CARRIER GLOBAL Corp Q3 FY2025 earnings call

• North American resi softness created about a $500 million sales challenge and $0.20 to $0.25 adjusted EPS headwind, but Commercial HVAC in Americas was up 30% and there were other growth areas. - Took aggressive cost actions, including eliminating about 3,000 indirect positions. - Board approved a new $5 billion share repurchase authorization. - Laser-focused on strategic priorities: products (booked largest order ever, converted homebuilder, recognized for heat pump products), aftermarket (12% growth, connected chillers up 30%, software wins), and systems (field trials for energy HEMS, progress on Quantum Leap for data centers). - CSA resi is a best-in-class business with inventory levels expected to be down 30% year-over-year by year-end. - Europe heat pump adoption accelerating, with residential heat pump sales up in Europe and Germany, but boiler market still a factor. - Commercial HVAC business in CSA has had best-in-class performance, data center sales on track to double to $1 billion this year.

CSA segment organic sales declined 8%. Commercial HVAC in Americas was up 30% in the quarter. Residential and light commercial sales in CSA were down as expected. Aftermarket sales across CSA increased mid-teens. CSC segment residential and light commercial sales were down low single digits, but heat pump sales in Europe were strong. Commercial in CSC was down mid-single digits. CSAME segment organic sales declined 2%, with double-digit growth in India and Middle East offset by China weakness. CST segment organic sales were up 6%, led by strong growth in container, partially offset by mid-single-digit decline in Global Truck and Trailer.

• Revised sales guidance: now expect about $22 billion in sales for 2025, with $700 million reduction related to CSA resi. - Revising full year adjusted operating margin guidance due to volume declines in RLC businesses and transportation. - Expect full year adjusted EPS of about $2.65, free cash flow of about $2 billion, and about $3 billion of share repurchases this year. - Anticipate CSA resi to be down high single digits in 2025 vs prior outlook of up mid-single digits, and RLC in Europe to be down mid-single digits vs prior flat outlook. - See about $0.20 of adjusted EPS tailwind in 2026 from carryover restructuring benefits, tax, and share repo, with low single-digit organic growth assumed for planning.

• Inventory destocking challenges, as seen in sequential increase in consolidated inventories. - Market weakness in certain segments like CSA resi and RLC in Europe. - Impact of tariffs on pricing and operating profit. - Uncertainty in consumer behavior affecting repair vs replace dynamics and demand for residential HVAC.

Q: Can we just start with CST? Orders were up pretty significantly. Do you think we're starting to see this market rebound off the bottom? Or is it more about just easier prior year comps?

A: Container business has been strong, up 50% in the quarter. North American truck trailer business expected to have good growth in Q4, but too early to call strong rebound. European truck trailer down a bit.

Q: Maybe just a couple of quick ones for me. One is not to beat a dead horse on pricing, but any movement on pricing related to tariffs over the course of the year? I know you guys took a price increase on May 1. Pricing discipline, obviously, very strong. So no questions there. But just with respect to any movement related to tariffs specifically vis-a-vis rebates or anything like that, just given how tariff have evolved over the course of the year?

A: Implemented incremental pricing earlier this year related to tariffs, with the pricing requirement closer to $200 million this year. The carryover impact of tariffs, pricing, and cost equation is expected to be net neutral in 2026 based on tariffs in place today.

Q: Just a quick follow-up. We're all trying to figure out the drivers of the weakness in residential HVAC this year and just a lot got thrown at the market this year, whether it was the prebuy, the slower -- shorter selling season, the refrigerant shortage, just a lot of stuff happened this year. You made an interesting comment, I think, last month where you talked about 1/3 of existing home sales translates to new HVAC shipments. It just seems like -- I understand that dynamic, but that number just seemed higher than I would have anticipated. So as you think about your demand models and the input to those demand models, we're all trying to answer this question about what volume looks like next year. What are the main kind of levers you're watching from a leading indicator perspective that may inform kind of how that market evolves?

A: When people buy new homes, usually 20% to 25% of the time results in a change to their HVAC system. Good news is overall comps this year will be down high single digits. Easier comps in second half. Interest rates hopefully will decline, helping new home construction and existing home sales. Watch strength of consumer and tough comps in first quarter.