BAIRD 2026 GLOBAL INDUSTRIAL CONFERENCE - CARRIER GLOBAL CORP

Financial Performance:

• Revenue growth drivers include a 350% year-to-date increase in data center orders (sales up 2x YoY) and double-digit growth in the aftermarket segment, which now targets sustained double-digit performance.
• Residential HVAC sales are projected to grow approximately 10% this year, outperforming initial expectations despite a total market size of roughly 7.5 to 8 million units (down from the 9 million historical average).
• The company is facing an $800 million headwind from incremental input costs and tariffs in the current year, while preparing for a reduced $500 million+ headwind in 2027.
• Record backlog stands at $8.5 billion, with data center backlog alone exceeding $2 billion for the next year.
• Profit margins are under pressure from temporary cost inefficiencies (expediting/logistics) but are expected to improve as supply chain stabilizes and structural cost actions take effect by 2027.
• Price increases totaling 8% for the residential business (effective Dec 15) have been announced to offset inflationary and tariff pressures.

Guidance and Future Outlook:

• Management targets medium-term organic growth of 6% to 8%, with a specific focus on double-digit growth for the aftermarket and systems segments.
• Data center sales are projected to reach approximately $3 billion next year (up ~50% from this year's ~$2 billion), representing over 10% of total revenue but remaining a diversified portion of the portfolio.
• European revenue is expected to grow next year, driven by a turnaround in commercial HVAC order intake and surging demand for heat pumps (up ~35%) and air conditioning (up ~35%).
• Long-term goals include Commercial HVAC and aftermarket comprising nearly half of total revenue by the end of next year.
• Management anticipates a return to mid-to-high single-digit overall growth next year, driven by market recovery in Americas/Europe and continued data center expansion.

Business Segments and Product Lines:

• Data Centers: Sales growth is accelerating with new 2-3 megawatt air-cooled chillers; the company has moved from prototyping to stable design and dual/multi-sourcing to reduce lead times and expedite costs.
• Aftermarket: Focused on "double-digit forever" growth via service attachment rates (90% on complex chillers), high parts fill rates (>95%), and digital subscriptions (270k for transport, 120k chillers connected via Cloud).
• Residential & Light Commercial: Strong replacement business (75-80% of volume); introducing "Comfort 360" digital ecosystem and hybrid crossover units to capture ductless and side-discharge market share.
• Systems & Digital: New "Quantum Leap" system offerings and long-term agreements (three tiers: Base, Mid-tier, Elite) designed to capture recurring revenue post-warranty, particularly in data centers.
• Global Portfolio: Leverages acquisitions (Visman for hot water, Toshiba for inverter technology) to offer differentiated technology across heating, cooling, and cold chain solutions globally.

Market and Competitive Landscape:

• Data centers represent a high-growth vector with firm long-term agreements and mandatory minimum commitments, insulating revenue from short-term election sentiment.
• Residential market dynamics remain fundamentally unchanged; despite high interest rates, replacement necessity drives demand, with no significant secular shift observed.
• Competition in the ductless/side-discharge space exists but is often partnered with US players; Carrier maintains market leadership through strong channel relationships (Watsco, Home Depot, independents).
• Europe is experiencing a secular shift toward electrification, with air conditioning demand rising due to extreme heat events, creating a multi-decade low heating unit replacement cycle in Germany.
• Distribution network remains a key differentiator with 100,000 dealers; consolidations (e.g., Home Depot acquiring distributors) are viewed as opportunities to enhance contractual agreements.

Risks and Challenges:

• Input cost volatility, specifically regarding tariffs (232 tariffs) and raw material prices, poses a significant short-term margin risk, though visibility is improving compared to the Q1 surprise.
• Temporary operational inefficiencies related to rapid volume ramp-ups (expediting, logistics) are impacting current-year profitability.
• Over-exposure risks are mitigated; the company is not reliant on any single geography or vertical (Data centers are <10% of sales; Residential is 20%).
• Macroeconomic headwinds, including high interest rates and consumer anxiety, could potentially suppress new construction volumes in the long term.

Management Commentary and Tone:

• Tone is highly confident and optimistic, emphasizing the company's transformation from a legacy manufacturer to a "pure play climate and energy solutions" company.
• Management stresses resilience through a balanced, diversified portfolio and a focus on "Carrier Excellence" (productivity system) to drive margin expansion.
• CEO Dave Gitlin repeatedly highlighted the 3x improvement in commercial HVAC win rates and the shift toward recurring revenue models.
• Executives expressed strong conviction that the company is "better positioned for sustained strong growth than in decades."

Analyst Questions and Answers:

• Growth Tracking: Confirmed 10% growth this year and a 6-8% medium-term zone, driven by data centers, aftermarket, and systems differentiation.
• Resi Market: Clarified that the market is fundamentally resilient due to replacement needs, noting that previous repair spikes were cyclical and not a secular change.
• Data Center Confidence: Expressed high confidence in reaching the $2 billion sales target for the year, citing stable designs and supply chain dual-sourcing.
• Pricing Strategy: Explained that pricing actions are structural responses to unexpected tariff/energy cost spikes, with an 8% increase already announced for next year.
• European Turnaround: Highlighted strong momentum in Europe with double-digit margins achieved last quarter and significant uptake in heat pumps and AC due to climate factors.

Other Key Points:

• Carrier has 270,000 Link subscriptions for its transport business and 120,000 connected chillers, facilitating a data-driven service model.
• The company is closing high-cost locations and implementing restructuring actions to achieve structural cost reductions.
• The "Quantum Leap" digital offering and comprehensive long-term service agreements are key differentiators for capturing data center recurring revenue.
• The company is actively in-sourcing key sub-assemblies in a new Texas factory to ensure supply chain resilience.
• Management emphasized that 75-80% of the residential business is replacement, making it less sensitive to new housing starts than often assumed.