Trane Technologies plc (TT) on Q3 2021 Results - Earnings Call Transcript

Operator: Good morning. Welcome to the Trane Technologies Q3 2021 earnings conference call. My name is Paula (ph) and I will be your Conference Operator for the call. The call will begin in a few moments with the speaker's remarks, and the Q&A session. At this time, all participants are in a listen-only mode. . I will now turn the call over to Zac Nagle, Vice President of Investor Relations. Please go ahead, sir. Zac Nagle: Thanks, Operator. Good morning. And thank you for joining us for Trane Technologies, Third Quarter 2021 Earnings Conference Call. This call is being webcast on our website at tranetechnologies.com where you will find the Company in presentation. We're also recording and archiving this call on our website. Please go to Slide 2. Statements made in today's call that are non-historical facts are considered forward-looking statements and are made pursuant to the safe harbor provisions of Federal Securities Law. Please see our SEC filings for a description of some of the factors that may cause our actual results to differ materially from anticipated results. This presentation also includes non-GAAP measures, which are explained in the financial tables attached to our news release. Joining me on today's call are David Regnery, CEO and Chris Kuehn, Executive Vice President and CFO. With that, I will turn the call over to Dave. Dave. David Regnery: Thanks, Zac and everyone for joining us on today's call. Let's turn to Slide number 3. As we do each quarter, I'd like to spend a few minutes upfront on our focus sustainability strategy, the engine that enables us to deliver differentiated shareholder returns over time. Long term sustainability mega trends continue to intensify and our innovation leadership is transforming the climate industry as the world de -carbonizes. Our aggressive goals and bold actions can dramatically reduce carbon emissions and accelerate the world's progress. This is more critical every day as the clock is ticking on climate change. That's why we're calling for businesses and governments to take stronger action at COP26, and why we continue to set aggressive science-based emission reduction targets to push our innovation further and faster. That innovation also extends to emerging trends as we see heightened focus on indoor air quality and strong momentum in aging infrastructure in our schools. We continue to make a difference consistently, relentlessly, and over the long term. This unyielding approach drives market outgrowth over the long term. Which in turn helps us drive strong margins and powerful free cash flow to deploy through our balanced capital allocation strategy. The end result is more value across the board for our customers, for our team, for our shareholders, and for the planet. Moving to slide number four, our global team delivered solid execution in the third quarter, and we continue to target top quartile EPS growth for 2021. Bookings were once again exceptional in Q3, building on strong growth in both Q1 and Q2, and bringing our year-to-date organic bookings growth to over 25% for the enterprise. Underlying demand for our innovative products and services have never been stronger, and our Q3 ending backlog reflects the strength. In fact, Q3 ending backlog for the enterprise is up more than 70%, or approximately $2 billion, from year-end 2020 with all three of our business segments at record levels. Americas and EMEA have backlog that are up over 90% and 65% respectively from year-end 2020. We're well-positioned to close out 2021 on a strong note, and to enter 2022 with unprecedented levels of backlog as well. As we highlighted on our second quarter earnings call and in subsequent forums, global supply chains, logistic systems, and labor markets remain tight and inflation is persistent. Our global teams are focused on meeting the unique needs of our wide range in customer base and helping them solve complex challenges on a daily basis as we navigate a challenging yet positive demand in supply environment. Temporary supply chain delays on key materials impacted portions of our product portfolio shifting the timing of approximately $150 million or 4% of our revenue out of the third quarter and into future periods. Working closely with our key suppliers and with our customers, we anticipate that between $50 million and $75 million, roughly 2% of the Q3 impact will shift into the fourth quarter, leaving our 2021 revenue guidance unchanged. We expect the remaining balance to shift into 2022. We also highlighted our second quarter earnings call, that persistent inflation would require us to execute an incremental $150 million in pricing actions in the second half of the year in order to neutralize the impact. Strong execution of our business operating system has enabled us to keep pace with the inflationary curve. In the third quarter, we realized approximately $150 million or 4.3% incremental price, offsetting approximately $150 million of inflation. Leverage was negligible, as you would expect on flat volume. While adjusted operating income was modestly higher in the quarter, primarily reflecting nominal pull-through on M&A and FX growth consistent with our expectations and our guidance. We continue to execute the business transformation projects we discussed in detail at our Investor Day in December and are on track to deliver approximately $90 million of incremental savings in 2021. These savings support leading innovation across our end markets through relentless high levels of business reinvestment. They also enable us to stay on track to deliver incremental margins of approximately 30% organic for fiscal 2021 despite persistent inflation, tight logistics systems, and supply chain challenges. We're also on track to deliver powerful free cash flow of equal to or greater than 100% of net earnings. This provides us with strong optionality to deploy significant cash to opportunities now and in the future, including M&A and share repurchases. Lastly, we never lose sight of our long-term purpose driven strategy and the tremendous leadership role we can play in bending the curve on climate change. By changing the industry, we can change the world. Executing our purpose driven strategy is how we will continue to deliver top-tier financial performance for our shareholders. Please turn to slide number five. While we're still in the midst of our planning process for 2022 and anticipate providing guidance in conjunction with our fourth quarter earnings call, we thought it might be constructive to spend a few minutes discussing our initial thoughts on 2022 and some of the key dynamics we believe will be in play. While this is not a comprehensive list, it will highlight some of the key reasons why we're so excited about what the future holds for Trane Technologies, as well as some of the key challenges we see on the road ahead. First, we expect to have strong fundamentals entering the year. Exiting Q3 backlog in our Americas and EMEA segments are both at unprecedented levels, up over 90%, and up over 65% versus December of 2020, respectively. Asia also has record backlog up nearly 20%. If we very conservatively plot out bookings through the balance of 2021, we anticipate entering 2022 with at least 70% more backlog in the Americas and EMEA than we entered 2020. I've been in this business a long time and I've never entered any year with a stronger backlog position, which bodes well for us in 2022. Another fundamental strength entering 2022 is the foundation of our business operating system. Strong execution of our business operating system has enabled us to stay ahead of the persistent inflation through 2021 and position us well to manage additional inflationary pressures and deliver strong price realization again, in 2022. And we will continue to drive transformation savings in 2022 that will support high levels of business reinvestment and continued innovation. These savings will also support healthy incremental margins in what we expect to be another year of tight conditions for supply chain, labor markets, and logistics systems. Looking out to 2022, we also expect to see continued acceleration of the strong secular sustainability mega trends that are so tightly aligned with our purpose driven business strategy. The decarbonization of the built environment is accelerating. U.S. education stimulus dollars are being put to good use, upgrading our aging infrastructure. And momentum around indoor air quality upgrades, retrofits, and new projects continues. Additionally, the global economy is expected to continue to recover in 2022 with solid underlying GDP and other economic indicators driving broader expansion in the non-residential markets. Lastly, we're excited about the future transport refrigeration markets, where ACT and IHS are plotting a steady growth path forward in both 2022 and 2023. All in, we're exceptionally well-positioned for strong performance in 2022 and beyond. Please turn to slide number six. Customer demand for our innovative climate control products and services continues to grow. We delivered another quarter of robust organic bookings growth up 20% with growth across all segments and business units. Customer demand has been high all year with organic bookings up over 25% year-to-date, driving a record backlog in each segment. Organic revenues were also up 4% driven by continued strong price execution. Our Americas Commercial HVAC business delivered robust bookings growth in the quarter, with orders up over 30%. Strength was broad-based, with applied and unitary bookings both up more than 50% and service bookings up high-teens. Demand for system-focused indoor air quality solutions remained strong and contributed to our mid-single-digit revenue growth in Commercial HVAC Americas. The residential HVAC markets continue to be strong, and our residential team delivered low single-digit bookings growth building on nearly 40% growth in the third quarter of 2020. Revenues were flat in the quarter as demand outpaced supply and we enter the fourth quarter with record backlog, up more than a 150% year-over-year, and up from prior record backlog at the end of the second quarter. With year-to-date organic bookings up over 80% and year-to-date organic revenue up over 30%, our Americas transport refrigeration business is significantly outperforming the North America transport markets. During the third quarter, with most of 2021 orders already in the backlog, we opened up our 2022 order book solely for the first quarter of 2022, which drove bookings growth of more than 20%. We are methodically managing our 2022 order book in order to mitigate inflationary risks. Organic revenues were also strong; up low to mid-teens. Turning to EMEA, we continue to see strong demand for our innovative products and services that help reduce energy intensity and greenhouse gas emissions for our customers. Our EMEA teams delivered 25% organic bookings growth in the quarter, with strong growth in both Commercial HVAC and transport refrigeration. Revenues were also strong, up 8% led by high-teens organic revenue growth in transport refrigeration. Our Asia Pacific team delivered bookings growth of 11%. Revenue grew 1% in the quarter. Though we saw growth in China during the quarter, the impacts of the COVID-19 pandemic continued to be challenging in the region, with low vaccination rates in some countries. Now I'd like to turn the call over to Chris. Chris. Chris Kuehn: Thanks, Dave. Please turn to slide number 7. Organic revenue growth in the quarter was driven by continued strong price execution, yielding 4.3% incremental price in the quarter. Price over material inflation was positive in the quarter. And combined with mix, offset the net impact of productivity over other inflation and increased investment spending to support leading innovation. Organic volume, and therefore pull-through leverage, was largely flat for the enterprise in the quarter. At a high level, positive leverage was primarily the result of mix and a modest flow-through of M&A and FX, consistent with our guidance. Net, adjusted EBITDA, and operating margins declined by 70 and 60 basis points respectively. Adjusted EPS grew 5% driven primarily by higher adjusted operating income. Please turn to slide number eight. We discussed the key revenue and margin dynamics for the enterprise on the prior page. The dynamics impacting revenue and margins were similar across each of our business segments as we've highlighted here. But strong price realization, productivity, inflation, and higher investments in innovation as consistent drivers. In EMEA, solid price realization was accompanied by strong volume growth, delivering good leverage and margin expansion in the quarter. Both the Americas and Asia Pacific segments delivered higher revenues on modest volume declines impacting leverage. Asia Pacific also experienced price versus cost headwinds in the quarter, further impacting margins. We continue to expect Asia Pacific to deliver solid margin expansion for the full year and are pleased with our overall performance in the region. Now I'd like to turn the call back over to Dave. Dave? David Regnery: Thanks, Chris. Please turn to Slide number 9. Commercial HVAC Americas has significantly outperformed the broader markets over a number of years through strong focus, agility, and execution. Combined with relentless innovation for our customers. These defining characteristics compounded by the strength of the underlying market conditions power the business forward today, yielding bookings growth of over 30% in the quarter an exceptional backlog entering Q4. Booking strength was universal across nearly every vertical market and major product category. End-markets continued to improve. Vaccination rates are improving. and end-market indicators are generally strong, with ABI over $50 since February and a healthy GDP. Data centers and warehouse demand remain strong. Education and healthcare end market demand is also growing. We're benefiting from increased demand across our K through 12 customers, with federal stimulus fund supporting both current and more importantly future growth. We see this as a multiyear tailwind for our business, given our strong position in the education market and our direct sales force with deep relationships in this vertical. Our residential end markets remain strong. As I mentioned previously, we delivered low single-digit bookings growth in the quarter, compounding on nearly 40% growth in the prior year. And we are entering the fourth quarter with unprecedented backlog. I'm proud of our residential team that has continued to meet customer demand while ramping capacity after our February weather event in our Texas facility. The team delivered historically high revenues in Q3 and is on track for capacity expansion in advance of next year's cooling season. Turning to Americas transport, we're significantly outgrowing strong end markets in 2021. ACT market forecaster projecting strong growth in 2022 and 2023 as well. I'll talk more about the transport outlook in our topics of interest section. Turning to EMEA, economic conditions are improving across the region. We expect continued improvement for the remainder of the year, with increased vaccination rates supporting the opening of an increased number and variety of venues. Transport markets have been strengthening throughout the year, and we're on track to outperform end markets in 2021, as evidenced by our year-to-date performance. Turning to Asia, we expect growth in China in 2021, supported by increased vaccination rates and strengthened data centers, electronics, pharmaceutical, and healthcare. Outside of China, the picture is mixed, with vaccination and economic recovery rates still low in some countries. Now I'd like to turn the call back over to Chris. Chris. Chris Kuehn: Thanks, Dave. Please turn to slide number 10. Given all the puts and takes we've discussed today, our guidance for 2021 is unchanged. Importantly, we continue to see our 2021 adjusted EPS growth guidance of more than 30% as top quartile among peers and the broader industrials. We've discussed the shift in revenues from Q3 to Q4 in 2022 throughout the call. Our fourth quarter revenues are supported by record backlog, and that backlog is firm. Supply chain, labor, and logistic systems will continue to be challenging, and are the limiting factor to potential upside, not demand or backlog. We also continue to expect free cash flow to remain strong at equal to or greater than a 100% of adjusted net income. Please go to slide number 11. As we outlined during our investor event in December, we are on track to deliver $300 million of run rate savings by 2023, including $90 million in 2021. Importantly, we continue to invest these cost savings to further fuel innovation and other investments across the portfolio. This consistent investment strengthens our high performance flywheel, which has a reinforcing and compounding effect over time. Please go to slide number 12. We remain committed to our balanced capital allocation strategy that is focused on consistently deploying excess cash to opportunities with the highest returns for shareholders. First, we continue to strengthen our core business through relentless business reinvestment. Second, we're committed to maintaining a strong balance sheet that provides us with continued optionality as our markets evolve. Third, we expect to consistently deploy a 100% of excess cash over time using a balanced approach that includes strategic M&A that further improves long-term shareholder returns and share repurchases as the stock trades below our calculated intrinsic value. Please turn to Slide 13, and I'll provide an update on how we're deploying excess cash in 2021. Year-to-date, we have deployed $1.8 billion in cash with approximately $1 billion to M&A and share repurchases, including $250 million for the Farrar scientific life sciences acquisition, we closed in October. We have paid $422 million in dividends and $425 million to pay down debt. Our strong free cash flow, liquidity, and balance sheet continue to give us excellent capital allocation optionality, and dry powder moving forward. We are on track to deploy at least $2.5 billion in excess cash in 2021. Now, I would like to turn the call back over to Dave. Dave. David Regnery: Thanks, Chris. Please go to slide number 15. I wanted to spend a couple of minutes providing an update on the transport refrigeration markets for 2021, as we've seen the forecast shift with fair amount since our second quarter earnings call. I think the primary takeaway this quarter is that ACT is projecting an extended and more gradual upturn in the North America transport refrigeration markets than initially projected. North America Trailers is probably the clearest example and one of the most watched by investors and analysts as a proxy for the overall transport refrigeration health. ACT started out the year projecting an almost immediate snap-back in the North America trailer production in 2021, up 39% of the lows of the pandemic in 2020. As trailer OEMS have had a challenging year producing enough trailers to meet the forecast, ACT has gradually pulled the forecast down and is now projecting a strong but more gradual improvement in 2021, up 18% and continued improvement in production rates in both 2022 and 2023, up another 18% and 14% respectively. If you look at the all-in weighted average market forecast for North America transport refrigeration, 2021 is now expected to be up about 14% versus 24% projected in July. Year-to-date, our Thermo King Americas transport refrigeration business is up more than 30%. Clearly outperforming the markets, and we expect to outperform the markets for the full year as well. Looking at IHS and other key indicators for EMEA markets, the outlook has improved about 3 points with the weighted average market growth now expected to be about 12% for 2021. Year-to-date, our Thermo King EMEA business is up more than 20% clearly outperforming the markets. And we expect outperformance for the full-year 2021 as well. Please go to slide number 16. We added a second transport refrigeration slide to the deck this quarter to add more color around the North America trailer market, from both backward and forward-looking perspectives. One of the things we've talked about over the past several quarters is the North America trailer market has not been particularly volatile over the past several years, and it's not projected to be particularly volatile over the ACT forecast horizon either. On the left side of the page, you can see the visual depiction of what we've been describing. We chart ACTs reported actual trailer units built going back to 2015, and ACTs forecast for trailer builds through their forecast horizon of 2023. The 9-year average is in the mid 40,000 unit range, with the pandemic in 2020 being the only significant outlier. We also see that good growth is projected in both 2022 and 2023. It's important to note that our global transport refrigeration business is highly diversified. Trailer is an important part of the global mix, at about 25% of the total. However, we're focused on strong execution across the transport refrigeration portfolio, which we believe will further help reduce variability of this business over time. Please go to Slide number 17. 2021 is shaping up to be a strong year for us overall, despite a number of macro challenges that we expect to continue over the near term. We're seeing unprecedented levels of demand for our products and services across the board. And our backlog has never been stronger. We're executing our business operating system well and staying ahead of persistent inflation with strong price realization. And we expect to deliver top quartile EPS growth for the full year. Energy efficiency and sustainability mega trends are only growing stronger. We are uniquely positioned to deliver leading innovation that addresses these trends and accelerates the world's progress supported by a business transformation and our engaging uplifting culture. We are proud to have been recognized by Forbes as one of the best employers for diversity and best employers for women. And by Fortune as one of the best workplaces in manufacturing. It's our people that power our innovation and bring our purpose to life every day. We have many reasons to be excited about our prospects for strong performance as we look to 2022 and beyond. When combined with our exceptional ability to generate free cash flow and our balance capital deployment, we are well-positioned to continue to drive differentiated shareholder returns over the long term. And now, we'd be happy to take your questions. Operator? Operator: this time I would like to remind everyone in order to ask a question, . Your first question comes from the line of Joe Ritchie of Goldman Sachs. Joe Ritchie: Thanks. Good morning, everyone. David Regnery: Hey, Joe, how you doing? Chris Kuehn: Good morning. Joe Ritchie: Yeah, doing great. So maybe just the first question on the supply chain. It's helpful to have kind of that visibility on the revenues that pushed out from this quarter. I guess, just any other color that you can provide, is this predominantly occurring in your North America trailer business. And then just confidence that you're going to be able to shift these revenues and not see sustained supply-chain issues in the next few quarters. David Regnery: Yeah. Sure, Joe, great question. Tight supply chain really globally, we talked about it during our second quarter earnings call. It caused us to push about $150 million of revenue out of the quarter, as we said. we think we'll get about 50 to 75 of that back in the fourth quarter. Our team is doing a great job of managing the supply chain constraints. We chose not to include a slide in our deck telling you the 50 things that we're doing to manage our suppliers or help our suppliers. But I could assure you that supply chain resiliency has been part of our business operating system for a long time. And I can assure you that Trane Technologies employees around the globe are working hand in hand with our suppliers, ensuring that we could take literally pages out of our operating system and help them implement it. We think it's going to be choppy for a while on the supply chain, at least for the foreseeable future. It's a little bit, I think I mentioned it in the second quarter call, it's a little bit like when you were a kid, you play that game Whack-A-Mole, where we fix one problem and another problem pops up. But if you're looking for overarching kind of like where are we seeing constraints? I don't think we're -- I know we're not any different than what you probably already heard from the rest of the industrials that have reported. Electronics, resin, semiconductors, wire harnesses, these are all areas that certainly at an overarching level, we're seeing supply chain constraints. That said, just a couple of points I want to make. One is, we're working very closely with our customers. It's very important that in some cases our customers are having supply chain constraints on the job sites, which is causing them to push out jobs. So we're working with them to make sure that we could deliver product when they need it. If you look at our Thermo King business, we're really aligning with our customers there around build slots that they're getting from the trailer OEMS tractor suppliers. So this hand-in-hand relationship with the customer, it's pretty dynamic right now. And then the last point I'd like to make, Joe is that I know we've talked a lot about supply chain constraints. We also have to be fair to our suppliers. I know many of them are probably listening to the call or will read the transcript. We are putting tremendous pressure on our suppliers with the amount of demand that we're seeing in the marketplace right now. If you look at our Commercial HVAC business in the Americas, our unitary and applied both are up over 50% incoming order rates in the third quarter. So with that kind of -- you can imagine we're pushing that right on to our suppliers and putting orders on them. So they're seeing some pretty big spikes that they're having to manage through. Your question on, is there a particular business? It's pretty wide spread. There's more acute maybe in our Thermo King business. We had a couple of suppliers there that we've worked through some of the issues with. So we're pretty confident that we'll be able to rebound there in the fourth quarter. We're also seeing -- we're seeing across the globe the other businesses that would call us probably our Commercial HVAC business. Certainly there the resin impact and kind of a knock-on effect that we've been seeing now for several quarters. Joe Ritchie: Thanks, David. That was helpful. Maybe my one quick follow-up. One of your suppliers, just did their conference call about an hour ago, and they talked about the price cost formula being roughly a $100 million positive for them in 2022, you did a good job with pricing this quarter. I'm just curious as you think about 2022, should we be thinking about a positive price cost environment given what you're seeing in your cost price today. Chris Kuehn: Hey Joe (ph), it's Chris. I'll take the question. So we are in the middle of our 2022 planning. Going into 2022, though, we would expect some carryover price from the three price increases, most of our businesses announced this year, we will start lapping price increases though really starting in the first quarter of next year. But I will tell you as part of our business operating system, we enter every year coming up with a plan of how we're going to get about 20 to 30 basis points, positive spread price costs. More to come in a couple of months as we released guidance for next year, but we're going to go in with the mentality that we're going to cover price cost, but it's also a very inflationary environment which is why we're really trying to size that for pricing increases if we need to going forward. David Regnery: Yeah, the only thing I would add to that, Joe, is that price is never easy to get despite what people may think. But when you have an innovative portfolio of products, it becomes that much easier. As you're selling additional value to your customer, being able to get pricing, it becomes a little bit easier. Joe Ritchie: Great, thank you both. David Regnery: Thanks. Operator: You next question comes from Scott Davis of . Scott Davis: Good morning, guys. Chris Kuehn: Hey, Scott (ph), how are you doing? David Regnery: Good morning. Scott Davis: Good. I want to talk about IAQ if that's okay and the 2 point tailwind that you noted in the slide is pretty material. One, I want to just get some color on the sustainability of that. How many years of project backlog do you ultimately have? Where is that 2% -- it stayed 2%, does it become 3 this year and any kind of view around that. And then what does a systems focused solution really mean for practical purposes for us at least? Does that mean a service contract with monitoring? Maybe just a little color around that too. Thanks. David Regnery: Sure. Good question. As far as the demand goes, we had said early on that we thought would be 1% to 2% tailwind. We're seeing 2% this year. Pipeline is strong. What started out to be strong in really just healthcare and education, we're now seeing in office and other verticals. So that's the good news. On the other thing, I would tell you that if you remember, we had an approach where we were doing indoor air quality audits where we would do a day one activity, where we do the audits, make the environment as safe as possible today with existing assets. And then we give a road map as to how you would do day two activity. Those day two activities are really starting to come through for us, especially in the education with some stimulus funds flowing there. So that's a good news story. As far as we see indoor air quality as a mega trend that's not going to go away. It's top of mind. I mean, Trane Technologies has always had a robust focus on indoor air quality. It was always big in the healthcare vertical. It's now top of mind in all verticals. But we don't see this stopping. We see people constantly asking about indoor air quality. I would tell you that we're building it into our systems, which is kind of your second question there is. This is now integrated into a system, and we're seeing nice traction in all verticals. Chris Kuehn: What I'll add, Scott, is because it is embedded in systems now, it is becoming harder and harder to kind of spike out the impact in indoor air quality separate from a systems order. I've offered Dave, we can hire a few more accounts to try to track those revenues in that level of detail. But I think the fact is, it's really becoming just a long-term tailwind for the Company. David Regnery: Yeah, this is Dave. We're really seeing a lot of traction, especially with our dry hydrogen and peroxide solutions. And this is predominantly in the education vertical as we're building this into the systems. And the dry hydrogen peroxide solution, the unique innovation there is that these molecules last longer. So if you think about a school room where you have students that are moving around the different class rooms on different desks, these molecules actually settle on the desk, so they clean the air as well as the surface. And we're getting a lot of traction around that. Scott Davis: That's very interesting. I'll pass it on to my peers, but thank you and good luck. Chris Kuehn: Thanks. David Regnery: Thanks. Operator: Your next question comes from Jeff Sprague of Vertical Research. Jeff Sprague: Hey. Thank you. Good morning, everyone. Chris Kuehn: Good morning, Jeff. David Regnery: Good morning. Jeff Sprague: Hey. Good morning. I just wanted to follow-up on backlog as it relates to price and, Dave, you mentioned opening a kind of measuring how you open up the order book to not get caught here. To what extent do you have the ability or are you in fact going back and repricing some of the backlog or given the environment that we're in, perhaps you're changing commercial terms just to protect yourself better. If you take an order today and you deliver it 12 months from now, who knows what we're dealing with on the inflation front. So just any color there on how you're managing that, protecting yourself and maybe -- and some flexibility to commercial terms. Chris Kuehn: Hey, Jeff. This is Chris, I'll start and then Dave can jump in. If I go business by business, when we started the residential, really, we have the ability to look at our backlog and reprice our backlog as we see higher inflation impacting orders that will shift now, a couple of months out where the backlog and residential used to be a couple of weeks, now we see it continue to be a couple of months out. We actually have repriced the backlog already in 2021, but we've got that ability to reprice going forward should we see a significantly more inflation. On the Commercial HVAC side, when I think about long lead time equipment. Those contracts generally have price escalation clauses in them that allows us to reset pricing based on an index. So we have some protection there as well. And then on Thermo King, today's remarks earlier, we've been really selective with opening up the order books for 2022. We wanted to get as much insight as we can get on inflationary environment through the third quarter of 2021. We've only had the first quarter of 2022 order book booking. We've now recently opened up the '22 order book for the balance of the year, and we did that intentionally to make sure we had the right to reflect that in the backlog. So I think we got really in terms of price and inflation. David Regnery: What I would add to that is also we got pricing built in and we got mechanisms in place and also our backlog is very firm. We're not seeing cancellations on our backlog and don't anticipate cancellations for backlog in the future. Jeff Sprague: And then separately just on resi, I don't think you've mentioned resi in terms of something you're positive on in terms of your 2022 outlook. Obviously, we've got this question that everyone is asking and ensure how the hands are on -- how these comps play out and that sort of thing. Dave, what is your high-level view on how the resi market behaves next year? And certainly you might have a different view on how you behave inside that, but any perspective would be appreciated. And I'll leave it there. Thank you. David Regnery: Okay. Thanks, Jeff. Yeah. We look at our resin business at a very high level as a GDP plus business. So if you could tell us what GDP is, you could tell us what consumer confidence is. We could dial in what our residential business and how it's going to perform. That said obviously we have detailed models that we go through and it's really just to validate our high level approach. So GDP is projected to be positive next year, and we do not see the resi business falling off a cliff in 2022. We see the GDP plus business. Jeff Sprague: Great. Thank you. Operator: Your next question comes from Julian from Barclays. Julian Mitchell: Hi, good morning. Just starting with price cost just to understand the sort of jumping off point into next year. I saw you said that you have $150 million of price in Q3, similar sort of cost step up. Maybe just help us understand on those two numbers what should we expect for Q4, and then what's the kind of total year 2021 for price and cost, please. Chris Kuehn: Hey Julian, it's Chris. Thanks for the question. Yeah, we were really pleased with the price realization in the third quarter, 4.3% of price realization and really equals the revenue growth we had in the third quarter as well as we were very flat on volumes. And for the quarter Q3, we saw slightly positive price cost. When I think back a few years ago when we had our last inflationary environment, we were really trying to catch up on the price cost equation. I think it was about six quarters where the Company was negative. Now, we're able to keep up with that at least through Q3 of this year. And really, that goes back to the business operating system we continue to enhance in the Company. So very positive price cost in Q3. For Q4, I'm expecting price realization to get a little bit stronger, but I also can see inflation getting stronger in the fourth quarter as well. So we're right now kind of expecting price cost to be flattish in the fourth quarter. And then we'll see how this kind of plays out for 2022, where we're always targeting 20 or 30 basis points of price over cost for a given year, but I'm expecting that to be flattish in the fourth quarter. Julian Mitchell: That was helpful. Thank you. David Regnery: The only thing the only thing I would add to that is that the operating system, don't underestimate the amount of work we've put into building our operating system to stay ahead of these inflationary curves. I mean, as Chris said, I think it was the last time we had this type of inflation, it took us several quarters to overcome them. And now we're in the quarter being able to offset it. So we're very proud that we've been able to do that. Julian Mitchell: That's helpful. Thank you. And then maybe just following up in terms of overall firm-wide operating leverage, so it looks like, I think, in the fourth quarter, you are looking for maybe 20% also operating leverage year-on-year. I just wanted to check that's roughly the right ballpark. And do you think that's a good sort of entry point starting out next year given you've still got price costs margin headwinds, at least in the first quarter or 2. Chris Kuehn: Yeah, Julian. I think you're in the ballpark for Q4. We left the full-year guide intentionally intact, given that we can see the push-out of some revenues into the fourth quarter. The figure was $75 million. Really, from my perspective, our perspective, the backlog and the demand is very firm. It really comes down to supply chain. And that's why we got the squiggle 605 on the full year from an adjusted EPS perspective. So could it be a little better? Could it be a little worse? I think we're right around that $6.05 based on how we see the supply chains today. But it's really going to depending on that. But you're in the ballpark for fourth quarter. We'll see a lever kind of plays out for next year. I think we're certainly expecting an inflationary environment next year with pricing actions. We'll need to continue to moderate that. But we'll have more insight on that as we get into January. Julian Mitchell: Great. Thank you. Chris Kuehn: Thank you. Operator: Your next question comes from John Walsh with Credit Suisse. John Walsh: Hi, Good morning. Chris Kuehn: Good morning, John. John Walsh: Maybe piggybacking off of I think it was Jeff's question earlier. I think in your answer it was mostly around the equipment. I wanted to hear a little bit about your ability to pass-through inflation on your service contracts because obviously labor availability and I think the wage inflation is something we're all expecting in the next year. So give those same ability to pass through those inflationary pressures there? David Regnery: Good question. Yes, we do have a long-term contract and prices for escalations potential. So that estimate is taking into consideration, we have our . John Walsh: Got you. And then maybe coming at the backlog and orders question a little differently here. 20% order growth, it's not like you're comping a down 20, you're comping up plus 7. So how do we think about just the orders rate And if you think you can actually build backlog next year, potentially, obviously, I understand you're not in the business of guiding orders, but it's definitely a question we're getting from investors here. Sort appreciate any color. Thank you. Chris Kuehn: Yeah. If you look at it, it's really phenomenal what's happening right now. We had 30% order growth in the first quarter. We had 30% order growth in the second quarter. And here we are in the third quarter talking about 20%. And in some of our businesses, I call our Commercial HVAC, and equipment's up 50% there. So I don't anticipate that bookings will continue at the 30% growth rate, but I would tell you that we're seeing a lot of demand right now for our innovations in the marketplace. And whether it be in the Thermo King business or in the Commercial HVAC business, that's really driving a lot of this demand for us. And we also have these tailwinds behind us around sustainability and the de - carbonization of the built environment, that it's only gaining momentum. So we like what we see here going into 2022. We're going to have record backlogs and we'll see what 2022 is from an incoming order rate. But right now, we really like the position we have going in. John Walsh: Great. Thank you. I'll pass it along. David Regnery: Thanks. Chris Kuehn: Thanks. Operator: Your next question comes from Andy Kaplowitz with Citigroup. Andy Kaplowitz: Hey, good morning, guys. Chris Kuehn: Hey, Andy. How are you doing? Andy Kaplowitz: Good. How are you? EMEA continues to be a significant out-performer versus the other regions. Maybe you can give us little more color into what's going on there. How big it your heat pump business already become? Are products such as heat pumps and the advanced or just nicely accretive to margin that they're helping? And how sustainable is that 30% incremental you put up this quarter? David Regnery: Yeah. Innovation, you kind of hit on it, Andy. That's what's really driving us in EMEA and it's just such a great place to be. The advancer product in our Thermo King business, it's exceeding our expectations. If you look at what we've been able to do with the electrification of heating in the HVAC business, again, it's in tremendous demand, tremendous demand. I don't want to get into specifics as to how big we are or how large the market is there. But I would tell you that it is propelling our growth and we're excited about what the pipeline looks like in the future. And rest assured, the innovations are continuing there as we continue to look to expand the, what we call the operating maps of how our HVAC product works. We're going for higher temperatures on the heating side and lower temperatures on the cooling side, which are only going to expand our market further. Andy Kaplowitz: Great -- David Regnery: I'll add, Andy. Sorry, on the incremental is your question there. Look, we've set up each of the segments to really have over the long term 25% plus incremental. So, we think Europe is well situated for that over the long run to deliver. Andy Kaplowitz: Very helpful guys. And then, maybe you can give us a little more color into what you're seeing in Asia. You mentioned record backlog in the region, I did notice that your transfer revenue turned down a bit and the pandemic does remain a challenge in the area. So are you seeing overall China hold up well, and how are you thinking about that region in '22? David Regnery: Yes. I mean, Asia Pacific is about 10% of Trane Technologies, it's an important region for us. Let's talk about it in 2 different pieces, talk about China first, obviously, GDP, it's pretty well documented, has slowed a bit in the third quarter, or at least versus expectations, I think it was 4.9 and expectations were over 6. So it is slowing a bit in China. I would tell you though where it continues to grow. Think about electronics, pharmaceuticals, datacenters, healthcare, are also verticals that we're very strong in. So, we're seeing nice growth in China and we expect that to continue in the future. You get outside of China, it really becomes country-specific. And unfortunately, we're still having some countries that are going into different phases of lockdowns based on where the pandemic is. But it's going to be a little bit mixed outside of China, at least into the fourth quarter. Andy Kaplowitz: I appreciate it, guys. Chris Kuehn: Thanks David Regnery: Thank you. Operator: Your next question comes from Steve Tusa of JPMorgan. Steve Tusa: Hi, guys. Good morning. David Regnery: Hey, Steve. How are you? Chris Kuehn: Good morning. Steve Tusa: So where are you going to end on price and cost for the year now, with this neutral back half, neutral - ish back-half, like what was the first-half pricing cost? David Regnery: First-half would have been positive, but are much smaller numbers, Steve. Just given how price has grown considerably from Q1 now to Q3, expecting Q4 to be flattish price cost. The full year, I think we're probably around the flattish range. Maybe it could be slightly positive. Our goal here is to keep driving the innovation and then driving the pricing to reflect what we think the inflation is going to be. So really happy where we are year-to-date on the price realization. Like I said before, it's going to grow a bit in the fourth quarter. At the same time, we're seeing inflation grow into the fourth quarter, and we're really just trying to stay ahead of it. So I'm thinking flattish to slightly positive on the full-year. Steve Tusa: Okay. Chris Kuehn: And Steve, we've already had three price increases in many of our businesses. And if we still see the inflation be persistent, another price increase will be part of our business operating system where we would execute on that. Steve Tusa: Right. I guess I'm just looking for the 150 and the 150, what was that in the first half. David Regnery: I don't know if we've actually probably given that number. It would have probably been less than the 150 would be my guess, but I'd have to go look at that. Steve Tusa: Okay. Thanks. And then on commercial equipment, you said orders up 50%. Can you just split those out between applied and then how did the light commercial kind of unitary business fair within that? David Regnery: To be fair, Steve, it was more than 50%, and both our unitary and applied, we're both over 50%. So the being part of that number was very strong, as you would imagine. So we have seen unbelievable amounts of growth in our Commercial HVAC equipment business. And it's actually, and I've said it earlier, but it's actually, to be fair to our suppliers, we're putting that demand right on them. So it's causing them to have to spike forward as well. Steve Tusa: Yeah, that's very positive. And then one more for you, what would sell through? For you, what do you think movement was for your resi business, but stuff that you know to the customer given out before. David Regnery: Yeah. On the IWG side, which again, is about 50% of our business sell-through was mid single-digits, sell-in was flat. So obviously their inventory adjusted as you would expect, in a shoulder season. The next to follow-on question is, Steve, would be, what's inventory level look like in the IWG space? It's about what you would expect, maybe a bit lower than we would like this time a year, but it's nothing to call out. Steve Tusa: Great. Great color. Thanks a lot. David Regnery: Okay. Steve Tusa: Thanks, Dave. David Regnery: Steve, to your earlier question, just to follow up on that for the first half kind of price for the enterprise is around 2.2%. So less than a $150 million we realized in Q3, we got a little less than that for the first half of the year. So that price is really ramped up from the first half to Q3 and we're expecting that to be stronger even in Q4. Steve Tusa: Yeah. And cost? End cost, the 150 cost? David Regnery: I would say in the first half was positive, again, with less than 150, but positive in the first half, slightly positive in Q3. And we're expecting 5s for Q4. Steve Tusa: Okay, thanks. David Regnery: You're welcome. Operator: Your next question comes from Nigel Coe of Wolfe Research. Nigel, your line is open. Nigel Coe: Sorry. Comes on me and I had a pretty funny joke which I won't repeat. David Regnery: We want to hear the joke. Nigel Coe: I was going to say, let's go back to that first half price cost question, but let's not. But I do want to go back to the backlog because obviously super hot, plus 70 in Americas. I'm just wondering, is the -- how does the aging of that backlog look? I mean, do you expect the majority of that to convert in 2022 outside of supply chain pressures. And I guess my real question is, I know you're not going to answer this specifically, but we really haven't grown higher than 8%, 9% in climates over time organically. And I'm just curious, could 2022 be above that bar. Just curious if that backlog converts? David Regnery: Yeah. As we said earlier, we're still working through the 2022, but just talking about the backlog. I mean, you really need to -- as far as when it burns, you really need to go through it by business. So if you think about our Commercial HVAC business with applied orders, that backlog, when an order comes in, there could be a 6 to 9-month burn rate on those type orders before the actual ship. In the Teekay, it's a little bit different this year than I've seen in other years. We had a lot of customers place orders in the first quarter and kind of lay them in through the rest of the year. And the other complication with Teekay we're seeing right now is obviously we're working with our customers on their slots for trailers and tractors. So normally the burn rate in Teekay would be 2 months to 3 months. That's been extended a little bit just because of the constraints associated with the actual building of a trailer. On the resi space, our backlog turns. It's turning on a regular basis. And overall, I mean, we have a very large backlog. We have order demand that is some of the best I've ever seen in my career. But understand, our backlog is not stale. It continues to churn and we're shipping out, we're just getting order rates that we haven't seen in a very long time in this business that are continuing to build this backlog. Nigel Coe: Okay. I'll leave that backlog question there. On price cost, you did call out APAC as challenging near-term and I think we're all tuned into the fact that APAC of a time as being a bit more challenging on price. So just curious, we've seen some deflation in APAC and any concerns as we go into 2022 around that region? David Regnery: Yeah, Nigel, I would say, yes, price costs right now, it's a little bit challenging in the near-term. We're really are on track to having very strong full-year margin expansion in the region. If I go back, even just two years, a two-year stack, we're up over 400 basis points in margin expansion in the region. If we go back to when we invested in our direct sales force of over 500 basis points. So the region has had some great growth, being very selective around orders as well. I will tell you that we'll continue to evaluate the pricing environment and make price increases where necessary. And I'd be looking for that region like for the rest of the Company to be getting price cost positive going into 2022, but near-term, little bit of challenges. It's also a little bit of loss small numbers for revenue, our margin contraction in the quarter for Asia in Q3. Nigel Coe: Okay, thanks. That's great color. Thanks. David Regnery: Thank you. Operator: Your next question comes from Josh Pokrzywinski of Morgan Stanley. Josh Pokrzywinski: David Regnery: Hey, Josh. How are you doing? Josh Pokrzywinski: Well, thanks. Just on this commercial equipment growth, I mean, look, for what is historically kind of a replacement business and with a pretty massive installed base like 50% sort of an eye-popping number. Obviously supply chain and bottlenecks are kind of everywhere like -- is there sufficient labor, whether it's in your own house or out there in the independent world virtually install this stuff in a reasonable timeframe or is that going to be a gating factor on converting that backlog as well? David Regnery: In as far as labor constraints in our own four-walls, it's really -- we have seen some early in Q3. This subsided a bit as we moved through the quarter. We're planning for it. It's just a matter of how your training mechanism and hiring of new people. So that's happening. On a job site basis. We have seen jobs push out to your point because of job site labor constraints. It's not anything that I would spike out and say it's super alarming, but it's certainly there, and it's not just in North America. It's really on a global basis. Josh Pokrzywinski: Got it. And then, R&D, the missed revenue that you're starting to make up in the fourth quarter. I mean, we've had similar metrics out of some other folks, but with the expectation that just we don't miss any more revenue in 4Q and starting to make it up would imply that not only your maybe some of those supply chain issue stabilizing, but starting to improve., I don't want to put too many words in your mouth, but like would you characterize the last 30 days or so as seeing some actual improvement rather than just stability? David Regnery: Yes. I mean, we had some acute supplier problems in our Thermo King business and we've been able to overcome those. So we are -- we have line of sight to what we're guiding to you right now. That said, supply chain is very volatile right now. It is the whack-a-mole game. So we fixed one problem and then other one comes out. But it should really about staying on top of where you are, working with your customers, working with your suppliers. And it's a lot about communication and I would tell you that our operating system allows us to be working hand-in-hand with our suppliers to make sure they can meet the expectations that we're seeing, which again, is extremely robust right now. Josh Pokrzywinski: Hi, thanks. Good luck working those moles. Operator: Your next question comes from Andrew Obin of Bank of America. Andrew Obin: . Good morning. Chris Kuehn: Hi, Andrew. How are you? David Regnery: Good morning Andrew Obin: I'm good. I'm good. Just a bit of a longer-term question. You've highlighted strength on institutional and I think after the first wave of stimulus came in, I think education was very much highlighted as an area, air-quality improvement, etc. which were going to benefit the industry. My understanding is that there is a timeline on spending that money. I think you have to do it over 3 years. Can you just tell us what you have seen so far? And how do you expect the spending to play out over this period of time in the institution of vertical learning specifically education. Thank you. David Regnery: Yes. We're seeing -- we're seeing funds flow, which is a good thing, 2024 is the date, whereas we spend. That may -- that's the date right now that may get pushed out, obviously, you going to think about any work you're going to do on a school, you're going to do when students aren't there, so you tend to become a quote season to do score. What funds are flowing, the elementary, secondary school relief, emergency relief for ESSER as they have it. It's flowing from the states down to the local levels. And we're seeing really, really good traction where we did a phase one indoor air quality audit. We gave our customer our roadmap for the future, they're now executing to many of those roadmaps with upgrades in their facility. Andrew Obin: Got you. And just a longer-term question on residential as well. You sort of highlighted that it's a GDP plus business. But how should we think about 21 fitting into the overall sort of length of the cycle. Do you think there was any pull forward or do you think just thinking over the next several years, as I said, it just continues to be positive in '22, positive in '23, and just keeps going until consumer gets tired. Just maybe the broader shape, longer-term shape of the resi cycles as you think about it, particularly after a strong '21. Thanks a lot. David Regnery: Well, hopefully the consumer doesn't get tired, but I'm not sure the historical models on the cycles have played out certainly in the past. Again, we look at it as the GDP plus business. We have models that will go through replacement cycles and use of unit etc.. and they have a lot of data on and the rest. But at the end of the day, if you think about as a GDP plus business, you think about consumer confidence, that's what drives that market. And we're very happy with the performance that we've had this year. And GDP will be positive in 2022. Andrew Obin: Great answer. I appreciate it. Thanks a lot. Operator: Your next question comes from Deane Dray of RBC Capital Markets. Deane Dray: Thank you. Good morning, everyone. David Regnery: Hey Deane. How are you doing? Deane Dray: Doing very well, thank you. Just a question about your CapEx plans and we're hearing from some companies who just are not able to get projects done, also a consequence of supply chain labor constraints and so forth. But you as a customer, is -- are you seeing any of that, and how is that factored into CapEx planning for '21 and '22? David Regnery: Yeah, we have several upgrades that we're doing, actually continuous as we continue to upgrade our lines. We've seen some push out, but nothing that we can't manage. Deane Dray: Okay. Chris Kuehn: I'd add that, we're still tracking again that 1% to 2%, probably closer to 2% this year spend on capital as a percent of revenue. But with enough advance notice and ordering within lead times, we've been able to try to mitigate some of that supply chain pressure. Deane Dray: Got it. And then just a quick follow-up question on the whole whack-a-mole phenomenon is, are you doing much in the way of partial assemblies at your manufacturing plants? You're waiting for a component. And so this would imply, you've got -- you're actually spending on work in progress inventory and then when that product does come in, you ship them out. If it follows through to subsequent quarter, that's actually a higher margin shipments since you've already expensed some of that. How does that factor into your planning right now, are you doing partial assemblies and so forth? David Regnery: The answer to partial assemblies is yes, we could have you come work for us in Operations because that's obviously what's remaining for some components. In some cases, you could do a partial assemblies. In some cases you cannot. But as far as the revenue recognition of the cost, Chris, I don't know if you want to have it, but the answer is no. Chris Kuehn: Yeah. I think if we've got a partial assembly, we can't recognize the revenue. We're capturing all the costs associated with it. It stays in inventory until we ultimately recognize the revenue. The following quarter, we're adding the components we need to on the partial assembly to make it full. And then that's when the full cost gets expensed. Deane Dray: Okay. That's really helpful. Thank you. David Regnery: You're welcome. Operator: Your final question comes from Stephen Volkmann of Jefferies. Stephen Volkmann: Hi. Thanks guys for squeezing me in. Most of my questions have been answered, but maybe a big picture question for you, Dave. I'm wondering, sort of the old model that we had in this industry of trying to keep inventories as lean as possible and so forth. It worked well for a slower gross environment, but it feels like we're still transitioning into something better than that. So I wonder, do you need some more capacity? Does it make sense to layer in some more inventory on structural basis to deal with a stronger growth environment? David Regnery: Yes. It is an excellent question and obviously we pride ourselves in being a lean Company. And maybe that's why we were out talking about supply chain choppiness in the second quarter ahead of many others, because we saw it in our planning horizons. That said, we have capacity for sure, but the inventory investment is something that we're working with internally and an inventory don't think of it necessarily as finished goods. Maybe you would in the resi business, but in our Commercial business, it's really at the raw level where you're able to convert it more easily into WIP and then finished goods. Stephen Volkmann: Super. Great. And then just anything else that you've thought about over the last few months, as you've taken on this role that might differentiate you a little bit from your predecessor? David Regnery: Yes. It's been -- I don't know. It's been a 150 days. It feels like forever, but this is just such a great Company, Trane Technologies. And we have -- and we are a part of such a great industry. So I couldn't be prouder to be the CEO of Trane Technologies. We're talking -- I'm talking next week at COP26, talking about a way for the next rate invention to starting to de -carbonizing the world decent benches already exist today. So I'm excited to do that. And then the only thing I would add is we just completed our employee engagement survey. And here we are. I don't know how many years in this. But top decile performance for engagement is our culture that differentiates us and not sure that's going to differentiate between me and my, but it is really our culture and how much pride we'd taken to building a strong culture. So Trane Technologies is in a great place today and it's -- we're headed in an even better place in the future, but thanks for the -- thanks for the question. Stephen Volkmann: Great. I appreciate. All the best. David Regnery: Thank you. Operator: This ends the question-and-answer session for today's call. I will now turn the call back over to Zac Nagle for any additional or closing remarks. Zac Nagle: Thanks, Paula. I'd like to thank everyone for joining today's call. As always, we'll be available in the coming days and weeks to answer any questions that you may have. And hopefully we will see you in person on the road in the not-too-distant future. Have a great day. Thanks. Operator: Ladies and gentlemen, thank you for your participation in today's call. This does conclude today's event. You may now disconnect.
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Trane Technologies PLC: A Leader in Climate Solutions

  • Trane Technologies PLC (NYSE:TT) reported an EPS of $3.37, surpassing the estimated $3.24.
  • The company achieved a revenue of approximately $5.44 billion, indicating an 11% year-over-year growth.
  • Trane Technologies maintains a moderate debt-to-equity ratio of 0.69 and a current ratio of 1.22, showcasing financial stability.

Trane Technologies PLC, listed on the NYSE as TT, is a global leader in climate solutions. The company focuses on creating sustainable and efficient heating, ventilation, and air conditioning (HVAC) systems. Trane competes with other major players in the HVAC industry, such as Carrier Global Corporation and Johnson Controls International.

On October 30, 2024, Trane Technologies reported earnings per share (EPS) of $3.37, surpassing the estimated $3.24. This performance reflects a significant improvement from the previous year's EPS of $2.79, as highlighted by Zacks Investment Research. The company's ability to exceed market expectations underscores its strong financial health.

Trane Technologies also achieved a revenue of approximately $5.44 billion, exceeding the estimated $5.32 billion. This represents an 11% year-over-year growth in net revenues, demonstrating the company's successful financial management and growth trajectory. The 5% increase in bookings, reaching $5.2 billion, further supports this positive trend.

The company's financial metrics provide additional insights into its market valuation. With a price-to-earnings (P/E) ratio of 34.36 and a price-to-sales ratio of 4.37, investors place a high value on Trane's earnings and revenue. The enterprise value to sales ratio of 4.57 and the enterprise value to operating cash flow ratio of 27.61 highlight the market's perception of the company's worth relative to its sales and cash flow.

Trane Technologies maintains a moderate debt-to-equity ratio of 0.69, indicating a balanced approach to leveraging debt. The current ratio of 1.22 suggests the company has sufficient liquidity to cover its short-term liabilities. With an earnings yield of 2.91%, Trane offers a reasonable return on investment for its shareholders.

Trane Technologies plc Reports Strong FY 2024 Start: Growth and Market Leadership

Trane Technologies plc (NYSE:TT) Showcases Strong Start to Fiscal Year 2024

Trane Technologies plc (NYSE:TT) has demonstrated a remarkable start to the fiscal year 2024, with its first-quarter earnings report revealing significant strides in bookings, revenues, and earnings per share (EPS). The company's ability to exceed $5 billion in bookings, a 17% organic increase, sets a new record and underscores its robust growth trajectory. This performance is further bolstered by a 14% growth in organic revenues and a substantial 230 basis points expansion in adjusted operating margins. The adjusted EPS also saw an impressive 38% increase, reflecting the company's operational efficiency and profitability.

A closer look at the drivers behind Trane Technologies' success reveals the pivotal role of its commercial HVAC businesses globally, particularly in the Americas. The Americas commercial HVAC business alone reported a 30% increase in bookings, with equipment bookings surging by more than 40% and services by over 15%. This broad-based growth across nearly all vertical markets highlights the company's strong market position and its ability to meet diverse customer needs. The applied solutions portfolio, known for its high margin services revenue potential, has been a significant growth leader, indicating the company's strategic focus on high-value offerings.

The company's forward-looking stance is evident in its Q1 ending backlog, which stood at $7.7 billion, marking a 10% increase from the end of 2023. The backlog for 2025 and beyond grew by $800 million to a total of $1.8 billion, enhancing visibility for future growth. This strong backlog, coupled with raised guidance for full-year revenue and EPS, reflects Trane Technologies' confidence in its continued performance and strategic investments in product innovation, increased capacity, and digital and automation technologies.

Trane Technologies' optimistic outlook is further supported by its stock performance and market position. Currently trading at $319.29, the stock has experienced a steady increase, with a notable 1.4% rise over the past four weeks. This positive momentum is mirrored in the company's Zacks Rank #3 (Hold) and a VGM Score of A, positioning it as an attractive option for investors. The upward revision of the Zacks Consensus Estimate for Trane's earnings to $10.20 per share for fiscal 2024, along with an average earnings surprise of 4.5%, underscores the company's strong financial health and potential for continued growth.

In conclusion, Trane Technologies' Q1 2024 earnings report and its stock performance present a compelling narrative of growth, strategic investment, and market leadership. The company's focus on innovation, efficiency, and sustainability, combined with its solid financial metrics and optimistic revenue and EPS guidance, make it a noteworthy contender in the HVAC industry. As Trane Technologies continues to build on its strong start to the year, it remains a stock to watch for investors seeking to capitalize on momentum in the stock market.