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    Trane Technologies PLC (TT)

    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 .

    1. Americas Segment - Offers commercial heating, cooling, ventilation systems, building controls, energy services, residential heating and cooling, and transport refrigeration systems.
    2. EMEA Segment - Provides similar products and services as the Americas segment, focusing on the Europe, Middle East, and Africa regions.
    3. Asia Pacific Segment - Delivers HVAC systems, transport refrigeration, and custom refrigeration solutions tailored for the Asia Pacific market.
    4. Air Conditioners - Designs and manufactures air conditioning units for residential and commercial use.
    5. Building Management Systems - Develops systems for managing and optimizing building operations and energy efficiency.
    6. Energy Efficiency Programs - Offers programs aimed at improving energy efficiency in buildings and transportation.

    Q2 2024 Summary

    Initial Price$299.50April 1, 2024
    Final Price$321.36July 1, 2024
    Price Change$21.86
    % Change+7.30%

    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

    1. 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.

    2. 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.

    3. 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.

    4. 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.

    5. 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.

    6. 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.

    7. 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.

    8. 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.

    9. 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.

    10. 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.

    11. 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.

    12. 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.

    13. 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.

    14. 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.

    15. 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.

    16. Constraints on Data Center Bookings
      Q: Are data center bookings constrained?
      A: There are no constraints; capacity has been expanded over several years.

    17. 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.

    18. 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.

    19. 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.

    20. 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

    View all financials →
    Revenue by Segment - in Millions of USDFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    Americas2,861.03,692.53,888.03,390.513,832.03,334.84,290.94,474.9
    - Equipment-284.4264.8-1,015.2222.4--
    - Services-110.2111.5-429.2104.9--
    - Services and Parts--------
    EMEA510.5617.6618.6654.52,401.2553.4645.3667.8
    Asia Pacific294.3394.6376.3379.21,444.4327.3371.2298.5
    Products--------
    Services--------
    Climate Segment--------
    Industrial Segment--------
    Total Revenue3,665.84,704.74,882.94,424.217,677.64,215.55,307.45,441.2
    Revenue by Geography - in Millions of USDFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    Americas2,861.03,692.53,888.03,390.513,832.03,334.84,290.94,474.9
    EMEA510.5617.6618.6654.52,401.2553.4645.3667.8
    Asia Pacific294.3394.6376.3379.21,444.4327.3371.2298.5
    Climate Segment--------
    - United States--------
    - Non-U.S.--------
    Industrial Segment--------
    Total Revenue3,665.84,704.74,882.94,424.217,677.64,215.55,307.45,441.2

    Executive Team

    NamePositionStart DateShort Bio
    David S. RegneryChair of the Board, Chief Executive Officer, and DirectorJuly 1, 2021David S. Regnery has been with Trane Technologies for his entire career. He was appointed as CEO and Director on July 1, 2021, and became Chair of the Board on January 1, 2022 .
    Christopher J. KuehnExecutive Vice President and Chief Financial OfficerJuly 2021Christopher J. Kuehn has been serving as the Executive Vice President and CFO since July 2021. He was previously the Senior Vice President and CFO from March 2020 to June 2021 .
    Paul A. CamutiExecutive Vice President, Chief Technology Officer and Sustainability OfficerJanuary 2024Paul A. Camuti has been serving in his current role since January 2024. He joined the company as an executive officer on August 1, 2011 .
    Raymond D. PittardExecutive Vice President, Chief Integrated Supply Chain OfficerJanuary 2024Raymond D. Pittard has been serving in his current role since January 2024. He previously held the position of Executive Vice President, Supply Chain, Engineering, and IT from July 2021 to January 2024 .
    Evan M. TurtzSenior Vice President and General CounselApril 2019Evan M. Turtz has been serving as the Senior Vice President and General Counsel since April 2019. He has also been Secretary since October 2013 .
    Keith A. SultanaSenior Vice President, Supply Chain and Operational ServicesJanuary 2020Keith A. Sultana has been serving as the Senior Vice President, Supply Chain and Operational Services since January 2020 .
    Mairéad A. MagnerSenior Vice President, Chief Human Resources OfficerJanuary 2022Mairéad A. Magner has been serving as the Senior Vice President and Chief Human Resources Officer since January 2022 .
    Donald E. SimmonsGroup President, AmericasJanuary 2024Donald E. Simmons has been serving as the Group President, Americas since January 2024. He was previously the Americas Segment Leader and CHVAC Americas President from January 2022 to December 2023 .
    Mark A. MajochaVice President and Chief Accounting OfficerDecember 2022Mark A. Majocha has been serving as the Vice President and Chief Accounting Officer since December 2022. He was previously the Vice President, Finance CHVAC Americas from April 2020 to November 2022 .

    Questions to Ask Management

    1. 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?

    2. 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?

    3. 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?

    4. 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?

    5. 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?

    Share Repurchase Program

    Program DetailsProgram 1
    Approval DateFebruary 2022
    End Date/DurationN/A
    Total additional amount$3.0 billion
    Remaining authorization amount$1.6 billion (as of September 30, 2024)
    DetailsPart of capital allocation strategy; no prescribed expiration date

    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

      ·
      Nov 21, 2024, 9:29 PM

      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 .