Carrier Global Corporation (CARR) Earnings

Management highlights

### General Financial & Strategic Progress - First half 2026 results came in better than expected, driven by strong order growth and record backlog - The company completed the divestiture of Riello Complete and Noresco, and acquired 75F to expand intelligent building capabilities - Strong free cash flow allowed continued growth investment and $640 million in shareholder returns ### 75F Acquisition Strategic Value - Expands total addressable market by ~$20 billion by adding a cloud-native, AI-enabled building management system (BMS) targeted at small and medium-sized businesses and international markets, complementing Carrier's existing large-building focused ALC BMS offering - Enables faster, seamless wireless installation and auto-commissioning for new builds and retrofits, and supports development of agentic AI applications for building energy optimization, reliability, and comfort - Aligns with Carrier's systems integration strategy, complementing its existing equipment, data center infrastructure management, and digital technology portfolio ### End Market Performance - **Data Center HVAC**: Carrier now expects 2026 full-year data center sales of ~$2 billion, marking the second consecutive year of doubling sales in this vertical; the full 2026 forecast is already in backlog, with continued momentum for 2027 and beyond. Growing installed base is expected to drive long-term aftermarket growth - **North America Residential HVAC (CSA Resi)**: 2Q sales up 9%, better than expected; the 2026 total market outlook is 7 to 7.5 million units, stable year-over-year. Field inventory is down 25% year-over-year and remains healthy. Digital ecosystem expansion has grown the number of channel partner technicians monitoring systems in real-time to 55,000, up 35% year-over-year, improving customer loyalty and channel efficiency - **Europe Residential HVAC (CSE Resi)**: 2Q sales up high single digits, with heat pump sales up 20% and boiler sales down high single digits. Market dynamics remain favorable due to sustained high natural gas prices and continued German government subsidies for heat pumps. The new VitoCal 200 heat pump, on track for a fall launch, will expand TAM with a more accessible price point while retaining premium Wiesmann brand features - **Aftermarket**: On track for full-year double-digit growth, with high single-digit growth through the first half of 2026 - **Europe Commercial HVAC**: First half sales were below expectations, but 2Q orders grew 20% and backlog is strengthening, supporting mid-single-digit second half growth. 2Q segment margins were disappointing due to unfavorable mix and increased selling investments; the company appointed a new segment president and will implement a more aggressive approach to cost reduction and pricing discipline, targeting mid-teen operating margins over the next few years - **Shorter-cycle Residential Light Commercial**: North American and European RLC businesses have returned to growth, while recovery timing for Global Truck Trailer remains unclear with pent-up demand expected ahead of 2027 ### Capacity Expansion - The company has announced a new facility in India and is finalizing plans for a new U.S. facility primarily to meet growing data center demand, with the site expected to be operational by the end of Q1 2027

Guidance

- Full year 2026 organic sales guidance is raised to ~$23 billion, representing mid-to-high single-digit organic growth (up from prior lower guidance). Key changes to segment sales outlooks: - Data center sales guidance raised to ~$2 billion from $1.5 billion prior - CSA Resi and light commercial sales growth raised to high single digits - CSE Resi and light commercial sales growth raised to low single digits from prior guidance of down high single digits - Full year 2026 adjusted operating profit guidance raised to ~$3.5 billion from $3.4 billion prior; adjusted EPS guidance raised to ~$2.90 from $2.80 prior - Second half 2026 adjusted operating profit and EPS are both expected to be up ~50% year-over-year, driven by favorable volume and net productivity, partially offset by investments, unfavorable mix, and a 5 cent EPS headwind from Noresco exit and new U.S. facility startup costs - Free cash flow full-year guidance is maintained - Q3 2026 guidance: - Revenues expected to be just below $6 billion, including a ~$200 million year-over-year impact from completed divestitures - Organic growth expected to be ~10% - Adjusted operating margin expected to be ~16.5%, with an effective tax rate of 24% leading to adjusted EPS of ~$75 cents - Full year 2026 aftermarket is expected to deliver double-digit growth, up from high single-digit first half growth

Segment performance

1. **CSA (Carrier Heating & Cooling Americas)**: Organic sales increased 4% year-over-year. Resi HVAC sales were up 9% in 2Q, and light commercial sales were up 10%. Commercial sales were down in 2Q due to timing of data center deliveries, with a significant sequential and year-over-year pickup expected in Q3. Segment operating margin was 24.4%, ahead of guidance; the year-over-year margin decline reflects stronger pricing offset by unfavorable product mix and increased input costs. 2. **CSAME (Carrier Heating & Cooling Asia, Middle East, Africa & Latin America)**: Organic sales grew 4%, exceeding expectations. India, Southeast Asia, and Australia all grew over 20% in the quarter; the Middle East delivered 35% sales growth driven by data center demand, with aftermarket sales up 12% in the region. Residential and light commercial in China remains the primary drag on segment performance. Segment operating margin was approximately 12%. 3. **CST (Carrier Climate & Transportation)**: Organic sales were flat year-over-year. The container business delivered strong 40% sales growth, which offset continued low-teens decline in the Global Truck Trailer segment. The segment margin decline reflects the margin differential between lower-margin containers and higher-margin truck and trailer products. Overall company: 2Q 2026 reported sales were $6.4 billion, adjusted operating profit was $1.1 billion, adjusted EPS was $0.86, and adjusted operating margin was 17.2%. Total company orders were up 40% year-over-year, with commercial HVAC orders up 65% driven by 4x year-over-year order growth in data centers. Total company backlog (excluding expected future hyperscaler/colo orders) is over $8 billion, up 40% year-over-year and 20% sequentially.

Risks & headwinds

- Unfavorable product mix across multiple segments (higher proportion of lower-margin heat pumps, battery/solar products in Europe, containers in transportation, and new construction in North America) has pressured segment margins in 2Q - April 2026 tariff implementation created a net negative margin headwind in 2Q, as pricing mitigation took effect late in the quarter - Residential and light commercial demand in China remains weak amid the country's ongoing difficult housing market - Recovery timing for the Global Truck Trailer segment remains uncertain - Sequential seasonal decline in North American residential light commercial sales in Q3 will create mix-driven pressure on total company operating margin - Capacity expansion for data centers carries execution risk, though management has taken steps to de-risk the project by ordering long-lead equipment early and designing the facility to be flexible for non-data center commercial applications

Analyst Q&A

• Q: What drove the year-over-year operating margin decline, and what is the mandate for new European segment leadership? /

  A: Favorable volume, pricing, and productivity were offset by three key headwinds: late timing of tariff mitigation pricing (which created a net negative margin impact in Q2), unfavorable mix across multiple segments (lower-margin battery/solar in Europe, containers in transportation, and new construction in North America), and lower joint venture income. New segment president Thomas Donato has a clear mandate to improve pricing discipline and reduce costs across footprint, supply chain, and G&A to hit the target of mid-teen operating margins over the next few years, leveraging his prior industry experience.

• Q: What is the core value of the 75F acquisition for Carrier? /

  A: Carrier is primarily buying 75F's cloud-native, AI-powered BMS technology and 91-person engineering talent team. 75F's offering targets small and medium-sized buildings, expanding Carrier's TAM by ~$20 billion and complementing its existing large-building ALC BMS platform. Its wireless auto-commissioning capability drastically reduces installation labor time, making it ideal for both new construction and retrofits.

• Q: Why is Carrier adding new U.S. data center capacity, and how is execution risk mitigated? /

  A: Existing repurposed and expanded capacity can support ~$2.5 billion annual data center revenue, which is not enough to meet strong contracted demand for 2027 and beyond from hyperscalers and colos. The new facility, expected to be operational by end of Q1 2027, will primarily produce air- and water-cooled chillers, with flexible lines that can be converted to other commercial HVAC applications if data center capex slows. Management has already ordered long-lead equipment and received strong support from Texas and Alabama economic development teams, with a site decision expected within one to two months.

• Q: Have you seen data center customers pushing out deliveries amid peer reports of delays, and is there risk of double ordering? /

  A: There is only minor month-to-month delivery timing variation, no broad pushouts; customers are actually asking Carrier to accelerate deliveries, and the full $1.5 billion second half 2026 revenue forecast is fully booked. Carrier does not see material double ordering risk, as it has long-term strategic contracts with fixed share commitments from major customers, who are holding inventory to speed up their own project delivery timelines.

• Q: What is your outlook for the Chinese residential and commercial HVAC markets? /

  A: Commercial HVAC in China is performing well, with strong order growth from data centers, electronics manufacturing, and renewable energy verticals, supported by Carrier's long-standing strategic partnership with Shanghai Electric. The residential and light commercial market remains weak amid the ongoing Chinese housing market downturn, and management is actively evaluating the level of investment required to improve the business against the duration of the housing headwind.