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<p>Carrier, the HVAC and refrigeration giant, has remade its $22 billion business around shrinking the energy footprint of heating and cooling. It estimates that since 2020, its products have helped users avoid 490 million metric tons of greenhouse-gas emissions—the equivalent of the annual energy use of 65 million U.S. homes.</p>

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CTW 2021-49 Carrier

<span style="font-weight: 400">When COVID-19 sparked demand for better air filtration, Carrier was poised to help. Healthy-building tech is a central focus for the HVAC-systems maker. Among the products it introduced: Portable equipment designed to contain and remove air potentially contaminated by viral particles—giving health care providers the means to turn any space into an infectious disease isolation room.</span>

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F500-2021-171-Carrier Global

This Florida-based corporation keeps its customers acclimated with its heating, air conditioning, and refrigeration services.

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Carrier Global is the largest heating, ventilation, air conditioning (HVAC) and refrigeration company in North America, serving customers in over 160 countries. The refrigeration segment offers products and services for trucks, trailers, shipping containers, and rail applications. In 2024, the company announced it had acquired renewable HVAC provider Viessmann Climate Solutions for $18 billion. Willis Carrier, the inventor of modern air conditioning, founded the company in 1915. United Technologies acquired Carrier in 1979 before the company was spun off in 2020.

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Carrier Global (CARR): Company Profile, Stock Price, News, Rankings

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Carrier Global

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Good morning, and welcome to Carrier's First Quarter twenty twenty five Earnings Conference Call. I would like to introduce your host for today's conference, Michael Retner, Vice President of Investor Relations. Please go ahead.

Good morning and welcome to Carrier's First Quarter twenty twenty five Earnings Conference Call. On the call with me today are David Gitlin, Chairman and Chief Executive Officer and Patrick Goris, Chief Financial Officer. Except where otherwise noted, the company will speak to results from continuing operations excluding restructuring costs, amortization of acquired intangibles and certain significant nonrecurring items such as acquisition and divestiture related costs. A reconciliation of these and other non GAAP financial measures can be found in the appendix of the webcast. We also remind listeners that the presentation contains forward looking statements, which are subject to risks and uncertainties.

Carrier's SEC filings, including our Form 10 ks and quarterly reports on Form 10 Q provide details on important factors that could cause actual results to differ materially. One additional note, as you probably saw in both the press release and webcast presentation this morning, we announced our revised reportable segments and segment profitability measures. So we will be speaking to financials on this basis going forward. With that, I'd like to turn

Thanks Mike and good morning everyone. Let me start by thanking our 50,000 teammates for delivering another strong quarter. I'd also like to welcome Michael Gerges to our team. He is leading our Climate Solutions segment in the Asia Pacific, Middle East and Africa region and we are thrilled to have him on board.

So, a strong and better than expected start to the year. Orders were up high single digits with double digit orders growth in Climate Solutions Europe and Transportation. Within Climate Solutions America, sales in both residential and commercial were up about 20% each, more than offsetting weakness in light commercial. Global aftermarket remains on track for another year of double digit growth following 1Q up 8%. Total company backlog was up about 10% year over year and 15% sequentially.

The team continues to use Carrier Excellence to drive strong productivity with core earnings conversion of about one hundred percent and two ten basis points of margin expansion. We drove 27% adjusted EPS growth on 2% organic growth. Free cash flow was four twenty million dollars and we returned about $1,500,000,000 to shareholders in the quarter through dividends and share repurchases plus paid down $1,200,000,000 in debt with no additional maturities until 2027. Turning to slide four. We made great progress on all three drivers of sustained growth: products, aftermarket and systems.

In terms of differentiated products, channels and brands, we introduced Carrier's first air cooled commercial heat pump in Europe delivering high temperatures, increased energy efficiency, noise reduction and enhanced operational performance, all of which address increased demand for district heating and cooling in Europe. Also, as we displayed at the recent ISH show in Frankfurt, we are gaining traction selling our Carrier branded air to air residential heat pumps in Europe leveraging Beesman's channel. Aftermarket strength continues. We drove tremendous progress in the attachment rates on our commercial chillers now surpassing 60 for the first time and we now have over 50,000 connected chillers up about 5,000 versus the prior quarter. Aftermarket for global commercial HVAC was up about 10%, supported by mods and upgrades, which grew about 20%.

We also introduced a smart device application for Lynx fleet providing increased real time visibility, enhanced customer operational efficiency, and reduced costs while maintaining cold chain integrity. On systems, we introduced Wiesemann's PROFI to accelerate and expand our hemp sales in Europe. Selling heat pumps versus boilers is a mix up sales benefit of about four to one. Selling complete systems versus boilers is a mix up benefit of closer to eight to one with more value to the homeowner, so we see this as a significant win win opportunity for sustained growth and customer stickiness. For HEMS in The United States, we announced an exciting new partnership with Google to enhance grid resilience and support smarter energy management.

By integrating Carrier HEMS technology with Google's cloud AI and analytics, we will help increase the efficiency of the existing energy infrastructure, reduce grid congestion, unlock greater energy utilization and reduce energy cost to the homeowner. Turning to slide five for an update on our residential and light commercial business in Europe. Organic orders were up mid teens driven by strength in heat pumps offset by a decline in boilers. Germany heat pump subsidy applications in Q1 were up significantly, the highest Q1 we have seen in the past five years. Our RLC Europe book to bill was 1.3 and our backlog was up 60% sequentially.

Organic sales were down about 10% as we expected and we project the RLC Europe business to return to modest growth in 2Q. Revenue synergies remain on track for about $100,000,000 this year and about $200,000,000 next year. Cost synergies also continue to be strong and we are on track to achieve more than $200,000,000 by the end of next year. A few comments on the recent election in Germany. We were pleased to see that the new coalition government is committed to the European Union's two thousand and thirty climate goals which include a 55% reduction in carbon emissions which will contribute to a continued shift to electric heating.

Also encouraging is the coalition's continued support for heat pump subsidies and its €500,000,000,000 infrastructure investments, including about a hundred billion euros for additional green investments. Importantly, the new government is also committed to bringing down electricity pricing by at least 5¢ per kilowatt, which is expected to bring the ratio of electricity to gas prices below three. Further improving the ratio will be ETS two where across Europe in 2027, we expect fossil fuel prices to increase. All in, we're pleased with improving heat pump demand and traction on our key growth initiatives. A word on our guidance and the macro environment on slide six.

Let me first say that we of course support free and fair trade. Also Carrier is proud to be the largest US domicile player in our industry and we've grown our domestic headcount by about 20% over the past five years and we continue to invest in our US workforce and factories. With respect to tariffs, virtually all of our imports from Mexico are USMCA compliant. For the tariffs that are in effect today, China is about 80% of our exposure. As reflected in our guidance, we are fully mitigating our tariff exposure through supply chain and productivity actions with a balance of about $300,000,000 via price, which represents a little over 1% of additional pricing.

In addition, given the fluidity of the current market environment, we are taking additional cost containment measures. Based on our strong start to the year and current FX rates, we are increasing our full year adjusted EPS guide to $3 to $3.1 which is up about 20% year over year. As always, our team is committed to taking the actions needed to deliver on our commitments to our customers and investors. You saw this when we addressed COVID and supply chain disruptions, and we are confident that you'll see us do the same here. Importantly, while we remain clear eyed and prudent given the current macroeconomic uncertainty, we will remain laser focused on our customers and continue to invest in differentiation and solutions to drive sustained outsized growth for years to come.

With that, I will turn it over to Patrick.

Thank you, Dave, and good morning, everyone. Please turn to slide seven. As Dave mentioned, we had a strong start to the year with earnings ahead of our expectations and the guide we provided in February. Reported sales were $5,200,000,000 with 2% organic sales growth, including about two points of price. The impact of mix up and volume was net neutral.

We had an unfavorable 5% net impact from acquisitions and divestitures and a point of headwind from foreign currency. Organic sales were largely in line with expectations with stronger than expected performance in Climate Solutions Americas, partially offset by weaker performance in Climate Solutions Asia, Middle East and Africa. Europe and Transportation came in largely as expected. Q1 adjusted operating profit increased 10% compared to last year, driven by strong productivity and price. As a result, adjusted operating margin expanded by two ten basis points compared to last year.

The absence of commercial refrigeration was about a 70 basis point tailwind to margin. Adjusted EPS of zero six five dollars was up 27% year over year and better than expected due to strong productivity performance. Compared to last year, adjusted EPS growth was driven by improved adjusted operating profit, lower net interest expense from deleveraging and a lower share count. We have included a year over year adjusted EPS bridge in the appendix on Slide 19. Free cash flow of $420,000,000 in the quarter was also stronger than expected, driven by higher net income, lower than expected seasonal working capital build and lower capital expenditures.

During the quarter, we repurchased 1,300,000,000 worth of shares and in April, we repurchased an additional $320,000,000 worth of shares. We continue to target $3,000,000,000 of share repurchases in 2025. Moving on to the segments, starting on slide eight. The CSA segment had a very strong quarter with organic sales growth of 9%. A bit more than half of the sales growth came from volume and mix up, the balance from price.

Commercial ex Norresco and residential strength continued with organic sales in both businesses up around 20%. Within residential, regulatory mix up was the high single digit organic growth benefit with the balance split between volume and price. About 75% of our resi volume was four fifty four B and we are realizing the expected 10% mix up. Life commercial came in lower than expected, down around 35% with a tough compare versus prior year, which was up about 20%. Adjusted operating margins expanded four twenty basis points, driven by strong organic growth and productivity.

Overall, CSA had an outstanding quarter. Moving to CSE on Slide nine, about 75% of this segment sales represent residential light commercial or RLC, of which about 85% is represented by Viessen Climate Solutions and 15% legacy carrier. Commercial represents about 25% of the segment sales. Organic sales in CSE were down 7% with mid single digit growth in Commercial, offset by about a 10 decline in RLC, largely in line with expectations. Adjusted operating margin declined three ninety basis points driven by lower volume mix and investments partially offset by favorable cost synergies.

At 9%, we're confident that we can and will drive significant margin improvement in this segment. We expect volumes to improve. We are addressing underperformance of carriers legacy RLC business. Commercial margins are on an improving trend and there is significant additional opportunity to streamline and drive synergies within the region. More on that at our upcoming Investor Day in a few weeks.

Moving to the CS AME segment on Slide 10. Organic sales were down 6% driven by continued weakness in residential China and parts of Southeast Asia, partially offset by growth in Japan and India. Within China, our residential light commercial business was down around 20% and commercial was up low single digits. Both businesses faced challenging compares versus the prior year, which were both up around 10%. Despite the organic sales decline, adjusted operating margin for this segment expanded two forty basis points as a result of productivity and the absence of a prior year unfavorable currency impact.

Moving to CST on Slide 11, organic sales were up 2% driven by container up 20%, partially offset by global truck and trailer, which was down low single digits with over 30% growth in Asia, low single digit declines in North America and high single digit declines in Europe. Adjusted operating margin expanded two ten basis points compared to the prior year, mainly due to the Commercial Refrigeration exit. Turning to slide 12, total company organic orders momentum continued up high single digits. As you can see on the slide, we had high single digit or double digit orders growth in all segments but see us AME. Within AME, China orders were down high single digits with a high teens decline in RLC and up mid single digits in commercial where we continue to build backlog.

Within transportation, orders were up double digits driven by global truck and trailer where North America orders were very strong compared to last year. Overall, we ended Q1 with a robust longer cycle backlog in commercial and continued broad orders momentum in over 85% of our business. Moving on to Slide 13 and shifting to full year organic sales guidance. We continue to expect mid single digit organic sales growth. Given current FX rates, reported sales are now expected to be a bit above $23,000,000,000 compared to 22,500,000,000.0 to $23,000,000,000 in the February guide.

Also compared to the February guide, we now expect slightly higher organic sales in CSA driven by tariff related pricing to be offset by lower volume, mainly in light commercial. No other material changes in our organic growth outlook. Moving to profit and cash guide on slide 14. At the top of the slide, you can see our margin expectations for each segment. Total company adjusted operating margin expansion remains unchanged at about 100 basis points versus the prior year.

I will cover adjusted EPS on the next slide, but before I do, we are maintaining our estimate for free cash flow of between 2,400,000,000.0 and $2,600,000,000 reflecting roughly a 100% conversion. Moving to Slide 15, we are increasing our adjusted EPS guidance range by $05 to a new range of $3 to $3.1 Stronger productivity and updated currency is partially offset by slightly lower expected volume. The net impact of tariffs is neutral. Some additional color on Q2. We expect sales of about $6,000,000,000 1 hundred basis points of adjusted operating margin expansion and 20% adjusted EPS growth.

Additional guide items are in the appendix on slide 18. In summary, Q1 was a strong start to the year. For 2025, we anticipate solid mid single digits organic sales growth, strong margin expansion and close to 20% adjusted EPS growth. With that, I would like to ask the operator to open the line for Q and A.

Thank you. And our first question comes from Nigel Coe with Wolfe Research. Your line is open.

Thanks. Good morning. So, 2Q guidance, hard to press. Just wanted to confirm, Patrick, you're sort of pointing towards $0.87 or so of EPS base case and about 5% core growth?

Yes. Mid single digits organic growth, about sales of about $6,000,000,000 I mentioned 100 basis points of margin expansion and roughly close to 20% adjusted EPS That's

great. And then just given all the moving pieces across the portfolio, how does that mid single digit look across the new segments?

the full For Q2, yes. Both. Let's do both. Q2. Let's do two partial one, yes.

I'll start with Q2. We expect organic sales growth to pick up in The Americas, mid teens. In Europe, the Europe segment, expect Q2 to be up, as Dave mentioned, low to mid single digits. In Asia, we expect another quarter of low single digits organic sales decline and same for transportation. That's skewed for the overall company to mid single digits, maybe a little bit better than that.

For the full year, our organic guide for the overall company remains mid single digits. For The Americas, we continue to expect high single digits. Europe, low single digits, same for Asia and Middle East. And then we expect organic growth to pick up in transportation in the back half of the year. And we expect transportation to be up mid single digits organic growth for the full year.

That's great. And then just a quick follow on on the tariffs. I think $3,000,000 is the number that will be offset by price. Any more color in terms of what the gross impact is and how much has been offset by productivity and other actions?

I would say, Nigel, we don't really think of it that way because we've effectively offset whatever we saw upfront with our suppliers and with the productivity actions. So as we kind of sit here today, we view the exposure as the 300,000,000 that we need to go offset with price. And frankly, we've already implemented those price increases in our channel.

And the next question comes from Julian Mitchell with Barclays. Your line is open.

Hi, good morning. Maybe just wondered if you could drill a little bit more into the Americas segment and sort of flesh out perhaps kind of what you're seeing in the resi piece there and light commercial and that's the two places where I suppose the full year guidance has changed in May versus February. So help us understand the drivers there and how you think about those two pieces playing out over the balance of this year?

Yes, Julian. First, on the resi side, we did increase from high single digits for the full year to high single digits to perhaps low double digits. Some of the pricing on the tariff side, we will see on the resi side specifically. But resi was a bit of a stronger start to the year than we anticipated. It was up around 20%.

The regulatory mix played out well. It was about 75% of the mix between four fifty four b and four ten was the four fifty four b. And we realized a little over 10% on that, and that was about, of course, 80% of the total volume for resi. We got mid single digit price, mid single digit volume and 2Q is on track probably in that 15% to 20% range. And I think we look at the full year, and we much tougher comps as we get into the second half in particular as we look at the fourth quarter because remember we did have maybe 75 so million of pre buy in the fourth quarter of last year.

So we feel good about resi certainly in the first half, and we'll keep our eye on the second half. And I think we've derisked that with how we've thought about high single digits to low double digits for the full year. Light commercial was worse than we thought, and that's what's driven us to increase to decrease our guide for the full year to down low double digits. We mentioned that first quarter was much lower than we thought and it was really a combination of a couple of things. Some of the small and medium businesses were soft.

You can think about things like nail salons or a local restaurant or barber shop. So that was a little bit softer than we thought. And there was some delayed spending on K through 12. Some of that bond funding was a bit paused. So Q1 was softer.

I think we're looking at Q2 being down close to 20%. And then you'll see the second half of the year flat to slightly up a bit. So that puts you at down 10% for the full year. But you know, Julian, our light commercial business is about $1,000,000,000 of sales. So it's just about 5% of the company, a little over 5%.

So it could be down 10%, and it impacts Carrier's top line by just about 0.5%. So we'll keep an eye on it, but it's something that the team's on top of and I think we've derisked in our full year plan.

That's very helpful. Thank you. And then just maybe secondly, wanted to understand on the CS Americas business, looking more at the margin front. So very strong margins up year on year in Q1 of over 400 points. The full year is guided up about 50 bps.

And if we just look at absolute margin, there isn't much difference between what you saw in Q1 and what's guided for the full year, even though perhaps one might think with the seasonality, it should be moving higher, particularly second and third quarter versus first. So maybe sort of flesh out a bit how you see those margins developing over the balance of the year, please, in Americas.

Sounds good, Julian. And the way you can think about this is we do expect in Q2, the margins in The Americas to pick up by a couple of points. So it was about 22 in Q1, probably closer to 25 in Q2, somewhat similar in Q3, but then lower in Q4 to get to about the 22.5. And maybe some additional color on that, the tariffs represent a headwind to The Americas margin given the price cost neutrality there, and that's headwind to margin of about fifty, sixty bps for the entire year, And so in that range for Q2, Q3, Q4, and so that you'll see that play out in that segment. And then as Dave mentioned, resi volumes in the back half of the year will be lower.

And of course, it has a margin impact as well. So 22% north of 22% margin in Q1, expected to step up close to 25% in Q2, similar in Q3, and then a step down to get to 22.5 for the year.

And the next question comes from Andy Kaplowitz with Citigroup. Your line is open.

Dave, could you update us on your outlook for Viasmin at this point? Obviously, orders and backlog are up and you said RLC Europe will return to organic growth in Q2. So do you still see flat for Viasmin for the year? I think you talked about 150 basis points of margin improvement and then stepping back on overall CSC, you talked about your work to get that margin up, but maybe you could elaborate on the issues in the segment and what you're doing to address them.

Yeah. When you look at our overall growth algorithm for mann, we still feel good about flat for the full year. We think that total unit deliveries in Germany may be a little bit lower than we thought. You know, I think we were thinking more like down 7%. It may be down 10% or slightly higher, but we are seeing a better mix up.

In Germany, we think key pumps will be up more like 30% versus our previous estimate of 15%. So the benefit of the mix offsets a little bit of the volume perhaps being a little bit lower than we thought, and a lot of that lower volume is on on the boiler side as we see very, very strong demand in in Germany in particular, but throughout Europe with that continued move to electrification. I mentioned in my script that we were pleased with the the new government coalition that is doubling down on the shift to electrification, doubling down on reducing electricity prices. They supported subsidies. Of course, we'll have to see the clarification on the new heating law, but the rest of the algorithm stays intact.

We'll continue to see bit of price. We'll continue to see aftermarket up double digits, which gives us another point or two. And all of our initiatives that drive 4% to 5% growth, whether the cost synergies, the share gains, the introduction of systems prophy, we feel good that all of those remain very, very much on track. So we feel good about flattish. And the year, we had said that the first quarter would be down 10 to 15.

It was closer to 10. And the team really came through in the first quarter, we're confident that that momentum will continue. We'll see second quarter up a bit.

And then the margin on the segment, Dave?

For the Europe margins across You mean the growth opportunity going forward? Or what do you think?

Yeah. The margin improvement in that segment, Patrick.

Oh, we think that RLC and if I talk specifically about Beastman, Beastman will be double digits. It will be closer to low teens for this year. Last year, they ended up at 10%.

Got it. And then Dave, can you give more color into what's going on with your commercial HVAC business in The Americas, given the capacity increase that you have this year? I know you said you get data center to double I assume that's still on track. Then 20% growth in commercial HVAC is good. I assume that's pretty sustainable moving forward given the capacity you've added.

Yeah. We feel very good about commercial HVAC overall. You know that this will be our fifth year in a row of double digit growth. Americas was very strong in the first quarter. It was up in the high teens.

If you think about the global commercial HVAC business overall, call it up double digits again this year, we're going to see $500,000,000 of growth from data centers. We said that we were $500,000,000 last year going to $1,000,000,000 and we remain very much on track with that. We had a very strong first quarter for data centers. I think it was something like $250,000,000 of deliveries for data centers in the first quarter alone. So we feel good about where we are for the billion of full data centers for this year.

And then for the rest of the non data center business for commercial HVAC, we'll be up in the high single digit range this year. So I think that the increase in capacity, particularly in North America where we're increasing our capacity so much, that has really freed up the sales team to go aggressively after some of the non data center work where data centers was probably taking up more of the capacity over the past twelve months than it will going forward. So we see really good progress on some of the mega projects. Health care remains strong. Pharma's been good.

Electronic fabs, some of the higher ed are all positive for us. Obviously, you know, things like commercial office buildings continues to be weak. But overall, commercial HVAC is very, very positive.

And the next question comes from Stav Tusa with JPMorgan. Your line is open.

Hey Steve, I don't know what we'll go with Steve.

Yes, yes, little euro in there. Just wanted to make sure that we're clear on the base of there's been a lot of restatements here, but like what is the actual base for earnings for 2Q of twenty twenty four again? Can you just remind us what that is? EPS?

That hasn't changed, that will be from the prior year.

Yeah. There there's no change. I think it's low seventies, but I'll I'll pull the number up.

Yeah. 73. Okay. Just wanted to make sure because, like, you know, Bloomberg still shows 75, and you guys have restated bit. So just wanted to make sure we have the base

okay on In the schedules of what we just disclosed, there are the historical financials as well.

Yes, yes, okay. Got it. Sorry for wasting time on the call here. Just on the resi front, and any real hiccups on the four fifty four B actual channel and like the installation because of the kind of dramatic price increases that we're seeing from the suppliers and and I don't know, there's there's limited supply of containers and things like that going on. Any issues there?

No, Steve. We're we're I mean, the short answer is we're okay. I think that we have most of our four fifty four b is coming from a specific supplier. They import some of the ingredients of four fifty four b from China, and they have talked to us about passing that along. And, of course, the team's in discussions about that right now.

But if we if we do have to get into a discussion, we don't think that will be material overall. I think the shortage that everyone's talking about, as you said, was the canisters that was affecting the overall channel and we see that resolving itself here in the second quarter.

Okay. And then just one follow-up on Europe. That margin was a little bit lower than I was expecting. What do you think is a good kind of normalized rate assuming Wiesman grows in line with your expectations? I mean, that seems to be pretty depressed at a low double digit rate.

Maybe what would be kind of a longer term thought around that margin Well,

our intention is to get that to mid teens in the next couple of years. And so there is a lot of focus there and actually it's a benefit of it now being its own segment. And I'll maybe provide a little bit of extra color there, but there are really three different businesses within this segment that are now under one umbrella. One is VCS that as you know, we acquired last year, that is a commercial HVAC business that's a little over $1,000,000,000 where we've seen continued margin improvement, but still not where exactly where we'd like it to be. And then the third part is the carriers legacy residential light commercial business, which is about 708 in sales.

And that business actually been operating with low, like low single digit operating margins. And so there is a lot of work being done now and we expect, as I said, to get that to mid teens operating margin in the next couple of years.

Carrier Global (CARR) Q1 2025 Earnings Call Transcript

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