Trane Technologies at Oppenheimer Conference: Strategic Growth Insights

On Monday, 05 May 2025, Trane Technologies (NYSE:TT) presented at the Oppenheimer 20th Annual Industrial Growth Conference, offering a detailed overview of its strategic direction. CFO Chris Kuhn highlighted the company’s focus on energy efficiency and innovation, while acknowledging challenges such as regional market softness and tariff impacts. Trane Technologies remains optimistic about its growth prospects, driven by a strong pipeline and strategic capital allocation.

Key Takeaways

• Trane Technologies’ commercial HVAC retrofit projects boast favorable payback periods, with efficiency improvements of 50-70% over the past seven years.
• The company’s pipeline is robust, especially in the Americas, with significant opportunities in data centers and higher education.
• Despite challenges in China, Trane Technologies expects growth in energy-efficient solutions and sustainable technologies.

Financial Results

• Trane Technologies aims to offset a $250 million to $275 million tariff impact in 2025 through supply chain optimization and pricing strategies.
• The company is managing raw material costs, with significant sourcing of steel, copper, and aluminum from the U.S.
• EMEA reported strong revenue and margin performance, with double-digit growth in commercial HVAC orders.

Operational Updates

• The direct sales force is crucial in securing opportunities, particularly in high-growth verticals like data centers, expected to grow over 10% annually.
• In education, traditional municipal bonds are replacing ESSER funding for school upgrades, providing new opportunities.
• Residential HVAC saw a significant adoption of the 454b product, representing 80% of the volume in Q1.

Future Outlook

• Trane Technologies is confident in its ability to outperform the market through innovation and strategic acquisitions like Brainbox AI, enhancing digital solutions and energy savings.
• The company is navigating market-specific challenges, such as China’s softness, with tightened credit controls and expects easier comparisons in the latter half of the year.

Q&A Highlights

• Chris Kuhn emphasized the company’s ability to pivot to emerging opportunities, maintaining a diversified portfolio to navigate market dynamics.
• The focus remains on acquisitions that align with reducing energy intensity and increasing energy savings, reinforcing Trane Technologies’ commitment to sustainability.

For more detailed insights, please refer to the full transcript below.

Full transcript - Oppenheimer 20th Annual Industrial Growth Conference:

Noah, Analyst, Oppenheimer: Well, good morning, everyone, and, welcome to Oppenheimer’s twentieth Annual Industrial Growth conference. We’re continuing the day here with Trane Technologies. I’m very pleased to be welcomed by the company’s CFO, Chris Kuhn. Chris, thanks so much for being with us today.

Chris Kuhn, CFO, Trane Technologies: Noah, thanks. Congratulations on twentieth, anniversary as well. That’s great.

Noah, Analyst, Oppenheimer: That’s well, we’re we’re we’re thrilled to have you as we run it back. I think, you know, one of the through lines certainly has been the strength of commercial HVAC for for several years now. And and I wanna follow-up our question on the earnings call last week by digging in a little bit more around how to think about payback periods for commercial HVAC. You may contextualize for us what does the average payback period look like for a retrofit project today versus, say, five years ago? And then how to understand the the drivers of the better payback?

I mean, there’s there’s gotta be a number of factors here to consider. So maybe you can speak to both of those.

Chris Kuhn, CFO, Trane Technologies: Yeah. Thanks, Noah. Yeah. I mean, paybacks are always a little dangerous because it always starts with what are you removing when you’re talking about retrofit projects. But think about, these assets that, you know, probably ten, twenty years ago, you’d assume they’d be in place for thirty years.

The efficiency, though, around these products have only improved significantly in the last five to seven years. Think of it in terms of our portfolio providing 50 to 70% more efficiency from just the products we sold seven years ago. But paybacks, it’s not uncommon to see a payback in the three year time frame, and that’s before you start looking at maybe local incentives, local laws that can ultimately, with our direct sales force, who are local in nature and they know what’s happening in that city and state that they’re in, leveraging as many of those opportunities for the customer to get rebates or incentives. But even excluding all of that, the paybacks are very, very strong. So three years is not uncommon, four years, five years even, but the paybacks are very strong excluding any type of incentive.

Noah, Analyst, Oppenheimer: And I and I think underpinning the strength, you know, you you called out the pipeline growing sequentially in one q even with record bookings. It’s it’s helpful for us to understand how Trane defines its pipeline, you know, how it’s sort of constructed within the company, and how we should think about an average conversion times from pipeline into orders?

Chris Kuhn, CFO, Trane Technologies: Amy, I’ll start with commercial HVAC. You know, with our direct sales force, they’re spending tons of time with the end customer, understanding what their specific project could be. But in many cases, it’s a multiyear journey to look at all of the assets that our customers have or buildings that they have and working with them on a multiyear journey to decarbonize and upgrade equipment and drive that energy efficiency that drives the financial payback. But we’d start with an unfactored pipeline. Right?

All the projects that we know that we’re involved in from a bidding perspective, then ultimately to a factored pipeline that would be based on combination of probability and also timing. And that’s what we kinda measure throughout the business is the unfactored and the factored pipeline. And as Dave, Ragneri, our CEO, described last week on our earnings call, we’re seeing very strong pipelines remain through the April, in our largest verticals and our many of our broad verticals within commercial HVAC in The Americas. So whether we, saw growth across the majority of verticals in the first quarter, we’re seeing a number of those pipelines being very, very strong. And and this is a multiyear effort, especially when you’re talking about applied systems.

Right? It’s not a very rare you’re having a conversation within thirty, sixty days, all of a sudden, there’s an order. These are these are large projects that get negotiated over time. And having the direct Salesforce with the local knowledge, with the tie ins globally to our direct Salesforce globally, you’re able to call on the end user, the architect, the GC, the construction firm. Ultimately, all the players in that space to stay connected to that project.

So it gives us a lot of opportunity to improve that factored pipeline that then is driving into our bookings growth.

Noah, Analyst, Oppenheimer: Can we understand a little bit more how that that regionalized direct Salesforce works? I mean, how does it map to is does it map to specific areas? Does this map map also to specific verticals? I mean, you know, maybe that’ll help us understand how you you get a strong visibility into the pipeline and and get these win rates. Just to understand how how you deploy the Salesforce to all these, you know, different opportunities within within your your, your purview.

Chris Kuhn, CFO, Trane Technologies: Yeah. I’ll I’ll start in The Americas, and it’s not dissimilar, say, for Europe. It really starts from a local city region perspective, direct Salesforce. They know what the local rules and local players are in that region, that city. They know buildings by addresses.

They know what that decarbonization plan can be for a building over many years. So that’s really where it starts. Okay? And they can jump across verticals, and they do that all the time. Having a direct Salesforce and they know where the opportunities are, if class b and c office space continues to remain, you know, fairly weak, which is what we see in office, they’re gonna pivot to another part of a different vertical that ultimately is going to drive their commissions as well.

The majority of our Salesforce is a % commissioned in commercial HVAC. But then they’re gonna spend their time really in class a office space. They’re gonna spend their time in data centers that are within many metropolitan cities that we may not know, but multiple floors of buildings could be data centers. They’ll spend their time there as well. So there are some teams that could be a little more bespoke, like a data center team that we’ve had for years inside the company, but they can pivot from office to education to ultimately selling what is a solution.

That’s the key for us. It isn’t necessarily a team that is only unitary or only applied. It’s funny. We don’t really talk about it always in those terms anymore. It’s a solution that we’re providing to our customer and what’s the best product for them.

And the same would happen in Europe as well. Very regionally focused, country focused, and understands what the local needs and regulations are, building codes, for example, and then ultimately working with the customer to deliver. And

Noah, Analyst, Oppenheimer: and you mentioned kind of the shift, from b and c office. You know, and I think the majority of verticals, in America has reported growth in one q. Maybe you can talk a little bit about which verticals were were a little bit softer and and what your sales force is saying about when they might return to growth.

Chris Kuhn, CFO, Trane Technologies: Yeah. I mean, the there’s aspects of the office vertical that were softer, as I mentioned. But, you know, I was on a phone call last week with someone from the investor community that’s looking at new office space. And they’re looking at class a office space, and they were talking about how tight the market is. And then the marketing for each of the buildings they’re looking at was very much inclusive of HVAC, comfort around the space, air quality.

And we think that’s that’s a winning proposition when you’re investing in class a office space for your tenants, for the employees that work there to make sure that they’re working in a safe and comfortable environment. Life sciences was another vertical that we called out as being, you know, a little bit weaker. We’ve seen that for a couple of quarters. But as Dave said last week, we we saw growth across the majority of our verticals. And, again, that direct Salesforce, the ability to pivot to where the opportunities are, is really part of the secret sauce of Trane Technologies.

Noah, Analyst, Oppenheimer: Yeah. And I think, you know, you messaged continued growth in data center and higher ed, last week. And, obviously, there’s been a lot of noise, from investors in those verticals or a question around hyper scaler activity at data center, question around the impact of federal funding cuts on universities. You know, what do you look for as sort of the real demand signals in these verticals as you as you look through the balance of the year?

Chris Kuhn, CFO, Trane Technologies: Yeah. I mean, we’ve, for years, done scenario planning with all of our business units, and we look at what are those early signs of red flags or even green flags or what we’re seeing around various key performance indicators in different verticals. Right? The the order pipeline would certainly be an area that we’d look at. Mhmm.

What’s happening with conversion from orders from the pipeline unfactored ultimately to a booking. Right? A couple of examples there. But data centers, we through the end of the first quarter, through the April, we didn’t see any change in terms of the need for growth. A lot of external reports have talked about that being well over 10, maybe mid teens growth for next several years.

We we don’t disagree with that in terms of the growth in that space. So we didn’t see any slowdown in that space. Education, you know, some of the questions we’ve received over the last year or so has been with the end of ESSER funding. Does that change or have a dramatic impact on the pipeline? And we’ve not seen that through the April.

Yes. The funding mechanism concludes in the first quarter of twenty twenty six, and you had to have your order in by September of last year to qualify for the ESSER funding. But what it gave with that ESSER funding was a lot of visibility to where schools are in terms of their their upgrades and their need to upgrade. And not everything was solved and upgraded in schools with, you know, the the first first round of ESSER funding. So Sure.

We see things are traditionally going back to the municipal bond market. You’re seeing it even in my home state here in North Carolina and Charlotte where recent bond passages and part of that’s going to school upgrades. That’s where Trane Technologies really, really can win because we work with those administrators. We work with those school districts. And, again, a perfect example of a multiyear plan you wanna have with your customers to go upgrade facilities.

So we hadn’t seen any change in the in the demand appetite for for those verticals.

Noah, Analyst, Oppenheimer: Okay. And maybe talk a little bit about competitive dynamics in EMEA and APAC. You know, any any change in the outlook for for those markets since early April? I think, you know, in response to a question last week, you know, Dave said, yeah. You know what?

China specifically has been soft, but it’s moderately improving sequentially. So maybe talk to the competitive dynamics overall, and then I have a few follow ups.

Chris Kuhn, CFO, Trane Technologies: Sure. Yeah. Let me start with Asia. You know, the Asia segment represents less than 8% of our enterprise revenues. Half of that would be China.

Half of that would be rest of Asia. And no different for Asia, me, or The Americas. We really have espoused or in region, four region model for for well over a decade now. So our manufacturing plants in Asia largely supply the Asian market, same in Europe, same in The Americas. But if I stick with Asia, yeah, China, we’re in the third quarter now since we put in our team locally put in more tightened credit controls and credit policies, just making sure that we had down payments for orders.

And when those come through, making sure that there’s proper payments throughout the life cycle of the project. That’ll anniversary really in the third quarter. So what I would say is a little bit easier comps coming to the second half of the year, but I would tell you that then China just market wise has been down. It’s been it’s been challenging markets here in China for a while. So we’re not expecting much growth in China for 2025, but we have a great team locally, and they’ll find the right opportunities where they exist.

Rest of Asia has been very strong for us. Mhmm. So when you balance the two of them, we’re seeing 2025 as being a flattish year for the Asia segment, but a lot of strength in rest of Asia. So that could be anywhere outside of China, including India, and think again about them fifty fifty from a mixed perspective. EMEA, a really strong quarter, performed as expected in terms of revenue and and margins.

We can talk about great order growth in commercial HVAC up in the double digits, strong order growth in thermal came with up high single digits for the quarter. And that’s all about innovation. The markets there haven’t necessarily grown in years, whether it be commercial markets or transport markets. We’re expecting the transport market to probably be down maybe low singles this year, and we’ll outperform because of the fact of the innovation that we’ve introduced into that market over the last five plus years. Commercial HVAC markets in in Europe, we’re creating the demand in those markets with the paybacks on the projects that we have.

It’s really a retrofit market, of course, in EMEA just given the build out there, but we’re able to convert and create demand based on the energy efficiency and products that we have within that portfolio. But we’re very pleased with the EMEA performance in the first quarter and a lot of confidence in their growth and plans for the full year.

Noah, Analyst, Oppenheimer: Okay. Can you just touch on what happened with pricing in EMEA in 1Q? You you know, was was what we saw a function of mix and seasonality, or how should we think about kind of price in EMEA for the balance of the year?

Chris Kuhn, CFO, Trane Technologies: Yeah. The the impact on the negative price in the first quarter was really in our transport business, our Thermo King business. And think about it think of it as mix of customer, customer mix in the first quarter. Okay? Some large customers where pricing would be a little bit different than, say, on average.

So I look at that as a one quarter impact. That’s a region that’s been able to get positive price for many years in a row. And, also, we also focus on making sure we get cost out of our products to make sure we can be more competitive and maybe not pass on as much of a price increase. But, no, that that the dynamic in the first quarter was really entirely transport and customer mix.

Noah, Analyst, Oppenheimer: That’s super helpful, Chris. Wanna ask you about resi HVAC before we get to margins and the tariff discussion. So Sure. You you reiterated normalization to GDP plus growth, mid single digit growth for ’25, but you also called out, I believe, was 75,000,000 to $100,000,000 of elevated channel inventory at the end of the quarter. Do you have a sense of how much of that inventory is gonna four ten a versus four fifty four b?

And and, really, how do you assess the readiness of the distributor and the contractor to support the four fifty four b transition at this point?

Chris Kuhn, CFO, Trane Technologies: Yeah. I think for us, the transition with four fifty four b and with our dealers, whether it be company owned or independent wholesale distributors, we’re roughly fifty fifty Noah in terms of how the the sell in works between those two channels.

Noah, Analyst, Oppenheimer: Mhmm.

Chris Kuhn, CFO, Trane Technologies: That’s gone relatively smooth. I think the ability for us to get last buy orders for the four ten a product in the fourth quarter last year and then have a pretty quick switch over to four fifty four b, We estimated around 80% of the volume in the first quarter was four fifty four b product, really less so on the four ten a. Mhmm. I think on the 75,000,000 to a hundred million dollars of a little bit elevated channel inventory, It’s probably mostly four fifty four b. I mean, the the distributors and dealers have until the end of this calendar year to sell four ten a as a system.

After that, it’s components. So I think those dealers are really trying to bleed down the inventory levels of four ten a. No one wants to get stuck with the older product by the end of the year, but we saw 80% of our volume being four fifty four b sell in into the IWDs for the start of the year. But it’s been a fairly smooth process and a lot of confidence on the mid single digit growth for the year. We started the first quarter.

It was up high teens revenue growth in residential. And to get to mid singles for the rest of the year, the the average growth rate is low single digit.

Noah, Analyst, Oppenheimer: Right.

Chris Kuhn, CFO, Trane Technologies: Q two to q four. So, I think we’ve derisked residential in our guidance, that we gave out last week, just ultimately thinking that it’s a mid single digit growth for the year. We’ll see how that kinda plays out, though.

Noah, Analyst, Oppenheimer: Chris, thanks. Know, I wanna pivot to to talking about some some other markets and also about the cost structure. And, you know, we actually got this question. I think it’s a great one. You know, the 25% plus incremental framework for margins, you know, it’s a good it’s a good place to be in as a company.

But, you know, if we think about long term margin trajectory, you know, where where could margins, whether it’s operating margin or even gross margin go to? And what would be the drivers for, you know, higher levels, whether you wanna think about it from a mixed dynamic perspective, anything that could lift margins outside of kind of productivity and operating leverage?

Chris Kuhn, CFO, Trane Technologies: Well, then then three things can immediately come to mind. And the first is gonna be that productivity and making sure that we’re taking cost out of our production processes. And think of it as every year going in with productivity targets to offset other inflation. We wanna make sure that we’ve got a positive spread price versus cost and then ultimately allowing us to invest back in the business. So first thing is there’s always opportunities within our business operating system to take cost out.

Whether that’s in the manufacturing plants or in the back office, we’re always making sure that we’re optimizing that type of spend. That being said, what gives us even more confidence on 25% or greater incrementals and we say or greater because the last couple years acknowledge it’s been stronger. Yep. But think about our services business. You know, it’s a third of the enterprise revenues.

It’s predominantly linked to commercial HVAC applied systems. And with all the growth that we’ve seen in applied systems, which Dave called out last week, the four year revenue CAGR for applied systems in The Americas is 200% growth. So with three x the level of revenue, what we saw just four years ago, that brings with it a very strong service tail. Complex systems need OEM service, and services on average have stronger margins than the average margin in in each of our three regions. So services growth has been low double digits the last four years.

It’s been high singles the last seven years, and we have a lot of confidence that that service business can continue to grow, and that’s a margin tailwind. And then third, I’d actually go to digital. The digital connectedness that we have with our products, a recent acquisition of Brainbox AI, which we had partnered with them for several years as well, gives us a lot of confidence that we can provide digital solutions, more digital solutions to our customers to remain connected. And you wanna be connected, Noah. Reason being is we know from the birth date, the commissioning date of a unit within a year, that unit can drift by 30% off of its intended use.

Right. And so keeping that unit back to its optimal commissioning date structure allows for less waste of energy, less cost being wasted by the customer. Let’s bring that back to its intended use, and that’s where a great service technician group works, but also remote connectivity, digital connectivity to diagnose problems before someone even shows up, and that remote monitoring allows us to do that with subscription based revenues over time.

Noah, Analyst, Oppenheimer: And, you know, Chris, just to in this public forum, make sure that we’re understanding your comment right. That sort of up to 30 degradation. I mean, I’ve worked in the industry myself, so I know it’s that’s that is an industry wide phenomenon. Right? There also has to be some element here of taking the data from the field and using it to refine, you know, product development to ensure that that doesn’t happen.

So, you you know, can you speak to that as well in terms of the learning cycles you’re getting, whether it’s from the connectedness or, you know, now Brainbox or any of the other investments you’ve made?

Chris Kuhn, CFO, Trane Technologies: Yeah. I I think you’re hitting the nail on the head, Noah. It’s, by being connected, on a remote monitoring, it allows you to avoid that drift. If you’re not connected, the chances are it will drift. And some buildings change with its purpose over time.

Right? What you thought the Ground Floor, Second Floor, Third Floor were going to be, they change, and you’re not necessarily adjusting, in some cases, what the equipment needs to do to keep up with that change if you’re if you have restaurants on the base level or if that’s gonna change in terms of their usage of of energy if you have a different tenant that’s in there. So that’s some of the examples of where it helps contribute to the drift, but I think that makes the point exactly why you wanna be remote connected. Customers that are that have multiple buildings in their portfolio like to see all of their buildings on a single pane of glass, and we have that opportunity to do that and have remote monitoring before even rolling a technician out into, out into the field.

Noah, Analyst, Oppenheimer: Paul, you you know, on cost, planning and tariffs, you know, I think your customers have to appreciate that you’re prioritizing minimizing the tariff impacts via supply chain before turning to price. I think Dave emphasized that several times on the earnings call last week, so we all heard it. Maybe just walk us through the sequencing of that process. You know, how do you go about determining when you’ve exhausted all possible supply chain measures and are gonna pivot to pricing, and and kinda how to think about how much mitigation versus pricing we should assume for the projects in the pipeline?

Chris Kuhn, CFO, Trane Technologies: Yeah. It it’s an estimate for sure because the as we know, there’s the rules continue to change as we as we kinda go week to week. So that’s where we just need to remain nimble. And, you know, we’ve been here before in terms of dealing with inflation. Think about 2022, post 2021 with supply chain challenges and really significant inflation.

Trane Technologies as an enterprise, we delivered 10 points of price that year. In 2023, we delivered five points of price. So we have the ability to price and surgically price here. We’re leveraging our business operating system to do that while at the same time working with our suppliers, Noah, to then defray that initial cost. And the 250,000,000 to 275,000,000 is an estimate.

Right? It’s a 2025 estimate based on the the tariffs in place as of April 30 when we gave our guidance. Right? So things may change. But the goal is to, right, get that cost down and then surgically price with think of it as up to price increases, up to x percent price increases that allows us to adjust that to really not make this a profit center.

We just talked a lot about applied systems and long road maps with customers. We like having customers for life, and we don’t think this is the right time to turn it into a profit center to ultimately stay gross margin percentage neutral. We’re gonna be gross margin dollar neutral is the plan, and you’ll see that more impact in the second half of the year. There’s a little bit of impact in q two on tariffs, but we’ll see if we can update the investor community in July with more insight on what that pricing contribution needs to be. But it’s gonna be surgical, and I think our customers appreciate that.

They appreciate that where we can offset it, we’ll work with our supply base. And think of it as changing the source of supply, where the location is. Think of that as trade routes and ultimately taking advantage of trade free zones to reduce the cost of tariffs as you’re moving things across different jurisdictions. Mhmm. And then, of course, I’d say last but not least will be the surgical pricing.

Noah, Analyst, Oppenheimer: You you know, given, your COGS is primarily components, and I think, you know, you you sourced most of your raws, as you said last week, from from The US. Sounds like, more of that kind of movement of supply would be done, therefore, on the component side. So how do you approach, sort of the second order cost pressures when raw material commodity prices have risen sharply since January?

Chris Kuhn, CFO, Trane Technologies: Yeah. So we think of our tier one commodity spend in that 750 to 8 hundred million dollar range, Noah. Mhmm. And we source a % of steel and a % of copper from The US and over 90% of aluminum from The US. And we’ve got great relationships with those suppliers, so the the dollar impact of tariffs is fairly minimal when you think about a tier one.

What we’ve been able to do within our operations teams and leveraging our business operating system is to get into our suppliers’ suppliers’ cost structure. And so our estimate of that dollar amount, the $2.50 to $2.75, it’s inclusive of looking at the tier two and tier three and where they’re sourcing their products from. Again, it’s an estimate. It’s not perfect, but it gives us a lot more visibility than into what the true cost is. How do we mitigate that through other ways, through source of supply and and and transport?

And then ultimately gives us a lot of insight on how to surgically price. So we are managing this inflation broadly, whether it be tariffs, whether it be inflation in general. But we’ve had this in region, four region strategy for a couple of decades now.

Noah, Analyst, Oppenheimer: Mhmm.

Chris Kuhn, CFO, Trane Technologies: And I mentioned at the beginning, you know, our our factories and what we deliver for Asia is really for Asia. In Europe, really, or in EMEA or for EMEA and the same for The Americas, you know, we’ve got over 20 manufacturing plants in The US with one in Mexico. Right. And we we love the plant in Mexico. It’s a great team.

It’s a component supplier really for parts of The US, but we’ve been in Region 4 region for many years. And I think it it does make that tariff impact maybe smaller relatively to other companies, and and you’d expect that from Trane Technologies.

Noah, Analyst, Oppenheimer: It it will does. And and I I wonder if it implies going forward any kind of stratech structural cost advantage versus the industry average. You know, we’ve we’ve always thought of you as a price leader, and you play in more premium parts of the market. But to what extent could you start to see some share gains, whether it’s on commercial or in resi, if competitors have to start raising prices for tariffs and you’re, somewhat more protected?

Chris Kuhn, CFO, Trane Technologies: I think it would put us in a better position being in region for region and having our manufacturing plants, you know, based in the regions where they’re supporting. So I think it is a nice opportunity, but we’re gonna stay close to our customers and make sure that, you know, we’re doing the best thing for them long term, and that is to really offset this tariff impact on a dollar per dollar basis and don’t make it a profit center. But we we would like that opportunity, Noah.

Noah, Analyst, Oppenheimer: Yeah. Yeah. I just ask to go back to your prior point, you know, a lot of times companies talk about lessons learned from supply chain crisis and, you know, just getting, improved abilities and capabilities. Your comments around more visibility into tier two supply base, did that materially change as a result of, you know, the process you had to go over the last couple of years? Is that, like, a good example of lessons learned?

Chris Kuhn, CFO, Trane Technologies: We certainly have more visibility to the supply chain, with going through the the supply chain challenges, right, coming out of COVID and working with our suppliers to really figure out who were partners. And in some, you know, rare instances, there was more transactional players there. So Mhmm. The partners, you’re able to get a lot of insight on where their source of supply is, the pain that they were seeing. And then let’s work with the engineering groups with both teams to figure out, okay.

We’ve got this challenge. Now let’s get to yes. Let’s get to can we make an alternative source of supply? Can we change what we’re ultimately requesting today? Is it doesn’t need to be at that level of specificity?

And that’s where we did get a lot more information around our suppliers’ suppliers in that space. But every inflationary cycle, we’re getting better information around what that cost structure is. But, certainly, we’ve taken those learnings from three, four years ago and working with our partners today. Right? This is not the first time we’ve had these conversations with our partners.

It’s Yeah. Okay. Maybe it’s a different catalyst for what we’re talking about today, but the fact is remains we’ve gotta go find a way to offset this cost. Let’s work together to do that. And I think that’s the power of being Trane Technologies and making sure we have partners there in our ecosystem.

Noah, Analyst, Oppenheimer: I was also gonna say it’s, the power of being a company full of engineers that are built to solve problems. So there you have it.

Chris Kuhn, CFO, Trane Technologies: We do like engineers. That’s true. That’s true.

Noah, Analyst, Oppenheimer: So so, just, we didn’t touch on transport, but, obviously, we’ve gotten a fair number of questions around that. And, you you know, you consistently outperformed an end market that’s looking at a, I think, a third consecutive year now contraction. Maybe help us understand, you know, the outperformance, the share gain dynamics here, and how much you think you can maintain in terms of the share gain as volumes recover over the next hopefully, recover over the next couple of years.

Chris Kuhn, CFO, Trane Technologies: Yeah. I mean, 2026 and 2027 look like very strong years the way that ACT has projected the America’s refrigerated transport markets. Both of those years up 20% is what they’re calling for right now. So that would be a nice adder to our growth profile as we think about 2026 and 2027. Certainly, both in Europe and in The Americas in transport are a little bit worse than we thought even three months ago.

America is looking like the year could be down 20 to 25%. We’ve factored in in The Americas a lower volume than even what ACT is projecting for the year. They would put volumes down or the markets, I would say, down around 25%. But your point was around how do we outgrow? How do we do better than markets?

And it is the consistent investments that we’re making around innovation. It’s the flywheel and why we like that 25% or better incrementals. Could we do better? Absolutely. Could we do better for a few years?

We absolutely could, but I think we would shorten. I know we would shorten that innovation pipeline for our products. And the transport markets are a great example to see how you take existing diesel fuel products and make them more efficient where they consume less, and that’s some of the innovation we’ve put into this market for many years. Then moving to hybrid systems, so you’re depending on electricity and a fuel source, a fossil fuel source, and also having full electric capability for those customers that wanna move to full electric power. And in Europe, you have a number of cities that you need to shift to full electric power when you’re in city centers.

So it’s staying close to the customers on what they need and providing them optionality, And it really comes down to energy efficiency, lower usage of fuel, and we know where those prices have gone. Energy prices in general have gone up over time. Yes. The paybacks on those systems start to become much like the commercial HVAC paybacks. You’re talking about three year paybacks on these fuel system or these trailer refrigeration units from savings of fuel or energy.

Those are strong reasons where you can outperform the market. So keep investing while we’re in that third year of a two year cycle. That’s the key for us. And then you got nice resale value for those units when they ultimately you know, six or seven years of life and they wanna be resold. You got better resale.

That makes a nice equation for our transport customers.

Noah, Analyst, Oppenheimer: Very good, Chris. I think I’ll ask one last question, and it’s really around capital allocation. You know, you you mentioned the Brainbox acquisition earlier. Maybe talk to us about how the pipeline of opportunities has evolved, you know, since then. Comment on private valuations, and and what opportunities might you be more interested in pursuing in the current environment?

Chris Kuhn, CFO, Trane Technologies: Yeah. I mean, as a big HVACR player, we get to really see everything that comes across the gamut from an m and a perspective. We like being a pure play. We like ultimately providing reductions to energy intensity and increasing energy savings. So that’s our sweet spot as a company in driving sustainability and green for green.

It could be green for the environment, but it’s green for the pocketbook as well for the financial and income statement. But let me just say, we’ve liked doing channel deals, getting closer to the customer. We like taking early stage technology and bringing it closer to our direct Salesforce. Brainbox AI and Trane have had a partnership for several years, and we’re really encouraged with the opportunities even just with four months of of them being part of the Trane Technologies family, have seen those opportunities grow. Our direct Salesforce is right in a perfect spot to go sell those remote connected solutions that Brainbox brings and taking the power of structured data and unstructured data together to come up with a more optimized solution for how you’re building can reduce energy intensity and usage ten, fifteen, 20 percent real cost savings that customers can prove out.

So we like those early stage technologies and where we can take something early stage or in a market that they’re let’s say, like, in Europe, we’ve done a couple acquisitions a few years ago, very strong in two or three markets in Europe. We’re strong in 30 markets in Europe. So let’s go ahead and take that product that’s got strong revenues today. Let’s bring it to the other 27 markets where we have direct sales force, and that’s some of the contributions you’re also seeing in our EMEA region for their revenue growth is the performance of those acquisitions.

Noah, Analyst, Oppenheimer: So we

Chris Kuhn, CFO, Trane Technologies: think that that’s that’s been a hallmark come from the company. We’re not gonna let excess cash sit on the balance sheet, and let’s deploy to the best returns for shareholders.

Noah, Analyst, Oppenheimer: Well, we look forward to seeing that continue. And with that, I think we’re gonna pause here, and thank you, Chris, and thank everyone for joining this discussion. We appreciate everyone’s time. We hope you have a great day at the conference, and and this has been a good one. So, Chris, train team, thank you.

Chris Kuhn, CFO, Trane Technologies: Thanks, Noah. Thanks, everyone.

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