Dive Brief:
- Modine Manufacturing’s full year net sales grew 5% year over year to $2.4 billion, driven by strong gains in sales of its data center products, while net sales for the fourth quarter of 2024 dipped 2% year over year to $603.5 million, the company said in an earnings release Tuesday.
- The company’s climate solutions segment’s net sales rose 1% year over year to $264.5 million in the fourth quarter, driven by higher sales of its data center cooling products impacted by its acquisition of Scott Springfield Manufacturing in March and partially offset by lower sales of heat transfer products, the company said. For the full fiscal year, climate solutions segment net sales rose about 4.3% year over year, with organic sales growing 2% to around $1 billion for the full fiscal year, according to the company’s earnings presentation. Data center sales climbed 69% year over year to $294 million for the full fiscal year 2024, per the earnings presentation.
- On an earnings call Wednesday, Modine Executive Vice President and CFO Mick Lucareli cited expectations of continued strong growth in data centers through fiscal year 2025. “Overall, we expect total company sales to grow in the range of 5% to 10% in the climate solutions segment,” Lucareli said. “We expect data center sales to grow 60% to 70%. This includes both organic growth and the positive impact from our recent acquisitions.”
Dive Insight:
Modine’s data center sales grew 40% or $25 million in the fourth quarter, driven by growth in demand from the hyperscale and colocation markets, Lucareli said on the call.
The climate solution segment’s gross margin reached 25.9% in the company’s 2024 fiscal year fourth quarter, increasing 270 basis points year over year as a result of a favorable sales mix and improved operating efficiencies, per the earnings release. The segment’s adjusted earnings before interest, taxes, depreciation and amortization rose 14% to $47.5 million from the year-earlier period.
The company has shifted its business mix to targeted markets with strong growth drives where its products and solutions are well positioned and carry sustainable margins, as demonstrated through its acquisitions and divestitures during the year, Modine CEO Neil Brinker said on the earnings call. These transactions include its fourth quarter deal with Scott Springfield and its acquisition of assets from TMG Core, a liquid immersion cooling technology for data centers, Brinker said.
“The acquisition of the TMG assets will help us be at the table having conversations with our data center customers for future data center generations that may adopt these technologies,” Brinker said.
Modine’s HVAC and refrigerants, or HVAC&R, business grew 1%, or $1 million, in the fourth quarter, Lucareli said. This was driven by an increase in indoor air quality product sales related to its acquisitions and a slight increase in the heating market, offsetting heat transfer product sales that dropped 20%, according to its earnings presentation. The company attributed this decline to reduced demand across multiple markets and planned 80/20 initiatives.
The 80/20 approach is a “systematic way of examining the business, focusing resources and emphasizing the highest return opportunities,” according to a multiyear strategy it outlined in mid-2022.
The slight increase in heating revenues was offset by a decline in commercial refrigeration coolers, Lucareli noted.
Revenues from Modine’s acquisition of Scott Springfield will be reflected in both its data center and HVAC&R product groups, the company said in its presentation. For example, Modine is integrating Scott Springfield’s custom air handling units for end markets such as healthcare, into its HVAC&R vertical, while another Scott Springfield manufacturing outpost in Calgary is being integrated into Modine’s data center business, Brinker said on the call.
The addition of Scott Springfield “adds a new technology with evaporative cooling that has been in the industry for some time that may or may not support or augment liquid cooling,” Brinker said. “But certainly for standard data centers, you need that product line. And we’re getting market capture there … that’s where we’re seeing the expansion in the United States.”
Lucareli cited expectations of a “recovery in some of our key HVAC&R markets,” noting that management expects HVAC&R sales to grow 20% to 25% in fiscal year 2025 after remaining relatively flat in 2024. “This will be driven by growth in indoor air quality, which also benefits from our recent acquisitions, along with further recovery in the heating and refrigeration cooler markets,” Lucareli said.
Heat transfer product sales are also expected to grow by 3% to 5% after a soft year, Lucareli said.
Sales in Modine’s performance technologies segment dropped 5% year over year to $344 million in the fourth quarter. Organic sales grew 2%, primarily due to higher sales to off-highway and specialty vehicle customers, which were partially offset by lower sales to automotive customers, according to Modine’s earnings release. Lucareli attributed the sales decline to “recent German divestitures and lower sales of automotive products.”
For the full year, the performance technologies segment’s organic sales rose about 7.1% year over year to $1.39 billion. The segment’s EBITDA increased 38% year over year to $46.1 million in the fourth quarter and its adjusted EBITDA jumped 67% on a 5% increase in sales for the full fiscal year, leading to an adjusted EBITDA margin of 12.1%.
For fiscal year 2025, “we’re expecting slightly lower sales in performance technologies due to the divestitures and 80/20 product rationalization in the areas we’ve chosen to deemphasize,” Lucareli said.
