Dive Brief:

• Trane Technologies’ focus on energy efficient thermal-management systems is helping it grow orders and revenue as macroeconomic conditions create headwinds, the company’s top executive said Thursday.
• “Global energy systems are stretched, and buildings still waste about 30% of the energy they pay for,” Trane Chairman and CEO Dave Regnery said Oct. 29 on the company’s third-quarter earnings call. “If we want a sustainable and resilient energy future, efficiency isn’t optional, it’s imperative. Customers choose Trane Technologies because we solve this problem at scale.”
• The company has been shoring up its supply chains and adding resiliency to its manufacturing processes as its order backlog increases, executives said. 

Dive Insight:

Trane reported $6.8 billion in revenue for the quarter, up 18% year over year, and a 20% organic increase in bookings, fueling a $12.5 billion order backlog. 

Data centers are a big part of the company’s growth, but, more broadly, it’s seeing growth in 11 of the 14 industry verticals it competes in, Regnery said. “Our strategy is aligned to powerful megatrends that are intensifying the need for our sustainable solutions and services,” he said.

A dip in the company’s U.S. commercial HVAC orders since the second quarter stems from what Regnery called lumpiness, mainly in its data center vertical. Because of the size of the projects, this tends to have a disproportionate impact on broader numbers, he said.  

“They are lumpy,” he said. “But … the pipeline of activity that we are seeing is still very, very robust…. In the second quarter, we were talking about tracking 1,400 projects. We are tracking 1,700 projects now. Some of those have greater opportunities than others. A lot of those, over 90% of those, are data centers, but there is also some nice high-techs in there as well.”

Trane has been working with hyperscalers on the thermal-management portion of reference designs — or models based on the latest technology — that create guides for data center owners as they scale their computing capabilities. Being part of these exercises, Regnery said, positions the company for new business.  

Regnery pointed to its 800-volt direct current, or 800 VDC, cooling system as a case in point. The system is designed to support gigawatt-scale data centers in an energy efficient way. “We were able to demonstrate” its effectiveness, he said. “When we get the right standards developed around that, we’re more than capable of delivering that…. We’re sitting at the table helping to develop the future data centers.”

As part of its large-scale cooling system effort, the company is banking on its acquisition earlier this year of Stellar, which specializes in pre-built modular cooling systems, principally for data centers. But, going forward, the company expects these units to become more common in other types of commercial facilities. 

“We believe this [type of product] will move to our core verticals as well,” he said. 

For its commercial HVAC business, the company thinks it’s well positioned as customers show an interest in hybrid ductless products that pair the control of mini-split technology in different parts of a facility with building-wide ductwork. Trane several years ago entered into a partnership with Mitsubishi to supplement its own products in the space with additional options.  

“That part of the portfolio is growing, and we would expect that to continue to grow,” Donny Simmons, Trane’s executive vice president and chief operating officer, said. 

To help it meet its backlog demand and stay nimble against economic uncertainty, the company has been shoring up its supply chains, either by working with suppliers on their processes or, in some cases, acquiring them. It’s in the process of buying a long-time supplier of large coils and heat transfer products, Cancoil. 

“This is going to be a nice bolt-on for our company,” Regnery said. “This one … certainly helps us with our supply chain resiliency, and that’s obviously one of the reasons why we jumped at it. Also, the expertise, though, that they’re bringing to us is also going to help us in other areas.”

Trane experienced supplier disruption earlier this year when a company outside the U.S. that supplies capacitors to some of its partners was added to a list of companies in violation of the Uyghur Forced Labor Prevention Act. The 2021 law prohibits the use of products from companies that don’t meet certain labor standards.  

“More than 40 companies were added to what they call the UFLPA list,” Regnery said. “This is a list that blocks goods tied to where there’s perceived forced labor from entering the U.S. And unfortunately, in our case, one of our lower-tier suppliers — so think of this as a Tier 4 to us, maybe even a Tier 5 — they make capacitors, and they sell to some of our motor suppliers as well as some of our drive suppliers…. It caused [our suppliers] to have to pivot and find another source.”

Trane has worked through the disruption, Regnery said. “We had three or four of our plants where we were running product down the line, and we didn’t have all the components,” he said. “As we speak today, it’s 100% behind us. That rework has all been done now.”

On inflation, the company is relying on its business processes and other efficiencies to keep higher costs from being disruptive.

Chris Kuehn, Trane’s executive vice president and CFO, said on the residential side, the company is using its efficiencies and targeted price increases to manage the economic landscape. 

“The business … announced two price increases this year — early April effective date [and] early July effective date,” Kuehn said. “They continue to take all the cost inputs and, leveraging our business operating system, to drive not only negotiations with suppliers [but] to the extent there is still inflation, we will look at pricing.”