Trane Technologies PLC at Goldman Sachs Industrials Conference Transcript

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

Question: Joseph Ritchie - Goldman Sachs - Analyst : Yes. Great. Donny, why don't we start with you? You've been at Trane now since 2001. It's been a hell of a ride. Look, Trane has really transformed itself over that time frame into a really scaled North America applied HVAC business. Just talk us through the journey over the last few years. How have you been able to scale this business? And where do you see this business going over the next five years?

Question: Joseph Ritchie - Goldman Sachs - Analyst : That's great to hear. And look, before we got on stage, you talked a little bit about this week being a Board meeting with the focus really being around innovation and technology. What are some of the things that you guys are excited about that you'll be at least previewing at the Board meeting this week?

Question: Joseph Ritchie - Goldman Sachs - Analyst : Yes. So Chris, you mentioned data centers and look, the growth rate in your applied business has been pretty incredible, particularly from an order standpoint the last several quarters. How do you think about like what this means from a conversion cycle for that business? Like when do you actually expect to see that? I mean you're already seeing very good growth across your Americas business, double-digit growth last several quarters. How long -- like how much visibility does this give you to your growth going forward?

Question: Joseph Ritchie - Goldman Sachs - Analyst : That's great. Look, I mentioned earlier that you've seen double-digit organic growth in your Americas segment. How sustainable is that type of growth rate based on what you see today? I know that you don't have -- not trying to put you on the spot here, Chris.

Question: Joseph Ritchie - Goldman Sachs - Analyst : I want to close the loop here on data centers. So we just spent some time at Supercomputer '24. There were a lot of companies that they were showing us their liquid cooling offerings and also their rooftop chiller offerings. There was some confusion in the group as it relates to like how their offerings differed from what the HVAC OEMs were offering into a data center. So Donny, maybe just kind of talk about like when you're selling into a hyperscale co-locator, why are they choosing 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. DECEMBER 04, 2024 / 1:00PM, TT.N - Trane Technologies PLC at Goldman Sachs Industrials Conference How are your offerings complementary to maybe some of the technologies that we saw at Supercomputer?

Question: Joseph Ritchie - Goldman Sachs - Analyst : And then the follow-on, just on, when -- in the conversations that you have with your customers, why are they choosing Trane over like Carrier or JCI? What's your differentiation?

Question: Joseph Ritchie - Goldman Sachs - Analyst : Yes. That's a great example. I appreciate you sharing that. Look, in the market, there's so much discussion about data centers. There has been now for about the last 18 months. But there's a lot more that's happening, particularly here in the US. This whole US manufacturing renaissance. I know that Dave doesn't love the term mega projects but they're out there. And so you've got a bunch of EV battery plants, you've got some semi fab plants, right? Maybe talk about what your content looks like on those types of facilities and whether you're starting to see some benefit from -- in your order rates from what's happening here in the US.

Question: Joseph Ritchie - Goldman Sachs - Analyst : Great. I'll open it up to the audience for questions in a minute. But maybe, Chris, just following up on that. So the 370 projects that Donny mentioned, so if you went back 12 months, that number was higher, lower, like.

Question: Joseph Ritchie - Goldman Sachs - Analyst : Great. Maybe, Donny, one follow-up there. So I know no project is created equal, right? But is there any kind of rule of thumb that you'd point us to on when the project is about to complete, when you'd actually see the order? Is it kind of like 12, 18 months before production? Like what's the right way to kind of think about it?

Question: Joseph Ritchie - Goldman Sachs - Analyst : You're going to force me to follow up to that question. So you're creating -- you're expanding your installed base at this point, right? Is there a way to think about how much that installed base has expanded over the last 12 months or is expected to expand, because you're right, I mean that is a very differentiating factor relative to a lot of the other companies that we look at that typically have a onetime sale and then have to wait for a replacement sale to see the ongoing benefit. You guys will see it over the next 20 to 30 years.

Question: Joseph Ritchie - Goldman Sachs - Analyst : Great. I'm going to turn it to the audience. Anybody have any questions in the audience? I'll just keep going. So we haven't talked about A2L or what's happening on the resi side of the business. Maybe help us kind of understand like what's happening at the end of this year? What are you hearing from your dealers and distributors? How much stock in is happening ahead of this transition? Just any color around that and how you expect this to play out in 2025?

Question: Joseph Ritchie - Goldman Sachs - Analyst : Yes. I mean, Donny, just help us understand like how do -- because there's almost like this -- almost like a game theory situation, right? Like if you hold more inventory than your competitor does and there's a chance that you'll end up having better sales in next year. Like how do you make sure you get that part of the equation, right?

Question: Joseph Ritchie - Goldman Sachs - Analyst : That's a good point. And so this past year, so historically, the residential HVAC market has been fairly well disciplined, right? Really good pricing power. I've said historically, you guys kind of operate like localized duopolies in the way that the business kind of cells. You've had one competitor this year lose share. Like is there any concern around the discipline going away during this transition? Or do you guys feel very comfortable with the dynamics in the market?

Question: Joseph Ritchie - Goldman Sachs - Analyst : So Chris, you touched a little bit on pricing there but maybe just broadening this out to 2025, just initial framework for the year. I know that you guys have -- clearly, the order rates have been really good. Looks like organic growth should be really good. You've been doing a nice job with the incremental margins. Just give us any kind of color that you can on a '25 framework.

Question: Joseph Ritchie - Goldman Sachs - Analyst : Great. Like two quick follow-ups. Some investors are concerned around the -- we've seen commercial starts data come down in 2024. There's some concern around perhaps maybe your light commercial business going into next year or more -- like really more broadly, the light commercial markets. It's -- the way that you guys have sounded on the business has been positive, I think, than what folks are thinking into next year. Just maybe talk about some of the dislocation between what you're seeing in your light commercial business and what folks are concerned about .

Question: Joseph Ritchie - Goldman Sachs - Analyst : Chris, incremental margins. You historically have guided to 25% plus. Any reason for that to change as we head into next year?

Question: Joseph Ritchie - Goldman Sachs - Analyst : Great. One last question. I'd be remiss to not ask about any potential election implications now that we're through the election. So any thoughts on what the next four years could look like and whether there's any positive or negative things to call out?

Question: Joseph Ritchie - Goldman Sachs - Analyst : Donny, Chris, great to see you. Thank you so much for joining us and kicking off the conference.