Trane Technologies (TT) Q1 FY26 earnings call: guidance and Q&A

Are customers ordering with longer lead times, and is the delivery schedule different now compared to a year ago, contributing to the strong applied orders growth?

Management clarified that while their published lead times remain competitive (e.g., next day for stock, up to 30 weeks for applied, with quick-ship options), customers are indeed asking for products with longer horizons, sometimes 12-18 months, to ensure supply chain readiness and security.

“if you're asking when customers are asking for the products, a little bit of a different question. And that could be really -- I think in the past, we probably talked about on average, and averages are always a little bit different. So we would talk about a 6 to 9 months. In some verticals, we are seeing that being extended. Could it be 12 months, 18 months, in some cases for sure, depending on the customer, how much visibility they want us to have to make sure that we make sure our supply chain is ready as well.”

asked by Chris Snyder · answered by David Regnery

What is the impact of cost/tariff changes on price expectations, and how does Trane remain competitive with its US manufacturing despite higher labor costs?

Management stated they expect more inflation and tariffs than previously estimated, creating near-term price/cost pressure, but it's managed within the full-year guide. They emphasized their decade-long 'in-region, for-region' strategy with over 95% of US-sold products manufactured/assembled in the US, leveraging their operating system to mitigate costs and price strategically.

“Over 95% of our products sold in the U.S. are manufactured and/or assembled in the U.S. So look, we've had a very strong track record to manage through inflation and tariffs, maybe some short-term pressure, but we've got that managing our guide, and we'll continue to leverage our business operating system to mitigate the impact of inflation, including tariffs over time.”

asked by Chris Snyder · answered by Christopher Kuehn

How should investors think about the organic operating leverage playing out through the rest of the year, given Q1 was high teens and the full-year baseline is mid-20s?

Management expects organic leverage to improve from high teens in Q1 to mid-20s in Q2, and then mid-to-high 20s in the second half. This improvement is driven by accelerating top-line growth and easier residential comps, with strong execution anticipated in Americas Commercial HVAC.

“We do see that improving as we move the year. So you can think around the second quarter is in that mid-20s kind of range. And then in the second half, we're in the mid- to high 20s.”

asked by Julian Mitchell · answered by Christopher Kuehn

Beyond data centers, what non-data center verticals are driving the strong 160% applied orders growth, and is the company operating at full factory capacity?

Dave Regnery confirmed broad-based growth, with 9 out of 14 verticals in the Americas showing positive growth, including mega projects, higher education, government, and healthcare. Chris Kuehn added that organic backlog growth was significant. Regarding capacity, management stated they have flex, with most factories running two shifts and some only one, and they are actively expanding capacity, including new sites for Stellar Energy.

“I mean there's flex in some of the factories. Obviously, we're operating at a very high level right now. But capacity is one of those things where everyone will -- how you're defining it, right? Right now, the majority of our factories were only running two shifts. So -- in fact, some were only running one shift. So we certainly have that to fall back on.”

asked by Scott Davis · answered by David Regnery

What is Trane's perceived TAM within data centers, and how do Stellar Energy and LiquidStack acquisitions change its competitive offering and service presence?

Management views Stellar Energy as a future $1 billion business with mid-teens+ EBITDA, expanding modular solutions beyond data centers. LiquidStack enhances CDU offerings. Trane sees itself as thermal management experts, collaborating on reference designs with hyperscalers. The data center TAM is expanding, and the service opportunity is significant, with Trane leveraging its broad portfolio and service organization capacity.

“Today, Stellar specializes in building modular chiller plants for data centers, okay? But if we start kind of with the end in mind as to where we see stellar. Think of this as a business that in 2 to 3 years is a $1 billion business. Think of it with mid-teens plus EBITDA serving many verticals, not just data centers.”

asked by Amit Mehrotra · answered by David Regnery

Can you discuss behind-the-meter power and absorption chiller technology in data centers, and whether Trane needs to evolve its technology to support these needs?

Dave Regnery confirmed behind-the-meter needs are growing, not just in data centers. While absorption chillers are a known technology, Trane is exploring other solutions like adiabatic cooling and direct current compatibility, focusing on systems that optimize efficiency and water usage. He emphasized that Trane aims for its systems to work with DC power, rather than becoming a DC power equipment provider, and believes all buildings will become smarter and more resilient.

“As far as absorption chillers, yes, that's a technology that has been around for a while, okay? It's certainly getting some conversation now in data centers. But I would tell you there's a lot of other types of technologies that we're looking at as well that probably have less water usage, and you could get some of the same benefits -- a little bit careful here. Think of it as adiabatic cooling type solutions that we're working on in clever ways.”

asked by Andrew Obin · answered by David Regnery

Why is Trane's transport market outlook more conservative than ACT's projections, particularly regarding the reefer builds for the full year?

Management stated they use multiple models, not just ACT, for their forecasts. While ACT raised its reefer build projections, Trane's internal outlook didn't change significantly, as they felt ACT's prior numbers were not very accurate. They anticipate the market will trough in Q2 and see an uptick in the second half, with strong growth expected in 2027, though perhaps a more gradual slope than ACT's aggressive inflection point.

“Look, we didn't -- we thought that TK we think that ACT maybe was a little bit -- maybe wasn't very accurate at the end of the fourth quarter. So them raising their number didn't really change our outlook very much at all, okay?”

asked by Nigel Coe · answered by David Regnery