Earnings call transcript Q2 2023

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Operator

Good morning. Welcome to the Trane Technologies Q2 2023 Earnings Conference Call. My name is Josh, and I will be your operator for the call. The call will begin in a few moments with the speaker remarks and the Q&A session. At this time, all participants are in a listen-only mode. you. Thank Instructions] [Operator

turn Investor over Relations. now Vice Zac President of the will to call Nagle, I

Zac Nagle

Earnings call Thanks, for website presentation. Trane XXXX joining Good at us Call. operator. morning, find for Technologies and tranetechnologies.com where Second the on being webcast is thank you'll you Conference our This accompanying Quarter

also are this archiving our on We call and recording website.

of the non-GAAP to pursuant harbor considered release. results. some made This are not Please a of that forward-looking and the which may law. go description our anticipated to call our news statements includes to also in Please safe in of attached measures, SEC cause results our slide today's tables to actual are presentation federal from securities filings made X. are that provisions materially differ facts are the explained factors Statements see historical financial for

Executive Chris Joining and CFO. me CEO; and on and today's Chair call Vice President Regnery, Dave Kuehn, are

the and With that, please turn go to X to I'll Dave? Dave. call slide over

Dave Regnery

Zach, call. us on and today's joining everyone, Thanks, for

begin with a boldly purpose to company: for me what's on comments possible a sustainable challenge as a our world. few Let

us results megatrends long our Our linked drive powerful is heart This like to term. and financial enables purpose climate of strategy, differentiated shareholder to returns change. the is the at which over

the to of on summers on XXX parts degrees. hottest has recent off deadly one States, been soared waves of change coast Asia climate in in recently over Earth's The the We've news sobering. Europe record. Water Florida the temperatures heat and seen United

has years, have and seen temperatures environment, human these are life. XXX,XXX dangerous say the the and the likely the scientists fact, planet economy warmest In effects on in

for generation. global needed our preserve the is to warming and action Urgent next limit planet

environment and choosing Our customers their built partner chain. Technologies Trane in the seeking cold the de-carbonizing sustainable and as are solutions

value our the with the and for innovation our long-term creation customers, planet. our We the and shareholders the is are leading team, our across for result way board

X. number slide to Moving

continues quarter diverse, to team showcasing level delivered high another of global our portfolio. execute resilient and performance, strong benefits Our of a at the

Organic and our XX%. XX%. each enterprise delivered across operating HVAC each revenue by led expanded businesses margins grew leverage XX%-plus EPS the in basis organic points was region. segment, We commercial Adjusted and up XXX in adjusted

business HVAC Net, was comp stack, of versus a residential two-year continued up were to Our impacted on were last by a XX%. and up second further when normalize the revenues residential difficult in year QX. mid-teens revenues quarter

flowing projects well strong into enterprise-wide These We're corporate focused innovation, delivering productivity automation. Importantly, results high ROI drive and areas, future. the factory reinvestments. investments accelerating through we're are business while segment to in expenses our growth well results and digital, electrification initiatives increasing for as through including as

unprecedented in billion, by exceeded Bookings a doubling backlog XXXX, $X.X remained in XXXX, robust our levels after approximately XX% with In $X.X revenue bookings growth. year single to bookings reaching nearly nearly billion.

During more XXXX, modestly, X%. up bookings grew

However, in absolute in translated XXXX bookings another X% bookings increase increase the XX% backlog. in into XXXX sharp in growth

is of to addition end and complete strength billion Net, roughly to growth encouraging of rates the second levels our backlog We've of been two our both XXXX XXXX backlog at business. important to which a of drivers half absolute booking $X levels. and at the strong more quarter, the gain in of historical and look times position are investors understanding

EMEA were Asia. in in up nearly bookings on in and important Commercial the stack discussed. to second XXXX across that X-year looking consider supporting for our the XX% quarter, each commercial segments at stack, a reasons both HVAC a a for includes region high-teens the and revenue growth In three-year Trane growth standout continues globally. be to HVAC of when Further, Americas rates it's Technologies, XX%

region. each were commercial Additionally, book-to-bill effectively XXX% or in HVAC higher ratios our

we for are believe end Our strong and in XXXX. growth markets to well continue overall, positioned we be healthy

premature position, to levels high strong commercial strong across of it's and demand XXXX in HVAC dial our an our drive backlog While growth well. extremely a continued us in particularly position in as XXXX, for businesses outlook to globally, puts

to historical for than $X in $X more times backlog XXXX billion billion level delivered is enter our next billion. fiscal backlog of in the with that XX% year's noting the It's is represented that year elevated backlog in approximately To the XXXX. historically the be of approximately end expect the current worth second revenue. We backlog versus also of of equipment five next trends to perspective, at for quarter. This put of has $X

results healthy a and XXXX strong position and backlog year raise us full guidance. our detail Chris first with that through in half discussion prepared combined to half times norms two markets, more will in end remarks. later Our the remains well

Please number slide to X.

X% our continues Americas respectively, our in discussed As in revenue which largely business was the softness based broad globally, normalize. in to HVAC that down commercial in Enterprise we and in X% in due residential particular down approximately bookings as growth to business were Americas with booking were regions. XX% business, strength quarter, all

teens residential in high declined. Americas prior XX% with down strong digits. low single stack. down teens bookings were our the Excluding Absolute HVAC single a up growth approximately of robust quarter equipment growth services. bookings were HVAC year of impact In revenues mid Commercial were Enterprise on bookings in year. segment, were America both growth and and comp bookings three the remained bookings and digits against up commercial X% high

as the was down were with normalize. teens. Revenues backlog ratio to expected Even were HVAC approximately the historical at continues HVAC book-to-bill highly revenue low XXX%. Commercial remains elevated strong business revenues times three as Residential growth, down levels.

that mid-teens. to On in of XX% a business delivered second the year important was growth note the of leading quarter XXXX. the it's team revenue However, stack, two up

and was digits our Bookings the refrigeration segment, XX% and strength North our based trailer growth In strong Revenue truck on in our the and HVAC of transport we big in business comp commercial prior year. approximately revenue top quarter. growth America up strong business, bookings low another teams respectively. single XX%. newest up delivered approximately broad XX% APU’s, with three mid delivered In up were

strength in Revenues high mid both high single up and teens digits were services, respectively. and XXs up equipment with

refrigeration in market. transport modestly Our is a down business executing well

this We digits mid EMEA transport relatively be to average the flat in our single single in business digits weighted single for low the to to the single and growth for well and year. down revenues target positioned XXXX year. for digits QX performed to expect of down markets mid QX low This be King revenue style in hit Thermo digits full and are

versus mid teens team Revenues with up very in results, segment, with results the strong single prior strong and revenues year. bookings respectively. robust the our Asia-Pacific and In delivered up digits XX% XX%. were XX% bookings China up up mid bookings were

the to call Chris? over to like I'd Chris. Now, turn

Chris Kuehn

XX%. level, XXX in digits, strong equipment Thanks, Organic basis revenue the adjusted EPS six. up both number up Dave. revenues to and points were were teens growth an strong second turn EBITDA EPS was We low up revenue delivered and again services, in Please expansion quarter. and we up growth, respectively. delivered margins at single slide And organic margin enterprise growth Adjusted and XX%. high

margin continues expansion, flywheel flow. innovation, strong line in powerful cash EPS dividends and driving to high-performance investments Our growth, with relentless top free pay growth

and each on number key the segments discussed margin slide so margins. expansion dynamics quarter, delivered our in seven. highlighted the and strong of to for my the We revenue have I'll second We've business turn comments key Please margin focus with to as the of productivity. page. the growth, right price leverage on the our supply improving drivers strong continues each driving we're side along In strong of realization chain regions, volume improve, on

are we in term, costs, Near continue our these our challenges as across of our pockets in and segments managing with business well results. associated reflected

As price of the which volume. an our and and expectations slightly on ahead volume of was we price five points points enterprise, six delivered of quarter, about both in about

each in more business. Volume businesses, our and XX% growth business, growth refrigeration strength in was Americas region. than normalization in strong by of by residential HVAC leverage led offsetting organic was continued in of commercial Americas our commercial by performance our robust aided robust transport excess accompanied in HVAC

growth EMEA negatively the accounting incrementals costs. one of delivered impacted in after year leverage which quarter, reported M&A in integration nine for given approximately margins strong points

As higher guidance XX each XXXX, is for of in included we accelerate corporate timing is the XX we've which incremental business and in segment discussed expenses points This quarter. and to about points reflected our in normal earmarked basis projects. previously, basis partially than key reinvestment in margins

Now I'd Dave. like over to back turn the to call

Dave Regnery

Thanks, Chris. Please turn to slide number X.

changes forward, as multiyear tailwinds see policy for leading future. that Looking demand sustainable or to as effect and see play mid-innings to continued our of are that underlying solutions we unique opportunities. the either strong innovator regulatory the early future climate into a well stacking We strengths

see we'll XXX% the with accelerated as change focused The it's pace climate solutions our portfolio all of in likely sustainable of us, is for tailwinds and our pace tailwinds recent of these impact all only our has more of continue. The around customers. realities years, this on driving businesses

In segment, ongoing overall our continuing see residential impacts unchanged. of our is outlook We from commercial normalization relatively outweigh to business. strength Americas our

to to process be QX, and but We expect QX, the to improve to normalize XXXX. expect from through in normalization residential we continue complete

tough year comps the from Commercial faces the in with of less contribution second price. half

remain half to the from of moderate but rates first strong growth expect we'd XXXX. So

OEM ACT of There's XXXX for refrigeration build digits, largely to low lowered flattish decline no change has to single outlook modestly trucking overall. a to our transport forecast from their constraints. related

growth the Americas for with low year. to Thermo mid our in We the expect to single-digit King outperform business

additional the the that is Thermo outgrowth the half in A the half portion the of of America King callout our year, first versus deliveries year. first growth, of XX% were was by the One which markets, timing of driven In outpacing related committed second timing revenues Thermo in half delivered transport to customer of flat the business. our overall. King North

extremely delivered QX strong Additionally, of Thermo in up King XX%. results XXXX,

and the Given half, be Thermo our to the comp and business half approximately first in timing third quarter. we down difficult King the second the between dynamics expect this XX%

with quarter to and also for was second rates half HVAC our outlook segment, faces from in we price our the is EMEA expect the growth of contribution unchanged. year the comps the strong In moderate. the would Like commercial tough Americas, so full less year, second

business King unchanged. The single-digit in business for the Thermo low calls flattish. single-digit King Thermo mid forecast overall to is be to for and EMEA expect Our decline, our we market

Asia to Pacific. Turning

highlighted. the for largely region unchanged, strength as outlook Our in continuing is key verticals with

soft with amount of relatively from COVID-XX second given revenue Overall, as based Our a strong comp in a the shaping a expected in on against from growth outlook. team quarter the delivered timing is solid better expected lockdowns third year prior pulled deliveries. up QX the quarter results China. customer a of The than modest year

to back Chris. turn like to I'd over the Chris? call Now,

Chris Kuehn

X. turn to Thanks, Dave. Slide Please number

We're we're year confident at from the the raising growth midway full in backlog, year results for strong highlighted into the strong X% balance X%, visibility to results, and and up approximately of the the good balance raising through across visibility half our beginning year with in, into XXXX. full in near year. prior Dave of the reflecting As guidance the of call, our improving first record range of revenue EPS organic we're our All the guidance the to portfolio. revenue X%, guidance year and

are to of $X.XX our M&A, raising from midpoint. to approximately tightening be of We're to range revenues EPS Including reported the expected to range up $X.XX a and $X.XX, $X.XX, guidance or at up up $X.XX XX%. a

XX% Our new adjusted in indicates to XX% earnings of XXXX. EPS guidance growth

cash to powerful adjusted than approximately $X Importantly, net generate greater or XXX% to flow to earnings, expect free billion. or equal we of of continue

as plus, XX% first we We're the in our to the raising continue guidance up expect year in plus, to the of delivered from the strength half. second leverage half XX% we've organic

it's believe, also to constructive third quarter the with We color you expectations our some around assist to your give modeling. for

X% the approximately XX% strong with quarter, We expect of in organic leverage. plus third organic revenues

of third closed the information expect contribution a additional approximately your may second quarter, and M&A for and quarters than M&A third so quarters. three XX for acquisitions also fourth the with for see first models. our in and is fourth We Slide the year. on two Please bit points higher expected assist full in the half that We is it in the

on million transformation remain of We by go deliver run to Slide rate XXXX. to Please business XX. savings from $XXX track number

to further savings innovation, fuel cost growth, continue we projects Importantly, invest and high and these productivity. ROI to

business inflation. operating it's Our productivity continuous improvement designed our other and mindset part to year offset drive is an of each system, to gross integral

is levels other in chains productivity to reflected and chain While as it's recent This given of XX% and first updated target difficult meaningful results the has years, our productivity improving our strong supply macro half been supply plus. challenges, realize XXXX leverage organic in recover. of been

to strategy, allocation balanced Please excess committed number go opportunities for consistently We to shareholders. cash Slide deploying capital with the remain focused to return XX. on our highest

strengthen to continue we relentless First, through reinvestment. business our business core

maintaining us that our to balance evolve. strong committed provides a markets continued with sheet as we're optionality Second,

consistently to we excess cash over Third, of expect deploy time. XXX%

M&A below Our balanced and share strategic improves includes are as returns further intrinsic approach calculated long-term repurchases shareholder that value. stock trades

and to on turn number our I'll for deployment Slide capital Please provide XX, update XXXX. an

with Year-to-date, we've million M&A, to and to cash, in $XXX billion $X.X share to deployed $XXX $XXX dividends, repurchases. million million

shares have current calculated billion the below $X.X our authorization trading and remain value. We our remaining intrinsic share under repurchase attractive,

pipeline and Our $XXX M&A bolt-on million and leading remains deployed technology have equity active, year-to-date acquisitions we for investments.

During QX, precision cash company Americas. the technology in track temperature-controlled on in a cooling All life approximately company EMEA in, billion in leading vertical we're $X.X a sciences XXXX. acquired in to we industrial process cooling and in the deploy

give capital us Our cash liquidity optionality strong forward. and free to sheet continue moving allocation excellent flow, balance

the turn to call over to like I'd back Dave. Dave? Now,

Dave Regnery

to XX. this take from for that the for reflects down markets as is the America Slide Overall, XXXX, Today, I'll single-digits key investors. refrigeration in low material Thermo several King provide a Please modest and a backlog outgrowth. year seeing given our has forecast The an up to interest outlook, Thanks, a our low topic single-digits while full points be in business movement to on just impact strong the not we expectations. know mid our market which would flattish bookings we're there expect Chris. North to of in been XXXX, Americas we number changes ACT update takeaway to transport go of minute is that

King EMEA be single-digits. overall transport Our to is unchanged. The outlook is expected down low refrigeration EMEA to Thermo also mid market

outperform XXXX. pace end roughly We on expect flat In be to these targets. to markets to are and for segments, both achieve we

XXXX Please number data view projecting few XX. now plus in The they refrigerated Slide strong time points. through go single-digit dips and that XXXX after is highlighting this XXXX. strong long-term to supports demand a market, trailers, mid-XX,XXX unit low continues for are some to we've ACT been minus and provide a for the or percentage forecast

XX. we number term. Slide over long are to the go In to Please summary, outperform positioned

as the We for and purpose by our are fulfill proud also Work recognized recently and our Company been on It's one Place as year. certified a workplaces innovators third and the our Fast best for to have our every each innovation Great people culture of and consecutive fuel To that day.

resilient in right year free guidance. XXXX revenues gives strong quarter confidence place returns. full solid again We guidance believe second in and EPS raising Our the performance, a backlog strong reaffirming the our have long-term performance portfolio and shareholder full deliver and and tremendous best team us our to strategy, and conversion year cash differentiated in we foundation flow

Operator? be questions. we'd now take And your happy to

Operator

with [Operator Our Citigroup. first from Instructions] Andy line comes Kaplowitz the question of

Your line is open.

Andy Kaplowitz

morning, everyone. good Hey,

Dave Regnery

doing? you are How Andy. Hey,

Chris Kuehn

Good morning. Everyone.

Dave Regnery

Hi, Good doing? Andy. How are you morning.

Andy Kaplowitz

biggest of XX% or guide. -- is QX, that The reason Chris, the XX% expecting plus basis mentioned year? accelerating above it How than your year you? versus this well for and getting getting in usual more Good. the as XX higher-than-usual which XX are And Dave to the So you year, costs that obviously price for is leverage you productivity. quarter investments XX% points delivered in points you're basis you're as

XX% terms XX% could be the you margin? longer potentially go incremental So into really XXXX in of new terms as over the

Chris Kuehn

this in better delivered we through to better typically spread. it's points of XX% confidence basis We and first Price/cost year. we're of for a or than XX Thanks target all that in proud of the going price/cost us leveraging XX% the the P&L. of half year, to points XXXX. than the to organic Chris. question. XX is we're do be greater We're Look, where it's parts coming lot expected. basis Look, Andy, leverage giving

seeing plants. are at which here we're higher is We a dovetail inefficiencies, is in will second contribution, really improved the seeing What incrementals. fewer driving some with a strong with chain. productivity, recovery normalize getting the we're our less a It supply in volume the that nice between inefficiencies of year. growth price/cost half And really

like driving productivity to with points incremental XX basis and continuing basis really we higher call above chain formula. said, supply to of that We're to XX that volumes. seeing still XX those points ultimately, investment, improving incrementally. invest and it, basis basis XX targeting I improved like We're points We're normal, points

future. like it's parts really, optionality XX%-plus, giving the that of like all the target. the at call as organic gives do the kind of working that like for reinvesting on go term, So we question leverage that XX%-plus into each and keep this your year, that business. the into year. it longer us do P&L we are us confidence Andy, every it We and On we'll But long-term to into model

Andy Kaplowitz

there tried, more thinking Americas? on how going We about billion you're your for you you there. And I any the closer would end billion markets the that that slowing? Are two quarters Well, And color $X you you overall $X that know could markets behind $X in you'd us for give that. stack. Dave, are thoughts talked then say around minimum? are forward chances than thoughts With billion? Thanks higher Any commercial backlog Chris. HVAC book-to-bill to the company. minimum give us the as Maybe tough about into term comps. year then, would the three-year you, can You kept there you good

Dave Regnery

I'll it there. billion team -- Look, been start try it's to That's a year, remember going able has all. long $X be I'll proud of Okay. think I'm north the to we $X I as billion But Andy. deliver. what to question, of said, the for

high-teens. HVAC XXX%. revenue in was commercial growth, the approximately book-to-bill despite the you If at it for second was high our look that growth And revenue quarter,

just numbers very, just strong. So the see you absolute very could are bookings

coming funding a strength all really team across that data centers, education continues growth to very, a of at think vertical, it's and at driving us of HVAC think the level. look healthcare, our think several for really think commercial verticals, is very from, tech, you execute ESSER in broad-based of where If so business, in the of of lot high high

see have seeing call just customers. team of really sales how you're direct advantage now where a those direct Andy, come doing about really our a competitive Now is you great it's this to and a know in. -- I a is the of it's we This and global triaging some on job force. I talked we're starting And force, sales megaprojects before,

customer differentiated were in a plant. And recently engineer We working was complexity, complex some Portland, Oregon. just contact has with in of all a here, of the on are where Texas located in Korea. The triages The mechanical really And of our South but value proposition in with the general team influencers a was owner also The give located semiconductor us for to here's these create allows project you contractor projects, Korea. a South customers. Texas. out to direct was the was located those and

to So of growth. see nice short continue is lots answer we

Andy Kaplowitz

Dave. Thanks. helpful, Very

Dave Regnery

Sure.

Operator

Our comes next Mitchell of Barclays. the Julian line question from with

is line open. Your

Julian Mitchell

morning. Good Hi.

sounds sales may like and better, unchanged outlook, resi HVAC perhaps, commercial slightly worse. it So HVAC in then transport slightly be largely,

that of ask second piece. volumes to So, sort fourth sitting market? of of way Is think resi Is quarter, in out about narrows that, any the on in flat you inventory right to quarter? high-teens last there the just you? levels in that the and you about down modestly sort then QX to wanted down think way sort that for had on the the And you're that that to sort of thoughts

Dave Regnery

I business ago, a think And second don't number revenue market our the growth XXXX, exact I'll this was believe XX%. year Julian, was the Look, I'll in is I resi Dave. in teens. the but of Hey, to remember okay? I the back up it quarter go start.

a had second there we the lot Obviously, of So we're quarter. in second growth down quarter this of in the the year, mid-teens.

in at look mid-teens. you a up comp, say we're you'd the two-year on it If still

the be goes So residential basis it's half than has that third for the back going be normalization we're continue And occur still res in of that will year. process high in look, there's EBIT going in business. single in as we XXXX the to business. the to normalization channel, to digits as think inventory calling normalizing the the on some an but We far down think We're -- that be better our quarter in second year. quarter, is to

to we a If XXXX, call standpoint, forward you the will least XXXX process, an in look normalization from bit will behind us inventory A XXXX. into little at early be be. what think little

expect residential to are our a around but some policy, in -- that the it little because we the we tailwind businesses size on unclear still IRA, in add? specifically anything can't a coming yet commercial. However, both IRA. do be tailwinds rules in for from do believe you will Chris, want Don't and

Chris Kuehn

mid-singles. think mid-single or Going in guidance QX, led QX digits, we've that year, full on reason our down revenues the we is our revenue to of XXXX minus the over that's revenue feel We year, And is and XXXX, our back guide to We've last into down Dave's in so growth top here a updated on guidance per down and that of price units felt we the like share. I part line singles. tough earnings comp. part built high like plus

Julian Mitchell

maybe XX%-plus. prior run backlog But just different then a Thank I sales great. the question. the from question ask sort on way was think Last outlook, of second at slightly XX%. my pre-COVID, you. coverage backlog to months, to And That's it it's the XX

therefore, the sort how place sort levels? shrinks ends current from see Is that commercial And here the we big of where well don't so with So idea that, up above should drop surely a HVAC of about were that you coverage orders, a but the broad think but backlog? slowly your at pre-COVID.

Chris Kuehn

is start. this I'll Chris, Julian, Hey

even the executing HVAC to end its seeing from Thermo and up the about months six million, King you're December through commercial but normalization, about backlog at of now quarter, actually think I backlog second is the execute the $XXX ago. end backlog residential up is of at foods

just strength see very continue So to there. strong we

we're to of And to into growth is revenue up not this be than normalize going year. will problem, going going seeing much we're to bit It's of be come. little of continue very end have well over going greater We're time. it healthy $X to view a The very time XXXX. happening think, will the backlog to high-grade set for I billion us a that for Our in XXXX. just

In Dave's comments, of the current second is $X quarter. end at backlog five already level of here second the of for And here billion normal times we'd the have the built that's quarter XXXX. end the at the

year. So, next point, of we're your getting just And going won’t strong time, right but percentage commit we're next at to into it year very XX commercial will you backlog. Julian. But take of to now. still mentioned, the It's a billion in end seeing $X year some $XX months We the in already. normalize some strength HVAC visibility XX%. backlog let next revenue a to normal of lot billion of as me revenue is of Dave

Julian Mitchell

great. That’s you. Thank

Chris Kuehn

Thanks, Julian.

Dave Regnery

you. Thank

Operator

with comes next Our Pokrzywinski Morgan of Stanley. question from line Josh the

line Your open. is

Josh Pokrzywinski

good guys. morning, Hi,

Chris Kuehn

Josh, Hey how are doing? you

Dave Regnery

Good morning.

Josh Pokrzywinski

ESSER entering way And other. the two larger, or similar like then, be as do one sort you of things whether quantifying IRA of Dave, and ESSER kind then But IRA and maybe we Any those couple the maybe yet. spending, how and of smaller? thinking in those times. specifically dimensionalize it's orders are we're a having shipments? total maybe maturing can a sized, diverge. time Where feel just hard will intersect IRA in you mentioned two about you

Dave Regnery

with ESSER. start We'll Yes.

I'd if say middle innings. you at look from think revenue I it a standpoint, it's

an ahead If you it standpoint, our of we backlog for order look it's at this. little obviously have that bit a from orders because in

me learning it and I -- We created really school qualities. there. just really started across really we were working great road maps, increase environment help has a doing for you have children there the them ability before, And systems heard think we're a country safe the job and started team to Our when them to with done the air indoor that them for that. executing helping say this I are

revenue digits. mid-single So standpoint, of it think

may IRA, standards, in we're going difficult it's of now. standards it's to XXXX right each very be size going We're will and set of because, to all a state okay? all be now tailwind. those just it. us, be front It to a different understand a size different It's to trying tailwind, to trying have

the for tailwind that tend With will commercial portfolio, how solution of for the written, a breadth we'll it space, a our also I residential and there. rules of be to a business. customer we in a think a IRA and certainly to are final product want It's the to regardless going be be tailwind part know of have our of will

And so we're we'll working of both stay others. more, fronts as we tell it learn and tuned. And

Josh Pokrzywinski

some if don't That's had how on And much parse it. the to service extra out helpful. recall Got guys service them you you give way. count backlogs And If reported you of that If on for in just have I us then maybe context kind look backlog. correctly, front? that backlog number. how visibility that that's maybe correct,

Dave Regnery

think -- years Difficult service. I six difficult now business, our this that's include of very to life don't okay? because ascertain to products. the be be A -- times, -- globe, the service backlog that we if agreements, number. Chris, allows we quarter. a like to where customers we're multiyear annual business second three-year you I it'd our it'd We We start doesn't could to it's don't now to was the high that just a So say You're high really thinking again backlog. service key any It service tethered our agreements to our be great think growth strong a so business is up single-digits have for in I first all, single-digits rate and us compound lot agreement. okay? of difficult if really to of of across to correct. add a to it's provide say. our quantify is Services say service It things strategy hard in

Josh Pokrzywinski

Understood. Appreciate detail. the

Dave Regnery

Thanks, Josh.

Operator

line question comes UBS. from of Chris next Snyder Our with the

open. Your line is

Chris Snyder

commentary prior And of focus wanted Obviously, on a the to the talk maybe a you. on you that around we're orders. Thank Can seeing. I what lot US megaprojects just little into get projects Thank for kind to about revenue Trane and how for then of could what flow bit that sense just you. be? for orders lag a ultimately, these Trane follow-up

Dave Regnery

Chris, Yeah. question. good

We detailed our a follow. we process are very that -- system is operating of one very

we when to to construction. in then go and the we through engineering, way So site move phase, all then we prep planning to go and we start permitting, groundbreaking then the

So to it's the more need going the to detailed create a you involved, you're very follow you're and value for customer. approach earlier the

the these, of semiconductor on it planning the it's years a process X.X, As okay? depends the on could plant, far project, way completion. through If type from X as timing all take that

Think about maybe being months the X HVAC and to installed XX before probably of equipment operation facility. operating

So plant, you But to to are could through it's and again, projects. phase you as -- different duration. a then That very being planning be that up complex start on orders. it's involved see process. a really in bit And early these a bit back battery when the start to again, can shorter little all the

with of you influencers often have in different to you need the to that be able and relationships globe parts So on. have call

Chris Snyder

company it's here? investment color you. outlook Thank focus trending AI is big still now. would could Is a Can business the And data another in on activity there the data in. always from be any that. vertical follow-up how about I that the Appreciate or the horizon? seeing maybe Any talk has Is helpful. I centers? done impact into you. Thank if well that you center, market mean, right on

Dave Regnery

with been and it question, Yeah, in heat. be for chip a unit. Well, And used time, that with Yeah, we've graphic predominantly the a lot on GPU AR the for AI, the more that's thanks process produce AI is now units long going answer that's Chris. okay? a new These a strong Chris. to vertical

central So The think unit. GPU, of past. seen a throws we've heat a versus about the amount the graphics conventional of versus CPU or unit what in Xx process processing off process graphics unit

heat high really that data solutions have around cooling center data within working because So data and centers if are we're you about neat you with applications. customers have center, we of think take lot to a change. to a lot loads these the going a of And

you And really impact tomorrow, working they're how our teams it's being with constructed, developing have definitely solutions. I to data very how going they're customers closely would So planned. are being our on the creative centers an of and that tell

Chris Snyder

Thank that. you. Appreciate

Operator

Goldman Our Ritchie next of question the Sachs. comes Joe from with line

line Your open. is

Joe Ritchie

morning, Hey. guys. Good

Christopher Kuehn

Hey, Joe. morning. Good

Joe Ritchie

know in year, out it then beyond want XQ, kind like you XXXX. XXXX? curious of I I fairly of the transformational following Hey, consistent what's beyond as many benefit to up like maybe the in expecting that got earlier. Chris. like in be And Andy's you'll biggest question is just I'm the this too benefit through about that details kind remainder or just are cost think just see store the that you the of you give, guess, year, I'm to from on don't you price/cost benefit but on curious

Christopher Kuehn

we and to delivered price into do Yes, in QX of Joe, of of we price the did of half year. XXXX, XX year of I moderate to second moderate. second think We that see the expect quarter. points that around last in over QX do half so the second we about X points expect If the

X% about and towards bit our As a revenue year, volume the I little growth full bias still organic more guide, growth see price. think we a

be moderate, is will us and that this still say, above for think, contribution let's inflation. the the with I But price to productivity, of that way normal pre-pandemic is leverage fully another price pre P&L. where levels, this So dovetail

A, and savings always organic offset B, I million transformation, recapture of volumes We're lot a we're and points to is to of system to and in layer strong think, is for improvements confidence I tailwind of well for quarter, over to can or leverage make is operating the the the productivity $XXX As opportunity here continues a that a that on seeing chain efficiencies productivity. the better, supply second expecting is something supply in we couple of and plants. looking other productivity of our get in achieve growth we That, time. volume a deliver there's business, over think drive half. leverage us in business then track your productivity with the the XX% And X last had better gives company inflation there's for we're chain our greater the the question, target these company lost next and the recapture from to years constraints. us to second But we're

Joe Ritchie

Maybe of broader that of kind projects to in probably some of over completed the Dave. projects. quick around couple I'm ESSER last coming a makes then the elongating projects you is That it's seeing of for of much how and like actually curious, markets P&L. just It's in whether and construction impacting of Chris. labor are curious, lines great that sense. seen some the these question what through know we've a lot through kind of Yes. curious, that hear, is follow-up years. earlier tightness today? I'm I just this mentioned we're the the X you the But terms actually labor funding I'm tightness halfway time and of the getting

Dave Regnery

the I'll projects, a ways, two from the -- seen side One question would but I some commercial on we've that nothing Yeah. construction answer Joe. delays call. is so

think -- we've something a I I from -- that's not some but say those were what improved the lot. we're past. wouldn't push projects in seen have those that's seeing

a not that's So problem. major

really of an of think a we've done to source to lot with programs to I new skills. direct give to work our people internal to talent programs labor, really apprenticeship grow opportunities developing and from learn

see individuals become advancement. we refreshing teaching weeks a not success We've the that these of can lot grassroots future. out great was It's welding a deliver, in the Wisconsin a today ago, there couple level, that labs living a was with in for programs talent experts for welding. have experts advancement were I and and the that that. individuals with in with of it but just great could so great a Crosse, apprenticeship had Technologies not also And at done La it's We've job. to we Trane a tuition and lot only have out there's

overall, we're So okay.

Joe Ritchie

you. Thank good. Sounds

Dave Regnery

Thanks, Joe.

Operator

Steve line from with comes the Tusa question of JPMorgan. next Our

open. is line Your

Steve Tusa

Hi. Good morning.

Dave Regnery

Hey, Steve, how you doing? Good morning.

Steve Tusa

Not light commercial and in sales too bad. or Can you just give number, applied that number the either between equipment one? bookings, split

Dave Regnery

stronger Americas, was XX%. bit the equipment. In strong unitary, strong. up a our very were both but than in It was over Yeah. was Applied revenue

Steve Tusa

half resi. year, you're I maybe, low so double this think to Okay. on much like tell there. like first guidance hard It's just down Great. units price your The And so something getting are that. how then far

You're guiding the weather for, in with in guys I comps guess, July. here are for the And the year, color what maybe seeing a that hot then far the half? second some high just single-digit decline. you so on Is just

Dave Regnery

bit of of that. Yeah, Steve, a it's all

improvement the into cooling this you of second the year. from half delayed the The QX, sequential we're comps as half. easier point to think go sequential expecting the in we fully QX I start into little season that's at to second get a bit so force the see that improvement

Dave a QX flattish QX in year ago, XX% it growth As in mentioned mid-teens and in then was QX. growth

guide is the year. mid-singles. digits think we've got the full So we And plus in were year where easier calling or we outlook. minus, we for around first just second the confidence lot in year for probably high see a half Revenue of our a for bit have down of single comps units that they of that in little the XXXX, down resi were than the half the again, but

Steve Tusa

distribution any in your there and versus difference is sell-in between the quarter? captive independent sell-through, your And the

Dave Regnery

revenue Yes, mid-teens. our the in a was bit, down like

mid-single Our digits. in sell-through was down the

think So second happen well. will the it third in in adjustment the as of more quarter, happened inventory the Steve. We quarter just

Steve Tusa

guys. some Make Yep. All sense. right. Thanks,

Dave Regnery

Yeah.

Chris Kuehn

one on Steve, more thing price. Yeah.

we not the you first We're were to think the levels the for going of getting seeing you led strong XXXX. business. in just normalize strong in here prices half, and really XXXX I may price in is in comp very half. get we're We're dial think That's It second the in first the X% to that a in and half. the Just getting half first with strong, price lower resi. than it's for less just against where trying

clarify things. So that helps hopefully, a couple of

Steve Tusa

Thanks. great. Yeah,

Dave Regnery

Sure.

Operator

next the question with of from comes Our Research. Vertical Sprague line Jeff

Your line open. is

Jeff Sprague

Good Hey, morning thanks. all.

Dave Regnery

are Hey, you Jeff. doing? How

Jeff Sprague

channel XXXX really you pre-buy or does, just Dave, distortions fact, doing XXXX? refrigerant too. are you I for and am I any cause in in of the resi your give well. thoughts us whether on could that transition in Thanks. sort wonder Hope if

Dave Regnery

you moving Yeah. so I worked it. mean, for next-generation ready is with -- the away from it. change preparing up right ready that refrigerants for We're we've our concerned refrigerant. it. it. so alley you We're The to We're Look, But and locations this ready ready start is how a job happen XXX. preparing also to for in side been we're of there we that. as great refrigerant while as will be slightly refrigerant different the team our has done manufacturing flammable, engineering classified procedures We've with as is it, I'll for XXXX for about be a speak new us. handle the have we'll not a

As to AXL far be is flammable. slightly because it's yes, what they pre-buy -- the going Jeff, refrigerant, call product as the goes, more a expensive,

sell-through. additional higher. on have there's But will cost the the You equipment so on be limit a the to going also sensors be will

you'd had it months written now you it's sell be if is that if way inventory. to within So or to pre-buy, have a stranded right -- would a you trying XX through create The were inventory.

this not anticipate We'll So at out. how that pre-buy going it plays time. large we're a do to I see see

Jeff Sprague

right. All things? picking the there like Great, and looks little for is M&A Is pipeline, the going or things that forward? in be a bit, and And see it not? actionable understand. feels playbook or you larger then kind Do prospect like. select of not larger the they up the whether bolt-ons may Are technology

Dave Regnery

We've MTA, very able being them. able to see cooling mean, technology. I to scale it could we of HVAC We channels. We'll successful get be different process technology with lot We'll opportunities. We a Yeah. great to acquisitions. predominantly scale acquired industrial our global player, Europe. a been as you these be in like imagine, in that

Think the quarter. second of space. capability storage at the it in life in the Helmer in the as science acquired also that about also capability. processing but We Think

we've been products with channel, And our again, for with them bolting create nice technology we'll strong able been to channels. good value able these acquisition be a taking We've like our operations. on So We to to very shareholders. lot companies a of and our that this at scale our with technology. great

Jeff Sprague

Great. Thank you.

Dave Regnery

Sure, Jeff.

Operator

Wolfe question line of with comes Research. Nigel from next Our the Coe

open. is line Your

Nigel Coe

Hi. Thanks, question. for good Thanks the morning.

back to go want margins. to So

Dave Regnery

Nigel. Hi,

Nigel Coe

Hi, improving David. the back obviously incrementals. I want margins, to go to organic

is the Obviously, at factory. price/cost hearing better a nice So tailwind. I'm productivity

curious, I'm factor need just this the to we what better converting to next had year over back-end timing now? on we're of think a slight backlog and investor So backlog investments the how our compared year. look to on on the have that Is And we then through spending, Do do margins so? we generally come spending into margins there investment anything I or loading models? the

Chris Kuehn

that sure expectations job we're for on easier. But several more and is so starting embedding with the on And XXXX, focused get Hey guiding with it's our we'll We've year. for been XXXX. start. is price. and outstanding more backlog around for Obviously, than in just margins that for margins a to Nigel, some We're comment years happy backlog. service, that equipment the lot XX%-plus as the we just it in getting us gives inflation the confidence leverage Chris. backlog, on but backlog done making an now, to I'll team's it's we're making build that the happy sure we're the

in the me customer to solution to talking As higher for it's the we'll year innovative our they the getting lot an organic and there through have. about easier a of that XXXX. time, out reflected update get year. And for kind end from what price as Dave all we you're previously improved this is the guide you've go reminds All got products ready leverage of and

lines XX AI. strategy, the Think the portfolio, customers, digital yes, On still as electrifying across of the the electrification previous our basis call investments in investments it, and in to investment. question of the portfolio this we're targeting, back points on product investments, incremental connectedness our

that XX,XXX buildings, really in, far over assets. this and over invest year. an million to with in continuing that of we're investment so connected we're pieces have pleased connected This area We X is progress

some area Third us starting better to automation of is and This be well. early investments results as productivity own factories. in see our would investing around with for

to we on the can the just and accelerate us pipeline to where a drive sure that's the is results it investments. continuing gives and of make So strong in encouragement lot can, going future. We're we

Dave Regnery

for into baked growth Nigel. all the our our in third for year, the EPS a be row. midpoint that's And you year EPS guide guide, the of look if XX% And at above Yes. will

that mean, to has business accomplish a makes the executing around I investors proud that innovation. I'm it's tell hopefully, So our super we're what been always Trane flywheel we system. see And system how there. things to it's company, the great operate able system of how team the things. people of Technologies It's of flywheel operating and as I a of

Nigel Coe

No question.

industrial that XQ I points, mentioned than to wondered base points. think was in of you bit base cash that, the about but a think right So is see, to my But well. maybe I million $XXX lighter carrying timing just maybe And piece, if peers gone on bit as of the most follow-up have you're I intangibles your a -- EPS. now. question

you these considered move? about I think not, sure. considered thereabouts. if in per you you consider change or for if share you moving It's you especially do have -- more maybe amount to were Have cash of And do chunk tend would that fair a carry do that of $X.XX to as intangibles? a bolt-ons, which But lot to EPS, deals? it's more

Chris Kuehn

just targeting the how free last at net years, for of When Nigel, in the free this greater And like us is conversion. we're cash driving appreciate conversion conversion think the looking or flow cash than much on off suggestion. equal year methodology simple the I We'll to look flow three into XXX% we and and are that. our average XXX%. it. We of earnings earnings about

So at that look do metric. we

comes on When it capital metric. as return invested we capital, on flow return look to at invested another cash

we'll an X, ultimately, bit look X, a those and we the of it time. takes and that basis, And accounting with some year let's of I evaluate its cash a think acquisition X of really out investments. period an conventions year ex-intangible the that manage returns have noise to the at on start through year of accretiveness over

return in acquisition, And impact year year, an say invested just ability like by acquisitions third very EPS the I have have of drive capital. very will on year we modest growth, cash flow a accretive even modest So the already this X. we this to year EPS the on while would accretive made

the the So certainly that's bit give metric, think I but I a We'll insight. thought. appreciate of some that

Nigel Coe

Thanks, Fair enough. Cash king. is guys.

Chris Kuehn

Nigel. Thanks,

Operator

Our from the with next Capital RBC question Deane comes of Dray Markets. line

is Your open. line

Deane Dray

of are on a put morning, standout. of much second terms so lot here, Good a spotlight catch the expecting us the For on Hey, and a what whereas was the And in perspective that other you're half? a Thank everyone. you. have a really industrials it we Just of give of was of reopening up? China? COVID orders in struggled moment cadence can forth, kind what how and the

David Regnery

Think we verticals quarter strong Pacific, results we of think year. even mean, And back Yes. an we're But mean in second in. into pushed in half of specifically look easy in you China China. the quarter it's that strong, the if the did lockdowns. I with strong because comp the are COVID very specifically Asia about, million the China, have I in second that, had in I that out of $XX like

very level. And verticals. data a executed strong there again, vertical, high very high-tech semiconductors, direct the think are care, centers, a the team those force, just of with we're in all So health at has -- sales those

world. and very to that We a do Pacific we well Asia very continue have strong region in of in team the very,

Deane Dray

still we to answer up a and But great. in get the whole cooling you with you're got some cooling of and be say in the projects has just AI chips. bit demand. come up implications centers And -- you -- investment data the factor Chris' your for teased is on. maybe centers will us times. side. times. you've with Have multiple question that. happening come We liquid heat working legacy multiple that If AI data That's Xx on about new the The other more

Is how of that this some the So share there. business sort liquid us threat? this cooling? do But as Just do there's think of legacy a Is need see, get into? what you to a you liquid rise map see you how air cooling maybe cooling the business, a opportunities is. road you

David Regnery

Great. Great Dean. question,

emerging end We in the specialize You an first of equity cooling rack in that all in your conduct These it dielectric what actually are means the the about efficient investment fluid. quarter, obviously this homework And called think into space. very is, Liquid and they at call company systems. did electricity. cooling. emerging a And Stack made doesn't you're a is putting they

this So scientists, -- Liquid Early excited we we really a involved have triage promise. has are we're well it. our lot customers of data we that this as scientists this And center working with opportunity. have in is days Stack and some about as actually

when yet technology going get into is the this a future. high these think developed. keep it. I there to be lot but we working for opportunities you And new not it a has we're where applications, will We're think of heat

Deane Dray

Yeah, we Thank you. agree.

Dave Regnery

Sure. Nice question.

Operator

America. Obin Bank of Andrew with of the line Our next question from comes

is line Your open.

Andrew Obin

morning. guys. Hi, Good

Dave Regnery

Hey, you are Andrew, how doing?

Andrew Obin

I'm well. doing

Just think, a of question a trying plant. these opportunity. mean, to I the way XXX,XXX another I as percent semiconductors, chiller big EVs per I've sales? it what's Obviously, right ton size sizing a number, fab and megaprojects, heard of project

of it, I take you. at guys thinking You Thank that per up, in Long facility? size Is right sort brought Texas. the of

Dave Regnery

have depends, question, mean, that it's are I fab plants some short The good You it extensions. Andrew. answer okay? a is

EV that other the that have be map as plant are really could as far putting in. fab size new. battery plants all You The they'll over the be

number the as So you water I the handling to would it's tell air opportunity. trying averages large. size side. always -- I hate large And side to a give the will because it's out I total on both chilled know as well on you're just

It system, it a So into applied the be our an future. as a business will if you this about for is large opportunity. think tailwind

Andrew Obin

not Can just inventory concerns you And what light to just has runs about should we Thank But just about talked just that in XXXX, into And in impact the take a frankly, little color commercial? talk maybe bit view. and commercial, driving getting any if IRA been commercial or more everything shifting on channel from we maybe sort just longer-term anything you. light that units? commercial. a strength comps just tough, light light of seeing about you

Dave Regnery

I anything would there's think call don't I out.

an was there think change. I efficiency

You knew that. about

lot certainly, there have on. demand. pent-up have a could inventory of It's we So some not a that been product

residential that's occur. talk through goes IWDs the about where but our that's the about our to it not where when we where on talk side, normalization -- very not has -- of light not Some the normalizing, business, we

some it's strong. really we So for have a been competitive while. strong a portfolio very We've obviously, with innovations. And been neat there

think I you when had were I we the that we when the we portfolio. change, together really told the took refresh to opportunity, efficiency

all Now, fuel we unitary offered our of light can be product dual option. call what in a

of particular a think as ambient pump operate on region temperatures So a it also that particular a what could fuel fossil with are based in time. heat at

So, customers. variable

super So about there. the opportunities excited -- it's we're

Andrew Obin

Got you. Thank you.

Dave Regnery

Andrew. Thanks,

Operator

back the I'd There to are comments. no Nagle closing turn like to Zac questions. further for call

Zac Nagle

We'll everyone interest to Technologies. we joining time your variety many in for a Thanks. chat I'd Thanks you. thank and you of and of there. call. fall, at like be spent to today's Trane see with soon. the for events hope investor Thank We'll in

Operator

concludes conference This call. today's

may disconnect. You now

Trane Technologies (TT) 2 Aug 232023 Q2 Earnings call transcript