Q1 2025 Trane Technologies PLC Earnings Call
Good morning, welcome to the Trane Technologies Q1, 'twenty 25 earnings conference call.
My name is Julie Anne and I'll be your operator for the call.
Paul will begin in a few moments with the speaker's remarks, and the Q&A session.
Speaker Change: At this time all participants are in a listen only mode.
Speaker Change: To ask a question during the Q&A session. Please press star followed by the number one on your telephone keypad.
Speaker Change: In the interest of time, we ask that participants please limit themselves to one question and one follow up.
Speaker Change: I'll now turn the call over to Zac Nagle, Vice President of Investor Relations.
Zac Nagle: Thanks, operator, good morning, and thank you for joining us for Trane technologies first quarter 2025 earnings conference call.
Zac Nagle: Call is being webcast on our website at treating technologies dot com, where you'll find the accompanying presentation. We are also recording and archiving this call on our website.
Zac Nagle: Please go to slide two.
Zac Nagle: Statements in today's call that are not historical facts are considered forward looking statements and are made pursuant to the safe Harbor provisions of Federal Securities Law.
Zac Nagle: Please see our SEC filings for a description of some of the factors that may cause actual results to differ materially from anticipated results.
Zac Nagle: Presentation also includes non-GAAP measures, which are explained in the financial tables attached to our news release joining.
Zac Nagle: Joining me on today's call are favorite Mary Chair, and CEO, and Chris Kuehn, Executive Vice President and CFO with that I'll turn the call over to Dave Davis.
Zac Nagle: Thanks, Zach and everyone for joining today's call. Please turn to slide number three.
Zac Nagle: I'd like to begin with a few minutes on our purpose driven strategy, which enables our differentiated financial results over time.
Zac Nagle: Trane technologies, we continuously innovate for a sustainable world setting the pace for our industry and driving significant customer demand.
Zac Nagle: Our solutions offer very attractive paybacks, helping customers reduce energy use emissions and operating costs.
Zac Nagle: These long term partnerships not only fuel our growth, but also make a positive impact on the world.
Zac Nagle: Our leading innovation prudent business operating system, and uplifting culture enable us to navigate dynamic environments.
Zac Nagle: Outperformed the markets and deliver robust free cash flow.
Zac Nagle: This strong consistent performance positions us to deliver differentiated shareholder value well into the future.
Zac Nagle: Please turn to slide number four.
Zac Nagle: We delivered strong financial results in the first quarter, continuing our track record of industry, leading revenue and EPS growth.
Zac Nagle: Our global team achieved 11% organic revenue growth of 130 basis points of adjusted EBITDA margin expansion and 26% adjusted EPS growth.
Zac Nagle: Bookings were robust up 4% with a book to bill ratio of 113% for the enterprise and book to bill of 100% or more across all segments and businesses.
Zac Nagle: We added about $500 million to our backlog from year end 2024, including approximately $400 million in our Americas commercial HVAC business.
Zac Nagle: Our commercial HVAC and services businesses have shown outstanding durability, and resiliency compounding growth over multiple years and our project pipelines continue to grow highlighting sustained opportunities ahead.
Zac Nagle: Our direct sales strategy enables us to capture more than our fair share of these opportunities and consistently outgrow our end markets.
Zac Nagle: Our service business represents one third of our enterprise revenues with a high single digit compound annual growth rate since 2019, and a low teens CAGR since the inception of Trane technologies.
Zac Nagle: We pride ourselves on strong execution and delivering for our customers and stakeholders.
Zac Nagle: Despite a dynamic macroeconomic environment, we are confident in our ability to outperform.
Zac Nagle: Our experienced global teams have effectively manage past challenges consistently improving our business operating system to be more agile and resilient.
Zac Nagle: This system includes advanced mechanisms for pricing supply chain management and productivity to manage various inflationary scenarios.
Zac Nagle: We are well prepared to manage the modest cost inflation, we expect while minimizing the impact on our customers and driving market growth.
Zac Nagle: Looking forward, we're confident in our ability to deliver results towards the higher end of our full year revenue and EPS guidance ranges, which Chris will cover in more detail shortly.
Zac Nagle: Please turn to slide number five in our Americas segment commercial HVAC bookings set a new quarterly record surpassing last year's high.
Zac Nagle: Revenue growth was robust with mid teens growth in equipment and low teens in services.
Zac Nagle: <unk> growth was also strong with bookings up mid teens and revenues up high teens.
Zac Nagle: Transport refrigeration bookings were down low single digits and revenues were up mid single digits significantly outperforming end markets, which were down around 25%.
Zac Nagle: In our EMEA segment commercial HVAC bookings were very strong up mid teens revenue was up mid single digits in line with our expectations for the quarter.
Zac Nagle: Transport bookings were up high single digits revenues were up mid single digits outperforming end markets, which were down mid single digits.
Zac Nagle: In Asia Pacific our team showed resilience with balanced results between China and the rest of Asia.
Zac Nagle: And the rest of Asia bookings and revenues were strong up double digits and low twenty's, respectively in China, the market remains challenging with bookings and revenues down low thirties, and high twenty's, respectively against tough prior year comps of approximately plus 20% for both.
Speaker Change: Now I'd like to turn the call over to Chris Chris.
Chris: Thanks, Dave Please turn to slide number six.
Speaker Change: This slide highlights our strong first quarter performance organic revenues up 11% adjusted EBITDA margins up 130 basis points and adjusted EPS up 26%.
Chris: We delivered robust organic revenue growth in both equipment and services.
Chris: Our high performance flywheel fueled by relentless innovation continues to drive top line growth margin expansion and EPS growth.
Chris: Please turn to slide number seven.
Chris: At the enterprise level, we delivered strong volume growth positive price realization and productivity gains that offset inflation and higher levels of business reinvestment.
Chris: Our Americas segment delivered revenue growth across all businesses.
Chris: Adjusted EBITDA margin, expanding by 170 basis points, driven by volume growth productivity and price realization.
Chris: In EMEA revenues increased in each business. The adjusted EBITDA margin declined by 190 basis points due to high business reinvestment during a shoulder season.
Chris: <unk> met our expectations and we're confident and strong margin performance for 2025.
Chris: In Asia Pacific Despite a modest revenue decline the team delivered 90 basis points of adjusted EBITDA margin expansion through strong productivity and cost management.
Dave: Now I'd like to turn the call back over to Dave.
Chris: Dave.
Dave: Thanks, Chris Please turn to slide number eight.
Dave: Overall, our market outlook remains largely unchanged from our fourth quarter earnings call in January our team remains agile to drive outperformance in a dynamic macroeconomic environment.
Dave: In the Americas, we had an excellent start to the year across our businesses providing strong momentum.
Dave: Our outlook for commercial HVAC remains unchanged supported by strong bookings revenues and backlog build in the first quarter our.
Dave: Our World Class direct sales force and leading innovation are powerful competitive advantages, particularly in large complex projects requiring bespoke applied solutions, we have a proven track record of rapidly compounding growth here.
Dave: With two year stacked revenue growth of approximately 90%.
Dave: Three year stacked revenue growth of approximately 130%.
Dave: And four year stacked revenue growth of approximately 200% in the applied equipment space.
Dave: For 2025, we are targeting total Americas commercial HVAC I see three year stack revenue growth of approximately 50% inclusive of both equipment and services to meet this target we expect to deliver revenue growth of high single digits to 10% in 2025, and we're on pace to meet or exceed this target.
Dave: In residential our outlook is also unchanged, we expect residential markets to return to a GDP plus framework in 2025.
Our strong first quarter results suggest we did not see a dip in volume due to the 2024 pre buy as anticipated while channel inventories are modestly elevated by an estimated $75 million to $100 million, we expect them to normalize in 2025, aligning with our GDP plus outlook.
Dave: For transport, we anticipate a strong market rebound in 2026 and beyond or 2025 Act has revised their trailer outlook from down-low single digits to down about 15%, while our internal models suggest a mid twenties trailer market decline.
For Prudency, we've incorporated the mid Twenty's decline into our guidance.
Dave: Translating the trailer market forecast to the overall transport market forecast, we anticipate the weighted average market to be down about 20% for the year and we expect to outperform.
Dave: In EMEA, we see continued strength in commercial HVAC I see in 2025, driven by strong execution in core markets and tailwind from thermal management systems services and key growth verticals.
Dave: Expectations for EMEA transport markets are now expected to be down low single digits in 2025, and we expect to outperform.
Dave: In Asia, our outlook for the year remains unchanged, we anticipate a flat market overall.
Dave: Balanced between challenging conditions in China and growth opportunities in the rest of Asia.
Chris: Now I'd like to turn the call back over to Chris Chris.
Chris: Thanks, Dave Please turn to slide number nine.
Speaker Change: Our 2025 guidance aligns with the market outlook, Steve discussed incorporating our value creation flywheel focus on innovation market outgrowth healthy leverage and strong free cash flow.
Speaker Change: At this early stage in the year, we are maintaining our prior guidance ranges of 7% to 8% organic revenue growth and $12 70 to $12 90 adjusted earnings per share and expect to perform towards the high end of these ranges.
Speaker Change: Given the U S dollar softening through the end of the first quarter, we anticipate negative 50 basis points of FX impact to revenues an improvement from negative 100 basis points previously.
Speaker Change: Recent bolt on acquisitions have added approximately 50 basis points to our revenue growth from M&A, bringing the total to about 100 basis points for the year up from 50 basis points prior.
Speaker Change: The net EPS impact of FX, and M&A remains unchanged and minus 20 for the year.
Speaker Change: We expect to manage and mitigate all tariff impacts that are now in place through proactive measures including pricing.
Speaker Change: We estimate the cost impact in 2025 to be approximately $250 million to $275 million.
Speaker Change: We will take surgical pricing actions to offset tariff impacts dollar for dollar aiming to fully mitigate these costs, while minimizing the impact on our customers.
Speaker Change: Net tariff costs are included in our EPS guidance for the year and are expected to have zero impact.
Speaker Change: Given the dynamic tariff environment, it's premature to build specific pricing into our revenue guidance at this stage.
Speaker Change: We will provide updates as more information becomes available.
Speaker Change: We continue to target organic leverage of 25% or higher consistent with our long term goals and anticipate another year of a 100% or greater free cash flow conversion in 2025.
Speaker Change: For the second quarter, we expect approximately 8% organic revenue growth and approximately $3 75 and adjusted EPS.
Speaker Change: We do not anticipate a material impact from tariffs that are now in place in the second quarter for additional details related to our guidance. Please refer to slide 16.
Speaker Change: Please turn to slide number 10.
Speaker Change: We remain committed to our balanced capital allocation strategy focused on deploying excess cash to maximize shareholder returns.
Speaker Change: First we strengthened our core business through relentless reinvestment.
Speaker Change: Second we maintain a strong balance sheet to ensure flexibility as markets evolve.
Speaker Change: Third we expect to deploy 100% of excess cash over time.
Speaker Change: Our approach includes strategic M&A to enhance long term returns and share repurchases when the stock trades below intrinsic value.
Speaker Change: Please turn to slide number 11.
Speaker Change: In the first quarter, we deployed approximately $775 million through our balanced capital allocation strategy with.
Speaker Change: With $210 million to dividends.
Speaker Change: $15 million to M&A.
Speaker Change: $550 million to share repurchases.
Speaker Change: These figures exclude $260 million for M&A and $100 million from share repurchases made early in the quarter, which were included in our fiscal year 2024 capital deployment targets as discussed during our fourth quarter earnings call.
Speaker Change: In February our board of directors approved a dividend raise of 12% that became effective with the first quarter payment.
Speaker Change: Since the launch the Trane technologies, the dividend has grown by nearly 80%.
Speaker Change: We opportunistically accelerated share repurchases in the first quarter to capitalize on periods of acute share price dislocation.
Speaker Change: Five $6 billion remaining under our repurchase authorizations, providing us with significant flexibility moving forward.
Speaker Change: Our M&A pipeline remains active and we will continue to be disciplined in our approach.
Speaker Change: Overall, our strong free cash flow liquidity balance sheet and substantial share repurchase authorization offer excellent capital allocation optionality as we move forward.
Dave: Now I'd like to turn the call back over to Dave Dave.
Dave: Thanks, Chris Please turn to slide number 13.
Dave: You've covered transport in previous slides. So I'll keep this brief the Americas transport refrigeration markets have been volatile, but the long term outlook remains strong for.
Dave: For 2026, and 2027 act projects, a strong rebound with over 20% growth each year.
Dave: We are managing well through the down cycle, we continue to invest in innovation and we are excited to add another significant growth driver to our enterprise portfolio in 2026 and beyond.
Dave: Please go to slide number 14 and.
Dave: In summary, we are poised to achieve leading performance and deliver outstanding shareholder returns in 2025 and beyond our vibrant culture cutting edge innovation robust business operating system and proven track record differentiate trane technologies in the market.
Dave: Proud of our team's consistent growth highlighted by our strong results in the first quarter and over time.
Dave: I firmly believe our best days are yet to come.
Dave: And now we'd be happy to take your questions operator.
Dave: Thank you to ask a question. Please press star followed by the number one on your telephone keypad.
Dave: We ask that participants please limit themselves to one question and one follow up thank you.
Julian Mitchell: Our first question comes from Julian Mitchell from Barclays. Please go ahead. Your line is open.
Julian Mitchell: Hi, good morning.
Julian Mitchell: Maybe.
Julian Mitchell: Just wanted to start off with the commercial.
Julian Mitchell: <unk> markets and I suppose the Americas in particular.
Julian Mitchell: You mentioned sort of a growing pipeline, but just wanted to understand if there's been any sort of shift in specific.
Julian Mitchell: To close that you've seen in recent months in terms of demand or orders.
Julian Mitchell: So I realize there's different definitions of sort of light commercial versus supply, but some of the light commercial data has not been so good the last six months.
One did sort of.
Julian Mitchell: Have you seen that.
Julian Mitchell: Are you concerned about that as pertains to the applied read across software lag any color on that please.
Dave: Hey, Julien Hi, Dan This is Dave I'll start.
Speaker Change: As far as commercial HVAC. He goes into the Americas. It was another very strong quarter for us in fact order rates were an all time record.
Dave: We surpassed last year's record.
Dave: This quarter, so it's and it continues to be broad based strength, we're seeing which is very encouraging sure. We're very strong in data centers were very strong in health care.
Dave: Very strong and education, especially in higher Ed, but it was broad based the majority of our verticals had positive growth in the quarter, which is always reassuring.
Dave: To us and the pipeline that I was referring to during our prepared remarks remains very very strong and that's what our sales teams are working on today and we have visibility of that vis vis the systems that we have so look it's a very positive in the Americas right now and.
Dave: We continued.
Dave: To be very very robust the team there so and also our services business to continue to do very well.
Dave: Which is again, a great tailwind for our business. So Chris I'll, let you talk a little bit about unitary and applied yeah, Hey, good morning Julien.
Chris: In the first quarter and also as we're thinking about guidance for the full year.
Dave: Applied was stronger than unitary is expected.
Dave: And given the broad base the nature of how we think about the verticals that we support different.
Dave: Acacias support different verticals with.
Dave: With different strength or weakness there, but as we're thinking about the unitary markets for the year, we really don't expect much growth in those markets. This year the market to be flat to down yes.
Dave: Got that baked into our guidance, but we really see this year that unit.
Applied markets will be stronger than unitary markets. This year.
Speaker Change: That's very helpful. Thank you and then just my follow up would be around the price actions to offset.
Speaker Change: Gross headwinds, maybe just kind of flesh those out a little bit and in the resi market, specifically I think you're very clear that there was no pre buy impact evident in Q1, despite a lot of the concerns out there the last year or so.
Speaker Change: How are you thinking about the price increases that sort of influencing volume demand didn't raise.
Speaker Change: Yes, I'll start with pricing in general Julien, we started the year with our normal level of price increase that we go into any year with think of that in that December January timeframe, and really leveraging our business operating system running scenarios around the tariff environment.
Speaker Change: I think about all of the scenarios you run at the beginning of the year. When you have 12 months in front of you and I think we ran as many scenarios if not more in the April timeframe with eight months left in the year to go. So I think we really try to triangulate multiple ways multiple scenarios here really pressure testing, what we thought the guidance.
Speaker Change: It was and what we want it to be today, which we reiterated guidance and we have a lot of confidence being at the high end of that guide. So pricing look we are remaining nimble here in this environment. The first thing is how do we offset the cost of tariffs we've identified an estimated $250 million to $275 million of tariff cost this year.
Speaker Change: A number were working down that's the first step is reduce the impact to customers, but to the extent that there was a net tariff costs call it $100.
Speaker Change: We're going to have to put $100 a price in place. So between February through April we've implemented price increases and our surcharges think of them as up to if it's a price increase which gives us a lot of flexibility to be very surgical in how we're thinking about a price increase and then a surcharge could be in place. But then also easily removed as we see <unk>.
Speaker Change: <unk>, possibly happening here in the tariff environment. So.
Speaker Change: That's how we're looking at it for this year.
Speaker Change: We've had a lot of experience in this space over the last several years think about 2022 with a very high inflationary environment with supply chain challenges.
Speaker Change: We had to delivered 10 points of price in 2022, we delivered about five points of price in 2023. So we're really leveraging the business operating system here and confident in our ability to really manage tariffs based on what we know today, yes.
Speaker Change: Yes, <unk>. This is Dave Julian and look the team performed very well in Q1 were very encouraged with the start to the year, but I would remind everyone. It is just the first quarter number one.
Speaker Change: The pre buy question, yes, we did not see an impact in Q1, and I said in the fourth quarter call. It's always hard to estimate what the pre buy is because.
Speaker Change: Don't tell us.
Speaker Change: I'll have a box to check to say hey, this is a pre buy offer.
Speaker Change: But we did not see it but that said, we do have elevated inventory.
Speaker Change: We're estimating that to be right around the same amount that we had the pre buy or what we thought the <unk> was in the fourth quarter and that 75 to 100 million. So inventory is a bit higher than we would normally see this time.
Speaker Change: Could it be our IW days, just stocking up for the season, Yeah, we'll see how that plays out, but we do anticipate that burning through.
Speaker Change: As the year progresses.
Speaker Change: And for the full year, we still have our <unk> business in the mid single digit range, which is back to our GDP plus guideline.
Speaker Change: That's great. Thank you.
Speaker Change: Thanks. Your next question are.
Speaker Change: Our next question comes from Chris Snyder from Morgan Stanley. Please go ahead. Your line is open.
Speaker Change: Thank you I appreciate the question I just wanted to follow up on the Americas commercial HVAC demand, obviously record orders in Q1 suggest things are still quite good.
Speaker Change: The question is how customer conversations changed at all since the start of the year and the channel. We're hearing more about some projects are moving slower.
Speaker Change: Uncertainty around cost.
Speaker Change: Are you feeling any of that in the business.
Speaker Change: And just wondering if theres a risk that maybe.
Speaker Change: It could drive some elongation in converting the pipeline to orders. Thank you.
Speaker Change: It's a great question, because we haven't seen that and I'm sure. There's pockets of it with a particular customer, but we certainly haven't seen anything widespread to that.
Speaker Change: That level I would tell you that.
Speaker Change: Flight systems, we have really really strong paybacks for these projects.
Speaker Change: So we're going to go in with a customer we're going to lead with our payback, we're going to talk about that.
Speaker Change: The carbon footprint. They can also reduce but we're always going to start with the with the payback and because these are so attractive.
Speaker Change: No because there's so much waste that's happening in buildings today with energy Theres, just an immense opportunity in the future. So look we're very very bullish on the future specifically in our commercial HVAC businesses really globally and the first quarter off to a great start to the year. So.
Speaker Change: We're.
Speaker Change: We're very confident in our full year guidance.
Speaker Change: Thank you create that and then if we kind of.
Speaker Change: Train versus the market.
Speaker Change: Outgrown as far back as we have data.
Speaker Change: Frankly, the reason why train outgrows.
Speaker Change: The efficiency of the equipment is at the the breadth of the strength of the service offering is it the direct salesforce or just the connectivity you have.
Speaker Change: You rank those three in terms of drivers of the company is the outgrowth. Thank you.
Speaker Change: To be fair for me, a radical but I would just tell you. It's a system of things that makes us a great company and you hit on a few of them certainly a direct salesforce being close to your customer I'd look at our operating system and its how we operate every day within our company and how we share best practices on a global basis, how we innovate our product.
Speaker Change: Products the processes that we use it's not about the dollars you invest in the innovation the throughput you get and all of those are part of our business operating system. If I had to rank one Chris what I would say differentiates us is our culture and it's this culture around we can.
Speaker Change: Our purpose is the challenge what's possible and innovate for a sustainable world. We have a culture of that I would like to say, we work towards yes, and we don't we don't shy away from problems because we know if we could solve the problems, that's where we're going to get the growth opportunities from so it's it's a it's.
Speaker Change: It's a system of things that makes us a great company.
Speaker Change: I am proud to be the CEO and I'm certainly very proud of the results that we've been able to demonstrate now for for a number of years and outperforming the end markets.
Speaker Change: Thank you I appreciate that.
Speaker Change: Our next question comes from Amit Mehrotra from UBS. Please go ahead. Your line is open.
Amit Mehrotra: Great. Thanks, Good morning, everybody. So I just wanted to follow up if I could.
Speaker Change: Just underlying demand.
Speaker Change: I understand it's the growth in revenue.
Speaker Change: Orders are just more concentrated.
Speaker Change: In specific verticals and before I know you.
Speaker Change: Obviously, the sales force can adapt to the demand environment, but I'm wondering if any of the growth or what youre seeing is attributable to a more concentrated sample of end markets versus kind of more broad based before or there's nothing there.
Amit Mehrotra: Amit Good question I mean look we track 14 different verticals and the.
Amit Mehrotra: At least in the Americas and I would tell you it's pretty broad based the majority of our verticals had growth, which is which is a great sign we're not overly concentrated in any one vertical.
Amit Mehrotra: There are some verticals right now that are very strong and we all know data centers, our strong world leading provider in that vertical will be a leading provider in that vertical well into the future of health.
Amit Mehrotra: Healthcare was strong.
Amit Mehrotra: Sure.
Amit Mehrotra: That was a nice sign higher Ed continues to be strong. So look I could go through vertical by vertical but I would tell you that it's broad based and you would expect that with the breadth of our portfolio and with the technical aptitude of our account managers.
Speaker Change: Okay. That's very helpful unclear and then maybe one for Chris if I could if I look at the.
Chris Snyder: Full year guidance I guess, the revenue guidance it kind of implies maybe a more modest sequential uptick in revenue one H two H versus what's existed over the last couple of years. Obviously, we're entering the base is very much a much higher and we're entering a more normalized environment, but I was wondering if is that the right way to think about.
Chris Snyder: We're entering a more normalized growth environment, starting the back half or maybe is there some conservatism in there that that obviously is prudent given all the uncertainty in Boston today.
Amit Mehrotra: Hey, good morning, Amit I appreciate the question.
Amit Mehrotra: Yes, I think look we like providing guidance that we have the ability to meet or exceed on a full year basis quarterly basis, Youre right with that math in terms of what the second half implies in terms of revenue growth, but we're just one quarter into the year we were.
Amit Mehrotra: Just starting the cooling season in the northern Hemisphere, and we'll see how things translate through the balance of the second quarter and we'll update everyone. When we have our second quarter call.
Amit Mehrotra: I think the there is uncertainty out there in various markets and we thought it was very prudent for us to.
Amit Mehrotra: <unk> maintained the guidance range that we provided in January but also call that we're very confident in being at the high end of that range. So let's give it another quarter and we will dial in what we see the second half of the year to be with any luck theres a bit more certainty and less variability about what's happening in markets, but very confident in delivering.
Amit Mehrotra: Our guidance as we've described for 2025.
Speaker Change: Okay very good. Thank you guys I appreciate it.
Amit Mehrotra: Thanks I appreciate it.
Speaker Change: Our next question comes from Scott Davis from Melius Research. Please go ahead. Your line is open.
Scott Davis: Hey, good morning, guys.
Speaker Change: No.
Speaker Change: I would echo the congratulations on these big numbers, but also just it looks like you've cut your prepared remarks down pretty sizable in the quarter as well, which I think allows for more Q&A. It's helpful for all of US so thanks for that.
Speaker Change: Hey, guys I just wanted to ask.
Speaker Change: Kind of a follow up on the tariff question and I hate to beat this dead horse, but.
Speaker Change: If you guys have this massive backlog in applied.
Speaker Change: It's are you are your contracts flexible enough to allow surcharges or other.
Speaker Change: Other mitigation.
Speaker Change: Yeah.
Speaker Change: How does that kind of logistically work or do you have to go out.
Speaker Change: One.
Speaker Change: One one customer at a time and have that conversation.
Speaker Change: Hey, Scott, it's Chris there are contracts in the applied space, where there are tariff protections.
Speaker Change: Andrew escalation features right it's.
Speaker Change: It's not the majority, but I would say that it's uncertain.
Speaker Change: On certain larger projects that is a construct of the contract.
Speaker Change: The key for US, though is leveraging our business operating system to reduce the dollar impact and we're driving that with suppliers today our partners today in terms of how you reduce the dollar impact.
Speaker Change: Looking at the source of supply we're looking at trade routes as well to lessen the dollar impact here and if we can get the dollar impact down that means less of an impact of pricing that we have to pass through and you have a lot of confidence we can pass through price, but the starting point is get the cost down and we're actively doing that today. So.
Speaker Change: A lot of confidence we've got on delivering the full year guide growth in the applied space, but I.
Speaker Change: I would tell you that.
Speaker Change: We're working with some all angles at this point, yes, Scott. This is Dave first of all thanks for a notice in the prepared remarks, our doubts.
Speaker Change: Little bit of an internal debate, we have but.
Speaker Change: The other thing the only point I would make that Chris is this in region for region manufacturing strategy that we've had now for really a greater than a decade.
Speaker Change: It's it is a competitive advantage for us.
Speaker Change: And because we have the majority of our supply chain that follows that.
Speaker Change: Thats why youre seeing us kind of working through this tariff.
Speaker Change:
Speaker Change: Problems in a different way, but as Chris said look we're first going to try to mitigate it if we can't mitigate it will go dollar for dollar on the pricing.
Speaker Change: And I think it's also very important to note that we're not going to make tariffs a profit center.
Speaker Change: We're not going to do that but we think that's a very bad long term decision.
Speaker Change: And so if we have to pay it will pass it on but we're going to do everything we can to try to mitigate it.
Dave Julian: That makes sense Dave.
Speaker Change: Changing topics a little bit China.
Speaker Change: Yeah.
Speaker Change: Not a surprise I mean sequentially is actually a little bit it seems a little bit better on.
Speaker Change: Overall, but.
Speaker Change: How is the market respond I mean, you guys have made a pretty strong move there.
Speaker Change: And not taking risky projects and stuff, but how is the market responded have others come in and been rational or have folks come in and kind of fill that.
Speaker Change: That white space with.
Speaker Change: With a rational behavior.
Speaker Change: I mean look it's we're in our third quarter now the team is sequentially improving some of it's an education process that the team is going through to educate our customers asked to Hawaii and as we do that.
Speaker Change: They're getting more comfortable with it so like China is going to continue to improve at least the credit side of it will continue to improve into the future I'm I can't say that about the market is challenged right now we'll see how that plays out but look we have a very strong team in Asia and specifically in China. So I have a lot of confidence in them and if you go back in.
Speaker Change: Over the last four years I think you can see that our team in China has really been able to outperform the market. So a lot of faith in them and this might take a couple more quarters to work through but I have a lot of confidence in them.
Speaker Change: And I do believe it's the right long term stuff.
Speaker Change: Okay Best of luck, Dave Thank you.
Dave Julian: Thanks Scott.
Speaker Change: Yes.
Speaker Change: Our next question comes from Joe Ritchie from Goldman Sachs. Please go ahead. Your line is open.
Joe Ritchie: Hey, good morning, guys and nice for the year.
Speaker Change: Thanks, Joe appreciate it.
Speaker Change: Yeah.
Speaker Change: Can we just kind of chat a little bit about the RASM strength. This quarter I'm just I'm curious you are not seeing any pre buy.
Speaker Change: It seems like the transition to 454 B has already started and is going well I'm. Just wondering like is there a way to parse out like how much of the either the organic growth and bookings growth that you saw this quarter was already 450 <unk> product versus the <unk> that you are holding in inventory.
Speaker Change: Yeah.
Speaker Change: I can tell you what we sold.
Speaker Change: Sell through to the IBD, we don't get in that level of detail, but what we sold we sold probably maybe close to 80% was 454 big.
Speaker Change: And look the teams the team executed very well.
Speaker Change: It's always it's difficult for me to say, we didn't see a pre buy maybe we did see a pretty boy, maybe it's still in the channel because we know the channel is a little bit elevated.
Speaker Change: Versus what we would normally see but again, we've taken that burned down that will occur as we get through peak into our guidance, which again is just another way that we stress test our guidance for the year and gives us a lot of confidence that we will be at at the full year.
Chris Snyder: At the high end of the EPS range, Yes, Joe This is Chris.
Chris Snyder: Reaffirming we think residential is in that mid single digit growth range for the full year and given the start of the year in Q1. It means that the average growth between Q2 and Q4 needs to really be up low single digits. So we'll see how the year plays out, but we think we've de risked that.
Chris Snyder: Here in the guidance and let's see how the year plays out we're prepared.
Chris Snyder: Yes.
Chris Snyder: At your dealers are already taking on $4 54 V products.
Chris Snyder: Super helpful and that was the vast majority of the improvement this quarter I guess that the.
Chris Snyder: The following question I know you talked a little bit about trying to offset the tariffs with cost actions.
Chris Snyder: If you kind of like look at the next three quarters I guess the impact on your tariffs would be like roughly I don't know when that one five to two points of price.
Chris Snyder: Can you, maybe just tell us a little bit about like the just like price elasticity right now in the market because youre going through this.
Chris Snyder: Refrigerant transition, there's additional pricing thats coming through there.
Speaker Change: Are you are you are you hearing any pushback from.
Speaker Change: From your dealers or from customers on pricing at this point.
Chris Snyder: Joe It's Chris I'll start I mean the.
Speaker Change: Pricing actions, we're taking are very surgical it's not a broad based everything up X percentage point. It really is up to amounts and we're looking at it by product line.
Chris Snyder: But the starting point for us really is getting the cost down.
Chris Snyder: $250 million to $275 million is an estimate and I know, we're days driving and where our operations team is driving us to get that number down.
Chris Snyder: And working closely with our customers on signaling where we need to put a price increase in place.
Speaker Change: You are right if tariffs if the $2 50 to $2 75 costly held through the year. It would be about a point to point and a half of revenue growth.
Speaker Change: We don't have that in our guidance right now we thought it was prudent not to put it in the guidance because we don't know where the final pricing action will be but we're confident we'll have the ability to offset that on the elasticity. It's really working closely with our customers to explain where we're trying to offset the costs and what the net cost would be so we haven't seen that.
Speaker Change: The impact here in April so far.
Speaker Change: Okay. Thanks, guys I appreciate it.
Speaker Change: Thanks, Joe Thanks.
Speaker Change: Our next question comes from Andy Kaplowitz from Citigroup. Please go ahead. Your line is open.
Andy Kaplowitz: Hey, good morning, guys nice quarter.
Speaker Change: Thanks, Andy appreciate it thank you.
Speaker Change: So just wanted to talk about European margins for a second obviously you talked about significant reinvestment in I'm sure margins will bounce back, but maybe you can just talk about what youre doing there obviously you sustained strong growth in the region for awhile much better than sort of market growth. So just where are you in sort of the investment cycle.
Speaker Change: Maybe just talk about that Q1 margin incentive bounces back pretty quickly here.
Speaker Change: Yes.
Speaker Change: And I hope all is well with you if you look at the end of the day.
Speaker Change: <unk> is really about.
Speaker Change: Continuing investments in Europe, and we're doing it and our new products, we're doing it in our channel.
Speaker Change: <unk>.
Speaker Change: It's just really the timing of those investments versus as Chris said in our prepared remarks are sold shoulder season I'm not concerned.
Speaker Change: That's a great team there that continues to operate at a at a very high level, what I am excited about in Europe as the order rates.
Speaker Change: And if you look at the order rate for commercial HVAC I see its up in the.
Speaker Change: The mid teens, there, which is really reassuring that the investments that we're working on and the new products that we're introducing into the marketplace are meeting our customers' expectations. So a great team great execution.
Speaker Change: We'll work through the margins and the investments, we're making but we're always thinking long term not just.
Speaker Change: In a particular quarter.
Andy Kaplowitz: Yes, and Andy I'll add on.
Andy Kaplowitz: We've done a few bolt on acquisitions in EMEA as well in the channel space and.
Andy Kaplowitz: And think of that reported leverage versus organic leverage it's probably about a five point impact.
Andy Kaplowitz: Negative impact to reported leverage organic leverage will be stronger. So we have a lot of confidence in the full year.
Andy Kaplowitz: <unk> got some integration costs on some of those acquisitions in EMEA, but that would be the main driver between reported versus organic leverage is really the M&A piece.
Andy Kaplowitz: Got it very helpful and then.
Andy Kaplowitz: You guys know back in the day Teekay being pretty weak would hurt you more than it is I know you sort of put in the guidance you will continue to outperform I just wanted to understand exactly sort of what youre seeing or what's in the guidance. I think you said something like down about 20, or so, but maybe you can sort of clarify that.
Andy Kaplowitz: Just teekay just knockdown large as a percentage of the business now and so you don't get the impact and when are you outperforming in teekay versus the <unk> numbers.
Andy Kaplowitz: Let me start look act continues to drop their numbers so.
Andy Kaplowitz: They were down 15%, our internal models say, we'd be down a little bit higher in the trailer side of that even close to like 25%.
Andy Kaplowitz: If you take that you do a weighted average for the market, we're seeing the markets in the Americas being down roughly 20%.
Andy Kaplowitz: And we think we're going to outperform we've continued to invest in this business through this three year down cycle and we have some really great products that were or <unk>.
Andy Kaplowitz: Some of them are in the pipeline some of them have been introduced but we're going to continue to outperform in EMEA. So it's a little bit different model there are little bit different situation and the markets are projected to be down low single digits and we've been performing very well there with the innovations as well so look.
Andy Kaplowitz: Teekay right now if you assume that the markets are the trailer market is going to go down to 28, which is where we're at that would be the lowest level in that business and like 15 years.
Andy Kaplowitz: And.
Andy Kaplowitz: So we think thats the trough, but we also think that it will bounce back and when it bounces back we're going to be there because we have a lot of great new products to show our customers.
Speaker Change: I ran that business early in my career, Andy and when it comes back it's going to come back strong.
Andy Kaplowitz: <unk>.
Andy Kaplowitz: We're looking forward to 2026.
Andy Kaplowitz: Very helpful. Thanks, guys.
Andy Kaplowitz: Andy Let me clarify one comment I made on leverage for the enterprise is about a point of M&A for the full year, it's around four five points of leverage negative impact between reported and organic.
Andy Kaplowitz: Looking at the EMEA segment think of it as it's probably around five points of impact for the EMEA segment with about 20 points impact on leverage. So my comments were maybe a little bit unclear around EMEA versus enterprise, but.
Andy Kaplowitz: A really good acquisitions.
Andy Kaplowitz: No.
Andy Kaplowitz: Making sure that we've got direct touch with with customers.
Andy Kaplowitz: That's kind of the impact just want to clarify that.
Chris Snyder: I appreciate it Chris.
Speaker Change: Our next question comes from Steve Tusa from Jpmorgan. Please go ahead. Your line is open.
Steve Tusa: Hey, good morning.
Speaker Change: Good morning.
Steve Tusa: Congrats on.
Steve Tusa: Continued execution here.
Steve Tusa: Just on the on the resi front.
Steve Tusa: Any difference between the company owned in the.
Steve Tusa: And the independent distribution sales in the quarter.
Steve Tusa: Hey, Steve, It's Chris I think I, Dvds, or a little bit stronger on the revenue side than the company owned certainly the sell in was stronger sell through was a bit strong yes.
Steve Tusa: Okay and then.
Steve Tusa: This backlog.
Steve Tusa: Did you guys expect as the pipeline is strong enough. So that as you kind of move through the year that youll be back to being positive on a year over year basis, when it comes to backlog.
Steve Tusa: Okay.
Steve Tusa: I understand the most of that is the commercial HVAC side.
Steve Tusa: Yeah, I mean, I'll go back to what I said in the fourth quarter, we will have an elevated pipeline all year.
Steve Tusa: The exact amount there is too much lumpiness that occurs but we're.
Steve Tusa: We're very very happy with the build that we saw in the first quarter, our $400 million in our commercial HVAC business in the Americas about 500 million for the Enterprise every region had a book to bill that was over one.
Steve Tusa: Which is encouraging so look.
Steve Tusa: The backlog will be elevated really throughout the year throughout the entire year.
Steve Tusa: And then sorry, just last one just on tariffs. So you are not including the price I guess.
Steve Tusa: The $2 50, or whatever it is of exposure you're going to kind of like guide to that.
Steve Tusa: Jeff when like when will you incorporate that in guidance, what's the trigger for that.
Steve Tusa: Youre, obviously, not I assume you're not including the $2 50 today, obviously youre going to kind of like feather in both the price and the tariffs kind of as you get more information on how the markets are developing or what's kind of the trigger for that.
Steve Tusa: Yes, Stephen that's fair if we can see things settled down in terms of clarity then we feel better about adjusting the revenue guidance for what we think the net price impact needs to be on tariffs.
Steve Tusa: So yes. It is not in the guide today, the 7% to 8% revenue growth, which we're confident we are at the higher end of that 58%.
Steve Tusa: Does not include the impact of tire pricing today, so, let's see where it plays out again, we're focused on getting that cost down and then we will price.
Steve Tusa: Accordingly to offset dollar for dollar but the.
Steve Tusa: Our hope would be we could do that in July when we have our second quarter earnings call, but we'll see if we have more clarity at that time.
Speaker Change: Sorry, you're embedding the cost without the price today.
Speaker Change: Yes, we are confident on the adjusted earnings per share line that we will cover the cost of tariffs.
Speaker Change: So without price okay.
Speaker Change: Well it could be price it could be a combination of lowering the $2 50 to $2 75 because of actions. We are working with suppliers and trade routes. It could also be with surgical pricing, we're just not dialing in.
Speaker Change: Number on revenue growth, which.
Speaker Change: If it is $250 million to $275 million of ultimate tariff costs that would add about a point to point and a half of revenue.
Speaker Change: But we're not going to dial that in today, because we really want to measure twice and cut once.
Speaker Change: With the with getting better visibility on what the what the tariff landscape will be right, but would that be upside the price sorry.
Speaker Change: I just want to make sure I had the offsets would that be upside to the guidance from price or would that be just another mechanism you used to offset the cost.
Speaker Change: Okay.
Speaker Change: Technically it would be an upside to price right. We're one to one five points of price in the guidance for the year, where I think they were very solid at that yes or not.
Speaker Change: But it would be upside to price to the extent that we have to price surgically for tariffs and no change to EPS. We've got that covered EPS, yes, okay that makes sense. Thanks a lot.
Dave Julian: Okay. Thanks, Dave.
Speaker Change: Our next question comes from Jeff Sprague from vertical research. Please go ahead. Your line is open.
Speaker Change: Hey, Thank you good morning, everyone hope everyone's well.
Speaker Change: A couple for me.
Speaker Change: Just first on Mexico.
Speaker Change: You guys have lower exposure down there than your peers generally.
Speaker Change: Perhaps everybody's U S. MCA compliant, but my question is do you see any.
Speaker Change: Fundamental sourcing advantage from Mexico vis vis your competitors.
Speaker Change: Yes, we have one plant in Mexico, I cant talk to.
Speaker Change: The competitors we have.
Speaker Change: About 20 plants in.
Speaker Change: The United States about 80, 85% of what we're shipping.
Speaker Change: Mexico, our one plant in Mexico to the United States is U S MCA compliant.
Speaker Change: So I think we're in good shape there but.
Speaker Change: But not using tariffs as a profit center as you said you wouldn't be looking for excess price out of Mexico. If you didn't need it in your own operations.
Speaker Change: That's correct. That's correct, we're very we're very clear with our teams to that we're just going to.
Speaker Change: Have a tariff cost it's going to be dollar for dollar we have to offset with price. We're not trying to have this be a profit. So we think that's a very bad long term strategy.
Speaker Change: We want to make sure our customers know that we're doing everything we can to make sure they're getting the most economic value possible for the products and services.
Amit Mehrotra: And then Dave I was wondering if you could maybe put your macro hat on a little bit for us.
Speaker Change: You look at these teekay.
Speaker Change: In transport outlooks, right and as Andy noted, it's manageable in the current construct but that also looks like kind of a macroeconomic recession signal.
Speaker Change: It's been a long time since we had a normal recession right 2020 was so quick a different but.
Speaker Change: But maybe you could just talk about.
Speaker Change: Your contingency planning if things do get.
Speaker Change: Got more difficult here.
Speaker Change: Lever should be pulling in.
Speaker Change: Are you legitimately concerned we might be looking at something much more difficult from an economic standpoint.
Speaker Change: I'll start with we're not projecting any kind of a recession, but I would tell you that part of our business operating system and is the part that's always been there is really robust scenario planning. So we start every year with.
Speaker Change: What are the different scenarios that we're going to go through we identified at a very detailed level. We've looked for different triggers that would say we should take different actions.
Speaker Change: So it's very very specific and its business by business. So we're not trying to take averages on averages here, it's very very specific within a business within a region and the teams do a great job there and that's something that Chris and I look at it on a quarterly basis.
Speaker Change: We call it our trigger report to make sure that we don't have or we make sure we have more greens and Reds.
Speaker Change: And look we're not we're not forecasting a recession right now, but I would tell you that if we did see a downturn.
Speaker Change: Part of the scenario planning as you have a plan, which is you never want to go into a crisis and not have a plan because thats when people start taken hard rates and hard less and they make bad.
Speaker Change: See that from Trane technologies, because we would have a plan based on whatever scenario happens and that could be on the upside or it could be on the downside. The thermo King business look I've been in that business for a long time and it's been 15 years. Since we had 28000 trailer market in North America.
Speaker Change: Look there's there's a you could there's lots of analysis, but one of the things. We look at is whats the whats just the replacement market.
Speaker Change: In the TK Americas and that would be like 35000, so look capacities coming out this year is going to cost more to run.
Speaker Change: And over time this market is going to come back and it's going to come back quickly, but the key is make sure that you continue to invest in the business. Even though you may be hearing a lot of bad news on the street and that's certainly our strategy of Trane technologies and it's been our strategy for a while.
Speaker Change: Great. Thank you.
Speaker Change: Sure Jeff.
Speaker Change: Our next question comes from Nigel Coe from Wolfe Research. Please go ahead. Your line is open.
Nigel Coe: Thanks, Good morning, great quarter.
Speaker Change: Great color as well so far.
Nigel Coe: So that's what I thought.
Nigel Coe: The 250 to 75, it's neutral to the framework gets offset by price or other mitigating actions, there's no upside from pricing just want to make sure that's clear.
Nigel Coe: And if not please correct me, but.
Nigel Coe: I wanted to go back to the resi performance with high teens is quite stunning.
Nigel Coe: You said, 80%.
Nigel Coe: <unk> shipments through the quarter. So I'm guessing right now you should be running close to 100% <unk>.
Nigel Coe: Your competitors seem to be struggling more with this transition. So I'm wondering if there's any share gains.
Nigel Coe: You see it up and if you think the second half might be sticky for the.
Nigel Coe: Yeah.
Nigel Coe: Look as far as resin goes into the first quarter don't don't look at a quarter in residential for market share.
Nigel Coe: We serve the market in different ways. So I'm talking about some of our competitors. So look it's a long game here you have to look at share over an extended period of time.
Nigel Coe: That said, 100% of what we're shipping right now is fortunate before peak.
Nigel Coe: Obviously, we're only manufacturing before because before b right now unless its at a component level.
Nigel Coe: But again that would be more on the repair side.
Nigel Coe: As far as the performance in the first quarter, yes. It was strong I'm very happy I'm proud of what that team's been able to accomplish it's a great start to the year, but again, it's the first quarter, we will see how the rest of the year plays out.
Speaker Change: As Chris said, we think we're going to be up mid single digits for the year and that implies that the back half of the year is going to be at the low single digit rate.
Speaker Change: Based on the high performance that we had in the first quarter.
Speaker Change: Yeah.
Dave Julian: No that's good thanks, Dave.
Speaker Change: Then going back to tariffs.
Speaker Change: Really beating this dead horse.
Speaker Change: One more time, but.
Speaker Change: The $2 50 to 75, I'm guessing most of that would be imports from China.
Speaker Change: Again, correct from a wrong I'm just curious the reason I'm asking is if we do see a dull back in the tariff rates, which I think we're all assuming at some points I'm just trying to understand sensitivity to that and then I'm wondering any any color on sort of sourcing of components motors et cetera versus finished product.
Speaker Change: Any help there would be useful too.
Chris Snyder: Hey, Nigel it's Chris I'll start, yes, China would be the largest exposure to us with about 145% tariff that we've got included in the estimated tariff costs for 2025 of the $250 million to $275 million.
Speaker Change: As Dave articulated Mexico, Canada, it's a really small impact to us the majority.
Speaker Change: Close to 85% to 80% is U S. MCA compliant. So it's a smaller part and then of course, we've got several countries with a 10% baseline tariffs. So all of that is kind of factored in with what we know today and the $2 50 to $2 75.
Speaker Change: When I think about tier one commodities right.
Speaker Change: Maybe we're a little bit more advantageous here I mean, 100% of our steel and copper is being sourced from the U S over 90% of our aluminum is sourced from the U S. So.
Speaker Change: We love those suppliers, we have great relationships with them and at the same time.
Speaker Change: Maybe our exposure there to other markets as maybe less than average so we've got that factored into the guide as well.
Speaker Change: Otherwise.
Speaker Change: Uncomplete units very small Nigel is coming out of China. There is some in our value products.
Speaker Change: That serves to the residential space. However, I would tell you that we also have value products our value brands that we manufacturer here in the U S. So we think that could be actually an advantage because we believe that there is a lot of that value portion of the resi market that's being served not necessarily.
Speaker Change: By Trane technologies, but others with product that's coming out of China, and considering we manufacture the majority of what we sell there here in the United States that could be an advantage for us but well.
Speaker Change: Let's stay tuned to that we will see how everything shakes out.
Speaker Change: We are seeing those would helpful.
Speaker Change: Nobody is bringing in complete units from China right now if they are paying 145% term.
Speaker Change: Yes.
Speaker Change: Okay. Thanks, guys.
Speaker Change: Our next question comes from Deane Dray from RBC capital markets. Please go ahead. Your line is open.
Deane Dray: Thank you and good morning, everyone.
Speaker Change: Hey, Brian.
Deane Dray: Hey, just wanted to circle back on just the <unk>.
Speaker Change: The approach on.
Tariff and pricing and I love the concept youre, not making a profit center, but just the math on an offsetting dollar for dollar will result in a margin hit and that's something you've kind of Europe piece with.
Chris Snyder: Yes, I mean, we started the year Deane. This is Chris with the thought that we would be able to with our plan to defend the margin percent. If tariffs were in place and I think what we've seen.
Chris Snyder: Is a much broader impact in a much larger impact on a percentage basis. So.
Chris Snyder: I wanted to make sure we're working with customers in today's pointed out making a profit center now.
<unk> going to make sure we can offset on a dollar for dollar basis on that piece alone, yes, maybe an impact on margins, but we have other ways to grow margins here as well.
Chris Snyder: Great and then second topic, you comment continued strength in the data center vertical any specifics there that you can share and.
Chris Snyder: Talk about your interest ongoing interest in liquid cooling.
Chris Snyder: Look we continue to be strong in that vertical we've always been strong there we're always looking at.
Chris Snyder: How do you keep pushing innovation.
Chris Snyder: And whether it being liquid cooling or whether it would be and how do you get the COPD coefficient of performance of these units up that's what we're focused on now.
Chris Snyder: And we're working very closely with <unk>.
Chris Snyder: Any of the Hyperscale orders and.
Chris Snyder: We're having great success.
Chris Snyder: Point I'm always trying to make is that look we're strong in data centers.
Chris Snyder: We're very strong in all verticals and you would expect that with our broad portfolio.
Chris Snyder: Great. Thank you.
Speaker Change: Thanks, Dan.
Speaker Change: Our next question comes from Tommy Moll from Stephens. Please go ahead. Your line is open.
Tommy Moll: Good morning, and thanks for taking my questions.
Speaker Change: Hey, Tommy how are you.
Speaker Change: Doing fine. Thank you David I wanted to ask specifically on your commercial HVAC conversations I'm thinking upper funnel here.
Speaker Change: To what extent are tariff driving those conversations just generally even in terms of uncertainty around what lies ahead generally leads to <unk>.
Speaker Change: I always say delayed decision making.
Speaker Change: Less confident.
Speaker Change: Across your customer base are those kinds of anecdotal starting to percolate.
Speaker Change: Yeah, I mean, we haven't seen in Tommy I mean, I know that would be the assumption that everyone would be making but to be honest, we haven't seen I'm sure the conversations occurring but it certainly hasn't bubbled up to.
Speaker Change: So my level of the team hasn't brought it up as a matrix I remember most applied projects, especially the ones that are more complex, where you would see train technology really having a competitive advantage.
Speaker Change: Our longer cycle projects. So there's a lot of influencers there not just what the cost potentially could be a material that could add a point or something to the cost base.
And maybe just to end on a strategic point here, if if we zoom out a little bit from the tariff conversation.
Speaker Change: Beyond what is or isn't in place.
Speaker Change: Today, a month from now it does appear that we're we're headed for an increasingly protectionist marketplace.
Speaker Change: I'm just curious strategically.
Speaker Change: How does that for more of your thinking in terms of market share opportunities or threats.
Speaker Change: Supply chain decision, making how you allocate or.
Speaker Change: Organic or inorganic investment.
Speaker Change: On your mind here.
Speaker Change: Yes, I think that we were going to remain nimble I think that an in region for region strategy not just only from a manufacturing standpoint, but our leadership teams are set up is going to is going to play to our competitive advantage.
Speaker Change: Thank you I'll turn it back.
Speaker Change: Thanks, Tom.
Speaker Change: Our last question today will come from Noah Kaye from Oppenheimer. Please go ahead. Your line is open.
Noah Kaye: Thanks, Dave You said earlier, you really lead with with payback right on on these projects in applied.
Noah Kaye: And you've talked in the past about retrofit being anywhere from $65 70% of.
Noah Kaye: Of the mix and applied.
Noah Kaye: As you can look at both the orders this quarter and the pipeline I mean, new construction is growing but it's somewhat modest.
Noah Kaye: Bookings kind of continued to shift towards retrofit in your view.
Noah Kaye: Yes, I don't have that level of detail, but it certainly would be a great assumption.
Noah Kaye: Oh good effort further thank you guys.
Noah Kaye: Alright, thanks, guys.
Noah Kaye: We have no further questions I'd like to turn the call back over to Zac Nagle for closing remarks.
Zac Nagle: Thanks, operator, I'd like to thank everyone for joining today's call as always we'll be available for questions in the coming days and weeks and we look forward to seeing many of you on the road in the upcoming months. Thank.
Noah Kaye: Thank you very much.
Speaker Change: This concludes today's conference call. Thank you for your participation you may now disconnect.
Noah Kaye: Yeah.
Noah Kaye: Yeah.
Noah Kaye: