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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

carrier global

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

Good morning, and welcome to Carrier's second 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. In addition, we plan to file certain recast financial statements in connection with our resegmentation, which occurred during the 2025. With that, I'd like to turn the call over to Dave.

Thanks, Mike, and good morning, everyone. Another strong quarter. My thanks to our 50,000 team members globally for their continued great work. As expected, our organic growth picked up in 2Q. We delivered 6% organic growth with exceptional 45% growth in commercial HVAC in The Americas, total company aftermarket growth of 13% and very strong growth in India, Japan and The Middle East.

We converted the strong organic growth to attractive earnings, expanded adjusted operating margins by 130 basis points and increased adjusted EPS by 26%. Free cash flow was also strong with first half free cash flow of about $1,000,000,000 We remain on track for $3,000,000,000 of buybacks this year. Turning to Slide four. At our Investor Day on May 19, we laid out our game plan for driving sustained 6% to eight percent organic growth by exceeding customer expectations through differentiated products, double digit aftermarket growth and unique system solutions. On products, we continue to win.

With respect to data centers, we are on track to double our revenues to $1,000,000,000 this year and are continuing to build our backlog for next year and beyond. Our non data center commercial HVAC business is expected to grow about 10% this year. In The Americas, we have increased both chiller capacity and revenues by more than 2x over the past few years and continue to build our backlog globally. For example, we recently booked a data center order for $45,000,000 for a customer in The Middle East. Our global commercial HVAC sales, which exclude light commercial sales, will be about $6,500,000,000 in 2025, up close to 20% year over year.

New product introductions have been instrumental to our win rate. For example, our new large capacity ERCOOL chiller with a proprietary magnetic bearing centrifugal compressor is both significantly more efficient than our competition and can operate at elevated ambient temperatures, both key performance requirements from our customers. We also continue to leverage Eastman and Toshiba Technologies to introduce differentiated offerings in our RLC businesses. In The Americas, we are about to launch a fully integrated air to water heat pump that provides heating, cooling, and domestic hot water. This all in one solution provides homeowners with improved energy efficiency, frees up valuable indoor square footage, and provides us with market expansion and mix up.

Our aftermarket sales are up 10% through the first half of the year, and we remain on track for our fifth year in a row of double digit growth. Our number of connected chillers was up 40% in the quarter compared to last year. And over the last three years, we have increased the number of connected chillers by more than 3x from roughly 20,000 to 63,000. With respect to Abound, we introduced enhancements to our Abound app that leverage AI to boost operational insights and user efficiency. For our climate solutions transportation business, Link subscriptions were up significantly in 2Q and are now close to 200,000.

Turning to systems. In North America, our Carrier Energy team is making great progress. We are working with several utility companies to initiate field testing at homes in The United States for our fully integrated battery heat pump solution this quarter. We remain on track for market introduction next year. We also continue to make significant progress with HEMS in Europe.

In 2Q, sales from our Wiesemann Systems prophy partners showed strong growth, significantly outperforming those of non prophy partners. On the commercial HVAC side, we continue to build out our capabilities for data centers, including Quantum Leap and its integrated CDU offering and are in active discussions with key customers. Outside of data centers, we recently had an important win with the Shanghai Oriental Hub infrastructure project, which includes a combination of our innovative centrifugal chillers, heat pumps and our differentiated building management system. By integrating these offerings, we expect to improve our customers' energy efficiency by about 20%. This is another great example of how fully integrated systems add outsized value to our customers and help us drive differentiation and an increased share of wallet.

Productivity driven by carrier excellence is now deeply ingrained in our DNA as reflected in continued strong adjusted operating margin of 130 basis points to 19.1%. Turning to Slide five for a brief update on our RLC business in Europe. Though the overall European market since our combination has been more challenging than we expected, other benefits of the combination have exceeded our expectations. Our differentiated strategy around HEMS and Hydronics in The Americas are made possible by Wiesemann. HEMS leverages Wiesemann's battery, integration, and digital expertise.

Our global common design around controls and embedded software are both based on Beeseman design standards. We are deploying the underlying technology of Beeseman's one based digital ecosystem, which connects the company, installers, and homeowners on a single platform to The Americas. Leveraging our respective supply chains is helping us drive more than $200,000,000 of expected cost synergies by the end of next year, and our purposeful multi brand, multichannel strategy is yielding great results. Take, for example, the opportunity around air conditioning in Europe, where only 20% of households have air conditioning versus 90% in The United States. Earlier this year, we introduced new offerings through the Wiesemann channel, and our air conditioning sales in Europe were up over 25% in 2Q.

In terms of 2Q for RLC Europe, our sales were flattish as we expected. Though Germany was down, our heat pump unit sales in Germany were up over 50% and the ratio of heat pumps to boiler has improved from thirtyseventy last year to about fiftyfifty. We like this mix up. And combined with our expected reductions in electricity prices and easy compares with total German heating units that are close to historic lows, the business is well positioned for a return to growth. Our RLC sales in Europe outside of Germany have returned to growth, up 3% in the quarter, and we expect that to further increase in the second half of this year.

The integration of RLC and commercial HVAC in Europe also presents great sales and cost opportunities. Carrier and Weissman are both top players in commercial and residential, respectively. The countries where Carrier and Weissman are both leaders are, in many cases, different, which provides the opportunity to leverage each other's respective strengths. Slide six is a reminder of where we have come over the past few years. Our portfolio is much more focused and simplified with a higher growth profile.

Adjusted operating margins have expanded on average over 100 basis points per year, and our adjusted EPS has grown at a high teens CAGR. Despite a few unforeseen headwinds, the team continues to control the controllables and overdeliver, and we remain on track to deliver close to 20% adjusted EPS growth this year. Our team continues to deliver strong results, and I am confident that we will do so again in the 2025 and beyond. With that, I will turn it over to Patrick. Patrick?

And good morning, everyone. Please turn to Slide seven. We had a strong second quarter. Sales, adjusted operating profit, margins and adjusted EPS were all ahead of the guide we provided in May. Reported sales were $6,100,000,000 with 6% organic sales growth and a point of tailwind from foreign currency translation partially offset by 4% net headwinds from acquisitions and divestitures driven by the sale of Commercial Refrigeration.

Q2 adjusted operating profit of $1,200,000,000 increased 10% compared to last year driven by organic sales growth and strong productivity. Tariffs were net neutral in the quarter. Adjusted operating margin expanded by 130 basis points compared to last year, about half of which is due to the absence of commercial refrigeration. The balance due to productivity, mix up and price offset by mix. During the last earnings call, we indicated that we expected about 20% adjusted EPS growth.

We delivered adjusted EPS of $0.92 an increase of 26% year over year, better than expected due to slightly higher sales and stronger productivity. Year over year adjusted EPS growth was driven by organic revenue growth, strong productivity, lower net interest expense and a lower share count. We have included the year over year adjusted EPS bridge in the appendix on Slide 18. Free cash flow of $568,000,000 in the quarter was also stronger than expected. Moving on to the segments and starting on Slide eight.

The CSA segment had another very strong quarter with organic sales growth of 14%. Commercial excluding Nuresco led with sales up 45%. Residential sales were up 11% below our expectations due to lower volume, which was down mid single digits reflecting a late start to the cooling season. Regulatory mix up and pricing were all as expected. Combined, they were a benefit of mid teens organic revenue growth.

Over 90% of our volume was four fifty four bps. Light commercial came in as expected, down about 20%. Adjusted operating margin was 27%, up two ten basis points driven by strong organic growth and productivity. Overall, The Americas had another outstanding quarter. Moving to the CSE segment on Slide nine.

Organic sales growth in CSE overall and residential and light commercial were both about flat. We delivered strong heat pump growth in Germany, the sales benefit of which was offset by a still weak overall German heating market with total units down about 25% so far this year. Commercial was up low single digits. Adjusted operating margin was about flat with cost synergies offset by unfavorable regional and product mix. Moving to the CS Asia Pacific segment on slide 10.

Organic sales were down 4%, Mid teens or higher sales growth in Japan, India and The Middle East was more than offset by continued weakness in residential China and parts of Southeast Asia. Within China, our residential and light commercial business was down around 20% and commercial was up low single digits. Adjusted operating margin of 15.3% was in line with expectation. The decline year over year was driven by lower volume and the absence of a prior year favorable currency related item partially offset by productivity. Moving to CST on Slide 11.

Organic sales were down 1%. North America truck and trailer returned to growth and container strength continued with sales up mid single digits. This was more than offset by weakness in Europe and Asia truck and trailer. Adjusted operating margin of 17.6% expanded three forty basis points compared to last year, largely due to the Commercial Refrigeration exit. Turning to Slide 12.

Total company organic orders were down high teens in the quarter as we faced a tough compared versus the prior year where orders were up 30%. North America resi was down about 60% compared to orders up over 100% a year ago. This was only partially offset by strength in Commercial Americas up high teens, Light Commercial Americas up over 20% and Transportation up high single digits. Excluding CSA resi, total company orders were up mid single digits. Overall, we ended Q2 with a robust and growing longer cycle backlog in commercial, which sets us up well for a strong second half.

Moving on to Slide 13 and shifting to full year guidance. For the total company, we are reaffirming the guide we provided in May. We continue to expect mid single digits organic sales growth about 100 basis points of margin expansion and close to 20% adjusted EPS growth at the midpoint. Moving on to Slide 14, Each segment's organic growth is unchanged, but there are some moving parts within some of the segments as you can see on the slide. Moving to profit and cash guidance on Slide 15.

Total company adjusted operating margin expansion remains unchanged, up about 100 basis points versus the prior year. With respect to tariffs, the net tariff impact in our July guide is zero, just as it was in our May guide. The incremental price to neutralize tariffs is now about $200,000,000 versus $300,000,000 in our prior guide. The margin impact of tariffs is about 20 basis point headwind versus the prior year. As you can see on the slide, we made some minor adjustments to margin expectations in the segments.

We are maintaining our estimate for free cash flow between 2,400,000,000.0 and $2,600,000,000 reflecting roughly 100% conversion and still expect to repurchase about $3,000,000,000 worth of shares in 2025. We are maintaining our adjusted EPS guidance range of $3 to $3.1 Compared to the prior guide, lower sales in CSA resi and light commercial are offset by CSA commercial sales and we are targeting incremental productivity and cost actions to offset unfavorable mix in CSA and CSE. Additional full year guide items are in the appendix on Slide 20. Some color on Q3. We expect Q3 sales of about $6,000,000,000 with mid single digit organic growth versus the prior year and anticipate adjusted operating profit to be flat year over year.

In essence, we get a $200,000,000 year over year sales benefit from currency translation and tariffs, tariff related pricing with no drop through, while the benefit of productivity mix up and price is offset by unfavorable mix due to lower CSA resi sales. Q3 EPS is expected to be about $0.80 We expect Q4 EPS to be about 20% similar to first half EPS growth including the benefit of productivity and cost actions. In summary, we remain on track to have another strong year with mid single digits organic growth, close to 20% adjusted EPS growth and strong free cash flow. With that, I would like to ask the operator to open up the line for Q and A.

Your first question comes from the line of Jeffrey Sprague of Vertical Research Partners. Perhaps

we could just dive a little bit further into Europe. It looks and feels like maybe things are getting better there, but the margin guide has actually come down. So Dave, can you just unpack that a little bit more? Patrick mentioned mix, but just where are you at on the synergy capture in Beesman? What's going on with the mix?

And what do you think about the margins off this level looking into next year?

Yes. Jeff, let me start with synergies and maybe a bit more on the business, and Patrick can give the breakdown on kind of the margins and second half margins. Overall, look, we were flattish in the quarter as as we thought we were gonna be. We were a little bit stronger outside of Germany than within Germany, and we actually typically have slightly higher margins in Germany. And the other issue is boilers in Germany were coming down a little bit more, and we make pretty good margins, of course, on boilers.

And there's a particular type of boiler, a floor standing boiler, where it was down a bit more, and our margins there are even a bit higher. So there were, within the RLC Europe business, a few mix issues. I will say we feel really good about the cost synergies. We talked about 200,000,000 by the end of next year. We will certainly meet or exceed that.

The team's being quite aggressive, not only on supply chain and some of the other indirect, but the teams had to take a lot of very aggressive other discretionary overhead cost actions. They did a lot last year. I can assure you that Thomas and the team are doing a lot more So they are going to take costs out of the business. And I will tell you that it really positions us for margin drop through as the volume starts to recover as we get into the second half of this year and next year. And then Patrick, any more on the margins?

I think you covered it. It's Smriti. German margins in Germany a little stronger and sales in Germany were a little weaker, a little stronger outside of Germany.

And then maybe we could just delve into price a little bit more. Patrick, you gave us the tariff related price impact. Can you just share with us kind of what the total price capture was beyond just what you did on tariffs, if there is more, both in the quarter and what you're expecting for the year in aggregate?

If I look at price, including the regular price increase and then the price related to to tariffs, in the second quarter, it was about two points for the overall company. For the full year, it will also be about two points. So it's about two points each quarter so far this year. And that excludes the mix up benefits, Jeff.

Yeah. Yeah. Understood. Okay. Thank you. I'll leave it there.

next question comes from the line of Julian Mitchell of Barclays. Your line is now open.

Hi. Good morning. Maybe just wondered if you could flesh out a little bit more of those assumptions on U. S. Resi and light commercial for sort of the back half and how you see kind of the end market sell out trends varying there versus the sell in and the comps?

How is the actual end market movement in terms of dynamics on price or repair and remodel? Anything changing in those assumptions?

Yes. I would say, Julien, the good news has been that both price and mix are what we thought. On the mix up, we've been getting the 10%. As we look at the back half, it's almost a hundred percent four fifty four b. If you look at 2Q, price was up in the mid single digit range, so that was very positive.

The issue we had in 2Q, which we've now extrapolated for the second half, is that the volume was down more than we thought. The volume was down in the second quarter mid single digits, and we thought it was gonna be up low single digits. So what we've done for the second half of the year is we've now assumed that volume in the second half will be a bit more like down 20%, 25%, and then you get a mix in price of 10% to 15%. So that means net net, our sales in the second half would be down about 10. So that's why we reduced, as you saw in Patrick's slide, we reduced the full year for resi to be up single digits.

Call it first half up 15%, second half down 10%, you get up to up mid single digits for the year. We have not seen, and we ask a million times to our partners on the channel, we have not seen a big switch from repair over replace. We are watching the consumer. Movement was slower in 2Q than we had expected. Movement was a bit light in July, but it started to pick up towards the July a bit more because of some of the heat in the country.

And then we'll just have to see. We think we've handicapped the year well in the second half with taking volume down as much as we have. But given that inventory levels are a little bit higher, movement's been a little bit slower than we thought, we thought it was prudent to take our volume estimates down for the second half.

That's helpful. Thank you. And we'll see if a million times is enough to satisfy some of the skeptics. On the second question would just be a more fiddly one perhaps for Patrick just around that fourth quarter implied. I suppose it's organic sales up mid single year on year in Q4. So sort of down, I guess, single digits sequentially. And then the EPS sequentially in Q4, it's a much smaller decline than sort of normal in inverted commas. Anything to call out there on specific segments or something going on with mix that's a tailwind this Q4 versus historical ones?

So, yes, Julien. The way you can think about it is, first of all, our Q4 year over year adjusted EPS growth has to be similar to what we've seen in the first half of this year. So about 20%, about 100% margin expansion we expect in Q4. And Q4 is expected to be our highest organic growth quarter of the year. So we expect actually close to high single digits organic growth with both easier comps in Europe, in Asia Pacific and transportation is expected to return to more attractive growth in Q4 as well.

And in Q4, of course, the benefit of that volume mix up in productivity somewhat offset by the unfavorable mix in resi in The U. And then from a margin perspective, tariffs are slightly negative. And then, of course, in Q4, we'll see more of the benefit of the cost actions that we've been implemented versus what we will see in Q3.

Your next question comes from the line of Nigel Coe of Wolfe Research. Your line is now open.

Thanks. Good morning, everyone. Thanks for the detail. Patrick, maybe unpack a little bit more the 3Q framework. So you said flat margins and it seems like the residential decline is really weighing on The Americas margins.

So maybe just unpack the segmental margins. And I think you said €0.80 based on €6,000,000,000 of sales and basically 17.5% of operating margin flattish year over year. I don't get to €0.80 mechanically, Patrick. So just to make sure there's nothing below the line to to think about as well.

Okay. So I'll I'll start with the overall company, of course, q three. And the way you can think about it is, one, we get about a $200,000,000 sales in currency. A $200,000,000 sales tailwind from currency and from tariffs with basically no drop through. Right.

In addition to that, you get the benefit of price productivity and mix up is offset by lower resi sales because lower resi sales are down about $203,100,000,000 dollars year over year and sequentially in the third quarter. And so the whole benefit of organic growth is basically offset by the unfavorable mix. And then you assume a 24% effective tax rate in the quarter and you get to about 80¢ $80.81 cents. So 6,000,000,000 sales, flat operating profit year over year and a 24% ETR.

Okay. That's helpful. And any way you think about the segment margins?

The way you can think about segment margins in the third quarter, we expect that CSA will be down about 200 basis points year over year. And the explanation is basically the same. It's the resi mix that's really weighing on the margins over there. For the rest, Europe, we expect it to be flattish year over year. And then Asia will be slightly down and transportation will be up probably two hundred three hundred basis points reflecting the CCR exit.

Next question comes from the line of Scott Davis of Melius Research. Your line is now open.

I'm happy to be in my first carrier call. I I get to ask really stupid questions, get away with it for a while. Maybe maybe always. But, guys, we'd take a step backwards and just look at big picture. You know, I hear you talk about productivity and will we eventually see productivity in on the gross margin line, or is it or is it more explicitly kind of SG and A productivity that you guys are talking about?

It will be both, Scott. And actually, over the last several years, I think we've driven both productivity gross margin line. Now I call it adjusted because we we yank out any amortization of intangibles, but productivity has had an impact both on gross margin and on the operating margin. And we will continue to see it because the biggest driver of productivity for our company is on the cost of goods sold with materials. That alone is a 10 plus billion dollar bucket.

Warehousing, logistics, there is still an enormous amount of opportunity there to drive cost out. So I would actually say, Scott, that the biggest opportunity is on the gross margin line rather than on the, call it, the SG and A line.

Yeah. And Scott, I I know that you you're familiar with us over many years and, you know, many used to think of us back in the day as carriers like a 10% ROS business. This past quarter, we were at 19.1%. In fact, it was our our highest profit quarter ever.

And it's not only, as Patrick said, on the on the gross profit line, but it's also it used to be that our G and A, not SG and A. Our G and A as a percent of sales was north of nine, and now it's about seven. So I think it's both product cost and then it's a lot of the other indirect cost as well. So it's both.

And and, David, do you think about productivity kind of in traditional ways like at, you know, 2% per year or holding headcount flat? Or how do you guys kind of internally think about that and measure it?

Yeah. I think net net, we think of it as 2% to 3% per year. We think we get more in different buckets that typically we target ourselves in supply chain closer to five. Logistics can be closer to four. We can get more like three in the factories, and then there's some other things that we move around.

But net net, we usually look at it at 2% to 3% gross productivity.

Okay. Super helpful. I'll pass it on. Thank you. Best of luck this year guys.

Next question comes from the line of Joe Ritchie of Goldman Sachs. Your line is now open.

Yes. I'm sorry if I missed it, but did you guys just maybe can you just describe, how the canister issue played out in 2Q, where we stand today, whether that's still a still a problem on the resi side?

It's no longer an issue for us, Joe. We the team really jumped on it. We started precharging a number of units. We were actually doing going to tremendous lengths in 2Q to get our customers plenty of canisters. We do not hear canisters in the field being an issue.

We pivoted super hard in May and June, and and hats off to the business, the operations team working with our channel. It's no longer an issue.

Awesome. And then, Dave, I heard you say that your non data center business was up, you know, call it 10%, maybe a little bit better than that in CSA. Can you just double click there, give us a little bit more color what you're seeing across that the the non data center side of the business?

Yeah. Actually, in CSA, the non data center activity was up 20% in the quarter. If you look overall, we think that for for the quarter and for the year, the non data center activity will be up, about 10%. If you look at CSA, our applied business was up over a 100%. You know, we had service business up about 20 and controls in the high teens.

And then if you look at data centers in The Americas, we were up over 300% with non data centers up about 20. So, you know, Gurang and Steve and the team did just a superb job in the quarter. And I'll tell you, it's been a combination of building out capacity. We have an entirely new factory in North America, plus we've expanded Charlotte, and Charlotte's performing very well. So we've expanded capacity.

We've introduced new products. I just mentioned this mag bearing for air cooled, which is being is very attractive to many of our hyperscaler customers. And we've gotten some really creative ways to support our customers in the aftermarket. So all in, both the data center, non data center, things like some of the mega projects, some of the manufacturing that's been returning to The United States. We've had some really marquee wins that that's been happening globally.

Your next question comes from the line of Steve Tusa of JPMorgan. Your line is now open.

I didn't catch the million times. What was that in reference to?

That was the question about whether we've seen a trend repair versus replace. Then what's referred

Got it. Got it. I just heard the number. I didn't quite catch it. There's a lot of earnings this morning.

Can you just bridge us to the 20% increase as far as what you're assuming for any headwinds in resi in particular quarter? It's a really nice bounce back obviously and the data center stuff is on fire. So you guys are clearly taking market share there. But what are you assuming for the 4Q in resi?

If I'm sorry, Steve. The question is for resi, what are we looking at for Yeah.

Just just 4Q. Yeah. And in 4Q because, you know, there's a lot of volatility, obviously, with the year over year comps. And I I totally get the data center stuff that's really strong, the the the resi side and maybe like commercial as well.

Yeah. For resi q four sales down about 15%, of which volume is about 23%, give or take. And then the rest around it would be price and regulatory mix.

And see, on the light commercial side in 4Q, it'll be flattish to last year. We do have the benefit of that being our easiest comp quarter. Last year, light commercial was down a little over 10%. So we think about flattish for light commercial in the 4Q. And look, the first half was kind of rugged, of course, on light commercial.

Carrier Global (CARR) Q2 2025 Earnings Call Transcript

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