Trane Technologies plc (TT) — Q3 2022 Earnings Call Transcript

Thanks, operator. Good morning and thank you for joining us for Trane Technologies third quarter 2022 earnings conference call. This call is being webcast on our website at tranetechnologies.com, where you'll find the accompanying presentation. We are also recording and archiving this call on our website. Please go to Slide 2. Statements made in today's call that are not historical facts are considered forward-looking statements and are made pursuant to the safe harbor provisions of federal securities law. Please see our SEC filings for a description of some of the factors that may cause our actual results to differ materially from anticipated results. This presentation also includes non-GAAP measures, which are explained in the financial tables attached to our news release. Joining me on today's call are Dave Regnery, Chair and CEO; and Chris Kuehn, Executive Vice President and CFO. With that, I'll turn the call over to Dave. Dave?

Thanks, Zac, and everyone, for joining us on today's call. Let's turn to Slide number three. Before I dive into our quarterly results, I'd like to spend a few minutes on our purpose-driven strategy, which is the engine behind our differentiated financial performance and shareholder returns. Our strategy is aligned to powerful megatrends, like climate change and the crucial need for climate action. Last week, the United Nations released its emission GAAP report 2022, calling for urgent transformation to avoid climate disaster. The report cites critical actions needed, including efforts to scale zero emission heating and cooling technologies and to decarbonize the food supply chain. That's where Trane Technologies has a unique position to make a difference. We have the technology today to transform tomorrow. We are proud to be leading our industry with aggressive, science-based sustainability commitments, actions and results. Together with our customers, we are dramatically reducing emissions and creating sustainable homes, buildings and cities. Our purpose-driven strategy, relentless innovation and strong customer focus enable us to deliver a superior growth profile through cycles. This, in turn, helps us drive strong margin and powerful free cash flow to deploy through our dynamic capital allocation strategy. The end result is strong value creation across the board for our team, our customers, our shareholders and for the planet. Moving to Slide number four; Q3 was another strong quarter for us across the board. Our innovation leadership continues to win customers at an unprecedented pace, and our bookings level remained extremely high, reflecting strong share gains in virtually every area of our businesses. Organic revenues were very strong, up nearly 20% and our book-to-bill remained over 100% with organic bookings up 8%. Absolute demand continues to be extremely robust. For perspective, year-to-date organic bookings are 95% of our total revenues for 2021, and we still have the fourth quarter to go. Bookings continue to be particularly strong in commercial HVAC businesses globally. Our global commercial HVAC business is up more than 40% on a two-year stack. Our Americas commercial HVAC business is even stronger, up more than 50% on a two-year stack. Strong broad-based bookings growth over the past seven quarters have driven our backlog to unprecedented levels with a backlog of $6.4 billion at the end of the third quarter. We expect backlog to remain at elevated levels well into 2023. Strong execution of our business operating system has enabled us to stay ahead of persistent inflation and deliver over 10 points of incremental price and positive price versus inflation again in the third quarter. Pricing execution is a core competency for us and increasingly important given higher costs to serve customers across the value chain. On our second quarter earnings call, we discussed two temporary plant closures that delayed $120 million in revenue from the second quarter into the second half of 2022, with the majority of the revenues expected to be recovered in the fourth quarter. I'm proud of the way our teams rose to the challenge to accelerate that recovery in the third quarter to meet or exceed our customers' needs. As a result, we successfully recovered $100 million of the $120 million in the third quarter, which is approximately $70 million ahead of our expectations, and we're on pace to deliver the additional $20 million in the fourth quarter. Our performance through the third quarter has been strong. Booking levels have remained robust. Backlog remains at unprecedented levels. Inflation has been persistent but our pricing execution has more than kept pace. The supply chain remains tight but is slowly improving. All in, we're confident in raising both our organic revenue and adjusted EPS guidance above the high end of our previous ranges. When you consider that our guidance includes an additional $0.07 of headwind from FX, we're effectively raising our operational guidance for the year by about $0.15 at the midpoint. The secular megatrends underpinning our strategy are only growing stronger. Execution of our high-performance business operating system and our unwavering focus on putting customers first remain at the core of everything we do. Our balance sheet, liquidity position and ability to deliver strong free cash flow provide a robust financial foundation and good optionality for capital deployment. We are well positioned to not only navigate near-term macro challenges but to thrive as conditions improve. Please turn to Slide number five.

Thanks, Dave. Please turn to Slide number six. This slide does a nice job encompassing our overall performance in the quarter, which was strong across the board. Organic revenue growth was up 19%, adjusted EBITDA margins were up 50 basis points and adjusted EPS was up 26%. We delivered robust enterprise growth in both equipment and services, up more than 20% and low teens, respectively. EBITDA and operating margin expansion were driven primarily by strong leverage on volume growth. Pricing remained strong, up more than 10% in the quarter, and price versus inflation was positive on a dollar basis. Productivity continues to be negatively impacted by supply chain challenges driving plant inefficiencies as well as higher costs to serve customers. We also continue to make high levels of business reinvestment to support continued innovation and product leadership across our product portfolio. Organic leverage was strong at approximately 21%. Please turn to Slide number seven. We discussed the key revenue dynamics for each of the businesses earlier in the presentation, so I'll focus my comments on margins. In addition to the items discussed below, each of our segments also continued to make significant investments in our innovation pipeline to fortify our leading brands and drive market outgrowth. In our Americas segment, we delivered solid margin expansion, driven primarily by strong incrementals on robust volume growth. Price offset inflation on a dollar basis but remained a margin headwind. Margins were also negatively impacted by the supply chain challenges and higher costs to serve customers that I referenced earlier. In EMEA, strong volume growth with solid incrementals was more than offset by foreign exchange impacts and continued acute supply chain challenges, which continue to have an outsized impact on productivity in the region. Price versus inflation improved sequentially and was positive on a dollar basis but remained a margin headwind. In Asia Pacific, margins expanded over 300 basis points on robust volume growth with strong incrementals, more than offsetting FX headwinds. Now I'd like to turn the call back over to Dave. Dave?

Thanks, Chris. Please turn to Slide number eight. We discussed throughout the call underlying demand for our innovative products and services has never been higher with unprecedented levels of bookings and backlog across our businesses. Relentless innovation, strong brands with leading market positions, customer focus and operational excellence are hallmarks of our market outgrowth over a long period of time. In the Americas, our commercial HVAC business is driving strong demand and share gains, as demonstrated by our order growth of approximately 50% on a two-year stack, and we're exiting the third quarter with another quarter of record backlog, up more than 70% year-over-year and more than 200% of historical norms. End markets remain strong with a variety of economic indicators pointing to growth in 2022. Unemployment is low, and indicators like the Architectural Billings Index remain favorable with a reading of over 50 since February of 2021. Demand remains strong in data centers, education, health care and high-tech industrial verticals, where we have strong customer relationships and market positions. Our commercial HVAC business is underpinned by long-term secular tailwinds of energy efficiency, decarbonization and indoor environmental quality. We also see tailwinds from new and ongoing regulatory and policy-related drivers, such as the Inflation Reduction Act and education stimulus. Our commercial HVAC business has a lot of runway, and we believe we have the premier franchise to capitalize on significant opportunities that lie ahead. Demand for our residential products remained healthy with a book-to-bill of 92% combined with 16% revenue growth in the third quarter. We expect bookings and revenue to normalize over time and for regulatory and policy-related tailwinds, such as the upcoming SEER change and the Inflation Reduction Act to help buffer potential market declines. Longer term, we continue to see residential HVAC as a GDP-plus business, which makes up about 20% of our portfolio. Turning to Americas transport refrigeration, ACT continues to project solid growth in 2022, followed by a relatively flat 2023, where the market is expected to remain at a high level. We have a diversified portfolio of solutions across a number of vertical markets, which provide opportunities and continued growth prospects through further market penetration and share gains. Longer term, we continue to see transport refrigeration as a GDP-plus-plus business for us. We'll talk more about the transport refrigeration outlook in our topics of interest section. Turning to EMEA commercial HVAC. While we have muted expectations for overall market growth, given the volatile geopolitical backdrop, demand for our leading sustainability-focused solutions remains strong. We continue to see good opportunities for market outgrowth and share gains across the region, and we're seeing great traction and growth across our Thermal Management Systems portfolio. Looking at EMEA transport refrigeration, the market is expected to be down roughly mid-single digits in 2022, primarily reflecting the removal of Russia from the market sizing. Looking out to 2023, we expect the market to be down modestly, reflecting economic uncertainty in the region. We're continuing to work closely with our customers as the market evolves. Turning to Asia; we continue to see strength in data center, electronics, pharmaceutical and health care verticals. Outside of China, the picture is mixed, with varying dynamics country to country. Now I'd like to turn the call back over to Chris. Chris?

Thanks, Dave. Please turn to Slide number nine. As Dave discussed at the outset of the call, we are pleased with our execution through the first 3 quarters of the year, and we continue to see slow but steady improvement in our supply chain. Additionally, bookings and backlog continue at high levels, providing us with good visibility into future revenues. All in, we're confident in once again raising our full year revenue and EPS guidance for 2022. We are raising our full year organic revenue growth guidance to between 13% and 14%, up from our prior guidance of 12%, reflecting both stronger price and volume for the year. We're raising our adjusted EPS guidance range to $7.15 to $7.20, from a range of $7.05 to $7.15, which is an increase of about $0.07 at the midpoint. As Dave mentioned previously, our updated guidance includes an additional $0.07 headwind from FX for the year that we are absorbing in our guidance, which means our core guidance range is effectively higher by about $0.14 to $0.15 at the midpoint. Our full year organic leverage expectations are unchanged at mid-teens. While we continue to see our supply chain slowly improving, it remains challenging and continues to pressure productivity in our plants and drive higher costs to serve customers as we've discussed previously. As a result, we're expecting similar to modestly improved leverage in the fourth quarter versus the third quarter or between 20% and 25%. We expect free cash flow to remain healthy and are targeting 100% of adjusted net income for the year. Depending upon the timing of revenue and shipments as we close out the year, we could see some receivables carry over into 2023, which could modestly impact the timing of our cash conversion. Other elements of our guidance remain largely unchanged. One last item I wanted to highlight relates to our guidance cadence. As Dave discussed earlier, when we raised our guidance on our second quarter call, we envisioned recouping about $30 million of the $120 million in delayed revenues related to the second quarter plant closures in the third quarter, and recouping the other $90 million in revenues in the fourth quarter. We're extremely pleased we were able to accelerate this recovery plan and recoup $100 million in revenues in the third quarter, $70 million ahead of our guidance expectations. The net effect is a modest shift in the timing of $70 million in revenues or approximately $0.07 of adjusted EPS into the third quarter from the fourth quarter, with no impact to the full year. Please see Page 17 of the presentation, which provides additional details related to guidance to assist with your models. Please go to Slide number 10. We remain on track to deliver $300 million of run rate savings from business transformation by 2023. We continue to invest in these cost savings in high-ROI projects to further fuel innovation and other investments across the portfolio. It's important to note that our transformation savings program is a discrete program related to recovering three times the amount of stranded costs we expected to see as a result of the separation of our industrials business. Our business operating system is designed to drive continued strong productivity and cost savings over the long term, and we have a long track record of success over the past 10-plus years. Our relentless focus on executing our business operating system and driving productivity and cost savings continues long after the discrete transformation program has achieved its targets. Please go to Slide 11. We remain committed to our balanced capital allocation strategy, focused on consistently deploying excess cash to opportunities with the highest returns for shareholders. First, we continue to strengthen our core business through relentless business reinvestment. Second, we're committed to maintaining a strong balance sheet that provides us with continued optionality as our markets evolve. Third, we expect to consistently deploy 100% of excess cash over time. Our balanced approach includes strategic M&A that further improves long-term shareholder returns and share repurchases as the stock trades below our calculated intrinsic value. Please turn to Slide 12, and I'll provide an update on our capital deployment in 2022. In the third quarter, we deployed $406 million in cash, with $156 million in dividends and $250 million to share repurchases. Year-to-date through October, the company has deployed approximately $1.6 billion, with $900 million of share repurchases, $467 million dividends and approximately $250 million to M&A, including the acquisition of AL-KO Air Technology, which closed on Monday, October 31. We continue to target the deployment of approximately $2.5 billion of capital in 2022. Our M&A pipeline remains active, and we have significant firepower for share repurchases with approximately $3.5 billion remaining under current share repurchase authorizations. Our strong free cash flow, liquidity and balance sheet continue to give us excellent capital allocation optionality and dry powder moving forward. Now I'd like to turn the call back over to Dave. Dave?

Thanks, Chris. Please turn to Slide number 14. Overall, global transport refrigeration markets are expected to remain healthy in 2022. Forecast for 2022 are largely unchanged versus the last quarter, with strong growth in North America and a mid-single-digit decline in EMEA, largely driven by the removal of Russia from the market sizing. For 2023, forecasts have softened a bit versus the prior quarter. ACT is now projecting roughly flat growth from 2022 to 2023 with the overall market remaining at a high level. In EMEA, while IHS has yet to publish an official outlook for 2023, we expect the market to be down modestly based on a softening European economic backdrop. After clear share gains in truck, trailer and APU in both the Americas and EMEA in 2021, we're expecting continued share gains in 2022. For 2023, we have strong and diversified portfolios in both North America and EMEA and see opportunities for growth and share gains across our portfolio. Please go to Slide number 15. In summary, we are positioned to outperform consistently. Energy efficiency, decarbonization and sustainability megatrends continue to intensify and create record levels of demand for our innovative products and services. We are uniquely positioned to deliver leading innovation that addresses these trends and accelerates the world's progress, supported by our business transformation and our engaging uplifting culture. The strength of our business operating system, the power of our global team and our broad-based market demand gives us confidence in raising our full year revenue and EPS guidance. We believe we have the right strategy, the best team and a solid foundation in place to deliver strong performance in 2022 and differentiated long-term shareholder returns. And now we'll be happy to take your questions.

Good morning, guys. Nice quarter. Dave, can you give us more color into the commercial HVAC bookings environment in the Americas. It looks like your bookings actually accelerated a bit in Q3. Could you talk about the biggest drivers of that bookings growth at this point and the visibility of continued strong bookings? How much of the good growth is the impact from institutional customers, maybe starting to reach day two spend in IQ? Have you seen any customers begin to pull back on spend yet? And are you seeing any major differences between applied and unitary?

Yes. Well, we haven't seen any pull back, Andy. Good question. But we're seeing broad-based demand from electronics, data centers, education, health care, and high-tech industrial, think of electronics, EV plants, battery plants. So we're seeing some nice demand. I mean our order rates were up around 20% in the Americas, and it's really across many verticals. So a lot of strength there.

Great. And then maybe a similar question on residential. I know you don't want to give us exact forecasts for '23, but bookings down high single digits, in line with what you guys thought. But pricing is still very strong. Have you seen any weakness in replacement volume at this point? You kind of said that you didn't expect it to fall off a cliff. How is that going? What about inventory in the channel? And are you still measuring your residential backlog in months that gives you decent visibility, especially with the CR change in '23?

Our residential business performed very well in the third quarter, achieving strong mid-teens organic revenue growth. The book-to-bill ratio for the quarter was 92%. While channel inventory in our independent wholesale distributor segment was slightly above normal levels, it isn't a cause for concern. Sell-through rates in the independent channel were also in the mid-teens, indicating strong performance. We expect order rates to be under some pressure in the near term as we continue to address a backlog that remains significant and will take time to normalize. In 2021, our full-year order rates for the residential business increased by about 30%, while revenue rose approximately 14%. This created a large backlog that we now need to work through. When assessing our residential business, we focus on three key factors: order rates, backlog, and revenue. Over time, these factors will start to balance out. Looking ahead, we view our residential business as one that can grow faster than GDP, supported by the strong performance we saw in the third quarter.

Andy, I'll add on the enterprise backlog. We reported of $6.4 billion. We still see that 90% is nonresidential. It's focused on our commercial businesses, including thermal, so it will stay the same here in the third quarter.

We do not see residential falling off a cliff. There's going to be some positive tailwinds to next year. You have the SEER change that will happen, which will drive some price. You also have the Inflation Reduction Act, which we're still working through. There are some elements there that still need to be defined. But that will be a tailwind. Hopefully, that starts towards the beginning of the second quarter. So there is some positive too in residential.

Congrats on the nice quarter.

Thanks, John. Appreciate it.

I would like to address this. You have a very strong backlog and have opened up the order book at Thermo King. The services sector continues to perform well. Can you share your thoughts on how you expect the market to evolve in 2023 or how much more clarity you have now compared to entering a typical year?

Yes. I think with the backlog of $6.4 billion, it gives us a lot of visibility. If you think about a normal fiscal year, John, we typically go in with about 20% of our revenue in the backlog. Obviously, we're going to go into 2023 with a much larger number, which really is going to help us, too, with our forecasting capability with our suppliers. The supply base is still constrained. It's improving. The third quarter was certainly better than the second quarter. The fourth quarter will be better than the third quarter. But it is going to be constrained for a period of time. But having that visibility really helps us, helps our suppliers, helps us with our forecasting capability.

Great. And then maybe just on the margin. Price cost still positive on absolute dollars. I think you said it's still a headwind to the margin. Just as you think about price flowing into next year, maybe also what you're seeing on inflation, just maybe give us some expectations for price costs and when it flips positive on a margin percent.

Yes, John, you summarized it well. The third quarter price cost positive on a dollar basis, still a margin headwind, but less of a margin headwind in Q3 than what we saw in Q2. So it is getting a little bit better. As we think about 2023, we'll certainly see some carryover price coming into next year. We're seeing those commodities start to come down off of their peaks. Certainly not back where we were two years ago in terms of commodity costs, but a little bit of deflation there. We see that impacting 2023 more so than 2022. But we also are looking at items like wage inflation and energy inflation as well that we'll need to bundle all together, and we'll provide a better look on 2023 in a few months when we report our Q4 earnings. But there should be some deflationary opportunities in there. We're going to have, as Dave mentioned, a very strong backlog entering into 2023. And ultimately, the goal here is to deliver top quartile results.

Reflecting on past housing recessions, there tended to be a shift towards lower-end units and an increase in repairs rather than replacements. Given the upcoming SEER changes in 2023 and potential adjustments in dealer inventory practices, do you foresee a similar or lessened impact this time? Your prepared remarks suggest a more muted effect, so any additional insight on this would be appreciated.

Yes. I think it will be a little bit more muted. I think that there's obviously the SEER change, which we are in the process, obviously, of shipping the new products as we speak. So that's going to add some price. It's also going to push up the higher end of the SEER market. I also think that the Inflation Reduction Act will be a tailwind. Again, we're working through some of the details on that still need to be defined. But that will certainly push the market more to the heat pump side of things and the higher SEERs on the heat pumps.

Okay. I see your press releases and trade magazines about the next generation of Thermo King products. Can you help us understand the customer demand for these next-generation products? Specifically, where is the technology heading? Is it moving towards hybrid options or fully battery-powered solutions, and when can we expect these advancements?

Good question. We don't have totally the crystal balls there, but I would tell you that it is moving to electrification, okay? You're seeing it in the smaller vehicles now. And we have a complete portfolio of products there that are able to capture that market. On the long-haul carriers, think about the reefer units, that will be a slower transition but we're ready for it. We actually have products that are out now. We're testing in the field with customers that are fully electric. It will take an approach very similar probably to what you've seen with cars, where you'll start with hybrid and then it will move to an all-electric version.

Just wanted to start with the Thermo King outlook. So you've got that very helpful Slide 14. Just when we're thinking about next year, it looks like, as you said, the sort of third-party market forecast and so forth are sort of flat to down units in 2023. So I just wondered about how would you sort of frame the scope for Thermo King overall transport that Trane to do better than that? What's the outlook for that one third of revenue, which is sort of marine, bus, rail and aftermarket? How is pricing in transport for you versus the Trane enterprise? Any thoughts on share gain potential, perhaps after some undergrowth in North America this year? Any sort of color on that, please.

Our Thermo King business in the Americas has shown strong performance over several consecutive quarters. We had a very successful third quarter, compensating for the revenue shortfall in Q2. The team made a commendable effort to achieve this. We are pleased with the share gains in our Thermo King segment. Looking ahead to 2023, we are optimistic about the innovation we are implementing in both the EMEA and Americas regions, which is positively impacting our market share. In the Americas, the ACT is expected to remain relatively flat compared to 2022, although it remains at a very high level. The trailer market forecast suggests around 45,000 units, indicating a robust market. In Europe, while we have not received an official forecast from IHS, our estimates indicate a slight decline, but that does not imply our business will decline as well.

And Dave, maybe just one follow-up on that. The pricing in transport, how do we think about that versus the Trane enterprise average of, I think, 10 points?

Julian, I'll jump in. We don't really dial it in necessarily by each SBU. But I would say it's certainly contributing to the enterprise performance. The business operating system that's been deployed for many years. One aspect of that is pricing and getting in front of inflation. And the Thermo King team is really a part of that strength that we've shown over the last now seven quarters in this highly inflationary environment and staying ahead on price cost. So really proud of where our teams both in Americas and Europe and in Asia dealt there.

And Julian, if I could just follow up on just a quick story here to talk a little bit about our culture here at Trane Technologies. That team in the Americas overcame a massive obstacle that happened in the early May time period when a tornado hit our facility in Puerto Rico and really removed the roof from one of our major assembly operations there. And I can remember meeting with that leadership team and it was early May, and the President of that business, she walked into the room, and she had 3 questions for the team. And she said, number one, are all our employees safe? And the answer was, yes, because the storm hit on a Sunday afternoon and the plant was unoccupied. The second was, do any of our team members need help? And the answer was no because as tornadoes are, they tend to be very targeted, and it wasn't a large impact to the community. And the third question was, how do we get this facility back up and running so we could take care of our customers? And here we are talking about this in the late third quarter, early fourth quarter, and we were able to recover all of the missed revenue that happened in the second quarter and the third quarter. That team performed exceptionally well. And just it speaks volumes to the character of not only that team but to Trane Technologies.

That's good to hear, Dave. Maybe just switching tack for a second. Operating leverage, Chris, you called out 20% to 25% for Q4. When we look at just sort of broadly the next 12 months, do we assume that number lifts gradually as you get this kind of steady abatement of price cost and supply chain margin headwinds? There's no kind of step change, but it should clearly move higher from Q4.

Yes, Julian, the trends in commodities suggest that we should see improvements. We've made significant strides in managing prices and keeping them ahead of inflation. This creates an opportunity for us next year regarding pricing and direct material cost inflation. We are also considering factors like wage inflation and energy costs that need to be included in our analysis. We will offer more guidance on this in the coming months. Currently, we are in the midst of planning for next year, focusing on our investments and identifying areas where we can enhance those investments to drive returns. All these elements will be incorporated as we consider additional opportunities for next year. There are many factors at play, but we will provide guidance soon.

I would like to start by discussing the current situation regarding the margins. It seems that foreign exchange and price costs are having an impact. The margins have been declining for four consecutive quarters. I'm curious about when we can expect to see an improvement in the margin profile for the EMEA business.

Yes, Joe, think of that FX decline on a year-over-year basis, about half of that is coming from foreign currency. The other half of that is still these acute supply chain issues that frankly, we saw in that region starting about a year ago with the significant demand. And we're still incurring higher costs to serve customers, which we know is the right thing to do in this market. But both those costs, the supply chain inefficiencies are just still very real. And then foreign currency are really the drivers for margin. We do expect those margins to improve over time as these supply chain challenges improve. Dave's talked about this gradual recovery, and we've seen that occur in the third quarter with some stronger volumes than what we had forecasted. And we do see that gradually getting better as we move out over the next several quarters, but it's going to take some time.

Yes, John, the other thing I would add is I'm very confident long term with our outlook in Europe. That region continues to grow share and it is one of our leading regions with innovation. So just a really creative management team there that's been able to execute well. And long term, I feel good about Europe.

Yes. I guess maybe part of my question, I should have asked it earlier, is like are you starting to see any impact from European energy costs? Like is that impacting the margin at all? Just any color around that would be helpful.

Yes. I'd say maybe a little bit in the third quarter. I mean, certainly, as we talk to our employees, they're feeling the impact of that and their own utility bills and the statements that they're getting at home. So it's starting to creep in a little bit in the third quarter, a little bit into the fourth quarter and certainly into next year, maybe a bigger dollar amount for us to kind of consider and think about it from a pricing perspective. I think what it's also doing is driving a fair amount of the order growth as well as you think about products that are in the Thermo King space, hybrid electric products that have 30% fuel savings versus the product that was on the market two years ago, the electrification of heating and driving our thermal management systems on the commercial HVAC side, the reduced energy intensity. Those are really contributing as well in this very challenging energy crisis in Europe.

Got it. That's helpful. If I could ask one more question about residential, could you break down how much of the growth this quarter was due to price versus volume? Also, have you noticed any significant differences between what you're selling through your own network and what you're selling via independent distribution?

Well, I think the simple answer there is everything was up mid-teens. So that makes it easy to answer. Yes, I mean, for the enterprise, we had over 10 points of price, and residential continues to be one of our leading businesses with price. So it's north of 10. But we won't go any further than that for competitive reasons, but it's a strong business, had a good strong third quarter.

I wanted to ask on COGS and just thinking about some of the cost dynamics moving forward. And if you could talk about sort of within the materials exposure, how much material is of COGS? How much of that is raw versus sourced components? And when you think about those cost trends? Or should we see drive supply chain and lower raw contribute to lower component costs as well or strong demand doesn't translate to lower component costs, just to kind of understand some of those moving pieces?

Yes, it's certainly a mix of all factors. As we prepare guidance for next year, we aim to update the breakdown of commodity costs compared to other expenses, as this has evolved over time. We've indicated that copper, aluminum, and steel each represent about a third of our total Tier 1 commodity costs, not including state refrigerants. This situation offers some advantages as we head into next year regarding the outlook for these commodity costs. Typically, with increased volume, we can gain leverage, but in the current supply chain environment and given existing constraints, our focus is on managing these factors on a quarterly basis and hoping to see improvements. I think that sums up our approach as we consider pricing for next year and work towards achieving a positive price-cost spread. Yes. I expect for the fourth quarter to remain price cost positive on a dollar basis. I think it will still be margin decremental on a year-over-year basis. That price component, though, of the growth in the fourth quarter will be lower than the third quarter. We're just comping against stronger price realization from a year ago. Certainly, the second half of 2021 was much stronger than the first half. So I do expect top line price to be less of a contributor in Q4. But we're on track to be price-cost positive for the full year. And ultimately, for the full year, it will be a bit of a margin headwind as well.

Great. I'd like to thank everyone for joining on today's call. And as always, we'll be around to take any questions that you might have in the coming days and weeks. And hopefully, we'll see you on the road soon. Everyone, have a great day. Bye.