Firing on All Cylinders

Dave Regnery - Bloomberg The Close Interview

Thu, May 16, 2024 10:33AM • 6:35

SPEAKERS

Dave Regnery, Alix Steel, Romaine Bostick

Alix Steel  00:00

We'd love to get some on the ground perspective on the print here in studio with more is Dave Regnery, the chair and CEO of Trane Technologies, and is an HVAC company heating, ventilation and air conditioning, that stock is up 34% This year, recently reported earnings firing on all cylinders. Great to see you. Thank you for joining.

Dave Regnery  00:18

Thanks for having me on your show. I really appreciate being here. The news of the day, what areas

Alix Steel  00:22

are you still seeing maybe disinflation in inputs in your business? Are you seeing any inflation? How would you categorize them?

00:28

We're certainly seeing some inflation, especially on the labor side. I mean, from a commodity standpoint, yeah. coppers up Steel's down. So that's kind of normalizing itself. But you know, what we've been able to do at train technologies is we built a built a business operating system. So we really have great insights as to what the cost is, so we can make sure we're pricing our product correctly.

Alix Steel  00:50

So how do you so what is your visibility in that in terms of how we have our product

Dave Regnery  00:54

growth teams, as we call them, it's really expertise that is able to really what I call look around the corner, so they can be able to understand what those cost inputs are going to be. Now on a commodity basis, we'll do hedging, so we can plan accordingly. But we really stay in tune with what's happening in the market. So we understand what the cost of our product is, to make sure that we say stay ahead of any pricing that's required. Where's

Romaine Bostick  01:14

the growth coming from right now? Is it primarily sort of new customers new sales? Or is it sort of replacement of existing equipment? Where's it at?

Dave Regnery  01:22

Remain, we had a very strong first quarter, as Alex said, in her opening here, our organic revenue growth was up 14% Organic order rates, our bookings coming in, were up 17%, and our EPS growth was 38%. So we had a very strong first quarter. And the good news is that I would call the growth as broad based. So we track in North America, we track about 14 different verticals. And I would tell you that almost all of the verticals had strength, we had growth and all but two, and that was marginal, and that would be traditional office that was a bit softer. And lodging, that was a big thought. But we saw growth, whether it be in the high tech, industrial data centers, education, health care, government, K through 12, as well as higher ed,

Romaine Bostick  02:08

what does that say, though, about the economy? I mean, one reason why we love talking to people like you is because the type of business you're in, I mean, you kind of have that eagle eye view of really what's going on? Yeah,

Dave Regnery  02:15

I mean, we're seeing a lot of strength. And if you look at our growth rates, I'm very proud of what our team has been able to accomplish, I would tell you that it has a lot to do with your innovation pipeline as well. So we invest heavily in our business, we're not episodic at all in our investments, we're very consistent, and we invest for the long term, I often get asked, Well, why can't you leverage more or give more ROI for every incremental dollar of sales? And I'm always like, no, no, no, our model is 25%. Because we always want to make sure that we can reinvest in our business to make sure we stay ahead, I should

Romaine Bostick  02:50

point out that kind of makes you somewhat of an outlier these days among big CEOs. I mean, everybody now is just pushing that cash back to investors. And you're saying there's a need to,

Dave Regnery  02:58

it's like, for example, we have one of our businesses, our Thermo King business, which is in transport refrigeration, it's a business that's in a down cycle, okay, so it did not have growth in the first quarter. Now's the time to continue and reinvest in your business, it will come back, it will be very strong right now all indications are, it comes back and 2025 will be ready. And we'll be ready to really come up with competitive advantages in 2025. To be fair,

Alix Steel  03:23

DCS helped you guys I mean, back in the pandemic, it was all like, let's retrofit all the schools to make sure we have good ventilation systems, then it's also about the IRA, we all need to sort of decarbonize and get better air filtration systems. This is all like, gold to you. Right? So how much of that is coming from the government? How do you get that revenue

Dave Regnery  03:41

early? Certainly. I always tell people that if you're going to build your business model around policy or rebates coming from whether it be the government or state levels, typically long term, that's a bad business model. Helping right, it's a tailwind. We look at it as a tailwind. If I look at ESSR funding, right, which is for the education vertical. Absolutely. It's a tailwind for our business. And by the way, it really helped to upgrade a lot of the infrastructures that were so under invested in for so long. And there's still a long way to go to make sure that we can make sure the the environment where our students are learning is safe and healthy.

Alix Steel  04:17

Give me a perspective globally. So I know the majority of your revenue comes from the Americas. But do you see any signs of slowdown elsewhere? How do you think and he's smiling at me? And I don't know why. How do you think about managing the trade tensions between the US and China? Yeah,

Dave Regnery  04:30

I'll tell you we, if I if I look at look at Europe, we'll start in Europe, okay, Europe for most was down in the first quarter. We were up, you know, high single digits. Why? Because we lead with our innovation there. We created systems that are fundamentally different than what was out there in the past. We've been able to change the way heating and cooling happens for a building in a traditional building you had, you know, a heating plant. We'll call that a boiler you had a cooling plant. We'll call that a chiller and they are paraded independently, what we were able to do is combine it into one system. So it starts with a heat pump and uses sophisticated controls, it uses other parts of that system. But it basically can significantly reduce or eliminate the need for fossil fuel. And when you think about that, from a carbon footprint, 15% of all greenhouse gas is from heating and cooling of a building. Well, a lot of that is from the heating because it's using combustion, combustion from fossil fuels, if you could eliminate or significantly reduce that fossil fuel, you now have a different solution. I always tell people, we're the disrupter in our own business. But we created solutions that were fundamentally different. And we're winning with those solutions. In China. Just to your question on China, our revenue growth in Asia was up I think we're up 16% In the first quarter. So very strong, seeing a lot of demand across many verticals. Again, high tech is certainly very strong their data centers, semiconductors, and I would also tell you that we have a great leadership team in China, our team has been there forever long tenure. And and they also have a we've what we've done was we took what we did in in the US and brought it to China probably about 10 years ago and built out a direct sales force. So we love being close to the customer. We love being understand what their needs are. And that was a different model really in China.

Romaine Bostick  06:23

All right, Dave, this is great stuff and really appreciate you stopping by. All right. Well, thank you very much for having me on your show. Absolutely. Dave Regnery there. He's the chair and CEO over at Trane Technologies.