Trane Technologies plc (NYSE:TT)

Raw Materials

The raw materials inventory exhibited fluctuations over the five-year period. It increased from 550,500 thousand US dollars in 2018 to 613,100 thousand US dollars in 2019, followed by a significant decline to 305,000 thousand US dollars in 2020. Subsequently, it gradually increased to 404,600 thousand US dollars in 2021 and further to 509,600 thousand US dollars by the end of 2022. This suggests variability in the procurement or usage patterns of raw materials, with a notable drop in 2020 likely due to extraordinary circumstances or operational changes.

Work-in-Process

The work-in-process inventory showed a generally upward trend with some intermediate volatility. Starting at 182,000 thousand US dollars in 2018, it rose to 209,200 thousand US dollars in 2019, declined to 163,900 thousand US dollars in 2020, then increased significantly to 215,900 thousand US dollars in 2021, and reached 333,800 thousand US dollars in 2022. The substantial increase in the last two years may reflect intensified production activities or buildup in intermediate goods possibly in anticipation of increased demand.

Finished Goods

Finished goods inventory demonstrated a decreasing trend initially, from 1,028,800 thousand US dollars in 2018 down to 761,400 thousand US dollars in 2020. However, this was followed by a recovery and growth to 982,900 thousand US dollars in 2021 and a further rise to 1,280,300 thousand US dollars in 2022. The initial decline might suggest improved sales or inventory management, while the later growth could indicate stockpiling or a slowdown in sales turnover.

Inventories Stated at FIFO

The inventories on a FIFO basis mirror the patterns observed in raw materials, work-in-process, and finished goods. Total FIFO inventories increased modestly from 1,761,300 thousand US dollars in 2018 to 1,797,800 thousand US dollars in 2019, decreased sharply to 1,230,300 thousand US dollars in 2020, and then rebounded to 1,603,400 thousand US dollars in 2021 and 2,123,700 thousand US dollars in 2022. This reflects the aggregate effect of the underlying inventory components.

LIFO Reserve

The LIFO reserve, which represents the difference between inventories reported under FIFO and LIFO methods, showed an increasing negative value over the period, moving from -83,500 thousand US dollars in 2018 to -129,900 thousand US dollars in 2022. This increasing negative reserve suggests rising inventory costs or inflationary pressures, leading to a higher valuation under FIFO compared to LIFO over time.

Inventories (LIFO basis)

Inventories reported under the LIFO method declined from 1,677,800 thousand US dollars in 2018 to 1,189,200 thousand US dollars in 2020, followed by a recovery to 1,530,800 thousand US dollars in 2021 and 1,993,800 thousand US dollars in 2022. The trend is consistent with the underlying inventory components but reflects the lower valuation typical under LIFO, especially in an inflationary environment.

The financial data over the five-year period indicates several notable trends and movements across key balance sheet and income statement items, both in their reported form and adjusted for inventory LIFO reserve.

Inventories

Reported inventories showed a decline from 1,672,800 thousand US dollars at the end of 2018 to a low of 1,189,200 thousand in 2020, followed by a steady increase reaching 1,993,800 thousand by the end of 2022. The adjusted inventory figures, which account for LIFO reserve adjustments, track a similar pattern but remain consistently higher, reflecting the impact of inventory valuation adjustments. This indicates a contraction in inventory levels during 2019–2020 followed by a recovery and growth through 2022.

Current Assets

Reported current assets increased steadily from 5,732,000 thousand at the end of 2018 to a peak of 6,905,600 thousand in 2020, after which they declined slightly to 6,379,200 thousand in 2022. The adjusted current assets follow this same pattern with values consistently higher due to inventory adjustments, suggesting that current asset growth was influenced largely by inventory fluctuations.

Total Assets

Reported total assets expanded significantly from 17,914,900 thousand at 2018 year-end to 20,492,300 thousand at the end of 2019, representing a notable increase. However, this was followed by a decrease to 18,156,700 thousand in 2020, after which the total assets remained relatively stable just below 18.2 million thousand through 2022. The adjusted total assets mirror this trend closely, confirming that inventory adjustments had a relatively small impact on the overall asset base but that total assets contracted sharply after 2019 and stabilized thereafter.

Shareholders' Equity

Reported shareholders' equity exhibited a gradual decline over the period, from 7,022,700 thousand in 2018 to 6,088,600 thousand in 2022. Adjusted equity values follow the same decreasing pattern but are slightly higher, which corresponds to the inventory adjustments incorporated. This decline in equity across the five years implies either increased distributions, losses, or other equity-reducing activities overshadowing net earnings growth in certain years.

Net Earnings Attributable

Net earnings showed variability with an initial rise from 1,337,600 thousand in 2018 to 1,410,900 thousand in 2019, followed by a sharp decline to 854,900 thousand in 2020. Earnings rebounded strongly thereafter, increasing to 1,426,400 thousand in 2021 and further to 1,756,500 thousand in 2022. The adjusted net earnings series, which accounts for inventory valuation, is closely aligned but slightly higher each year. This rebound post-2020 indicates a recovery in profitability after a significant dip in the previous year.

In summary, the data reveals a period of contraction in inventory and total assets around 2020, coinciding with a marked dip in net earnings. Following this, there is a recovery phase with growing inventories, relatively stable total assets, and a significant increase in net earnings during 2021 and 2022. Shareholders' equity, however, has experienced a steady decline throughout the period. The adjustments for LIFO reserve consistently increase asset and equity numbers slightly, but do not alter the overall trends or directional movements observed in the reported data.

The current ratio exhibits modest fluctuation over the five-year period. Both reported and adjusted current ratios begin near 1.33-1.35 in 2018 and slightly decline through 2019 before increasing to peak levels around 1.59-1.60 in 2020. Subsequently, the ratios decrease to 1.36-1.38 in 2021 and further down to the lowest point of 1.12-1.14 in 2022. This trend suggests a general tightening of short-term liquidity in the most recent year, despite a temporary improvement in 2020.

The net profit margin shows an overall upward trajectory. Initially remaining relatively stable around 8.5% in 2018 and 2019, it dips appreciably to approximately 6.9% in 2020. After this decline, the margin markedly improves, reaching above 10% by 2021 and further rising to approximately 11% in 2022 for both reported and adjusted figures. This pattern indicates recovery and strengthening profitability after a downturn, potentially reflecting operational improvements or favorable market conditions post-2020.

Total asset turnover ratios display a declining trend until 2020, indicating reduced efficiency in asset utilization. Both reported and adjusted turnover start at 0.87 in 2018 and decrease steadily to around 0.68-0.69 by 2020. However, from 2020 onward, the turnover improves, climbing back to 0.78 in 2021 and 0.88 in 2022, returning to or exceeding initial levels. This rebound suggests an enhanced ability to generate revenue from assets in recent years.

Financial leverage ratios show a gradual and consistent increase across the period. Reported and adjusted leverage both rise from the low 2.5x range in 2018 to near 3.0x by 2022. This indicates a progressive increase in the use of debt financing relative to equity, which may contribute to higher returns but also represents greater financial risk.

Return on equity (ROE) experiences considerable volatility. ROE remains around 19% in 2018 and 2019 before sharply declining to roughly 13% in 2020. This decrease aligns with the dip in profitability and asset turnover in the same year. Subsequently, ROE achieves a strong recovery, climbing to approximately 23% in 2021 and then surging to nearly 29% in 2022, the highest level in the period, reflecting improved profitability, asset efficiency, and financial leverage.

Return on assets (ROA) follows a pattern similar to ROE but with less pronounced magnitude. Starting from roughly 7.5% in 2018, it decreases to below 5% by 2020. A recovery begins in 2021, and ROA reaches about 9.7% to 10% in 2022. This progression underscores improved operational performance and asset utilization after a period of softness.

Liquidity

The current ratio trends downward by the end of the period, signaling reduced short-term liquidity despite earlier increases.

Profitability

Net profit margin, ROE, and ROA all decline notably in 2020 but recover strongly thereafter, surpassing prior levels by 2022.

Efficiency

Total asset turnover decreases up to 2020, followed by a pronounced recovery, indicating shifts in asset use effectiveness over time.

Leverage

Financial leverage steadily increases, reflecting more aggressive debt usage to finance operations.

Overall Performance

The diminished performance in 2020 likely corresponds to adverse market conditions, with subsequent years showing marked recovery in both profitability and operational efficiency, alongside increased financial leverage.

The analysis of the annual financial data reveals several notable trends in both reported and inventory LIFO reserve adjusted figures over the five-year period.

Current Assets

Reported current assets showed a general increase from 5,732,000 thousand USD in 2018 to a peak of 6,905,600 thousand USD in 2020, followed by a decline to 6,379,200 thousand USD by the end of 2022. This pattern indicates initial growth over the first three years, with a subsequent contraction over the last two years.

Adjusted current assets, which account for the inventory LIFO reserve, displayed a similar trend but consistently higher levels compared to reported figures. They rose from 5,815,500 thousand USD in 2018 to a peak of 6,946,700 thousand USD in 2020, then decreased to 6,509,100 thousand USD in 2022. The adjustment slightly mitigates the reduction observed in the latter years.

Current Ratio

The reported current ratio indicates liquidity dynamics, starting at 1.33 in 2018, decreasing slightly to 1.28 in 2019, then increasing sharply to 1.59 in 2020. This peak suggests improved short-term financial strength during 2020. Subsequently, the ratio declined to 1.36 in 2021 and further to 1.12 in 2022, indicating a waning liquidity position by the end of the period.

Adjusted current ratios follow a similar pattern, consistently higher than the reported figures, reflecting the effect of inventory adjustments. The ratio moved from 1.35 in 2018 to a high of 1.60 in 2020, then declined to 1.38 in 2021 and 1.14 in 2022. This suggests that the liquidity position, although stronger on an adjusted basis, also experienced a decline in recent years.

Overall, the data demonstrates a period of growth in current assets and liquidity up to 2020, followed by a decline through 2022. The inventory LIFO reserve adjustment consistently enhances asset values and current ratios, highlighting the significance of inventory valuation in assessing financial health. The reduction in liquidity ratios toward the end of the period may warrant closer monitoring to ensure adequate short-term financial stability.

Net Earnings Trends

The reported net earnings attributable to the company experienced fluctuations over the analyzed period. Starting at approximately 1.34 billion US dollars in 2018, earnings showed a moderate increase in 2019, reaching around 1.41 billion. However, in 2020, there was a notable decline to approximately 0.85 billion, reflecting a significant drop. This was followed by a strong recovery in 2021, with net earnings increasing to roughly 1.42 billion, and continued growth in 2022, reaching about 1.76 billion.

The adjusted net earnings, which account for inventory LIFO reserve adjustments, follow a similar pattern but with slightly higher values each year. Adjusted earnings started at approximately 1.35 billion in 2018, increased modestly in 2019, dropped in 2020 to about 0.86 billion, and then rose in 2021 and 2022, peaking near 1.81 billion. The adjustment appears to consistently increase reported earnings by a small margin each year, suggesting the LIFO reserve adjustment has a positive impact on net income.

Net Profit Margin Analysis

The reported net profit margin exhibited a declining trend from 8.54% in 2018 to 6.86% in 2020. This decrease aligns with the drop in net earnings seen in 2020, possibly indicating margin compression due to external factors impacting profitability. Thereafter, margins improve notably, rising to 10.07% in 2021 and further to 10.98% in 2022, reflecting enhanced profitability and operational efficiency in the later years.

The adjusted net profit margin, reflecting the effects of LIFO reserve adjustments, mirrors the reported margin trend but generally sits slightly higher across all years. Starting at 8.63% in 2018, it declines to 6.93% in 2020, then increases to 10.29% in 2021 and 11.34% in 2022. The consistent premium of adjusted margins over reported margins suggests favorable inventory accounting effects enhancing perceived profitability.

Overall Observations

The period from 2018 to 2020 shows weakening earnings and margins, with the low point in 2020 likely influenced by market or operational challenges. Recovery in 2021 and growth in 2022 indicate a rebound. Adjusted figures indicate that LIFO reserve adjustments provide a modest uplift to earnings and profitability margins throughout the period, highlighting the impact of inventory accounting methods on financial results.

Total Assets

Reported total assets generally increased from US$17,914,900 thousand in 2018 to US$20,492,300 thousand in 2019, marking a notable rise. However, a decline followed in 2020 to US$18,156,700 thousand, which then stabilized around US$18,059,800 thousand in 2021 and US$18,081,600 thousand in 2022, indicating a period of relative asset base stabilization after the initial increase.

Adjusted total assets, which account for inventory LIFO reserve adjustments, exhibit a similar pattern to reported assets with slightly higher values across all years. These adjusted figures follow the same trend of an increase from 2018 to 2019, a decline in 2020, and stabilization through 2021 and 2022.

Total Asset Turnover

The reported total asset turnover ratio shows a declining trend from 0.87 in 2018 to a low point of 0.69 in 2020, reflecting reduced efficiency in generating revenue from the asset base during this period. Thereafter, the ratio improves to 0.78 in 2021 and further to 0.88 in 2022, surpassing the 2018 level, which suggests a recovery in asset utilization efficiency.

The adjusted total asset turnover ratio closely mirrors the reported ratio, with a minor deviation in 2020 (0.68 versus 0.69) but following the same overall trend of decline and subsequent recovery by 2022.

Overall Insights

The data indicate that total assets experienced a significant increase followed by a contraction and then a period of stability. In contrast, asset turnover declined initially, suggesting challenges in effectively deploying assets, especially in 2020, possibly linked to operational disruptions during that year. The subsequent recovery and surpassing of prior turnover levels by 2022 demonstrate an improvement in asset management efficiency.

Adjustments for the inventory LIFO reserve result in slightly inflated asset values but do not materially alter the observed trends in asset base or operational efficiency, confirming the robustness of the underlying financial patterns when considering these adjustments.

The analyzed data reveals several important trends concerning the reported and inventory LIFO reserve adjusted financial metrics over the period from 2018 to 2022.

Total Assets

The reported total assets showed an initial growth from approximately US$17.9 billion in 2018 to around US$20.5 billion in 2019, indicating a significant increase during that year. However, in the subsequent years, assets declined, falling to about US$18.2 billion by 2020 and stabilizing around the US$18.1 billion level in 2021 and 2022. The adjusted total assets, which account for LIFO reserve adjustments, followed a very similar pattern, consistently remaining slightly higher than the reported figures by a margin that reflects the inventory adjustment. This suggests that the adjustments have a relatively stable impact on asset valuation across time, indicating consistent inventory practices or valuations.

Shareholders’ Equity

Reported total shareholders' equity displayed a decline over the period. Starting at about US$7.0 billion in 2018, equity slightly increased in 2019 to approximately US$7.3 billion, but thereafter declined each year, reaching nearly US$6.1 billion by the end of 2022. The adjusted shareholders' equity figures, which include inventory LIFO reserve adjustments, mirrored this downward trend closely, maintaining a slightly higher value compared to the reported equity figures across all years. This persistent decline in equity suggests challenges in retaining or growing net assets attributable to shareholders.

Financial Leverage

Both reported and adjusted financial leverage ratios exhibit a steady increase from 2018 through 2022. The reported leverage ratio increased from 2.55 in 2018 to 2.97 in 2022, while the adjusted leverage increased from 2.53 to 2.93 over the same period. The increasing leverage ratios indicate a growing proportion of debt relative to equity, implying that the company's reliance on debt financing has intensified over these years. The close alignment of reported and adjusted ratios suggests minimal impact of LIFO reserve adjustments on the leverage assessment.

In summary, the entity experienced an initial rise in asset base in 2019 but generally maintained a stable asset level thereafter. Shareholders’ equity has shown a declining trend, reflecting decreasing net worth from the shareholders' perspective. Concurrently, financial leverage increased progressively, indicating elevated financial risk due to amplified debt levels relative to equity. The LIFO reserve adjustments had a consistent, moderate effect on asset and equity values but did not materially alter the observed financial trends.

Net Earnings

Reported net earnings exhibited a fluctuating trend over the analyzed period. After increasing from 1,337,600 thousand US$ in 2018 to 1,410,900 thousand US$ in 2019, earnings declined substantially to 854,900 thousand US$ in 2020, likely reflecting external adversities during that year. Subsequently, net earnings rebounded sharply to 1,423,400 thousand US$ in 2021, and further grew to 1,756,500 thousand US$ in 2022, marking a strong recovery and continued growth.

Adjusted net earnings closely followed the reported figures, starting at 1,352,200 thousand US$ in 2018 and rising to 1,413,000 thousand US$ in 2019. The 2020 dip is similar, dropping to 862,500 thousand US$. Recovery in the following two years was robust, reaching 1,454,900 thousand US$ in 2021 and 1,813,800 thousand US$ in 2022, indicating consistent underlying profitability improvements when adjusting for inventory LIFO reserve impacts.

Shareholders’ Equity

Reported shareholders’ equity showed a slight increase from 7,022,700 thousand US$ in 2018 to 7,267,600 thousand US$ in 2019, followed by a decline over the next three years, ending at 6,088,600 thousand US$ in 2022. This downward trend suggests equity reductions possibly due to dividends, share buybacks, or losses not fully captured by net earnings trends.

Adjusted shareholders’ equity figures were marginally higher than reported amounts throughout, starting at 7,106,200 thousand US$ in 2018 and falling to 6,218,500 thousand US$ in 2022. The trend mirrors the reported data, confirming the consistent equity contraction across the later periods.

Return on Equity (ROE)

Reported ROE followed the earnings and equity trends, showing a modest increase from 19.05% in 2018 to 19.41% in 2019. It then fell sharply in 2020 to 13.34%, reflecting reduced profitability relative to equity. A significant improvement occurred in 2021 and 2022, with ROE reaching 22.75% and 28.85%, respectively, indicating enhanced efficiency in generating profits from shareholders' equity.

Adjusted ROE values were closely aligned to reported measures, starting at 19.03% in 2018, slightly lower in 2019 at 19.22%, dipping to 13.37% in 2020, and rising to 22.99% in 2021. The 2022 figure peaked at 29.17%, reinforcing the conclusion of strong profitability improvement when adjusted for LIFO inventory reserve considerations.

Overall Insights

The period under review reveals a notable impact of the 2020 downturn on earnings and returns, with a more pronounced decline in net earnings and ROE, followed by robust recovery and growth in subsequent years. Shareholders’ equity experienced a contraction from 2020 onward despite the improvement in earnings and ROE, implying capital distribution or other equity-reducing actions. The adjustments for LIFO reserve effects yield slightly higher equity and net earnings values but follow similar directional trends, validating the reported results and confirming improved profitability and shareholder return metrics in 2021 and 2022.

The financial data demonstrates several noteworthy trends in profitability, asset management, and returns over the five-year period from 2018 to 2022.

Net Earnings

The reported net earnings attributable to the company showed variability throughout the period. Starting at approximately 1,337,600 thousand US dollars in 2018, earnings increased slightly in 2019, then experienced a significant decline in 2020 to 854,900 thousand US dollars. Subsequently, earnings recovered sharply in 2021, reaching 1,423,400 thousand US dollars, and continued to rise in 2022, peaking at 1,756,500 thousand US dollars. The adjusted net earnings followed a similar trajectory, with small adjustments resulting in slightly higher figures each year compared to reported net earnings. The adjustments appear to have a consistent effect, resulting in a marginal increase in the reported earnings, especially notable in the latter years.

Total Assets

The reported total assets demonstrated growth from 17,914,900 thousand US dollars in 2018 to a peak of 20,492,300 thousand US dollars in 2019, followed by a decline in 2020 and relative stabilization in the subsequent years around 18,000,000 thousand US dollars. Adjusted total assets mirror this trend closely, with minor upward adjustments each year, resulting in slightly higher asset values than reported figures. The adjustments imply an ongoing inventory LIFO reserve impact or other valuation modifications leading to enhanced asset valuations consistently over the period.

Return on Assets (ROA)

The reported ROA showed a declining trend initially, dropping from 7.47% in 2018 to 4.71% in 2020, indicating a reduction in asset efficiency or profitability during this period. However, there was a notable recovery in 2021 to 7.88%, followed by further improvement in 2022 to 9.71%. The adjusted ROA values provide a slightly improved perspective, with generally higher percentages each year, peaking at 9.96% in 2022. This adjustment implies a positive effect from inventory valuation changes or other adjustments on the company's ability to generate earnings from its asset base.

In summary, the company experienced a dip in earnings and asset efficiency in 2020 but demonstrated strong recovery and growth in both net earnings and returns on assets from 2021 onwards. The adjusted data consistently show slightly better profitability and asset returns, reflecting the impact of inventory LIFO reserve adjustments or similar accounting considerations on financial performance metrics.