HVAC company Trane (NYSE:TT) announced better-than-expected revenue in Q1 CY2025, with sales up 11.2% year on year to $4.69 billion. Its non-GAAP profit of $2.45 per share was 11.3% above analysts’ consensus estimates.
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Trane Technologies (TT) Q1 CY2025 Highlights:
- Revenue: $4.69 billion vs analyst estimates of $4.46 billion (11.2% year-on-year growth, 5% beat)
- Adjusted EPS: $2.45 vs analyst estimates of $2.20 (11.3% beat)
- Adjusted EBITDA: $850.9 million vs analyst estimates of $783.5 million (18.1% margin, 8.6% beat)
- Management reiterated its full-year Adjusted EPS guidance of $12.80 at the midpoint
- Operating Margin: 17.5%, up from 15% in the same quarter last year
- Free Cash Flow Margin: 4.7%, similar to the same quarter last year
- Backlog: $7.3 billion at quarter end
- Market Capitalization: $78.88 billion
Company Overview
With low-pressure heating systems as the first product, Trane (NYSE:TT) designs, manufactures, and sells HVAC and refrigeration systems, the former to commercial and residential building customers and the latter to commercial truck manufacturers.
Sales Growth
Examining a company’s long-term performance can provide clues about its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Luckily, Trane Technologies’s sales grew at a solid 9.5% compounded annual growth rate over the last five years. Its growth surpassed the average industrials company and shows its offerings resonate with customers, a great starting point for our analysis.
Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Trane Technologies’s annualized revenue growth of 11.6% over the last two years is above its five-year trend, suggesting its demand was strong and recently accelerated. 
This quarter, Trane Technologies reported year-on-year revenue growth of 11.2%, and its $4.69 billion of revenue exceeded Wall Street’s estimates by 5%.
Looking ahead, sell-side analysts expect revenue to grow 6.4% over the next 12 months, a deceleration versus the last two years. This projection is underwhelming and indicates its products and services will face some demand challenges. At least the company is tracking well in other measures of financial health.
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Operating Margin
Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.
Trane Technologies has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 15.9%. This result isn’t too surprising as its gross margin gives it a favorable starting point.
Looking at the trend in its profitability, Trane Technologies’s operating margin rose by 4.6 percentage points over the last five years, as its sales growth gave it operating leverage.
In Q1, Trane Technologies generated an operating profit margin of 17.5%, up 2.4 percentage points year on year. The increase was encouraging, and because its operating margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, R&D, and administrative overhead.
Earnings Per Share
Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.
Trane Technologies’s EPS grew at a spectacular 17.4% compounded annual growth rate over the last five years, higher than its 9.5% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
Diving into Trane Technologies’s quality of earnings can give us a better understanding of its performance. As we mentioned earlier, Trane Technologies’s operating margin expanded by 4.6 percentage points over the last five years. On top of that, its share count shrank by 6.6%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth. 
Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.
For Trane Technologies, its two-year annual EPS growth of 24% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.
In Q1, Trane Technologies reported EPS at $2.45, up from $1.92 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Trane Technologies’s full-year EPS of $11.65 to grow 12.3%.
Key Takeaways from Trane Technologies’s Q1 Results
We liked that Trane Technologies beat analysts’ revenue, EBITDA, and EPS expectations this quarter. Due to the "dynamic macro environment", the company is maintaining its full-year EPS guide rather than raising to reflect the beat. Zooming out, we think this was a solid quarter. The stock remained flat at $353 immediately following the results.
Big picture, is Trane Technologies a buy here and now? What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free.