Trane Technologies Plc Q4 FY2024 earnings call

• Trane Technologies continuously innovates for a sustainable world, driving significant customer demand. - 2024 was a standout year with the company exceeding targets, ranking in the top quartile for organic revenue growth (12%) and adjusted EPS growth (24%), and delivering $2.8 billion in free cash flow with 109% free cash flow conversion. - Since 2020, the company has delivered a 12% revenue compound annual growth rate, expanded adjusted EBITDA margins by 400 basis points, and had 108% free cash flow conversion while deploying approximately $12 billion of capital. - There was strong performance across segments, led by Commercial HVAC, with Americas and EMEA Commercial HVAC bookings and revenues showing significant growth. - Residential markets are expected to return to a GDP-plus framework in 2025 with mid-single-digit growth. - Americas transport refrigeration markets are expected to bottom in Q1 2025 and rebound in the second half, with a strong outlook for 2026 and 2027. - EMEA commercial HVAC is expected to remain strong in 2025, and the Asia Pacific market is expected to be flattish due to a soft macro backdrop and tightened credit policies in China.

In the fourth quarter, Trane Technologies achieved 10% organic revenue growth, with adjusted EBITDA margin expanding by 110 basis points and adjusted EPS growing by 20%. For the full year 2024, organic bookings were up 11% with a book-to-bill ratio of 102%, contributing to a backlog of $6.75 billion entering 2025. The Commercial HVAC segments showed strong performance: in the fourth quarter, Americas Commercial HVAC organic revenues were up mid-50% on a three-year stack, and EMEA Commercial HVAC organic revenues were up more than 60% over the same period. Fourth quarter Americas and EMEA organic Commercial HVAC bookings were each up more than 30% on a three-year stack.

• For 2025, organic revenue growth is expected to be 7% to 8%, with adjusted earnings per share ranging from $12.70 to $12.90 (approximately 13% to 15% EPS growth). - First quarter 2025 organic revenue growth is expected to be 6% to 7%, with adjusted EPS between $2.15 and $2.20. - The company targets organic leverage of 25% or higher and 100% or greater free cash flow conversion in 2025. - The company is committed to a balanced capital allocation strategy, including strategic M&A and share repurchases when the stock trades below intrinsic value.

• Tariffs could impact the supply chain and margins if they occur. - There is a continued impact of tightened credit policies in China on the Asia Pacific market in the first half of 2025.

Q: Chris Snyder asked about service growth and commercial HVAC equipment orders.

A: Dave Regnery responded that the service business has strong growth with mid-teens or low-teens growth in the fourth quarter, and commercial HVAC equipment orders show broad-based growth across verticals with a strong pipeline.

Q: Julian Mitchell inquired about organic sales guide and price outlook.

A: Chris Kuehn answered that the first quarter organic revenue growth is due to the strength in commercial HVAC, and pricing is expected to contribute about 1 to 1.5 points to the full-year revenue growth.

Q: Andrew Kaplowitz asked about APAC margin durability and margin expansion.

A: Chris Kuehn and Dave Regnery commented on APAC margin strength due to productivity and investments, and expressed confidence in margin expansion across regions.

Q: Amit Mehrotra asked about margin opportunity in the service business.

A: Chris Kuehn and Dave Regnery discussed the higher margins in the service business and opportunities with AI and digital twins.

Q: Scott Davis asked about energy audits and digital twins.

A: Dave Regnery talked about tracking energy audits as leading metrics and the use of digital twins with AI.

Q: Joe Ritchie asked about the data center business and backlog staging.

A: Dave Regnery and Chris Kuehn provided insights on backlog composition and data center growth, and backlog staging with the majority turning in 2025.

Q: Steve Tusa asked about the resi guide and Light Commercial.

A: Chris Kuehn explained the components of the resi guide and the growth expectations for Light Commercial.

Q: Jeffrey Sprague asked about backlog staging and resi pre-buy.

A: Chris Kuehn and Dave Regnery provided details on backlog staging and the impact of the resi pre-buy.

Q: Nigel Coe asked about BrainBox and margin accounting.

A: Chris Kuehn discussed the BrainBox acquisition and intangible amortization.

Q: Deane Dray asked about the pre-buy post mortem and China credit tightening.

A: Dave Regnery commented on the timing of the pre-buy and the selectivity of China credit tightening.

Q: Tommy Moll asked about first quarter earnings contribution and channel investments.

A: Chris Kuehn and Dave Regnery explained the first quarter earnings contribution and the channel investment strategy