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Trane CEO: Low carbon steel purchase like taking '4,500 cars off the road'

Trane CEO Dave Regnery joins Yahoo Finance Live to discuss earnings, revenue growth, and how the company is reducing its carbon footprint throughout its value chain.

Video transcript

[AUDIO LOGO]

JULIE HYMAN: An unusually harsh winter storm-- or not even winter yet-- slamming the northeastern United States with record snowfall in some parts of New York State. And of course, that has us thinking about HVAC. Whenever we get extreme weather events, it's set to boost HVAC demands alongside energy, even despite an overall cooling housing market.

Joining us with a look at the HVAC market, Dave Regnery, Trane Technologies Chair and CEO. Dave, we're going to dig a little bit further into other things going on in your business. But given what we are seeing in terms of the demands in the market but also some of the waning demand in the housing market, I'm just curious if you can give us a read on both on the residential and commercial side what you are seeing in terms of demand now.

DAVE REGNERY: Yeah. Well, thanks, Julie, for having me on your show. I really appreciate it. So we announced our third-quarter earnings a couple of weeks ago now. And we had very strong results. Our order rates were up 8%. Our revenue was up close to 20%. Our EPS growth was 26%. And we ended the third quarter with a backlog that's about 6.4 billion, which is almost double what we would normally see. So we're seeing very strong demand for our products and services really across the globe. It was a very strong third quarter. And we're very well positioned for the future.

BRAD SMITH: What does growth look like for Trane in your purview over the next year?

DAVE REGNERY: Yeah, we haven't-- we haven't yet provided guidance for 2023. We will on our fourth-quarter earnings call. But I would tell you that with a backlog of, you know, double what would be normal, we have a lot of visibility as to what we will see in the future, which is extremely important right now. As the supply chain continues to improve, it's improving slowly. So that visibility really gives us more insights with our suppliers and our partners to make sure that they can deliver the products that we need so we can manufacture to meet our customers' expectations.

BRIAN SOZZI: Dave, what have you done in terms of price increases for consumers? What have you been able to pass through?

DAVE REGNERY: Part of our business operating system is really geared towards pricing. So our product management teams can see what's happening, and we're able to price accordingly. We've been cost-price positive throughout the entire year. We're proud of that. We've had three increases already this year. And if we continue to see inflation, we'll take a fourth one early next year.

JULIE HYMAN: And, Dave, I'm interested in something that you guys just signed, to buy low-carbon steel from Nucor. That's going to account, I believe, about 20% of your annual steel purchasing to make your products. What does that do cost-wise for you guys? Does that add a higher cost? And how do you kind of make that calculation?

DAVE REGNERY: Yeah, as a sustainability leader, we're decarbonizing the entire value chain, right? So from our raw material as well as our operations as well as for our innovative products and services that we provide our customers, steel is a major commodity for us. And the steel industry represents about 8% of all global CO2. So it's a very carbon-intensive industry.

We made the decision that we're going to produce low-carbon steel, about 20% of our total. It is marginally more expensive than conventional steel. But the carbon reduction is 70% to 80% of conventional steel. And it maintains the same structural integrity.

So we're excited about our relationship with Nucor. We're certainly think that this is going to be-- hopefully, in the future, we can encourage other companies to also purchase low-carbon steel so that the economies of scale can start to take force and the price of the low-carbon steel is actually reduced. This particular purchase will save us about 16,000 metric tons of carbon, which is equivalent to-- think of it about taking 4,500 cars off the road.

JULIE HYMAN: And, Dave, we're having this conversation at the same time that we had climate talks over the weekend in which nations around the globe, you know, tried to figure out some new targets, which are still not going to get us where we need to be to really slow down climate change. This is squarely your bread and butter, right? As we get more extreme weather events, people are going to need heating and cooling technologies more than ever. What's the biggest challenge for you guys in meeting that demand in this sort of changing environment?

DAVE REGNERY: Yeah, it's really not about meeting the demand. It's really about knowledge about what's available. I always talk about the fact that we have technology that exists today that could dramatically reduce the carbon footprint for buildings and homes on a global basis.

You know, years ago, when you were heating and cooling a building, you would have a boilerplant, and you would have a cooling plant. And those two would be separate. What we've been able to do is combine those systems into one. We call it a thermal management system. And we could dramatically reduce the carbon footprint. You no longer need to have fossil fuel to heat a building. You no longer need to do that. And the efficiencies of the system are four X what conventional systems would be.

Traditionally, a boiler for-- like, a unit of energy that went in a boiler, it would come out the other end, and it would be like 0.96, 0.97. When you use a thermal management system, a unit of energy equals four on the other side. So the efficiency gains are just tremendous. So it's really not about meeting demand. It's about knowledge and for everyone to understand that they don't need fossil fuel to heat and cool-- to heat any longer. And we've been able to really scale that technologies, and we're looking to scale it further.

BRAD SMITH: Something that you acknowledged earlier was in order to meet that demand, you need the materials to manufacture. Are you struggling to find materials? And of course, you have the one major partnership with Nucor that's going to move forward. But then outside of that, when you look out into the future and the company's impact or any exposure to materials not being able to be sourced, you know, what does that look like? And how do you navigate that?

DAVE REGNERY: Yeah we've been navigating it now for-- I think it's been over a year and a half now. So we're getting better at it for sure. I would tell you that the supply chain is improving. It's improving slowly. And our team has just done an outstanding job of making sure that we have the components that we need so that we can take care of our customers. I do believe that the supply chain will continue to improve. It's just going to take several quarters before we get back to any normal state as maybe we saw prepandemic.

BRIAN SOZZI: Dave Regnery, Trane Technologies Chairman and CEO, good to see you. Have a happy Thanksgiving.

DAVE REGNERY: Nice to see you. Happy Thanksgiving to everyone. Thanks for having me.