Business Description
Trane Technologies plc is a global climate innovator specializing in sustainable and efficient solutions for buildings, homes, and transportation through its strategic brands, Trane® and Thermo King® . The company primarily generates revenue through the design, manufacture, sales, and service of solutions for Heating, Ventilation, and Air Conditioning (HVAC), transport refrigeration, and custom refrigeration solutions . Trane Technologies operates in highly competitive markets worldwide, distributing its products through branch sales offices, distributors, and dealers in the U.S., and subsidiary sales and service companies internationally .
- Americas Segment - Offers commercial heating, cooling, ventilation systems, building controls, energy services, residential heating and cooling, and transport refrigeration systems.
- EMEA Segment - Provides similar products and services as the Americas segment, focusing on the Europe, Middle East, and Africa regions.
- Asia Pacific Segment - Delivers HVAC systems, transport refrigeration, and custom refrigeration solutions tailored for the Asia Pacific market.
- Air Conditioners - Designs and manufactures air conditioning units for residential and commercial use.
- Building Management Systems - Develops systems for managing and optimizing building operations and energy efficiency.
- Energy Efficiency Programs - Offers programs aimed at improving energy efficiency in buildings and transportation.
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Q2 2024 Summary
What went well
- Trane Technologies is leveraging demand side management to help customers reduce energy consumption, as buildings can waste up to 30% of energy. Their connected solutions and AI tools provide significant energy savings, which presents a massive opportunity in a market of 400 billion square feet.
- The company is experiencing broad-based strength across almost all verticals, with a robust backlog that is 2x normal. They are tracking over 300 mega projects, including in high-growth areas like data centers, which plays to their strengths in sophisticated engineered products and their direct sales force.
- Positive developments in the residential and unitary businesses, including clarification on refrigerant transition, normalized inventory levels, and a very warm start to the cooling season, are leading to improved performance and a cautiously optimistic outlook.
What went wrong
- The company is experiencing a down cycle in its transport business in 2024, which could negatively impact near-term financial performance.
- Investments in emerging growth opportunities, such as Immersion Cooling, are facing hurdles, and initiatives like demand side management are still in early stages, potentially delaying expected benefits. ,
- The Residential HVAC market has been challenging for the past 1 to 1.5 years, with future growth uncertain and dependent on weather and refrigerant transition impacts.
Q&A Summary
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Organic Sales Growth Guidance
Q: Why does sales guidance imply flat or declining sales ahead?
A: Management raised the full-year organic revenue growth target to 10%, up 1.5 points. They expect strong performance in Commercial HVAC Americas, with second-half growth of 10–12% despite tougher comparisons. Transport markets are expected to decline mid-20%, and Residential is planned for mid-single-digit growth in the second half. They are confident in the full-year guidance and note that things could improve further. -
Operating Margin Outlook
Q: What affects operating margins in the second half?
A: Higher investments are pushing full-year leverage into the mid-20s after a 30% leverage in the first half. It's less about mix and more about advancing investments with high returns. They remain confident in achieving 25% or better organic leverage for the full year. -
Backlog and Demand
Q: Why is backlog double the normal levels, and will strong bookings continue?
A: The backlog is about 2× normal due to strong demand across almost all verticals. Data center customers provide visibility well in advance. Management expects a strong backlog going into 2025, with $2.8 billion already booked for 2025 and beyond. -
Residential HVAC Outlook
Q: Is mid-single-digit growth the minimum for Residential HVAC?
A: Mid-single-digit growth is likely the floor; it could be better. Three reasons for strong Q2 performance: clarification on the refrigerant transition, inventory levels normalizing, and a very warm start to the cooling season. They are cautiously optimistic. -
Transport Markets Downturn
Q: How will Thermo King Americas perform amid trailer declines?
A: Thermo King Americas is expected to decline, with trailer markets projected to drop mid-teens or possibly more. They expect to outperform the market and are managing decrementals while continuing to invest in innovation. -
Data Centers Growth and Margins
Q: Are there constraints on data center bookings, and what are margins like?
A: There are no capacity constraints; units are getting bigger and more complex. Margins in this space are very attractive, and they value the service opportunities it provides. -
Services Growth Drivers
Q: What's driving strong services growth?
A: Services revenue grew mid-teens in the quarter. Growth is driven by expanding the applied installed base and focusing on asset performance and energy efficiency. -
China Sales Outlook
Q: Has China sales bottomed?
A: Revenues in Asia were flat, with some choppiness in China late in the quarter. It's too early to say China has bottomed. -
Competition in Unitary HVAC
Q: How might competitive dynamics change in Unitary HVAC?
A: Management is very strong in unitary HVAC and emphasizes the importance of having available units on hand, especially during peak seasons. They cannot comment on competitors' plans. -
Emerging Growth Opportunities
Q: How are emerging growth initiatives progressing?
A: Immersion Cooling faces some hurdles, but they are bullish on AI tools like the Nuvolo acquisition. These advancements enhance their connected solutions and demand-side management capabilities. -
Megaprojects Update
Q: Are there updates on mega projects?
A: Teams are tracking over 300 mega projects; some have been closed, and many remain in the pipeline. They feel well-positioned due to their direct sales force and ability to manage complex projects. -
Market Share in Residential HVAC
Q: Did you gain market share in Residential HVAC?
A: Management is pleased with their results but emphasizes looking at market share over a longer period than a quarter. They are cautiously optimistic. -
Applied vs. Unitary Performance
Q: Can you break down applied vs. unitary equipment performance?
A: Both applied and unitary were up strongly; equipment revenue increased 30%, with unitary slightly stronger than applied. They expect both segments to perform similarly in the second half. -
Refrigerant Transition Impact
Q: Are you expecting a pre-buy due to the refrigerant transition?
A: Not anticipating a large pre-buy; the focus is on helping distributors transition inventory properly. -
Demand-Side Management Expansion
Q: How meaningful is demand-side management becoming?
A: They are in the early stages but see a massive opportunity. For example, they helped a customer save $120,000 in energy costs by optimizing building performance. -
Constraints on Data Center Bookings
Q: Are data center bookings constrained?
A: There are no constraints; capacity has been expanded over several years. -
Asia Revenue Performance
Q: How did Asia, specifically China, perform this quarter?
A: Asia accounts for less than 10% of revenue; they saw flat revenues and some choppiness in China. -
Order Rate Expectations
Q: Will you maintain a book-to-bill over 1x?
A: Management won't forecast order rates but expects a strong backlog going into 2025. -
Unitary HVAC Business Outlook
Q: How is the unitary HVAC business expected to perform?
A: Unitary grew slightly more than applied in the quarter. Both are expected to perform closely in the second half. -
Services Growth Sustainability
Q: Why are services growth rates unusually high?
A: Growth is driven by investments and expanding the applied installed base. They utilize a mindset focusing on asset performance and energy efficiency.
Key Metrics
Revenue by Segment - in Millions of USD | FY 2013 | Q1 2014 | Q2 2014 | Q3 2014 | Q4 2014 | FY 2014 | Q1 2015 | Q2 2015 | Q3 2015 | Q4 2015 | FY 2015 | Q1 2016 | Q2 2016 | Q3 2016 | Q4 2016 | FY 2016 | Q1 2017 | Q2 2017 | Q3 2017 | Q4 2017 | FY 2017 | Q1 2018 | Q2 2018 | Q3 2018 | Q4 2018 | FY 2018 | Q1 2019 | Q2 2019 | Q3 2019 | Q4 2019 | FY 2019 | Q1 2020 | Q2 2020 | Q3 2020 | Q4 2020 | FY 2020 | Q1 2021 | Q2 2021 | Q3 2021 | Q4 2021 | FY 2021 | Q1 2022 | Q2 2022 | Q3 2022 | Q4 2022 | FY 2022 | Q1 2023 | Q2 2023 | Q3 2023 | Q4 2023 | FY 2023 | Q1 2024 | Q2 2024 | Q3 2024 |
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Americas | 2,861.0 | 3,692.5 | 3,888.0 | 3,390.5 | 13,832.0 | 3,334.8 | 4,290.9 | 4,474.9 | ||||||||||||||||||||||||||||||||||||||||||||||
- Equipment | - | 284.4 | 264.8 | - | 1,015.2 | 222.4 | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
- Services | - | 110.2 | 111.5 | - | 429.2 | 104.9 | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
- Services and Parts | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
EMEA | 510.5 | 617.6 | 618.6 | 654.5 | 2,401.2 | 553.4 | 645.3 | 667.8 | ||||||||||||||||||||||||||||||||||||||||||||||
Asia Pacific | 294.3 | 394.6 | 376.3 | 379.2 | 1,444.4 | 327.3 | 371.2 | 298.5 | ||||||||||||||||||||||||||||||||||||||||||||||
Products | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
Services | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
Climate Segment | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
Industrial Segment | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
Total Revenue | 3,665.8 | 4,704.7 | 4,882.9 | 4,424.2 | 17,677.6 | 4,215.5 | 5,307.4 | 5,441.2 | ||||||||||||||||||||||||||||||||||||||||||||||
Revenue by Geography - in Millions of USD | FY 2013 | Q1 2014 | Q2 2014 | Q3 2014 | Q4 2014 | FY 2014 | Q1 2015 | Q2 2015 | Q3 2015 | Q4 2015 | FY 2015 | Q1 2016 | Q2 2016 | Q3 2016 | Q4 2016 | FY 2016 | Q1 2017 | Q2 2017 | Q3 2017 | Q4 2017 | FY 2017 | Q1 2018 | Q2 2018 | Q3 2018 | Q4 2018 | FY 2018 | Q1 2019 | Q2 2019 | Q3 2019 | Q4 2019 | FY 2019 | Q1 2020 | Q2 2020 | Q3 2020 | Q4 2020 | FY 2020 | Q1 2021 | Q2 2021 | Q3 2021 | Q4 2021 | FY 2021 | Q1 2022 | Q2 2022 | Q3 2022 | Q4 2022 | FY 2022 | Q1 2023 | Q2 2023 | Q3 2023 | Q4 2023 | FY 2023 | Q1 2024 | Q2 2024 | Q3 2024 |
Americas | 2,861.0 | 3,692.5 | 3,888.0 | 3,390.5 | 13,832.0 | 3,334.8 | 4,290.9 | 4,474.9 | ||||||||||||||||||||||||||||||||||||||||||||||
EMEA | 510.5 | 617.6 | 618.6 | 654.5 | 2,401.2 | 553.4 | 645.3 | 667.8 | ||||||||||||||||||||||||||||||||||||||||||||||
Asia Pacific | 294.3 | 394.6 | 376.3 | 379.2 | 1,444.4 | 327.3 | 371.2 | 298.5 | ||||||||||||||||||||||||||||||||||||||||||||||
Climate Segment | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
- United States | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
- Non-U.S. | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
Industrial Segment | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
Total Revenue | 3,665.8 | 4,704.7 | 4,882.9 | 4,424.2 | 17,677.6 | 4,215.5 | 5,307.4 | 5,441.2 |
Executive Team
Questions to Ask Management
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Given that your Thermo King Americas transport business is expected to be down low double digits this year, and your internal models suggest the trailer market could be down even more than ACT's projection of mid-teens decline, what specific measures are you taking to mitigate these impacts and outperform the market in such a challenging environment?
-
With a competitor announcing plans to push into the emergency replacement unitary market where they currently have little share, how do you anticipate this affecting competitive dynamics, and what strategies are you implementing to defend your market position and margins in this critical segment?
-
Considering that your investment in immersion cooling is still facing hurdles and is not yet mainstream, how are you addressing these challenges, and what is your strategy to capitalize on the growing demand for efficient cooling solutions in data centers?
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You've highlighted demand side management as a massive opportunity, noting that buildings operate up to 30% inefficiently and that you're in the early stages of leveraging AI and connected solutions to address this; can you quantify the potential impact on your bookings and revenue, and what is your timeline for making this a significant contributor to your financial performance?
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With over 300 mega projects being tracked, many still in the pipeline, and recognizing the complexity and multiple decision-makers involved, how confident are you in converting these into bookings, and how do you expect these mega projects to influence your growth trajectory in the near and long term?
Past Guidance
Q2 2024 Earnings Call
- Issued Period: Q2 2024
- Guided Period: FY 2024
- Guidance:
- Organic Revenue Growth: Approximately 10% .
- Adjusted Earnings Per Share (EPS): Approximately $10.80 .
- M&A Impact: About 1 point of growth; negative impact of approximately $30 million to adjusted operating income .
- Foreign Exchange (FX) Impact: About 1 point of negative FX impact .
- Free Cash Flow Conversion: 100% or greater .
- Third Quarter Revenue Growth: Approximately 8.5% .
- Third Quarter Adjusted EPS: Approximately $3.15 to $3.20 .
- Capital Deployment: Approximately $2.5 billion .
- Organic Leverage Target: 25% plus .
Q1 2024 Earnings Call
- Issued Period: Q1 2024
- Guided Period: FY 2024
- Guidance:
- Organic Revenue Growth: 8% to 9% .
- Adjusted Earnings Per Share (EPS): $10.40 to $10.50 .
- M&A Impact: About 1 point of growth; negative impact of approximately $30 million to adjusted operating income .
- Foreign Exchange (FX) Impact: Negative impact of about 1 percentage point .
- Organic Leverage Target: 25% plus .
- Free Cash Flow Conversion: 100% or greater .
- Second Quarter Revenue Growth: Approximately 8.5% .
- Second Quarter Adjusted EPS: Approximately $3.05 .
- Capital Deployment: Approximately $2.5 billion .
Q4 2023 Earnings Call
- Issued Period: Q4 2023
- Guided Period: FY 2024
- Guidance:
- Organic Revenue Growth: 6% to 7% .
- Adjusted Earnings Per Share (EPS): $10 to $10.30 .
- Free Cash Flow Conversion: 100% or greater .
- Organic Leverage: 25%-plus .
- Impact from M&A: Approximately 1 point of growth; $30 million negative impact on operating income .
- First Quarter 2024 Guidance:
- Organic Revenue Growth: Approximately 7% .
- Adjusted EPS: Between $1.60 and $1.65 .
Q3 2024 Earnings Call
- Issued Period: Q3 2024
- Guided Period: N/A
- Guidance: The documents do not contain information from the Q3 2024 earnings call for Trane Technologies. Therefore, guidance details for this period are unavailable.
Latest news
Recent developments and announcements about TT.
Corporate Leadership
Leadership Change
Paul A. Camuti, Executive Vice President and Chief Technology and Sustainability Officer of Trane Technologies, is retiring effective December 31, 2024. His departure is not due to any disagreements with the company. The company appreciates his 13 years of service and wishes him well in retirement .