Conference Transcript - CARR 2026-05-19

Nigel, Analyst — Wolfe Research

Right. So we're going to get started again with the Wolf 19th Annual Transports Industrial Conference with Carrier. And it's a great pleasure to welcome back Chairman and CEO Dave Goodland and also have Mike Redner from IR on stage as well. So, Dave, I thought it'd be a good opportunity to maybe just give us a little land in terms of what you're seeing out there as we enter the summer season.

David Gitlin, CEO

Nigel, first, thanks to you. Thanks to Wolf for having us back. When you look at Carrier, the part of our portfolio that has been really good is off-the-charts good. So over 40% of the portfolio is a combination of commercial HVAC and aftermarket. Commercial HVAC, with the tailwind of data centers, has been strong, double digits five years in a row, six years in a row. This year will be up certainly double digits again. You saw data center orders in the first quarter up 500 percent. Data center orders will be good again in the second quarter. And we had said that we would grow from a billion dollars last year to a billion and a half this year. We have orders to now our coverage for the year supports the billion and a half. So it becomes an execution issues. It is a little bit back end loaded internally. We're certainly driving to exceed that number. and it's not going to be a function of more orders for the year. It's going to be a function of output. So we feel very good about certainly 26. A lot of our focus is supporting our customers for 26, but the anxiety we have is despite all the investments we've made in capacity in North America, up 4X for water-cooled chillers, up 3X for air-cooled chillers, we may not have enough capacity for 27. So that's an issue that is a really nice problem to have, which is how do we continue to support the demand we're seeing for 27 and 28. So data centers and overall CHVAC, very strong, not only in North America, but globally. Aftermarket has been double digits five, six years in a row, will be double digits again this year. We now have 100,000 connected chillers, 200,000 link subscriptions, leveraging AI to drive unique solutions for our customers, whether it's prognostics, diagnostics, anticipating failures before they occur. So very excited about aftermarket in the DNA of the business. So that piece is going well. And in the short cycle businesses, whether it's, if you look at the RLC business in Europe, one of the, I guess, positive side effects of what we're seeing with the higher fossil fuel prices um is a shift to the heat heat pumps a little bit analogous to what we saw after the russian invasion of ukraine you know that really sudden shift to heat pumps we're starting to see maybe not to the extremes we saw back in 22 but we're seeing uh variations of that now so that's been a bit positive and that's continued we can get more into that nigel and then some of the shorter cycle stuff like res rlc in north america light commercial we thought would be down in the first quarter was up almost 10 percent uh you know we've seen some um continued positive signs there uh and then the resi business was a little bit better in the first quarter and um you know we're early in this quarter but you know it hasn't you know it's been tracking along the lines that we thought okay so overall we can get into all pieces of that but what's been good has been great and the pieces that have been facing a little bit of headwind

Nigel, Analyst — Wolfe Research

have been doing better than we thought okay okay that's great so just just to maybe just emphasize so resi sounds like it's tracking in line with uh expectations for for tq so far yes uh like commercial a bit better probably and then europe is encouraging science yes okay okay does that

David Gitlin, CEO

mean europe is back to growth in tq yeah uh i would say that um the rlc business uh you know it's early but um the commercial hvac you know what i actually think will happen is that the rlc business will probably grow a little bit more than the commercial hvac business um just given timing of orders for chvac which i think coming into the quarter we thought it would be inverse but i think overall for what we think we thought for cse it probably lands about where we thought just probably how we get there will be a little bit inverted okay um obviously you got tough

Nigel, Analyst — Wolfe Research

comps coming up in the U.S. resi business this quarter. What's your lay of the land in terms of inventory right now, channel inventory? Where does that sit? Are we now in a situation where sell-in, sell-through is virtually matched up at this point? Yes. And that's been good news.

David Gitlin, CEO

Inventory, we ended the first quarter, I think it was down 35% year over year. We ended April down about 40%. So that's very good. So we're kind of in that mid 30 range of year over year inventory levels. So we feel very good about that. And to your question, Nigel, we've done a much better job of tracking that exact ratio of sell in to sell out. If you could turn the clock back, if we could turn the clock back to 2025, we would have seen that that ratio was a bit elevated in the first quarter of last year. So right now it's actually completely in balance to what we would expect to see, what we've historically seen. So inventory levels in check, you know, really the quarter will go the way of not the first six weeks of the quarter, but the second six weeks of the quarter. So it's wonderful to see this heat wave in New York. I'm hoping everyone in the room rushes to replace their systems if they're living in the suburbs of Connecticut. So we, you know, so far it's been, you know, we're kind of cautiously optimistic about how things are playing out, despite some of, you know, the macros that are out there.

Nigel, Analyst — Wolfe Research

Did it last year, Dave.

David Gitlin, CEO

Yes, thank you.

Nigel, Analyst — Wolfe Research

I'm not going to do it every year.

David Gitlin, CEO

Carrier, you could do it once a year. Wouldn't be a good sign about our reliability.

Nigel, Analyst — Wolfe Research

Yeah, today's the first 90-degree day in New York. Yeah, keep it going. The signs are good. How have, I mean, there's a lot of questions about pricing and, you know, what price actions have been announced, what's been the reaction for the channel, what do we expect to see

David Gitlin, CEO

2Q, 3Q? Maybe just bring us up to that. First of all, our share has been either maintaining or growing. If you look at the first quarter, we've been fine on share, probably a little bit of upside there. We did announce the price increases in ResU is in the high single digit range, expecting mid single digits. And in the light commercial is kind of in the mid single digit range. So we have done pricing based on the input cost. We said at a carrier level, we said that we'd get about a point of price coming into the year. And based on some of the recent input cost impacts, we've now said that's closer to three points. So you could think about that as 200 million. Now it's more like 600 million, an additional 400 million. And look, Look, we've been very, very close with our distribution and our dealer partners. We've done a lot of explanation of some of the tariff progression. So there's an understanding of that. We're very targeted in how we manage pricing to make sure that we really support our key accounts. We've had great wins on the residential new construction side. That helps us allow. We had some great wins last year, and we'll see some of the benefits of that this year. So look, no one likes additional pricing. we're managing that. And then we'll have to see how tariffs play out. If tariffs change over time, then we'll change our pricing over time. Okay. I want to come back to that point in a second.

Nigel, Analyst — Wolfe Research

The point on the share gains in Bresi construction, is that an attractive part of the market? It's viewed as low price, low margin. Is that attractive to carry? Our margins are higher

David Gitlin, CEO

in replacement than they are in new construction, but it's still attractive. You know, we've been it's nice to have close to a third of the market. It drives absorption. It drives the need for continuously upgrading your technology. These are great customers. We're very close with these customers to provide solutions for them. So even though it's a little bit lower margin than our replacement, it's a great part of the market.

Nigel, Analyst — Wolfe Research

OK, the you mentioned four million dollars of incremental price coming to the P&L this year. I don't think that's quite enough to cover the inflation and the tariffs. Correct me if I'm wrong, but what other measures are you taking to mitigate those two waves?

David Gitlin, CEO

Yeah, we are thinking about pricing to offset. So I would say, Nigel, it is actually dollar for dollar in terms of how we think about it. And if you look at the incremental $400 million of pricing, probably $300 or so is related to tariffs. And then the hundred are, you know, in that ballparks related to the mix of fuel and raw materials.

Nigel, Analyst — Wolfe Research

What else are you doing around supply chain, around productivity to really overdrive on that?

David Gitlin, CEO

Well, those are kind of net numbers. We're doing, I would say the team's doing a tremendous job on just all things controllable in terms of productivity. Because, you know, what we thought coming into the year has been a bit different on things like raw material, logistics impacted by some of the fuel surcharges. So we have to overdrive all things supply chain. The way we look at it internally is there's some things in terms of the supply chain, just negotiations with our suppliers and trying to figure out how to do strategic partnerships with them where we benefit from price. Then there's redesign of the products either with our suppliers or our own activity with our own products to just fundamentally take costs out of the product through redesign. That's going extremely well. And then we are doing a much better job in terms of factory productivity. So the team's doing a very nice job in terms of the controllables there. So in terms of just base productivity, which we track weekly, those parts of the business are going very, very well.

Nigel, Analyst — Wolfe Research

Okay. And then come back to tariffs, the engagement with the administration. I mean, I don't want you to talk out of school or anything here, but maybe just give us a color in terms of the engagement with the administration and trying to, you know, etiquette's the wrong word, but communicate the industry viewpoints.

David Gitlin, CEO

You know, I would say hats off to President Trump and the administration in terms of having an open door policy to discuss, you know, the impact that policy has on business, because I can tell you that whether it's President Trump, Secretary Lutnick, the desire is to increase investments in the United States, which we've been doing and we will continue to do. I just mentioned we're looking at capacity needs for data centers for 2027, and do we have enough in the United States? We expanded Charlotte, North Carolina, 50%. We're going to need to do more. So, you know, we've been clear with the administration that we are committed to U.S. jobs, U.S. investments, and we will continue to accelerate those activities. Excuse me. So they're very receptive to the discussions and to adjusting policy as needed to support more U.S. jobs, U.S. investment, and supporting the consumer in the United States. So we've had, we being, you know, a number of companies, very productive discussions, and then we'll have to see how things play out. But we really appreciate the receptivity of this administration to just listening and understanding and then course correcting if they think it's appropriate.

Nigel, Analyst — Wolfe Research

Okay. So watch the space. So Dave, your 6.5 to 7 million units market assumption this year is quite a way below train, Linux, Unity peers. If you actually crunch the numbers on January 3rd, March, I mean, it's early days, but it seems like we're pointing towards an 8 million unit market perhaps. Is that math wonky or are you conservative? Is the answer somewhere in the middle, I mean, any sort of lay of the land from what you see right now?

David Gitlin, CEO

You know, look, coming off the heels of the second half of last year, we did want to be we did want to err on the side of conservative conservatism. But it's too early to say whether it's conservative because it's a short cycle business. There are some obviously there's some macros out there that you have to keep an eye on. We would love to see the 30 year start with a five. We have to watch the consumer. Obviously, there's inflationary pressures out with fuel and some of the raw materials. So looking at the impact of tariffs. So we put all that in there. The way I, in my conversations, and I think this applies both on the truck trailer side and on the new construction side and just the overall residential market is there is true underlying demand. When we meet with customers, there's 4 million too few homes in the United States, 4 or 5 million too few homes. They're rearing to go. I saw some of the home builder sentiment yesterday come out and it was a few points better than what we thought. I sit with some of the CEOs of home builders. I meet with some of our major distributors and dealers when I travel and they're like my customers, they need to replace their equipment. There's, we need to build some new homes. We need to replace some of the trucks and trailers and equipment related to those that have, we've been putting CapEx off for a few years and they're ready to go like there is a desire to like just go and now but you overlay on that some of these macros that are sort of holding them back in the near term so it's not a question of whether it's just a question of when that true underlying demand is going to come but you know so far so good on the some of the shorter cycle stuff this year we'll have to see how it plays out but we don't want to get out over our skis until we till we get through the cooling

Nigel, Analyst — Wolfe Research

season for sure for sure um obviously the repair versus replace uh equation gets a lot of attention yes what's your perspective on that we saw obviously so we saw the needle shift last year towards repair any any sense on how that's checking so far i think we're kind of mad we're

David Gitlin, CEO

back a little bit more in a replacement cycle it's hard to answer it precisely in a very database way uh because there's a lot of you're looking at a lot of indicators that don't have precision but i would say that the uh at least anecdotally there was a move a bit last year to repair and i think we're kind of back into a normal um ratio of replacement to repair okay

Nigel, Analyst — Wolfe Research

okay any questions on resi like commercial from the audience nope everyone's quiet okay great um dave before we turn the euro but i just want to come track back to data center yeah um sounds like the the problem there is more capacity than demand right now um so number one based on the order flow for this quarter the backlog you're building how does 2027 start looking to you because you know outside the capacity constraints and what are you doing to address those capacity

David Gitlin, CEO

constraints well uh i mentioned for this year we said one and a half billion we're pushing to do better? We'll have to see. For next year, we would certainly expect it to be up. The question is going to be how much. And, you know, we're still in the process of building capacity here in North America. So without a significant investment in additional capacity, we would still grow next year. But when we meet with customers, they're incredibly invigorating discussions. A couple of the major hyperscalers where we've had very major wins, the relationship is just extremely strong. Their appetite for spend at 27, 28 to 29 is there at the most senior levels. We're discussing the exact products they need, not only for 26, but what are they going to need because we're making investments not only in capacity, but the products that they are specifying for 27, 28. And then we're just in discussion of how much could it be. So it's a little bit in the art of what's possible, but it's also true of the Colos. You know, I was with one of the Colos, um, a couple of months ago and he would have normally raised 5 billion. He's raised 50 billion and he wants to spend it. So, uh, there's an appetite, not only here in the United States, but globally. And it's our challenge to keep up. I just got back from India where they're going to grow from one and a half gigawatts to 10 gigawatts. And I met with one customer who he himself wants to spend close to that amount. So the appetite in places like China, India, parts of the Middle East, here in the United States, Europe was a little bit behind, but they're starting to catch up. That's why with CHVAC in Europe, it's been a little bit lumpy for us in terms of the timing of orders, but the conversations are happening and those orders will land. So, Nigel, it's too early to say what next year could be, but is there a scenario where we invest, make another investment here in the United States for data centers? That's something

Nigel, Analyst — Wolfe Research

we're looking at. Would that be 50% increase in capacity, 100%? I mean, how do you think about

David Gitlin, CEO

that? It would be sizable. I think if it were, excuse me, if it wasn't material, then we would just add on to Charlotte. But if it's material, the only way we would do it, if it's material enough to support the demand we're seeing for 27 28 29 and beyond so i think if we do it it'll it'll

Nigel, Analyst — Wolfe Research

be meaningful okay and would that be across both air and water cools yes yeah okay and maybe just talk about why you're gaining share in chillers and in data centers it is a pretty competitive space there's some some really good players here how is uh carrier overachieving look we have we

David Gitlin, CEO

have great competitors um but what i will tell you is there's a misconception amongst a couple of the private meetings that I've had where people think that we've gained some share because we have some capacity that our competitors don't. That's just not true. So yes, we have capacity. Yes, we've been adding to capacity. But I can tell you to a person, when we meet with the chief technology officers of our customers, we're partly winning because of our technology. Data centers used to be built in cold ambient temperatures. Now they're being built in Arizona and in texas and in spain and some of the higher ambient temperatures so you need compressor technology that can give you the same kind of efficiency levels with high ambient temperatures where you don't have the benefit necessarily of free cooling we've done that we've done for air cooled we've done better packaging where we can get the same efficiency with a smaller footprint in the packaging so we've done it we've actually when the cold when the hyperscalers give you their specifications and they witness their FOK, their first of kind unit. We've been there shoulder to shoulder with our customers where they're watching the witness test. They've given us specs that are more stringent than our competitors to see if we can beat them. And then we meet those specifications and then they make it harder. So we are right there giving them the products that they need. And they like that we commission the product, that they like that we track it. Our essentially 100%. They like that we are working with them, not only for what they need for today, but for tomorrow that we've been making the investments. So I'm telling you, we've admitted that we were a little bit later than a couple of our peers to this. We came in a few years ago, but we've come in very hot. And I am very confident that our growth rate will continue

Nigel, Analyst — Wolfe Research

to exceed others. Okay. Okay. And then before we leave this topic, maybe talk about the importance of the cdu and other parts of the quantum leap offering and and you know where we are in that

David Gitlin, CEO

ramp up that's that's a big part of our formula that i think is differentiating so when you think about what we've um termed quantum leap it's the combination of traditional cooling with liquid cooling in a way that's very differentiated so i think ultimately one of the key differentiators that we have is our alc or automated logic controls business which is a building management system business. So how to have a digital twin that can do the controls between traditional cooling and liquid cooling is really where the secret sauce is. And I've seen that in other industries where you really transition from a product-only company to a solutions company. And that's what Carrier is. If you think about, all right, where's Carrier in five years? We're transitioning. We will always be a product company. We are constantly innovating new products. That's part of the secret sauce. It's part of our DNA as a company, and we will always do that, innovating new products to win head-to-head on the product side. But we're overlaying that as more of a solutions company differentiated by digital AI and systems differentiation. So that's where we're investing. That's where we're growing. And in the data center space, if you can combine traditional cooling, liquid cooling, the BMS, We have this Enlite DCIM business. Providing unique solutions there is what our customers is looking for. And then with CDUs itself, we've looked at acquisitions. Obviously, there's very high expectations following some of the recent sales that we've seen out there. But we've organically developed, I would say, a very differentiated one megawatt CDU. We have a 2.6 coming out here in a couple of quarters. We have a 5-megawatt coming out at the end of this year or early next year. So we can buy another company. We'll continue to look at, I would call them bolt-ons, not like multi-billion-dollar type acquisitions. And we can keep developing. A CDU is essentially a mini-chiller, and we have more than 5,000 brilliant engineers, and that's what they do for a living.

Nigel, Analyst — Wolfe Research

So if you look at your global commercial HVAC business, take out services, take out data centers, you're not really baking a whole lot of growth ex-data centers for equipment. Maybe just give us a lay of the land in terms of the other verticals.

David Gitlin, CEO

Yeah, I would tell you that the non-data center will be up low single digits this year. And what's good is things like actually warehouse has been good. Higher ed is coming back. That was a little bit soft for a little while. health care, anything that has to do with infrastructure spend like semiconductor fab. It varies by region. Some things are strong in China that are not as strong here in the Americas and vice versa. K through 12 has continued to be a bit weak. That impacts light commercial and some of the commercial HVAC side. But I think that we're and commercial real estate's been a bit But if I look at our growth in non-data centers, it has a little bit less to do with the strength or non-strength of the verticals. It just has been a lot of our investment and capacity has been going to try to keep up on the data center side. So we want to balance that out as much as we can over time. But I would call it low growth, low single digit growth on non-data centers.

Nigel, Analyst — Wolfe Research

So does that mean that you're being more selective in some of the other verticals to kind of feed the data center capacity?

David Gitlin, CEO

Yes and no. We want to make sure that we continue to invest in both. We're very careful about that because, you know, the data center growth, as far as we can tell, it has, you know, multi-year legs. But, you know, we don't know. It cannot continue at the same pace forever, you know, 10, 20 years. Who knows exactly when? So we want to make sure that with our capacity that we're building, with the technology we're building, that we have nice balance in the system. So we're actually going out of our way to make sure we invest in both. So we have balance. I will tell you, the orders in data centers have just been extremely significant. So we are making sure that we support those customers while we try to balance the investments. Thanks, Dave.

Nigel, Analyst — Wolfe Research

I want to touch on two more topics we've got five more minutes so if any last questions please get ready for that in Europe I think we're a little bit data starved there's not great data in Europe maybe help us think about what you've seen on subsidy applications in Germany and other countries the impact that high energy prices high gas prices is having on that and then how that plays out with the boiler situation because the offset has been boilers in that market

David Gitlin, CEO

Yeah. Yeah. You know, I think some of the algorithm that we had when we combined with Wiesman was double digit growth, heat pumps, boilers down five. I think that the really good news is that if you look at a volume basis, heat pump demand has been very strong since the Middle East war. The ratio of electricity to gas, we, you know, it's ideal for that ratio to be less than three. It's been two and a half. We've seen strong demand in Germany, France, Poland. We've seen some nice trends there. UK continues to be strong. Italy has been a little bit better than we thought. So the demand has been more widespread. Heat pump, if you look at subsidy applications in Germany, they were up 30% in the first quarter and they've been very strong in April. I think May subsidy applications will be very strong in Germany. So I think it's just a reminder across Europe that any kind of subsidy to transition the continent away from gas, you're going to continue to see those. So even in Germany, the government has said they have enough funding to support subsidies through at least 2029. So the heating law probably will change in Germany. It needs to be voted on and passed by parliament, but that's okay. You know, what we're focused on is if there's still some level of subsidies, that's a positive thing. But even without it, we're introducing this new product that we've talked about, Nigel, which is just below the premium level, but it's going to be Wiesman branded. It's already, we haven't even introduced it. It's coming out just before the heating season. It's already won an award from this IF Association. So we always win awards for the prior Wiesmann Vito Cal unit. This product coming in, even right before its introduction, winning awards for, because it's going to be state-of-the-art in terms of a Q6 efficiency, everything else, but price just below the existing. So it's going to be very complimentary, very sought after in countries like Poland. So heat pump demand, very strong. Boiler, probably that mid-single-digit type decline, which is what we want and expect. So I do think that what we were hoping for a couple of years ago for Europe, we are now starting to see.

Nigel, Analyst — Wolfe Research

So that sounds really good. I mean, it sounds like there's upside to your plan. I mean, I'm not asking you to raise numbers here, but it does feel like there's more than upside.

David Gitlin, CEO

No, I think it's what I was saying earlier is that I think that CSE lands about where we thought. But I think that if CHVAC was going to be up mid and CSE for the quarter was going to be flattish, it could be the inversion of that. But I just say the fundamentals are there. I mean, what happened in the first quarter was we started to see the demand. We did some pricing activity in Germany that's now behind us. So we're actually, we raised price starting in April. So a few points of price, a few points of surcharges. So I think if the volume continues and we're very disciplined on pricing, the indicators are positive for Resi. But after the last like nine quarters or so, we're going to be careful not to get out of our skis there as well. So all I'm saying is that since the Middle East activity happened, the inflection point for heat pump demand across Europe has started to hit.

Nigel, Analyst — Wolfe Research

Is the key driver of marshaling recovery there, is that volumes, seeing the volumes recovering in that market?

David Gitlin, CEO

That will help. Certainly, we've had some absorption issues. So just got to be disciplined on price. I think the margins on this new product we're introducing will be as strong as what we have for the existing VitoCal. The margins on boilers are obviously quite strong. So I think we continue to take costs out of the system. You know that about half of the headcount reduction we did last year on the GNA side was in Europe. So I think we're set up for margin recovery as we start to see the absorption come back from volume start to come back. So margins were a little bit disappointing for us in the first quarter. I'm confident that margins will start to recover. We always said that it would be EBIT Ross in the mid-teens, and I'm confident we'll get there over time.

Nigel, Analyst — Wolfe Research

And as part of mid-teens in Europe, America's margins, you've got pencil in quite a ramp from 1Q to 2Q, so make sure we're still on that ramp path.

Patrick Goris, CFO

Nigel, maybe I'll take that one, and thanks for having us. you're right. The step-up Q1 to Q2 on CSA Americas, think of it as we get the seasonal impact of step-up in resi volumes. And then as we get in the second half of the year, we're going to get a lot of absorption of the growth in the commercial business while continuing to drive productivity across the board. And that kind of gets you to the guide of

Nigel, Analyst — Wolfe Research

25 to 50 basis points for the year. Yeah. But the 2Q ramp, so part of that seasonal, four or five points perhaps, and then the other side is just factory absorption?

Patrick Goris, CFO

Better factory absorption versus Q1, and we'll continue to drive productivity there.

Nigel, Analyst — Wolfe Research

And the price cost sort of equation is still on track?

Patrick Goris, CFO

In general, yes. You'd recall we put in price increases basically at the end of April to cover all the input costs, which includes logistics, fuel, and the tariffs. The tariffs went into effect in early April. So there is a little bit of gap there. So you actually get a little bit of better price versus cost as you get into Q3, but all in Q2 should be okay.

Nigel, Analyst — Wolfe Research

Great. I think we're more or less out of time, but time for one question. Yes. Yes. Right here, please. I think they want you to. Yeah. Come on, Jack.

Jack, Analyst — Stifel

Hi. I just want to clarify the 50% growth in data center sales this year, the billion and a half revenue versus a billion last year. Is that all organic equipment sales growth? Yes. Okay. Thank you.

Nigel, Analyst — Wolfe Research

Great. Well, I think that does it. Dave, thanks for the time. Thank you, Nigel. Great discussion. Thank you. Appreciate it. Thank you, Nigel.