All right, we're gonna get started again. We are really excited to have Trane Technologies with us. Today we've got Dave Regnery with us, who is the Chairman and CEO. Dave, I think you've been with Trane your entire career, right?
I have.
Yeah.
Yeah.
Pretty awesome. And then Chris Kuehn, who is the EVP and CFO, and, Chris joined then Ingersoll Rand in 2015 from Whirlpool. So Dave, as I walk over to you, there are two questions I feel like I have to ask you every year, and so I'll just ask you again.
Mm-hmm.
Here's the first: You've been at the helm of Trane for almost three years now. So can you talk about what, if anything, you've changed regarding Trane's strategy over the last three years, and, and reflect on what you are most proud of? As well as, is there anything at Trane that you still think you could improve upon as you head into 2024?
Yeah, great question. Well, thanks, everyone, for coming today, and we're certainly excited to be here. Look, as we re-imaged Trane four years ago, I guess three years ago, I'm dating myself here, you know, I think I told the audience that, "Look, don't expect any dramatic changes to the strategy," because I was part of developing the strategy with my predecessor. So that's not changing, okay? Our purpose as a company, to challenge what's possible and innovate for a sustainable world, that's still core to who we are and fundamental to the strategies that we execute every day. I always find it easier to answer these questions a little bit like: What am I passionate about as a CEO? And it's a very consistent message that I always give, and that's the fact that number one is customer.
I believe that if you don't stay close to your customer, you're gonna miss opportunities. I believe if you do stay close to your customer, that's why we have a direct sales force, you get insights, and you help them work through problems, and we help them solve problems, not only today, but also whatever issues they may have in the future. So that's number one. You're always gonna hear me talk about the customer. The second is innovation. If you stop-- Someone told me a long time ago in my career, "If you stop innovating, you stand still. If you stand still, you get passed." So we're not gonna stand still. We're gonna continue to invest heavily in our, in our business, and innovation is core to who we are.
You can look over the last three years, and I can give you a lot of detail about some of the innovations that we've been able to bring to the market and how we're able to really help decarbonize the built environment. This isn't technology that we're waiting for. This is technology that we sell every day. The third thing that is always extremely important to me is our culture and our purpose as a company. As time goes by, if you're working for a company that has a great purpose like we do at Trane Technologies, and you have a culture that's uplifting, engaging, you know, a can-do attitude, it's just amazing what can happen. You know, it's been three years. It's gone by really, really fast. I know everyone says that when you're a CEO, you're living dog years.
I was telling Chris earlier, I think I'm on Pluto- ... 'cause I think it's going by pretty slow.
Mm-hmm.
And, you know, but it, it's fun, it's exciting, and am I proud of our financial results? Absolutely. Look, I mean, top-line growth last year, organically, 9%; EPS growth, 23%; third consecutive year of EPS growth of 20% or greater. The quality of our earnings, very high. I'll use as a proxy for quality of earnings, free cash flow conversion over a three-year period, right around 100%. So the business is performing very, very well. But I would tell you what I'm most proud of as the CEO is our culture as a company. And as I look at our employee engagement surveys, as I look at ERG groups, as I look at, you know, CEO Day of Understanding and the participation that I see from our employees, that's what gets me excited about the future.
Yeah, we had a great year in 2023. We have an incredible backlog going into 2024. But I always tell people, "Our brightest days are yet in front of us.
Dave, that's very helpful. So the other similar question I ask you is, you, I think, have consistently stayed ahead of the competition when it comes to innovation, you know, even as mega trends have been ramping up. So what is it that you're doing to make sure you stay ahead in terms of innovation?
Well, it is to be consistent, right? You can't be episodic when you talk about investing in your business for innovation, right? You have to be very, very consistent, and you have to make sure that you have great process associated with it. Our Business Operating System, when it comes to new product development, is, is top, top class, right? I mean, it's, it's, it's a, it's a process that we've developed over a decade, and it allows us to really execute flawlessly. And it, you know, if you, if you ever sat through one of our new product development gate reviews, we call them, you'd be like: "Wow, they go through a lot of detail!" And we do because we wanna make sure we ask the right questions up front, so you don't have rework later.
And when you do that, your throughput that comes through your innovation is just... It's, it's stellar, and I think you see that with our results. I would also tell you that, stay close to your customer, right? You need to understand what their needs are, not only today, but what they're going to be in the future. When you do that, you combine those two, you end up being a very, very innovative company. And it's something that, you know, we've been working on, I'll say a decade, but I'm sure it's longer than that, and it's a proven process that we go through.
If we go back to your calendar Q2 2023 quarterly report, your Americas Commercial HVAC bookings had decelerated. You know, they were down mid-single digits, but then something seemed to change, and you've had a couple quarters in a row now of re-acceleration. What was the biggest change?
I'm not sure there's one thing that changed. I think it's the system of things, again, that makes us a great company. You know, are we seeing strong order growth? Absolutely. I would tell you that our backlog on a year-over-year basis is basically flat. I think the composite of our backlog has changed. I think about, about $1 billion of backlog moving from Thermo King and residential to commercial HVAC, predominantly applied. Again, I think there's some verticals that are very, very strong right now. Think of data centers, think of education, think of healthcare. Those are all verticals that we do very, very well in with our highly engineered systems. So we have a lot of activity in the marketplace right now. We have a lot of great solutions that we're helping our customers with, and you see it in our results.
I tried to get you to isolate data centers, but anyway, I will ask you a follow-up on data centers. Maybe a little more perspective into how to think about Trane's data center exposure. If you were to get bookings, let's say, let's say it was a 50 MW data center, you know, roughly $500 million to build, how much content could you get on that type of project in dollars? And how does your offering and market share compare to the more concentrated data equipment providers, you know, the Vertiv, Schneiders of the world?
Yeah, it's a great question, and unfortunately, for me to answer it, I'd be talking in averages, which are always dangerous, right? I'd have about 15 questions I'd have to ask you before I could give you an answer. Like, where's the-
We have 40 minutes, Dave.
We have 32 minutes left. Where's the data center located? What's the use of the data center gonna be? Is it a colo? Is it hyperscale? What's the technology we're gonna bet on? Is it gonna be a water-cooled chiller, or are you gonna use air-cooled? Are you gonna use maglev? Are you gonna use scroll? You're gonna use screw. How do you wanna—what are the control systems that you're gonna be interfacing with? What's the airflow requirement in the data center? There are so many variables that it's impossible to kind of give you an answer here that you could mathematically start to say, "Well, how many data centers are gonna be built?
Okay, this is what the numbers should be." But I will tell you that what I just rattled off shows you a little bit of the complexity of these systems, and that's where we have an advantage with our direct sales force that's highly technical, highly skilled in working with data center customers. It's not as simple as a rooftop unit that you're gonna put on top of a data center and say, "Hope this works." These are very, very sophisticated systems, and by the way, they carry a nice tail with service.
So, Dave, is it fair to say, though, that you really do have a full service offer? I mean, you compare it to, you know, the Vertivs of the world, like, you know, how do you do it? Like, because Vertiv will tell you what their market share is. I don't feel like the HVAC companies really wanna do that, but you tell me.
Well, first of all, data center customers are pretty fickle, right? So they don't like a lot of information being displayed about what they're working on. In fact, I was telling a group earlier today that as a CEO, I don't sell - I don't sign a lot of NDAs, as you could imagine. Data center customers really want me to ... I was a little unsure why. Maybe they think I talk too much. But look, they don't want information available as to what they're working on, so that's number one. I would tell you that when you think of Trane Technologies, we're selling solutions, we're not selling products. And we can do that because of the breadth of our product portfolio. So we have solutions that are gonna be the best for the customer.
It's not that we only have centrifugal chillers, or it's not that we only have air-cooled chillers, or it's not that we only have VRF systems. We have the portfolio of products. It's really about developing the right solution for the right system that's being applied to.
I should just ask you this now, like, the liquid cooling element of it, obviously, you have an investment partnership. Like, how do you look at it going forward?
Yeah, immersion cooling, we're still bullish on it, okay? It's not ready for prime time, and we're working through different aspects of it. The data center market is one that's always evolving, and we're always looking for new innovations. That's where when you have the technical sales force, and you're working with the data center technical experts and combining those two to come up with different systems, that's where the magic really happens. So is it immersion cooling? Maybe. We haven't given up on it, for sure. There's some hope there. Is it cooling at the chip? Possibly. I was having a conversation earlier around is there a way to repurpose heat, right? Data centers generate a lot of heat, right? We all know that. What do you do with the heat?
When you're cooling a space, what you're really doing is removing the heat from it. What do you do with the heat? Do you put it out into the atmosphere, or do you repurpose it? We have a couple projects that we've embarked on in Europe where we're now heating schools with district heating loops from data centers. We have a housing development in London that we're heating with the heat that's coming off of the data center. It's a closed-loop heating loop that actually returns back to the data center and makes the data center run more efficiently 'cause the water temperature has now been reduced. So those are the kind of the creative thoughts that you have when you're talking about data centers.
And don't run off and think that everything's gonna be a district heating loop from a data center, 'cause proximity really matters, right? Where the data center is, and power infrastructure really matters as to where you could put a data center. But these are all possibilities that you start to think through, and when you have great, you know, innovative customers, that thinking gets multiplied.
So, Dave, you mentioned backlog briefly in the beginning. Like, so how should we think about backlog in 2024? I mean, I know you had that target all year in 2023, and, you know, you probably don't want to be held to backlog, you know, for much longer.
Yeah.
That's probably the answer.
Yeah, I mean, first of all, we last year, I wanted to make sure that everyone was aware, all the investors were aware, that we're gonna go into 2024 with a very strong backlog, right? So early in the year, we said, "Look, the backlog's gonna be at least $6 billion." And everyone forgot about what I said prior to the $6 billion. They just remember the $6 billion, and I think I spent all year doing mathematics about, well, how do you get to $6 billion, and what would have to happen? I'm like, "Oh, no, this isn't... This is just saying that the backlog is gonna be very robust."... and so I'm not gonna send the number out this year. I would just tell you that we're gonna have a strong backlog for, you know, into the future. It will normalize over time.
Now, we could argue about what normal means now. We're a lot larger company than we were in the past, but look, we're gonna have a very strong backlog, and it makes sense, right? Most of our backlog is applied. Look at the verticals that are very strong right now. They are typically served with Applied Systems, and that's one of our strengths, is Trane Technologies. Andy, you wanna add anything, Chris?
I think you summed it up, Dave. Just a reminder on the backlog, you know, the majority of that will churn in the next 12 months, but we're already starting to build some backlog for 2025. And Dave mentioned the complexion change, right? The normalization of backlog and residential and the transport markets really being offset by the growth in the commercial HVAC markets, predominantly Applied Systems. So $6.9 billion of backlog at the end of 2023, and that's after a 9% organic revenue growth in the year. So just shows you the strength of those commercial markets.
So you went back to your algorithm for 2024 of operating leverage, you know, 25%+, but you did do 36%, you know, in 2023. I think we've talked about you have a number of productivity projects, you know, lined up for 2024, but we've also talked about higher investments, right? So maybe talk about the balancing act and, you know, why you're still... 'cause it seems like you're operating at a better level than 25%, so why are you still anchored on 25%?
Yeah, I'll start, Andy. We love that long-term framework of 25%+. It allows us to really invest back in the business each and every year, and Dave will speak, I'm sure, in a moment, and what he's focused on with top line and bottom line. But the pipeline of innovative products and programs we wanna do remains extremely robust. So I think about just serving the existing backlog we have and then the new product development. Think about those dollars going back into innovation for 2024 and beyond. Electrification of not only the heating portfolio, cooling portfolio, but then the transport portfolio would be one of the areas we'd want to call out there. As we think about capacity, we get a lot of questions around that, thinking about the demand.
We've been thinking about capacity for years, and some of that is four-wall capacity. Some of it is also automation into the factories to make sure we've got more throughput, leveraging not only employees, but also automation. And then maybe the last bucket I'd put out there is really around sales and service. We love our service business. It's a third of our enterprise revenues. It's grown high single digits for the last six years. Last year, it grew double digits, low teens. And you think about the Applied Systems that makes up the majority of our backlog, that brings with it a very strong service tail.
8x-10x the revenue of the initial install of the equipment over the life of the equipment could be that revenue with a service contract and maintenance contract, and how we keep that uptime for customers. So, investing in upfront tools, investing in people around sales and service is really important for us, Andy. But, we're gonna have strong incrementals into 2024. We're starting out the year with 25%+. We'll see where we end up in the year. We've talked about a bit around volume and price. We're gonna get nice incrementals on the volume going into 2024, but I'll tell you, it gives us a lot of optionality to invest back in the business.
I mean, back to your prior question, Andy, why have we been successful with innovation? 'Cause we relentlessly invest in our business around innovation. This gives us that optionality.
Yeah, no, that's helpful, Dave. And Chris, you mentioned price, so, like, just talking about price for a second, I think your price expectations of the year are 1%, you know. Kind of a business-as-usual year, 20 basis points-30 basis points of price versus cost. But how do you see cost shaking out this year? 'Cause it just seems like, you know, inflation has continued to slowly die down. Maybe you guys tell me, are you still worried about any supply chain kinks, Red Sea, whatever, like...
I'll start. Yeah, the price we gave our organic revenue growth guidance was 6%-7%. We said about 1 point of price. It's not a hard cap, just to be very clear, right? It's the starting point of our guidance for the year. We do like setting guidance out there that we can meet or exceed as we think about any given year. So let's see where it plays out. Could it be stronger? It could be. What I would focus on is, and we've, we've been doing this for several years now, it's remaining nimble with price. So as we think about those input costs, as we think about the innovation for our products, and last but not least, we want customers for life, right?
We wanna make sure that it's a long-term relationship, and for many customers, it is a journey, as we think about decarbonization over many years. So we do remain nimble. It's not a hard cap at one point. On input costs, look, I do think Tier 1, it's fairly normal or moderate at this point, to be fair. You know, supply or, steel would be an area of a little bit of inflection in terms of higher cost, but not something we can't overcome with the, the price plans for the year. Tier 2, there's some inflationary areas there. Wage inflation would be one to call out, refrigerant inflation. As we see a transition in 2024, those would be areas of inflation. Think of our Tier 1 as $750 million of spend.
Think of Tier 2, around $5 billion of spend, almost half of our cost of goods sold. But I think we've stayed ahead. I know we've stayed ahead the last four years of inflation from commodities. We've stayed ahead on the price-cost equation, and you're right, we're targeting 20 basis points-30 basis points or better this year, and I think that we've got the team and the plans to go do that.
Your question on the Red Sea, we switched our lanes months ago, so we're-
Yeah
... no risk there. I must say, as I'm sitting up here drinking out of a plastic bottle, I don't feel very sustainable, Andy.
Well-
My wife was here, she'd be yelling at me.
We'll talk about that. So maybe just, I asked you on the call, Dave, our earnings call, about why you're outperforming your peers in Asia and China in particular.
Mm.
You mentioned, you know, there's certain verticals, data centers, semiconductors, pharmaceutical, but your peers, as you know, are focused on those end markets, too. Is there anything else that differentiates you in China? I know you changed your business model several years ago. I'm sure that has something to do with it, but maybe you could expand on what-
Yeah, I won't comment on the peers, but I would say that we have a very seasoned, experienced team in Asia. I mean, Allen Ge, who's the President of that region, Alan and I have worked together for the last 10+ years , and I would tell you, it's a very seasoned team that operates at a very, very high level. You know, it's the normal system of things that makes us a great business in Asia, right? It's the direct sales force, as you said, Andy, that we invested in, gosh, I guess it's seven or eight years ago now. And we like being close to the customer, right? And that's, that doesn't mean that for everywhere in the world, we want to be close to the customer. We heavy investment, but and we continue to invest in that.
Innovation, really creative products coming out of Asia right now and exceeding customers' expectation in many cases. And a culture there to, you know, they have a, that can-do and uplifting culture that we have in the rest of Trane Technologies. So look, our business in China, it's only 5% of the company, just so you're clear, but it's been operating at a very high level, and it's been operating at that level for several years now. So I'm very proud of what that team's been able to do. I had the opportunity to visit them in October. It was the first time I was able to go there since COVID, and just so excited to see everyone face to face. I was tired of looking at my computer screen, talking to...
Although I did get to meet their families, I got to meet their dogs, I got to meet a lot, a lot of things I wouldn't normally see. But it's just a great team there, and they're excited about what the future is.
Great. I have a similar question about Europe, but just I'll open it up to the audience soon. But let me ask you it this way, Dave. So, you know, I ask you about thermal management systems all the time. You don't really want to quantify it, that's fine, you don't have to. But if I think about its impact on Europe, Europe has been your fastest-growing business for the last several years. So, you know, does that mean, can it continue to be, despite it being an issue for others? You know, I'm curious.
Another region of the world that I'm very proud of is what we've been able to do in Europe, and it's fun, it's a funny story, but when I first took over, this would've been probably, like, 2011-ish. Okay, so a long time ago, not to date myself. But people were literally telling me. And now I have, I take over Trane Technologies, or Trane at the time, and I had the Americas, and then I was given Europe, and people were literally telling me, "I'm not sure we should be in Europe." And I'm like: "I think we should be in Europe," right? So but it was just, that was that mindset, and look at the business today. It's just incredible results there. It was really led by innovation.
It was back to basics here, and get close to the customer, innovate for your customer, understand what their needs are. I mean, our thermal management system is 3-4 times, not percent, 3-4 times more efficient than conventional heating and cooling, and the carbon footprint associated with that is dramatically reduced. Think about it, 15% of all greenhouse gas is heating and cooling of buildings, 15%. If you're 3-4 times more efficient, these are projects that have fantastic payback for the customers and a fantastic payback for the planet. And I think I told you last time we were together, Andy, these are green to be green, right?
Mm-hmm.
These are green. There is some very strong financial payback on these projects, and by the way, you're helping to really decarbonize the built environment. So the team there are doing fantastic. I would also say that the verticals that are strong in the rest of the world are also strong in Europe. Data centers is very strong for us there. Healthcare is very strong, education as well. So our business is doing, and our service business in Europe is just doing fantastic. Think about service, right? Service business was always conventionally thought of as, you know, in during cooling seasons, you get very busy. Well, when you're doing heating and cooling, you're busy all the time, and you could see the tailwind that that's creating for our business.
Do you think over the next three to five years, it could still be your fastest-growing region?
I don't know if it's gonna be the fastest-growing region because I challenge all of our regions to grow at a very quick rate. But I do tell you there's a lot of opportunities there. And you, I mean, look, you see it in our results. And whether it be in our HVAC business or in our Thermo King business, you see it in our results.
Any questions from the audience? Anybody want to ask a question? I will keep going.
Mm-hmm.
So maybe over to resi. You know, maybe a little more color where you think inventory is in the channels. It appears, you know, you've been managing your sales, but it seems like inventories have stayed a little higher for a little longer than expected. So, you know, you've got resi revenue flat again. You know, be a muted performance over the last couple of years for a relatively not so cyclical, you know, end market. So maybe you can talk about sort of what you see in that.
Yeah, I mean, resi is one where, just to remind everyone, we go to market in resi, think of it as either two-step or three-step, right? So we either go through an independent wholesale distributor, or we act as that distributor. That's our model. It's been our model for a period of time. For 2024, we called it flat for the year. Could it be ±1%, ±2%? Sure, but we called it flat. The resi business, I would have thought, or I did say this, that I thought through the fourth quarter, the destocking in that independent wholesale distributor channel would be completed. That's not the case, okay? That will continue through the first quarter. We'll probably go into the second quarter. We'll see what happens when, when we get into season.
But overall, I mean, our Resi business is a great business. It's long term, think of it as a GDP-plus business, and there's tons of innovation that are being pumped into this business as well. It's like when a business isn't performing as maybe as well as we think it, you know, should be because of market conditions, we continue to invest in it, and that maybe make us a little bit different than some of our competitors. But look, these products are getting smarter. Variable speed is happening everywhere. When variable speed happens, you have microprocessors that are on these units. Where you have microprocessors, you have intelligence. When you get that intelligence, when you get that data, you make homes perform in a better way.
I'm really excited about what the future is for residential. 2024, think of it as flattish. We'll see what happens in 2025, but it's a great business overall.
Dave-
By the way, it's about 20% of our revenue. Forgot to say that, Andy, so you remind me all the time.
Yes. Dave, you've been asked, I think, a fair amount around the, refrigerant transition, and so maybe just an update there, because, you know, I get asked, like, why wouldn't the combination of, you know, 454B beginning to roll out and 410A maybe becoming a little more scarce and therefore higher priced, why wouldn't it lead to more pricing for you guys and for-
Yeah, well, first of all, I think the EPA clarified the ruling, okay? So there's gonna be a transition to a low GWP refrigerant. It is gonna be classified as an A2L, which means it's slightly flammable, which means you have to have different protection, metering on the unit. So they originally said that you had a complete manufacturing of the product in 2024, and you didn't have a sell-through period. They basically came back and said: "No, you're gonna have a sell-through period." So now you complete your manufacturing in 2024, and you could sell through the product through all of 2025, which we totally support, and we agree with the EPA. That's the right decision. We'll be launching product throughout 2024. I'm not necessarily sure how much we're going to sell yet.
I'm not sure what the demand is going to be for that, but we're gonna have mixed model lines on our manufacturing locations. We could run either product down the line. We'll be ready for that. Some may be early adopters, some may not be. You have a variable there saying that the cost of 410A may go up, so would that... You know, could that facilitate more 454B product, which is the refrigerant we're moving to? Possibly. We'll see how it shakes out. I would just tell you we'll be ready.
It's helpful. Then maybe shifting to Thermo King, you know, Americas transport, I think in terms of revenue, is down 20% in the second half of 2023 and Q4. And you've talked about outperforming the market in 2024, right? ACT, you know, says down 10%. You said you'd sort of beat that. So maybe talk about why you're so confident. And then I guess it's the same thing in Europe, right? It's like market forecast down, low single digits, you could do better. So you've been outperforming. Why do you keep outperforming? Is your level of outperformance getting better, same, worse? What would you say?
I mean, I think it goes back to the system of things that makes us a great company, right? Stay close to your customer, innovate as much as you possibly can. Don't ever... be relentless on that. Don't ever, don't ever take a break, and that's what we do in our Thermo King business. We have such... The pipeline of new products that we're coming out with in Thermo King is very, very impressive. The whole electrification of the Thermo King business is, you know, I think we're, like, 70% complete with the journey there, and that will continue to evolve and continue to get more and more efficient.
We have products now that, with our AxlePower generation, where we're able to charge the battery from the axle movement, and if you know the physics on this, right, it typically becomes a drag, so it becomes negative. We believe we've figured out how to make that positive. So, we'll be able to charge batteries and have it not be a draw, a negative draw overall. You gotta think of it overall as a system. So there's some really cool things we're working on. It's still in the pipeline, but, we're excited about our Thermo King business in the future. So you asked me, how have we been able to outperform? We outperform because we continue to innovate for the business.
We are very close to our dealer network there, we're very close to our customers, and, it'll be a down year in 2024. The good news is that all projections have this snapping back in 2025.
Dave, any color into who you're taking share from in that market? Like, you know, is it regional people? It's probably not your other big competitor, but maybe it is. I don't know.
I don't know.
Mm-hmm.
I don't know. I just know we're performing well, and, and that's what we, we look at.
Let me ask you one more follow-up there. Like, the electrification being 70% of the way through, that seems like a big number to me. Like, did it accelerate pretty significantly?
No, it started with smaller, okay? So think about smaller vehicles. So this would be, you know, like vans, electrified their capability, then you move up to larger trucks, et c. The trailer side, which is the... Think of these as the tractor-trailer, 18-wheeler here in the States. That'll take a bit of time. There's a solution that exists, but obviously you need to build out the infrastructure for charging stations. That's still not happening. But the technology, we're getting very, very sophisticated in the technology that we've been able to put out. So we're excited about that. We have a couple of trailers that are out on the road now. We're working with customers that I'm sure you all know, that I'm not allowed to say their name, but...
And they're excited about what this is as well. You're starting to see it in some of the, what we call milk runs. So think about a distribution company that would go home at night. They're starting to think about how they electrify their fleets so that when they go home at night, obviously they're gonna recharge their trucks or tractors, and then they'll go out back the next day. So that's where it will happen first. I think the long haul, which is someone who's gonna go from East Coast to West Coast, that has some work to do, and there's some infrastructure that has to be built up. Question?
You mentioned—this is gonna be a question about productivity. In the intensity of the innovation efforts within Trane, sometimes there can be kind of a tension with the efforts to drive productivity gains. Can you talk about what you think is left to squeeze out of productivity gains and how you're balancing it against all the innovation that's taking place?
Can we start?
Sure.
Yeah, I think where the squeeze we've seen in productivity has been more shifting our resources and the engineering talents and product management to go solve supply chain challenges, right? When you didn't have access to the full load of chips or different components, we really shifted that workforce to go solve those problems and get products into customers' hands. Even though we were able, I think, to do better maybe than others, we still had a lot of situations for the better part of a year, where you were not able to take a unit from start to end with all the components available first time.
A lot of situations where we had 70%-80% partially complete units, that comes off the line, wait a week or two for the components to come in, put it back on the line, add the components, do a retest, get it ready for shipment, and put it out the door. So that's really been, I would call it, the challenge of getting productivity the last couple of years. That's where we see a nice dovetail right now, as the price contribution comes back to, gosh, even a point of price for 2024 would be well above what our normal levels have been. We're seeing the nice dovetail with productivity coming back. Supply chain is largely resolved. At this point, the engineers are back working on value add, value engineering products to take cost out.
I talked a little bit about automation before, making sure we've got the automated factory of the future as we continue to expand. And I'll tell you, that's a nice dovetail, the opportunity for productivity for us, baked into a little bit of our guidance in 2024, but I don't see us in 2024 hitting our normal levels of 2% or 3% productivity, gross productivity. That's still an option, an opportunity, I should say, for us in the future.
Yeah, automation, we're doing a lot of automation projects, and just to give a little commercial for our...
Our panel
our panel at noon.
Stay for our panel.
Look, we're always looking for productivity, and I think sometimes when you think of automation, you're thinking productivity, and people are thinking dollars and cents to the bottom line. Sometimes that shows up because you increase your capacity.
Mm-hmm.
We're finding a lot of projects out there where we're able to increase our capacity and redeploy workforces to other areas, which is obviously a big deal for us.
Any other questions? So I wanted to go to services, Dave. Like, you know, it was up double digits in 2023, high single digits on average over the last six years. You were asked a question on the last earnings call, but I wanted to follow up. You know, it's a really important part of your business, a third of your business. So do you see the growth algorithm actually changing a little bit? Because it seems like the business is moving a little bit more toward applied, and if it moves toward applied, that should be pro services, as you kind of alluded to. So can you do even better, maybe sustainable double-digit growth?
My side-
Always gonna push, Dave. Always-
He'll be sitting in my seat pretty soon as you're driving people. Look, our service business is a key part of who we are as Trane Technologies. It is part of that system of things that makes us a great company. And you're right, it's geared towards our Applied Systems. And as product is becoming more and more sophisticated, you want the OEM to be servicing your equipment. It's that simple. And if you think about even how we're digitally connected now to millions of assets, right? We're now able to really get into an area where it's not only through our AI to be able to say what could potentially be, you know, how the unit is functioning, but it's making sure that it never goes out of tolerance, right? So our service business now is morphing into a...
You know, if something needs to be fixed, not when it's not producing, you know, hot or cold, it needs to be fixed when it's using too much energy. So it's a whole different mindset that's happening, and it's really happening at rapid speed. So I'm so proud of our service business. It's something that I don't talk a lot about other than give you high-level numbers, because I don't really want to create roadmaps for everyone else. But I would tell you that we have a very detailed operating system on our service business, anywhere from how do you renew a service agreement to how you train a technician, and it's really exciting what we've been able to do with our service business. As you said, over the last six years, it's got a compound annual growth rate of high single digits.
And when you-
The other thing about service, too, and I alluded to this, is when you start talking about heating and cooling, right, thermal management systems, you're now on both sides of that because you're now servicing the heating side as well as on the cooling side. We don't service a lot of boilers today, so that's another tailwind for this business.
Just a quick follow-up there. We've stopped talking about attachment rates for you guys a long time ago, but, like, is there still an opportunity in a place like China, for instance, you know?
Our service business in China does very well. It's not as large as it is here in the, as a percentage of, of in Europe or in the States, but it's growing nicely, so.
Easy enough. So let me back up. It's obviously an election year, many countries, including the U.S. So first, how do you think investors should look at, you know, the rollout of fiscal stimulus? Like, you know, two years ago, you were being asked about heat pumps in the U.S. Doesn't seem like it's had, like, a huge impact, but how are you thinking about that? Inflation Reduction Act, you know, tailwinds, and, you know, what would happen in a, in a Trump presidency, you think?
Yeah, I won't comment on that, but to our conversation earlier, but look, we've been on this journey to be more innovative in a sustainable world since 2012. It's probably a little bit before then. And the whole decarbonization of the built environment has done nothing but accelerate since that time. When you go back into 2011, 2012, we've had several different leaders around the world, the mega trends around decarbonization are only gonna intensify, and better, and they should, and they need to, as 2023 was the warmest on the planet. So we have a lot of work in front of us. As far as stimulus happening or not happening, does it create a tailwind? Sure, it does. Does it, does that mean the business stop if it stops? Absolutely not.
When you have a payback that's... When you're able to have 3-4 times more efficient systems, the payback is very, very attractive. Okay, does a stimulus make it better? Sure. Is it meaningful? I mean, we could define what meaningful is, but our business isn't necessarily built around any policy or stimulus that may or may not happen from a government, right? We have fundamentally changed how you heat and cool buildings. And when you do that, you disrupt the old and you create the new, and that's what we've been able to do at Trane Technologies. So look, it's an election year. I live in North Carolina. I know it. I see every commercial being a swing state. But our business is going to continue to thrive well into the future.
I just ask you one quick one on capital deployment. Like, does anything change? I mean, you've had a pretty consistent algorithm. You've got a couple of bigger competitors who are sort of in deconsolidation mode. I'm sure you're watching it from afar. Does anything change for you guys based on these other things being out there or no?
Look, our, our M&A pipeline is always gonna remain robust. As a major HVACR player, we're gonna get the opportunity to see everything. We love our portfolio. We don't have to do anything. We're performing at a very high level. We like bolt-ons. Okay, you've seen us. We executed on four of those in 2023, all very successful, all ahead of our business plans. So, we like the strategy where we are, and we love our portfolio of products and services.
Last question, I asked you this last year, I'm asking every company: What are the top two or three innovations and structural changes affecting your company over the next five years? And are there any emerging industry trends that are perhaps being overlooked in the current discourse?
Yeah, I think energy efficiency is gonna continue to be a theme, okay? Next-generation refrigerants will continue to be a theme. I think the refrigerants will all continue to evolve until they have a greenhouse gas potential of, you know, some de minimis value. I believe electrification of heating will continue. That'll become the norm. Within five years, you could start to see more and more countries probably regulating against greenfield with fossil fuel. We'll see how that plays out, at least for heating purposes. There's other needs for fossil fuel. I think one of the things that's gonna continue to evolve is companies that have purpose.
And I think if you want to go to a college campus, and you want to recruit, and you want to explain what your company is all about, if they can relate to the purpose, and our purpose is to challenge what's possible and innovate for a sustainable world, talent is always key to success, and I believe we have the right message.
I think it's a good note to end on. Dave, Chris, thank you again for joining us. We'll see you in a couple, an hour or so for the-
... Blake here now, so. All right, thanks, everyone.