Carrier outlines $5B buyback and targets $22B in 2025 sales amid aggressive cost actions and resi headwinds

Earnings Call Insights: Carrier Global Corporation (CARR) Q3 2025

MANAGEMENT VIEW

* CEO David Gitlin stated Q3 was generally in line with September guidance, noting "North American resi softness would create about a $500 million sales challenge and a $0.20 to $0.25 adjusted EPS headwind in the quarter." He highlighted better-than-expected performance in Commercial HVAC in the Americas, up 30%, and continued double-digit sales growth in heat pumps, container, and businesses in India and the Middle East.
* Gitlin announced aggressive cost actions, including "the elimination of about 3,000 indirect positions," and said the Board approved a new $5 billion share repurchase authorization. He emphasized strategic progress, citing the largest order ever with a hyperscaler, converting a top U.S. homebuilder to Carrier, and recognition in Europe for Viessmann heat pumps.
* Aftermarket delivered 12% growth, with connected chillers up 30% and Lynx digital platform subscriptions up 40% to approximately 210,000. Systems initiatives included progress on the Carrier Energy HEMS offering and Quantum Leap for data centers, with certified installers in Germany realizing 15-20% growth.
* Gitlin described purposeful actions to rightsize field inventory, reporting field inventories down 12% year-over-year at Q3's end and down about 20% currently; he expects "inventory levels in the field to be down 30% versus last year" by year-end.
* In Europe, residential heat pump sales were up about 15%, with German heat pump sales up 45%. The company is reducing product and installation costs to drive electrification independent of subsidies.
* Commercial HVAC in the Americas was highlighted as more than doubling over five years, with strong backlog and a focus on data centers, projecting a doubling of sales from $500 million to $1 billion this year.
* CFO Patrick Goris reported, "For the quarter, reported sales were $5.6 billion, adjusted operating profit was $823 million and adjusted EPS was $0.67... Total company organic growth was down 4%." He attributed declines to much lower volumes in CSA residential and noted a $0.07 benefit from a lower tax rate.

OUTLOOK

* Goris stated, "We now anticipate CSA resi to be down high single digits versus our prior outlook of up mid-single digits. In Europe, we now anticipate our RLC business to be down mid-single digits versus the prior outlook of about flat."
* The Americas commercial business is expected to grow over 25% this year. Overall, "we now expect about $22 billion in sales for 2025. About $700 million of the reduction versus our prior guide relates to CSA resi."
* Full year adjusted EPS is now expected to be about $2.65, with free cash flow of about $2 billion and $3 billion in share repurchases. For Q4, CSA resi sales are expected to be down approximately 30% and volumes down about 40%.
* Looking to 2026, Goris said, "we expect about $0.20 of adjusted EPS tailwind in 2026 from the combination of carryover restructuring benefits, tax and share repo."

FINANCIAL RESULTS

* Reported sales were $5.6 billion, adjusted operating profit $823 million, and adjusted EPS $0.67, with free cash flow of about $225 million. Organic growth declined 4% year-over-year, driven by lower volumes in CSA resi.
* CSA segment organic sales declined 8%, with commercial sales up 30% but residential down 30% (volume down about 40%). Segment operating margin was 19.7%, down 560 basis points. CSE segment saw residential and light commercial sales down low single digits and segment operating margin down 110 basis points.
* CSAME organic sales declined 2%, with ongoing weakness in China. CST organic sales rose 6%, container up strongly, and segment margin expanded by 80 basis points to 15.4%.
* Total company organic orders were down high single digits; CSA residential orders fell about 40%.

Q&A

* Jeffrey Sprague, Vertical Research Partners, LLC: Asked about inventory and volume decline in resi. Goris responded, "our inventories are up about $500 million. Of that, about $400 million is in our CSA resi segment... We do expect this inventory to start reducing..."
* Scott Davis, Melius Research LLC: Asked if destocking impacts 2026 pricing. Gitlin said, "We'll announce a mid-single-digit price increase here for next year... We would expect to yield in the low single-digit range."
* Julian Mitchell, Barclays: Probed on CSA resi outlook for 2026. Goris said, "At this point and it's still very early, our estimate is it may be flat to slightly up from a volume perspective."
* Nigel Coe, Wolfe Research, LLC: Asked about data center backlog and growth. Gitlin confirmed, "We wanted to end close to $900 million, so we could drive nice growth for next year. And we're on track to end with backlog in that $900 million range."
* Joe Ritchie, Goldman Sachs: Inquired about interplay of inventories, organic growth, and margins for early 2026. Gitlin described operational decisions to keep some production running to avoid cold starts, accepting "big absorption hit" in Q3 and Q4.
* Andrew Kaplowitz, Citigroup: Sought clarity on RLC Europe and market bottom. Gitlin said, "the German market does seem to be getting to historic lows and prepared for some level of recovery."
* Chris Snyder, Morgan Stanley: Asked about Americas margins into next year. Goris replied, "CSA margin this year will be around 21% or so... I would expect them to be up" in 2026.

SENTIMENT ANALYSIS

* Analysts expressed concerns about the pace of destocking, inventory management, and the risk of prolonged weakness in residential, with a slightly negative tone, as seen in repeated queries on movement, margins, and recovery timing.
* Management's tone was confident in prepared remarks, but showed caution and some defensiveness during Q&A, emphasizing, "we are going to great lengths with our distribution partners" and "100% focused on structural cost takeout." The tone grew more cautious when addressing resi and European market uncertainties compared to the previous quarter, where optimism was higher.
* Compared to Q2, analyst tone shifted from mildly optimistic to more skeptical, probing the sustainability of recovery and cost actions. Management shifted from strong confidence in Q2 to a more measured and pragmatic stance in Q3, particularly on resi and inventory normalization.

QUARTER-OVER-QUARTER COMPARISON

* Guidance was revised downward in Q3, with CSA resi now expected to be down high single digits versus prior mid-single-digit growth, and RLC Europe also revised lower.
* Strategic focus shifted further toward cost containment, structural cost reductions, and share buybacks, while continuing to emphasize data center and aftermarket growth.
* Analysts in Q3 were more concerned about inventory, margin pressures, and the risk of continued resi softness, in contrast to Q2's focus on growth and margin expansion.
* Key metrics such as adjusted EPS, sales, and margins were lower in Q3, with a more downbeat view on resi and European RLC versus the prior quarter's optimism.
* Management's confidence in prepared remarks was tempered in Q3, particularly regarding the pace of recovery and the need for aggressive cost action, compared to a more bullish Q2 stance. Analyst sentiment was also more pressing and skeptical.

RISKS AND CONCERNS

* Management highlighted ongoing challenges from "much lower volumes in our CSA residential business" and continued destocking.
* European RLC markets, especially Germany, remain at "15-year lows" with recovery timing uncertain.
* China residential and light commercial continued to be weak, with management working to reduce elevated field inventories.
* Analysts raised concerns about inventory normalization, the potential for further margin compression, and the risk of demand remaining weak into 2026. Management cited continued structural cost takeout and inventory discipline as mitigation.

FINAL TAKEAWAY

Carrier Global Corporation management reaffirmed its focus on aggressive structural cost actions, deep inventory rightsizing, and disciplined capital allocation, including a $5 billion share repurchase authorization. While significant headwinds continue in residential and European markets, the company emphasized strength in commercial HVAC, data centers, and aftermarket, projecting $22 billion in 2025 sales and positioning for a recovery as destocking concludes. Management expects structural changes and cost discipline to support future margin expansion as demand recovers.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/carr/earnings/transcripts]

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