MEC Q3 2026 deep dive: data center demand offsets margin pressure from legacy markets

Barchart·11/04/2026 12:40:28

Vertically integrated manufacturing solutions provider Mayville Engineering Company (NYSE:MEC) reported Q3 2026 results exceeding the market’s revenue expectations, with sales up 18.1% year on year to $170.4 million. The company expects the full year’s revenue to be around $635 million, close to analysts’ estimates. Its non-GAAP profit of $0.15 per share was 28.3% above analysts’ consensus estimates.

Is now the time to buy MEC? Find out in our full research report (it’s free for active Edge members).

StockStory’s take

Mayville Engineering’s most recent quarter saw strong year-over-year sales growth, but the market responded negatively, reflecting investor concerns about profitability and execution. Management attributed the growth to continued expansion in data center and critical power markets, with CEO Jag Reddy noting that “additional programs reached full production during the quarter, improving capacity utilization.” However, the company faced operational challenges, including higher launch and outsourcing costs, as well as underutilization in agriculture and power sports segments.

Looking forward, Mayville Engineering’s guidance is based on expectations for continued data center and critical power demand, but management highlighted that margin improvement will be gradual. CFO Rachele Lehr explained that ramp-related costs and equipment investments should begin to moderate in early 2027, leading to sequential improvements in profitability. Reddy emphasized, “We expect to make measurable margin improvement over the next 12 to 18 months,” identifying workforce build-out and recovery in legacy markets as key factors for future gains.

Key insights from management’s remarks

Management cited robust growth in data center and commercial vehicle markets, but also discussed ramp costs, workforce constraints, and customer-driven demand shifts as major influences on the quarter’s performance.

• Data center and critical power surge: New project launches and accelerated demand in this market drove a 65% increase in segment sales, now representing 22% of total company revenue. Management views this as a multi-year opportunity, with a growing pipeline and new customer wins.
• Operational costs and labor shortages: Elevated ramp and outsourcing expenses, especially in data center and critical power, pressured margins. The company is addressing this by shifting programs across its footprint and ramping up internal training to mitigate persistent labor shortages, particularly for skilled trades like welders.
• Commercial vehicle recovery: Commercial vehicle sales rose nearly 35% year-over-year, benefiting from increased North American Class 8 production. However, management signaled that some lower-margin industrial contracts will be exited to free up capacity for higher-margin data center work.
• Softness in legacy markets: Agriculture and power sports remain weak, with ongoing supply chain realignments and customer insourcing, leading to underutilization in certain facilities. This softness is expected to persist into next year, with limited short-term recovery prospects.
• Capacity expansion and facility acquisition: The acquisition of the Thomson, Georgia facility is intended to alleviate capacity constraints in the Southeast and support anticipated growth, with plans for $25 million in investment and $50 million in future annual revenue capacity by 2028.

Drivers of future performance

Guidance for the coming year hinges on the ramp-up of new data center projects, improving operating leverage, and the company’s ability to manage costs as it transitions away from underperforming legacy markets.

• Data center project mix shift: Management expects data center and critical power revenues to become a larger share of the company’s mix, supporting higher long-term margins. However, customer project timelines remain dynamic, with some high-margin volumes shifting into next year, delaying immediate profitability improvement.
• Margin recovery depends on ramp timing: Ramp-related costs—such as outsourcing and premium labor—are expected to decline as new equipment comes online and production normalizes. Lehr indicated that sequential margin improvement would be gradual, becoming more evident by late next year as fixed costs are absorbed and labor constraints ease.
• Legacy market headwinds and pricing strategy: Continued weakness in agriculture and power sports will weigh on margins, but management is actively repricing contracts and exiting lower-margin business. The company is redeploying this freed capacity toward higher-value data center opportunities, with the aim of achieving a more favorable business mix.

Catalysts in upcoming quarters

In the coming quarters, the StockStory team will be closely monitoring (1) execution on shifting more production in-house as new equipment is commissioned, (2) continued growth and conversion of the data center and critical power pipeline into higher-margin revenues, and (3) progress on repricing and exiting lower-margin industrial contracts. Developments in labor availability and successful ramp-up of the Thomson, Georgia facility will also be important signs of execution.

Mayville Engineering currently trades at $15.76, down from $16.19 just before the earnings. Is the company at an inflection point that warrants a buy or sell? See for yourself in our full research report (it’s free).

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