Trane Technologies plc — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. The filing is an annual report; it does not provide a separate, complete fourth-quarter results summary. Amounts are U.S. dollars unless stated otherwise.
Business context
Trane Technologies designs, manufactures, sells and services HVAC, transport refrigeration and related solutions under the Trane and Thermo King brands. Its strategy includes expanding recurring service and rental revenue and developing energy-efficient, lower-emissions products. Approximately 28% of 2023 revenue came from outside the United States.
Reportable segments were Americas, EMEA and Asia Pacific. 2023 revenue was $13.832 billion, $2.401 billion and $1.444 billion, respectively. The company completed acquisitions of MTA, Helmer Scientific and Nuvolo during 2023.
Financial performance and liquidity
| Metric | 2023 | 2022 | Change or context |
|---|---|---|---|
| Net revenue | $17.678 billion | $15.992 billion | Up 10.5%; organic growth was 8.7%, with pricing up 4.4% and volume up 4.3% |
| Gross profit margin | 33.1% | 31.0% | Up 210 basis points |
| Operating income | $2.894 billion | $2.419 billion | Operating margin 16.4%, versus 15.1% |
| Net earnings attributable to Trane Technologies | $2.024 billion | $1.757 billion | Diluted EPS was $8.77, versus $7.48 |
| Segment Adjusted EBITDA | $3.456 billion | $2.913 billion | Non-GAAP; margin 19.5%, versus 18.2% |
| Cash from continuing operations | $2.427 billion | $1.699 billion | Increase attributed mainly to higher earnings and improved cash conversion |
| Free cash flow | $2.151 billion | $1.566 billion | Non-GAAP measure |
| Cash and cash equivalents | $1.095 billion | $1.221 billion | $949 million held by non-U.S. subsidiaries |
| Total debt | $4.780 billion | $4.836 billion | Debt-to-total-capital ratio was 40.5%, versus 44.2% |
Continuing investing cash outflow was $1.172 billion, including $862.8 million for acquisitions and $300.7 million of capital expenditures. Continuing financing cash outflow was $1.350 billion, including $683.7 million of dividends and $669.3 million of share repurchases. The company had no commercial paper outstanding and had $2.0 billion of unused revolving credit commitments at year-end. Its $2.0 billion contractual commercial paper program is supported by those facilities.
The 2023 effective tax rate was 19.4%, compared with 17.3% in 2022. The company expects Ireland’s implementation of the OECD Pillar Two minimum tax to increase its effective tax rate beginning in 2024.
Changes versus 2022
- Revenue growth reflected price realization, higher volumes and acquisitions; foreign currency translation reduced consolidated growth by 0.3 percentage points.
- Gross margin improved through pricing and productivity, partly offset by inflation and business reinvestment. Selling and administrative expenses rose 16.4%, faster than revenue, and increased to 16.7% of revenue from 15.9%.
- Segment Adjusted EBITDA margin improved in all three regions: Americas to 19.3% from 18.4%; EMEA to 19.4% from 16.6%; and Asia Pacific to 22.2% from 18.9%.
- Other income/(expense), net worsened to an expense of $92.2 million from $23.3 million, including a $52.2 million impairment of an equity investment.
- Acquisition and equity-investment spending increased; cash used for share repurchases decreased to $669.3 million from $1.200 billion.
Outlook, commentary and significant risks
- Management expects mixed market conditions. Commercial HVAC demand remained strong, supported by energy-efficiency and decarbonization needs; transport refrigeration demand was lower as customers adjusted to lower freight rates; residential markets were normalizing as lead times and distributor inventories returned toward normal.
- Management cited ongoing material, wage and energy inflation, while noting supply-chain disruptions and resource constraints had improved. The company estimated 2024 capital expenditures at approximately 2.5% of revenue and said existing cash, operating cash flow, credit lines and capital-market access should meet foreseeable needs.
- The board increased the quarterly dividend in February 2024 from $0.75 to $0.84 per share, or $3.36 annualized. The company had $2.5 billion remaining under its share repurchase authorization at year-end.
- Asbestos litigation: Subsidiaries Aldrich Pump and Murray Boiler remain in Chapter 11. The Bankruptcy Court denied motions to dismiss in December 2023; appeals were sought in January 2024. A proposed plan contemplates a $545 million trust, while a $270 million qualified settlement fund was funded in 2022. The ultimate liability, plan approval, timing and required company funding remain uncertain under the funding agreements.
- Other contingencies: Environmental reserves were $47.5 million at year-end. The company also disclosed approximately $1 billion of performance guarantees on completed energy-savings contracts extending through 2049; it reported only immaterial historical adjustments related to these guarantees.
- Key risks include economic and geopolitical disruption, supply and commodity costs, competition and product innovation, foreign exchange, cybersecurity, climate-related physical and regulatory changes, tax-law changes, acquisitions and legal proceedings. Management cautioned that actual results may differ materially from forward-looking statements.
- The auditor issued an unqualified opinion on the financial statements and internal control over financial reporting. Revenue recognition and valuation of certain acquired intangible assets were identified as critical audit matters.
Investor verification checklist
- Review the quality and durability of organic growth, pricing and volume trends, particularly the differing commercial HVAC, residential and transport refrigeration conditions.
- Reconcile non-GAAP Segment Adjusted EBITDA and free cash flow to GAAP results, and assess whether acquisition-related and other excluded items recur.
- Track integration and returns from MTA, Helmer and Nuvolo, including Nuvolo’s contingent consideration, which includes an additional earnout with no stated maximum.
- Follow the Aldrich and Murray bankruptcy appeals, proposed plan and trust funding; assess potential exposure under the funding agreements.
- Assess leverage, upcoming debt maturities and cash availability, including the location of cash and the impact of the expected 2024 tax-rate increase.
- Monitor climate commitments, refrigerant-transition costs, environmental obligations and the company’s long-term energy-savings guarantees.