Trane Technologies (TT) Q4 2023 earnings summary

Executive summary

• FY 2023 revenue was $17.7B, up 11% reported and 9% organically; adjusted continuing EPS rose 23% to $9.04.

• 2023 organic operating leverage was 36%, with free cash flow conversion of 103% of adjusted net earnings, exceeding initial guidance.

• Q4 organic bookings grew 12%; record $6.9B backlog, ~90% tied to commercial HVAC, provided visibility entering 2024.

Financial highlights

• Q4 revenue was $4.424B, up 9% reported and 6% organically; GAAP operating income was $688M, up 18%.

• Q4 adjusted operating margin was 15.6%, up 190 bps; adjusted EBITDA margin was 17.2%, up 150 bps.

• Q4 GAAP continuing EPS was $2.23; adjusted continuing EPS was $2.17, up 19%, including an $8M Argentine FX loss that reduced EPS by $0.03.

• FY adjusted operating margin was 16.3%, up 140 bps; adjusted EBITDA was $3.184B, with an 18.0% margin, up 120 bps.

• Volume, positive price realization and productivity more than offset inflation; reinvestment remained high.

Outlook and guidance

• FY 2024 revenue growth guidance: 7%–8% reported, including M&A, and 6%–7% organic; FX expected to be neutral.

• FY 2024 adjusted continuing EPS guidance is $10.00–$10.30, up 11%–14%; organic operating leverage expected at 25%+.

• FY 2024 free cash flow expected to be at least adjusted net earnings; Q1 organic revenue growth near 7% and adjusted EPS of $1.60–$1.65.

• Guidance includes ~1 point of M&A contribution and $30M first-year operating income impact, including $6M quarterly accelerated Nuvolo amortization; acquisition expected to be EPS-accretive by year 3.

• 2024 plans include $275M corporate costs, $237M interest expense, a 20% adjusted tax rate, 228M diluted shares and CapEx at the high end of 1%–2% of revenue.