Trane Technologies Earnings: Commercial Demand More Than Offsets Normalizing Residential Market

Trane Technologies turned in another strong quarterly financial performance, with second-quarter revenue growing 11% on an organic basis, adjusted operating margin expanding 110 basis points to 18%, and adjusted EPS 24% higher than the year-ago quarter. As we expected, the United States residential heating, ventilation, and air conditioning market is normalized after two years of above-average demand. Trane’s management expects unit volumes to decline by a high-single-digit percentage, in line with our forecast (we see industry shipments falling about 8% this year). We estimate residential HVAC accounts for roughly 20% of consolidated revenue, but robust global commercial HVAC demand (commercial HVAC is about 60% of revenue) has more than offset the residential market headwinds. Indeed, commercial HVAC revenue was up by a low-teens percentage year over year in both the Americas and Europe, Middle East, and Africa regions, and the Asia-Pacific region saw a 45% increase in commercial HVAC revenue against an easy prior-year comparison, largely due to lockdowns in China last year. Finally, Trane’s transportation refrigeration business (roughly 20% of sales) remains on track to outperform its end markets this year.