Note: This is an earnings call transcript. Content may contain errors.
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CALL PARTICIPANTS
Chair and Chief Executive Officer — David S. Regnery
Executive Vice President and Chief Financial Officer — Christopher J. Kuehn
Vice President, Investor Relations — Zachary A. Nagle
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RISKS
The residential business continued to decline, with bookings down approximately 30% and revenues down roughly 20% in Q3 2025, matching the prior channel inventory outlook and cumulatively reducing expected full-year revenues for fiscal 2025 by approximately $250 million, according to management commentary.
Americas transport refrigeration markets face a further softened outlook, with ACT forecasting the trailer market will be down more than 30% in Q4 2025.
Adjusted EBITDA margins in EMEA declined by 30 basis points in Q3 2025, primarily due to initial M&A integration costs, as noted by the CFO.
TAKEAWAYS
Record Bookings — Quarterly bookings reached $6 billion, up 13% organically year over year.
Backlog — Commercial HVAC backlog ended at $7.2 billion, increasing by over $800 million and approximately 15% compared to year-end 2024.
Commercial HVAC Americas Bookings — Achieved an all-time high with 30% organic growth and applied bookings up over 100%.
EMEA Commercial HVAC — Bookings up high teens; revenues increased by mid-single digits as expected.
Asia Pacific Commercial HVAC — Bookings were up mid-thirties percent in Q3 2025; revenues up low teens, highest growth in China.
Enterprise Organic Revenue Growth — 6% full-year organic revenue growth anticipated for 2025 (company guidance).
Margin Expansion — Adjusted operating margin expanded by 170 basis points, with Americas adjusted EBITDA margins up 90 basis points to over 23% (non-GAAP).
Adjusted EPS Guidance — Raised to $12.95-$13.05 for 2025, representing 15%-16% adjusted EPS growth year over year from 2024 to 2025, including anticipated Q4 revenue headwinds.
Free Cash Flow — On pace for 100% or greater free cash flow conversion in 2025.
Capital Deployment — $2.4 billion committed year to date, including $1.25 billion to share repurchases, $840 million in dividends, $160 million for M&A, and $150 million debt retirement; $5 billion remains authorized for repurchases.
Residential Segment — Bookings and revenues declined about 30% and 20%, respectively; anticipated Q4 revenue down approximately 20% aligned with prior update due to continued inventory normalization.
Americas Transport Refrigeration — Bookings up low teens; revenues flat for the quarter while end markets declined over 25%.
Delivery Timing Shift — “The timing of some customer-desired delivery dates,” according to Christopher J. Kuehn, in Commercial HVAC Americas moved from Q4 2025 into 2026, subtracting approximately two percentage points from 2025 revenue growth.
Services Business — Approximately one-third of enterprise revenue, reported low double-digit growth, and a low teens CAGR since 2020.
Price Contribution — CFO Kuehn reported price contributed over three percentage points to revenue, with full-year fiscal 2025 guidance implying approximately 3% price and 3% volume, resulting in 6% organic revenue growth.
Innovation Partnership — Trane Technologies (TT +0.23%) is collaborating with NVIDIA (NVDA +0.57%) and other technology partners to develop advanced thermal management systems, with new reference designs highlighted in recent communications.
SUMMARY
Management highlighted record bookings and an expanding backlog, mainly driven by commercial HVAC demand in the Americas and strong applied bookings, which support visibility into 2026 growth targets. Key segments such as services and applied solutions continue to contribute higher margins, while investments in connected and digital service offerings are accelerating adoption and carrying accretive economics. The company maintained its full-year organic revenue growth guidance for 2025 despite acknowledged revenue headwinds, offsetting these through scenario-based cost management, ongoing reinvestment, and margin preservation. The substantial capital returned to shareholders, paired with active M&A and a large remaining buyback authorization, emphasize disciplined capital allocation and balance sheet flexibility. Challenges persist in the residential and Americas transport refrigeration segments, but management expects these markets to normalize in early to mid-2026, positioning the business for growth as market cycles improve, based on current management commentary regarding expectations for 2026.
CEO Regnery confirmed multiple large data center orders and described the current project pipeline as “extremely robust,” especially in the Americas.
CFO Kuehn explained that service business margins are higher than equipment and remain on an upward trajectory, supported by ongoing investments in training and digital technologies.
Leadership described the impact of initial M&A integration in EMEA as a temporary headwind to margins, with expectations for sequential improvement and longer-term benefit.
The Americas commercial HVAC backlog is now up nearly $500 million year over year, further shifting total backlog mix toward commercial sectors as residential and transport decline.
Brainbox AI integration in the connected services business has resulted in over 65,000 buildings connected and a pipeline of incremental energy savings and high-margin subscriptions.
INDUSTRY GLOSSARY
Applied Solutions: Customized, engineered HVAC systems tailored to large commercial or specialized applications as opposed to standard, off-the-shelf unitary products.
Backlog: Total value of confirmed, unfulfilled customer orders to be recognized as revenue in future periods.
ACT: Refers to ACT Research, a provider of North American commercial vehicle, transportation, and equipment market forecasts (used here specifically regarding trailer market projections).
Agentic AI: Artificial intelligence software architecture where software agents autonomously make operational decisions based on real-time data input.
Quick Ship Program: Inventory strategy providing rapid fulfillment for standard HVAC products, enabling faster customer delivery cycles.
Full Conference Call Transcript
David S. Regnery: Thanks, Zach, and everyone for joining today’s call. Please turn to slide three. I’d like to open the call with a few thoughts on our purpose-driven strategy that fuels our strong performance over time. The demand for sustainable resilient infrastructure has never been greater. That’s especially true here in the U.S., where the AI revolution and reshoring of industry are transforming how businesses operate at an unprecedented pace. Trane Technologies is at the heart of this evolution, helping customers reimagine their operations for greater performance and sustainability. Our highest efficiency solutions help our customers save energy and reduce operational costs. We are proving that there is no trade-off. What’s good for the environment is good for the bottom line.
As we look ahead, our innovation and expertise continue to set us apart. With our elevated backlog, robust customer demand, and strong financial performance, we are well-positioned to continue to deliver long-term value to our employees, customers, shareholders, and the planet. Please turn to slide number four. Q3 was another strong quarter marked by record quarterly bookings of $6 billion, representing organic growth of 13% year over year. We delivered 170 basis points of adjusted operating margin expansion, 15% adjusted EPS growth, and robust free cash flow. Our global commercial HVAC businesses delivered outstanding performance.
This was particularly true in The Americas, where commercial HVAC bookings reached an all-time high, surging 30% year over year, with applied bookings more than doubling. The strength of our commercial HVAC business is further underscored by our Q3 ending backlog of $7.2 billion. However, this total backlog figure does not tell the whole story. Compared to year-end 2024, our Americas and EMEA commercial HVAC backlog has grown substantially, increasing by over $800 million or approximately 15%. Excluding residential, revenue growth remains robust, up approximately 10% in the third quarter. We are well-positioned for growth in 2026, given strong execution through our business operating system and our rapidly expanding pipeline of projects in data centers and core verticals.
Our leading innovation and direct sales force provide us with distinct competitive advantages. Our services business, which constitutes approximately one-third of our total enterprise revenues, remains a durable and consistent growth driver, up low double digits year to date and boasting a low teens compound annual growth rate since 2020. Our guidance reflects the impact discussed during our September update, which Chris will elaborate on shortly. Please turn to slide number five. As discussed, in our Americas segment, commercial HVAC continues to deliver standout performance. The team achieved its third consecutive quarter of record-breaking bookings, with approximately 30% growth. We are winning in both core vertical markets and high-growth verticals such as data centers.
In high-growth verticals, customers demand innovative, highly engineered solutions tailored to their specific requirements. They need customer-focused partners with the expertise and capacity to grow alongside them, which plays to our strength. Our direct sales strategy enables us to capture a significant share of these opportunities and consistently outgrow our end market. This is demonstrated by our applied solutions bookings growth of over 100% in the third quarter. Commercial HVAC revenue growth was also robust, increasing by low teens in equipment and low double digits in services. Our consistent market compounds revenues year after year. For perspective, in the third quarter, our applied revenue growth on a three-year stack was up more than 120%.
Turning to residential, bookings and revenues declined approximately 30% and 20%, respectively, consistent with the update we provided in September. In Americas transport refrigeration, bookings were up low teens while revenues were flat, despite end markets being down over 25%. We continue to outperform. Commercial HVAC strength was not limited to The Americas. In EMEA, commercial HVAC bookings increased by high teens while revenues grew by mid-single digits, consistent with our expectation. EMEA transport bookings rose by high single digits while revenues declined by low single digits, outperforming end markets which were down mid-single digits. In Asia Pacific, commercial HVAC bookings were up mid-thirties while revenues grew low teens in the quarter.
Growth was strongest in China, rebounding from the anniversary of our credit tightening policy in the prior year. The rest of Asia delivered solid performance. Now I’d like to turn the call over to Chris.
Christopher J. Kuehn: Thanks, Dave. Please turn to slide number six. Dave covered many key points from this slide earlier, so I’ll keep my comments brief. Our organic revenue growth of 4% aligns with our September update, where we shared our expectations of a $100 million revenue shortfall from our July guidance related to softer residential markets. Despite the challenging residential markets, we achieved strong margin expansion and EPS growth, driven by robust growth in our commercial HVAC and services business, strong productivity levels, and prudent cost controls implemented early in the third quarter. Please turn to slide number seven.
In The Americas, we delivered 4% organic revenue growth, driven by strong volume growth in our commercial HVAC business and positive price realization, offset by a significant volume decline in our residential business. Adjusted EBITDA margins rose by 90 basis points to over 23%, supported by strong productivity and prudent cost management. We also sustained high levels of business reinvestment. In EMEA, we delivered 3% organic revenue growth, primarily from volume growth in our commercial HVAC and transport businesses. Adjusted EBITDA margins declined by 30 basis points as expected, mainly due to year-one M&A-related integration costs, and improved sequentially from the second quarter.
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