Skip to content
    CARR
    Earnings call· Sep 2025(Q3 FY25)

    CARRIER GLOBAL Corp CARR

    Oct 28, 2025 Source

    Executive summary

    Carrier Global Corporation Q3 FY25 — Strong Commercial & Aftermarket Growth Offsets Residential Headwinds

    Carrier navigated Q3 FY25 with robust performance in its Commercial HVAC, data center, and aftermarket segments, largely offsetting significant headwinds from residential market softness in North America and Europe. The company is aggressively implementing structural cost reductions and managing channel inventories to position for a stronger 2026, while maintaining a disciplined capital allocation strategy focused on share repurchases.

    Highlights

    5

    • Commercial HVAC in the Americas sales increased 30% in the quarter.

    • Aftermarket sales grew 12% in the quarter, on track for fifth consecutive year of double-digit growth.

    • Data center sales are on track to double from $500 million in FY24 to $1 billion in FY25.

    • Lynx paid subscriptions were up 40% to 210,000.

    • CST organic sales were up 6%, led by container business growth of approximately 100%.

    Concerns

    5

    • North American residential softness created a $500 million sales challenge and a $0.20-$0.25 adjusted EPS headwind in the quarter.

    • CSA Residential sales declined 30%, driven by a roughly 40% decline in volume.

    • Total company organic growth was down 4% for the quarter.

    • CSE Residential and Light Commercial sales were down low single digits due to continued heating market unit declines in Europe.

    • CSAME organic sales declined 2% due to ongoing weakness in residential and light commercial in China.

    Guidance & targets

    17
    CategoryTargetConfidence
    Full-year 2025 Sales
    About $22 billion
    high materiality
    High
    Full-year 2025 Adjusted Operating Margin
    Revised
    high materiality
    High
    Full-year 2025 Adjusted EPS
    About $2.65
    high materiality
    High
    Full-year 2025 Adjusted Effective Tax Rate
    Closer to 21%
    medium materiality
    High
    Full-year 2025 Free Cash Flow
    About $2 billion
    high materiality
    High
    Full-year 2025 Share Repurchases
    About $3 billion
    high materiality
    High
    Q4 2025 CSA Resi Sales
    Down approximately 30%
    medium materiality
    High
    Q4 2025 CSA Resi Volumes
    Down approximately 40%
    medium materiality
    High
    2026 Carryover Savings from Cost Actions
    Over $100 million
    medium materiality
    High
    2026 Adjusted EPS Tailwind
    About $0.20
    high materiality
    High
    2026 Organic Growth Assumption
    Low single-digit
    high materiality
    Medium
    2026 Free Cash Flow Conversion
    About 30%
    medium materiality
    Medium
    2026 Net Carryover Impact of Pricing and Tariffs
    Dollar neutral
    medium materiality
    High
    2026 CSA Resi Volume
    Flat to slightly up
    high materiality
    Medium
    2026 Europe RLC Market
    Flat
    medium materiality
    Medium
    2026 Price Increase (Announced)
    Mid-single-digit
    medium materiality
    High
    2026 Price Increase (Yield)
    Low single-digit range
    medium materiality
    High

    Segment performance

    4
    SegmentRevenueYoYQoQMargin
    CSA (Americas)
    Organic sales declined primarily due to much lower residential volume, partially offset by strong commercial performance. Operating margin was significantly impacted by lower residential volume.
    Commercial sales growth: 30%Residential sales decline: 30%Residential volume decline: ~40%Light commercial sales decline: 4%Aftermarket sales growth: Mid-teensOperating margin change: Down 560 bps
    		—-8%—19.7%
    CSE (Europe)
    RLC sales declined due to continued heating market unit declines, despite strong heat pump growth. Commercial sales were impacted by large project timing. Operating margin declined due to lower organic sales and mix, partially offset by productivity and cost synergies.
    Residential and light commercial sales decline: Low single digitsHeat pump sales growth (Europe): 15%Heat pump sales growth (Germany): 45%Commercial sales decline: Mid-single digitsOperating margin change: Down 110 bps
    		————
    CSAME (Asia, Middle East, Africa)
    Organic sales declined due to weakness in China residential and light commercial, despite strong growth in India and the Middle East. Operating margin was driven by productivity gains, offset by lower volume.
    India and Middle East growth: Double-digitChina residential and light commercial decline: Mid-teensChina commercial growth: Mid-single digitsOperating margin driver: Strong productivity gains offset by lower volume
    		—-2%—11.6%
    CST (Global Truck & Trailer, Commercial Refrigeration)
    Organic sales were led by very strong growth in container, partially offset by declines in Global Truck and Trailer. Operating margin expanded primarily due to the 2024 exit of Commercial Refrigeration.
    Container growth: Very strongGlobal Truck and Trailer decline: Mid-single digitsNorth America Truck and Trailer growth: FlatOperating margin expansion: 80 bps
    		—6%—15.4%

    Operational metrics

    18
    Total company organic growth
    -4%
    Q3 FY25

    Reported sales were $5.6 billion.

    Adjusted operating profit
    $823 millionDown 21%
    Q3 FY25

    Primarily due to lower volume in CSA Resi business.

    Adjusted EPS
    $0.67Down 13%
    Q3 FY25

    Includes a $0.07 benefit from a lower tax rate, with $0.05 being a timing shift between Q3 and Q4.

    New share repurchase authorization
    $5 billion
    Ongoing

    Approved by the Board, expected to take the company into 2028.

    Field inventory levels (CSA Resi)
    Down 12%YoY
    End of Q3 FY25

    Further down 10 points since beginning of October, now down 20% YoY. Expected to be down 30% YoY by year-end, lowest since 2018.

    Heat pump subsidy applications (Germany)
    300,000Double vs. last year
    FY25

    Indicative of continued heat pump adoption.

    Commercial HVAC total business growth
    More than doubled
    Past 5 years

    Includes applied business, aftermarket, and controls, all of which doubled during this period.

    Commercial Refrigeration exit headwind
    4%
    Q3 FY25

    Impact on total company organic growth from the 2024 exit.

    Currency tailwind
    1%
    Q3 FY25

    Impact on total company sales.

    Total company organic orders
    Down high single digits
    Q3 FY25

    Excluding CSA Resi orders, total company orders were up low single digits.

    CSA Resi movement (sell-through)
    Down ~30%
    October

    Expected to be down mid-20s for November and December.

    Q1 Incrementals (CSA)
    69%
    Q1 FY25

    Reflects very strong resi volume and significant production levels.

    Q1 Decrementals (Resi)
    Similar to Q3 and Q4
    Q1 FY26

    Expected due to tough comps in the first half of 2026.

    Tariff pricing requirement
    $200 million
    FY25

    Required incremental pricing to offset tariffs for the year.

    Water-cooled chillers capacity increase
    4x
    Since 2023

    Capacity for water-cooled chillers in North America.

    Total chillers capacity increase
    3x
    Since 2023

    Total chiller capacity (including air-cooled) in North America.

    Q4 Light Commercial business forecast
    Down ~15%
    Q4 FY25

    Weaker than prior expectation of flattish, partly due to government shutdown impact.

    Q3 Europe Commercial rentals business decline
    >20%YoY
    Q3 FY25

    Due to year-over-year comparison with the Olympics in Paris.

    Industry KPIs

    5
    MetricValueDetails
    Price cost—
    Order backlog—
    Data center hvac exposure$1 billionUSD
    Service aftermarket attach12%%
    Orders bookings growth by vertical—

    Orderbook & backlog

    4
    Overall backlogExtends into 2028Q3 FY25

    Increased quite a bit over the past few months

    Data center backlog for 2026 deliveriesUp ~20%Entering 2026

    YoY

    Projected to be up ~20% year-over-year compared to backlog entering 2025.

    Data center backlog for 2025 deliveries~$700 millionEntering 2025
    Data center backlog for 2026 deliveries (target)Close to $900 millionEntering 2026

    Target to drive nice growth for next year.

    Product announcements

    5
    ProductTypeDetails
    Toshiba VRF product linelaunch
    Energy-efficient container unitslaunch
    Carrier Energy HEMS offeringroadmap
    QuantumLeap integrated system offeringroadmap
    New air cooled chiller with mag bearingslaunch

    Deals & partnerships

    5
    Key hyperscalerLargest order ever

    Secured the largest order ever with a key hyperscaler earlier this month.

    Top U.S. homebuilderConverted to Carrier

    Further enhancing Carrier's leading position in the new home construction sector.

    Colo customerWin in the AmericasExceeding $100 million

    A significant win with a colo customer in the Americas.

    UnspecifiedMultiyear software win with AboundMultiyear

    A major multiyear software win in the Middle East with Abound, Carrier's digital platform for buildings.

    UnspecifiedMOU signing for infrastructure and data center investments

    MOU signed in Tokyo for investments in Americas infrastructure and data centers, involving Japanese hosts and the administration.

    Risks & headwinds

    8
    North American Residential Market SoftnessQ3 FY25

    $500 million sales challenge and $0.20-$0.25 adjusted EPS headwind in Q3

    Mitigation: Aggressive cost actions, purposeful destocking of field inventory to start 2026 with a clean slate.

    European Heating Market Unit DeclinesQ3 FY25

    RLC sales down low single digits; Germany market at 15-year lows

    Mitigation: Focus on significantly reducing product and installation costs for heat pumps, investments in market differentiation and expansion.

    China Residential and Light Commercial WeaknessQ3 FY25

    CSAME organic sales down 2%; China resi/light commercial down mid-teens

    Mitigation: Working with partners to reduce elevated field inventories in China residential business.

    Global Truck and Trailer DeclineQ3 FY25

    Mid-single-digit decline in Q3

    Mitigation: Positioned as a market leader with good margins, expecting strong drop-through when markets recover.

    Under-absorption Headwinds from Channel DestockingQ4 FY25

    Significant headwinds

    Mitigation: Purposeful decision to keep operations going at low levels to avoid cold starts, balancing operating profit and free cash flow.

    Difficult Comparables in H1 2026 for CSA ResiH1 FY26

    Very difficult, especially Q1

    Mitigation: Executing significant cost actions and expecting carryover benefits, aiming for flat to slightly up volume in 2026.

    Government Shutdown ImpactQ4 FY25

    Q4 Light Commercial business forecast down ~15%

    Mitigation: Not explicitly stated, but impact noted on lending and credit for small businesses (SBA loans on hold).

    Consumer Strength and Interest Rate SensitivityFY26

    Unquantified

    Mitigation: Monitoring interest rate trends and consumer sentiment; expecting potential decline in interest rates to aid demand.

    What to watch in Q4 FY25

    5

    CSA Resi Field Inventory Levels

    By year-end 2025
    CurrentDown 20% YoY
    TargetDown 30% YoY (lowest since 2018)

    Why it matters

    Verifying the achievement of aggressive destocking targets is crucial for a 'clean slate' entering 2026 and avoiding further headwinds.

    By year-end, we expect inventory levels in the field to be down 30% versus last year, the lowest level since 2018.

    Q&A highlights

    6

    Consolidated inventories are up sequentially, which is unusual. Can you explain the drivers, particularly in CSA Resi, and how sell-through (movement) is progressing to ensure a clean channel for 2026?

    Consolidated inventory is up $500M, with $350M in CSA Resi, due to sudden volume decline and purposeful increase for components. Inventory levels will reduce by year-end, though not fully to desired levels due to balancing production and labor. Field inventory is expected to be down 30% YoY by year-end. October movement was down 30%, with Nov/Dec expected mid-20s, but easier comps are ahead.

    “At the end of Q3, field inventories were down 12% compared to last year. As of today, field inventory levels are down another 10 points since the beginning of the month and are down about 20% versus last year. By year-end, we expect inventory levels in the field to be down 30% versus last year, the lowest level since 2018.”

    asked by Jeffrey Sprague · answered by David Gitlin

    2 min read5 chapters

    Detailed Narrative

    01

    Residential Market Destocking and Outlook

    Carrier is aggressively managing residential channel inventory, aiming for a 30% year-over-year reduction by year-end 2025, reaching the lowest levels since 2018. This purposeful destocking, coupled with October movement (sell-through) down 30% and expected mid-20s decline for November/December, is intended to create a 'clean slate' for 2026. Management anticipates CSA Resi volume to be flat to slightly up in 2026, despite difficult year-over-year comparisons in the first half.

    02

    Strong Data Center Traction and Capacity

    The data center vertical remains a top priority, with sales on track to double from $500 million in FY24 to $1 billion in FY25. Backlog for 2026 is projected to be up 20% year-over-year, extending into 2028, driven by significant wins with hyperscalers and colo customers, including a recent $100 million-plus win. Carrier has substantially increased its chiller capacity in North America since 2023 (water-cooled up 4x, total chillers up 3x) to meet this demand, with no immediate need for further CapEx in the region.

    03

    Structural Cost Actions and Efficiency Gains

    The company is undertaking aggressive, structural cost reduction actions, including the elimination of approximately 3,000 indirect positions. These efforts are focused on long-term efficiency, leveraging shared services (CBS) and AI (e.g., 20,000 Copilot licenses) to streamline operations and ensure cost savings are sustainable. These actions are expected to contribute over $100 million in carryover savings and a $0.20 adjusted EPS tailwind in 2026.

    04

    European Heat Pump Growth Amidst Market Declines

    In Europe, residential heat pump sales grew 15% (Germany up 45%), driven by electrification and a doubling of subsidy applications to 300,000. However, overall heating market unit declines, particularly in boilers, have offset this growth, with the German market at 15-year lows. Carrier is focused on reducing product and installation costs to incentivize continued transition to electrification, positioning for a potential market recovery in 2026.

    05

    Commercial HVAC Outperformance and Vertical Mix

    The Commercial HVAC business in the Americas delivered exceptional performance, with sales up 30% overall. Non-data center commercial sales were up low teens, and the applied business equipment segment grew 60%. While data centers are the primary driver, strength was also noted in mega projects and healthcare. The company's investments in technology, capacity, and talent over the past five years have led to the total business, applied business, aftermarket, and controls all doubling in size.

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