Trane Technologies at J.P. Morgan Conference: Strategic Growth Insights

On Tuesday, 11 March 2025, Trane Technologies (NYSE: TT) presented at the J.P. Morgan Industrials Conference 2025, outlining a successful year with robust financial growth and strategic innovations. Despite challenges in certain sectors, the company remains optimistic about future prospects, emphasizing its diversified approach and innovative solutions.

Key Takeaways

• Trane Technologies reported a 12% increase in organic revenue and a 24% rise in EPS for 2024.
• The company ended 2024 with a substantial backlog of $6.75 billion, providing strong visibility into 2025.
• A projected growth of 7-8% for 2025 is anticipated, with a focus on diverse verticals and innovation.
• Challenges in the transport business are expected to improve by 2026, while residential HVAC is set to return to normal growth patterns.
• The company is leveraging its global reach and direct sales force to capitalize on opportunities across various sectors.

Financial Results

• Organic revenue growth reached 12% in 2024.
• Earnings per share (EPS) saw a 24% increase.
• Free cash flow conversion was an impressive 109%.
• The backlog remained flat in the commercial business across The Americas and Europe, overcoming $500 million in headwinds.
• Europe’s commercial HVAC sector grew 30% over a three-year period.

Operational Updates

• Data Centers: Strong pipeline with expected mid-teens growth and advancements in cooling efficiency.
• Manufacturing: EV projects are slowing, but semiconductor projects are active with long lead times.
• Residential HVAC: Transition to A2L refrigerants is progressing, with expected single-digit contributions from this conversion.
• Europe: The company is leading in innovation with thermal management systems and strategic acquisitions such as Alco and MTA.

Future Outlook

• The company is confident in its 7-8% growth guidance for 2025.
• Focus remains on investing in the direct sales force and global presence.
• Emphasis on providing solutions rather than just products to customers.
• Strategies are in place to manage tariff impacts through in-region manufacturing.

Q&A Highlights

• Data Center Order Rates: Strong activity noted, but specifics are undisclosed to avoid aiding competitors.
• VRF JV: The joint venture with Mitsubishi is performing well, offering diverse solutions.
• Service Business: Driven by maintenance and end-of-life services, expected to be margin accretive.
• Tariffs: The company is prepared for potential tariffs, with strategies developed from past experiences.

Trane Technologies’ strategic insights and robust financial performance in 2024 set a positive tone for the coming year. For a more detailed discussion, readers are invited to refer to the full transcript below.

Full transcript - J.P. Morgan Industrials Conference 2025:

Steve, Host: Alright. Moving along here with the guys from Trane, CFO Chris Coon as well as CEO Dave Regneri. Dave, as usual, we’ll let you kick it off with a few opening comments and then, you know how much I love HVAC, so we’ll we’ll get right into the weeds from there.

Dave Regneri, CEO, Trane Technologies: All right. Great. Well, hey, thanks everyone for joining today. Steve, thanks for hosting. It’s always a always a great conference.

It’s I’m glad to be back in New York. It’s, it’s warmer in New York than it is in Charlotte, North Carolina, just so you’re aware. Look, 2024 was a standout year for Trane Technologies. Organic revenue growth was up 12%. Our EPS growth was up 24%.

Our free cash flow conversion was 109%. And we ended the year with a backlog that’s highly elevated at $6,750,000,000 which gives us great visibility into 2025. And I’m sure you saw in our fourth quarter, we put our guide out for the year, a very strong guide at 78%. And with a strong backlog, it gives us a lot of visibility and we have a lot of confidence in the guide that we put out. So with that, I’m sure you have lots of questions, Steve, and I can’t wait to talk through.

Steve, Host: So you brought up backlog and orders obviously go into backlog. So I think there’s some concern, especially on the data center side, that there’s been it’s more lumpy, obviously. The term pull forward is used out there. How do you guys see the pipeline and then the trajectory of orders coming out of that pipeline in the in ’twenty five?

Dave Regneri, CEO, Trane Technologies: Yes. As I said on the fourth quarter call, look, we see a pipeline that’s very strong. So these are this is activity before something becomes an order. And we have a lot of detail tracking specifically in the North America business on that with our CRM system. So it’s very active right now.

It’s strong pipeline really across many verticals. Data centers is obviously very strong. I think you could read lots of different articles about the strength of data centers and, you know, just assume it’s going to be in the mid teens level for growth level for the foreseeable future. I think that’s a pretty safe bet. But there are other verticals too that we see strength in.

You know, I called out on the fourth quarter that we saw strength in education, right? And everyone was thinking that ESSER funding went away. We’re not going to see strength in education. Well, that wasn’t the case, right? There’s a lot of demand still out there in the education vertical.

There’s a lot of demand out there in the higher ed vertical. So we see strong pipelines, which gives us a lot of confidence in not only our guide for 2025, but beyond. There’s a lot of activity out there.

Steve, Host: Can you grow backlog in in ’twenty five?

Dave Regneri, CEO, Trane Technologies: Yes. We’ll see how it progresses. But look, we have a very strong backlog right now. We have a lot of activity that’s in there, which is which gives me confidence in saying that we have a strong guide, but we’re very confident in that.

Steve, Host: Can your book to bill be above one? I’m just getting that same question.

Dave Regneri, CEO, Trane Technologies: Everything’s possible, right?

Steve, Host: Everything’s possible.

Chris Coon, CFO, Trane Technologies: Well, think about backlog in ’twenty four. I mean, backlog was flat in our commercial business in The Americas and in Europe, and both businesses grew double digits. So think about year over year backlog essentially flat and it actually encompassed or overcame $500,000,000 of headwinds between foreign currency, normalization of the transport backlog and then some corrections we made within our Asia business. So while backlog was flat, it overcame $500,000,000 of headwinds.

Dave Regneri, CEO, Trane Technologies: And also, I just remind everyone, our backlog does not contain any of our service business, which is a third of our company. Hence, by the way, has had growth rates of double digits for the last several years.

Steve, Host: So I’ll get in back into the data center in a second. But just broadly, you mentioned Education and ESSER that you’re really not seeing any impact from that rolling down. What about IRA? I know that there were some interesting chiller incentives, especially for your thermal management systems, I believe, that really enhance the ROI for the customer. And anything that you’re seeing there or if they put a lid on that spending that would perhaps drive a bit of a temporary pause in some of that activity?

Yes.

Dave Regneri, CEO, Trane Technologies: I mean, you’re referring to part of the IRA was the enhancement of the 179d tax credit. And that certainly helped with some of our paybacks, but I would also tell you that we still have very strong paybacks with or without that incentive. I’m not sure what the rules are right this minute, but the 179D still exists, okay? And there’s some talk about it, but I haven’t seen anything on it. But at the end of the day, we have great paybacks for our products today with or without incentives.

Steve, Host: And then lastly, outside of data center on manufacturing, one thing we’re having like a tough time reconciling is high-tech manufacturing was a vertical you called out for many quarters, every other HVAC company similarly. So obviously, there were EV plants, semi plants, but everybody in kind of the industrial world has seen those get paused or pushed out or slow down. What are you seeing in that project pipeline? Sure.

Dave Regneri, CEO, Trane Technologies: I mean, especially EVs for sure. Okay. So EVs, there’s probably there’s a lot of capacity out right now. So those have certainly slowed and we’ve seen some projects get pushed out there and some actually canceled. The semiconductor space is still those projects are they’re long leads.

So some of those are still very, very active. If you think about the mega projects, okay, as I don’t like that term, but that’s a term that’s been that’s now with us. But we track over 400 mega projects. And some of the I think 75% of them were not data centers. So everyone thinks mega projects, I think at data centers, the majority of those were not.

And a lot of them are in this high-tech space. So we’ll see how it plays out, but we’re still very active with many of these projects. And one of the advantages that we have is that because these decision makers tend to be global and because we have a direct sales force globally, we’re able to triage the decision makers, which puts us in a great position.

Steve, Host: And how much of your business now is these, is like, you know, truly new kind of greenfield, if you will, versus, in the equipment business versus like a maybe a little bit more of a discretionary upgrade, like not necessarily end of life, hey, I’ve got to do it, but you guys go in and pitch them and they decide to do it because of the payback.

Chris Coon, CFO, Trane Technologies: Yes, I mean commercial HVAC in The Americas, we’re still in that 65%, seventy % that’s retrofit. It’s replacement markets, new for us would still be in that 30 percentage kind of range for greenfield. But paybacks continue to be very strong in both of those categories in terms of products that we offer.

Dave Regneri, CEO, Trane Technologies: It makes sense, right? Think of the built environment. I mean, just look outside, how many cranes do you see? How many buildings do you see? Right?

So there’s a lot of retrofit activity.

Steve, Host: Yes. That’s very fair. So getting into data center here a little bit, what are first of all, what are you guys seeing today? What are your customers telling you? Anything post DeepSeek or Microsoft lease cancellations or anything else that you’re seeing out there that your customers are pumping the brakes a little bit on any of this stuff?

I won’t

Dave Regneri, CEO, Trane Technologies: comment on the quarter, but I will tell you The whole DeepSeek is, and this isn’t me, but go talk to the hyperscalers, listen to read their transcripts, what they’re talking about, right? They’re talking about they’re still investing heavily in data centers. So we see that continuing into the future. And just because there’s a different learning model out there with DeepSeek, there’s still going to be a lot of demand for data centers and there’s going to be a lot of cooling required for those data centers and we’re really good at doing that.

Steve, Host: So if you think this is kind of a mid teens market for call it three to five years, however you want to talk about it, it seems to me like the order rates that everybody’s booking last year, you guys don’t disclose specifically, but all your peers you know, were running in the at least 30% plus type of range for this vertical. The census data is up 50% pretty consistently. Do we need to toggle around that 15% rate where you did 30 to 50 guys did 30 to 50 last year, so that means you have a year of digestion and like flat to negative at some point? Are we still in this kind of catch up phase

Dave Regneri, CEO, Trane Technologies: if you will? Yes. Look, I can’t comment on what my competitors may or may not have said, but I would just tell you that we see the it’s still strong activity out there, Steve. So and there’s a lot of planning that’s happening. Data center customers are going to give you a lot more visibility to what their needs are.

This is a vertical that technology changes in quite quickly. I would tell you that we’re working with many of the hyperscalers and many of the builders of the colos and looking at different technologies. And it’s a really interesting space right now. And this is a space that with our technical aptitude, we’re very, very strong in. And we have, I was telling a group earlier today, we’re working on a data center project over in Australia where, you know, the coefficient of performance or the efficiency of the system is something that we didn’t even think was possible five years ago.

But here we are actually testing a testing and having a witness test with a customer in our facility in Europe. So it’s an exciting space that’s gonna continue to evolve.

Steve, Host: Can we talk about how the, like, timing works on all this? So if I’m building and I’m trying to commission a data center the following year, when am I ordering that? What is the what is kind of the lead time on that? And are you booking to the total size of the facility? Are you booking to a certain part of the facility that’s being built out over a number of years?

How are you guys seeing that? We’re all kind of having a little bit of trouble identifying that lead time.

Dave Regneri, CEO, Trane Technologies: Well, I mean, I don’t want to sound like I’m from the legal profession, but it depends, right? So, look, I think of it as twelve to eighteen months visibility. Think of it as when you ship versus when you get commission, think of that three to four months. That’s probably a good rule of thumb. Averages are always dangerous, right?

But those are pretty good rules of thumb.

Steve, Host: So if I

Dave Regneri, CEO, Trane Technologies: And by the way, think of it too as, especially a hyperscale, they’ll release in phases. Okay? So they’ll have phase whatever one through four and they’ll release in phases, which if you were them, you’d want that too, right? Technology is going to be constantly changing here. So they want to make sure that they don’t get a technology gap in the portfolio.

Steve, Host: And you’re talking about phases as far as, like, if I’m building a two fifty megawatt data center and there’s five halls of 50, you need phases one, two, three,

Dave Regneri, CEO, Trane Technologies: five, four. No. Probably. They probably have the two fifty, but if they’re going to build five of those, you’d probably release one at a time.

Steve, Host: Right. Okay? Right. Okay. So do you get that?

Dave Regneri, CEO, Trane Technologies: About seven or eight years ago, they were doing exactly what Steve said, where you’d release hauls, right? But now the demand is so strong that they’re releasing two fifty, three hundred megawatt data centers. And that would be a think of that as a phase necessarily.

Steve, Host: Right. So you get that order and then you would ship when they want it or you and you said, I think, down at our conference in the fall that you, and I think JCI said this last night, but you you do ship to them and then they start and then they figure out, like, where it’s going

Dave Regneri, CEO, Trane Technologies: from there. It depends. There’s some there’s some builders that would stock inventory. I mean, and I say stock, it’s not like you think like a residential dealer or a distributor, but they would stage it.

Steve, Host: Yep.

Dave Regneri, CEO, Trane Technologies: So they would make sure that they would never be disrupted if something didn’t work. So think of it in that way.

Steve, Host: Got it. That makes a ton of sense. From a TAM perspective, Vertiv’s talked about $3,000,000 a megawatt. JCI last night said $2,000,000 a megawatt from their TAM. I would assume you guys are like in and around maybe just below the JCI TAM because you don’t have the fire and security.

What do you guys think about it?

Dave Regneri, CEO, Trane Technologies: I mean, I think if you a lot of this is public information, okay, so you could go out and do your own research. But think about a data center, it’s to build is about 10,000,000 per megawatt, okay? And then think of the HVAC content between the averages are always dangerous here, but 10% to 12%, thirteen %, fourteen % kind of range.

Steve, Host: Yes. That’s super helpful. And most of your exposure is in applied. Is there any that kind slips into like commercial or the VRF?

Dave Regneri, CEO, Trane Technologies: In the data set? Yes.

Steve, Host: No. No. It’s all applied. And then I

Dave Regneri, CEO, Trane Technologies: mean, I should I mean, there could be an office structure that’s attached that you would put in a unitary, but nothing of any kind of magnitude.

Steve, Host: Right. And as far as services are concerned, I understand your rental business does really well here. Maybe talk about how that works. Is rental we think of rental as a temporary solution. I’m not sure for these data centers if they’re just scooping all these things up and putting how does rental play into this?

It’s an interesting answer.

Dave Regneri, CEO, Trane Technologies: I mean, I think the service business, obviously, these are very sophisticated systems. So think of it as the more sophisticated the system, the more aptitude there is for the OEM to do the service work. I’d start with that. As far as rental goes, sure, we have rental capabilities. If someone got into a situation where they need a temporary cooling, we’d be able to provide that.

Steve, Host: Has that been a decent sized business for data center?

Dave Regneri, CEO, Trane Technologies: I don’t know the answer to that. I’m not hearing a lot about that, but I’m sure there’s cases where we’ve used rental for whatever reason. But our rental business is actually more geared on our service side of it. So you can always have uptime availability. So think of a hospital, right?

You would maybe have a service agreement with a hospital where you would guarantee uptime. The way you would do that is with a rental fleet.

Unidentified speaker: Got it.

Dave Regneri, CEO, Trane Technologies: And you do a lot of things too, by the way. You don’t just you’re automatically like what they call you plumbing the system beforehand. So if you ever needed it, it’s kind of like quick hookup.

Steve, Host: Got it. So I guess the bottom line is when you look at last year’s order rates for data center, do you get Which

Dave Regneri, CEO, Trane Technologies: we don’t disclose, but go ahead.

Steve, Host: Yes, but I’m just saying in general terms, do you get the sense that there was pull in and that there’s digestion needed or not?

Dave Regneri, CEO, Trane Technologies: I don’t know. I don’t know the answer to that. So we see a lot of activity, which is a good thing. Hey, look, I I just want let me just set the the stage here on the verticals. Right?

We don’t disclose the size of any vertical, okay? I’m not picking on data centers. I really am not, okay? We just feel as though we have invested hundreds of millions of dollars over decades to build the direct sales force. And we built this direct sales force globally in our commercial HVAC business.

And we know where opportunities are because we see them every day. And it doesn’t make any sense at all for me to be talking about the size of a vertical or where I’m seeing opportunities in different verticals because all it does is create a roadmap for our competition. And we’re not going to do that because we’ve made the investment. And there’s a reason why we grew in 13 or 14 verticals in North America because we see opportunities out there. And we don’t just focus on one vertical, we focus on all verticals.

And with the breadth of our product portfolio, you could understand why. We have the broadest product portfolio in the industry. We don’t sell products, we sell solutions, right? Whatever the customer needs, we’re going to come up with the right solution for them. And that’s what differentiates us, one of the many things that differentiates us versus some of our direct competition.

Steve, Host: And a key aspect of that is the VRF JV, which is I think have been super successful.

Dave Regneri, CEO, Trane Technologies: Very successful.

Steve, Host: What are you guys seeing on the commercial side there? And is that, one of the businesses that’s growing pretty well?

Dave Regneri, CEO, Trane Technologies: Continues to do very, very well. It’s a JV we have with Mitsubishi in The U. S. And some countries in Latin America. It’s been very, very successful and we continue to see growth there.

Again, VRF is a great solution, but it’s not applicable everywhere. So it’s not like we only have one tool and everything, you know, the old expression, you know, if you have a hammer, everything’s an only if the only tool you have is a hammer, everything becomes a nail. That’s not our case. Right? We have lots of different tools.

And if VRF is the right solution, sure, we’ll put a VRF system in, and we have great products there. If it’s an applied water cooled, you know, chiller, we’ll do that. If it’s a rooftop, we’ll use rooftops. We’re always thinking about it at a solution level for the customer.

Steve, Host: And on the rooftop side, and anything that’s a market that’s a bit confounding, the HRI data is down, some of your peers have warned a bit, but others are growing pretty nicely. What are you seeing on kind of the light commercial trends?

Dave Regneri, CEO, Trane Technologies: Look, we said on our fourth quarter call, we think that we’ll have growth in 2025 in both. Applied will be stronger than unitary. And that really just gives us the visibility we have. Our backlog is predominantly on the Applied side.

Steve, Host: Yeah. But

Dave Regneri, CEO, Trane Technologies: we’ll see how the year plays out.

Steve, Host: And you mentioned services, obviously, a fantastic story for you guys, growing really nicely. You mentioned, I think, eight times to 10 times the revenue from versus the initial sale.

Dave Regneri, CEO, Trane Technologies: Can you

Steve, Host: just delve into that a little bit more? What drives that? Is that mostly time material? Is it spares? Like what’s the key driver of that?

Because it seems like a big number.

Dave Regneri, CEO, Trane Technologies: Yes. Well, I mean, you think about it. Let’s think about a centrifugal chiller. Think of the life of a centrifugal chiller, twenty five, thirty years is not uncommon. So you’re going to have the maintenance on that over that time period.

You’ll have parts that will be consumed over that time period. You’ll probably have two to three overhauls of that system during its life. And some of that’s driven by technology, right? You’d always want to be upgrading to the latest technology from an energy efficiency standpoint. And then at the end, you also have end of life that has to be the product would have to be removed.

And remember also that you have inflation that’s going to be impacting that through the life. So we’re pretty comfortable with our model there. We’ve done a lot of work around it. And if you look at the growth in our service business, I think you would agree that we’ve been pretty successful there.

Steve, Host: Yes, it’s been pretty strong. So you’re saying that there’s some kind of further down the road refurbs that really

Dave Regneri, CEO, Trane Technologies: Oh, absolutely.

Steve, Host: Like our high calorie type of events?

Dave Regneri, CEO, Trane Technologies: Absolutely. And there’s probably more than one in the life of something that’s thirty years. You’re going to be doing that probably at least twice, right, in some cases more.

Steve, Host: Is there incremental investment required there as far as feet on the street? Are you guys pretty comfortable with your structure?

Dave Regneri, CEO, Trane Technologies: We’re always adding great account managers, if not that I’m here to recruit. But, yes, we’re very comfortable with our structure. But I would also tell you that five years ago when we launched Trane Technologies, we were $12,500,000,000 Today, we’re $20,000,000,000 So you don’t just go from $12,500,000,000 to $20,000,000,000 over five years and not add a lot of infrastructure to your business. And I’m not just talking about brick and mortar from a manufacturing standpoint. So we’ve added a lot in the entire organization and the growth rates have been very, very strong for us.

Steve, Host: What are you seeing over in Europe right now in commercial HVAC?

Dave Regneri, CEO, Trane Technologies: We have a great team in Europe that I’m super proud of because I was there early when we had a very bad business, that would have been like twelve years ago or more maybe fifteen years ago now. I’m so proud of what that team’s been able to do. And I would tell you that they’re leading with innovation. You could argue that Europe is flat. And look at our growth rates in Europe.

I think I mean, I was looking at this the other day with Jose La Lozia who runs that for us. On a three year stack basis, they’re up 30%. I mean, this is a business that’s leading with innovation and just really hitting on all cylinders. So I’m very proud of what that team’s been able to accomplish there. But make no doubt about it, they’re leading with innovation, right?

And a lot of that innovation starts in Europe. And we actually, because of our direct sales force, we’re able to scale that globally once we learn of a great innovation. And that would be a thermal management system would be a great example.

Chris Coon, CFO, Trane Technologies: The same holds true for the transport business in Europe as well, leading with innovation there and outperforming markets for many years. So that’s another great place. We’re leading with electrification and decarbonization of that portfolio.

Steve, Host: And as far as those thermal systems, is there the district heating over there is also an

Dave Regneri, CEO, Trane Technologies: We do district heating. We do a lot of that in, we do a lot of district cooling actually in The Middle East. There is some district heating we do in Europe. The problem is with district heating, it sounds great. And you probably heard me talk a little bit about like data centers, you know, what do data centers produce, right?

Bits, bytes and heat. What are you doing with all the heat? Well, today, you’re putting it out into the atmosphere. Is there a way to repurpose that heat? Well, the easy equation with this is let’s create a district heating loop, and then we could heat other buildings that are in the vicinity.

Right? Proximity matters. One of the issues that we have with that is it works. Okay? And we figured out how to create booster systems so you can get the water temperature where it needs to be is permitting becomes the obstacle.

So we’re still working through that, but we still think that’s an opportunity.

Steve, Host: And I guess you brought up data center. So in Europe, what are you seeing there? And is there there’s been a bit of a debate on the lag time of them building out? Are you

Dave Regneri, CEO, Trane Technologies: Oh, data center? We have big Yeah. We do well in Europe and data centers.

Steve, Host: And is that

Dave Regneri, CEO, Trane Technologies: We do well in Asia as well.

Steve, Host: And you expect that to be a part of the growth story in the next couple of years.

Dave Regneri, CEO, Trane Technologies: Absolutely. I look at data centers as a global business. Right.

Steve, Host: Okay. On residential?

Dave Regneri, CEO, Trane Technologies: You can control residential. Sure.

Steve, Host: Residential? Not

Dave Regneri, CEO, Trane Technologies: more yet. Go ahead.

Steve, Host: Right. On residential HVAC, where are we in this what are you seeing on the ground when it comes to this replacement cycle and how do you view kind of the volume picture in the context of the consumer and how they’re doing it? I mean, it’s been resilient, of course.

Dave Regneri, CEO, Trane Technologies: Residential, we think is back to what we’re going to call a normal business this year, and we define that as a GDP plus business. And they’ve had some hangovers from COVID. They had a lot of stock in the channel that how to get depleted. We think that’s behind us. They’ve had a lot of regulatory changes, which has caused a lot of starts and stops in stocking or destocking.

We think that’s behind us now with we’re all on an A2L, not all four fifty four, but all on an A2L. So we think we’re back to a normal year of GDP plus business. And as far as is there an aptitude to do more repair versus replace, We’ll see how it plays out. I mean, obviously, we’re getting into the cooling season, okay? So we’re still in what we would call

Steve, Host: a shoulder season right now, but we’ll find that out. We’ll find the answer to that out relatively quickly here in the next couple of weeks. And what is your strategy from a price perspective? A couple of your competitors have been out with letters basically highlighting the risk of tariffs and being very aggressive on their front foot about price. How are you guys approaching all of this?

Dave Regneri, CEO, Trane Technologies: From on residential or just in Residential.

Steve, Host: Well, I mean, in general too, if you will. But I think residential

Dave Regneri, CEO, Trane Technologies: Look, at the end of the day, on tariffs, let me just I’ll answer the question. I’ll let Chris talk specifically about what we’re doing with four fifty four B. On tariffs, right, we have one manufacturing location in Mexico. We have 24 manufacturing locations in The United States. We have manufacturing locations throughout EMEA and manufacturing locations throughout Asia.

So for decades, we’ve had a strategy of in region for region. And so and it’s proven to be very beneficial for us. Shipping our products around the globe is somewhat complex and difficult. Will our supply chain be impacted by tariffs? Yes, it will be.

And if there is tariffs, when that happens and we’re clear on the rules, we’ll, as I said on our fourth quarter call, we’ll aggressively take action. And but at the end of the day, we’re not letting that be a confusion point with our employees. Steve and I were talking about earlier before we started, like, the role of a CEO today and the confusion that’s out there. Yeah. There’s a lot of confusion.

Don’t let your organization get trapped in it. Right? Let’s focus on what we could control. And that is taking care of our customers, making sure we have the most innovative portfolio, and continuing to drive our results. When we find out the rules, we’ll make sure we take swift actions.

You want to talk about four fifty four b?

Chris Coon, CFO, Trane Technologies: Yeah. I mean, on on residential, our our guide at the January was, called single digit contribution from the conversion to four fifty four B. Single digit contribution from the conversion to four fifty four B. We’ll report that down because it’s mix. We’ll report that in volume.

But take that high single digit, multiply it by 65% of the portfolio, multiply that by 75% of the year, gets you to around a 3% to 4% growth. And then deduct from that, the third piece would be the pre buy, which we saw about $75,000,000 to $100,000,000 of revenue that really impacted equally Q3 and Q4 of last year. Hard to size that because we didn’t have purchase orders that had a box that said, is this a pre buy or not? But so it’s an estimate. But you add all those together, it gets us to run that mid single digit construct for residential for the year.

And then for the price guide pre tariffs, we put a one to 1.5 price contribution for the year. That’d lead about six to 6.5 points of volume for the enterprise. And today’s point, we’ve seen it from a supply chain inflation standpoint, ’twenty one and ’twenty two, where we stayed ahead of price cost, and then go back to the ’seventeen, ’eighteen time frame with tariffs, and we made sure that we were pricing effectively. So we’ve got the playbook. We just keep working the playbook.

Steve, Host: So I guess is there any color? You guys are usually pretty good about giving your raw materials numbers and like any color on how much you think of your COGS is potentially exposed to Mexico? It sounds like your actual production that you’re bringing over yourselves is not that much, but any color on all this?

Chris Coon, CFO, Trane Technologies: No, I mean, one plant versus 24, right, on the relative nature of our U. S. Plants versus Mexico. We’ve not sized it that way, but I would say that when we started the year in the guide in January, that one to 1.5 points of price, think of that as getting us back to that 30 to 40 basis points of price over cost with normal levels inflation pre tariff, right? Think of that as wage inflation.

There was some inflation around commodities in Tier two. We factored that into that guide, and now we’re just running the models for what would be more the supply chain impact of what we’re seeing with tariffs at this point. That’s the bigger piece.

Steve, Host: Right. So the message there is manageable in the contract.

Dave Regneri, CEO, Trane Technologies: Look, we were successful with the tariffs several years ago and will be successful this year. Should they happen?

Steve, Host: Any concerns around the movement in the 454 B gas prices? They’ve the availability, and anything you’re seeing there on 454 B that, that that’s concerned in the channel?

Dave Regneri, CEO, Trane Technologies: Not that I’ve heard of. No.

Steve, Host: Okay.

Dave Regneri, CEO, Trane Technologies: All right. The resi team did a great job with that whole transition for Trane Technologies and pretty seamless. And they’re hitting on all cylinders right now. So

Steve, Host: Okay. On transport, business has been a little bit stubbornly soft, I guess. It’s still bouncing back a little bit, but what’s going on in that market? And what’s the visibility on that really kind

Dave Regneri, CEO, Trane Technologies: of kicking back into that? I always tell people we’re in year four of a two year cycle. So unfortunately, it’s it’s been a bit choppy. Look, that that’s a business that that certainly has a COVID overhang. The whole transport, it got there’s way too much capacity out there.

Until that capacity comes out, it’s gonna be it’s going to be tight. As we said on our fourth quarter call, think of the second half being stronger than the first half, but we’ll see. I think the real growth opportunity is going to be in 2026 and beyond. And these units, like there’s a point where you’d if you owned a fleet, you’d say, okay, I’m going to age it and let it just happen for a while. But then there’s a point where these units become very costly to operate and the good will switch them out.

So we’ll see what happens as the year progresses. And just to be fair, ACT has been pretty episodic too with their forecasting. So we’ll see where that all lands.

Steve, Host: Yes. I mean, it’s I remember when it kind of dominated the narrative on your stock years ago, it’s just not the Well, I mean,

Dave Regneri, CEO, Trane Technologies: it’s a smaller percentage of our business, right? But it’s still a great business. I mean, Thermal King is a fantastic business and it’s we do very well there. I mean, the important thing is that when a business goes through these cycles and Thermal King will go through these, it’s more cyclical than our commercial HVAC business, make sure you continue to invest in the business. And because what you want to do is make sure when you come out of this and you will come out of it, you want to make sure you have a very fresh portfolio with a lot of innovation in it because then you’ll win with your customers.

Steve, Host: Any questions out there? We got about four minutes left. Yes, right here.

Unidentified speaker: You highlighted the growth out of Europe that was well above the lack of growth in that market. And you gave one small example. What what else when you talk about innovation, maybe give us a little bit more color on what that is and then how it can get rolled out more broadly?

Dave Regneri, CEO, Trane Technologies: It is such an innovative group. So some of thermal management system is one example where you combine heating and cooling into one system. Okay. That’d be one example. We’ve also made a couple of small acquisitions there that had great technologies.

So think of, Alco as a great example, air handling, high end air handling, very strong in Germany. Well, with the direct sales force, we have channels throughout Europe. That would be an example of taking a great technology and scaling it quickly to other regions of Europe. We did the same thing with another company called MTA, which is industrial process cooling. Again, great technologies, scaled it quickly, augmented with our controlled platforms, okay, to make sure that we could have it controlled in a different way.

Those would be great examples. But they’re so innovative, like even in the rental business. I mean, they’re always thinking of different opportunities and their portfolio of how they’ve expanded it in the Power Gen space and the solutions that we’re able to provide customers today in the pharmaceutical space with precision temperature control, just really, really creative group that’s looking for opportunities. It’s it’s a I always talk about our culture at Trane Technologies. And I would tell you that Europe is an example of that where we don’t dwell on the problem, we look to for the opportunity.

And if you could solve it, the opportunity if you solve that problem, that’s where the growth is gonna come from. And they’ve been really good at doing that.

Unidentified speaker: And and some of that coming back to The US and other markets?

Dave Regneri, CEO, Trane Technologies: Absolutely. Absolutely. Like I said, so, you know, for the last four years, we’ve had a compound annual growth rate of double digits, and we’ve had a compound EPS growth rate of north of 20. So we, we share best practices throughout the globe, and we’re really good at it.

Unidentified speaker: Thanks very much. Just a question about one of your competitors selling their U. S. Residential business and just with how well yourselves and your peers have operated in The U. S.

And been disciplined and rational. Are you paying attention to any signs of that potentially changing with ownership moving hands here with one of your competitors in The U. S?

Dave Regneri, CEO, Trane Technologies: Yes. I mean, we obviously look at all that type of activity, but we’re not concerned about that. I mean, it’s pretty disciplined. I’ve dealt with that particular competitor in another space and another business that I ran at one time. So look, they’re pretty innovative companies, so that’s good.

It pushes the channel. That’s always a good thing. So we’re not afraid of that. We don’t see any red flags there.

Steve, Host: Any risk around Daikin being more aggressive, Goodman being more aggressive? I mean, they lost a ton of share last year. It seems like you guys weren’t like the prime beneficiary of that, but any anything you’re picking up from the channel that you worry about there as they try and do?

Dave Regneri, CEO, Trane Technologies: Sure, we weren’t the prime, but we had our growth rate in residential was over 10%. It was pretty good. It was good. So, look, I haven’t heard anything on that.

Steve, Host: Okay. Just lastly, just on the margin side, from a mix perspective, do we still think about you guys as resi and Thermo King up here in commercial HVAC below the average? What is the how should we kind of has anything changed on that construct over?

Chris Coon, CFO, Trane Technologies: Yes, I think that’s the answer. Go back ten years ago, that was probably a bit of the old tape of where there was differences. But look at our margins across our three regions, right? Let’s start with Asia. They actually lead in our margins across the company, and it’s 90% of commercial HVAC business.

I think EBITDA margin is about 23% last year. Move to Europe about 20% EBITDA margins and commercial is a little bit bigger than transport, but it’s not ninetyten, right? It’s maybe sixtyforty. And then come to The Americas where you have all three of the businesses, including residential, and those were 20% EBITDA margins. So different mix of businesses, strong margins.

I think the growth of that service business, I would say that is something that would be margin accretive as we grow services, a third of the company revenues. But we’re managing all those businesses up to margin profiles that we like.

Dave Regneri, CEO, Trane Technologies: Okay.

Steve, Host: Any other questions? One more time for one more.

Dave Regneri, CEO, Trane Technologies: Well, thanks for your interest in Trane Technologies. And I say with confidence, our best days are in front of us. So thanks.

Steve, Host: Thanks, guys.

Dave Regneri, CEO, Trane Technologies: See you soon.

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