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    CARR
    Earnings call· Mar 2025(Q1 FY25)

    CARRIER GLOBAL Q1 FY25 earnings call CARR

    May 1, 2025 Source

    Executive summary

    Carrier Q1 FY25 — Strong Start with Double-Digit EPS Growth and Raised Full-Year Guidance

    Carrier delivered a strong first quarter, surpassing expectations with robust adjusted EPS growth and significant margin expansion, driven by productivity and pricing actions. The company raised its full-year adjusted EPS guidance, demonstrating confidence despite some softness in light commercial and Asian markets. Strategic investments in aftermarket, heat pumps, and data center solutions continue to drive long-term growth initiatives.

    Highlights

    5

    • Adjusted EPS grew 27% year-over-year to $0.65, exceeding expectations.

    • Organic sales grew 2%, including 2 points of price, with strong performance in Climate Solutions Americas.

    • Total company backlog increased 10% year-over-year and 15% sequentially.

    • Adjusted operating margin expanded 210 basis points year-over-year.

    • Free cash flow was $420 million, stronger than expected, with $1.3 billion in share repurchases.

    Concerns

    3

    • Light Commercial sales were down around 35% in Q1, leading to a full-year guide reduction to down low double digits.

    • Climate Solutions Europe (CSE) adjusted operating margin declined 390 basis points due to lower volume, mix, and investments.

    • Climate Solutions Asia, Middle East and Africa (CSAME) organic sales were down 6% due to continued weakness in residential China and parts of Southeast Asia.

    Guidance & targets

    35
    CategoryTargetConfidence
    Adjusted EPS
    $3.00-$3.10
    high materiality
    High
    Organic sales growth
    mid-single-digit
    high materiality
    High
    Reported sales
    a bit above $23 billion
    medium materiality
    High
    Adjusted operating margin expansion
    about 100 basis points
    high materiality
    High
    Free cash flow
    $2.4 billion and $2.6 billion
    high materiality
    High
    Share repurchases
    $3 billion
    high materiality
    High
    Sales
    about $6 billion
    medium materiality
    High
    Adjusted operating margin expansion
    100 basis points
    medium materiality
    High
    Adjusted EPS growth
    20%
    medium materiality
    High
    Adjusted EPS
    ~$0.87
    medium materiality
    High
    Organic growth (medium-term)
    6% to 8%
    high materiality
    High
    Margin expansion (medium-term)
    over 50 basis points
    high materiality
    High
    Long-term EPS target
    $3.60
    high materiality
    Medium
    RLC Europe organic sales growth
    modest growth
    medium materiality
    High
    Climate Solutions Americas (CSA) full-year organic sales
    high single digits
    medium materiality
    High
    Climate Solutions Europe (CSE) full-year organic sales
    low single digits
    medium materiality
    High
    Climate Solutions Asia, Middle East and Africa (CSAME) full-year organic sales
    low single digits
    medium materiality
    High
    Climate Solutions Transportation (CST) full-year organic sales
    mid-single digits
    medium materiality
    High
    Viessmann full-year growth
    flattish
    medium materiality
    High
    Viessmann operating margin
    low teens
    medium materiality
    High
    Climate Solutions Europe (CSE) operating margin
    mid-teens
    medium materiality
    High
    Commercial HVAC (global) growth
    double digits
    medium materiality
    High
    Data centers sales
    $1 billion
    high materiality
    High
    Non-data center commercial HVAC growth
    high single-digit range
    medium materiality
    High
    North American truck, trailer growth
    mid-single-digit range
    medium materiality
    Medium
    European truck, trailer growth
    flattish
    medium materiality
    Medium
    Container growth
    high single-digit range
    medium materiality
    High
    Aftermarket growth
    double digits
    medium materiality
    High
    Revenue synergies
    $100 million
    medium materiality
    High
    Revenue synergies
    $200 million
    medium materiality
    High
    Cost synergies
    more than $200 million
    medium materiality
    High
    Electricity pricing reduction (Germany)
    at least $0.05 per kilowatt
    low materiality
    High
    Heat pump subsidies (Germany)
    continued support
    low materiality
    High
    Germany infrastructure investments
    EUR 500 billion total, EUR 100 billion green investments
    low materiality
    High
    Fossil fuel prices (Europe)
    increase
    low materiality
    High

    Segment performance

    4
    SegmentRevenueYoYQoQMargin
    Climate Solutions Americas (CSA)
    Strong Q1 performance driven by organic growth and productivity, with significant margin expansion. Light Commercial was weaker than expected.
    Commercial ex NORESCO and residential organic sales up ~20% eachLight Commercial down ~35%Resi regulatory mix-up high single-digit organic growth benefit75% of resi volume 454B10% mix up realized on 454BResi mid-single-digit price, mid-single-digit volume
    		—9% organic—22% adjusted operating margin
    Climate Solutions Europe (CSE)
    Margin declined due to lower volume, mix, and investments, partially offset by cost synergies. Efforts underway to improve performance, particularly in legacy Carrier RLC business.
    75% of segment sales RLC (85% Viessmann, 15% legacy Carrier)25% of segment sales CommercialCommercial organic sales mid-single-digit growthRLC organic sales ~10% decline
    		—down 7% organic—9% adjusted operating margin
    Climate Solutions Asia, Middle East and Africa (CSAME)
    Sales decline driven by weakness in residential China and parts of Southeast Asia, but margin expanded due to productivity and absence of prior year currency impact.
    Residential China down ~20%Commercial China up low single digits
    		—down 6% organic—240 bps expansion
    Climate Solutions Transportation (CST)
    Organic sales growth driven by strong container performance, partially offset by declines in global truck and trailer. Margin expanded due to commercial refrigeration exit.
    Container up 20%Global truck and trailer down low single digitsAsia truck and trailer >30% growthNorth America truck and trailer low single-digit declinesEurope truck and trailer high single-digit decline
    		—2% organic—210 bps expansion

    Operational metrics

    25
    Organic sales growth
    2%YoY
    Q1 FY25

    Includes about 2 points of price.

    Price contribution to organic sales
    2 points
    Q1 FY25

    Included in Q1 organic sales growth.

    Acquisitions and divestitures impact on sales
    -5%
    Q1 FY25

    Net impact on reported sales.

    Foreign currency impact on sales
    -1%
    Q1 FY25

    Headwind to reported sales.

    Adjusted operating profit growth
    10%YoY
    Q1 FY25

    Driven by strong productivity and price.

    Adjusted operating margin expansion
    210YoY
    Q1 FY25

    Company-wide expansion.

    Adjusted EPS growth
    27%YoY
    Q1 FY25

    Driven by improved adjusted operating profit, lower net interest expense, and lower share count.

    Share repurchases
    $1.3 billion
    Q1 FY25

    Executed in the quarter.

    Share repurchases (April)
    $320 million
    April 2025

    Additional repurchases in April.

    Commercial refrigeration exit margin tailwind
    70
    Q1 FY25

    Tailwind to adjusted operating margin.

    Residential 454B volume mix
    75%
    Q1 FY25

    Percentage of total residential volume from 454B.

    Residential 454B mix-up realized
    10%
    Q1 FY25

    Expected mix-up realized from 454B.

    Germany heat pump subsidy applications
    65,000up from ~9,000 in Q1 FY24
    Q1 FY25

    Significant increase in heat pump demand indicators.

    Germany heat pump growth
    30%revised from 15%
    FY25

    Expected growth for the full year, indicating better mix.

    Germany total unit deliveries
    down 10% or slightly higherrevised from down 7%
    FY25

    Expected for the full year, primarily due to boiler decline.

    Electricity pricing reduction (Germany)
    $0.05
    future

    New government commitment to reduce electricity prices, expected to bring electricity to gas price ratio below 3.

    Tariff exposure (China)
    80%
    current

    Percentage of total tariff exposure from China.

    Tariff mitigation via price
    $300 million
    FY25

    Remaining tariff impact after supply chain and productivity actions.

    Tariff headwind to Americas margin
    50-60
    FY25

    Expected headwind due to price/cost neutrality.

    Domestic headcount growth
    20%
    past 5 years

    Growth in U.S. workforce.

    Light commercial sales (annual)
    $1.5 billion
    annual

    Approximate annual sales for the light commercial business.

    Light commercial impact on total top line
    0.5%
    FY25

    Impact on Carrier's top line if light commercial is down 10% for the year.

    Water-cooled chillers capacity increase
    4x
    over a few years

    Expansion of facility in Charlotte, NC, and repurposing another facility.

    Technicians to add
    1,000
    next 5 years

    Investment in resources to build out the service flywheel.

    Residential market share gain
    100
    last year

    Share gain in residential business.

    Industry KPIs

    8
    MetricValueDetails
    Price cost2 pointspoints
    Order backlogup 10% YoY, 15% sequentially%
    Book to bill ratio1.3ratio
    Data center hvac exposure$1 billionUSD
    Organic operating leverage100%%
    Service aftermarket attach8%%
    Order lead times placement horizonreduced
    Orders bookings growth by verticalhigh single digits%

    Orderbook & backlog

    2
    Total company backlogup 10%Q1 FY25 end

    up 15% sequentially

    RLC Europe backlogup 60%Q1 FY25 end

    sequentially

    Product announcements

    5
    ProductTypeDetails
    Carrier's first air-cooled commercial heat pumplaunch
    Carrier-branded air-to-air residential heat pumpsexpansion
    Smart device application for LYNX Fleetlaunch
    Viessmann's Profilaunch
    Quantum Leap (data center cooling)launch

    Deals & partnerships

    1
    GooglePartnership to enhance grid resilience and support smarter energy management.

    Integrates Carrier HEMS technology with Google Cloud's AI and analytics. Early phases of the relationship.

    Risks & headwinds

    6
    Light Commercial WeaknessQ1 FY25, full year FY25

    Sales down ~35% in Q1; full-year guide reduced to down low double digits.

    Mitigation: Team is actively managing; market expected to loosen in H2; business is a small percentage of total company revenue (~5%).

    Climate Solutions Europe (CSE) Margin DeclineQ1 FY25

    Adjusted operating margin declined 390 bps in Q1 to 9%.

    Mitigation: Expect volumes to improve; addressing underperformance of legacy Carrier RLC business; commercial margins improving; significant opportunity to streamline and drive synergies within the region.

    Climate Solutions Asia, Middle East and Africa (CSAME) Sales DeclineQ1 FY25

    Organic sales down 6% in Q1.

    Mitigation: Offset by growth in Japan and India; productivity actions.

    Tariff ExposureFY25

    $300 million impact for FY25 (primarily China, ~80% of exposure).

    Mitigation: Fully mitigating through supply chain and productivity actions; balance offset via price (over 1% additional pricing); USMCA compliance near 100% for Mexican imports.

    Macroeconomic Uncertaintyongoing

    unquantified

    Mitigation: Taking additional cost containment measures; remaining laser-focused on customers; continuing to invest in differentiation and solutions.

    Residential Channel Inventory LevelsQ1 FY25

    Inventory levels are 'a bit elevated' versus same time last year.

    Mitigation: Working with channel partners to balance inventory levels; monitoring movement; derisking full-year forecast.

    What to watch in Q2 FY25

    5

    Light Commercial Sales Recovery

    H2 FY25
    CurrentDown ~35% in Q1, expected down ~20% in Q2.
    TargetFlat to slightly up in H2 FY25.

    Why it matters

    Recovery in this segment is crucial for overall organic growth and signals broader small/medium business health.

    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.

    Q&A highlights

    5

    Analyst asked for confirmation of Q2 EPS and core growth, and then requested segment-level organic growth expectations for Q2 and the full year.

    Management confirmed Q2 EPS growth of ~20% on a $0.73 base, and provided detailed organic sales growth guidance for each segment for both Q2 and the full year, noting expected pickups in some segments in the back half.

    “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.”

    asked by Nigel Coe · answered by Patrick Goris

    2 min read6 chapters

    Detailed Narrative

    01

    Strategic Investments and Partnerships

    Carrier is advancing its product portfolio and market reach through strategic initiatives like the introduction of Carrier's first air-cooled commercial heat pump in Europe, designed for district heating and cooling, and leveraging Viessmann's channel for residential heat pumps. The company also announced a partnership with Google to enhance grid resilience and energy management using Carrier HEMS technology, aiming to improve efficiency and reduce energy costs for homeowners by integrating AI and analytics.

    02

    Viessmann Integration and European Market Dynamics

    The Viessmann acquisition continues to yield strong revenue and cost synergies, with $100 million expected this year and $200 million next year for revenue, and over $200 million in cost synergies by end of next year. Despite a ~10% sales decline in RLC Europe in Q1, the business is projected to return to modest growth in Q2, supported by strong heat pump demand (Q1 subsidy applications up to ~65,000 from ~9,000 last year) and favorable government policies in Germany, including continued subsidies and infrastructure investments.

    03

    Data Center and Commercial HVAC Strength

    The commercial HVAC business, particularly data centers, remains a significant growth driver. Carrier expects to double its data center sales to $1 billion this year, with a strong Q1 performance of ~$250 million in deliveries. The company is also expanding capacity in North America for water-cooled chillers by 4x over a few years and seeing robust growth in non-data center commercial HVAC segments like mega projects, healthcare, and electronic fabrication, benefiting from freed-up capacity.

    04

    Tariff Mitigation and Cost Management

    Carrier is actively mitigating tariff exposure, primarily from China (80% of exposure), through supply chain optimization and productivity actions. The remaining $300 million impact is being offset by price increases, representing over 1% of additional pricing. The company is also implementing additional cost containment measures given the current market fluidity, with USMCA compliance now just under 100% for Mexican imports.

    05

    Aftermarket and Services Growth

    Aftermarket remains a key focus, with global aftermarket revenue up 8% in Q1 and expected to achieve double-digit growth for the full year. The company reported significant progress in commercial chiller attachment rates, now surpassing 60% (from 48%), and is expanding its LYNX Fleet smart device application for enhanced cold chain visibility. Mods and upgrades grew ~20% in Q1, contributing to overall aftermarket strength.

    06

    Residential Americas Performance

    The residential Americas business saw strong Q1 growth of around 20%, driven by regulatory mix-up (75% of volume from 454B, realizing 10% mix-up) and price. While Q2 is expected to remain strong (15-20% growth), the company anticipates tougher comparisons and potential inventory normalization in the second half. The full-year projection is high single-digit to low double-digit growth, with the team gaining 100 bps of share over the last year.

    AI-generated summary of the company’s earnings call. Not investment advice.