01—Abstract
Summary
Summary of the 10-K filed February 7, 2022. Cited figures are marked; the original filing is the authoritative source.
Trane Technologies' 2021 10-K shows a strong rebound and an improving capital return story.
Net revenues rose 13.5% to $14.14 billiona, driven by 7.5 points of volume, 3.6 points of pricing, and 1.6 points of acquisitions. Operating income climbed 32% to $2.02 billion, and operating margin expanded 200 basis points to 14.3%. Net earnings attributable to Trane rose to $1.42 billion, or $5.87 per diluted share, versus $3.52 in 2020.
Segment Adjusted EBITDA grew 21.8% to $2.60 billionb, with margin gains in all three regions, and backlog nearly doubled to $5.44 billion, which supports 2022 revenue visibility. Cash generation was solid but lower than the prior year. Operating cash flow from continuing operations was $1.59 billion, down from $1.77 billion, mainly because of higher working capital.
Free cash flow was $1.43 billionc, versus $1.71 billion in 2020. Management returned substantial capital: $1.10 billion in buybacks, $561 million in dividends, and a board authorization for a new $3.0 billion repurchase program in February 2022. The quarterly dividend rose 14% to $0.67 starting in 2022.
Cash fell to $2.16 billion, and total debt declined to $4.84 billiond, leaving a debt-to-capital ratio of 43.6%. The main overhang is the Aldrich and Murray Chapter 11 asbestos proceedings. These subsidiaries were deconsolidated in 2020, and the company has agreed in principle to fund a $545 million trust, with a $270 million qualified settlement fund expected to be funded in the first quarter of 2022.
The Bankruptcy Court's approval, the position of the asbestos claimants' committee, and the outcome of the estimation proceeding remain uncertain. Investors should also watch supply chain constraints, commodity and freight inflation, and the 2022 effective tax implications of global minimum tax proposals.
02—Key points
Key Highlights
- Revenue grew 13.5% to $14.14B, with volume contributing 7.5 points, pricing 3.6 points, and acquisitions 1.6 points.
- Gross margin expanded 110 bps to 31.6%, and operating margin rose to 14.3% from 12.3%, reflecting price realization and productivity gains.
- Diluted EPS from net earnings attributable to Trane was $5.87, up from $3.52 in 2020; continuing operations EPS was $5.96 versus $4.02.
- Backlog increased 88% to $5.44B at year-end 2021, with most expected to ship in 2022, though supply chain constraints remain a risk.
- Free cash flow fell to $1.43B from $1.71B due to higher working capital, while $1.10B was returned through buybacks and $561M through dividends.
- Board authorized a new $3.0B share repurchase program in February 2022 and raised the quarterly dividend 14% to $0.67.
- Aldrich and Murray Chapter 11 remains unresolved; a $270M qualified settlement fund is expected to be funded in Q1 2022 after court approval, and the agreed trust funding is $545M.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2021filed February 7, 2022Financial Statements
FY2021 against FY2020
| Line item | FY2021FY2020 | Change |
|---|---|---|
| Revenue | $14.14B$12.45B | +13.5% |
| R&D Expenses | $193.50M$165.00M | +17.3% |
| SG&A Expenses | $2.45B$2.27B | +7.7% |
| Operating Income | $2.02B$1.53B | +32.0% |
| Interest Expense | $233.70M$248.70M | −6.0% |
| Net Income | $1.44B$854.90M | +68.0% |
| EPS (Basic) | $5.96$3.56 | +67.4% |
| EPS (Diluted) | $5.87$3.52 | +66.8% |
| Shares Outstanding (Basic) | 238.70M240.10M | −0.6% |
| Shares Outstanding (Diluted) | 242.30M243.10M | −0.3% |
05—Questions
Frequently Asked Questions
How strong was Trane's 2021 profitability relative to 2020?
Operating income rose 32% to $2.02B, and operating margin expanded to 14.3% from 12.3%. Segment Adjusted EBITDA increased 21.8% to $2.60B. Margin gains came from price realization, productivity, and higher volumes, which more than offset material, freight, and other inflation. Net earnings attributable to Trane Technologies were $1.42B, compared with $855M in 2020.
What is the exposure related to the Aldrich and Murray asbestos bankruptcies?
Aldrich and Murray, both deconsolidated subsidiaries, filed Chapter 11 in June 2020. The agreement in principle with the future claimants' representative contemplates a $545M trust funded by Aldrich and Murray, with the company's subsidiaries obligated under Funding Agreements to cover shortfalls. A $270M qualified settlement fund was approved for funding on January 27, 2022, but the Bankruptcy Court has not yet approved the plan, the current claimants' committee is not a party to the agreement, and the ultimate liability cannot be predicted. The company's funding liability of $270M is classified as a current liability at year-end 2021.
How healthy is the balance sheet and liquidity position?
Cash and equivalents were $2.16B at year-end 2021, of which $1.46B was held by non-U.S. subsidiaries. Total debt fell to $4.84B from $5.27B after $432.5M of debt repayments. The debt-to-total-capital ratio was 43.6%. The company has $2.0B of unused revolving credit facilities and a $2.0B commercial paper program with no balance outstanding. Credit ratings are Baa2 from Moody's and BBB from S&P, and the company says it expects to meet liquidity needs for at least the next twelve months.
What are the main risks to the 2022 outlook?
Key risks include ongoing COVID-19 disruption, supply chain and labor constraints that could delay production and shipments, and commodity and freight inflation that may not be fully passed through to customers. The company also cites risks from the Aldrich and Murray bankruptcy outcome, potential changes to tax laws including the OECD global minimum tax (proposed for January 2023), and climate and refrigerant regulations that may require costly product redesigns.
06—Continue