels. DeepSeek's announcement was also followed by reports that suggested that some companies might be pulling back on data center spending. However, the latest earnings reports appeared to settle at least this debate and confirmed that the investments in this sector were still ongoing. David Grain elaborated on the current trends in data center investments and also stated that the demand for data centers is rising due to the increasing expansion of AI, as it requires vast amounts of computing power. He explained that while the demand here is not slowing, the feasibility of building new data centers is still influenced by the availability of reliable and high-capacity electricity. Our Methodology We sifted through financial media reports to compile a list of the top hidden AI stocks with AI-related operations and opportunities. We then selected the 11 stocks that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q4 2024. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter's strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
Yahoo
30-04-2025
- Business
- Yahoo
3 Stocks With Estimated Discounts Up To 47.5% Below Intrinsic Value
As the U.S. stock market grapples with a recent GDP contraction and investors brace for major tech earnings, volatility has become a prominent feature across the indices. Amid this uncertainty, identifying stocks trading below their intrinsic value can present opportunities for investors seeking potential long-term gains. Name Current Price Fair Value (Est) Discount (Est) MINISO Group Holding (NYSE:MNSO) $17.60 $34.83 49.5% Lantheus Holdings (NasdaqGM:LNTH) $103.96 $203.99 49% Trade Desk (NasdaqGM:TTD) $54.67 $106.35 48.6% SharkNinja (NYSE:SN) $81.41 $160.42 49.3% Curbline Properties (NYSE:CURB) $22.89 $45.04 49.2% CBIZ (NYSE:CBZ) $67.22 $133.31 49.6% Ligand Pharmaceuticals (NasdaqGM:LGND) $111.38 $220.47 49.5% StoneCo (NasdaqGS:STNE) $14.08 $27.73 49.2% BigCommerce Holdings (NasdaqGM:BIGC) $5.29 $10.31 48.7% Roku (NasdaqGS:ROKU) $69.28 $135.72 49% Click here to see the full list of 185 stocks from our Undervalued US Stocks Based On Cash Flows screener. We'll examine a selection from our screener results. Overview: Global-E Online Ltd. operates a direct-to-consumer cross-border e-commerce platform across Israel, the United Kingdom, the United States, and other international markets, with a market cap of approximately $6.06 billion. Operations: The company generates revenue of $752.76 million from its Internet Information Providers segment. Estimated Discount To Fair Value: 16.5% Global-E Online is trading at US$35.8, below its estimated fair value of US$42.85, suggesting potential undervaluation based on cash flows. Revenue growth is strong, forecasted at 20.3% annually, surpassing the US market's average and indicating robust future performance. Recent earnings show improvement with Q4 sales reaching US$262.91 million and a net income turnaround to US$1.51 million from a loss last year, supporting expectations of profitability within three years despite low return on equity forecasts. Our comprehensive growth report raises the possibility that Global-E Online is poised for substantial financial growth. Navigate through the intricacies of Global-E Online with our comprehensive financial health report here. Overview: Modine Manufacturing Company offers thermal management products and solutions across the United States, Italy, Hungary, China, the United Kingdom, and other international markets with a market cap of $4.24 billion. Operations: Modine Manufacturing generates revenue through its Climate Solutions segment, which accounts for $1.31 billion, and its Performance Technologies segment, contributing $1.26 billion. Estimated Discount To Fair Value: 47.5% Modine Manufacturing is trading at US$81.8, significantly below its estimated fair value of US$155.68, highlighting potential undervaluation based on cash flows. Despite a volatile share price and reduced profit margins from 9.3% to 6.3%, earnings are forecast to grow by 31.7% annually, outpacing the US market's growth rate. Recent developments include a $180 million order for AI-driven cooling systems and a $100 million share repurchase program, reinforcing its strategic focus on innovation and shareholder value enhancement. Upon reviewing our latest growth report, Modine Manufacturing's projected financial performance appears quite optimistic. Click here to discover the nuances of Modine Manufacturing with our detailed financial health report. Overview: Zeta Global Holdings Corp. operates an omnichannel data-driven cloud platform offering consumer intelligence and marketing automation software to enterprises globally, with a market cap of approximately $3.19 billion. Operations: The company generates revenue through its Internet Software & Services segment, amounting to $1.01 billion. Estimated Discount To Fair Value: 32.3% Zeta Global Holdings is trading at US$13.45, well below its estimated fair value of US$19.86, indicating potential undervaluation based on cash flows. Despite recent share price volatility, Zeta's earnings are projected to grow significantly at 136.4% annually and become profitable within three years. The company recently launched AI Agent Studio, enhancing marketing automation capabilities, while completing a share buyback worth US$49.78 million underlining strategic capital allocation and focus on innovation-driven growth. The analysis detailed in our Zeta Global Holdings growth report hints at robust future financial performance. Dive into the specifics of Zeta Global Holdings here with our thorough financial health report. Reveal the 185 hidden gems among our Undervalued US Stocks Based On Cash Flows screener with a single click here. Already own these companies? Bring clarity to your investment decisions by linking up your portfolio with Simply Wall St, where you can monitor all the vital signs of your stocks effortlessly. Simply Wall St is your key to unlocking global market trends, a free user-friendly app for forward-thinking investors. Explore high-performing small cap companies that haven't yet garnered significant analyst attention. Diversify your portfolio with solid dividend payers offering reliable income streams to weather potential market turbulence. Fuel your portfolio with companies showing strong growth potential, backed by optimistic outlooks both from analysts and management. This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Companies discussed in this article include NasdaqGS:GLBE NYSE:MOD and NYSE:ZETA. This article was originally published by Simply Wall St. Have feedback on this article? Concerned about the content? with us directly. Alternatively, email editorial-team@
