Shares of Trane Technologies, a heating, ventilation, air-conditioning, and refrigeration (HVACR) company, experienced a 15.2% increase this week as of noon Thursday. This surge can be attributed to the company’s impressive third-quarter earnings. Additionally, Trane Technologies’ management has raised its full-year guidance for organic revenue growth to a range of 8% to 9%, up from the previous 8%. The guidance for earnings per share (EPS) was also raised to $9, surpassing the previous range of $8.80 to $8.90.
Interest rates and market surprise
The raised guidance and the strength of Trane Technologies’ orders have caught the market by surprise. Typically, commercial HVACR demand is believed to be under pressure due to rising interest rates. Furthermore, the weakness in consumer spending and the decline in spending on home improvement projects were expected to further impact Trane’s residential HVAC orders.
However, Trane Technologies reported a 7% increase in bookings growth in the Americas and an 8% increase in bookings growth for the total company. This is significant considering the consecutive quarters of year-over-year declines in organic bookings growth.
In the Americas, the company saw strength in commercial HVAC bookings, with a mid-teens increase, as well as a mid-single-digit increase in residential HVAC bookings.
Data center demand helped drive Trane’s bookings in the quarter. Image source: Getty Images.
Trane Technologies seems to have reached an inflection point in bookings, which is expected to drive growth in 2024. CEO David Regnery attributes this growth to strong orders from industry verticals such as data centers, high-tech industries, education, healthcare, life sciences, and government. These offset weaker areas such as offices, warehousing, and retail on the commercial side.
Regarding residential HVAC, Regnery foresees a “normalization” throughout the fourth quarter and believes the segment is on track to achieve long-term GDP-plus growth, with a positive outlook for 2024.
Trane Technologies in 2024
HVAC demand is influenced by factors beyond interest rates, including regulatory requirements and the adoption of more efficient equipment. While Trane Technologies’ growth in commercial orders may eventually slow down, the company is poised for strong growth in the residential HVAC segment in 2024, especially considering the weakened period in 2023.
Lee Samaha holds positions in Trane Technologies Plc. The Motley Fool does not hold any positions in the stocks mentioned. The Motley Fool maintains a disclosure policy.
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