Trane Technologies(TT) - 2025 Q2 - Quarterly Report

PART I FINANCIAL INFORMATION Financial Statements Trane Technologies reported significant revenue and net earnings growth in H1 2025, with increased assets and equity, and improved operating cash flow despite substantial financing outflows Condensed Consolidated Statements of Earnings Q2 2025 net revenues grew 8.3% to $5.75 billion, with net earnings up to $874.8 million, while H1 saw 9.6% revenue growth to $10.43 billion and $1.48 billion in net earnings Consolidated Earnings Summary (in millions, except per share amounts) | Metric | Q2 2025 | Q2 2024 | YoY Change | H1 2025 | H1 2024 | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Net Revenues | $5,746.4 | $5,307.4 | +8.3% | $10,434.9 | $9,523.0 | +9.6% | | Operating Income | $1,164.2 | $1,034.2 | +12.6% | $1,983.1 | $1,668.0 | +18.9% | | Net Earnings Attributable to Trane | $874.8 | $755.3 | +15.8% | $1,479.7 | $1,191.6 | +24.2% | | Diluted EPS (Continuing Operations) | $3.87 | $3.33 | +16.2% | $6.58 | $5.25 | +25.3% | Condensed Consolidated Balance Sheets Total assets increased to $21.0 billion by June 30, 2025, with liabilities rising to $13.1 billion and equity growing to $7.9 billion due to retained earnings Balance Sheet Summary (in millions) | Account | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Total Current Assets | $7,506.2 | $7,337.8 | | Total Assets | $20,990.5 | $20,146.7 | | Total Current Liabilities | $6,799.3 | $6,068.9 | | Total Liabilities | $13,135.3 | $12,659.8 | | Total Equity | $7,855.2 | $7,486.9 | Condensed Consolidated Statements of Cash Flows H1 2025 operating cash flow increased to $1.03 billion, while investing activities used $486.0 million and financing activities used $1.48 billion, primarily for share repurchases and dividends Cash Flow Summary for Six Months Ended June 30 (in millions) | Cash Flow Category | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $1,031.6 | $943.1 | | Net cash used in investing activities | $(486.0) | $(626.6) | | Net cash used in financing activities | $(1,480.9) | $(504.3) | | Net (decrease) in cash | $(815.9) | $(220.7) | Notes to Condensed Consolidated Financial Statements Notes detail accounting policies, revenue disaggregation, segment results, acquisitions like BrainBox AI, and updates on asbestos-related bankruptcy proceedings for former subsidiaries - In the first half of 2025, the company acquired BrainBox AI Inc. and multiple European distributors, recognizing a combined $188.9 million in goodwill and $73.9 million in intangible assets[70][71] - The company is involved in Chapter 11 bankruptcy proceedings for its former subsidiaries, Aldrich and Murray, to resolve asbestos-related claims. A plan of reorganization proposes a $545.0 million trust to handle all current and future claims[80][81][87] Revenue by Geography for Six Months Ended June 30 (in millions) | Region | 2025 | 2024 | YoY Change | | :--- | :--- | :--- | :--- | | Americas | $8,493.0 | $7,625.8 | +11.4% | | EMEA | $1,281.4 | $1,198.7 | +6.9% | | Asia Pacific | $660.5 | $698.5 | -5.4% | | Total Net Revenues | $10,434.9 | $9,523.0 | +9.6% | Management's Discussion and Analysis of Financial Condition and Results of Operations Strong Q2 and H1 2025 performance was driven by robust HVAC demand, pricing, and acquisitions, with expanded gross margins and a strong liquidity position supporting capital allocation Results of Operations Q2 2025 net revenues grew 8.3% (6.6% organic) and H1 2025 revenues grew 9.6% (8.6% organic), driven by volume and pricing, with gross profit margin improving due to productivity Q2 2025 Revenue Growth Breakdown | Component | Contribution | | :--- | :--- | | Volume | 3.0% | | Pricing | 3.6% | | Organic Revenue | 6.6% | | Acquisitions | 1.1% | | Currency Translation | 0.6% | | Total | 8.3% | H1 2025 Revenue Growth Breakdown | Component | Contribution | | :--- | :--- | | Volume | 5.3% | | Pricing | 3.3% | | Organic Revenue | 8.6% | | Acquisitions | 1.0% | | Currency Translation | 0.0% | | Total | 9.6% | - Gross profit margin increased by 110 basis points in Q2 2025 and 120 basis points in H1 2025 compared to the same periods in 2024, primarily due to gross productivity and price realization, which offset inflation[123][137] Liquidity and Capital Resources The company maintained strong liquidity with $774.2 million cash and $2.0 billion in credit, using cash for share repurchases, dividends, and acquisitions, while free cash flow increased to $841.4 million - During the six months ended June 30, 2025, the company repurchased approximately $880 million of its ordinary shares. An additional $120 million was repurchased between July 1 and July 30, 2025[150] - The quarterly dividend has been increased by 77% since March 2020, from $0.53 to $0.94 per share[151] Free Cash Flow Reconciliation for Six Months Ended June 30 (in millions) | Description | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by continuing operating activities | $1,043.5 | $958.6 | | Capital expenditures | $(208.8) | $(156.7) | | Other adjustments | $6.7 | $8.2 | | Free cash flow (Non-GAAP) | $841.4 | $810.1 | Quantitative and Qualitative Disclosures about Market Risk Market risk disclosures remain materially unchanged from the 2024 Annual Report on Form 10-K, which provides a comprehensive discussion of the company's market risk exposure - The company refers to its Annual Report on Form 10-K for the fiscal year ended December 31, 2024, for its discussion of exposure to market risk, indicating no material changes during the quarter[183] Controls and Procedures Management concluded disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control over financial reporting during Q2 2025 - The CEO and CFO concluded that as of June 30, 2025, the company's disclosure controls and procedures are effective[184] - No changes occurred in the company's internal control over financial reporting during the second quarter of 2025 that have materially affected, or are reasonably likely to materially affect, these controls[185] PART II OTHER INFORMATION Legal Proceedings The company is involved in various legal proceedings, with the most significant being asbestos-related bankruptcy cases for former subsidiaries, not expected to materially impact financial condition - The most significant legal matter facing the company is the asbestos-related bankruptcy cases of its former subsidiaries, Aldrich and Murray[189] Risk Factors Three risk factors from the 2020 Reverse Morris Trust transaction are no longer material due to expired statutes of limitation, with no other material changes to 2024 10-K risk factors - Three risk factors related to the tax implications of the 2020 Reverse Morris Trust transaction are no longer considered material risks to the company due to the expiration of the statutes of limitation[190][191] Unregistered Sales of Equity Securities and Use of Proceeds In Q2 2025, Trane Technologies repurchased 1,058,200 ordinary shares for approximately $402.0 million, with $0.4 billion remaining under the 2022 authorization and $5.0 billion under the 2024 authorization Issuer Purchases of Equity Securities (Q2 2025) | Period | Total Shares Purchased (000's) | Average Price Paid per Share | Total Value ($ millions) | | :--- | :--- | :--- | :--- | | April 2025 | 515.1 | $334.88 | ~$172.5 | | May 2025 | 274.6 | $417.96 | ~$114.8 | | June 2025 | 268.5 | $427.37 | ~$114.8 | | Total Q2 | 1,058.2 | $379.96 | ~$402.0 | Other Information Several executives, including the Chair and CEO, adopted Rule 10b5-1 trading plans for future stock sales during Q2 2025, with no terminations by directors or Section 16 officers - Chair and CEO David S. Regnery, along with other Section 16 officers, adopted Rule 10b5-1 trading plans during the quarter ended June 30, 2025, for the sale of company stock[196] Exhibits This section lists Form 10-Q exhibits, including a new Credit Agreement, CEO/CFO Sarbanes-Oxley certifications, and iXBRL formatted financial statements - Key exhibits filed include a new Credit Agreement from May 2025, CEO/CFO certifications under Sarbanes-Oxley Sections 302 and 906, and iXBRL data files[197][203]