‘Momentum is hard to stop’: How Dave Regnery wrote Trane’s growth story

When Trane Technologies celebrated its fifth anniversary at the New York Stock Exchange last month, CEO Dave Regnery called it “a different company” from the one Ingersoll Rand spun off in 2020. The group still operates in the same heating, air conditioning, and refrigeration markets as before, but it has transformed its growth rate and valuation:Annual revenues have risen from $12.5 billion to more than $21 billion, and its market capitalization has shot from $35 billion to almost $95 billion.

Regnery, a four-decade company veteran who became CEO in 2021, has a record of 23% annualized total shareholder returns, according to Boardroom Alpha. The artificial intelligence boom, driving data center demand for cooling equipment, has been one contributor. Another has been Trane’s repositioning itself as a partner in its customers’ sustainability strategies — even as the emissions from heating and air conditioning split consumers and political leaders.

In Regnery’s telling, the bigger driver of Trane’s transformation has been a shift in its culture, towards being more risk-tolerant, innovative, and growth-focused.

“Momentum is hard to stop, positive or negative. And when employees start to see momentum, and they start to see how a growth company performs versus a cost company, they see opportunities and promotions,” he says. “We know that, as an incumbent, if you can disrupt yourself, that’s longevity.”

This interview has been condensed and edited for clarity.

Andrew Edgecliffe-Johnson: What mandate did the board give you when you became CEO?

Dave Regnery: My mandate was, [and] is, how do I transform Trane Technologies from being thought of as a great operator into a leader in innovation and also a great growth company. And that was a mindset change that we had to make. Because if I tell you, “I want you to grow your business 3% next year,” you’re going to think about it one way. If I say, “Tell me what you need to invest in to grow your business 15%,” that’s a different conversation.

We have an annual operating plan, where the teams would come in and present what their plan was going to be for the year. Two years in, I said, “We’re going to change the process on this.” At the end [of the first team’s pitch], I said, “It’s a great presentation, but I want you to come back in two weeks and tell me what you need to invest to grow 15% next year.” And it just changed everything. After the first meeting, everyone knew the assignment, because they all came back [with] these crazy investments. And at the end of the day, we made them.

You can’t do that for every team, can you? You’ve got a finite amount of capital to allocate.

Absolutely, but I need everyone to think of Trane as a growth company. When they came back and talked about these investments they needed to make, I didn’t blink. I said, “OK, let’s go for it.” And my CFO was kicking me under the table a little bit, saying, “Dave, I’m not sure we could afford this.” I said, “They’ll never be able to make that amount of investments in the first year.” It’s about changing a culture. And once you get that culture changed, and people start thinking not about the problem but about how to solve the problem, that’s where growth is going to come from.

Where are you prioritizing investment now?

We’re separating AI investment into AI for growth and AI for internal productivity — safety, quality, all that other stuff. Right now, we’re investing a lot in AI for growth. We’ve had connected buildings or connected assets for decades, and what we’re really good at is making sure that the building or the asset performs the way it was designed when you’re connected to it. When you commission a building, Day 1 is the most efficient it will run. That performance degrades over time. But if you’re connected to it, you can make sure that it’s going to operate not only how it was designed, but how it’s being used. Take a cafeteria in a school that’s used from 11 am to 1 pm. Why do you have fresh air exchange happening in that cafeteria all day long? [By adjusting that], you can find 10% to 15% efficiency. [Taking in] weather patterns and other data, we see up to 20% or 30% energy and emissions savings with our AI control product.

The data center boom is a clear tailwind for you. What assumptions are you making about how long it’s going to last?

We’re talking to all the hyperscalers, we’re talking to all the chip manufacturers, and every indication we have [is] this will be a strong vertical for the foreseeable future. We could argue whether that’s five years or 10 years, but for the foreseeable future, it’ll be strong. We have a very efficient way of cooling data centers. What we’re pushing, although we haven’t been very successful on this yet, is how do you not think of data centers as needing to be cooled, but think of them as a heat source? Because you’re removing a lot of heat from them. What can you do with that heat? If you have a data center that’s coming to a town near where you live, do you want it in your community? The answer is going to be no, because it’s a poor use of land, it uses too much power, and it doesn’t create jobs. If I told you, you’re going to get free heat from it, does that change your mind? Yeah.

How far are you from being able to do that?

We have some examples where we’re creating district heating loops. You extract this heat [from a building as] lukewarm water. You boost the water temperature, you put it in a district pipe, it distributes it to homes in the community or a municipal building instead of putting it out into the atmosphere. The problem is, it works really well in the wintertime. If it’s a climate like New York, what do you do in the summertime? You need something to absorb the heat, so you’d have to put a redundant system in so that it would work all the times of year, and that [comes with a] cost. But we’ve done it in the Netherlands and the UK; these are real projects.

Do investors still value a sustainability story after the ESG backlash?

I was talking to [Bank of America CEO] Brian Moynihan the other day, who co-chairs the Sustainable Markets Initiative, and said, “We need to switch this vernacular to say that because something is sustainable doesn’t mean it costs more and it’s inefficient for business to invest in.” There are solutions, like we have, that are very accretive to someone’s income statement and lower your carbon footprint. And when you have that marriage, it’s a great solution.

How are you personally using AI?

We’re now able to summarize competitive information in a totally different way. Within 30 minutes of a competitor’s [earnings] call, I have a summary on my desk that will give me all the points of interest that I need, and then we’ll compare that to our messaging to find out giveaway secrets.

We also run AI against ourselves, especially in fireside chats, investor meetings, or interviews that I’m doing, [to ask] “What could I have done differently?” For example, if I was doing an interview about Thermo King, [I could say] “It’s in year four of a two-year cycle, so it’s been down for a longer period [than normal]. It’s a hangover from COVID, it’s going to be another down year.” If I change that and say, “This is a business that is very resilient, and we have some of the best innovation in the world coming out of that, and the markets are depressed, but it’s a cyclical business and it will come back.” The rating that I will get on that is dramatically different. [It’s about] being humble, and understanding that everyone can get better, including myself.