Carrier Global Q2 2025 Earnings Report

Carrier Global EPS Results

• Actual EPS: $0.92
• Consensus EPS: $0.90
• Beat/Miss: Beat by +$0.02
• One Year Ago EPS: N/A

Carrier Global Revenue Results

• Actual Revenue: $6.11 billion
• Expected Revenue: $6.08 billion
• Beat/Miss: Beat by +$32.20 million
• YoY Revenue Growth: N/A

Carrier Global Announcement Details

• Quarter: Q2 2025
• Date: 7/29/2025
• Time: Before Market Opens
• Conference Call Date: Tuesday, July 29, 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 Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Carrier delivered 6% organic growth in Q2, including 45% in Americas commercial HVAC and 13% aftermarket, expanding adjusted operating margin by 130 bps and boosting EPS by 26% while generating ~$1 billion of free cash flow.
• Positive Sentiment: On track to double data center revenues to $1 billion in 2025 and targeting ~10% growth in non‐data‐center commercial HVAC, driven by new product wins and a >3× increase in connected chillers to 63,000.
• Negative Sentiment: U.S. residential HVAC volumes fell mid‐single digits in Q2, prompting an expected 10% H2 volume decline and a ~200 bps margin headwind in Q3.
• Negative Sentiment: Asia Pacific organic sales declined 4% as China residential plunged ~20%, only partly offset by mid‐teens growth in Japan, India, and the Middle East.
• Neutral Sentiment: Reaffirmed 2025 guidance for mid‐single‐digit organic sales growth, ~100 bps of margin expansion, close to 20% adjusted EPS growth, $2.4–2.6 billion of free cash flow, and ~$3 billion of share buybacks.

Presentation

[Operator]

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

[Michael Rednor, VP - IR at Carrier Global]

Good morning, and welcome to Carrier's second 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, VP - IR 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. In addition, we plan to file certain recast financial statements in connection with our resegmentation, which occurred during the 2025. With that, I'd like to turn the call over to Dave.

[David Gitlin, Chairman & CEO at Carrier Global]

Thanks, Mike, and good morning, everyone. Another strong quarter. My thanks to our 50,000 team members globally for their continued great work. As expected, our organic growth picked up in 2Q. We delivered 6% organic growth with exceptional 45% growth in commercial HVAC in The Americas, total company aftermarket growth of 13% and very strong growth in India, Japan and The Middle East.

[David Gitlin, Chairman & CEO at Carrier Global]

We converted the strong organic growth to attractive earnings, expanded adjusted operating margins by 130 basis points and increased adjusted EPS by 26%. Free cash flow was also strong with first half free cash flow of about $1,000,000,000 We remain on track for $3,000,000,000 of buybacks this year. Turning to Slide four. At our Investor Day on May 19, we laid out our game plan for driving sustained 6% to eight percent organic growth by exceeding customer expectations through differentiated products, double digit aftermarket growth and unique system solutions. On products, we continue to win.

[David Gitlin, Chairman & CEO at Carrier Global]

With respect to data centers, we are on track to double our revenues to $1,000,000,000 this year and are continuing to build our backlog for next year and beyond. Our non data center commercial HVAC business is expected to grow about 10% this year. In The Americas, we have increased both chiller capacity and revenues by more than 2x over the past few years and continue to build our backlog globally. For example, we recently booked a data center order for $45,000,000 for a customer in The Middle East. Our global commercial HVAC sales, which exclude light commercial sales, will be about $6,500,000,000 in 2025, up close to 20% year over year.

[David Gitlin, Chairman & CEO at Carrier Global]

New product introductions have been instrumental to our win rate. For example, our new large capacity ERCOOL chiller with a proprietary magnetic bearing centrifugal compressor is both significantly more efficient than our competition and can operate at elevated ambient temperatures, both key performance requirements from our customers. We also continue to leverage Eastman and Toshiba Technologies to introduce differentiated offerings in our RLC businesses. In The Americas, we are about to launch a fully integrated air to water heat pump that provides heating, cooling, and domestic hot water. This all in one solution provides homeowners with improved energy efficiency, frees up valuable indoor square footage, and provides us with market expansion and mix up.

[David Gitlin, Chairman & CEO at Carrier Global]

Our aftermarket sales are up 10% through the first half of the year, and we remain on track for our fifth year in a row of double digit growth. Our number of connected chillers was up 40% in the quarter compared to last year. And over the last three years, we have increased the number of connected chillers by more than 3x from roughly 20,000 to 63,000. With respect to Abound, we introduced enhancements to our Abound app that leverage AI to boost operational insights and user efficiency. For our climate solutions transportation business, Link subscriptions were up significantly in 2Q and are now close to 200,000.

[David Gitlin, Chairman & CEO at Carrier Global]

Turning to systems. In North America, our Carrier Energy team is making great progress. We are working with several utility companies to initiate field testing at homes in The United States for our fully integrated battery heat pump solution this quarter. We remain on track for market introduction next year. We also continue to make significant progress with HEMS in Europe.

[David Gitlin, Chairman & CEO at Carrier Global]

In 2Q, sales from our Wiesemann Systems prophy partners showed strong growth, significantly outperforming those of non prophy partners. On the commercial HVAC side, we continue to build out our capabilities for data centers, including Quantum Leap and its integrated CDU offering and are in active discussions with key customers. Outside of data centers, we recently had an important win with the Shanghai Oriental Hub infrastructure project, which includes a combination of our innovative centrifugal chillers, heat pumps and our differentiated building management system. By integrating these offerings, we expect to improve our customers' energy efficiency by about 20%. This is another great example of how fully integrated systems add outsized value to our customers and help us drive differentiation and an increased share of wallet.

[David Gitlin, Chairman & CEO at Carrier Global]

Productivity driven by carrier excellence is now deeply ingrained in our DNA as reflected in continued strong adjusted operating margin of 130 basis points to 19.1%. Turning to Slide five for a brief update on our RLC business in Europe. Though the overall European market since our combination has been more challenging than we expected, other benefits of the combination have exceeded our expectations. Our differentiated strategy around HEMS and Hydronics in The Americas are made possible by Wiesemann. HEMS leverages Wiesemann's battery, integration, and digital expertise.

[David Gitlin, Chairman & CEO at Carrier Global]

Our global common design around controls and embedded software are both based on Beeseman design standards. We are deploying the underlying technology of Beeseman's one based digital ecosystem, which connects the company, installers, and homeowners on a single platform to The Americas. Leveraging our respective supply chains is helping us drive more than $200,000,000 of expected cost synergies by the end of next year, and our purposeful multi brand, multichannel strategy is yielding great results. Take, for example, the opportunity around air conditioning in Europe, where only 20% of households have air conditioning versus 90% in The United States. Earlier this year, we introduced new offerings through the Wiesemann channel, and our air conditioning sales in Europe were up over 25% in 2Q.

[David Gitlin, Chairman & CEO at Carrier Global]

In terms of 2Q for RLC Europe, our sales were flattish as we expected. Though Germany was down, our heat pump unit sales in Germany were up over 50% and the ratio of heat pumps to boiler has improved from thirtyseventy last year to about fiftyfifty. We like this mix up. And combined with our expected reductions in electricity prices and easy compares with total German heating units that are close to historic lows, the business is well positioned for a return to growth. Our RLC sales in Europe outside of Germany have returned to growth, up 3% in the quarter, and we expect that to further increase in the second half of this year.

[David Gitlin, Chairman & CEO at Carrier Global]

The integration of RLC and commercial HVAC in Europe also presents great sales and cost opportunities. Carrier and Weissman are both top players in commercial and residential, respectively. The countries where Carrier and Weissman are both leaders are, in many cases, different, which provides the opportunity to leverage each other's respective strengths. Slide six is a reminder of where we have come over the past few years. Our portfolio is much more focused and simplified with a higher growth profile.

[David Gitlin, Chairman & CEO at Carrier Global]

Adjusted operating margins have expanded on average over 100 basis points per year, and our adjusted EPS has grown at a high teens CAGR. Despite a few unforeseen headwinds, the team continues to control the controllables and overdeliver, and we remain on track to deliver close to 20% adjusted EPS growth this year. Our team continues to deliver strong results, and I am confident that we will do so again in the 2025 and beyond. With that, I will turn it over to Patrick. Patrick?

[Patrick Goris, SVP & CFO at Carrier Global]

And good morning, everyone. Please turn to Slide seven. We had a strong second quarter. Sales, adjusted operating profit, margins and adjusted EPS were all ahead of the guide we provided in May. Reported sales were $6,100,000,000 with 6% organic sales growth and a point of tailwind from foreign currency translation partially offset by 4% net headwinds from acquisitions and divestitures driven by the sale of Commercial Refrigeration.

[Patrick Goris, SVP & CFO at Carrier Global]

Q2 adjusted operating profit of $1,200,000,000 increased 10% compared to last year driven by organic sales growth and strong productivity. Tariffs were net neutral in the quarter. Adjusted operating margin expanded by 130 basis points compared to last year, about half of which is due to the absence of commercial refrigeration. The balance due to productivity, mix up and price offset by mix. During the last earnings call, we indicated that we expected about 20% adjusted EPS growth.

[Patrick Goris, SVP & CFO at Carrier Global]

We delivered adjusted EPS of $0.92 an increase of 26% year over year, better than expected due to slightly higher sales and stronger productivity. Year over year adjusted EPS growth was driven by organic revenue growth, strong productivity, lower net interest expense and a lower share count. We have included the year over year adjusted EPS bridge in the appendix on Slide 18. Free cash flow of $568,000,000 in the quarter was also stronger than expected. Moving on to the segments and starting on Slide eight.

[Patrick Goris, SVP & CFO at Carrier Global]

The CSA segment had another very strong quarter with organic sales growth of 14%. Commercial excluding Nuresco led with sales up 45%. Residential sales were up 11% below our expectations due to lower volume, which was down mid single digits reflecting a late start to the cooling season. Regulatory mix up and pricing were all as expected. Combined, they were a benefit of mid teens organic revenue growth.

[Patrick Goris, SVP & CFO at Carrier Global]

Over 90% of our volume was four fifty four bps. Light commercial came in as expected, down about 20%. Adjusted operating margin was 27%, up two ten basis points driven by strong organic growth and productivity. Overall, The Americas had another outstanding quarter. Moving to the CSE segment on Slide nine.

[Patrick Goris, SVP & CFO at Carrier Global]

Organic sales growth in CSE overall and residential and light commercial were both about flat. We delivered strong heat pump growth in Germany, the sales benefit of which was offset by a still weak overall German heating market with total units down about 25% so far this year. Commercial was up low single digits. Adjusted operating margin was about flat with cost synergies offset by unfavorable regional and product mix. Moving to the CS Asia Pacific segment on slide 10.

[Patrick Goris, SVP & CFO at Carrier Global]

Organic sales were down 4%, Mid teens or higher sales growth in Japan, India and The Middle East was more than offset by continued weakness in residential China and parts of Southeast Asia. Within China, our residential and light commercial business was down around 20% and commercial was up low single digits. Adjusted operating margin of 15.3% was in line with expectation. The decline year over year was driven by lower volume and the absence of a prior year favorable currency related item partially offset by productivity. Moving to CST on Slide 11.

[Patrick Goris, SVP & CFO at Carrier Global]

Organic sales were down 1%. North America truck and trailer returned to growth and container strength continued with sales up mid single digits. This was more than offset by weakness in Europe and Asia truck and trailer. Adjusted operating margin of 17.6% expanded three forty basis points compared to last year, largely due to the Commercial Refrigeration exit. Turning to Slide 12.

[Patrick Goris, SVP & CFO at Carrier Global]

Total company organic orders were down high teens in the quarter as we faced a tough compared versus the prior year where orders were up 30%. North America resi was down about 60% compared to orders up over 100% a year ago. This was only partially offset by strength in Commercial Americas up high teens, Light Commercial Americas up over 20% and Transportation up high single digits. Excluding CSA resi, total company orders were up mid single digits. Overall, we ended Q2 with a robust and growing longer cycle backlog in commercial, which sets us up well for a strong second half.

[Patrick Goris, SVP & CFO at Carrier Global]

Moving on to Slide 13 and shifting to full year guidance. For the total company, we are reaffirming the guide we provided in May. We continue to expect mid single digits organic sales growth about 100 basis points of margin expansion and close to 20% adjusted EPS growth at the midpoint. Moving on to Slide 14, Each segment's organic growth is unchanged, but there are some moving parts within some of the segments as you can see on the slide. Moving to profit and cash guidance on Slide 15.

[Patrick Goris, SVP & CFO at Carrier Global]

Total company adjusted operating margin expansion remains unchanged, up about 100 basis points versus the prior year. With respect to tariffs, the net tariff impact in our July guide is zero, just as it was in our May guide. The incremental price to neutralize tariffs is now about $200,000,000 versus $300,000,000 in our prior guide. The margin impact of tariffs is about 20 basis point headwind versus the prior year. As you can see on the slide, we made some minor adjustments to margin expectations in the segments.

[Patrick Goris, SVP & CFO at Carrier Global]

We are maintaining our estimate for free cash flow between 2,400,000,000.0 and $2,600,000,000 reflecting roughly 100% conversion and still expect to repurchase about $3,000,000,000 worth of shares in 2025. We are maintaining our adjusted EPS guidance range of $3 to $3.1 Compared to the prior guide, lower sales in CSA resi and light commercial are offset by CSA commercial sales and we are targeting incremental productivity and cost actions to offset unfavorable mix in CSA and CSE. Additional full year guide items are in the appendix on Slide 20. Some color on Q3. We expect Q3 sales of about $6,000,000,000 with mid single digit organic growth versus the prior year and anticipate adjusted operating profit to be flat year over year.

[Patrick Goris, SVP & CFO at Carrier Global]

In essence, we get a $200,000,000 year over year sales benefit from currency translation and tariffs, tariff related pricing with no drop through, while the benefit of productivity mix up and price is offset by unfavorable mix due to lower CSA resi sales. Q3 EPS is expected to be about $0.80 We expect Q4 EPS to be about 20% similar to first half EPS growth including the benefit of productivity and cost actions. In summary, we remain on track to have another strong year with mid single digits organic growth, close to 20% adjusted EPS growth and strong free cash flow. With that, I would like to ask the operator to open up the line for Q and A.

[Operator]

Your first question comes from the line of Jeffrey Sprague of Vertical Research Partners. Perhaps

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

we could just dive a little bit further into Europe. It looks and feels like maybe things are getting better there, but the margin guide has actually come down. So Dave, can you just unpack that a little bit more? Patrick mentioned mix, but just where are you at on the synergy capture in Beesman? What's going on with the mix?

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

And what do you think about the margins off this level looking into next year?

[David Gitlin, Chairman & CEO at Carrier Global]

Yes. Jeff, let me start with synergies and maybe a bit more on the business, and Patrick can give the breakdown on kind of the margins and second half margins. Overall, look, we were flattish in the quarter as as we thought we were gonna be. We were a little bit stronger outside of Germany than within Germany, and we actually typically have slightly higher margins in Germany. And the other issue is boilers in Germany were coming down a little bit more, and we make pretty good margins, of course, on boilers.

[David Gitlin, Chairman & CEO at Carrier Global]

And there's a particular type of boiler, a floor standing boiler, where it was down a bit more, and our margins there are even a bit higher. So there were, within the RLC Europe business, a few mix issues. I will say we feel really good about the cost synergies. We talked about 200,000,000 by the end of next year. We will certainly meet or exceed that.

[David Gitlin, Chairman & CEO at Carrier Global]

The team's being quite aggressive, not only on supply chain and some of the other indirect, but the teams had to take a lot of very aggressive other discretionary overhead cost actions. They did a lot last year. I can assure you that Thomas and the team are doing a lot more So they are going to take costs out of the business. And I will tell you that it really positions us for margin drop through as the volume starts to recover as we get into the second half of this year and next year. And then Patrick, any more on the margins?

[Patrick Goris, SVP & CFO at Carrier Global]

I think you covered it. It's Smriti. German margins in Germany a little stronger and sales in Germany were a little weaker, a little stronger outside of Germany.

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

And then maybe we could just delve into price a little bit more. Patrick, you gave us the tariff related price impact. Can you just share with us kind of what the total price capture was beyond just what you did on tariffs, if there is more, both in the quarter and what you're expecting for the year in aggregate?

[Patrick Goris, SVP & CFO at Carrier Global]

If I look at price, including the regular price increase and then the price related to to tariffs, in the second quarter, it was about two points for the overall company. For the full year, it will also be about two points. So it's about two points each quarter so far this year. And that excludes the mix up benefits, Jeff.

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

Yeah. Yeah. Understood. Okay. Thank you. I'll leave it there.

[Patrick Goris, SVP & CFO at Carrier Global]

Thanks, Your

[Operator]

next question comes from the line of Julian Mitchell of Barclays. Your line is now open.

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

Hi. Good morning. Maybe just wondered if you could flesh out a little bit more of those assumptions on U. S. Resi and light commercial for sort of the back half and how you see kind of the end market sell out trends varying there versus the sell in and the comps?

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

How is the actual end market movement in terms of dynamics on price or repair and remodel? Anything changing in those assumptions?

[David Gitlin, Chairman & CEO at Carrier Global]

Yes. I would say, Julien, the good news has been that both price and mix are what we thought. On the mix up, we've been getting the 10%. As we look at the back half, it's almost a hundred percent four fifty four b. If you look at 2Q, price was up in the mid single digit range, so that was very positive.

[David Gitlin, Chairman & CEO at Carrier Global]

The issue we had in 2Q, which we've now extrapolated for the second half, is that the volume was down more than we thought. The volume was down in the second quarter mid single digits, and we thought it was gonna be up low single digits. So what we've done for the second half of the year is we've now assumed that volume in the second half will be a bit more like down 20%, 25%, and then you get a mix in price of 10% to 15%. So that means net net, our sales in the second half would be down about 10. So that's why we reduced, as you saw in Patrick's slide, we reduced the full year for resi to be up single digits.

[David Gitlin, Chairman & CEO at Carrier Global]

Call it first half up 15%, second half down 10%, you get up to up mid single digits for the year. We have not seen, and we ask a million times to our partners on the channel, we have not seen a big switch from repair over replace. We are watching the consumer. Movement was slower in 2Q than we had expected. Movement was a bit light in July, but it started to pick up towards the July a bit more because of some of the heat in the country.

[David Gitlin, Chairman & CEO at Carrier Global]

And then we'll just have to see. We think we've handicapped the year well in the second half with taking volume down as much as we have. But given that inventory levels are a little bit higher, movement's been a little bit slower than we thought, we thought it was prudent to take our volume estimates down for the second half.

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

That's helpful. Thank you. And we'll see if a million times is enough to satisfy some of the skeptics. On the second question would just be a more fiddly one perhaps for Patrick just around that fourth quarter implied. I suppose it's organic sales up mid single year on year in Q4. So sort of down, I guess, single digits sequentially. And then the EPS sequentially in Q4, it's a much smaller decline than sort of normal in inverted commas. Anything to call out there on specific segments or something going on with mix that's a tailwind this Q4 versus historical ones?

[Patrick Goris, SVP & CFO at Carrier Global]

So, yes, Julien. The way you can think about it is, first of all, our Q4 year over year adjusted EPS growth has to be similar to what we've seen in the first half of this year. So about 20%, about 100% margin expansion we expect in Q4. And Q4 is expected to be our highest organic growth quarter of the year. So we expect actually close to high single digits organic growth with both easier comps in Europe, in Asia Pacific and transportation is expected to return to more attractive growth in Q4 as well.

[Patrick Goris, SVP & CFO at Carrier Global]

And in Q4, of course, the benefit of that volume mix up in productivity somewhat offset by the unfavorable mix in resi in The U. And then from a margin perspective, tariffs are slightly negative. And then, of course, in Q4, we'll see more of the benefit of the cost actions that we've been implemented versus what we will see in Q3.

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

That's great. Thank you.

[David Gitlin, Chairman & CEO at Carrier Global]

Thank you.

[Operator]

Your next question comes from the line of Nigel Coe of Wolfe Research. Your line is now open.

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

Thanks. Good morning, everyone. Thanks for the detail. Patrick, maybe unpack a little bit more the 3Q framework. So you said flat margins and it seems like the residential decline is really weighing on The Americas margins.

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

So maybe just unpack the segmental margins. And I think you said €0.80 based on €6,000,000,000 of sales and basically 17.5% of operating margin flattish year over year. I don't get to €0.80 mechanically, Patrick. So just to make sure there's nothing below the line to to think about as well.

[Patrick Goris, SVP & CFO at Carrier Global]

Okay. So I'll I'll start with the overall company, of course, q three. And the way you can think about it is, one, we get about a $200,000,000 sales in currency. A $200,000,000 sales tailwind from currency and from tariffs with basically no drop through. Right.

[Patrick Goris, SVP & CFO at Carrier Global]

In addition to that, you get the benefit of price productivity and mix up is offset by lower resi sales because lower resi sales are down about $203,100,000,000 dollars year over year and sequentially in the third quarter. And so the whole benefit of organic growth is basically offset by the unfavorable mix. And then you assume a 24% effective tax rate in the quarter and you get to about 80¢ $80.81 cents. So 6,000,000,000 sales, flat operating profit year over year and a 24% ETR.

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

Okay. That's helpful. And any way you think about the segment margins?

[Patrick Goris, SVP & CFO at Carrier Global]

The way you can think about segment margins in the third quarter, we expect that CSA will be down about 200 basis points year over year. And the explanation is basically the same. It's the resi mix that's really weighing on the margins over there. For the rest, Europe, we expect it to be flattish year over year. And then Asia will be slightly down and transportation will be up probably two hundred three hundred basis points reflecting the CCR exit.

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

Okay. Thanks Patrick.

[Patrick Goris, SVP & CFO at Carrier Global]

Thank you.

[Operator]

Next question comes from the line of Scott Davis of Melius Research. Your line is now open.

[Scott Davis, Chairman, CEO & Founding Partner – Multi-Industry Research at Melius Research LLC]

Hey, good morning guys.

[Patrick Goris, SVP & CFO at Carrier Global]

Good morning Scott. Welcome.

[Scott Davis, Chairman, CEO & Founding Partner – Multi-Industry Research at Melius Research LLC]

I'm happy to be in my first carrier call. I I get to ask really stupid questions, get away with it for a while. Maybe maybe always. But, guys, we'd take a step backwards and just look at big picture. You know, I hear you talk about productivity and will we eventually see productivity in on the gross margin line, or is it or is it more explicitly kind of SG and A productivity that you guys are talking about?

[Patrick Goris, SVP & CFO at Carrier Global]

It will be both, Scott. And actually, over the last several years, I think we've driven both productivity gross margin line. Now I call it adjusted because we we yank out any amortization of intangibles, but productivity has had an impact both on gross margin and on the operating margin. And we will continue to see it because the biggest driver of productivity for our company is on the cost of goods sold with materials. That alone is a 10 plus billion dollar bucket.

[Patrick Goris, SVP & CFO at Carrier Global]

Warehousing, logistics, there is still an enormous amount of opportunity there to drive cost out. So I would actually say, Scott, that the biggest opportunity is on the gross margin line rather than on the, call it, the SG and A line.

[David Gitlin, Chairman & CEO at Carrier Global]

Yeah. And Scott, I I know that you you're familiar with us over many years and, you know, many used to think of us back in the day as carriers like a 10% ROS business. This past quarter, we were at 19.1%. In fact, it was our our highest profit quarter ever.

[David Gitlin, Chairman & CEO at Carrier Global]

And it's not only, as Patrick said, on the on the gross profit line, but it's also it used to be that our G and A, not SG and A. Our G and A as a percent of sales was north of nine, and now it's about seven. So I think it's both product cost and then it's a lot of the other indirect cost as well. So it's both.

[Scott Davis, Chairman, CEO & Founding Partner – Multi-Industry Research at Melius Research LLC]

And and, David, do you think about productivity kind of in traditional ways like at, you know, 2% per year or holding headcount flat? Or how do you guys kind of internally think about that and measure it?

[David Gitlin, Chairman & CEO at Carrier Global]

Yeah. I think net net, we think of it as 2% to 3% per year. We think we get more in different buckets that typically we target ourselves in supply chain closer to five. Logistics can be closer to four. We can get more like three in the factories, and then there's some other things that we move around.

[David Gitlin, Chairman & CEO at Carrier Global]

But net net, we usually look at it at 2% to 3% gross productivity.

[Scott Davis, Chairman, CEO & Founding Partner – Multi-Industry Research at Melius Research LLC]

Okay. Super helpful. I'll pass it on. Thank you. Best of luck this year guys.

[David Gitlin, Chairman & CEO at Carrier Global]

Thank you.

[Operator]

Next question comes from the line of Joe Ritchie of Goldman Sachs. Your line is now open.

[Joe Ritchie, Managing Director at Goldman Sachs]

Guys, good morning.

[Patrick Goris, SVP & CFO at Carrier Global]

Hey, Joe.

[David Gitlin, Chairman & CEO at Carrier Global]

Good morning.

[Joe Ritchie, Managing Director at Goldman Sachs]

Yes. I'm sorry if I missed it, but did you guys just maybe can you just describe, how the canister issue played out in 2Q, where we stand today, whether that's still a still a problem on the resi side?

[David Gitlin, Chairman & CEO at Carrier Global]

It's no longer an issue for us, Joe. We the team really jumped on it. We started precharging a number of units. We were actually doing going to tremendous lengths in 2Q to get our customers plenty of canisters. We do not hear canisters in the field being an issue.

[David Gitlin, Chairman & CEO at Carrier Global]

We pivoted super hard in May and June, and and hats off to the business, the operations team working with our channel. It's no longer an issue.

[Joe Ritchie, Managing Director at Goldman Sachs]

Awesome. And then, Dave, I heard you say that your non data center business was up, you know, call it 10%, maybe a little bit better than that in CSA. Can you just double click there, give us a little bit more color what you're seeing across that the the non data center side of the business?

[David Gitlin, Chairman & CEO at Carrier Global]

Yeah. Actually, in CSA, the non data center activity was up 20% in the quarter. If you look overall, we think that for for the quarter and for the year, the non data center activity will be up, about 10%. If you look at CSA, our applied business was up over a 100%. You know, we had service business up about 20 and controls in the high teens.

[David Gitlin, Chairman & CEO at Carrier Global]

And then if you look at data centers in The Americas, we were up over 300% with non data centers up about 20. So, you know, Gurang and Steve and the team did just a superb job in the quarter. And I'll tell you, it's been a combination of building out capacity. We have an entirely new factory in North America, plus we've expanded Charlotte, and Charlotte's performing very well. So we've expanded capacity.

[David Gitlin, Chairman & CEO at Carrier Global]

We've introduced new products. I just mentioned this mag bearing for air cooled, which is being is very attractive to many of our hyperscaler customers. And we've gotten some really creative ways to support our customers in the aftermarket. So all in, both the data center, non data center, things like some of the mega projects, some of the manufacturing that's been returning to The United States. We've had some really marquee wins that that's been happening globally.

[Joe Ritchie, Managing Director at Goldman Sachs]

Great. Thanks guys.

[Patrick Goris, SVP & CFO at Carrier Global]

Thank you.

[Operator]

Your next question comes from the line of Steve Tusa of JPMorgan. Your line is now open.

[Steve Tusa, Managing Director at JP Morgan]

Hey, good morning.

[Patrick Goris, SVP & CFO at Carrier Global]

Hey, Steve.

[Steve Tusa, Managing Director at JP Morgan]

Sorry,

[Steve Tusa, Managing Director at JP Morgan]

I didn't catch the million times. What was that in reference to?

[Patrick Goris, SVP & CFO at Carrier Global]

That was the question about whether we've seen a trend repair versus replace. Then what's referred

[Steve Tusa, Managing Director at JP Morgan]

to Got

[Steve Tusa, Managing Director at JP Morgan]

Got it. Got it. I just heard the number. I didn't quite catch it. There's a lot of earnings this morning.

[Steve Tusa, Managing Director at JP Morgan]

Can you just bridge us to the 20% increase as far as what you're assuming for any headwinds in resi in particular quarter? It's a really nice bounce back obviously and the data center stuff is on fire. So you guys are clearly taking market share there. But what are you assuming for the 4Q in resi?

[David Gitlin, Chairman & CEO at Carrier Global]

If I'm sorry, Steve. The question is for resi, what are we looking at for Yeah.

[Steve Tusa, Managing Director at JP Morgan]

Just just 4Q. Yeah. And in 4Q because, you know, there's a lot of volatility, obviously, with the year over year comps. And I I totally get the data center stuff that's really strong, the the the resi side and maybe like commercial as well.

[Patrick Goris, SVP & CFO at Carrier Global]

Yeah. For resi q four sales down about 15%, of which volume is about 23%, give or take. And then the rest around it would be price and regulatory mix.

[Steve Tusa, Managing Director at JP Morgan]

And Okay. Got it.

[David Gitlin, Chairman & CEO at Carrier Global]

And see, on the light commercial side in 4Q, it'll be flattish to last year. We do have the benefit of that being our easiest comp quarter. Last year, light commercial was down a little over 10%. So we think about flattish for light commercial in the 4Q. And look, the first half was kind of rugged, of course, on light commercial.

[David Gitlin, Chairman & CEO at Carrier Global]

But over the last six weeks or so, we have seen some level of encouraging trends in terms of field inventory levels down, orders up. Some of the paralysis that we saw on our small business customers has been lifted a bit. As we've gotten more tariff certainty, we've seen more demand come back on the small and medium business side. And we've had some very, very nice wins on the retail side, some of the fast food, especially the higher end fast food. We've done really nice job with share.

[David Gitlin, Chairman & CEO at Carrier Global]

So we do see second half down probably mid single digits, probably down about 10 in three q, flattish in four q.

[Steve Tusa, Managing Director at JP Morgan]

Yes. Super easy comp. So you're basically saying that the resi stuff is pretty consistent year over year 3Q and 4Q. And the RLC, light commercial makes a lot of sense because of the comps obviously.

[David Gitlin, Chairman & CEO at Carrier Global]

Yes. And remember resi has a very tough comp to last year because we were up about 35% and volume was up about 30% in the fourth quarter last year.

[Steve Tusa, Managing Director at JP Morgan]

Yes, yes, totally. Okay. Thanks a lot for the details and we appreciate how you guys laid out in the slides. It makes it very easy to consume. So thanks for that.

[Patrick Goris, SVP & CFO at Carrier Global]

Thank you, Steve.

[David Gitlin, Chairman & CEO at Carrier Global]

Thank you, Steve.

[Operator]

Your next question comes from the line of Andrew Kaplowitz of Citigroup. Your line is now open.

[Andrew Kaplowitz, Managing Director at Citi]

Hey, good morning everyone. Hey, Andy. Dave, could you talk a

[David Gitlin, Chairman & CEO at Carrier Global]

little bit more about

[Andrew Kaplowitz, Managing Director at Citi]

what you're seeing in Climate Solutions Asia Pacific? You've lowered China a bit in terms of your outlook for the year, but the balance of the segment is up. You didn't change the overall growth. Is that more is that kind of a new normal for the segment as we think about it going forward? Just an update there.

[David Gitlin, Chairman & CEO at Carrier Global]

Well, I think what is encouraging in Asia is that Michael and the team have done a really job a great job looking at growth places like Japan was typically, in the past, no growth. We were up high teens in the quarter. India was up just under 30%. The Middle East was up in the mid teens. So I think that because China's been softer than we thought, and it's been softer on a more sustained period than we thought, I think the team's done a superb job.

[David Gitlin, Chairman & CEO at Carrier Global]

And and then there's some countries in the first half that were a little bit surprisingly weaker, take Thailand, and that'll recover. That was partly some performance things, partly some market things. So we'll recover that in the second half. And then when we think about China, we do feel good about commercial in China. We're poised for some pretty good growth.

[David Gitlin, Chairman & CEO at Carrier Global]

Backlog's been growing. We've had some really nice wins. The team's doing a nice job to kind of build up that backlog on the commercial HVAC business in China. Resi has been tough for a while now. There's too much inventory in the channel still on the retail side on resi in China.

[David Gitlin, Chairman & CEO at Carrier Global]

So we've been going hard after the project work. And I do think that we're gonna start to recover on the retail side, but no time soon. I think 3 q will still be down a bit. So we need the project work in China, and we need the commercial HVAC business in China. And then all these other opportunities, I think it's just a golden opportunity for us to go win in places like India and The Middle East.

[Andrew Kaplowitz, Managing Director at Citi]

Very helpful. And then, David or Patrick, just following up on U. S. Resi for a second. Are you seeing any share movements across the major OEMs?

[Andrew Kaplowitz, Managing Director at Citi]

And then, Dave, I think there's been some talk about having a rebate in terms of pricing. How are you thinking about the stickiness of pricing in the second half of twenty twenty five?

[David Gitlin, Chairman & CEO at Carrier Global]

We've been good on pricing. When we look at pricing, me, in the first half, it was up mid single digits. We think that continues into Q3. It's kind of in that 5% range on price, maybe a bit softer in Q4, closer to the high low single digits is what we're forecasting for Q4. But it's kind of in that range.

[David Gitlin, Chairman & CEO at Carrier Global]

We're not doing a lot of rebating. And the 10% on the mix side with four fifty four B has been sticking. When we look at share, I can't speak for the other OEMs, but we think that we're about flattish. We are very confident we haven't lost any share. When volume was a little bit lower in 2Q than what we expected, we were very paranoid.

[David Gitlin, Chairman & CEO at Carrier Global]

We've looked at every single distributor. We've talked to many of our dealer partners to see is there something happening. And I just think that between the later cooling season start to the cooling season and some watch around the consumer, just a bit softer. I think, you know, we'll take a a little bit of medicine in the second half of this year on the volume side. But the team's performed incredibly well, with all of the transitions, all the canister activity, and I think we're doing very well on the share side overall.

[Andrew Kaplowitz, Managing Director at Citi]

Appreciate all the color.

[David Gitlin, Chairman & CEO at Carrier Global]

Thanks, Andy.

[Patrick Goris, SVP & CFO at Carrier Global]

Thank you.

[Operator]

Your next question comes from the line of Deane Dray of RBC Capital Markets. Your line is now open.

[Deane Dray, Managing Director at RBC Capital Markets]

Thank you. Good morning, everyone.

[Patrick Goris, SVP & CFO at Carrier Global]

Hey, Deane.

[David Gitlin, Chairman & CEO at Carrier Global]

Good morning.

[Deane Dray, Managing Director at RBC Capital Markets]

Hey, it's a sign of the times now that you divide your commercial HVAC business between data center and non data center. I know that's new. So so let's if we could just put the spotlight on the non data center part of your business, You you shouted out some, mega project wins, but just take us through the verticals, you know, k through 12, anything stand out positive or negative among the verticals?

[David Gitlin, Chairman & CEO at Carrier Global]

Yeah. On the negative side, I would say k through 12 all year has been, just softer than we thought it was gonna be, Dean. You know, I think it's a combination of things, some of the Doge activity, some of the uncertainty around even the local funding. So I don't think that's there's plenty of state bond funding out there. We've talked about things like 76,000,000,000.

[David Gitlin, Chairman & CEO at Carrier Global]

So we think that comes back, but that's been softer. And now higher ed, that's been nice tailwind for us for a while and a little bit softer in February than than we thought. Know, usually, every quarter we say commercial real estate soft. We actually, bizarrely enough, we saw it pick up a tiny bit in 2Q, but I don't think that makes a trend. That's still clearly a watch item.

[David Gitlin, Chairman & CEO at Carrier Global]

On the positive side, not only is the outsized growth we've had on data centers, very pleased there, but a lot of the mega projects have been good, not only in The United States, but globally. I mentioned that Shanghai Oriental Hub was a great, you know, systems win. So when we talk systems, it's not just quantum leap for data centers. It's a lot of new muscles we put in the system around selling systems globally. So some really good systems win in Europe and in Asia.

[David Gitlin, Chairman & CEO at Carrier Global]

Health care has been very positive as well. And then even though warehouse, I think, overall is weak and even retail, we've on both the commercial and the light commercial side have done very well in in warehouse and especially on the light commercial side on retail. We've had some really outsized wins there.

[Deane Dray, Managing Director at RBC Capital Markets]

Good update there. Thank you. And then just could you give us an update on services in the quarter and expectations for the year?

[David Gitlin, Chairman & CEO at Carrier Global]

Yes. In the quarter, it was up 13%. We're up 10% year to date. We fully expect to be up double digits again this year. Of course, you know our mantra, double digit forever.

[David Gitlin, Chairman & CEO at Carrier Global]

So we you know, this will be our fifth year in a row. I would say the underlying metrics look good. You know, I mentioned that Ed and the team on the refrigeration, on the transport side have done well with subscriptions on links. Abound is gaining more traction. Number of connected devices on the HVAC chiller side up to 63,000.

[David Gitlin, Chairman & CEO at Carrier Global]

Service coverage, very good. I'll tell you, one of the big things that's really a top priority for us is making sure that with these data center wins, we're signing the right type of long term agreements with our hyperscaler and colo customers to make sure that we support them for many, many years to come. And that's a key focus areas overall. So the team has done overall very well in 2Q on aftermarket and we're pretty confident that will continue going through the year.

[Deane Dray, Managing Director at RBC Capital Markets]

You.

[Patrick Goris, SVP & CFO at Carrier Global]

You.

[Operator]

The next question comes from the line of Andrew Obin of Bank of America. Your line is now open.

[Andrew Obin, MD - Equity Research at Bank of America Merrill Lynch]

Yes, good morning. Hey, Andrew. Hey. Just maybe a question on transportation. You're saying that North America returned to growth.

[Andrew Obin, MD - Equity Research at Bank of America Merrill Lynch]

Can you just talk what you're seeing in North American reefer market? Because the truck volumes continue to remain weak, but maybe that market has found the bottom. Just more granularity there. Thank you.

[David Gitlin, Chairman & CEO at Carrier Global]

Yeah. It's hard to pick the bottom in, NATT. It was nice to see a few percent growth, Andrew, in 2Q. As we go into the back half, of course, we have we have easy comps. Right?

[David Gitlin, Chairman & CEO at Carrier Global]

Last 3Q was down about 15%, close to 30% in, in 4Q. So, I do think we have the benefit of easy comps in the back half. We did see we were starting to feel good. We got to watch orders in NTT. We've seen some recent recovery a little bit in ETT, in our European truck trailer business.

[David Gitlin, Chairman & CEO at Carrier Global]

Container is poised for an outperformance this year. So, you know, NATT is particularly short cycle. So we'll have to see. We have some good sized growth numbers in there in the second half. And if for some reason they don't materialize, I think we have enough in businesses like Sensitec and Container to cover it.

[David Gitlin, Chairman & CEO at Carrier Global]

But we we do see we do see the team performing very well, and we're poised for some growth here in in in ATT in the second half. I think we needed some level of stability I think on the tariff side for our customers and the more clarity that's been coming in I think is helping our customers.

[Andrew Obin, MD - Equity Research at Bank of America Merrill Lynch]

That's great to hear. Thank you. And just question on resi. You were still constructive, I think, in May. And the May weather, if you look at the temperature, was weaker.

[Andrew Obin, MD - Equity Research at Bank of America Merrill Lynch]

And June was actually quite warm. And what we hear from the channel is you guys are as close to your distributors as anyone from a very positive standpoint. So can you just tell us when did you figure that North American resi was going to be weaker? And is it the inventory that was the red flag? Just maybe just walk us through through what happened. Thanks so much.

[David Gitlin, Chairman & CEO at Carrier Global]

Yeah. The bottom line, Andrew, is that May movement was just a lot softer than we thought. You know, we've we had a rule we would do our best never to talk about the weather. Obviously, it's a bit of a reality when you're dealing with the kind of business that we're in. But cooling degree days was softer in the last six weeks of the quarter than than usual.

[David Gitlin, Chairman & CEO at Carrier Global]

But having said that, you know, the weather is the weather, but what really happened was movement was was softer in in June in particular. And what that did is that's built up a bit more inventory in the channel that we'd like. So what we did as we thought about the second half is we tried to take a look at some of the movement trends that we saw in June and then assume that continues for July and August. So we'll have to see what ends up happening. And we also have been very purposeful in our projections to take inventory levels down to where they were last year when we end 3Q and where we end 4Q.

[David Gitlin, Chairman & CEO at Carrier Global]

So in our sales guidance, we assume that we get inventory levels back into balance.

[Andrew Obin, MD - Equity Research at Bank of America Merrill Lynch]

Really appreciate the answer. Thanks so much.

[David Gitlin, Chairman & CEO at Carrier Global]

Thank you.

[Operator]

Your next question comes from the line of Joe O'Dea of Wells Fargo. Your line is now open.

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

Hi, good morning. Could you talk about back half of the year margin expectations in Europe? Not sure if we should be thinking kind of around 11%, but any kind of variation from Q3 to Q4? And then just how that bridges from kind of a seasonality and volume perspective versus mix or other factors?

[Patrick Goris, SVP & CFO at Carrier Global]

Yes. Thank you for your question. First of all, within Europe, residential is about 80% of our total business. And historically, the second half is stronger than the first half of the year, so seasonality related to the heating season. And so sales pickup of 1010%, 20% is typical second half of the year versus the first half of the year.

[Patrick Goris, SVP & CFO at Carrier Global]

In terms of margin expectation, you're right. In the second half of the year, it will be about 11%, 11.5% with the strongest margin expansion by far in Q4. We had a very weak Q4 margins last year in Europe. I mentioned earlier, I think, on this call, we expect Q3 to be about maybe 10, 10.5% margins, flattish year over year, but growing to about 12% in Q4, reflecting stronger sales, but also more of the productivity actions that we've been implementing all year. As you probably know, it takes more time to implement these in Europe.

[Patrick Goris, SVP & CFO at Carrier Global]

So as we proceed through the year, we'll see more of these productivity actions take effect.

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

That's helpful color. Thank you. And then just with continued focus on repair versus replace, any high level kind of color on the economics of that? I think there's a lot of focus on the impact of kind of mix up in that price and then tariff price and the normal price and whether that would compel a mix shift toward more repair, but not sure that replace economics as well. And so just in terms of when a consumer is thinking about those you know, high level, anything behind the economics that would be kind of the rationale for why we're not seeing some of that shift?

[David Gitlin, Chairman & CEO at Carrier Global]

I think part of it is the refrigerant shift. You know, I think as people are thinking long term, they know that we're fundamentally gonna be switching to the four fifty four b, which over time, it's gonna be harder to predict the pricing on the four ten a to support it. So I think it's it's a natural move that fundamentally a replacement business. Your AC fails. You're, I think, inclined to rip the Band Aid once and replace the unit rather than try to, limp along with a compressor change or something else, knowing that you're gonna have to support it with perhaps more expensive refrigerant.

[David Gitlin, Chairman & CEO at Carrier Global]

I think if you look overall, we haven't we haven't seen that we don't feel that we are not priced inappropriately. Put differently, we feel that we're priced appropriately both on the four fifty four b and the base price increases to offset some of the either inflationary or tariff headwind that we've seen. And we don't think that's been in any in any way a share issue. And we don't think not only have we not seen more repair over replace, we haven't seen a big mix down from our very specific entry tier level versus the one up from that. It's something we watch carefully.

[David Gitlin, Chairman & CEO at Carrier Global]

So look. We just think that probably a bit of a later start to the cooling season. We gotta watch the consumer interest rates have continued to be high, which puts has put a damper on residential new construction and also people moving to buy new homes, which, of course, we we benefit from when, people, move from one home to another. So all of that has resulted in a bit slower movement, which we've assumed continues into the second half, and then we'll have to see.

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

Got it. Thank you.

[David Gitlin, Chairman & CEO at Carrier Global]

Thank you.

[Operator]

Question comes from the line of Chris Sinder of Morgan Stanley. Your line is now open.

[Chris Snyder, Executive Director at Morgan Stanley]

Thank you. I wanted to follow-up on the commentary on the softer resi volumes in Q2. I guess from your perspective, do you think that was just softer end demand? Was it maybe some more downstream downstream inventory, than expected? Or did that come out faster?

[Chris Snyder, Executive Director at Morgan Stanley]

You know, I guess any any view on that? And and how do you kind of separate between those two drivers when you look at the data?

[David Gitlin, Chairman & CEO at Carrier Global]

You know, they overlap a bit. I think we started the quarter with a bit of elevated inventory levels. And then so you obviously, need movement to pick up, to support the continued sales growth. And movement was just much softer in June than we had forecast for a bunch of the reasons we, you know, we were just talking about, you know, interest rates, consumer, perhaps weather to some extent. So look, it it was it what it was.

[David Gitlin, Chairman & CEO at Carrier Global]

I think that if you look at resi over these last few years, the team has done simply a phenomenal job picking up share. We're close to a third of the market. We've not only picked up share, we've maintained it, and we've drove nice margins. We think that there's going to be some comp issues in the second half with respect to movement. We got to get inventory levels down a bit, and then we'll have to see what happens in the second half.

[David Gitlin, Chairman & CEO at Carrier Global]

But a couple of watch items that we saw in 2Q. But overall, the team's performing well, and the good news is mix and price have been exactly what we thought.

[Chris Snyder, Executive Director at Morgan Stanley]

No. Yeah. Thank you. Certainly appreciate that and and, you know, kinda can see that strength that that has come through the past couple years. And then just, I guess, following up on that, obviously, the volume declines for resi into the back half, the comps are incredibly difficult.

[Chris Snyder, Executive Director at Morgan Stanley]

So is this just a function of kind of sluggish demand and very difficult comps? Or do you think the channel will, you know, kind of continue to pull down inventory in the back half of the year, or do you think it ended Q2 at a pretty balanced place? Thank you.

[David Gitlin, Chairman & CEO at Carrier Global]

Yeah. I think we are going consciously pull down inventory in the second half of the year. They're a bit higher than we'd like, and we are very, very purposeful every month, every quarter to try to get inventory levels in balance to what they to what we think they should be. So there's never we do our best to make sure there's never more in the channel than we think the channel needs. So we work very, very closely hand in glove with our distribution partners, not only the absolute levels, but the mix that they need.

[David Gitlin, Chairman & CEO at Carrier Global]

And we don't wanna give them. We don't want to ship any more than we should to make sure the inventory levels stay in balance. So we're going to try to do everything we can to get end of 3Q in balance to where it was last year.

[Chris Snyder, Executive Director at Morgan Stanley]

Thank you, Dave. Appreciate that.

[David Gitlin, Chairman & CEO at Carrier Global]

Thank you.

[Operator]

Your next question comes from the line of Stephen Volkmann of Jefferies. Your line is now open.

[Stephen Volkmann, Managing Director at Jefferies]

Great. Good morning. Thank you for fitting me in. I'm curious sort of longer term, where are you relative to capacity and capacity additions for the data center business or for the large applied type business?

[David Gitlin, Chairman & CEO at Carrier Global]

Yeah. We are Steve, we're in good shape. I I tell you that one of the nice things when we talk to our hyperscaler customers is they are looking for capacity, availability, and on a global scale, and we have all of that. You know, we have a brand new facility that we repurposed. It used to do controls, and now it's doing a 100% both air cooled and water cooled chillers to support North America.

[David Gitlin, Chairman & CEO at Carrier Global]

We've expanded our Charlotte facility by about 40%. So when you look at if you look at North America, we've more than doubled our capacity just over these last few years. And then you see that reflected in the applied growth that we've had. We were actually constraining growth even for non data center activity to just try to because we were a little bit limited last year and the year before, that's no longer an issue. We're we're telling our teams get out there, go win, go win data centers, go win the others because we have the capacity.

[David Gitlin, Chairman & CEO at Carrier Global]

And that's true on a global scale as well. You know, we have China, we have India, we have France. We're looking at some really creative and exciting things in places like Saudi Arabia. So we have plenty of, capacity now globally, and it's good because the teams out there with the new product introductions, they're out there winning, and there's a lot of excitement amongst our customer base right now.

[Stephen Volkmann, Managing Director at Jefferies]

Great. That's encouraging. Thank you. And then maybe a longer term question, Dave. But I'm curious around how you're thinking about your longer term 6% to 8% growth target.

[Stephen Volkmann, Managing Director at Jefferies]

What are the key sort of factors that that will make that happen or not happen in in 2026? I'm I'm trying to figure out how much of that is kinda under your control and how much you need cooperation from the markets.

[David Gitlin, Chairman & CEO at Carrier Global]

Well, if look you at the algorithm that we laid out at our investor day, you know, we did say that there was, you know, always a a point or two from the market. And then we have this three pronged strategy, which is products, aftermarket, and systems. Driving double digit forever is gonna give you lift there. Systems, we said, is gonna be a point or two, and we're seeing really nice progress on things like HEMS in Europe, and we'll start getting our first revenues next year from HEMS in The United States. When we talk systems on the commercial side, it's not only Quantum Leap where there's a fair amount of activity picking up for this combined liquid cooling, traditional cooling, but also we're seeing it in non data center activity, working more as one carrier combining our BMS and traditional chillers as well.

[David Gitlin, Chairman & CEO at Carrier Global]

So we see systems picking up and then products. So you're always gonna see a little bit of variation by segment, as they face different either tailwinds or headwinds. But what we've said is no segment left behind. The expectation is every segment grows 6% to 8% and they're building their pipeline, as we gear up for a really strong 2026.

[Stephen Volkmann, Managing Director at Jefferies]

Great. Thank you for that. I'll pass it on.

[Operator]

Your next question comes from the line of Amit Mehrotra of UBS. Your line is now open.

[Amit Mehrotra, MD & Head - Industrial Sector at UBS Group]

Thanks. Good morning, everybody. I'll just be very quick here. First, just be helpful if you can talk about how you think volume is impacted, if at all, from some of the incentives going away, at the September, I guess, related to the the beautiful tax bill or whatever whatever it's called. Can you just talk about is there any any assumption in your guidance around any impact from that? Or if you can just give us a little bit more color there. Thanks.

[David Gitlin, Chairman & CEO at Carrier Global]

You know, we really don't see a material impact from '25 c one seventy nine d. Some of the provisions that were in there, they were we we fundamentally think they were good provisions, and they made sense, but they had not been material or very meaningful, for us. So them going away is not a material impact.

[Amit Mehrotra, MD & Head - Industrial Sector at UBS Group]

Okay. That's helpful. And then just one quick follow-up to an earlier point around rebates or rollbacks on pricing. It didn't seem that there was any assumption for that in the in the revised outlook. Certainly, the margin for CSA didn't didn't appear to to seem that way for the full year.

[Amit Mehrotra, MD & Head - Industrial Sector at UBS Group]

Is there any assumption for pricing rollbacks this year or later this year? Or is that not a factor you think as as the year plays out?

[David Gitlin, Chairman & CEO at Carrier Global]

We don't we don't think I mean, Patrick talked about price by quarter, and, we don't and I think it's been fairly consistent. So we don't see any kind of material material price changes. The only thing we said is that resi in 4Q, you know, just in our modeling, we put you know, we've been assuming 5% to 6% a quarter. We think it's going to be more like a few percent, but that's probably about it. Otherwise, Patrick kind of laid out pricing by quarter. It's fairly consistent.

[Patrick Goris, SVP & CFO at Carrier Global]

Yeah. And the only change versus the prior guide really is tariff related pricing now is now 200,000,000 instead of 300,000,000 in the May guide, but the net tariff impact on operating profit remains zero.

[Amit Mehrotra, MD & Head - Industrial Sector at UBS Group]

And then just just last one for me. So when you talked about Europe margins going up sequentially, I get there's productivity, but, I mean, that's a very big difference than what's happened over the last couple of years sequentially. Is there any way to kind of size the productivity numbers so we can just get a little bit more comfort on that sequential inflection from three q to four q in Europe?

[Patrick Goris, SVP & CFO at Carrier Global]

Well, it's a mix of both higher sales and productivity. And so it's as I mentioned earlier, that sales in the second half of the the year, it's not atypical to be about 20% higher than the first half of the year. And so there is a tremendous volume leverage that goes with it given how weak volumes have been so far. In addition to that, there is the cost synergies that pick up. And we've said that this year or last year we said synergies and the cost side were about $75,000,000 This year, there'll be again that amounts probably a little bit more and it'll be more second half weighted than first half weighted.

[Amit Mehrotra, MD & Head - Industrial Sector at UBS Group]

Got it. Okay. Thank you very much. Appreciate it.

[Patrick Goris, SVP & CFO at Carrier Global]

Thank you.

[Operator]

Thank you. I'd now like to hand the call back to David Gitlin for final remarks.

[David Gitlin, Chairman & CEO at Carrier Global]

Well, thank you. Thank you, everyone, for joining. Obviously, a lot of moving parts in the macros, but I'm incredibly proud of the team. Continue to deliver in '2 q, and we are very confident we'll do so in the second half for a year that's gonna we're gonna look back on and be very proud of with a lot So my thanks to our team, to our customers, and thank you all for for joining in.

[Operator]

This concludes the meeting. You may now disconnect.

Participants

Executives

• Michael Rednor, VP - IR
• David Gitlin, Chairman & CEO
• Patrick Goris, SVP & CFO

Analysts

• Jeffrey Sprague, Founder & Managing Partner at Vertical Research Partners
• Julian Mitchell, Equity Research Analyst - US Industrials at Barclays Investment Bank
• Nigel Coe, Managing Director at Wolfe Research, LLC
• Scott Davis, Chairman, CEO & Founding Partner – Multi-Industry Research at Melius Research LLC
• Joe Ritchie, Managing Director at Goldman Sachs
• Steve Tusa, Managing Director at JP Morgan
• Andrew Kaplowitz, Managing Director at Citi
• Deane Dray, Managing Director at RBC Capital Markets
• Andrew Obin, MD - Equity Research at Bank of America Merrill Lynch
• Joseph O'Dea, Managing Director at Wells Fargo
• Chris Snyder, Executive Director at Morgan Stanley
• Stephen Volkmann, Managing Director at Jefferies
• Amit Mehrotra, MD & Head - Industrial Sector at UBS Group