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    TT
    Earnings call· Jun 2026(Q2 FY26)

    Trane Technologies Q2 FY26 earnings call TT

    Jul 30, 2026 Source

    Executive summary

    Trane Technologies Q2 FY26 — Record Backlog and Raised Full-Year Guidance

    Trane Technologies delivered a strong Q2 FY26, driven by exceptional organic bookings and record backlog, particularly in Americas Commercial HVAC and data centers. The company raised its full-year revenue and EPS guidance, absorbing headwinds from the Middle East conflict, and is making strategic investments in capacity and innovation to support future growth and maintain market leadership.

    Highlights

    5

    • Enterprise organic bookings increased 37%, driving a record backlog of $12.1 billion.

    • Americas Commercial HVAC bookings reached an all-time high, up 50% year-over-year.

    • Applied bookings surged 130%, marking the fourth consecutive quarter of growth above 100%.

    • Organic revenue grew 9%, and adjusted EPS increased 11%.

    • Full-year organic revenue growth guidance was raised to approximately 9%, and adjusted EPS guidance to $15.20-$15.30.

    Concerns

    3

    • EMEA margins were impacted by the Middle East conflict, with revenues in the region down about 30% in Q2.

    • Price versus all inflation was a headwind in Q2 and is expected to continue in the second half of the year.

    • The Stellar acquisition is now expected to be flat for the year from an EPS standpoint, revised from modestly accretive, due to pulled-forward investments.

    Guidance & targets

    10
    CategoryTargetConfidence
    Full-year organic revenue growth
    approximately 9%
    high materiality
    High
    Full-year adjusted EPS
    $15.20 to $15.30
    high materiality
    High
    Q3 organic revenue growth
    approximately 10%
    medium materiality
    High
    Q3 adjusted EPS
    approximately $4.70
    medium materiality
    High
    Full-year CapEx as % of revenue
    2% to 3%
    medium materiality
    High
    Full-year capital deployment
    $2.8 billion to $3.3 billion
    high materiality
    High
    Stellar EPS impact
    flat
    medium materiality
    High
    Residential growth
    mid-single-digit growth
    medium materiality
    High
    Thermo King market recovery
    late 2026 and 2027 recovery
    medium materiality
    Medium
    EMEA Middle East revenue impact
    down about 30%
    medium materiality
    High

    Segment performance

    5
    SegmentRevenueYoYQoQMargin
    Americas Commercial HVAC
    Delivered outstanding performance, with bookings reaching an all-time high. Applied bookings marked fourth consecutive quarter of growth above 100%.
    Bookings: up 50% YoYApplied bookings: up 130%
    		low teens organic growthlow teens——
    Residential
    Exceeded expectations for the quarter, with strong year-to-date performance.
    Bookings: up high 20s
    		low teens organic growthlow teens——
    EMEA
    Performance consistent with outlook. Underlying strength in commercial HVAC, excluding the impact of the Middle East conflict.
    Bookings: up mid-20s (ex-Middle East)
    		mid-single digits organic growth (ex-Middle East)mid-single digits (ex-Middle East)—impacted by Middle East conflict
    Asia Pacific
    Delivered strong results, with growth opportunities in non-China Asia (India, Malaysia, Thailand).
    Bookings: up 31%
    		10% organic growth10%——
    Services
    Continued to be a consistent, durable growth driver.
    CAGR since 2020: low teens
    		about 1/3 of enterprise revenuedouble digits——

    Operational metrics

    17
    Capital expenditure as % of revenue
    2% to 3%
    FY26

    Expected CapEx for the year, part of balanced capital allocation strategy.

    Capital deployment
    $2.8B to $3.3B
    FY26

    Target deployment for the year, part of balanced capital allocation strategy.

    Dividend per share (annualized)
    $4.20up 12%
    FY26

    Increased earlier in the year as a key component of shareholder returns.

    Share repurchases (YTD)
    $840M
    YTD Q2 FY26

    Amount repurchased year-to-date.

    Share repurchase authorization remaining
    $3.8B
    as of Q2 FY26

    Remaining on current share repurchase authorization.

    Applied revenue growth
    over 40%
    Q2 FY26

    Projected to carry forward to the back half of the year, showing strong backlog conversion.

    Middle East revenue impact
    down about 30%
    Q2 FY26

    Impacted by ongoing conflict, cost actions taken to align cost structure.

    Applied capacity expansion
    4x
    last 3 years

    Expansion continues to meet demand and avoid turning away orders.

    Large orders
    4
    Q2 FY26

    Reflects strong demand and successful integration of acquisitions.

    Residential new construction as % of business
    in the teens
    Q2 FY26

    Company is heavily focused on the replacement market, with new construction primarily custom homes.

    Residential sell-in vs sell-through
    approximately equal
    YTD Q2 FY26

    Inventory is at a good spot, no abnormal trends.

    Thermo King rejection rates
    high
    several months

    Key indicator for improving Americas transport market fundamentals.

    Thermo King spot to contract spread
    trending positively
    several months

    Key indicator for improving Americas transport market fundamentals.

    Thermo King utilization rates
    trended positive
    last 10 months

    Key indicator for improving Americas transport market fundamentals.

    Europe Commercial HVAC orders (ex-Middle East)
    up over 20%
    Q2 FY26

    Strong pipeline in Europe, indicating potential for strong orders.

    Asia Pacific channel investments
    doubling down
    current

    Adding account managers to capture growth opportunities in non-China Asia.

    Stellar revenue
    $500M
    FY26

    On track to ship half of the $1 billion backlog brought in with the acquisition this year.

    Industry KPIs

    8
    MetricValueDetails
    Price costheadwind
    Order backlog$12.1BUSD
    Book to bill ratio—
    Data center hvac exposure—
    Organic operating leveragebelow 25%%
    Service aftermarket attachabout 1/3
    Order lead times placement horizon—
    Orders bookings growth by vertical37%%

    Orderbook & backlog

    2
    Enterprise total backlog$12.1BQ2 FY26

    up 70% YoY

    Approximately $6 billion slated for 2027 and beyond, providing strong visibility.

    Commercial HVAC backlogalmost 95% of totalQ2 FY26

    up 90% YoY

    Deals & partnerships

    2
    StellarAcquisition of a modular chiller plant provider, 100% focused on data centers.

    Acquired approximately 1.5 years ago, brought in about $1 billion in backlog, with $500 million expected to ship this year.

    Liquid StackAcquisition related to liquid cooling technology for data centers.

    Supports the company's CDU (Cooling Distribution Unit) business and innovation in data center thermal management.

    Capital programs

    3
    Applied capacity expansionsunderway

    Benefit: expanded applied capacity 4x over the last 3 years

    Ongoing investments to support robust demand and ensure sufficient capacity for future orders, including brick-and-mortar investments.

    Stellar operating system deploymentunderway

    Investments pulled forward to deploy the business operating system within Stellar for future growth, impacting near-term EPS.

    Grand Rapids investmentsunderway

    Brick-and-mortar investments being made in Grand Rapids to support capacity expansion.

    Risks & headwinds

    4
    Middle East conflictQ2 FY26 and H2 FY26

    EMEA revenues down about 30% in Q2 and expected for H2

    Mitigation: Took cost actions at the end of June to align cost structure (rightsizing positions and infrastructure).

    Price vs. all inflationQ2 FY26 and H2 FY26

    Headwind in Q2 and expected in H2

    Mitigation: Leveraging business operating system, supply chain, productivity initiatives, and strategic pricing.

    Near-term impact of investments on leverageQ2 FY26

    Organic leverage below 25% in Q2

    Mitigation: Investments are considered long-term for growth and value creation, not focused on short-term leverage.

    Supply chain constraintsCurrent

    Seeing constraints, maybe a bit more than normal as volumes expand

    Mitigation: Working closely with supply partners, 3-year planning, deploying lean resources, and improving supplier processes.

    What to watch in Q3 FY26

    5

    Data Center Backlog Conversion

    Next quarter (Q3 FY26) and beyond
    CurrentApplied revenue up 40% in Q2, projected for H2. $6B of backlog for 2027+.
    TargetContinued strong conversion, no significant delays in customer delivery.

    Why it matters

    Data center demand is a key growth driver; conversion pace impacts revenue acceleration and future outlook.

    On the conversion, if you look at our revenue growth in the second quarter for Applied, it was up over 40%. And -- so you can see the backlog is starting to flow through. And if you look at the back half of the year, based on our current guide, we're projecting that 40% to carry forward to the back half of the year.

    Q&A highlights

    7

    Has the company overcorrected on inventory levels, leading to the current high bookings?

    Inventory levels are currently at a good spot, with year-to-date sell-in approximately equal to sell-through. There was no overcorrection; prior production adjustments were made to align inventory.

    “I don't think I -- we do -- we track the the IW independent wholesale distributors inventory pretty closely. I think we were in a good spot. Look, that was -- if you remember correctly from the fourth quarter, that's kind of where we -- unfortunately, we had to take 30% of our our production days out of the cycle to get the inventory where it needed to be. We came into the year with the right level. And the good news is it's still at the right level, which is reassuring for us in the back half of the year.”

    asked by Scott Davis · answered by David Regnery

    2 min read6 chapters

    Detailed Narrative

    01

    Record Backlog and Future Visibility

    Trane Technologies achieved a record backlog of $12.1 billion in Q2 FY26, representing a 70% increase year-over-year. This substantial backlog provides strong visibility for accelerating revenue in the second half of 2026, with approximately $6 billion already slated for 2027 and beyond, laying a robust foundation for continued market outperformance.

    02

    Strong Commercial HVAC Performance

    The Americas Commercial HVAC segment delivered exceptional performance, with bookings reaching an all-time high, up 50% year-over-year. Applied bookings surged 130%, marking the fourth consecutive quarter of growth exceeding 100%. The company noted broad-based growth across 11 of its 14 tracked verticals year-to-date, with data centers remaining a significant driver, alongside strong pipeline growth in Europe.

    03

    Strategic Investments and Capacity Expansion

    Trane Technologies is making significant long-term investments in capacity, innovation, and channel expansion. This includes expanding its applied capacity fourfold over the last three years and deploying its business operating system within the Stellar acquisition. These strategic investments, while potentially impacting near-term leverage, are aimed at supporting robust demand and ensuring future growth capabilities.

    04

    Residential and Thermo King Market Recovery

    The residential business exceeded expectations in Q2, with organic revenue up low teens, leading to a raised full-year outlook for mid-single-digit growth. Similarly, the Thermo King business is anticipated to transition into a growth engine in late 2026 and 2027, supported by improving market fundamentals such as high rejection rates, positive spot-to-contract spreads, and positive utilization rates over the past 10 months.

    05

    Middle East Headwinds and Mitigation

    EMEA's performance was consistent with outlook, but margins were impacted by the Middle East conflict, resulting in revenues being down about 30% in Q2. The company took proactive cost actions in late June to align its cost structure, expecting Middle East revenues to remain down by approximately 30% in the second half, a factor already absorbed into the raised full-year guidance.

    06

    Innovation in Data Center HVAC

    The company is at the forefront of innovation in the data center vertical, focusing on developing 'smarter' chillers and integrated control systems that optimize thermal management for efficiency and resiliency. This includes working with hyperscalers and colos on reference designs, exploring technologies like direct current systems, and leveraging its Liquid Stack acquisition, which is exceeding expectations.

    AI-generated summary of the company’s earnings call. Not investment advice.