Trane Technologies(TT)2023-02-02 22:14Financial Data and Key Metrics Changes - The company reported organic revenues up 16% in Q4 2022, with adjusted EPS increasing by 34% compared to the prior year [14][15] - Free cash flow conversion was strong at 91% of adjusted net earnings for the year, falling short of the 100% target due to timing shifts in receivables and inventory investments [8][23] - Bookings for 2022 reached $17.5 billion, exceeding revenues by $1.5 billion, resulting in a book-to-bill ratio of 109% [7][8] Business Line Data and Key Metrics Changes - Commercial HVAC organic revenues increased by over 20% in Q4, with organic bookings up 11% [7][11] - Americas commercial HVAC bookings grew more than 40% on a two-year stack, with a book-to-bill ratio over 110% [6][11] - The residential segment saw bookings decline mid-20s in Q4, expected against a high prior year comp, while revenues were up low single digits [11][12] Market Data and Key Metrics Changes - EMEA commercial HVAC revenue growth exceeded 40% in Q4, with bookings up low teens [13] - Asia Pacific commercial HVAC revenues were up more than 20%, with bookings down as expected due to tough prior year comps [14][20] - The backlog in the Americas remains unprecedented at three times historical levels, providing strong visibility into future revenues [11][12] Company Strategy and Development Direction - The company is focused on a purpose-driven strategy aligned with megatrends like climate change, aiming to lead in decarbonization efforts [4][5] - Continuous investment in innovation is emphasized as a key differentiator, with a commitment to reinvest in the business year after year [9][10] - The company anticipates strong revenue growth and EPS growth in 2023, with a guidance midpoint of 7% revenue growth [8][11] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in robust customer demand and strong backlog entering 2023, with expectations for continued strong performance despite macro challenges [6][17] - The residential market is expected to normalize, with a forecast of mid-single digit declines, but long-term growth is still anticipated [17][19] - Supply chain improvements are expected to continue, with no capacity concerns noted for meeting demand [38][39] Other Important Information - The company plans to deploy $2.5 billion in capital in 2023, with a balanced approach to capital allocation including share repurchases and M&A [26][25] - The company is targeting 60 to 70 basis points of incremental spend in key investment areas, above the average incremental spend [22][24] Q&A Session Summary Question: Thoughts on organic sales trend cadence - Management expects Q1 to be stronger than historical averages, projecting it to account for 15% to 16% of full year earnings [29][30] Question: Residential and transport market assumptions - Residential is expected to be down mid-single digits for the full year, while transport weakness may be more pronounced in the second half [31][32] Question: Evidence of weakness in commercial HVAC pipeline - Management sees strength in commercial HVAC globally, with strong bookings and backlog [33][34] Question: Price embedded in sales guidance - Modest price carryover is expected in 2023, with no multiple price increases planned [34] Question: Stimulus items impact on growth - Demand in the education vertical is strong, with expectations for continued growth from stimulus initiatives [36] Question: Capacity to meet heat pump demand - Supply chain is gradually improving, and management does not foresee capacity issues [38] Question: Transport bookings outlook - Transport bookings are expected to pick up in the second half of 2023, with strong order rates and backlog [40][41] Question: Backlog expectations for 2023 - Management anticipates ending 2023 with a backlog of $6 billion or greater, providing significant revenue visibility [44] Question: Growth drivers in EMEA - Strong revenue growth in EMEA is attributed to overcoming supply chain issues and high demand for thermal management systems [45]