Trane Technologies (TT) Q4 2025: Commercial HVAC Backlog Jumps 25%, Securing 2026 Growth Visibility
Trane Technologies capped 2025 with a 25% year-over-year surge in Americas commercial HVAC backlog, setting the stage for robust 2026 revenue acceleration. While residential and transport refrigeration segments faced cyclical troughs, exceptional commercial bookings and a record $7.8 billion backlog underpin management’s confidence in outgrowing markets next year. With applied solutions and services leading the charge, the business is positioned to convert multi-year investments and innovation into durable margin and cash flow gains, despite persistent input cost and inventory headwinds.
Summary
- Commercial HVAC Backlog Surge: Americas and EMEA both posted outsized backlog gains, locking in multi-quarter growth visibility.
- Residential and Transport Headwinds: Channel inventory normalization and weak transport markets weighed on near-term results.
- 2026 Growth Engine: Services, digital, and modular applied solutions provide durable tailwinds as cyclical drag recedes.
Performance Analysis
Trane’s Q4 results highlight the company’s dual-speed business model, with commercial HVAC and services delivering robust growth while residential and transport refrigeration continued to face cyclical softness. Enterprise organic bookings jumped 22%, led by Americas commercial HVAC, which posted record Q4 bookings up over 35% year-over-year. Applied solutions bookings more than doubled for the second consecutive quarter, driving the Americas commercial HVAC backlog 25% higher versus last year, and EMEA’s backlog up nearly 40%.
Organic revenue grew 4%, with commercial HVAC and services offsetting mid-teens declines in residential revenue and low single-digit declines in transport refrigeration. Margins in the Americas and EMEA were pressured by intentional residential inventory reductions and acquisition integration costs, with residential deleverage reducing factory production days by one-third and resulting in a 60% margin drag in that segment. Free cash flow remained robust, supporting $3.2 billion in capital deployment across dividends, M&A, and share repurchases.
- Bookings Momentum: Broad-based order strength across 12 of 14 tracked verticals, not just data centers, drove record backlog.
- Applied Solutions Outperformance: Applied bookings up 120%, with a 200% book-to-bill, signaling sustained demand and future margin-rich revenue.
- Resilient Services Engine: The services business, now about one-third of revenue, maintained low teens compound growth and expanded digital offerings.
Despite cyclical headwinds in residential and transport, Trane’s multi-year investments in innovation, direct sales, and digital services are translating into outperformance and future growth visibility as backlog converts to revenue in 2026 and beyond.
Executive Commentary
"Our solutions help customers save energy, lower operating costs, and create more balance and flexibility in how they use energy. It's proof that sustainability and performance go hand in hand. As we look ahead, our innovation and expertise continue to set us apart. With our exceptional backlog, robust demand, proven business operating system, and leading innovation, we're well positioned to continue delivering differentiated value well into the future."
Dave Rigneri, Chair and CEO
"Margins were impacted by proactive measures taken to normalize residential inventory, which reduced factory production days by one-third and resulted in roughly 60% deleverage in that business... As noted throughout the year, channel investments and M&A in 2025 weighed on near-term margins but position us for stronger long-term growth."
Chris Kuhn, Executive Vice President and CFO
Strategic Positioning
1. Commercial HVAC as Core Growth Driver
Commercial HVAC, Trane’s largest segment, remains the company’s anchor for growth and margin expansion. The 25% backlog increase in the Americas and nearly 40% in EMEA, with applied solutions leading, secures revenue visibility well into 2026. Applied solutions, high-complexity custom HVAC systems, carry higher margins and a longer services tail, reinforcing the segment’s leverage as the cyclical residential and transport markets recover.
2. Services and Digital Expansion
Services now comprise about one-third of Trane’s total revenue, growing at a low teens compound rate since 2020. The company continues to invest in expanding digital capabilities and advanced solutions, increasing attachment rates—especially in data centers—where OEM service contracts are increasingly preferred due to system complexity and uptime requirements. This recurring revenue stream is critical for margin durability and cash flow.
3. Modular and Data Center Solutions
Trane’s acquisition of Stellar Energy, a turnkey data center cooling provider, positions the company to capitalize on the rapid growth of modular, factory-built chiller plants. These solutions address skilled labor shortages and accelerate deployment, with significant cross-vertical potential. Data center vertical momentum is global, with the US leading in scale but EMEA and Asia showing rising demand for both new construction and retrofit solutions.
4. Capital Allocation Discipline
Trane deployed or committed $3.2 billion in 2025, including $1.5 billion in share buybacks, $840 million in dividends, and $720 million in M&A. Management remains committed to deploying 100% of excess cash, prioritizing reinvestment, strategic M&A, and opportunistic repurchases, with $4.7 billion remaining under its buyback authorization.
5. Operational Leverage and Supply Chain Management
Despite near-term margin pressure from residential deleverage and integration costs, Trane targets 25%+ organic leverage across all regions in 2026. The company has quadrupled chiller capacity over the last several years and is actively managing supply chain and service technician capacity to ensure backlog conversion without bottlenecks.
Key Considerations
2025’s results reinforce Trane’s strategic pivot toward higher-value, less cyclical segments, while also spotlighting execution risks in legacy residential and transport markets. Investors should weigh:
Key Considerations:
- Backlog Quality: Applied solutions dominate the backlog, supporting higher margins and a longer services tail as orders convert to revenue.
- Residential and Transport Trough: These segments represent 25-30% of revenue and are expected to bottom in 1H26, with improvement dependent on market recovery and easier comps.
- Input Cost Volatility: Tariffs and commodity inflation (notably $200 million in cost headwinds) remain a dynamic challenge, requiring agile pricing and supplier mitigation strategies.
- Modular Innovation: The Stellar Energy acquisition and modular applied solutions are key bets for future-proofing growth and addressing skilled labor shortages.
- Service Attachment Rates: Rising complexity in key verticals (data centers, life sciences) drives higher OEM service penetration, supporting recurring revenue.
Risks
Persistent input cost inflation, especially from tariffs and metals, could pressure margins if not offset by pricing or hedging. Residential and transport market recovery is not guaranteed, and a prolonged downturn would weigh on overall growth. Execution on modular and digital strategies, as well as integration of acquisitions, will be critical to sustaining outperformance as competitive intensity rises and customer requirements evolve.
Forward Outlook
For Q1 2026, Trane expects:
- Flat organic revenue growth, with commercial HVAC strength offset by tough comps in residential and transport.
- Q1 adjusted EPS of approximately $2.50, in line with historical seasonality (about 17% of annual EPS).
For full-year 2026, management guided:
- Organic revenue growth of 6–7%
- Adjusted EPS of $14.65 to $14.85, up 12–14%
- Reported revenue growth of 8.5–9.5% including FX and M&A
- Free cash flow conversion of 100%+
Management emphasized:
- Backlog conversion and pipeline strength underpin confidence in accelerating growth into the back half of 2026.
- Residential and transport expected to trough in early 2026, with recovery and easier comps supporting a stronger second half.
- Ongoing investments in services, digital, and modular capacity are expected to drive long-term outperformance.
Takeaways
Trane’s Q4 results and 2026 outlook reinforce the company’s evolution toward a higher-quality, less cyclical business mix, with commercial HVAC, applied solutions, and services providing durable growth levers.
- Commercial Backlog Locks in Growth: The 25%+ backlog increases in Americas and EMEA secure multi-quarter revenue and margin visibility, with applied solutions leading the mix.
- Services and Digital Cement Margin Durability: Recurring, high-attachment service contracts and digital expansion are offsetting cyclicality in residential and transport.
- Execution on Innovation and Capital Allocation: Modular applied solutions, capacity investments, and disciplined capital deployment are positioning Trane to outgrow markets and absorb cost volatility.
Conclusion
Trane Technologies enters 2026 with strong growth visibility, anchored by record commercial HVAC backlog and expanding services. While residential and transport challenges persist, the company’s pivot toward higher-margin, recurring revenue streams and modular innovation supports a multi-year outperformance thesis—provided execution on backlog conversion, cost management, and integration remains sharp.
Industry Read-Through
Trane’s record commercial HVAC backlog and modular applied solutions momentum signal accelerating demand for energy-efficient, scalable thermal management across sectors. The data center vertical’s global build-out and shift toward modular, factory-assembled systems will pressure competitors to match Trane’s speed and integration. Rising service attachment rates and digital offerings are becoming table stakes for OEMs seeking to defend margin and customer stickiness. Persistent input cost volatility and skilled labor shortages will reward those with robust supply chain management and capital discipline. Peers in HVAC, building technologies, and industrial services should watch for continued mix shift toward applied and services, and the growing importance of modular innovation and digital ecosystem expansion.