Trane Technologies(TT) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company achieved an 11% revenue compound annual growth rate since 2020 and a 24% adjusted EPS compound annual growth rate [7] - Adjusted EBITDA margins expanded by 470 basis points, and free cash flow conversion reached 106% [7] - The fourth quarter saw organic revenue growth of 4%, with adjusted EPS growth of 10% [8] Business Line Data and Key Metrics Changes - Americas Commercial HVAC bookings increased by over 35% year-over-year, with a record Q4 organic bookings [8] - Applied Solutions bookings surged more than 120%, achieving a record book-to-bill ratio of 200% [8] - The services business, accounting for about one-third of enterprise revenue, has maintained a low teens compound annual growth rate since 2020 [9] Market Data and Key Metrics Changes - In the Americas, commercial HVAC revenue grew in low double digits, while residential bookings were up mid-single digits but revenues declined mid-teens [11] - EMEA Commercial HVAC bookings were robust, up mid-teens, with revenues up mid-single digits [12] - Asia Pacific faced challenges, particularly in China, with double-digit declines in bookings and revenue [12] Company Strategy and Development Direction - The company emphasizes a purpose-driven strategy focused on energy efficiency and sustainability, positioning itself to meet growing customer demand for smarter energy solutions [4] - Continued investment in innovation, growth, and digital capabilities is expected to drive future growth, particularly in services [10] - The company plans to deploy between $2.8 billion and $3.3 billion in 2026, with a focus on strategic M&A and share repurchases [22] Management's Comments on Operating Environment and Future Outlook - Management anticipates a gradual recovery in residential markets and transport refrigeration, with expectations for improved performance in the second half of 2026 [10][17] - The company is optimistic about its backlog and pipeline, indicating strong visibility for future revenues [9][16] - Management remains confident in delivering differentiated long-term value and advancing sustainability initiatives [24] Other Important Information - The company completed or committed approximately $3.2 billion in capital allocation in 2025, including dividends, M&A, and share repurchases [21] - The acquisition of Stellar Energy is expected to enhance capabilities in modular design and meet growing demand for prefabricated cooling systems [22] Q&A Session Summary Question: Guidance on revenue for Americas Commercial HVAC - Management expects strong growth in the first quarter, around 7%-8%, increasing to low teens in the second half of the year due to strong bookings [26][27] Question: Confidence in residential inventory normalization - Management believes inventory is now at the right level and anticipates a flat to down 5% performance in residential for 2026 [30][31] Question: Margin pressure in Q4 and future expectations - Management indicated that margins were impacted by residential deleverage but expects to see improvements in 2026 with a target of 25% or higher organic incrementals [53][54] Question: Positioning in the data center market - Management confirmed strong demand in the data center vertical and emphasized ongoing innovation in thermal management systems [57][59] Question: Pricing dynamics in the residential market - Management noted that pricing has not faded, and any declines in residential revenue are primarily due to volume rather than pricing [92][103]