Trane Technologies PLC at UBS Global Industrials and Transportation Conference Transcript

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

Question: Christopher M. Snyder - UBS Investment Bank, Research Division - Analyst : Thank you. So I think if we kind of step back a year or 2 from now, I don't think most in the market expected, not only this level of demand, but also just the way the demand has been sustained. So obviously, a lot of mega trends that are out there. But I guess my first question to you is, have you been surprised by the magnitude and sustaining that demand? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 07, 2023 / 2:30PM, TT.N - Trane Technologies PLC at UBS Global Industrials and Transportation Conference

Question: Christopher M. Snyder - UBS Investment Bank, Research Division - Analyst : I appreciate that. I mean, you kind of called out the book-to-bill, you called out organic revenue growth. There's a lot that are impacting these numbers. Obviously, supply chain has kind of been all over the place. But I guess kind of my question is, when you talk to customers and when the salespeople talk to customers, does it seem like demand is beginning to soften or deteriorate?

Question: Christopher M. Snyder - UBS Investment Bank, Research Division - Analyst : That's the point what I like.

Question: Christopher M. Snyder - UBS Investment Bank, Research Division - Analyst : No. Yes, I'm absolutely -- you kind of started off in your prior remarks talking about climate change and global warming. So obviously, the advantage of more energy-efficient HVAC as it helps the environment, helps companies achieve their ESG goals that almost all of them have now. But what about the financial profile and the returns? Anything you could talk to that, that the companies are benefiting from as they upgrade their system?

Question: Christopher M. Snyder - UBS Investment Bank, Research Division - Analyst : Green for Green sounds like a great headline for a note. I wish I thought of that. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 07, 2023 / 2:30PM, TT.N - Trane Technologies PLC at UBS Global Industrials and Transportation Conference

Question: Christopher M. Snyder - UBS Investment Bank, Research Division - Analyst : Fair enough. The -- you kind of talked about the opportunity within buildings, I think it's at 40% of the emissions coming from the HVAC.

Question: Christopher M. Snyder - UBS Investment Bank, Research Division - Analyst : Energy. When we think about the ability for that to be sustained, I think everyone kind of understands okay, you're outgrowing whatever kind of construction index we'd look at, but is there a way to think about the duration of that opportunity? Kind of how long can that kind of secular outgrow the macro?

Question: Christopher M. Snyder - UBS Investment Bank, Research Division - Analyst : Yes. No, I appreciate that. You kind of talked about some of the policy. Obviously, a lot coming through IRA, CHIPS Act, just broader reshoring trends and policies supporting that, rising minimum efficiency -- a lot. Can you just talk about what that means for the company being that -- historically, you've kind of been viewed as the leader on innovation, and are those benefits already starting to accrue to the business? Or do you see them still mostly ahead of you?

Question: Christopher M. Snyder - UBS Investment Bank, Research Division - Analyst : I appreciate that. When we kind of think about demand and try to think about orders alongside that, the order run rate has been a bit over $4 billion or so a quarter. Do you think that is reflective of demand in the market? Or do you think it's still maybe running ahead just because while lead times have compressed, not all the way back?

Question: Christopher M. Snyder - UBS Investment Bank, Research Division - Analyst : Yes. I appreciate that. On the big U.S. mega projects, as a former shipping analyst, Reshoring is always something I've been I've been focused on. The numbers are pretty crazy and U.S. manufacturing construction up 100%. A number that you've just never seen before. Can you talk about the Trane's opportunity within industrial? And then also, at what point does the company start to benefit from that? These are huge projects. And when do people start ordering or looking for the HVAC?

Question: Christopher M. Snyder - UBS Investment Bank, Research Division - Analyst : If we kind of compare Trane to competitors in the industry, there's a track record of outgrowth. It seems, from my vantage point, a lot of it is driven by innovation and spend and investment there. Would you argue that the advantage of innovation is more important than ever, just whether it's more focused on efficiency, better returns via efficiency, how do you think about that?

Question: Christopher M. Snyder - UBS Investment Bank, Research Division - Analyst : Pretty bold at...

Question: Christopher M. Snyder - UBS Investment Bank, Research Division - Analyst : I appreciate that. I want to ask on Service, you kind of brought it up a couple of times, it feels like obviously a good opportunity for a lot of the big players. One thing that I kind of find interesting is that I think the value, the prop makes a ton of sense, yet everyone seems to have a relatively low share of the market. I guess, why has it been kind of so hard to kind of like build material market share there? And why does it feel like it's starting to flip now?

Question: Christopher M. Snyder - UBS Investment Bank, Research Division - Analyst : I appreciate that. Maybe one for Chris. The company -- I believe last quarter backlog in the $7 billion ballpark, if my memory serves. You guys are saying $6 billion kind of plus, which is -- obviously, there could be a range associated with that. But when we see that anticipated backlog burn or that guided backlog burn over the rest of the year, does that include some level of demand deterioration? Or is it really just a function of supply chains compressing and orders kind of falling with that?

Question: Christopher M. Snyder - UBS Investment Bank, Research Division - Analyst : Yes. I appreciate that. I mean, the company has done a really good job through all of this on price/cost. What are kind of the expectations there going forward? What -- how does the company think about incremental price? And then what are you seeing on the cost side?

Question: Christopher M. Snyder - UBS Investment Bank, Research Division - Analyst : And we see, I think, the guide still like roughly 25% or so kind of incrementals, which is normalized levels. It does feel like price/cost is a tailwind. I have to think that just productivity and efficiency is going to improve. So those are obviously tailwinds to incrementals. What are some of the offsets that are pushing it back just into that kind of normalized range?

Question: Christopher M. Snyder - UBS Investment Bank, Research Division - Analyst : I appreciate that. I think -- I don't think there's much kind of concern on the secular opportunity. I think everyone kind of agrees that Trane will continue to execute. Some of the concerns that we've heard in the market around inventory in the channel, maybe a rocky start to kind of the spring selling season. Like how do you guys kind of feel about some of those potential headwinds which could -- in some way, maybe dampen all the great secular...

Question: Christopher M. Snyder - UBS Investment Bank, Research Division - Analyst : I appreciate that. And then maybe then next on commercial and new construction, which I know similarly is a much smaller percent of the business than the headline commercial exposure, given the aftermarket service upgrades. Has demand been impacted at all by the [tightening] lending standards, which have now been in place for I guess, almost 8-plus kind of months?

Question: Christopher M. Snyder - UBS Investment Bank, Research Division - Analyst : I appreciate that. And when we get kind of similar questions, and I talk about the paybacks are good, that's obviously supporting demand. The pushback from investors is -- well, that wasn't the way it was historically. Usually, in a downturn, there's just a CapEx pullback and I'm not worried about -- I worry about paybacks when I feel more comfortable. I guess -- has that been the case in prior downturns, they all predate me. And is that logic...

Question: Christopher M. Snyder - UBS Investment Bank, Research Division - Analyst : Appreciate that. On commercial, it sounds like from a high level, demand kind of steady, firm. You called out office is one that is getting worse. So just kind of interested, which ones are actually getting better?

Question: Christopher M. Snyder - UBS Investment Bank, Research Division - Analyst : Thank you, guys.