Trane Technologies Plc Q4 FY2025 earnings call

Management Statement and Operational Highlights

• Purpose-driven strategy driving consistent outperformance; solutions help customers save energy, lower costs, and enhance energy use flexibility.
• 2025 was strong: exceeded adjusted EPS guidance despite softness in some markets, robust free cash flow, exceptional bookings.
• Since 2020, achieved 11% revenue CAGR, 24% adjusted EPS CAGR, expanded adjusted EBITDA margins by 470 basis points, and 106% free cash flow conversion.
• Q4 organic revenue grew 4%, led by Americas commercial HVAC and global services; exceptional bookings, record backlog of $7.8 billion.
• Relentless investment in innovation, growth, people, culture, and business operating system.
• Stellar Energy acquisition in December, a leading provider of turnkey data center cooling solutions, expected to close in Q1 2026 with modest EPS accretion.

Segment Performance

• Americas commercial HVAC: Record Q4 organic bookings up over 35% year over year, revenue up low double digits.
• Americas transport refrigeration: Bookings down mid-single digits, revenues down low single digits.
• EMEA commercial HVAC: Second straight quarter of mid to high teens organic bookings growth, revenue up mid-single digits.
• EMEA transport: Bookings down low single digits, revenues declined at similar rate.
• Asia Pacific: China had double-digit declines in bookings and revenue; rest of Asia bookings up low double digits, revenues down low single digits.
• Services business: About one-third of enterprise revenue, with a low teens compound annual growth rate since 2020.

Guidance

• 2026 organic revenue growth 6% to 7%, adjusted EPS $14.65 to $14.85 (12-14% growth).
• Reported revenue growth expected 8.5% to 9.5%.
• Targeting organic leverage of 25% or higher and free cash flow conversion of 100% or greater.
• Q1 expected flattish organic revenue growth, offset by tough comps in residential and transport; adjusted EPS ~$2.5.

Risks

• Market fluctuations in various regions (e.g., China challenging for Asia Pacific).
• Residential inventory normalization impact on margins.
• Supply chain pinch points and potential impact on lead times.

Q: Tommy Moll asked about HVAC content in data center in 2-4 years.

A: David Regnery said the fraction of HVAC content in data center is likely about the same, but power consumption by thermal management system may be less, redirecting power to computing side.

Q: Jeff Hammond asked about commercial unitary trends in 2026.

A: David Regnery said commercial unitary is expected to be flattish in 2026, depending on different vertical growth rates.

Q: Joseph Ritchie asked about growth in EMEA data center market.

A: David Regnery said data centers are global, with nuances in product portfolio across regions, and EMEA has broad-based growth in commercial and services.

Q: Jeffrey Sprague asked about price cost dynamics, tariffs, and commodities.

A: Christopher Kuehn said tariff cost in 2025 was ~$140 million, expected to be ~$200 million in 2026 after mitigation; commodities are hedged, with half of copper and aluminum needs hedged, and will remain dynamic in pricing.

Q: Nigel Coe asked about services intensity for chillers in data centers and resi pricing.

A: David Regnery said services intensity in data centers is dynamic with modeling ongoing; Christopher Kuehn said resi team hasn't announced price increase yet for 2026, and will remain dynamic.

Q: Steve Tusa asked about reconciling applied orders and total orders in commercial HVAC and liquid cooling impact.

A: Christopher Kuehn said there was growth in both applied and unitary orders in Q4, with applied up over 100% and unitary positive; David Regnery added orders are a function of backlog and comps, and liquid cooling is driving robust demand in pipeline.