Trane Technologies(US:TT)2022-08-03 20:28Financial Data and Key Metrics Changes - In Q2 2022, organic bookings increased by 7%, reaching a record $4.6 billion, with backlog rising to $6.5 billion, up 43% year-over-year [11][12][19] - Organic revenue growth was 11% in Q2, with adjusted EPS growing by 13% [27][28] - Adjusted EBITDA and operating margins declined by 40 and 20 basis points, respectively [28] Business Line Data and Key Metrics Changes - The Americas Commercial HVAC business saw bookings up mid-teens, with a 2-year stack increase of approximately 45% [22][33] - Residential HVAC bookings were down mid-single digits compared to a high 30s prior year comp, but maintained a book-to-bill of 101% [23] - Transport Americas bookings were up low teens, while revenues were down low single digits due to extreme weather impacts [24] Market Data and Key Metrics Changes - EMEA commercial HVAC orders were up low teens, with revenues up high single digits [25] - Asia Pacific commercial HVAC bookings grew in the high teens, but revenues were down due to COVID lockdowns in China [26] - Overall, the global transport refrigeration market is expected to remain healthy, with North America projected to grow by 10% in 2022 [47] Company Strategy and Development Direction - The company is focused on sustainability and innovation, aligning with mega-trends in energy efficiency and decarbonization [7][9] - A balanced capital allocation strategy is in place, emphasizing reinvestment in core business and strategic M&A opportunities [44][46] - The company aims to deliver $300 million in run rate savings from business transformation by 2023 [43] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in raising adjusted EPS guidance to $7.05 to $7.15, citing strong backlog and pricing execution [19][40] - Supply chain challenges are expected to improve gradually in the second half of the year, with a focus on maintaining strong free cash flow [21][42] - The company anticipates continued strong demand for its products and services, particularly in the commercial HVAC sector [32][33] Other Important Information - The company faced temporary plant closures due to COVID lockdowns and extreme weather, but managed to minimize revenue impacts [17][18] - Pricing execution has been strong, with over 10% price increases offsetting inflationary pressures [16][27] Q&A Session Summary Question: Visibility of backlog into 2023 amidst macro headwinds - Management confirmed robust orders in the commercial HVAC business, with a record backlog of $6.5 billion providing good visibility into 2023 [55] Question: EMEA supply chain and price/cost issues - Management acknowledged acute supply chain challenges in EMEA but expressed confidence in long-term growth and share gains [59] Question: Growth of services business - The services business has shown a compound annual growth rate of high single digits over the past five years, with double-digit growth in Q2 [61][62] Question: Price/cost dynamics and commodity deflation - Management indicated that benefits from commodity deflation are expected to be more of a 2023 story, with current pricing performance remaining positive [64][85] Question: Residential HVAC performance and dynamics - Management noted strong performance in residential HVAC, with a 30% growth in Q2, but acknowledged tough comparisons going into the back half of the year [74][75] Question: M&A pipeline and opportunities - The M&A pipeline remains active, with management open to various opportunities beyond just distribution channels [78] Question: Customer order behavior and lead times - Customers are booking orders further in advance due to longer lead times, and management is implementing price escalations for longer lead items [113]