Trane Technologies PLC Q1 2025 Earnings Call Summary

The following is excerpted from the question-and-answer section of the transcript.

Question: Julian Mitchell - Barclays - Analyst : Hi, good morning. Maybe just wanted to start off with the Commercial HVAC market and I suppose the Americas, in particular, you mentioned sort of a growing pipeline, but just wanted to understand if there's been any sort of shift in specific verticals that you've seen in recent months in terms of demand or orders? And also, I realize there's different definitions to sort of light commercial versus applied, but some of the light commercial data has not been so good the last six months. Just wondered sort of have you seen that? Are you concerned about that as it pertains to the applied read across after a lag. Any color on that, please?

Question: Julian Mitchell - Barclays - Analyst : That's very helpful. And then just my follow-up would be around the price actions to offset tariff gross headwinds. Maybe just kind of flesh those out a little bit. And in the resi market, specifically, I think you're very clear that there was no pre-buy impact evident in Q1 despite a lot of the concerns out there the last year or so. How are you thinking about the price increases there sort of influencing volume demand in res?

Question: Julian Mitchell - Barclays - Analyst : That's great. Thank you.

Question: Christopher Snyder - Morgan Stanley - Analyst : Thank you, I appreciate the question. I just wanted to follow up on the Americas Commercial HVAC demand. Obviously, record orders in Q1 suggest things are still quite good. But I guess the question is, have customer conversations changed at all since the start of the year. In the channel, we're hearing more about some projects are moving slower just due to the uncertainty around cost. Are you feeling any of that in the business? I'm just wondering if there's a risk that maybe it could drive some elongation in converting the pipeline to orders. Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 30, 2025 / 2:00PM, TT.N - Q1 2025 Trane Technologies PLC Earnings Call

Question: Christopher Snyder - Morgan Stanley - Analyst : Thank you, I appreciate that. And then if we kind of look at Trane versus the market, you've outgrown as far back as we have data. I mean, if you had to rank the reasons why Trane out grows, is that the efficiency of the equipment? Is it the breadth or the strength of the service offering? Is it the direct sales force and just the connectivity you have? Like how would you rank those three in terms of drivers of the company's outgrowth? Thank you.

Question: Christopher Snyder - Morgan Stanley - Analyst : Thank you, I appreciate that.

Question: Amit Mehrotra - UBS - Analyst : Great. Thanks, morning everybody. So I just wanted to follow up, if I could, on just underlying demand. I wanted to understand if the growth in revenue and orders are just more concentrated in specific verticals than before? I know you -- obviously, the sales force can adapt to the demand environment, but wondering if any of the growth or what you're seeing is attributable to a more concentrated sample of end markets versus kind of more broad-based before or there's nothing there?

Question: Amit Mehrotra - UBS - Analyst : Okay. That's very helpful and clear. And then maybe one for Chris, if I could. If I look at the full year guidance, I guess the revenue guidance, it kind of implies maybe a more modest sequential uptick in revenue, 1H to 2H versus what's existed over the last couple of years. Obviously, we're entering the base is very much higher, and we're entering a more normalized environment. But I was wondering is that the right way to think about just we're entering a more normalized growth environment starting the back half? Or maybe is there some conservatism in there that obviously is prudent given all the uncertainty we're seeing today?

Question: Amit Mehrotra - UBS - Analyst : Okay, very good, thank you guys, appreciate it. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 30, 2025 / 2:00PM, TT.N - Q1 2025 Trane Technologies PLC Earnings Call

Question: Scott Davis - Melius Research LLC - Analyst : Hey, good morning, guys.

Question: Scott Davis - Melius Research LLC - Analyst : I would echo the congratulations on these big numbers, but also just it looks like you cut your prepared remarks down pretty sizably in the quarter as well, which I think allows for more Q&A. It's helpful for all of us. So thanks for that. I guess, I just want to ask kind of a follow-up on the tariff question. I hate to beat this dead horse. But if you guys have this massive backlog in applied, it's -- are your contracts flexible enough to allow surcharges or other mitigation? How does that kind of logistically work or do you have to go out one customer at a time and have that conversation?

Question: Scott Davis - Melius Research LLC - Analyst : Yeah, that makes sense. Dave, changing topics a little bit. China, it's not a surprise. I mean, sequentially, it's actually a little bit -- seems a little bit better on overall. But how has the market respond? I mean you guys have made a pretty strong move there and not taking risky projects and stuff. But how has the market responded? Have others come in and been rational? Or have folks come in and kind of fill that white space with a rational behavior?

Question: Scott Davis - Melius Research LLC - Analyst : Okay, best of luck, Dave. Thank you. See you Chris.

Question: Joe Ritchie - Goldman Sachs - Analyst : Hey, good morning guys, and a nice rest of the year.

Question: Joe Ritchie - Goldman Sachs - Analyst : Yeah, can we just kind of chat a little bit about the resi strength this quarter? I'm just -- I'm curious you're not seeing any prebuy. It seems like the transition to 454B has already started and is going well. I'm just wondering, like is there a way to parse out like how much of the -- either the organic growth or the bookings growth that you saw this quarter was already 454B product versus the 410A that you're holding in inventory?

Question: Joe Ritchie - Goldman Sachs - Analyst : Yeah, I mean look, that's a tilt your dealers are already taking on 454B products. So that's super helpful, and that was the vast majority of the improvement this quarter. I guess the follow-on question, I know you talked a little bit about trying to offset the tariffs with cost actions. If you kind of like look at the next three quarters, I guess, the impact of your tariffs would be like roughly, I don't know, like 1 to 1.5 to 2 points of price. Can you maybe just tell us a little bit about like the -- just like price elasticity right now in the market because you're going through this refrigerant transition, there's additional pricing that's coming through there. Are you hearing any pushback from your dealers or from customers on pricing at this point?

Question: Joe Ritchie - Goldman Sachs - Analyst : Okay, thanks guys. Appreciate it.

Question: Andrew Kaplowitz - Citi - Analyst : Hey, good morning, guys. Thanks quarter.

Question: Andrew Kaplowitz - Citi - Analyst : So just want to talk about European margins for a second. Obviously, you talked about a significant reinvestment and I'm sure margins will bounce back. But maybe you could just talk about what you're doing there. Obviously, you've sustained strong growth in the region for a while much better than sort of market growth. So just where are you in sort of the investment cycle? And maybe just talk about that Q1 margin if it just bounces back pretty quickly here.

Question: Andrew Kaplowitz - Citi - Analyst : Got it. Very helpful. And then as you guys know, back in the day, TK being pretty weak would hurt you more than it is. I know you sort of put in the guidance, you'll continue to outperform. I just want to understand exactly sort of what you're seeing or what's in the guidance? I think you said something like down about 20% or so. But maybe you can sort of clarify that. Just TK just not that large as a percentage of the business now and so you don't get the impact. And where are you outperforming in TK versus the ACT numbers?

Question: Andrew Kaplowitz - Citi - Analyst : Very helpful. Thanks guys.

Question: Andrew Kaplowitz - Citi - Analyst : Appreciate it, Chris.

Question: Stephen Tusa - JPMorgan - Analyst : Hey, good morning.

Question: Stephen Tusa - JPMorgan - Analyst : Congrats on continued execution here. Just on the resi front, any difference between the company-owned and the independent distribution sales in the quarter?

Question: Stephen Tusa - JPMorgan - Analyst : Okay. And then on this backlog, did you guys expect -- is the pipeline strong enough so that as you kind of move through the year that you'll be back to being positive on a year-over-year basis when it comes to backlog? I understand that most of that is the Commercial HVAC side.

Question: Stephen Tusa - JPMorgan - Analyst : Okay. And then sorry, just last one, just on tariffs. So you're not including the price, I guess, the $250 million or whatever it is of exposure, you're going to kind of like guide to that stuff when -- like when will you incorporate that in guidance? What's the trigger for that. You're obviously not -- and I assume you're not including the $250 million today, obviously, you're going to kind of like feather in both the price and the tariffs kind of as you get more information on how the markets are developing? Or what's kind of the trigger for that?

Question: Stephen Tusa - JPMorgan - Analyst : But sorry, you're embedding the cost without the price today?

Question: Andrew Kaplowitz - Citi - Analyst : Without price, okay.

Question: Stephen Tusa - JPMorgan - Analyst : Right. But would that be upside the price? Sorry, I just want to make sure I had the offsets. Would that be upside to the guidance from price? Or would that be just another mechanism you used to offset the cost? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 30, 2025 / 2:00PM, TT.N - Q1 2025 Trane Technologies PLC Earnings Call

Question: Stephen Tusa - JPMorgan - Analyst : Yeah, okay, that makes sense. Thanks a lot.

Question: Jeffrey Sprague - Vertical Research Partners - Analyst : Hey, thank you. Good morning, everyone. Hope everyone's well. Hey, A couple for me. Just first on Mexico. You guys have lower exposure down there than your peers generally perhaps everybody's USMCA compliant. But my question is, do you see any

Question: Jeffrey Sprague - Vertical Research Partners - Analyst : But not using tariffs as a profit center, as you said, you wouldn't be looking for excess price out of Mexico if you didn't need it in your own operations. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 30, 2025 / 2:00PM, TT.N - Q1 2025 Trane Technologies PLC Earnings Call

Question: Jeffrey Sprague - Vertical Research Partners - Analyst : And then, Dave, I was wondering if you could maybe put your macro hat on a little bit for us. You look at these TK and transport outlooks, right? And as Andy noted, it's manageable in the current construct. But that also looks like kind of a macroeconomic recession signal. It's been a long time since we had a normal recession, right? 2020 was so quick and different. But maybe you could just talk about your contingency planning if things do get a lot more difficult here, what levers you'd be pulling? And are you legitimately concerned we might be looking at something much more difficult from an economic standpoint?

Question: Jeffrey Sprague - Vertical Research Partners - Analyst : Great, thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 30, 2025 / 2:00PM, TT.N - Q1 2025 Trane Technologies PLC Earnings Call

Question: Nigel Coe - Wolfe Research - Analyst : Thanks. Good morning. Great quarter, and, great color as well so far. So I thought I understood the $250 million to $275 million. It's neutral to the framework, it gets offset by price or other mitigant actions there's no upside from pricing. Just want to make sure that's clear. And if I'm not, please correct me. But I want to go back to the resi outperformance because the high teens is quite stunning. And I think you said 80% A2L shipments through the quarter. So I'm guessing right now, you should be running close to 100% A2L. Your competitors seem to be struggling more with this transition. So I'm wondering if there's any share gains that you're seeing out there? And if you think those share gains might be sticky through the year.

Question: Nigel Coe - Wolfe Research - Analyst : Understood. No, that's clear. Thanks, Dave. And then going back to tariffs and really beating this dead horse one more time. But the $250 million, '25, I'm guessing most of that would be imports from China. Again, correct me if I'm wrong. I'm just curious, the reason I'm asking is if we do see a dial back in the tariff rates, which I think we're all assuming at some point, just trying to understand sensitivity to that. And then I'm wondering any color on sort of sourcing of components, motors, et cetera, versus finished product? Any help that would be useful too.

Question: Nigel Coe - Wolfe Research - Analyst : Yeah, that's fair. Okay, thanks, Dave.

Question: Deane Dray - RBC Capital Markets - Analyst : Thank you. Good morning, everyone. I just want to circle back on just the approach on tariff and pricing. And I love the concept you're not making it a profit center. But just the math on offsetting dollar for dollar will result in a margin hit, and that's something you've kind of -- you're at piece with.

Question: Deane Dray - RBC Capital Markets - Analyst : Great. And then second topic, you commented continued strength in the data center vertical. Any specifics there that you can share? And talk about your interest -- ongoing interest in liquid cooling?

Question: Deane Dray - RBC Capital Markets - Analyst : Great thank you.

Question: Tommy Moll - Stephens Inc. - Analyst : Good morning, and thanks for taking my questions.

Question: Tommy Moll - Stephens Inc. - Analyst : Doing fine, thank you. Dave, I wanted to ask specifically on your Commercial HVAC conversations. I'm thinking upper funnel here. To what extent are tariffs driving those conversations? Just generally, even in terms of uncertainty around what lies ahead generally leads to, shall we say, delayed decision-making less confidence across your customer base. Are those kinds of anecdotes starting to percolate yet? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 30, 2025 / 2:00PM, TT.N - Q1 2025 Trane Technologies PLC Earnings Call

Question: Tommy Moll - Stephens Inc. - Analyst : And maybe just to end on a strategic point here. If we zoom out a little bit from the tariff conversation and beyond what is or isn't in place, today, a month from now. It does appear that we're headed for an increasingly protectionist marketplace. I'm just curious, strategically, how does that evolve your thinking in terms of market share opportunities or threats, supply chain decision-making? How you allocate organic or inorganic investment? What's on your mind here?

Question: Tommy Moll - Stephens Inc. - Analyst : Thank you, I'll turn it back.

Question: Noah Kaye - Oppenheimer & Co., Inc. - Analyst : Yeah, thanks, Dave, you said earlier, you really lead with payback, right, on these projects in Applied. And you've talked in the past about retrofit being anywhere from 65% to 70% of the mix in applied. As you kind of look at both the orders this quarter and the pipeline, I mean, new construction is growing, but it's somewhat modest. Does the mix of bookings kind of continue to shift towards retrofit in your view?

Question: Noah Kaye - Oppenheimer & Co., Inc. - Analyst : We'll get after it further. Thank you, guys.