Trane Technologies Reports Strong Second-Quarter 2021 Results
Highlights(second-quarter2021versussecond-quarter2020,unlessotherwisenoted):
Reported bookings of $4.4 billion,up 34 percent; organic bookings* up 30 percent
Reported revenues of $3.8 billion,up 22 percent; organic revenues* up 18 percent
GAAP operating margin up 350 bps; adjusted operating margin* up 210 bps
GAAP continuing EPS of $1.91; adjusted continuing EPS* of $1.92,up 51 percent
* This news release contains non-GAAP financial measures. Definitions of the non-GAAP financial measures can be found inthefootnotesofthisnewsrelease. Seeattachedtablesforadditional detailsandreconciliations.
SWORDS,Ireland,Aug. 6,2021 -- Trane Technologies plc (NYSE:TT),a global climate innovator,todayreported diluted earnings per share (EPS) from continuing operations of $1.91 for the second quarter of2021. Adjusted continuing EPS was $1.92,up 51 percent,which excludes $5.3 million related to plannedrestructuringand transformation costs.
Second-Quarter2021Results
FinancialComparisons-Second-QuarterContinuingOperations
$,millionsexceptEPS
Q22021
Q22020
Y-O-YChange
Organic Y-O-Y
Change
Bookings
$4,384
$3,269
34%
30%
NetRevenues
$3,830
$3,139
22%
18%
GAAPOperatingIncome
$651
$424
54%
GAAPOperatingMargin
17.0%
13.5%
350bps
AdjustedOperatingIncome*
$656
$471
39%
AdjustedOperatingMargin*
17.1%
15.0%
210bps
AdjustedEBITDA*
$731
$544
34%
AdjustedEBITDAMargin*
19.1%
17.3%
180bps
GAAPContinuingEPS
$1.91
$1.14
68%
AdjustedContinuingEPS
$1.92
$1.27
51%
RestructuringandTransformationCosts
($5.3)
($47.1)
$41.8
"After an exceptional first quarter,we aggressively raised our guidance with an unequivocal goal of delivering top-quartile EPS growth again in 2021," said Dave Regnery,CEO of Trane Technologies. "At the mid-point of the year,we are seeing the broad based market strength we expected,and we remain well positioned to achieve this goal. We delivered robust bookings and revenue growth and record backlog in the second quarter,improving our overall visibility for 2021 and into 2022.
"Thanks to the dedication of our team around the world,we also achieved our strong organic leverage target of 30%,significant margin expansion,51% adjusted EPS growth and healthy free cash flow. Demand trends remain favorable across the majority of our end markets and,with continued strong execution,we are managing significant headwinds from material inflation and supply chain constraints to meet the needs of our customers and to position us well for the future. With our purpose-driven sustainability strategy and significant opportunities across the business,we are confident in our ability to deliver ongoing strong and differentiated returns for our shareholders."
Highlights from the Second Quarter of 2021 (all comparisons against the second quarterof2020 unless otherwise noted)
Strong execution drove revenue,operating income and continuing EPS growth in largely improving end markets.
Enterprise reported bookings and revenues were up 34 percent and 22 percent,respectively. Organic bookings and revenues were up 30 percent and 18 percent,respectively,driven by growth in all segments.
Enterprise reported revenue growth included approximately 2 percentage points of growth from acquisitions and approximately 2 percentage points of foreign exchange impact.
GAAP operating margin was up 350 basis points,adjusted operating margin was up 210 basis points,and adjusted EBITDA margin was up 180 basis points,driven by strong performance in Americas and EMEA segments.
Second-QuarterBusinessReview(allcomparisonsagainstthesecondquarterof2020unlessotherwise noted)
Americas Segment: innovates for customers in the North America and Latin America regions. TheAmericas segment encompasses commercial heating and cooling systems,building controls,and energyservicesandsolutions;residentialheatingandcooling;andtransportrefrigerationsystemsandsolutions.
$,millions
Q22021
Q22020
Y-O-YChange
Organic Y-O-Y
Change
Bookings
$3,359.0
$2,558.5
31%
29%
NetRevenues
$2,971.6
$2,456.4
21%
19%
GAAPOperatingIncome
$560.1
$413.3
36%
GAAPOperatingMargin
18.8%
16.8%
200bps
AdjustedOperatingIncome
$561.8
$419.1
34%
AdjustedOperatingMargin
18.9%
17.1%
180bps
AdjustedEBITDA
$621.0
$470.5
32%
AdjustedEBITDAMargin
20.9%
19.2%
170bps
Americas delivered strong revenue growth and margin expansion as markets continued to improve.
Americas reported bookings and revenues were up 31 percent and 21 percent,respectively. Organic bookings and revenues were up 29 percent and 19 percent,respectively. Americas had record backlog entering the second half of 2021.
Americas reported revenue growth included approximately 2 percentage points of growth from acquisitions.
GAAP operating margin increased 200 basis points,adjusted operating margin increased 180 basis points and adjusted EBITDA margin increased 170 basis points. Price,volume and productivity more than offset material and other inflation.
Europe,Middle East and Africa (EMEA) Segment: innovates for customers in the Europe,MiddleEast and Africa region. The EMEA segment encompasses heating and cooling systems,services andsolutionsforcommercialbuildings,andtransportrefrigerationsystemsandsolutions.
$,millions
Q22021
Q22020
Y-O-YChange
Organic Y-O-Y
Change
Bookings
$629.8
$376.7
67%
53%
NetRevenues
$523.2
$373.2
40%
28%
GAAPOperatingIncome
$99.1
$42.4
134%
GAAPOperatingMargin
18.9%
11.4%
750bps
AdjustedOperatingIncome
$99.5
$48.3
106%
AdjustedOperatingMargin
19.0%
12.9%
610bps
AdjustedEBITDA
$107.3
$59.3
81%
AdjustedEBITDAMargin
20.5%
15.9%
460bps
EMEA delivered strong revenue growth and margin expansion as markets continued to improve.
EMEA reported bookings and revenues were up 67 percent and 40 percent,respectively. Organic bookings and revenues were up 53 percent and 28 percent,respectively. EMEA had record backlog entering the second half of 2021.
EMEA reported revenue growth included approximately 10 percentage points of foreign exchange impact and approximately 2 percentage points of growth from acquisitions.
GAAP operating margin increased 750 basis points,adjusted operating margin increased 610 basis points and adjusted EBITDA margin increased 460 basis points. Price,volume and productivity more than offset material and other inflation.
Asia Pacific Segment: innovates for customers throughout the Asia Pacific region. The Asia Pacificsegment encompasses heating and cooling systems,services and solutions for commercial buildings andtransportrefrigeration systems and solutions.
$,millions
Q22021
Q22020
Y-O-YChange
Organic Y-O-Y
Change
Bookings
$394.9
$333.4
18%
12%
NetRevenues
$334.9
$309.2
8%
2%
GAAPOperatingIncome
$57.8
$52.9
9%
GAAPOperatingMargin
17.3%
17.1%
20bps
AdjustedOperatingIncome
$57.5
$54.3
6%
AdjustedOperatingMargin
17.2%
17.6%
(40bps)
AdjustedEBITDA
$63.0
$60.1
5%
AdjustedEBITDAMargin
18.8%
19.4%
(60bps)
Asia Pacific delivered revenue growth despite ongoing COVID-19 pandemic-related impacts.
Asia Pacific reported bookings and revenues were up 18 percent and 8 percent,respectively. Organic bookings and revenues were up 12 percent and 2 percent,respectively. Asia Pacific had record backlog entering the second half of 2021.
Asia Pacific reported revenue growth included approximately 6 percentage points of growth primarily from foreign exchange impacts.
GAAP operating margin improved 20 basis points,adjusted operating margin declined 40 basis points and adjusted EBITDA margin declined 60 basis points. EBITDA margins are up 270 basis points over the last two years,or 135 basis points on average per year.
BalanceSheetandCashFlow
$,millions
Q22021
Q22020
Y-O-YChange
CashFromContinuingOperatingActivitiesY-T-D
$752
$179
$573
FreeCashFlowY-T-D*
$696
$183
$513
WorkingCapital/Revenue*
1.5%
6.2%
470bpsdecrease
CashBalance30June
$2,912
$2,367
$545
DebtBalance30June
$4,965
$5,268
($303)
Year-to-date,the Company generated cash flow from operating activities of $752 million and free cash flow of $696 million.
The Company continues to expect 2021 free cash flow to be equal to or greater than 100 percent of adjusted net earnings.*
CapitalDeployment
The Company continues to reinvest in innovation and technology projects and capital expenditures to support its core sustainability strategy.
The Company paid $282 million in dividends year-to-date,including $141 million during the second quarter. The Company expects to pay a competitive and growing dividend,currently at $2.36 per share annualized,reflecting an approximately 11 percent increase over 2020.
The Company deployed capital of $85 million for acquisitions and investments,$300 million for debt retirement and executed approximately $600 million in share repurchases through August 4,2021.
The Company expects to deploy approximately $2.5 billion as part of its balanced capital allocation strategy in 2021,inclusive of approximately $564 million in dividends,$1.5 billion between strategic value-accretive mergers and acquisitions and share repurchases and $425 million in debt retirement.
The Company expects to continue to deploy 100 percent of excess cash to shareholders over time.
Full-YearUpdated2021Guidance
Reported revenues up approximately 13.5 percent; organic revenues up approximately 11 percent versus 2020.
GAAP continuing EPS of $5.80,including EPS of $(0.25) for transformation and other restructuring costs; adjusted continuing EPS of $6.05,up 36 percent versus 2020.
Additional information regarding the company's 2021 guidance is included in the company's earnings presentation found at www.tranetechnologies.com in the Investor Relations section.
This news release includes "forward-looking statements," which are statements that are not historical facts,including statements that relate to our future performance during the COVID-19 global pandemic,capital deployment including the amount and timing of our dividends,our share repurchase program including the amount of shares to be repurchased and the timing of such repurchases and our capital allocation strategy including acquisitions (if any); our projected free cash flow and usage of such cash; our available liquidity; performance of the markets in which we operate; restructuring activity; our projected financial performance and targets including assumptions regarding our effective tax rate. These forward-looking statements are based on our current expectations and are subject to risks and uncertainties,which may cause actual results to differ materially from our current expectations. Such factors include,but are not limited to,the impact of the global COVID-19 pandemic on our business,our suppliers and our customers,global economic conditions taking into account the global COVID-19 pandemic,disruption and volatility in the financial markets due to the COVID-19 pandemic,the outcome of any litigation,the outcome of Chapter 11 proceedings for our deconsolidated subsidiaries Aldrich Pump LLC and Murray Boiler LLC,demand for our products and services,and tax audits and tax law changes and interpretations. Additional factors that could cause such differences can be found in our Form 10-K for the year ended December 31,2020,as well as our subsequent reports on Form 10-Q and other SEC filings. We assume no obligation to update these forward-looking statements.
This news release also includes non-GAAP financial information,which should be considered supplemental to,not a substitute for,or superior to,the financial measure calculated in accordance with GAAP. The definitions of our non-GAAP financial information and reconciliation to GAAP are attached to this news release.
Allamountsreportedwithintheearningsreleaseaboverelatedtonetearnings(loss),earnings(loss)fromcontinuing operations,earnings (loss) from discontinued operations,adjusted EBITDA and per share amounts areattributedtoTraneTechnologies'ordinaryshareholders.
Trane Technologies (NYSE:TT) is a global climate innovator. Through our strategic brands Trane® and Thermo King®,and our portfolio of environmentally responsible products and services,we bring efficient and sustainable climate solutions to buildings,homes and transportation. For more information,visit tranetechnologies.com.
(SeeAccompanyingTables)
Table 1: Condensed Consolidated Income Statement
Tables 2 - 5: Reconciliation of GAAP to Non-GAAP
Table 6: Condensed Consolidated Balance Sheets
Table 7: Condensed Consolidated Statement of Cash Flows
Table 8: Balance Sheet Metrics and Free Cash Flow
*Q2Non-GAAPmeasuresdefinitions
Organic revenue is defined as GAAP net revenues adjusted for the impact of currency and acquisitions. Organic bookings is defined as reported orders in the current period adjusted for the impact of currency and acquisitions.
Adjusted operating income in 2021 and 2020 is defined as GAAP operating income plus restructuring costs andtransformation costs. Please refer to the reconciliation of GAAP to non-GAAP measures on tables 2,3 and 4 of thenewsrelease.
Adjustedoperatingmarginisdefinedastheratioofadjustedoperatingincomedividedbynetrevenues.
Operating leverage is defined as the ratio of the change in adjusted operating income for the current period (e.g.Q2 2021) less the prior period (e.g. Q2 2020),divided by the change in net revenues for the current period less thepriorperiod.
AdjustedearningsfromcontinuingoperationsattributabletoTraneTechnologiesplc(Adjustednetearnings) in 2021 is defined as GAAP earnings from continuing operations attributable to Trane Technologies plcplus restructuring costs and transformation costs,net of tax impacts. Adjusted net earnings in 2020 is defined as GAAP earnings from continuing operations attributable to Trane Technologies plc plus restructuring costs and transformation costs less the gain on deconsolidation of certain entities under Chapter 11,net of tax impacts. Please refer to the reconciliation of GAAP to non-GAAP measures ontables2and3ofthenewsrelease.
Adjusted continuing EPS in 2021 is defined as GAAP continuing EPS plus restructuring costs and transformationcosts,net of tax impacts. Adjusted continuing EPS in 2020 is defined as GAAP continuing EPS plus restructuringcosts and transformation costs less the gain on deconsolidation of certain entities under Chapter 11,net of taximpacts.PleaserefertothereconciliationofGAAPtonon-GAAPmeasuresontables2and3ofthenewsrelease.
AdjustedEBITDAin2021isdefinedasadjustedoperatingincomeplusdepreciationandamortizationexpenseplus or minus other income / (expense),net. Adjusted EBITDA in 2020 is defined as adjusted operating income plusdepreciation and amortization expense plus or minus other income / (expense),net less the gain on deconsolidationof certain entities under Chapter 11. Please refer to the reconciliation of GAAP to non-GAAP measures on tables 4and5ofthenewsrelease.
AdjustedEBITDAmarginisdefinedastheratioofadjustedEBITDAdividedbynetrevenues.
Free cash flow in 2021 and 2020 is defined as net cash provided by (used in) continuing operating activities,lesscapital expenditures,plus cash payments for restructuring costs and transformation costs. Please refer to the freecashflowreconciliationon table8ofthenewsrelease.
Workingcapitalmeasuresafirm'soperatingliquiditypositionanditsoveralleffectivenessinmanagingtheenterprise'scurrentaccounts.
Working capital is calculated by adding net accounts and notes receivables and inventories and subtracting total current liabilities that exclude short-term debt,dividend payables and income tax payables.
Working capital as a percent of revenue is calculated by dividing the working capital balance (e.g. as of June 30) by the annualized revenue for the period (e.g. reported revenues for the three months ended June 30 multiplied by 4 to annualize for a full year).
Adjusted effective tax rate for 2021 is defined as the ratio of income tax expense less the net tax effect of adjustments for restructuring costs and transformation costs divided by earnings from continuing operations before income taxes plus restructuring costs and transformation costs. Adjusted effective tax rate for 2020 is defined as the ratio of income tax expense less the net tax effect of adjustments for restructuring costs,transformation costs and the gain on deconsolidation of certain entities under Chapter 11 divided by earnings from continuing operations before income taxes plus restructuring costs and transformation costs less the gain on deconsolidation of certain entities under Chapter 11. This measure allows for a direct comparison of the effective tax rate between periods.
The Company reports its financial results in accordance with generally accepted accounting principles in the UnitedStates (GAAP). The following schedules provide non-GAAP financial information and a quantitative reconciliation ofthe difference between the non-GAAP financial measures and the financial measures calculated and reported inaccordancewithGAAP.
The non-GAAP financial measures should be considered supplemental to,not a substitute for or superior to,financial measures calculated in accordance with GAAP. They have limitations in that they do not reflect all of thecosts associated with the operations of our businesses as determined in accordance with GAAP. In addition,thesemeasuresmaynotbecomparabletonon-GAAPfinancialmeasuresreportedbyothercompanies.
We believe the non-GAAP financial information provides important supplemental information to both managementand investors regarding financial and business trends used in assessing our financial condition and results ofoperations.
Non-GAAP financial measures assist investors with analyzing our business results as well as with predicting futureperformance. In addition,these non-GAAP financial measures are also reviewed by management in order toevaluate the financial performance of each segment. Presentation of these non-GAAP financial measures helpsinvestorsandmanagementtoassesstheoperatingperformanceoftheCompany.
As a result,one should not consider these measures in isolation or as a substitute for our results reported under GAAP. We compensate for these limitations by analyzing results on a GAAP basis as well as a non-GAAP basis,prominently disclosing GAAP results and providing reconciliations from GAAP results to non-GAAP results.
