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. -