Shares of heating, ventilation, air-conditioning, and refrigeration (HVACR) company Trane Technologies (TT +0.79%) were up 15.2% this week as of noon Thursday, driven by excellent third-quarter earnings. Moreover, management raised its full-year guidance for organic revenue growth to a range of 8% to 9% from 8% previously, and full-year guidance for earnings per share (EPS) was lifted to $9 from a range of $8.80 to $8.90.
NYSE: TT
Key Data Points
What about interest rates?
The guidance hike and strength of the company's orders caught the market by surprise, as commercial HVACR demand is seen as coming under pressure due to rising interest rates. Moreover, the ongoing weakness in consumer spending and natural retraction from the spending boom on home improvement were also seen as further pressuring Trane's residential HVAC orders.
However, after two consecutive quarters of year-over-year declines in organic bookings growth in the Americas and the total company, Trane reported 7% bookings growth in the former and 8% in the latter.
Within the Americas, strength in commercial HVAC bookings (up by the mid-teens) was compounded by a mid-single-digit increase in residential HVAC bookings.
Data center demand helped Trane's bookings in the quarter. Image source: Getty Images.
Trane appears to have passed an inflection point in bookings that will fuel growth in 2024. CEO David Regnery cited strength in orders from industry verticals such as data centers, high-tech industries, education, healthcare, life sciences, and government as offsetting weaker areas like offices, warehousing, and retail on the commercial side.
Meanwhile, Regnery sees the residential HVAC segment to continue to "normalize" through the fourth quarter and believes it's on the "path to our long-term target of GDP-plus growth" with a constructive viewpoint on 2024.
What about Trane Technologies in 2024?
There's more to HVAC demand than highly interest-rate-sensitive spending; it's also driven by things like regulatory requirements and more-efficient equipment. Trane's growth in commercial orders will slow at some point, but with residential HVAC lapping a weak period in 2023, the company is set for good growth next year.
