BAIRD 2026 GLOBAL INDUSTRIAL CONFERENCE - CARRIER GLOBAL CORP

Explicit Guidance:

• Organic Growth: Targeting mid-to-high single-digit organic growth for next year (FY2027), building on the six-to-eight percent medium-term target; FY2026 organic growth expected to be around 10%.
• EPS Growth: Committed to double-digit EPS growth over the medium term.
• Revenue Segments: Data center sales projected to reach ~$3 billion next year (approx. 50% growth YoY from current ~$2 billion level); Data center backlog for next year exceeds $2 billion.
• Segment Margins: Expecting double-digit growth in the aftermarket segment ("forever") and double-digit growth in heat pumps and air conditioning in Europe (both up ~35% recently).
• Pricing: Implemented an 8% price increase for the residential business effective December 15th; price increases announced globally to offset input costs.
• Cost Headwinds: FY2026 headwinds from input costs estimated at $800 million; FY2027 input cost headwinds expected to be significantly lower (approx. $500 million range mentioned as "five million" likely a transcription error for $500M or similar magnitude, but explicitly stated as "five million dollars" in transcript context relative to prior year's $300M surprise; context suggests a dramatic reduction from the $800M peak). Correction based on context: CFO states "headwind next year from input costs will be five million," likely implying $500 million or significantly reduced from the $800M current year headwind, though the transcript explicitly says "five million." Given the $800M context, this is interpreted as a massive reduction in severity.
• Growth Drivers: Data center backlog contributes ~4 percentage points to organic growth; Aftermarket contributes 1-2 percentage points.

Business-Segment Outlook:

• Data Centers: Sales growing 2x YoY; YTD orders up 350%; expected to be slightly under 10% of total sales in FY2026 and over 10% in FY2027. Focus on 600-chiller sales to a major customer and long-term agreements (base, mid, elite tiers) for maintenance and remanufacturing post-warranty.
• Commercial HVAC: Win rate 3x higher than prior years; backlog at record $8.5 billion; expected to reach nearly 50% of Carrier's total business mix by end of FY2027.
• Aftermarket/Service: Consistently achieving double-digit growth (5 years in a row); service attachment rate for complex chillers near 90%; 270,000 link subscriptions for transport; 120,000 connected chillers.
• Residential (Americas): Sales expected up ~10% this year despite market volatility; market volume forecast between 7.5–8 million units (resilient vs. expected 6.5M). Replacement business accounts for 75–80% of volume.
• Europe: Turning point observed after 5+ quarters of modest intake; revenue growth expected in FY2027 driven by heat pumps (+35% recently) and air conditioning (+35% recently) due to heat wave impacts.
• Product/Technology: Full deployment of "Comfort 360" digital ecosystem; focus on ductless/hybrid crossover units; stable design and BOM for 2-3 megawatt air-cooled chillers allowing transition from expediting to dual/multi-sourcing.

Market and Competitive Outlook:

• Demand Trends: Underlying demand for compute and data centers considered locked in for several years; residential replacement demand resilient despite high interest rates and consumer anxiety.
• Pricing Power: Ability to implement price increases driven by new product introductions (A2L refrigerant transition), inflation, and tariffs; channel dynamics remain favorable with strong partner relationships (Watsco, Home Depot, independents).
• Share Shifts: Expected share gains in non-data center verticals globally following capacity investments; digital and system offerings expected to add 1-2 percentage points of growth.
• Competitive Landscape: Market leaders in residential HVAC; strong partnerships with Midea in the side-discharge market; no significant overexposure to pure-play competitors in single geographies/verticals.

Macro / Industry Outlook:

• Economy/Rates: Residential new construction may improve as existing home sales recover from suppression and rates stabilize; commercial side showing strong backlog despite macro headwinds.
• Inflation & Tariffs: 232 tariffs in April caused an unexpected $300M+ cost headwind in FY2026; input costs remain a key focus but are expected to be better managed in FY2027 due to proactive price increases and productivity ("Carrier Excellence").
• Geopolitics: Election outcomes (US) not viewed as a primary driver for 2027–2029 orders due to existing locked-in commitments and long-term compute demand trends.
• Regulation/Environment: Heat wave in Europe (16,000 deaths) driving immediate demand for air conditioning; A2L refrigerant transition driving product upgrades and pricing.

Strategic Initiatives:

• Capacity & Manufacturing: New factory in Texas under construction to insource key sub-assemblies; dual/multi-sourcing strategies to reduce reliance on single suppliers and expedite fees.
• Restructuring: Closing high-cost locations and executing structural cost actions to improve margins; "Carrier Excellence" operating system embedded for productivity.
• Digital & Systems: Expanding digital offerings (system differentiation) and connectivity (270k+ transport links) to drive recurring revenue and differentiation.
• M&A/Partnerships: Leveraging Toshiba (inverter tech) and Wiseman (hot water/heating) technologies to scale globally; maintaining strategic partnerships with Midea.

Risks and Headwinds to Outlook:

• Cost Inefficiencies: Temporary expediting and logistics costs associated with significant volume ramp in data centers expected to fade by 2027.
• Unexpected Macro Events: Potential for further tariff surprises or raw material/fuel cost spikes, though visibility is improving.
• Market Concentration: While diversifying, data center sales are ramping quickly (up to 10%+ mix) requiring careful management to avoid overexposure.
• Supply Chain: Early-stage production issues (tact time, startup issues) for first-of-kind units expected to resolve as designs stabilize.

Management Tone on the Future:

• Confidence: High confidence in achieving $2B data center sales target for FY2026 and $3B for FY2027; optimistic about double-digit growth in aftermarket and European segments.
• Strategic Clarity: Emphasis on "balance but focus," positioning the company as resilient and not reliant on a single vertical or geography.
• Hedges: Acknowledges that growth must come with strong earnings conversion; explicitly states awareness of input cost headwinds and the necessity of price/productivity actions to protect margins.

Miscellaneous:

• Backlog: Record high backlog of $8.5 billion, providing a "great long-cycle" foundation.
• Channel: Strong relationship with Watsco and Home Depot; distribution network of 100,000 dealers cited as a key competitive differentiator.
• Customer Mix: Data center customers represented by hyperscalers and colos with mandatory minimum agreements and LTAs.