Executive Summary / Key Takeaways

• Strategic Transformation Pays Off: Carrier Global Corporation has successfully transformed into a pure-play climate and energy solutions leader, divesting non-core assets and acquiring Viessmann Climate Solutions, positioning it for accelerated growth in high-demand verticals.
• Data Centers and Aftermarket Drive Growth: The company is capitalizing on secular trends, particularly the AI-driven data center boom, with sales projected to double to $1 billion in 2025, and consistently delivers double-digit aftermarket growth, enhancing recurring revenue streams.
• Technological Edge in Efficiency: Carrier's differentiated technologies, including magnetic bearing chillers, advanced heat pumps, and integrated digital platforms like Quantum Leap and HEMS, offer superior energy efficiency and comprehensive solutions, creating a competitive moat.
• Resilience Amidst Headwinds: Despite near-term softness in residential and light commercial markets in the Americas and Europe, Carrier is taking aggressive cost actions, rightsizing inventory, and leveraging strategic initiatives to maintain profitability and prepare for market recovery.
• Solid Financial Outlook with Capital Returns: Carrier projects approximately $22 billion in sales and adjusted EPS of about $2.65 for 2025, supported by significant cost reductions and a lower tax rate. The company's robust free cash flow generation underpins a disciplined capital allocation strategy, including a new $5 billion share repurchase authorization.

Carrier's Climate Command: Accelerating Growth Through Strategic Transformation and Digital Leadership

Carrier Global Corporation ($CARR) stands at the forefront of intelligent climate and energy solutions, a global leader strategically positioned to capitalize on profound mega-trends such as urbanization, digitalization, and the urgent demand for energy efficiency. The company's core business encompasses innovative heating, ventilating, air conditioning (HVAC), and cold chain transportation solutions, complemented by a broad array of building services. This comprehensive portfolio, featuring industry-leading brands like Carrier, Viessmann, Toshiba (TOSBF), Automated Logic, and Carrier Transicold, underpins its overarching strategy to deliver differentiated, digitally-enabled lifecycle solutions to a diverse global customer base.

The competitive landscape for Carrier is robust, featuring formidable direct rivals such as Johnson Controls International (JCI), Trane Technologies (TT), Honeywell International (HON), and Emerson Electric (EMR). Carrier distinguishes itself through its extensive brand portfolio and a strategic emphasis on integrated, reliable solutions and comprehensive aftermarket services. While competitors like JCI and HON often lead in advanced IoT-driven analytics and broader automation ecosystems, Carrier's specialized expertise in refrigeration and transport, coupled with its strong global brand presence, allows it to capture segments requiring robust cooling under challenging conditions. The company's focus on providing bundled services and automation technologies positions it as a one-stop provider, offering economies of scale in manufacturing and potentially lower operating costs for customers.

A cornerstone of Carrier's competitive advantage lies in its technological differentiation and innovation. The company's advanced HVAC systems, including its new large capacity air-cooled chiller with a proprietary magnetic bearing centrifugal compressor, are "significantly more efficient than our competition and can operate at elevated ambient temperatures." This directly addresses critical performance requirements, particularly for high-density cooling applications. In the rapidly expanding data center market, Carrier's Quantum Leap integrated cooling solution combines traditional cooling, liquid cooling (including Carrier's own Cooling Distribution Units or CDUs), server management, and building management systems. This offering aims to be a "one-stop shop" for data center cooling needs, providing differentiated and more efficient solutions. For instance, a recent win for the Shanghai Oriental Hub infrastructure project, integrating centrifugal chillers, heat pumps, and a differentiated building management system, is expected to improve customer energy efficiency by approximately 20%.

Carrier is also making significant strides in home energy management. Its Home Energy Management System (HEMS) offering in North America, currently in field trials and slated for market introduction mid-next year, is being developed in partnership with Google (GOOGL). This collaboration leverages Google's cloud, AI, and analytics to "enhance grid resilience and support smarter energy management," aiming to "increase the efficiency of the existing energy infrastructure, reduce grid congestion, unlock greater energy utilization and reduce energy costs to the homeowner." In Europe, the company's residential heat pump sales were up about 15% in the third quarter of 2025, with Germany seeing a 45% increase, driven by electrification trends. Carrier is actively working to reduce product and installation costs for these heat pumps to incentivize adoption independent of government subsidies. The company's digital platforms, Abound for buildings and Lynx for transportation, are also gaining traction, with connected chillers up 30% in Q3 2025 to 63,000 (a 3x increase in three years) and Lynx subscriptions up 40% to 210,000. These technological advancements not only enhance Carrier's competitive moat but also contribute to higher average selling prices, lower operational costs for customers, and improved margins for the company, solidifying its market positioning and long-term growth strategy.

Carrier's journey since its 2020 spin-off from United Technologies (RTX) has been marked by distinct phases. The initial period focused on building a new foundation, fostering a culture of growth and innovation, and implementing "Carrier excellence" for operational execution. The years 2023 and 2024 were defined by "performing while transforming," highlighted by the strategic acquisition of Viessmann Climate Solutions (VCS Business) on January 2, 2024, which significantly expanded its European residential HVAC presence. Concurrently, Carrier divested non-core businesses, generating over $10 billion in gross proceeds, which were primarily used to reduce debt and achieve a net leverage ratio of approximately 2x. Entering 2025, the company embarked on a new phase of "accelerating growth," reorganizing its segments and prioritizing differentiated products, double-digit aftermarket expansion, and integrated system solutions.

Financially, Carrier's third quarter of 2025 reflected a mixed environment. Net sales decreased 7% to $5.58 billion, with organic sales down 4%. This was primarily driven by reduced end-market demand and distributor destocking in the Climate Solutions Americas (CSA) residential business, as well as lower demand in Climate Solutions Europe (CSE) and Climate Solutions Asia Pacific, Middle East Africa (CSAME). Adjusted operating profit for the quarter was $823 million, a 21% decrease year-over-year, largely due to the lower residential volumes. Gross margin as a percentage of net sales decreased by 200 basis points to 26% in Q3 2025, impacted by lower volumes. However, for the nine months ended September 30, 2025, gross margin as a percentage of net sales increased by 90 basis points to 27.6%, driven by higher volumes in certain end-markets and productivity initiatives. Adjusted EPS for Q3 2025 was $0.67, down 13%. For the nine months ended September 30, 2025, adjusted EPS was $1.65, a decrease from $3.34 in the prior year, primarily due to a large gain from discontinued operations in 2024.

Despite the residential headwinds, Carrier's commercial businesses demonstrated resilience. Climate Solutions Americas' commercial HVAC sales were up 30% in Q3 2025, driven by strong customer demand and improved pricing. The company's data center sales are on track to double from $500 million in 2024 to $1 billion in 2025, with backlog for 2026 projected to be up about 20% year-over-year. Climate Solutions Transportation (CST) saw organic sales growth of 6% in Q3 2025, led by a 50% increase in its container business, which is benefiting from new product introductions and market share gains. The CST segment's operating profit margin expanded by 80 basis points to 15.4% in Q3 2025, largely due to the 2024 exit of the commercial refrigeration business.

Carrier maintains a strong liquidity position, with $1.40 billion in cash and cash equivalents as of September 30, 2025. The company has access to a $2 billion USD-denominated and a $500 million Euro-denominated commercial paper program, alongside a $2.50 billion revolving credit facility, providing ample resources for operations and strategic initiatives. Debt reduction has been a priority, with $1.20 billion in long-term debt repaid during the nine months ended September 30, 2025. Carrier's disciplined capital allocation is further evidenced by $2.40 billion in common stock repurchases during the same period, and a new $5 billion share repurchase authorization approved in October 2025. Free cash flow for the nine months ended September 30, 2025, was $197 million, with the company expecting approximately $2 billion for the full year 2025.

Looking ahead, Carrier has updated its full-year 2025 guidance, anticipating approximately $22 billion in sales, a reduction of about $700 million primarily due to the softer CSA residential market. Adjusted EPS is now expected to be about $2.65, reflecting lower earnings but also a lower adjusted effective tax rate closer to 21%. Management is taking aggressive cost reduction actions, including the elimination of approximately 3,000 indirect positions, which are expected to generate over $100 million in carryover savings for 2026. For 2026, Carrier is planning for low single-digit organic growth, with CSA residential volumes expected to be flat to slightly up, and the European RLC market anticipated to be flat after reaching 15-year lows in Germany. The net impact of pricing and tariffs is expected to remain dollar neutral in 2026.

Key risks include ongoing macroeconomic volatility, particularly in residential and light commercial markets, which could impact demand and pricing. The company's forecasting model, while continuously refined with AI, faces challenges in a short-cycle and rapidly shifting market environment. Legal contingencies, such as the Aqueous Film Forming Foam (AFFF) litigation, while subject to settlement agreements and expected insurance recoveries, still present inherent uncertainties regarding potential future exposure. Furthermore, global trade policies and potential new tariffs, such as those discussed for Mexico, remain a watch item, though Carrier has demonstrated a strong track record of mitigating such impacts through supply chain actions, productivity, and pricing adjustments.

Conclusion

Carrier Global Corporation is executing a compelling investment thesis centered on strategic transformation and technological leadership in intelligent climate and energy solutions. The company's decisive portfolio simplification, coupled with targeted investments in high-growth areas like data centers and advanced heat pumps, positions it for sustained long-term value creation. While facing near-term headwinds in cyclical residential markets, Carrier's aggressive cost management, robust aftermarket performance, and commitment to innovative, energy-efficient systems underscore its operational resilience. The company's disciplined capital allocation, including significant share repurchases, further enhances shareholder returns. Investors should recognize Carrier's strategic pivot and technological prowess as key drivers for future growth, particularly as global electrification and digitalization trends continue to accelerate, solidifying its competitive standing and driving profitability in a dynamic industry.