Carrier Global Q1 2025 Earnings Report

Carrier Global EPS Results

• Actual EPS: $0.65
• Consensus EPS: $0.58
• Beat/Miss: Beat by +$0.07
• One Year Ago EPS: $0.51

Carrier Global Revenue Results

• Actual Revenue: $5.22 billion
• Expected Revenue: $5.17 billion
• Beat/Miss: Beat by +$45.18 million
• YoY Revenue Growth: -3.70%

Carrier Global Announcement Details

• Quarter: Q1 2025
• Date: 5/1/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, May 1, 2025
• Conference Call Time: 7:30AM ET

Carrier Global (NYSE:CARR) provides heating, ventilating, and air conditioning (HVAC), refrigeration, fire, security, and building automation technologies in the United States, Europe, the Asia Pacific, and internationally. It operates through three segments: HVAC, Refrigeration, and Fire & Security. The HVAC segment provides products, controls, services, and solutions to meet the heating, cooling, and ventilation needs of residential and commercial customers. Its products include air conditioners, heating systems, heat pumps, controls, and aftermarket components, as well as aftermarket repair and maintenance services and building automation solutions. The Refrigeration segment offers transport refrigeration and monitoring products and services, as well as digital solutions for trucks, trailers, shipping containers, intermodal applications, food retail, and warehouse cooling; and commercial refrigeration solutions, such as refrigerated cabinets, freezers, systems, and controls. The Fire & Security segment provides various residential, commercial, and industrial technologies, including fire, flame, gas, smoke, and carbon monoxide detection; portable fire extinguishers; fire suppression systems; intruder alarms; access control systems; video management systems; and electronic controls. This segment also offers fire and security service, such as audit, design, installation, and system integration, as well as aftermarket maintenance and repair and monitoring services. It offers its products under the Autronica, Det-Tronics, Edwards, Aritech, Fireye, GST, Kidde, LenelS2, Marioff, Onity, and Supra; Carrier, Toshiba, Automated Logic, Bryant, CIAT, Day & Night, Heil, NORESCO, and Riello; and Carrier Commercial Refrigeration, Carrier Transicold, and Sensitech brands. Carrier Global Corporation was incorporated in 2019 and is headquartered in Palm Beach Gardens, Florida.

Carrier Global Q1 2025 Earnings Call Transcript

Key Takeaways

• Carrier delivered a strong Q1 with orders up high-single digits, organic sales +2%, backlog +10% YoY, adjusted EPS of $0.65 (+27%), free cash flow of $420 M, $1.5 B returned to shareholders and $1.2 B of debt paid down.
• The company raised its full-year 2025 guidance to $3.00–3.10 adjusted EPS (+~20% YoY), expects mid-single-digit organic sales growth, ~100 bps margin expansion and 100% free cash flow conversion.
• Innovation and aftermarket growth are driving momentum, highlighted by the launch of Europe’s first air-cooled commercial heat pump, aftermarket sales up 8%, 60% attachment rate on commercial chillers and over 50 000 connected units.
• In Europe’s residential and light commercial segment, orders rose mid teens led by heat pumps, backlog jumped 60% sequentially, sales were down ~10% as expected and the team anticipates modest Q2 growth with $100 M revenue and >$200 M cost synergies on track.
• Carrier is mitigating tariff headwinds—80% linked to China—with supply chain, productivity and price actions leaving ~$300 M to be offset via pricing, alongside USMCA compliance and cost containment measures.

Presentation

[Operator]

Good morning, and welcome to Carrier's First Quarter twenty twenty five Earnings Conference Call. I would like to introduce your host for today's conference, Michael Retner, Vice President of Investor Relations. Please go ahead.

[Michael Rednor, Vice President of Investor Relations at Carrier Global]

Good morning and welcome to Carrier's First Quarter twenty twenty five Earnings Conference Call. On the call with me today are David Gitlin, Chairman and Chief Executive Officer and Patrick Goris, Chief Financial Officer. Except where otherwise noted, the company will speak to results from continuing operations excluding restructuring costs, amortization of acquired intangibles and certain significant nonrecurring items such as acquisition and divestiture related costs. A reconciliation of these and other non GAAP financial measures can be found in the appendix of the webcast. We also remind listeners that the presentation contains forward looking statements, which are subject to risks and uncertainties.

[Michael Rednor, Vice President of Investor Relations at Carrier Global]

Carrier's SEC filings, including our Form 10 ks and quarterly reports on Form 10 Q provide details on important factors that could cause actual results to differ materially. One additional note, as you probably saw in both the press release and webcast presentation this morning, we announced our revised reportable segments and segment profitability measures. So we will be speaking to financials on this basis going forward. With that, I'd like to turn

[Michael Rednor, Vice President of Investor Relations at Carrier Global]

the call over to Dave.

[David Gitlin, Chairman & CEO at Carrier Global]

Thanks Mike and good morning everyone. Let me start by thanking our 50,000 teammates for delivering another strong quarter. I'd also like to welcome Michael Gerges to our team. He is leading our Climate Solutions segment in the Asia Pacific, Middle East and Africa region and we are thrilled to have him on board.

[David Gitlin, Chairman & CEO at Carrier Global]

So, a strong and better than expected start to the year. Orders were up high single digits with double digit orders growth in Climate Solutions Europe and Transportation. Within Climate Solutions America, sales in both residential and commercial were up about 20% each, more than offsetting weakness in light commercial. Global aftermarket remains on track for another year of double digit growth following 1Q up 8%. Total company backlog was up about 10% year over year and 15% sequentially.

[David Gitlin, Chairman & CEO at Carrier Global]

The team continues to use Carrier Excellence to drive strong productivity with core earnings conversion of about one hundred percent and two ten basis points of margin expansion. We drove 27% adjusted EPS growth on 2% organic growth. Free cash flow was four twenty million dollars and we returned about $1,500,000,000 to shareholders in the quarter through dividends and share repurchases plus paid down $1,200,000,000 in debt with no additional maturities until 2027. Turning to slide four. We made great progress on all three drivers of sustained growth: products, aftermarket and systems.

[David Gitlin, Chairman & CEO at Carrier Global]

In terms of differentiated products, channels and brands, we introduced Carrier's first air cooled commercial heat pump in Europe delivering high temperatures, increased energy efficiency, noise reduction and enhanced operational performance, all of which address increased demand for district heating and cooling in Europe. Also, as we displayed at the recent ISH show in Frankfurt, we are gaining traction selling our Carrier branded air to air residential heat pumps in Europe leveraging Beesman's channel. Aftermarket strength continues. We drove tremendous progress in the attachment rates on our commercial chillers now surpassing 60 for the first time and we now have over 50,000 connected chillers up about 5,000 versus the prior quarter. Aftermarket for global commercial HVAC was up about 10%, supported by mods and upgrades, which grew about 20%.

[David Gitlin, Chairman & CEO at Carrier Global]

We also introduced a smart device application for Lynx fleet providing increased real time visibility, enhanced customer operational efficiency, and reduced costs while maintaining cold chain integrity. On systems, we introduced Wiesemann's PROFI to accelerate and expand our hemp sales in Europe. Selling heat pumps versus boilers is a mix up sales benefit of about four to one. Selling complete systems versus boilers is a mix up benefit of closer to eight to one with more value to the homeowner, so we see this as a significant win win opportunity for sustained growth and customer stickiness. For HEMS in The United States, we announced an exciting new partnership with Google to enhance grid resilience and support smarter energy management.

[David Gitlin, Chairman & CEO at Carrier Global]

By integrating Carrier HEMS technology with Google's cloud AI and analytics, we will help increase the efficiency of the existing energy infrastructure, reduce grid congestion, unlock greater energy utilization and reduce energy cost to the homeowner. Turning to slide five for an update on our residential and light commercial business in Europe. Organic orders were up mid teens driven by strength in heat pumps offset by a decline in boilers. Germany heat pump subsidy applications in Q1 were up significantly, the highest Q1 we have seen in the past five years. Our RLC Europe book to bill was 1.3 and our backlog was up 60% sequentially.

[David Gitlin, Chairman & CEO at Carrier Global]

Organic sales were down about 10% as we expected and we project the RLC Europe business to return to modest growth in 2Q. Revenue synergies remain on track for about $100,000,000 this year and about $200,000,000 next year. Cost synergies also continue to be strong and we are on track to achieve more than $200,000,000 by the end of next year. A few comments on the recent election in Germany. We were pleased to see that the new coalition government is committed to the European Union's two thousand and thirty climate goals which include a 55% reduction in carbon emissions which will contribute to a continued shift to electric heating.

[David Gitlin, Chairman & CEO at Carrier Global]

Also encouraging is the coalition's continued support for heat pump subsidies and its €500,000,000,000 infrastructure investments, including about a hundred billion euros for additional green investments. Importantly, the new government is also committed to bringing down electricity pricing by at least 5¢ per kilowatt, which is expected to bring the ratio of electricity to gas prices below three. Further improving the ratio will be ETS two where across Europe in 2027, we expect fossil fuel prices to increase. All in, we're pleased with improving heat pump demand and traction on our key growth initiatives. A word on our guidance and the macro environment on slide six.

[David Gitlin, Chairman & CEO at Carrier Global]

Let me first say that we of course support free and fair trade. Also Carrier is proud to be the largest US domicile player in our industry and we've grown our domestic headcount by about 20% over the past five years and we continue to invest in our US workforce and factories. With respect to tariffs, virtually all of our imports from Mexico are USMCA compliant. For the tariffs that are in effect today, China is about 80% of our exposure. As reflected in our guidance, we are fully mitigating our tariff exposure through supply chain and productivity actions with a balance of about $300,000,000 via price, which represents a little over 1% of additional pricing.

[David Gitlin, Chairman & CEO at Carrier Global]

In addition, given the fluidity of the current market environment, we are taking additional cost containment measures. Based on our strong start to the year and current FX rates, we are increasing our full year adjusted EPS guide to $3 to $3.1 which is up about 20% year over year. As always, our team is committed to taking the actions needed to deliver on our commitments to our customers and investors. You saw this when we addressed COVID and supply chain disruptions, and we are confident that you'll see us do the same here. Importantly, while we remain clear eyed and prudent given the current macroeconomic uncertainty, we will remain laser focused on our customers and continue to invest in differentiation and solutions to drive sustained outsized growth for years to come.

[David Gitlin, Chairman & CEO at Carrier Global]

With that, I will turn it over to Patrick.

[Patrick Goris, Senior VP & CFO at Carrier Global]

Thank you, Dave, and good morning, everyone. Please turn to slide seven. As Dave mentioned, we had a strong start to the year with earnings ahead of our expectations and the guide we provided in February. Reported sales were $5,200,000,000 with 2% organic sales growth, including about two points of price. The impact of mix up and volume was net neutral.

[Patrick Goris, Senior VP & CFO at Carrier Global]

We had an unfavorable 5% net impact from acquisitions and divestitures and a point of headwind from foreign currency. Organic sales were largely in line with expectations with stronger than expected performance in Climate Solutions Americas, partially offset by weaker performance in Climate Solutions Asia, Middle East and Africa. Europe and Transportation came in largely as expected. Q1 adjusted operating profit increased 10% compared to last year, driven by strong productivity and price. As a result, adjusted operating margin expanded by two ten basis points compared to last year.

[Patrick Goris, Senior VP & CFO at Carrier Global]

The absence of commercial refrigeration was about a 70 basis point tailwind to margin. Adjusted EPS of zero six five dollars was up 27% year over year and better than expected due to strong productivity performance. Compared to last year, adjusted EPS growth was driven by improved adjusted operating profit, lower net interest expense from deleveraging and a lower share count. We have included a year over year adjusted EPS bridge in the appendix on Slide 19. Free cash flow of $420,000,000 in the quarter was also stronger than expected, driven by higher net income, lower than expected seasonal working capital build and lower capital expenditures.

[Patrick Goris, Senior VP & CFO at Carrier Global]

During the quarter, we repurchased 1,300,000,000 worth of shares and in April, we repurchased an additional $320,000,000 worth of shares. We continue to target $3,000,000,000 of share repurchases in 2025. Moving on to the segments, starting on slide eight. The CSA segment had a very strong quarter with organic sales growth of 9%. A bit more than half of the sales growth came from volume and mix up, the balance from price.

[Patrick Goris, Senior VP & CFO at Carrier Global]

Commercial ex Norresco and residential strength continued with organic sales in both businesses up around 20%. Within residential, regulatory mix up was the high single digit organic growth benefit with the balance split between volume and price. About 75% of our resi volume was four fifty four B and we are realizing the expected 10% mix up. Life commercial came in lower than expected, down around 35% with a tough compare versus prior year, which was up about 20%. Adjusted operating margins expanded four twenty basis points, driven by strong organic growth and productivity.

[Patrick Goris, Senior VP & CFO at Carrier Global]

Overall, CSA had an outstanding quarter. Moving to CSE on Slide nine, about 75% of this segment sales represent residential light commercial or RLC, of which about 85% is represented by Viessen Climate Solutions and 15% legacy carrier. Commercial represents about 25% of the segment sales. Organic sales in CSE were down 7% with mid single digit growth in Commercial, offset by about a 10 decline in RLC, largely in line with expectations. Adjusted operating margin declined three ninety basis points driven by lower volume mix and investments partially offset by favorable cost synergies.

[Patrick Goris, Senior VP & CFO at Carrier Global]

At 9%, we're confident that we can and will drive significant margin improvement in this segment. We expect volumes to improve. We are addressing underperformance of carriers legacy RLC business. Commercial margins are on an improving trend and there is significant additional opportunity to streamline and drive synergies within the region. More on that at our upcoming Investor Day in a few weeks.

[Patrick Goris, Senior VP & CFO at Carrier Global]

Moving to the CS AME segment on Slide 10. Organic sales were down 6% driven by continued weakness in residential China and parts of Southeast Asia, partially offset by growth in Japan and India. Within China, our residential light commercial business was down around 20% and commercial was up low single digits. Both businesses faced challenging compares versus the prior year, which were both up around 10%. Despite the organic sales decline, adjusted operating margin for this segment expanded two forty basis points as a result of productivity and the absence of a prior year unfavorable currency impact.

[Patrick Goris, Senior VP & CFO at Carrier Global]

Moving to CST on Slide 11, organic sales were up 2% driven by container up 20%, partially offset by global truck and trailer, which was down low single digits with over 30% growth in Asia, low single digit declines in North America and high single digit declines in Europe. Adjusted operating margin expanded two ten basis points compared to the prior year, mainly due to the Commercial Refrigeration exit. Turning to slide 12, total company organic orders momentum continued up high single digits. As you can see on the slide, we had high single digit or double digit orders growth in all segments but see us AME. Within AME, China orders were down high single digits with a high teens decline in RLC and up mid single digits in commercial where we continue to build backlog.

[Patrick Goris, Senior VP & CFO at Carrier Global]

Within transportation, orders were up double digits driven by global truck and trailer where North America orders were very strong compared to last year. Overall, we ended Q1 with a robust longer cycle backlog in commercial and continued broad orders momentum in over 85% of our business. Moving on to Slide 13 and shifting to full year organic sales guidance. We continue to expect mid single digit organic sales growth. Given current FX rates, reported sales are now expected to be a bit above $23,000,000,000 compared to 22,500,000,000.0 to $23,000,000,000 in the February guide.

[Patrick Goris, Senior VP & CFO at Carrier Global]

Also compared to the February guide, we now expect slightly higher organic sales in CSA driven by tariff related pricing to be offset by lower volume, mainly in light commercial. No other material changes in our organic growth outlook. Moving to profit and cash guide on slide 14. At the top of the slide, you can see our margin expectations for each segment. Total company adjusted operating margin expansion remains unchanged at about 100 basis points versus the prior year.

[Patrick Goris, Senior VP & CFO at Carrier Global]

I will cover adjusted EPS on the next slide, but before I do, we are maintaining our estimate for free cash flow of between 2,400,000,000.0 and $2,600,000,000 reflecting roughly a 100% conversion. Moving to Slide 15, we are increasing our adjusted EPS guidance range by $05 to a new range of $3 to $3.1 Stronger productivity and updated currency is partially offset by slightly lower expected volume. The net impact of tariffs is neutral. Some additional color on Q2. We expect sales of about $6,000,000,000 1 hundred basis points of adjusted operating margin expansion and 20% adjusted EPS growth.

[Patrick Goris, Senior VP & CFO at Carrier Global]

Additional guide items are in the appendix on slide 18. In summary, Q1 was a strong start to the year. For 2025, we anticipate solid mid single digits organic sales growth, strong margin expansion and close to 20% adjusted EPS growth. With that, I would like to ask the operator to open the line for Q and A.

[Operator]

Thank you. And our first question comes from Nigel Coe with Wolfe Research. Your line is open.

[Nigel Coe, Managing Director at Wolfe Research, LLC]

Thanks. Good morning. So, 2Q guidance, hard to press. Just wanted to confirm, Patrick, you're sort of pointing towards $0.87 or so of EPS base case and about 5% core growth?

[Patrick Goris, Senior VP & CFO at Carrier Global]

For Q2, you mean Nigel?

[Nigel Coe, Managing Director at Wolfe Research, LLC]

For Q2, yes. Q2 twenty five, yes.

[Patrick Goris, Senior VP & CFO at Carrier Global]

Yes. Mid single digits organic growth, about sales of about $6,000,000,000 I mentioned 100 basis points of margin expansion and roughly close to 20% adjusted EPS That's

[Nigel Coe, Managing Director at Wolfe Research, LLC]

great. And then just given all the moving pieces across the portfolio, how does that mid single digit look across the new segments?

[Patrick Goris, Senior VP & CFO at Carrier Global]

For Q2 or for

[Nigel Coe, Managing Director at Wolfe Research, LLC]

the full For Q2, yes. Both. Let's do both. Q2. Let's do two partial one, yes.

[Nigel Coe, Managing Director at Wolfe Research, LLC]

Q2 and full year. Okay.

[Patrick Goris, Senior VP & CFO at Carrier Global]

I'll start with Q2. We expect organic sales growth to pick up in The Americas, mid teens. In Europe, the Europe segment, expect Q2 to be up, as Dave mentioned, low to mid single digits. In Asia, we expect another quarter of low single digits organic sales decline and same for transportation. That's skewed for the overall company to mid single digits, maybe a little bit better than that.

[Patrick Goris, Senior VP & CFO at Carrier Global]

For the full year, our organic guide for the overall company remains mid single digits. 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.

[Nigel Coe, Managing Director at Wolfe Research, LLC]

That's great. And then just a quick follow on on the tariffs. I think $3,000,000 is the number that will be offset by price. Any more color in terms of what the gross impact is and how much has been offset by productivity and other actions?

[David Gitlin, Chairman & CEO at Carrier Global]

I would say, Nigel, we don't really think of it that way because we've effectively offset whatever we saw upfront with our suppliers and with the productivity actions. So as we kind of sit here today, we view the exposure as the 300,000,000 that we need to go offset with price. And frankly, we've already implemented those price increases in our channel.

[Nigel Coe, Managing Director at Wolfe Research, LLC]

Okay. Thanks guys.

[David Gitlin, Chairman & CEO at Carrier Global]

Thank you.

[Patrick Goris, Senior VP & CFO at Carrier Global]

Thank you.

[Operator]

And the next question comes from Julian Mitchell with Barclays. Your line is open.

[Julian Mitchell, Equity Research Analyst at Barclays Investment Bank]

Hi, good morning. Maybe just wondered if you could drill a little bit more into the Americas segment and sort of flesh out perhaps kind of what you're seeing in the resi piece there and light commercial and that's the two places where I suppose the full year guidance has changed in May versus February. So help us understand the drivers there and how you think about those two pieces playing out over the balance of this year?

[David Gitlin, Chairman & CEO at Carrier Global]

Yes, Julian. First, on the resi side, we did increase from high single digits for the full year to high single digits to perhaps low double digits. Some of the pricing on the tariff side, we will see on the resi side specifically. But resi was a bit of a stronger start to the year than we anticipated. It was up around 20%.

[David Gitlin, Chairman & CEO at Carrier Global]

The regulatory mix played out well. It was about 75% of the mix between four fifty four b and four ten was the four fifty four b. And we realized a little over 10% on that, and that was about, of course, 80% of the total volume for resi. We got mid single digit price, mid single digit volume and 2Q is on track probably in that 15% to 20% range. And I think we look at the full year, and we much tougher comps as we get into the second half in particular as we look at the fourth quarter because remember we did have maybe 75 so million of pre buy in the fourth quarter of last year.

[David Gitlin, Chairman & CEO at Carrier Global]

So we feel good about resi certainly in the first half, and we'll keep our eye on the second half. And I think we've derisked that with how we've thought about high single digits to low double digits for the full year. Light commercial was worse than we thought, and that's what's driven us to increase to decrease our guide for the full year to down low double digits. We mentioned that first quarter was much lower than we thought and it was really a combination of a couple of things. Some of the small and medium businesses were soft.

[David Gitlin, Chairman & CEO at Carrier Global]

You can think about things like nail salons or a local restaurant or barber shop. So that was a little bit softer than we thought. And there was some delayed spending on K through 12. Some of that bond funding was a bit paused. So Q1 was softer.

[David Gitlin, Chairman & CEO at Carrier Global]

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. So that puts you at down 10% for the full year. But you know, Julian, our light commercial business is about $1,000,000,000 of sales. So it's just about 5% of the company, a little over 5%.

[David Gitlin, Chairman & CEO at Carrier Global]

So it could be down 10%, and it impacts Carrier's top line by just about 0.5%. So we'll keep an eye on it, but it's something that the team's on top of and I think we've derisked in our full year plan.

[Julian Mitchell, Equity Research Analyst at Barclays Investment Bank]

That's very helpful. Thank you. And then just maybe secondly, wanted to understand on the CS Americas business, looking more at the margin front. So very strong margins up year on year in Q1 of over 400 points. The full year is guided up about 50 bps.

[Julian Mitchell, Equity Research Analyst at Barclays Investment Bank]

And if we just look at absolute margin, there isn't much difference between what you saw in Q1 and what's guided for the full year, even though perhaps one might think with the seasonality, it should be moving higher, particularly second and third quarter versus first. So maybe sort of flesh out a bit how you see those margins developing over the balance of the year, please, in Americas.

[Patrick Goris, Senior VP & CFO at Carrier Global]

Sounds good, Julian. And the way you can think about this is we do expect in Q2, the margins in The Americas to pick up by a couple of points. So it was about 22 in Q1, probably closer to 25 in Q2, somewhat similar in Q3, but then lower in Q4 to get to about the 22.5. And maybe some additional color on that, the tariffs represent a headwind to The Americas margin given the price cost neutrality there, and that's headwind to margin of about fifty, sixty bps for the entire year, And so in that range for Q2, Q3, Q4, and so that you'll see that play out in that segment. And then as Dave mentioned, resi volumes in the back half of the year will be lower.

[Patrick Goris, Senior VP & CFO at Carrier Global]

And of course, it has a margin impact as well. So 22% north of 22% margin in Q1, expected to step up close to 25% in Q2, similar in Q3, and then a step down to get to 22.5 for the year.

[Julian Mitchell, Equity Research Analyst at Barclays Investment Bank]

That's great, Patrick. Thank you.

[Patrick Goris, Senior VP & CFO at Carrier Global]

Thank you.

[Operator]

And the next question comes from Andy Kaplowitz with Citigroup. Your line is open.

[Andrew Kaplowitz, Managing Director at Citi]

Hey, good morning, everyone.

[David Gitlin, Chairman & CEO at Carrier Global]

Good morning.

[Patrick Goris, Senior VP & CFO at Carrier Global]

Good morning, Andy.

[Andrew Kaplowitz, Managing Director at Citi]

Dave, could you update us on your outlook for Viasmin at this point? Obviously, orders and backlog are up and you said RLC Europe will return to organic growth in Q2. So do you still see flat for Viasmin for the year? I think you talked about 150 basis points of margin improvement and then stepping back on overall CSC, you talked about your work to get that margin up, but maybe you could elaborate on the issues in the segment and what you're doing to address them.

[David Gitlin, Chairman & CEO at Carrier Global]

Yeah. When you look at our overall growth algorithm for mann, we still feel good about flat for the full year. We think that total unit deliveries in Germany may be a little bit lower than we thought. You know, I think we were thinking more like down 7%. It may be down 10% or slightly higher, but we are seeing a better mix up.

[David Gitlin, Chairman & CEO at Carrier Global]

In Germany, we think key pumps will be up more like 30% versus our previous estimate of 15%. So the benefit of the mix offsets a little bit of the volume perhaps being a little bit lower than we thought, and a lot of that lower volume is on on the boiler side as we see very, very strong demand in in Germany in particular, but throughout Europe with that continued move to electrification. I mentioned in my script that we were pleased with the the new government coalition that is doubling down on the shift to electrification, doubling down on reducing electricity prices. They supported subsidies. Of course, we'll have to see the clarification on the new heating law, but the rest of the algorithm stays intact.

[David Gitlin, Chairman & CEO at Carrier Global]

We'll continue to see bit of price. We'll continue to see aftermarket up double digits, which gives us another point or two. And all of our initiatives that drive 4% to 5% growth, whether the cost synergies, the share gains, the introduction of systems prophy, we feel good that all of those remain very, very much on track. So we feel good about flattish. And the year, we had said that the first quarter would be down 10 to 15.

[David Gitlin, Chairman & CEO at Carrier Global]

It was closer to 10. And the team really came through in the first quarter, we're confident that that momentum will continue. We'll see second quarter up a bit.

[Andrew Kaplowitz, Managing Director at Citi]

And then the margin on the segment, Dave?

[Patrick Goris, Senior VP & CFO at Carrier Global]

For the Europe margins across You mean the growth opportunity going forward? Or what do you think?

[Andrew Kaplowitz, Managing Director at Citi]

Yeah. The margin improvement in that segment, Patrick.

[Patrick Goris, Senior VP & CFO at Carrier Global]

Oh, we think that RLC and if I talk specifically about Beastman, Beastman will be double digits. It will be closer to low teens for this year. Last year, they ended up at 10%.

[Andrew Kaplowitz, Managing Director at Citi]

Got it. And then Dave, can you give more color into what's going on with your commercial HVAC business in The Americas, given the capacity increase that you have this year? I know you said you get data center to double I assume that's still on track. Then 20% growth in commercial HVAC is good. I assume that's pretty sustainable moving forward given the capacity you've added.

[David Gitlin, Chairman & CEO at Carrier Global]

Yeah. We feel very good about commercial HVAC overall. You know that this will be our fifth year in a row of double digit growth. Americas was very strong in the first quarter. It was up in the high teens.

[David Gitlin, Chairman & CEO at Carrier Global]

If you think about the global commercial HVAC business overall, call it up double digits again this year, we're going to see $500,000,000 of growth from data centers. We said that we were $500,000,000 last year going to $1,000,000,000 and we remain very much on track with that. We had a very strong first quarter for data centers. I think it was something like $250,000,000 of deliveries for data centers in the first quarter alone. So we feel good about where we are for the billion of full data centers for this year.

[David Gitlin, Chairman & CEO at Carrier Global]

And then for the rest of the non data center business for commercial HVAC, we'll be up in the high single digit range this year. So I think that the increase in capacity, particularly in North America where we're increasing our capacity so much, that has really freed up the sales team to go aggressively after some of the non data center work where data centers was probably taking up more of the capacity over the past twelve months than it will going forward. So we see really good progress on some of the mega projects. Health care remains strong. Pharma's been good.

[David Gitlin, Chairman & CEO at Carrier Global]

Electronic fabs, some of the higher ed are all positive for us. Obviously, you know, things like commercial office buildings continues to be weak. But overall, commercial HVAC is very, very positive.

[Andrew Kaplowitz, Managing Director at Citi]

Appreciate all the color.

[Patrick Goris, Senior VP & CFO at Carrier Global]

Thanks, Andy.

[David Gitlin, Chairman & CEO at Carrier Global]

Thanks, Andy.

[Operator]

And the next question comes from Stav Tusa with JPMorgan. Your line is open.

[Patrick Goris, Senior VP & CFO at Carrier Global]

Hey Steve, I don't know what we'll go with Steve.

[Steve Tusa, Managing Director at JP Morgan]

Yes, yes, little euro in there. Just wanted to make sure that we're clear on the base of there's been a lot of restatements here, but like what is the actual base for earnings for 2Q of twenty twenty four again? Can you just remind us what that is? EPS?

[Patrick Goris, Senior VP & CFO at Carrier Global]

Sony?

[Michael Rednor, Vice President of Investor Relations at Carrier Global]

Steve?

[Patrick Goris, Senior VP & CFO at Carrier Global]

That hasn't changed, that will be from the prior year.

[Michael Rednor, Vice President of Investor Relations at Carrier Global]

Yeah. There there's no change. I think it's low seventies, but I'll I'll pull the number up.

[David Gitlin, Chairman & CEO at Carrier Global]

Give me one sec. It's 73¢.

[Patrick Goris, Senior VP & CFO at Carrier Global]

Yeah.

[Patrick Goris, Senior VP & CFO at Carrier Global]

73.

[Steve Tusa, Managing Director at JP Morgan]

Yeah. 73. Okay. Just wanted to make sure because, like, you know, Bloomberg still shows 75, and you guys have restated bit. So just wanted to make sure we have the base

[Patrick Goris, Senior VP & CFO at Carrier Global]

okay on In the schedules of what we just disclosed, there are the historical financials as well.

[Steve Tusa, Managing Director at JP Morgan]

Yes, yes, okay. Got it. Sorry for wasting time on the call here. Just on the resi front, and any real hiccups on the four fifty four B actual channel and like the installation because of the kind of dramatic price increases that we're seeing from the suppliers and and I don't know, there's there's limited supply of containers and things like that going on. Any issues there?

[David Gitlin, Chairman & CEO at Carrier Global]

No, Steve. We're we're I mean, the short answer is we're okay. I think that we have most of our four fifty four b is coming from a specific supplier. They import some of the ingredients of four fifty four b from China, and they have talked to us about passing that along. And, of course, the team's in discussions about that right now.

[David Gitlin, Chairman & CEO at Carrier Global]

But if we if we do have to get into a discussion, we don't think that will be material overall. I think the shortage that everyone's talking about, as you said, was the canisters that was affecting the overall channel and we see that resolving itself here in the second quarter.

[Steve Tusa, Managing Director at JP Morgan]

Okay. And then just one follow-up on Europe. That margin was a little bit lower than I was expecting. What do you think is a good kind of normalized rate assuming Wiesman grows in line with your expectations? I mean, that seems to be pretty depressed at a low double digit rate.

[Steve Tusa, Managing Director at JP Morgan]

Maybe what would be kind of a longer term thought around that margin Well,

[Patrick Goris, Senior VP & CFO at Carrier Global]

our intention is to get that to mid teens in the next couple of years. And so there is a lot of focus there and actually it's a benefit of it now being its own segment. And I'll maybe provide a little bit of extra color there, but there are really three different businesses within this segment that are now under one umbrella. One is VCS that as you know, we acquired last year, that is a commercial HVAC business that's a little over $1,000,000,000 where we've seen continued margin improvement, but still not where exactly where we'd like it to be. And then the third part is the carriers legacy residential light commercial business, which is about 708 in sales.

[Patrick Goris, Senior VP & CFO at Carrier Global]

And that business actually been operating with low, like low single digit operating margins. And so there is a lot of work being done now and we expect, as I said, to get that to mid teens operating margin in the next couple of years.

[Steve Tusa, Managing Director at JP Morgan]

Yeah. Okay, great. Thanks a lot.

[Patrick Goris, Senior VP & CFO at Carrier Global]

Thanks, Steve.

[Operator]

And the next question comes from Jeffrey Sprague with Vertical Research. Your line is open.

[Jeffrey Sprague, Founder and Managing Partner at Vertical Research Partners]

Hey, thank you. Good morning, everyone. Hey, Dave. Good morning. Just back to kind of the order and subsidy action in Beesmen in Germany.

[Jeffrey Sprague, Founder and Managing Partner at Vertical Research Partners]

What do you attribute the rush for subsidy applications? Was there sort of a view that maybe the new government wouldn't be supportive and there was a rush to get subsidies in? Just kind of wondering what the real signal from the market is in that stat you shared with us today.

[David Gitlin, Chairman & CEO at Carrier Global]

It could be some of that, Jeff, you know, but I will tell you that the numbers were were very overall very, very encouraging. A part of it could have been uncertainty about how the election would play out. Part of it may have just been pent up demand. I mean, you think about the first quarter of last year, subsidy applications were something around 9,000. The first quarter of this year was something like 65,000.

[David Gitlin, Chairman & CEO at Carrier Global]

So it's just night and day. It's by far the highest first quarter of subsidy applications ever. We'll have to see how 2Q plays out, but given that the new coalition government has said that it will continue with the subsidy rates in the same levels they were at, the 30% to 70% range gives us a lot of confidence that that we see them continuing.

[Jeffrey Sprague, Founder and Managing Partner at Vertical Research Partners]

And then just back to kind of the idea of gross tariffs, right? You kind of told us what's left on the 300,000,000. Obviously, you've been very, very cost focused from day one since spin. I just wonder if you could give us some examples of maybe the incremental things you did to offset whatever that residual was, how much of it was inside your four walls versus sourcing and other changes you might have made?

[David Gitlin, Chairman & CEO at Carrier Global]

Yeah, I would say that a lot of it was with working with our supply chain. But what we've been very purposeful about over the past five years is this concept of first localization and two is dual sourcing. So this idea of dual sourcing has given us a little bit of flexibility with our supply base, not only in some of the negotiations and discussions we need to have, but also as we try to navigate where the work may come from as tariffs play themselves out. So a lot of it's on sourcing. The team's done a great job on productivity.

[David Gitlin, Chairman & CEO at Carrier Global]

We continue to optimize footprint. We've been doing that for a while. The amount of manufacturing we did for export out of China has come down significantly over these past few years. We still have a strong presence in China for China and we have a China plus one strategy, but we've been very purposeful about our overall footprint strategy. We've been pushing productivity within our factories.

[David Gitlin, Chairman & CEO at Carrier Global]

And the last is just basically tightening our belts on overall G and A and cost.

[Jeffrey Sprague, Founder and Managing Partner at Vertical Research Partners]

Got it. Thank you.

[David Gitlin, Chairman & CEO at Carrier Global]

Thanks, Jeff.

[Operator]

And the next question comes from Joe Ritchie with Goldman Sachs. Your line is open.

[Joe Ritchie, Analyst at Goldman Sachs]

Thank you. Good morning, guys.

[David Gitlin, Chairman & CEO at Carrier Global]

Hey, Joe.

[Joe Ritchie, Analyst at Goldman Sachs]

So can we talk about the $4.54 transition just a little further? So clearly good strength this quarter on the Americas resi business. I'm curious, Dave,

[Joe Ritchie, Analyst at Goldman Sachs]

do you have any kind of

[Joe Ritchie, Analyst at Goldman Sachs]

line of sight how much of the strength we saw in 1Q might have been just like this transition and your distributors stocking in the four fifty four B product? And then just maybe any additional color you guys just have on inventory levels at distributor level.

[David Gitlin, Chairman & CEO at Carrier Global]

Yes. I think I will tell you that the movement's generally been okay. So we continue to watch movement. Inventory levels are a bit elevated versus where they were at the same time last year. So that's why I think that, look, very strong first quarter up around 20%.

[David Gitlin, Chairman & CEO at Carrier Global]

We've said the second quarter is going to be up 15% to 20%. We've said the full year will be up high single digits to double digits. And it's really for two reasons. One is maybe three. One is that we are going to watch those inventory levels and we're going to try to, as always, be purposeful to work with our channel partners to have those inventory levels come back to a more balanced level.

[David Gitlin, Chairman & CEO at Carrier Global]

Two is, as you know, as we get into the second half, we have much tougher comps. Last year, the third quarter was up a little over 10% and the fourth quarter was up around 30%. So we'll just inherently have tougher comps in the second half. And then we'll watch the overall economy. So we've tried to derisk the full year forecast looking at those factors for the second half.

[David Gitlin, Chairman & CEO at Carrier Global]

But the really good news is that we've gotten the price that we expected for the $4.54 b. We've gained 100 bps of share over the last year, and the team is performing very, very well.

[Joe Ritchie, Analyst at Goldman Sachs]

Okay, great. That's helpful. And then I'm sure we'll talk about this more at the Investor Day, but you want to maybe expand a little bit on that data center business. I know you guys are rolling out Quantum Leap and it looks like you're getting closer to a liquid cooling product by year end. So any color you can give us on how that business is how you're seeing that business over the next twelve to twenty four months?

[David Gitlin, Chairman & CEO at Carrier Global]

Yeah, this is something that we were very excited to launch, Quantum Leap. And we've been in bid proposals, especially with a couple of customers in in Europe, not only for our CDUs, our coolant distribution units, but also the complete integrated Quantum Leap, which has traditional cooling and liquid cooling and ideally has our BMS in it, our ALC business with our nLIGHT business as well. We think that's ultimately going to provide the most value to our customers. I will tell you we're still in the first inning on that proposal, but we are getting a lot more interest. And that's how a lot of these discussions start.

[David Gitlin, Chairman & CEO at Carrier Global]

You propose something, you launch it, they start to come into your factories and look at the testing with your engineers. We did do we looked at acquisitions on the liquid cooling side, but our team, in a very short period of time, developed our own organic CDU, and it was kind of point design for the sweet spot of the market. So we're very excited about it. I would tell you that we haven't gotten a lot of sales yet from it, but we're optimistic given the nature of the value proposition some of the ongoing discussions that that could be a bit of a game changer.

[Joe Ritchie, Analyst at Goldman Sachs]

Okay, great to hear. Thank you. Thanks. Thanks, Joe.

[Operator]

And the next question comes from Deane Dray with RBC. Your line is open.

[Deane Dray, Managing Director at RBC Capital Markets]

Thank you. Good morning, everyone.

[Patrick Goris, Senior VP & CFO at Carrier Global]

Good morning, Deane.

[Deane Dray, Managing Director at RBC Capital Markets]

I was hoping Patrick can take us through the free cash flow dynamics in the quarter. It was a bit light versus seasonal. You just mentioned a bit higher inventory and you reaffirmed free cash flow for the year. But what was unique about this quarter?

[Patrick Goris, Senior VP & CFO at Carrier Global]

Actually, Dean, actually, I think it's actually seasonally a stronger than typical Q1. Q1 tends to be somewhat light. What I mentioned was that in this Q1, that working capital was less of a use of cash than it typically is, and particularly on the payable side. So actually we're quite pleased to start out the year with over $400,000,000 in free cash flow, which as I mentioned, I think the last three, four years were a little lighter than that. On inventory, again, nothing unusual in Q1, that is the seasonal buildup that starts in Q1.

[Patrick Goris, Senior VP & CFO at Carrier Global]

And then we expect to burn some of that up by the balance of the year and generally there remains opportunity in our overall inventory levels.

[Deane Dray, Managing Director at RBC Capital Markets]

Great. Thanks for that clarification. And then can you just expand on services? They did well this quarter. Just the plan for the year, any new initiatives there?

[David Gitlin, Chairman & CEO at Carrier Global]

Yeah. This has just become such a part of our DNA, Dean. We have this mantra we use internally, which I've been using externally, which is this double digit forever. So one of the big changes that we saw was we launched an initiative in The United States where we really tried to harmonize every single branch around not only the specific metrics that we're driving, but institutionalize it in the apps and the tools that all of our service technicians and sales folks use. And now we're cascading that globally.

[David Gitlin, Chairman & CEO at Carrier Global]

So just the amount of rigor we have around productivity, unique offerings, and, of course, our same old playbook, which is blue edge, multi. You have base offerings, mid tier, high end offerings, driving attachment rates. We had the best growth in attachment rates that in a quarter that we've ever seen. You know, we went from, like, 48% to 60% a quarter using the rigor around the tools. The truth is we want to get that to 100% that every time you sell a chiller, it comes with a long term agreement.

[David Gitlin, Chairman & CEO at Carrier Global]

But I'll tell you the progress to 60% in a short period of time has been encouraging. And I think one of the things you'll be hearing from us a lot more on is mods and upgrades. You know, a lot of the as new construction in some of the major cities in the world have become a little bit slower, we see a huge opportunity in certain places in the world around mods and upgrades. So we view a country like Saudi to be a lot more new construction, but it may be that Dubai is more mods and upgrades. So that's been very encouraging and it's across all of our businesses.

[David Gitlin, Chairman & CEO at Carrier Global]

So I'm confident this year will be double digits again.

[Deane Dray, Managing Director at RBC Capital Markets]

Great. Thank you.

[David Gitlin, Chairman & CEO at Carrier Global]

Thank you.

[Operator]

And the next question will come from Joseph O'Dea with Wells Fargo. Your line is open.

[Joseph O'Dea, Managing Director at Wells Fargo]

Hi, good morning. Thanks for taking my questions. Can you unpack the tariffs a little bit just in terms of sizing the cost headwind this year and then that breakdown of what you're doing on the cost and price side? And then any specifics on the China component of that cost headwind as well as any other color you can give? And the last part of it is, what does this mean for resi pricing?

[Joseph O'Dea, Managing Director at Wells Fargo]

If we think about back half of the year, $4.05 $4 B normal pricing and then now the addition, what kind of pricing mix you're looking at on resi in the back half?

[David Gitlin, Chairman & CEO at Carrier Global]

Look, Joe, the team's done a great job, I think, tariffs head on. I will tell you USMCA, for example, we're now just under 100% USMCA compliant, and that's a group of folks across our supply chain team, across our customs and legal team, folks working very well together to make sure that we, of course, are USMCA compliant virtually across the board. When we look at it, we we looked at the tariffs as they exist today, and we frankly have as we look at the cost actions we've taken, whether with our supply chain or in our own productivity, our own factories or other actions, we've effectively mitigated all but 300 of it. And that 300, we said we would mitigate through price. That is gonna be a lot of price in The Americas, and the price will be a lot in in resi.

[David Gitlin, Chairman & CEO at Carrier Global]

So we feel that the team has been very effective at working very transparently and collaboratively with our channel. Obviously, no one likes price increases, our channel, but has been very clear eyed and understanding of the fact that we've done our best to mitigate as much as we can through cost and then the rest we've done through price.

[Joseph O'Dea, Managing Director at Wells Fargo]

Got it. That's helpful. And then on the commercial HVAC in Americas, the non data center business up high single digit is actually a little bit more surprising I'd say than the data center growth. Can you unpack that a little bit from renovation, new construction, price? I'd say some of the non res macro indicators aren't exactly encouraging, but that growth rate is pretty good.

[Joseph O'Dea, Managing Director at Wells Fargo]

And so you're doing versus what you see in the market?

[David Gitlin, Chairman & CEO at Carrier Global]

Yeah. Part of it frankly is freeing up capacity. I would say that now that we've we're going to increase our capacity for water cooled chillers by four x over a period of a few years in here in The Americas because we effectively are expanding our facility in Charlotte, North Carolina, and then we're adding we've repurposed another facility for both water cooled and air cooled. And that's freed up our internal sales force and our channel partners to go more aggressively after some of the opportunities. The mega projects have been very strong for us.

[David Gitlin, Chairman & CEO at Carrier Global]

So that dedicated vertical team that we have focused on data centers also focuses on the mega projects with some of the reshoring activity that we've been seeing here in The United States. Health Care pharma are both strong, as I mentioned, and we've been getting very good share on some of the electronic fab that we've seen going up. So you're right that ABI has been weak. Commercial real estate has continued to be weak year after year recently over these last few years. But we've been offsetting some of the areas that are very visibly weak with areas that are sort of quietly strong.

[Joseph O'Dea, Managing Director at Wells Fargo]

Got it. Thanks a lot. Thank you.

[Operator]

And the next question comes from Chris Snyder with Morgan Stanley. Your line is open.

[Chris Snyder, Executive Director at Morgan Stanley]

Thank you for the question. I wanted to ask on America's resi. The $75,000,000 or so that you guys kind of called out in Q4 as pre buy, did that come out in Q1 and was just overwhelmed by strength and mix tailwinds elsewhere? Or is expected to come out in Q2 even with this 15%, twenty % Americas guide? Or do you just maybe don't even think it comes out anymore?

[Chris Snyder, Executive Director at Morgan Stanley]

Thank you.

[David Gitlin, Chairman & CEO at Carrier Global]

It's honestly not a very perfect science because what you're really trying to figure out with pre buy were people buying for demand that otherwise would have been in '25, but they bought it in '24. So what we really have to do is look at movement and look at the underlying demand. So the movement in the first quarter was about what we thought. So the movement from our distributors to the dealers has been fine. It's been up in April.

[David Gitlin, Chairman & CEO at Carrier Global]

The movement's been up in the mid single digit range. The thing that we really have to watch and that we continue to watch is the base inventory levels. On some of the split side, they are higher than where they were at the same time last year. So maybe there's some of that that's kind of made its way into the inventory levels. So we'll want to be careful with our partners how much that we ship in and then making sure that that movement continues.

[David Gitlin, Chairman & CEO at Carrier Global]

Because we have much better tools now than we used to have to make sure that inventory levels in the channel are about what we thought. And we're very purposeful with our channel partners to control that. In fact, the team and I will be with our distribution partners, this weekend and we'll be deep diving, all of this. But a very strong start to the year, 15 to 20% is what we expect here in 2Q, and I think we'll be measured as we get into, the second half. But overall, another good year for RESI in that 10% range, give or take a point or two.

[Chris Snyder, Executive Director at Morgan Stanley]

Thank you. I appreciate that. I wanted to follow-up on service. And clearly, the focus there is driven great growth for the service business with the double digit forever mantra holding strong. But I guess my question is, is it also helping you win on the equipment side, you know, for some of the bigger, applied projects, like having the the the stronger service offering?

[Chris Snyder, Executive Director at Morgan Stanley]

Just any anything you could talk about, you know, the flywheel of actually driving equipment on on the back of service. Thank you.

[David Gitlin, Chairman & CEO at Carrier Global]

Yeah. A %. You know, we look at we look at our commercial HVAC business overall. I would say the team has really differentiated ourselves in Europe and in Asia, where I think that that flywheel and our presence, not only the up front but the spec engineers up front, the sales force, our customer intimacy, our relationships, our presence, our brand, that's made us traditionally number one or two in Asia and in Europe. We've been very frank that we've been number three in The Americas, and that's been the opportunity in front of us.

[David Gitlin, Chairman & CEO at Carrier Global]

And the team in The Americas has really been turning around that business. We've been we've said that we're gonna add a thousand technicians over the next five years in The United States. We've said that we're adding salespeople. Our relationship with not only our direct sales force, but to some extent, we go through distribution in The United States only where it makes sense. And those distribution partners have good relationship with the mechanical contractors.

[David Gitlin, Chairman & CEO at Carrier Global]

And our ability to provide connected devices, to provide a bound, and to be able to support the customers throughout the life cycle is clearly advantageous. It is an entire flywheel. We've recognized that. We've been investing in the resources to build out that flywheel. And now I would say we're winning more than our fair share in The Americas as I think you've seen and you'll continue to see in our numbers.

[Chris Snyder, Executive Director at Morgan Stanley]

Thank you, Dave. Appreciate that.

[David Gitlin, Chairman & CEO at Carrier Global]

Yeah. Thank you.

[Operator]

And our next question comes from Amit Mehrotra with UBS. Your line is open.

[Amit Mehrotra, Managing Director at UBS Group]

Thanks. Patrick, can you just I just want to come back to the new Resi America's guide, high single, low double. I think in your previous guidance of high single, it was all kind of price mix and then volume or units were flat to down. Can you just update that in terms of what you're assuming? And then obviously, Europe resi and like commercial orders are just a lot stronger than the organic growth right now.

[Amit Mehrotra, Managing Director at UBS Group]

And I don't know if that's a comp issue or maybe if that's a fair assumption that we should expect a decent sequential uptick in revenue as we progress through the year.

[David Gitlin, Chairman & CEO at Carrier Global]

Yes. Look, when let me take the first one and Patrick will take the second. If when we said high single digits, we assume that almost all of that came from mix because we assume that you get with about 10% higher price on the four fifty four b than the four ten a. And if you assume that that becomes 70%, eighty %, eighty % of the total volume for the year, you're into that range of 78% from just regulatory mix. I think what we've seen is probably a little bit better on the price side overall.

[David Gitlin, Chairman & CEO at Carrier Global]

Part of that because of that's where tariffs landed and part of it is because we've seen better price realization and we'll probably get a little bit more full year volume than we originally anticipated. And then Patrick on the On

[Patrick Goris, Senior VP & CFO at Carrier Global]

the Europe comment, the way you can think about it, so Q1 was down about 7% in sales with commercial HVAC up mid single digits, resi like commercial, a little more than 10%, about 10 We expect growth actually to start in Q2 for the balance of the year and that will continue we think for both commercial HVAC and resi. Actually commercial HVAC within Europe, we have a strong pipeline and we think that the growth will accelerate to mid single digits in Q1 and will end up double digits in the second half of the year and double digits for the year. And then with respect to the resi part of our European segment, we think that will be low single digits for the balance of the year starting in Q2, as Dave mentioned, modest growth in Q2 and continue for the balance of the year. So overall full year double digit growth in commercial HVAC within the region and resi about flat, leading the overall segment to low single digits.

[Amit Mehrotra, Managing Director at UBS Group]

Got it. Gaye, just circling back on what you said, it looks like both volume and mix is an attribution to the revision of resi HVAC, which is top line, which is great. One final question, if I could, just maybe high level. And listen, you don't have to comment on it if you don't want to, but you have this proxy target out there of $3.6 of earnings. It's really hard to forecast that far out, but maybe just give us some puts and takes on your confidence around that number in terms of above the line versus below the line items.

[Amit Mehrotra, Managing Director at UBS Group]

I know you got some tax dynamics too with Beesman, tax losses, things like that, but just talk about why you put that out there. Why was that the right number and maybe the confidence around below or above the line items on that?

[Patrick Goris, Senior VP & CFO at Carrier Global]

Yes, I won't comment on why the number is out there and so on. I think that was very well described in the proxy, but, and we'll talk about a framework at the upcoming investor day in mid May, but the way we are thinking about our business and that's our current valuation framework is we target organic growth of 6% to 8% over the medium term. This year, organic growth is mid single digits. You also have heard us say that we target over 50 basis points of margin expansion each year. We've done better than that the last several years and this year again, we'll do better than that, than 50 bps.

[Patrick Goris, Senior VP & CFO at Carrier Global]

And so clearly we would expect all is equal to continue on that path. So organic growth at attractive rates, attractive margin expansion, as well as so earnings conversion close to 30%, that's aligned with that. On top of that, we will have the benefit of the repo from this year that will carry over next year. As you probably know, our free cash flow generation is quite strong after paying the dividend that is still well over $1,500,000,000 of free cash available for acquisitions or share repurchases. And then the last item you mentioned, which relates to tax, I think it is known, we've disclosed it that we have a tax benefit that we have on the books.

[Patrick Goris, Senior VP & CFO at Carrier Global]

And of course, we would like to monetize that and working hard to make that happen and to bring down our effective tax rate going forward. And I think with those building blocks, I think it's not unreasonable to see a path towards $3.60.

[Amit Mehrotra, Managing Director at UBS Group]

Very clear. Thank you very much. Appreciate it.

[Patrick Goris, Senior VP & CFO at Carrier Global]

Thank you.

[Operator]

And the next question comes from Steven Bachman with Jefferies. Your line is open.

[Stephen Volkmann, Managing Director at Jefferies & Company Inc]

Hi, good morning guys. Thanks for taking the question. I'm wondering if we can just look at CST a little bit, the mid single digit growth forecast kind of unchanged, but it feels like some of the industry forecasts around things like truck have deteriorated. So I know your mix is a little different than some others, but maybe just call out a little bit what's driving that mid single digit growth in CST.

[David Gitlin, Chairman & CEO at Carrier Global]

Yeah. When we look at, I think some of that refers specifically to the North American truck trailer business where ACT did say that the full year for trailer would be down 15%. And I would say when we look at there's two things. Number one is trailer is just a subset of the overall NATT market. And two is we're not really sure we believe the numbers.

[David Gitlin, Chairman & CEO at Carrier Global]

So I think when we look at it, we think that you have this dichotomy where there's a lot of pent up demand for trailers because it's a very old fleet. But you also see this overall issue with people looking at what's happening with tariffs and the economy. And I think they're trying to be judicious on some of their spend to update some of those fleets. So as that plays itself out, we'll have to see how the year plays out. But we expect for the full year, American truck trailer to be up in the mid single digit range.

[David Gitlin, Chairman & CEO at Carrier Global]

We expect European truck trailer to be closer to flattish, probably volumes down a bit and we'll see aftermarket growth there. But you have a similar dynamic. You have some aging fleets, but there's some questions around the economy. Container will be strong. We had a very strong first quarter up around 20%.

[David Gitlin, Chairman & CEO at Carrier Global]

We think it'll be up in the high single digit range. And like every part of the business, aftermarket will be up double digits. And Ed Dryden and the team have done a great job expanding our LYNX offering and really pushing some of the upgrade opportunities. So we think that the overall transportation segment is poised for mid single digit growth this year.

[Stephen Volkmann, Managing Director at Jefferies & Company Inc]

Great. Helpful. Thanks. And then it looks like margin is also going to be sort of on the upswing here as the year progresses. Any sense of how we should kind of model that cadence?

[Patrick Goris, Senior VP & CFO at Carrier Global]

Actually, we expect so Steve Paddock here. So we're about 15% in Q1. We would expect that to pick up by about 200 bps or so in Q2 and stay at about that level for the balance of the year, maybe Q4 a little lighter.

[Stephen Volkmann, Managing Director at Jefferies & Company Inc]

Perfect. Thank you, guys.

[Patrick Goris, Senior VP & CFO at Carrier Global]

Thank you.

[Operator]

And our next question comes from Tommy Moll with Stephens. Your line is open.

[Tommy Moll, Managing Director at Stephens Inc]

Good morning and thank you for taking my questions.

[David Gitlin, Chairman & CEO at Carrier Global]

Hey, Tommy.

[Tommy Moll, Managing Director at Stephens Inc]

Dave, I wanted to start on your Americas Light Commercial business, noting the comps there can be tricky. But I'm just observing that the outlook was reduced pretty significantly from up low to mid singles last time we spoke, and now we're looking at down doubles. What were some of the factors that changed there in your outlook?

[David Gitlin, Chairman & CEO at Carrier Global]

I think it's a combination of a couple things. I would say the first thing is that the first quarter surprised us to the downside there, Tommy. We did not anticipate that the first quarter was going to be down as much as it was. And then we look at 2Q here and the start to the quarter has not seen an appreciable uptake. So we balance the first quarter, the first half of the year to be down.

[David Gitlin, Chairman & CEO at Carrier Global]

We think the second half will recover a bit, but I think that there were some of the customers that again are on that small and medium type business. I think they really did slow some of their spending here in 1Q and we think that continues into the second quarter. And I think K through '12, some of the pausing and some of the bond funding that's coming at the state level and the local level, that slowed a bit more than we thought. Look, this is not something that we are in panic mode on. It's a great business, high margins.

[David Gitlin, Chairman & CEO at Carrier Global]

We're coming off a few years of phenomenal growth, especially '21 through '23. I think we took a lot of share. We reduced our lead times probably earlier than some of our peers, which gave us some lift. And now I think they're shipping out of some of the backlog that they had built, which is fine. I think we have a good product line.

[David Gitlin, Chairman & CEO at Carrier Global]

We have some differentiated products. We have a great channel. We got great brands. And look, the market will loosen itself up as we get into the second half. And I think we tried to derisk the full year plan by saying it'd be down double digits.

[Tommy Moll, Managing Director at Stephens Inc]

Thanks for the detail, Dave. I wanted to pivot a question on the Google partnership that you discussed earlier in the call. Is this participation in a demand response kind of program? Or what additional detail can you give particularly around the monetization opportunity there? Thank you.

[David Gitlin, Chairman & CEO at Carrier Global]

Yeah. You know, we've been working closely with Carrier Energy with the utilities. And the whole concept is that we can have an appreciable impact on the grid, especially during peak hours. If you think about the demand that is being added by the data centers to the grid, where you really have the biggest challenge for the utilities is during peak. And you think about what most of the demand is during peach during peak, it's your HVAC system, which is now because more than 40% of our sales are are are heat pumps.

[David Gitlin, Chairman & CEO at Carrier Global]

You have both cooling and heating putting demand on the grid during peak hours. What we need is more intelligence As we connect those devices and we look at how to auto, control those in an automated fashion, we have an opportunity to partner with Google to use their AI and analytics tools, which are phenomenal and work with them as a company, work with their with them as a a cloud partner as well and be able to provide more value. And you think about the digitization of energy and digitization of cooling devices, this is all about using traditional might have been appliances to use digital to create analytics to create more value. And we see this Google partnership as a tremendous win win opportunity, not only for us and Google, but for our utility partners as well. In fact, we had a call with Google yesterday, and we're in the early phases of this relationship.

[David Gitlin, Chairman & CEO at Carrier Global]

But as you think about the use cases, the opportunities is very encouraging.

[Tommy Moll, Managing Director at Stephens Inc]

Thanks, Dave. I'll turn it back.

[David Gitlin, Chairman & CEO at Carrier Global]

Thanks, Tommy.

[David Gitlin, Chairman & CEO at Carrier Global]

Go ahead.

[Operator]

No. Go ahead, please.

[David Gitlin, Chairman & CEO at Carrier Global]

Okay. I got it. So we wanna thank you all for joining us today. As a quick reminder before we wrap, we will be in New York City May Nineteenth, Eight Thirty for our Investor Day. We encourage you to join us and listen in.

[David Gitlin, Chairman & CEO at Carrier Global]

Our whole focus will be on accelerating growth. You're going to be hearing from not only Patrick and myself, but we'll have our four segment leaders there as well. And you'll hear from them with some really exciting initiatives we have to drive sustained growth over the long term. So thank you all for joining us today and we'll see you on May 19.

[Operator]

This does conclude today's conference call. Thank you for participating. You may now disconnect.

Participants

Executives

• Michael Rednor, Vice President of Investor Relations
• David Gitlin, Chairman & CEO
• Patrick Goris, Senior VP & CFO

Analysts

• Nigel Coe, Managing Director at Wolfe Research, LLC
• Julian Mitchell, Equity Research Analyst at Barclays Investment Bank
• Andrew Kaplowitz, Managing Director at Citi
• Steve Tusa, Managing Director at JP Morgan
• Jeffrey Sprague, Founder and Managing Partner at Vertical Research Partners
• Joe Ritchie, Analyst at Goldman Sachs
• Deane Dray, Managing Director at RBC Capital Markets
• Joseph O'Dea, Managing Director at Wells Fargo
• Chris Snyder, Executive Director at Morgan Stanley
• Amit Mehrotra, Managing Director at UBS Group
• Stephen Volkmann, Managing Director at Jefferies & Company Inc
• Tommy Moll, Managing Director at Stephens Inc