Carrier Global (CARR) Q4 2024 earnings call transcript

11-Feb-2025 Carrier Global Corp. (CARR) Q4 2024 Earnings Call Carrier Global Corp. (CARR) Q4 2024 Earnings Call 11-Feb-2025 CORPORATE PARTICIPANTS Michael Rednor Head-Investor Relations, Carrier Global Corp. David L. Gitlin Chairman & Chief Executive Officer, Carrier Global Corp. Patrick P. Goris Senior Vice President & Chief Financial Officer, Carrier Global Corp. OTHER PARTICIPANTS Jeffrey Todd Sprague Analyst, Vertical Research Partners LLC Andrew Kaplowitz Analyst, Citigroup Global Markets, Inc. Julian Mitchell Analyst, Barclays Capital, Inc. C. Stephen Tusa Analyst, JPMorgan Securities LLC Joe Ritchie Analyst, Goldman Sachs & Co. LLC Nigel Coe Analyst, Wolfe Research LLC Deane Dray Analyst, RBC Capital Markets LLC Joseph O'Dea Analyst, Wells Fargo Andrew Obin Analyst, BofA Securities, Inc. Chris Snyder Analyst, Morgan Stanley & Co. LLC Tommy Moll Analyst, Stephens, Inc. Noah Kaye Analyst, Oppenheimer & Co. , Inc. Carrier Global Corp. (CARR) Q4 2024 Earnings Call 11-Feb-2025 MANAGEMENT DISCUSSION SECTION Operator: Good morning and welcome to Carrier's Fourth Quarter 2024 Earnings Conference Call.

Please go ahead. Michael RednorHead-Investor Relations, Carrier Global Corp. Good morning and welcome to Carrier's fourth quarter 2024 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 and significant non-recurring items. 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. Carrier's SEC filings, including our Form 10-K and quarterly reports on Form 10-Q, provide details on important factors that could cause actual results to differ materially.

With that, I'd like to turn the call over to Dave.

David L. GitlinChairman & Chief Executive Officer, Carrier Global Corp. Thanks, Mike, and welcome aboard. Let me start by saying thank you to our team for delivering great results in 2024 while completing such a significant portfolio transformation. I am more excited about 2025 than I have ever been entering a new year. I feel as if all of the work done by so many at Carrier over so many years has positioned us for this moment to create outsized value for our customers, people, and shareholders. As you can see on slide 2, 2024 was a strong and transformational year for us. We achieved 3% organic growth by delivering double-digit growth in global commercial HVAC and aftermarket, both for the fourth consecutive year, to help offset unexpected weakness in residential light commercial HVAC in Europe and China.

Total company orders were up low teens, with HVAC Americas supply up about 40%. Our global commercial HVAC backlog is up mid-teens versus last year, positioning us for another year of double- digit growth in 2025 in that business. For overall Carrier, organic growth and strong productivity contributed to close to 100% core earnings conversion, 180 basis points of margin expansion, and 16% adjusted EPS growth. We delivered these strong results while we successfully completed our portfolio transformation. We integrated with Viessmann Climate Solutions and executed on our divestitures, yielding over $10 billion in gross proceeds. And as committed, we paid down debt and returned to roughly 2x net leverage. We also returned over $2.6 billion to shareholders through dividends and share repurchases.

Turning to slide 3. I think of our year since spin in three phases. During our first phase, we built the foundation for a new Carrier. We promoted and added key talent. We launched and have lived a new culture embedded in the Carrier way that has given us tremendous energy and a focus on growth and innovation. We launched Carrier Excellence to drive operational execution, excellence, and productivity. We invested in our product portfolio and developed and implemented our aftermarket playbook to position us for sustained organic growth. We sold Chubb, added Toshiba, simplified the back office, and paid down debt. 2023 and 2024 were defined by our mantra of performing while transforming. We sharpened our vision and successfully transformed our portfolio.

We now have greater bandwidth to create even more value for our customers and thus our shareholders. Focus, simplification, Carrier Global Corp. (CARR) Q4 2024 Earnings Call 11-Feb-2025 differentiation, customers, win, grow; the new phase, accelerating growth, has begun and there is tremendous energy within Carrier. As we navigated this transition, we have been purposefully increasing our addressable market and value proposition for our customers as you can see on slide 4. In 2020, we began to not only increase our investments in our product portfolio, we significantly increased our focus on digitally-enabled lifecycle solutions. Aftermarket has increased our addressable market, contributed to margin expansion, all while creating greater customer stickiness and increasing recurring revenues. Now, in addition to driving differentiated products in aftermarket, we are introducing fully integrated systems which further increase customer value across our three targeted ecosystems: homes, buildings, and the cold chain.

For integrated systems in homes, we are significantly expanding and enhancing our European home energy management system offerings. And through a newly created business within Carrier called Carrier Energy, we are bringing similar offerings to the United States. For the US, we are actively working with utilities to provide an end-to-end integrated battery heat pump solution with automated controls to run the system using stored energy during peak hours while recharging the system during the trough of energy grid usage. The interest from utilities and other customers has been very encouraging to address grid constraints and resiliency. Within building systems, one offering is our integrated cooling solution for data centers that we announced last week under the brand of QuantumLeap.

By combining traditional cooling, liquid cooling, and our building and server management systems, we provide differentiated, more efficient solutions for our customers in this important and growing vertical. For cold chain solutions, we are transitioning from solely selling reefers to providing end-to-end systems enabled by our Lynx Digital platform and Sensitech technologies. Selling complete, integrated systems provides us with a new and important opportunity for differentiation, customer value, and increased revenue streams. Slide 5 lays out our strategic focus areas and priorities for 2025. In addition to our growth initiatives that we just discussed, we also remain laser-focused on margin expansion through carrier excellence while maintaining disciplined capital allocation. We deeply embed our priorities throughout our organization through a structured goal alignment process.

Slide 6 shows how these priorities are reflected in our 2025 guidance. Given our strategic positioning, we expect organic growth of mid-single digits with our fifth consecutive year of double-digit growth in aftermarket and global commercial HVAC. We will continue to drive productivity and expect 100 basis points of year-over-year margin expansion. We expect adjusted EPS to be up 17% at the midpoint and about 100% free cash flow conversion. As we look ahead, we will continue to focus on execution within Viessmann Climate Solutions which we discuss on slide 7. Obviously, 2024 was well off what we expected coming into the year. Nevertheless, I am proud that the team controlled the controllables and drove share gains, significant cost synergies, and key new product introductions.

The team also took the tough but necessary actions to significantly reduce both temporary and structural overhead costs, positioning us for strong margin expansion as growth returns. Looking at our growth algorithm for 2025. Given political and economic uncertainty in Europe, we assume that market volume will be flat to down mid- single digits. In addition, we expect a 5-point full year revenue headwind associated with last year's Q1 backlog reduction which normalized at the beginning of Q2 of last year. On the positive side, we expect continued positive mix with double-digit growth in heat pumps offsetting a modest decline in boilers. Similar to last year, we expect VCS aftermarket to grow double digits, and we also expect 1 point or so of price.

New products introduced last year, including the 19 and 40-kilowatt heat pumps, will see a full year of sales in 2025. We are introducing a full lineup of cascadable heat pumps up to 560 kilowatts with natural refrigerants that we will be selling through the Viessmann channel. As we think about revenue synergies, we are excited for the ISH trade show in Frankfurt in Carrier Global Corp. (CARR) Q4 2024 Earnings Call 11-Feb-2025 March where we will showcase our new multi-brand products such as our newly launched Carrier-branded air conditioning units that we will also be selling through the Viessmann channel. We gained share in key European geographies last year and expect that to continue in 2025. And the team has been putting all the pieces together to significantly increase our complete home energy management system sales this year and beyond.

We also remain confident in margin expansion and cost synergies. So all in, we expect a strong year across Carrier with accelerated organic growth, margin expansion, EPS growth, and strong free cash flow.

With that, let me turn it over to Patrick. Patrick?

Patrick P. GorisSenior Vice President & Chief Financial Officer, Carrier Global Corp. Thank you, Dave, and good morning, everyone. Please turn to slide 8. In short, Q4 earnings were ahead of our expectations and the guide we provided in October. Reported sales were $5.1 billion with 6% organic sales growth, including about 2 points of price and 4 points of volume. We had a favorable 13% net impact from acquisitions and divestitures. Organic sales were in line with expectations driven by continued strength in global commercial and North America residential HVAC, partially offset by weakness across residential and light commercial HVAC in Europe and China. Q4 adjusted operating profit was up 65% compared to last year driven by the contribution of Viessmann Climate Solutions, the benefit of organic growth, and productivity.

As a result, adjusted operating margin expanded by 370 basis points compared to last year. The absence of commercial refrigeration was about 0.5 point tailwind to margin. Adjusted EPS of $0.54 was up 50% year-over-year. Operational performance was in line with our guide, and we benefited from discrete tax items. Net interest expense was a bit light versus our guide given the earlier close of the commercial and residential fire business. Free cash, and I'll now refer to both continuing and disc ops, was an outflow of about $90 million in the quarter. Full year free cash flow of $30 million was about $200 million better than we guided. Having closed residential and commercial fire in early December, we picked up the pace on share repurchases and we ended 2024 with about $1.9 billion of share repurchases, about $1 billion more than our October guide.

Moving on to the segments, starting on slide 9. The HVAC segment had another strong quarter with organic sales growth of 11%. Organic sales in the Americas were up high teens. Within the Americas, commercial was up mid-teens and light commercial was a little better than expected and down around 10%. In the fourth quarter of 2023, light commercial was up about 20%, so certainly a tough comp. Residential was up 35% mostly driven by strong volume compared to a very weak Q4 last year, which was about minus 20%, as our channel was in destocking mode a year ago. On the last earnings call, we mentioned that we expected no material pre-buy in Q4. The actual pre-buy was in line with expectations and movement was stronger than expected.

Movement, that is sales from our distributors to installers, has continued to be strong in January this year. Organic sales in EMEA were flat driven by double-digit growth in commercial, offset by a decline in residential and light commercial HVAC, reflecting continued market weakness. Organic sales in Asia were slightly positive driven by strength in Japan and South Asia, partially offset by declines in our residential and light commercial business in China. The HVAC segment adjusted operating margins were up 250 basis points driven by the benefit of organic growth and strong productivity. As you can see at the bottom of the slide, 2024 was another great year for our HVAC business with continued growth and margin expansion. Transitioning to refrigeration on slide 10.

Q4 was the first quarter without commercial refrigeration given its exit on October 1. Overall, results for this segment were as expected. Our global truck and trailer business was down around 10%, with North America down about 25% and Europe down low single digits, only partially offset by high Carrier Global Corp. (CARR) Q4 2024 Earnings Call 11-Feb-2025 single-digit growth in Asia. Container was down low single digits. Our aftermarket and Sensitech businesses were both up mid-single digits. Operating margin expanded by 160 basis points year-over-year. For the full year, this segment was down 1% organically with container up roughly 25%, mostly offset by declines in North America truck and trailer. Margins expanded 20 basis points.

Turning to slide 11. Total company orders organic orders were up low teens. Overall HVAC orders were up about 5% with continued strong orders growth in the Americas at about 10%. EMEA and Asia organic orders were down mid-single digits. In Asia, weak orders in China residential and light commercial HVAC were partially offset by China commercial HVAC orders and strength in other countries. Globally, commercial HVAC orders were up about 10%. Refrigeration orders were up around 55% in the quarter, mostly as a result of very strong growth in North America truck and trailer on an easy comp. Truck and trailer orders in Europe were up over 20% and Asia were up mid-single digits. Overall, we entered 2025 with robust longer-cycle backlogs in commercial HVAC and orders momentum in key businesses.

Moving on to slide 12 and shifting to 2025 organic sales guidance. We expect mid-single-digit organic growth and reported sales of between $22.5 billion and $23 billion. This also includes a $750 million year-over- year headwind from the commercial refrigeration exit. We expect roughly 1 point of price and the remaining organic growth to come from volume and mix-up. We expect currency translation to be about 1 point of headwind. The organic growth for both segments is expected to be up mid-single digits for 2025. Within HVAC, we expect the Americas to be up high single digits driven by continued double-digit growth in commercial, high single-digit growth in residential driven by the new refrigerant mix-up, and low to mid-single-digit growth in light commercial.

We expect Europe to be up low single digits with commercial up double digits and flat sales growth in residential and light commercial. Dave just walked you through our assumptions for flat sales growth in this market segment.

Finally, within Asia we expect low single-digit sales growth with China sales flat and mid-single-digit growth outside of China. Within refrigeration, we expect global truck and trailer to be up mid-single digits with North America truck and trailer returning to growth in the second half of the year. We expect mid to high single-digit growth in container and double-digit growth in Sensitech.

Moving on to slide 13, profit and cash guidance. Total company adjusted operating margin is expected to be up about 100 basis points compared to 2024, with half of the increase driven by volume, price, and net productivity, partially offset by investments. The absence of commercial refrigeration contributes 50 basis points of margin expansion. Core earnings conversion, that is excluding the impact of acquisitions, divestitures, and FX, is expected to be about 30%. We estimate free cash flow to be about $2.4 billion – to be between $2.4 billion and $2.6 billion, reflecting roughly 100% conversion with normal seasonality.

Finally, we intend to repurchase about $3 billion in shares. Through last week, we repurchased about $900 million of shares so far this year. We estimate that average diluted share count for 2025 will be down about 5% from 2024.

Moving to slide 14. We expect adjusted EPS between $2.95 and $3.05, up 17% at the midpoint. The building blocks are identical to what we shared with you on the last earnings call, except for currency. Adjusted EPS growth includes about $0.30 of operational performance driven by volume leverage, price, and net productivity; and about $45 million of corporate stranded cost elimination, partially offset by investments. We expect foreign currency translation to represent a headwind of about $0.05. As a result of debt paydown, we expect net interest expense to be a $0.05 to $0.10 tailwind.

Finally, we expect a lower share count partially offset by a 22% tax rate and NCI to provide another $0.10 to $0.15 of EPS benefit. With respect to capital deployment, we'll pay down $1.2 billion worth of debt this quarter. The dividend per share increases by 18%. And as I mentioned earlier, share repurchases are expected to amount to $3 billion this year. As usual, additional guide items are in the appendix on slide 17.

Finally, let me provide some additional color on the first quarter. We Carrier Global Corp. (CARR) Q4 2024 Earnings Call 11-Feb-2025 anticipate Q1 revenues to be about flat sequentially, a little more than $5 billion, with first quarter organic revenue growth flat to up low single digits. This reflects continued strength in global commercial HVAC and a tough comparison in resi and light commercial HVAC in Europe and China. We expect organic growth for refrigeration to be about flat. We expect about 100 basis points of margin expansion in Q1 and adjusted EPS to be between $0.55 and $0.60. So overall, we ended 2024 on a strong note and expect 2025 to be another year of strong financial performance.

With that, we'll open it up for questions.

David L. Gitlin Chairman & Chief Executive Officer, Carrier Global Corp. A Good morning, Jeff.

Yes, we will sell some 410A in Q1 from inventory.

David L. Gitlin Chairman & Chief Executive Officer, Carrier Global Corp. A Yeah. Jeff, about 10%. But let me walk you through the high single digits. It's really along the lines of you were saying. So, we think that volume will be flat to down low single digits, which includes that modest pre-buy that I just mentioned. Then, we expect base price to be up low single digits. So between those two, you're about flattish. The benefit of the mix-up of the transition to be high single digits, so 80% of our volume is impacted by the refrigerant transition. 20% is not affected because they are either furnaces or things we ship to Canada. Of that 80%, Jeff, we expect about 90% of that to be 454B and about 10% to be the 410A.

And of that 454B, we expect to realize a 10% price increase, so that mix-up alone, that gets you to about 7% sales growth. And then we expect modest growth in the remaining 20% of the business.

Patrick P. Goris Senior Vice President & Chief Financial Officer, Carrier Global Corp. A Yes, Jeff. Exactly as you said, we achieved the same thing without an ASR. And from now until the balance of the year, we'll expect to be in the market throughout the year.

David L. Gitlin Chairman & Chief Executive Officer, Carrier Global Corp. A Thank you.

David L. Gitlin Chairman & Chief Executive Officer, Carrier Global Corp. A Good morning, Andy.

David L. Gitlin Chairman & Chief Executive Officer, Carrier Global Corp. A Yeah, I think so. I think that it's a very balanced guide; perhaps conservative, but we'll see. I mean, look, when we look at the total market, we just have to be honest that there is a fair amount of economic and political uncertainty in Europe, so we put that volume at flat to down 5%. And we did see, I think, first quarter of last year was the last quarter that I think we shipped out of some level of excess backlog. So, that now normalizes in the second quarter of this year, but that will cause us about 5 points of total full year headwind. The stuff that – so that kind of walked us down to say 5%, 10% -- down 5 to 10 points.

But when we look at what's in our control, 3 to 4 points of mix-up, that assumes double-digit heat pump growth and down a bit in boilers, and we have pretty good visibility to that. If you look at the second half of last year, just in Germany are the subsidy applications were up around 65% year- over-year, up 60% on a two-year stack. Viessmann heat pump orders in the second half were up about 40%, so some early indications that there's underlying demand for heat pumps in Germany. So, 3 to 4 points of mix-up, we'll get a point or two of aftermarket with double-digit growth, a point or so of price. And then that bucket of revenue synergies, we're looking at about $100 million of revenue synergies this year around the globe, probably 70% in Europe.

And I can tell you, Andy, we have that like line-by-line. The air conditioning units with Carrier brand going through the Viessmann channel. We have hydronics, we have system-level sales [ph] that we're taking (00:26:24) from Europe, using for HEMS in the United States, we have multi-brand strategy in China, so details on the revenue synergies. Systems selling could be a new frontier for us this year as we really put the wheels in motion to drive that. Share gains again this year, NPI again this year. So, we feel good about what's in our control and we'll keep an eye on the market.

In addition to that, we are pretty well-blocked for the full year in North America. I think we're blocked for about close to 80% of our steel volume so generally, we think we're in a pretty good position there. With respect to your questions on the margins for next year – and I'll talk at the overall company level because given the size of Carrier Global Corp. (CARR) Q4 2024 Earnings Call 11-Feb-2025 HVAC it applies to that as well – what you can think about is differently than in 2024. In 2025, we expect a bigger contribution from organic sales growth. That's both volume and, of course, the mix-up. That combined with strong productivity, those are the main drivers of margin expansion, and that then would be offset by reinvestments in our business.

And so, it's really driven by organic growth, continued strong productivity, the impact of the mix-up of course, offset by reinvestments in our business.

Patrick P. Goris Senior Vice President & Chief Financial Officer, Carrier Global Corp. A Thanks, Andy.

David L. Gitlin Chairman & Chief Executive Officer, Carrier Global Corp. A Thanks, Andy.

Patrick P. Goris Senior Vice President & Chief Financial Officer, Carrier Global Corp. A Good morning.

David L. Gitlin Chairman & Chief Executive Officer, Carrier Global Corp. A Good morning.

Patrick P. Goris Senior Vice President & Chief Financial Officer, Carrier Global Corp. A Yeah. So, Julian, from an overall company point of view, so I said flat to low single digits in Q1. That would also, as I mentioned, mean refrigeration flattish and HVAC therefore low single digits. Within Q1 VCS, because of the tough comp that Dave referred to, likely between 10% and 15% down in Q1. And then starting in Q2, we expect Carrier Global Corp. (CARR) Q4 2024 Earnings Call 11-Feb-2025 sales growth to be in the high single-digit range for the overall company, and that includes or is particularly the case for HVAC and also for Viessmann. We expect Viessmann in Q2 to be mid-single digits of growth and then the rest of HVAC to be pretty strong as well.

And so, that takes Q2 in the high single-digit range, that we expect that to continue into Q3; and then the Q4 sales growth to maybe taper down a little bit to the mid-single digits.

And then, maybe if we could focus for a second just on the light commercial business in the Americas. There's often a lot of investor concerns around decline there and, obviously, the orders quarter-to-quarter are lumpy. You're guiding for revenue growth, I think, low to mid-single digits for this year ahead in Americas light commercial. So, maybe just help us understand kind of how you see the market dynamics there. Any concerns around the education vertical given ESRA funding moving lower? Any color on that vertical would be great. David L. Gitlin Chairman & Chief Executive Officer, Carrier Global Corp. A Yeah. Let me just say in terms of the latter piece, specifically with the ESRA funding, even though that will start to obviously come to its end, it's going to be replaced with the bond funding from the states which could be about $76 billion of the bond referendums that have been passed in 30 states or so.

So I'll tell you, Julian, we've seen great growth in K-12. Orders for us last year were up 20%, so we feel good about the growth in 2025-2026. When we look at light commercial overall, we expect sales growth to be up low to mid-single digits. And kind of like resi, it's driven by the mix-up of 454B. We assume a flattish market. Actually, the first quarter will be our toughest compare, so we think that will be down, say, 5% to 10% in light commercial. And then, when we think about the full year, the benefit from the mix-up is somewhat similar to what we said on resi. But 90% of our volume is impacted by the refrigerant transition, so that 10% excludes sales for example to Canada, other sales outside the US.

Of that 90%, we expect 80% of that to be 454B and we expect mid to high single-digit price increase there, and then the 20% will be 410A in 2025. So like I said, K-12 looks pretty good. Some of the other verticals are good. Some are in decline/that have been in decline like commercial real estate and warehouse, so we feel balanced on the year at that low to mid-single digits.

David L. Gitlin Chairman & Chief Executive Officer, Carrier Global Corp. A Yeah. Thank you.

Carrier Global Corp. (CARR) Q4 2024 Earnings Call 11-Feb-2025 David L. Gitlin Chairman & Chief Executive Officer, Carrier Global Corp. A Good morning.

And maybe just talk about how you see the competitive environment playing out in the first half? David L. Gitlin Chairman & Chief Executive Officer, Carrier Global Corp. A Well, look, we have tools where we look at by distributor exactly how much inventory they're holding. And we're looking at inventory levels, underlying demand-driven, and looking at movement. And when we do not a top-down assessment but a true bottoms-up assessment of what we think in the market and what we think the true demand is from our distributors, that's how we got to the $75 million to $100 million.

David L. Gitlin Chairman & Chief Executive Officer, Carrier Global Corp. A Look, that's something that's come up every year. For like the last five years, we get a variation of that question which is we've announced pricing; do we think it will stick because someone else may end up being more aggressive. And every year, about what we thought we get in price we've gotten in price. So, we think we'll realize about 10% from 454B. Whether or not everyone in the industry is at that level, it's hard for me to say.

David L. Gitlin Chairman & Chief Executive Officer, Carrier Global Corp. A Thank you.

Patrick P. Goris Senior Vice President & Chief Financial Officer, Carrier Global Corp. A Thank you, Steve.

David L. Gitlin Chairman & Chief Executive Officer, Carrier Global Corp. A Hey, Joe.

Patrick P. Goris Senior Vice President & Chief Financial Officer, Carrier Global Corp. A Morning.

David L. Gitlin Chairman & Chief Executive Officer, Carrier Global Corp. A Yeah. It's a really big deal for us, Joe. I honestly could not be more proud of our operations team because we basically stood up a brand new facility in North America for commercial HVAC. Something that would normally take maybe 18 to 24 months, we did it in about 7 to 8 months, so we're ready. We're shipping our first units out of our new North American facility. We're maxing out our Charlotte, North Carolina facility. So, with the capacity that we've now built, we have the ability to significantly increase our Charlotte output probably by about 50%. And then, we have the ability to get to that same level, if not more from our new facility.

So, we can more than double our output for North America. And the demand has been great; the only thing, frankly, that's been constraining our demand has been our capacity. And now with the increased capacity, we're starting to bid out of it, assuming that increased capacity, which really positions us for great growth in commercial HVAC out of North America.

Can you maybe give us a little bit more on just the margins and the work that you've done from a cost structure standpoint, and how we should expect those margins to improve in 2025? David L. Gitlin Chairman & Chief Executive Officer, Carrier Global Corp. A Yeah. We ended last year with our EBITDA [ph] ROS (00:37:12) in the low-teens. We think that with the actions that we've taken and will take, that'll get to the mid-teens this year. We're looking – last year we were looking at about 75 bps of cost synergies on a run rate basis; we expect that to be 150 bps this year. So, Thomas and the team took out, as I mentioned, a lot of temporary and structural costs and we're continuing to drive costs.

And Carrier Global Corp. (CARR) Q4 2024 Earnings Call 11-Feb-2025 then again, we won't see the kind of top line growth that we know we'll see in future years. But the cost takeout has been significant and will continue to be significant.

David L. Gitlin Chairman & Chief Executive Officer, Carrier Global Corp. A Thank you.

Patrick P. Goris Senior Vice President & Chief Financial Officer, Carrier Global Corp. A Then, Nigel, the answer to your first question is yes. We expect all 410A to be flushed out in Q1 for resi. Nigel Coe Analyst, Wolfe Research LLC Q Okay.

Patrick P. Goris Senior Vice President & Chief Financial Officer, Carrier Global Corp. A Carrier Global Corp. (CARR) Q4 2024 Earnings Call 11-Feb-2025 Thanks, Nigel.

David L. Gitlin Chairman & Chief Executive Officer, Carrier Global Corp. A Thank you.

David L. Gitlin Chairman & Chief Executive Officer, Carrier Global Corp. A Hey, Deane.

David L. Gitlin Chairman & Chief Executive Officer, Carrier Global Corp. A Yeah. Let me start with data centers overall, Deane. Last year, it was about $0.5 billion of sales for us for data centers. And this year we think it'll double, so we're looking at $1 billion of data center sales this year. So, it went from about 10% of our CHVAC total sales to probably around 15% this year. And remember, the really exciting thing down the road will be the aftermarket sales. So, we've done – I got to give credit to the team, that we stood up our first programmatic team that's focused on a single vertical data center. Christian Senu and the team under Gaurang's leadership have won – had great wins with the hyperscalers, and we're applying that same intensity to the colos not only in the United States but globally.

So, I think we're really in the first inning of some of the key wins that we've had there, and I just see an opportunity for outsized growth in data centers in 2025 and beyond. The STL partnership that you mentioned is exciting because we're starting to do more in liquid cooling, STL in our single phase. We have a new investment that we're making in a two-phase solution which is a refrigerant-based solution. And then we recently launched – we announced QuantumLeap which is very exciting because the whole idea is that we can be a one-stop shop for all the cooling needs that you would have for a data center. So, you're looking at traditional cooling, the chillers, and the air handlers.

You're looking at Nlyte which can do server management. You're looking at BMS through our ALC business and then combining the traditional liquid cooling loop with – the traditional cooling loop with liquid cooling that we're now introducing our own CDUs right now. So, the idea for hyperscalers and certainly the colos is to say you worry about running the data centers; let us worry about all the cooling you need by having optimized, integrated cooling system. So we're excited about data centers, we're very excited about the orders growth that we've seen. We feel really well-positioned for this year and, frankly, that's going to continue to grow as we get into 2026 and 2027.

It's just – it's a headwind for everyone, but just kind of give us a sense of the setup on FX, the headwind. And just remind us about any type of hedging that you do. Patrick P. Goris Senior Vice President & Chief Financial Officer, Carrier Global Corp. A Yes. So, for this year versus the prior year, the sales headwind is about $200 million. And then as I mentioned, it's about $0.05; that's mostly translation. And then on the transactions side, we do hedge the transactions, and so there is some protection, of course, there given all transactions we go through. And then, of course, given some of the currency streams we have going on in the world, we do also some natural hedging as well that's taking place as well.

So, I'll leave it at that.

Patrick P. Goris Senior Vice President & Chief Financial Officer, Carrier Global Corp. A Thanks, Deane. Patrick P. Goris Senior Vice President & Chief Financial Officer, Carrier Global Corp. A Thanks, Deane.

David L. Gitlin Chairman & Chief Executive Officer, Carrier Global Corp. A Good morning, Joe.

David L. Gitlin Chairman & Chief Executive Officer, Carrier Global Corp. A Carrier Global Corp. (CARR) Q4 2024 Earnings Call 11-Feb-2025 Yeah. Joe, let me start more broadly and just say that we're proud to be the largest US-domiciled company in our industry, period. Also, I do want to mention that we have about 10,000 people in the United States, which is up about 20% over the last five years on a comparable basis, and we just recently launched an initiative to add 1,000 technicians. So we are invested in the US and will continue to be heavily invested in the in the United States. I think of tariffs right now in three categories. The first is what's been implemented, which is what Patrick talked about.

We know about China, we know about steel and aluminum, and we're confident that that we have mitigated. The second I would put in the category of things other than Mexico that have been discussed like Canada and Europe, and based on what we know on these categories we feel confident that we can and will mitigate those as well. As you mentioned, the big one that we have to keep an eye on is Mexico because we have operations down there, and we purchase a lot from there and do export into the United States. Here's the deal. We do not know – there's so much we don't know. We don't know if they will go in place, we don't know if there will be exemptions at all, so there's a lot that we don't know.

What I can tell you is the team is all over it. We are looking at price actions that we clearly would have to take. We're looking at operational actions that we would take, especially with our suppliers. And we're also looking at we would contemplate other actions that we would take unrelated to tariffs to make sure that we could mitigate any impact that we can't fully mitigate through pricing and supply chain issues. So what I'll tell you, Joe, is this is not the first time that we've dealt with tariffs. The team is incredibly focused on making sure that we deliver that $3 of share no matter what comes our way. So, do we have everything figured out if there's a 25% tariff in Mexico?

We don't have it figured out exactly yet. But what I will tell you is that this team will go to tremendous lengths to make sure that we do mitigate it and ensure that we hit the $3 of share. I will also tell you that we are leaning into our factories in United States. So for example, we're significantly increasing our output out of Charlotte this year.

And so, just any offsets to that? Patrick P. Goris Senior Vice President & Chief Financial Officer, Carrier Global Corp. A Sure. The way you can think about it is the benefit of productivity, the price including the mix-up, think of these as being about 150 bps year-over-year. And we're making significant investments as we do each year. And the investments this year actually are going to be more focused on the sales side than just on the R&D side, so it's pretty well-balanced this year. And that offsets those tailwinds to get to the margin expansion that I just referred to.

Patrick P. Goris Senior Vice President & Chief Financial Officer, Carrier Global Corp. A You're welcome.

David L. Gitlin Chairman & Chief Executive Officer, Carrier Global Corp. A Good morning, Andrew.

Thank you. Patrick P. Goris Senior Vice President & Chief Financial Officer, Carrier Global Corp. A I'd say there are probably two areas where pricing might be a little less than that. One would be ref. Generally in that segment, we think it's going to be about flattish this year. There will be some differences by region. The other one is in Asia. Given, of course, what's happening in residential and light commercial in China, the price might be a little lighter there as well.

David L. Gitlin Chairman & Chief Executive Officer, Carrier Global Corp. A Sure, Andrew. I will tell you that it still is the key focus. We're all hands on deck on us driving double-digit aftermarket growth forever. Everyone that joins the company or within the company knows that that's our mandate as a team, and all the underlying metrics on our control towers have been positive. We have nearly 50% attachment rate; it was up from 44% earlier. Our total coverage for chillers, we said it was – it'd be around 80,000; it's in that range. I think it was just under by a thousand or two, so it's in that range. We talked about getting number of connected chillers out there.

We continue – I think we connected around 45,000 chillers last year. So, all of the underlying things, driving [ph] abound in length at (00:50:23) our digital platforms, driving attachment rates, driving coverage, driving connectivity, we feel really good about it and we feel really good about double digits again this year.

David L. Gitlin Chairman & Chief Executive Officer, Carrier Global Corp. A I would say for Carrier, we are in the range of 27%.

I think it's just there, and I think we're pushing to get it closer to 30% over these next few years. Patrick P. Goris Senior Vice President & Chief Financial Officer, Carrier Global Corp. A And commercial HVAC [indiscernible] (00:50:56).

David L. Gitlin Chairman & Chief Executive Officer, Carrier Global Corp. A And then Patrick just added, I guess, it's a little bit higher for commercial HVAC...

Patrick P. Goris Senior Vice President & Chief Financial Officer, Carrier Global Corp. A Yeah.

David L. Gitlin Chairman & Chief Executive Officer, Carrier Global Corp. A ... as a percent.

Patrick P. Goris Senior Vice President & Chief Financial Officer, Carrier Global Corp. A Thank you, Andy.

David L. Gitlin Chairman & Chief Executive Officer, Carrier Global Corp. A Thanks, Andrew.

David L. Gitlin Chairman & Chief Executive Officer, Carrier Global Corp. A Yeah. I think, Chris, it's really a combination of the higher movement than we thought – than we had expected. We had some share gains, and I think just the overall underlying demand was a bit higher than we thought. And just remember, we were coming off such an easy compare from the fourth quarter of 2023 where we were down – I think our volume was down something like 28%, our total sales were down around 18%. So, we had an easy compare and the underlying demand was a bit more positive than we thought.

David L. Gitlin Chairman & Chief Executive Officer, Carrier Global Corp. A Chris, we look at that very deeply. We look at our elasticity curves. And the homeowners have been through a lot of price increases over these last few years, for sure, so it's something that we watch carefully. And certainly, tariffs would not help on the pricing side, so the first thing we look at is are we seeing a big switchover to repair versus replace. We have not seen that. We asked that of ourselves and our channel partners every month, every quarter. We've been paranoid about it but we honestly have just not seen that. We will see an occasional mix- down at the margin but nothing overly material, so it's something that we watch, we watch carefully.

We – I think it's appropriate with price increases to always look at the consumer, but we feel – right now, we feel very good.

Patrick, do you want to add something? Patrick P. Goris Senior Vice President & Chief Financial Officer, Carrier Global Corp. A No. Just a reminder that the cost to the homeowner, only about a third of that or less is actually the cost of the equipment that's ours.

David L. Gitlin Chairman & Chief Executive Officer, Carrier Global Corp. A Carrier Global Corp. (CARR) Q4 2024 Earnings Call 11-Feb-2025 Yeah. Thanks, Chris.

Tommy Moll Analyst, Stephens, Inc. Q Dave, I wanted to start on the comment you made about the movement for your resi channel in the quarter, up 15%.

David L. Gitlin Chairman & Chief Executive Officer, Carrier Global Corp. A I don't think I have at my fingertips movement in the fourth quarter of 2023 unless...

Patrick P. Goris Senior Vice President & Chief Financial Officer, Carrier Global Corp. A I don't think we have that number handy, Tommy.

David L. Gitlin Chairman & Chief Executive Officer, Carrier Global Corp. A I don't have that on my fingertips, Tommy. But the best that we can do is when you think about resi for the full year, it ended up being up high single digits. I think that we were up around 9% last year and it's basically, to the team's credit, the algorithms they've used to anticipate things like inventory and movement, orders, and the translation into total sales. I could tell you that in my five years of Carrier, our algorithms around being able to anticipate things, it's far from a perfect science in a very short-cycle business but they're far better now than they were even just a handful of years ago.

So, we're guiding to the [ph] HSD (00:55:53) for this year. We think that one thing that people would worry about with a big pre-buy would be that we would be talking down 1Q, which we're not. In fact, I think the first quarter should be up double digits. So, I think we feel calibrated between the share gains, the inventory levels, the movement, the orders that we've seen, and the sales into our channel. We've gone out of our way to try to be as judicious and balanced as we can. And we feel good about the guide for this year because basically, that [ph] HSD (00:56:25) is really driven by mix and price realization. So, we think volume assumptions for the year are fairly balanced.

Patrick P. Goris Senior Vice President & Chief Financial Officer, Carrier Global Corp. A And, Tommy, we have that number. The movement in Q4 of 2023 was down low teens so...

Carrier Global Corp. (CARR) Q4 2024 Earnings Call 11-Feb-2025 David L. Gitlin Chairman & Chief Executive Officer, Carrier Global Corp. A Okay.

Patrick P. Goris Senior Vice President & Chief Financial Officer, Carrier Global Corp. A ... down low teens and then Q4 2024 up mid-teens.

David L. Gitlin Chairman & Chief Executive Officer, Carrier Global Corp. A Nothing, I mean, from our perspective. I think that Steve asked a variation of that as well, Tommy. Look, I've heard the same things listening to some of our peers' calls as well and chatter in the marketplace. But what I can tell you is that that every year, we've seen – we've been paranoid about one thing or another and things have sort of manifested themselves on the price side the way we anticipate. And the 10% is fairly straightforward. If you take the list price for a 410A unit, we're pricing a 454B unit in that same category as 10% higher. And then, we've said 15% to 20% over two years which is, on top of the base 10%, 2 to 3 points of base pricing.

So, we think that we're fairly balanced on market volume being flat to down a little bit, then a little bit of pricing, a little bit of growth on the furnace side. And then, we expect that 10% to stick, and we think that we've tried to even build a little bit of contingency into that 10%. So, we feel good about the price sticking. Exactly what every competitor will do, I don't know obviously. But we feel good about how we've calibrated our pricing and our pricing with our channel partners.

Carrier Global Corp. (CARR) Q4 2024 Earnings Call 11-Feb-2025 David L. Gitlin Chairman & Chief Executive Officer, Carrier Global Corp. A Yeah. Look, Germany we clearly have a watch on right now. I think the good news about the pull-up of the election to February 23 is that one way or another, we're going to get more certainty. And uncertainty has not been our friend in Germany about policy, so having some level of certainty is good. I think if I may, at a high level, in Europe say that regardless of what's happening country-to-country because we will watch France where – France and Poland where there's been some suspension of subsidies, which we expect to resume as we get into the summertime, we know that there's going to be things that happen in Germany that we have to keep a watch on.

I will say at a high level, number one, the European Union remains committed to the 2030 goals, 55% renewables by 2030. Remember, in 2027 there's going to be the fossil fuel costs across Europe will start to increase then because we see the expanded scope of the emissions trading system which was introduced for CO2 emissions across all European countries, which is going to trigger, I think, a heightened transition from boilers to heat pumps. There is uncertainty in Germany right now. We did see that increase in subsidy applications and orders in the second half of last year was a little bit slower, I think, in January. But I do think people were trying to get their subsidy applications in before the election, so we'll see if that translates into positivity as we get into 2Q and 3Q.

But I do know that with a potentially new government, we'll have to see exactly how things play out. What I will tell you at the highest level, when you hear us at our Investor Day as we get into May, is that we want to get to a point where we are not talking about elections in Germany or France. We are talking about driving solutions for the customer that are independent of regulation and subsidies. So, if you start looking at complete PV, heat pump, battery, digital overlay sales in Europe, which you're going to be hearing us talk a lot more about, that's driving solutions for the customer, potentially with bank financing, that are independent of subsidies or regulations that is good for the consumer and it's good for the environment and it's good for us.

So, we'll continue to try to influence and monitor policy from country-to-country. The EU is going to continue to move in this direction. We've seen gas prices going up more recently; that could continue. I don't think the EU wants to be reliant on importing gas from the United States or from Russia. So, that electricity to gas ratio should start to come down a little bit, and we're going to continue to push solutions that are independent of policy from country-to-country.

David L. Gitlin Chairman & Chief Executive Officer, Carrier Global Corp. A Yeah. Look, I think at the end of the day, when we look at VCS, we'll be the first to say that obviously, not only were we not pleased that last year was down more than we thought but we dropped it a few times during the course of the year. We've tried to come into this year very calibrated, very conservative. Patrick and I are very deeply tied in with Thomas and Chris Sheppard and the team over in Europe, so we've tried to be very balanced and very bottoms-up on our assumptions. When we look at VCS overall, we're very, very happy that we are in residential in Europe.

Not necessarily last year, but overall this is a great, great market to be in. The underlying Carrier Global Corp. (CARR) Q4 2024 Earnings Call 11-Feb-2025 dynamics are exactly what we see in the United States of a highly customized, configured, differentiated product offering that is very reliant on a differentiated channel. So we like the market, we like the transition to heat pumps. We like the transition to overall system solutions over time, and there's no better company in this space in Europe than Viessmann, hard stop, the most differentiated channel that there is. So, when we start putting some of our commercial HVAC products through that channel or a newly branded Carrier air conditioning product through that channel, our ability to drive revenue synergies, share gain, new product introductions is unparalleled.

So, we're excited to have them part of the family. They have made Carrier such a better company, and one small example is the Head of Engineering for Viessmann Climate Solutions is leading engineering for all of Carrier with respect to our centers of excellence, and it's making us a more platform company and a better technologically differentiated company across all of Carrier. So, we feel balanced for this year. We're going to control the controllables and we're going to see growth for years to come.

David L. Gitlin Chairman & Chief Executive Officer, Carrier Global Corp. A Thank you. David L. GitlinChairman & Chief Executive Officer, Carrier Global Corp. So, Mike, welcome to Carrier. It's great to have you onboard. Patrick, thank you. And thanks to our 50,000 team members globally. Last year, everyone performed while transforming and we feel very well-positioned for a very strong year in 2025. And thank you to our investors as well.

Thank you all.