Trane Technologies Plc Q1 FY2025 earnings call

• Purpose-driven strategy enabling differentiated financial results, innovating for a sustainable world with solutions offering attractive paybacks. • Strong Q1 financial results: 11% organic revenue growth, 130 basis points adjusted EBITDA margin expansion, 26% adjusted EPS growth, robust bookings with book-to-bill ratio 113% for enterprise. • Segment performances: Americas Commercial HVAC bookings record, EMEA Commercial HVAC strong, Asia Pacific resilient with mixed results in China and rest of Asia. • Execution in dynamic environments with experienced teams managing past challenges, improving business operating system for agility and resilience, well-prepared for cost inflation while driving market growth.

In the Americas segment, Commercial HVAC bookings set a new quarterly record with mid-teens growth in equipment and low teens in services. Residential had mid-teens bookings growth and high teens revenue growth. Transport refrigeration bookings were down low single digits but revenues up mid-single digits. In EMEA, Commercial HVAC bookings were up mid-teens with mid-single digit revenue growth, and Transport bookings up high single digits with mid-single digit revenue growth. In Asia Pacific, the rest of Asia had double-digit bookings and low 20s revenue growth, while China faced challenges with bookings and revenues down low 30s and high 20s respectively. Revenue contribution details weren't explicitly broken down by percentage in the transcript but the absolute financial performance per segment is as described.

• 2025 guidance: Maintaining prior ranges of 7%-8% organic revenue growth and $12.70-$12.90 adjusted EPS, expecting to perform towards high end. FX impact: negative 50 basis points to revenues (improvement from negative 100 basis points). M&A impact: bolt-on acquisitions add ~50 basis points to revenue growth. Tariff management: estimate $250M-$275M cost impact, will take surgical pricing to offset dollar for dollar. Second quarter: expected ~8% organic revenue growth and ~$3.75 adjusted EPS, no material tariff impact. Capital allocation: balanced strategy including reinvestment, strong balance sheet, deploying excess cash via dividends, M&A, and share repurchases with $5.6B remaining under repurchase authorizations.

• Dynamic macroeconomic environment posing challenges. • Tariff impacts with an estimated $250M-$275M cost in 2025, requiring careful management. • Market volatility in transport refrigeration with Americas down ~20% and EMEA with specific market conditions affecting performance.

Q: About Commercial HVAC market and verticals in Americas, any shift in demand or orders?

A: Dave Regnery said Americas Commercial HVAC had broad-based strength, majority verticals grew, applied stronger than unitary. Chris Kuehn added applied stronger than unitary in Q1 and full year.

Q: On price actions to offset tariff gross headwinds and resi market volume demand?

A: Chris Kuehn said started year with normal price increases, working on scenarios, $250M-$275M tariff cost to offset. Dave Regnery said resi Q1 had no pre-buy impact, inventory elevated but expected to normalize.

Q: On Americas Commercial HVAC demand and customer conversations?

A: Dave Regnery said no widespread slowdown, applied projects have strong paybacks.

Q: On Trane vs market outgrowth drivers?

A: Dave Regnery said it's a system including direct sales force, operating system, culture.

Q: On underlying demand and concentrated verticals?

A: Dave Regnery said broad-based, 14 verticals tracked in Americas, majority grew.

Q: On full year guidance and sequential revenue uptick?

A: Chris Kuehn said confident in meeting/ exceeding guidance, uncertainty exists but will update.

Q: On tariff and contracts in applied space?

A: Chris Kuehn said some contracts have protections, working to mitigate tariff impact. Dave Regnery said region for region manufacturing strategy is a competitive advantage.

Q: On China market response?

A: Dave Regnery said team in China sequentially improving, confident in team.

Q: On resi strength and 454B products?

A: Dave Regnery said ~80% 454B shipments, team executed well. Chris Kuehn said residential mid-single digit growth expected.

Q: On European margins and M&A?

A: Dave Regnery said Europe has strong order rates, Chris Kuehn said bolt-on acquisitions in EMEA have impact on reported vs organic leverage.

Q: On transport market and outperformance?

A: Dave Regnery said Americas transport refrigeration markets volatile but long-term outlook strong, EMEA transport markets expected down low single digits.

Q: On Mexico sourcing advantage and macro contingency planning?

A: Dave Regnery said one plant in Mexico USMCA compliant. Chris Kuehn said no tariff profit center. Dave Regnery said robust scenario planning in place for downturns.

Q: On resi share gains and tariff sourcing?

A: Dave Regnery said long game for share, 100% 454B shipments. Chris Kuehn said tariff cost factored in with US sourcing of components.

Q: On tariff approach and margin impact?

A: Chris Kuehn said working to offset tariff cost dollar for dollar, other margin growth ways.

Q: On data center vertical and liquid cooling?

A: Dave Regnery said strong in data center, focused on innovation like liquid cooling.

Q: On Commercial HVAC upper funnel and tariff impact?

A: Dave Regnery said no widespread impact on upper funnel conversations.

Q: On protectionist marketplace and strategy?

A: Dave Regnery said in-region strategy is competitive advantage.

Q: On retrofit mix in applied and bookings?

A: Dave Regnery said retrofit mix assumption but no specific detailed breakdown on booking mix shift.