Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Trane Technologies PLC (TT, Financial) reported record Q2 bookings of $5.3 billion, up 19% year-over-year.
- Organic revenues increased by 13%, with a 23% growth in adjusted EPS.
- The company raised its full-year revenue and EPS guidance, expecting a fourth consecutive year of 20% or greater adjusted EPS growth.
- Strong performance in the Americas commercial HVAC business, with bookings up more than 20% and revenue up mid-20s.
- Robust backlog of $7.5 billion, providing strong visibility into 2024 and 2025.
Negative Points
- Transport business revenues were down high-teens due to tough comparisons from the prior year.
- Asia-Pacific revenues were down low single digits, with some choppiness in China towards the end of the quarter.
- The Americas transport market is expected to be down mid-teens for 2024, with a much softer second half projected.
- Continued high levels of business reinvestment may impact short-term margins.
- Potential challenges in the residential HVAC market due to the refrigerant transition and cooling season variability.
Q & A Highlights
Q: Can you explain the sequential sales growth guidance for Q3 and Q4?
A: Chris Kuehn, CFO: We raised our full-year organic revenue growth target to 10%. For commercial HVAC Americas, expect around 10%-12% growth in the second half. Transport markets are expected to be down mid-20s in the second half, and residential is projected to grow mid-single digits. We're confident in our full-year guidance and will update as needed next quarter.
Q: What factors are influencing the operating margin outlook for the second half?
A: Chris Kuehn, CFO: The second half will see higher investments, impacting margins. We expect 25% or better organic leverage for the year. The focus is on continuous investment to drive market outgrowth in the coming years.
Q: How is the backlog situation, and what factors are contributing to its current state?
A: David Regnery, CEO: The backlog is strong due to broad-based demand across verticals, not just high-growth areas like data centers. Lead times are back to normal, and we have visibility into 2025 with $2.8 billion already booked.
Q: Can you provide more details on the residential HVAC growth and outlook?
A: Chris Kuehn, CFO: Residential HVAC growth was driven by EPA refrigerant transition clarification, normalized channel inventories, and a strong start to the cooling season. Mid-single-digit growth is the floor for the year, and we are cautiously optimistic.
Q: What are your expectations for the A2L refrigerant transition and any potential pre-buy?
A: David Regnery, CEO: We have introduced about half of the affected products in commercial and will roll out residential products in the back half of the year. We do not anticipate a large pre-buy in residential and are focused on helping distributors transition their inventory.
Q: How are the emerging growth opportunities like immersion cooling and AI partnerships progressing?
A: David Regnery, CEO: Immersion cooling is still early stage, but AI tools like Nuvolo are promising. These tools help with demand-side management, reducing energy waste in buildings, which is a significant opportunity.
Q: Are there any constraints on bookings for data centers, and what is the margin profile for this vertical?
A: David Regnery, CEO: No capacity constraints. Data center margins are attractive, and we see significant service tail opportunities. We focus on system-level solutions, not just components.
Q: How is the transport business performing given the market downturn?
A: David Regnery, CEO: The Americas transport business will be down in 2024, but we expect to outperform the market. We continue to invest in the business to be ready when the market rebounds, projected in 2025.
Q: What is driving the strong growth in the services segment?
A: David Regnery, CEO: The service business benefits from our applied installed base and our focus on asset performance and energy efficiency. We have a compound annual growth rate of high-single digits over the last six years, with mid-teens growth in Q2.
Q: How are you positioned in the emergency replacement market for unitary equipment?
A: David Regnery, CEO: We are strong in the emergency replacement market, especially during peak seasons. We maintain inventory stock and have quick ship programs to meet demand.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
