The paragraph is a transcript of the opening remarks from Carrier's First Quarter 2025 Earnings Conference Call. Michael Rednor, Vice President of Investor Relations, introduces the call and mentions that David Gitlin, Chairman and CEO, and Patrick Goris, CFO, will discuss results excluding certain costs and items. He reminds listeners about forward-looking statements and related risks detailed in Carrier's SEC filings. They also announced changes to their reportable segments and profitability measures. David Gitlin thanks the company's 50,000 employees for their performance and welcomes Michael Gierges to lead the Climate Solutions segment in the Asia Pacific, Middle East, and Africa. Orders have increased significantly, especially in Climate Solutions, Europe, and Transportation.

The paragraph highlights Climate Solutions America's strong sales growth, with residential and commercial sales up by about 20%, helping to offset weaknesses in light commercial sectors. The global aftermarket is performing well, with double-digit growth anticipated for the year. The company's backlog increased by 10% year-over-year and 15% sequentially. Productivity measures led to a 27% increase in adjusted EPS on 2% organic growth, with a substantial free cash flow of $420 million. The company returned $1.5 billion to shareholders and reduced debt by $1.2 billion. Carrier introduced new products, such as an air-cooled commercial heat pump in Europe, and expanded its aftermarket business. The company achieved significant improvements in chiller attachment rates and launched a smart device application for Lynx Fleet to enhance operational efficiency.

The paragraph discusses the introduction of Viessmann's Profi to boost HEMS sales in Europe, highlighting a significant sales benefit when selling heat pumps and complete systems compared to boilers. It emphasizes a new partnership with Google in the U.S. to enhance energy management and grid resilience. In Europe, there is growth in heat pump demand driven by Germany's subsidies, despite a decline in boiler sales. The residential and light commercial sector projects a return to growth in the next quarter, with significant revenue and cost synergies expected. The recent German election results are favorable, supporting EU climate goals and heat pump subsidies, along with substantial green infrastructure investments.

The paragraph discusses the new government's commitment to reducing electricity prices and improving the electricity-to-gas price ratio. The company, Carrier, is optimistic about increasing heat pump demand and their growth strategies. They emphasize their support for free trade, their status as the largest US-based player in their industry, and their commitment to the US workforce. The paragraph also details their tariff exposure, mainly from China, and efforts to mitigate it through supply chain actions and pricing adjustments. The strong start to the year allows them to increase their earnings guidance by about 20% year over year. Despite macroeconomic uncertainties, Carrier remains focused on customer needs and long-term growth, while maintaining confidence in addressing challenges.

In the paragraph, Patrick Goris discusses the company's strong start to the year, with earnings exceeding expectations. Reported sales were $5.2 billion, with a 2% organic sales growth, impacted by a 5% net effect from acquisitions and divestitures, and a 1% headwind from foreign currency. The Climate Solutions Americas performed better than expected, while the Asia, Middle East, and Africa regions underperformed. The adjusted operating profit increased by 10%, expanding the margin by 210 basis points, with adjusted EPS up by 27% from the previous year. Free cash flow was stronger than expected, driven by higher net income and lower expenditures, leading to $1.3 billion in share repurchases. The CSA segment saw 9% organic sales growth.

The paragraph discusses the sales growth and performance of various business segments. Overall sales growth was driven by a combination of volume, mix, and price, with commercial (excluding NORESCO) and residential sectors showing strong organic sales growth of around 20%. Residential growth benefited from regulatory mix changes, while light commercial underperformed with a 35% decline. Adjusted operating margins increased by 420 basis points due to strong organic growth and productivity. The Carrier Climate Segment (CSE) saw a 7% decline in organic sales, mainly due to a 10% drop in Residential Light Commercial (ROC), but commercial sales showed mid-single-digit growth. Adjusted operating margin in CSE fell by 390 basis points due to lower volume and mix, although cost synergies partially offset this. Carrier plans to address legacy ROC business underperformance and expects future volume improvements. In the CS AME segment, organic sales declined by 6% due to continued weakness in residential markets in China and Southeast Asia, partially offset by growth in Japan and India.

The article discusses various aspects of business performance, highlighting the challenges faced by two businesses compared to a 10% growth the previous year. Despite a decline in organic sales, there was an improvement in adjusted operating margin due to productivity gains and no adverse currency impacts from the prior year. In the CST segment, organic sales saw a 2% increase, driven by a strong performance in the container business, despite regional declines in global truck and trailer markets. The adjusted operating margin improved, partially due to exiting the commercial refrigeration business. The company experienced high to double-digit orders growth across most segments, with notable strength in transportation and commercial sectors. However, China orders decreased in the AME segment. The company maintains its full-year organic sales growth forecast at mid-single digits, with reported sales expectations slightly above $23 billion. Adjustments include higher sales in CSA due to tariff-related pricing and lower light commercial volume. There are no major changes in the overall growth outlook. Profit and cash flow guidance are discussed in the following slide.

The paragraph provides financial guidance and updates for the company's performance and expectations. The company maintains its estimate for free cash flow between $2.4 billion to $2.6 billion with a conversion rate of approximately 100%. It has increased the adjusted EPS guidance range by $0.05 to a new range of $3 to $3.10, despite slightly lower expected volume. For Q2, the company anticipates sales of about $6 billion, an adjusted operating margin expansion of 100 basis points, and a 20% adjusted EPS growth. Looking ahead to 2025, they expect mid-single-digit organic sales growth, strong margin expansion, and nearly 20% adjusted EPS growth. The discussion then moves to a Q&A session with Nigel Coe, who confirms the expectations for Q2 2025 with Patrick Goris, noting mid-single digits organic growth, sales of about $6 billion, and significant margin and EPS growth.

The paragraph discusses expectations for organic sales growth across various regions and segments for the company. In the Americas, organic sales growth is anticipated to be in the mid-teens, with full-year guidance remaining in high single digits. Europe is expected to see low to mid-single-digit growth in Q2 and maintain low single-digit growth for the year, similar to Asia and the Middle East. Asia is facing low single-digit declines initially but is expected to improve later. The transportation segment is expected to see growth in the latter half of the year, ending with mid-single-digit growth for the full year. David Gitlin mentions that the company has offset any tariff impacts through pricing and productivity actions. Julian Mitchell from Barclays inquires about specific growth drivers in the residential and light commercial segments within the Americas, noting changes in full-year guidance since earlier in the year.

The paragraph discusses the financial performance and outlook of a company's residential ("resi") and light commercial business segments. The residential segment had a stronger start to the year than expected, with sales up around 20% due to favorable pricing and regulatory conditions. The company anticipates continued growth, projecting high single-digit to low double-digit increases for the full year, despite tougher comparisons in the second half due to prior pre-buying activities. Conversely, the light commercial segment underperformed, leading to a revision in the company's full-year guidance to low double-digit declines. The weaker performance was attributed to softness in small and medium businesses, such as nail salons and local restaurants, as well as delayed spending in the K-12 sector. The company expects a roughly 20% decline in the second quarter, with the second half being flat to slightly up, resulting in an overall 10% decrease for the year. Despite this, the light commercial segment constitutes just over 5% of the company's total sales, amounting to approximately $1.5 billion.

The paragraph discusses the expected margin trends for the CS Americas business over the year. In Q1, margins were strong at about 22%, with an anticipated increase to around 25% in Q2 and Q3, followed by a decrease in Q4, leading to a full-year estimate of 22.5%. Tariffs are highlighted as a headwind impacting margins by 50-60 basis points annually. Additionally, lower residential volumes in the second half of the year will also impact margins. Overall, despite the strong start in Q1, challenges like tariffs and volume changes will affect margins throughout the year.

David Gitlin provides an update on the outlook for Viessmann, indicating that despite potential lower unit deliveries in Germany and a decline in the boiler segment, the company still anticipates flat growth for the year. The decrease in unit deliveries is offset by a better product mix, with key pumps expected to rise by 30% instead of the previously estimated 15%. Gitlin is optimistic about the overall growth algorithm, supported by strong demand for electrification in Europe, governmental support, and initiatives like cost synergies and share gains. Although the first quarter was expected to decline between 10% to 15%, it ended up closer to 10%, reinforcing their confidence in achieving stable yearly performance.

The paragraph discusses the positive momentum and growth prospects of the company's commercial HVAC business, specifically in the Americas. The team expects a slight increase in the second quarter, with European margins, particularly for Viessmann, aiming for low teens percentages, up from 10% last year. For the commercial HVAC business, particularly with increased capacity, the company anticipates sustainable growth, marking five consecutive years of double-digit expansion. Data centers are a significant contributor, with $500 million growth projected, having already achieved $250 million in the first quarter. The non-data center commercial HVAC sector is expected to grow in the high single-digit range this year.

The paragraph discusses an increase in capacity, particularly in North America, which has allowed the sales team to focus more on non-data center projects. There have been positive developments in mega projects like healthcare, pharmaceuticals, and electronic fabs, although commercial office buildings remain weak. However, the overall outlook for commercial HVAC is positive. During a conversation about company earnings, a clarification was sought regarding the earnings per share (EPS) base for the second quarter of 2024, which is confirmed to be $0.73. There's also a mention of the impact of price increases on the residential front, particularly related to installation challenges with the 454B channels.

The paragraph features a discussion between David Gitlin and Steve Tusa about supply chain issues, specifically related to containers and ingredients sourced from China for the 454B product. Gitlin expresses confidence that current supply issues are manageable and believes the canister shortage affecting the distribution channel will be resolved by the second quarter. Additionally, Patrick Goris addresses concerns about the lower-than-expected margin rates in Europe, mentioning the goal to improve margins to mid-teens over the next few years. He outlines the structure of their European business, which consists of three segments: VCS, a commercial HVAC business, and Carrier's legacy residential and light commercial business. The commercial HVAC segment is experiencing margin improvements, while the legacy residential segment is operating at low single-digit margins.

The paragraph is a discussion among financial analysts and executives about subsidy applications for Viessmann in Germany. Jeffrey Sprague from Vertical Research asks David Gitlin about the high number of subsidy applications and whether it was influenced by expectations that the new government might not be supportive. Gitlin acknowledges that uncertainty about the election might have contributed, but also suggests that it could be due to pent-up demand. He highlights that subsidy applications in the first quarter jumped from about 9,000 last year to approximately 65,000 this year, marking a record high. Gitlin indicates confidence in sustained subsidy levels due to the new coalition government's commitment to maintaining rates. The conversation mentions tariffs and the company's focus on cost efficiency following its spin-off.

The paragraph discusses a conversation between David Gitlin and Jeffrey Sprague, followed by a question from Joe Ritchie. Gitlin explains the company's strategies to offset residual issues, focusing on supply chain improvements through localization and dual sourcing to add flexibility. He mentions efforts in optimizing the manufacturing footprint, reducing exports from China, and implementing a China Plus One strategy. Additionally, the company has been enhancing productivity in factories and controlling general and administrative costs. Joe Ritchie then asks about the 454 transition and whether the recent strength in the Americas residential business could be attributed to distributors stocking the 454B product, inquiring about inventory levels at the distributor level.

The paragraph discusses a company's current business performance and future outlook. Inventory levels are higher than the previous year, and while the first quarter showed strong growth of around 20%, predictions for the second quarter are 15% to 20% growth, with the full year forecasted to be high single digits to double digits. This is due to managing inventory levels, having tougher comparisons in the latter half of the year due to high growth in the previous year's third and fourth quarters, and monitoring the overall economy. Despite these challenges, the company is seeing success in pricing and gaining market share. Additionally, there's excitement about the data center business, particularly the launch of a new initiative, QuantumLeap, and the anticipated introduction of a liquid cooling product by year-end, with positive projections for the next 12 to 24 months.

The paragraph discusses a company's engagement in bid proposals, particularly in Europe, for their cooling distribution units (CDUs) and a fully integrated product called Quantum Leap that combines traditional and liquid cooling and includes their Building Management System (BMS) and ALC business with Nlyte. They are in the early stages of proposal discussions, but interest is increasing. Despite considering acquisitions in liquid cooling, they developed their own CDU, targeting market needs, and are optimistic about its potential despite not having many sales yet. Joe Ritchie and David Gitlin conclude their discussion, and the operator introduces Deane Dray from RBC, who shifts the conversation to the company's Q1 free cash flow. Deane notes it was lighter than usual, possibly due to higher inventory, but the annual outlook is reaffirmed. The response clarifies that Q1 was stronger than typical, with working capital being less of a cash drain, especially regarding payables.

The paragraph discusses positive financial performance, with over $400 million in free cash flow starting the year and a normal seasonal inventory buildup expected to decrease by year-end. The focus shifts to successful service initiatives, emphasizing a company mantra of "double digit forever," with efforts to harmonize operations across branches and improve productivity globally. The company has seen significant progress in attachment rates for services, increasing from 48% to 60%, and aims for 100%. Additionally, there is a focus on margin upgrades and opportunities for modifications and upgrades as new construction slows in major cities.

In the paragraph, David Gitlin discusses how the company is managing tariffs and associated cost challenges. He highlights their success in achieving nearly 100% compliance with USMCA regulations through coordinated efforts across various teams. He acknowledges a remaining cost headwind of 300, which the company plans to address through price adjustments, particularly focusing on the residential sector in the Americas. The company feels confident in their approach, having worked transparently and collaboratively with their channels to navigate these challenges.

The paragraph discusses the commercial HVAC business in the Americas, highlighting its growth despite some weak macro indicators. Joseph O'Dea is surprised by the high-single-digit growth, especially in non-data center business areas. David Gitlin explains that this growth is partly due to increased capacity for water-cooled chillers, achieved by expanding and repurposing facilities in North Carolina. This has allowed the sales force and channel partners to pursue more opportunities, particularly in strong sectors like healthcare, pharma, and electronic fabrication. While areas like commercial real estate remain weak, the company has compensated by targeting sectors that are performing well, including reshoring mega projects and data centers.

In the paragraph, Chris Snyder asks about the impact of a $75 million pre-buy in Q4 on the first quarter and if it's expected to come out in Q2, considering a 15-20% growth guide for the Americas. David Gitlin responds that predicting pre-buy outcomes isn't an exact science; it involves examining movement and underlying demand. Q1 movement, including distributor-to-dealer transitions, met expectations. Inventory levels, especially for split units, are currently higher than the previous year, which may imply some pre-buy effects. The company is actively managing inventory levels with channel partners and will discuss these issues in a meeting with distribution partners. Gitlin anticipates strong performance in Q2 and projects an overall annual residential market growth in the 10% range. Snyder then indicates a follow-up question on service.

The paragraph discusses the strong growth of a service business and its positive impact on the equipment side, particularly for larger projects. David Gitlin, speaking about the commercial HVAC business, highlights their leading position in Europe and Asia due to strong customer relationships, brand presence, and a well-established team. Although historically ranked third in the Americas, efforts are underway to improve this by adding technicians and salespeople, as well as leveraging distribution partners and connected devices to enhance customer support. These efforts have begun to show results, with the company gaining more market share in the Americas.

The paragraph discusses the financial outlook for a company's residential (resi) and light commercial markets in the Americas and Europe. David Gitlin explains that their previous guidance of high single-digit growth in the Americas was primarily due to mix changes, with the expectation of a price increase associated with a new product (454B over 410A). They now expect slightly better price realization and possibly more volume than initially anticipated. Patrick Goris adds that while sales in Europe were down in Q1, they project growth starting in Q2 for both commercial and residential markets. Specifically, commercial HVAC in Europe is expected to transition from mid-single-digit growth in Q1 to double-digit growth later in the year.

The paragraph discusses the European segment of a company's HVAC business, predicting low single-digit growth for residential units and double-digit growth for commercial units for the year. Amit Mehrotra seeks clarification on the volume and mix contributing to the residential revision and asks about the confidence in achieving a projected earnings target of $3.60, considering above and below line items like tax dynamics. Patrick Goris doesn't elaborate on the reason behind the projection but mentions an organic growth target of 6-8% over the medium term, with expectations for mid-single-digit growth this year, and margin expansion of over 50 basis points annually. The company aims for a 30% earnings conversion rate, aligning with its value creation framework.

The paragraph discusses financial and industry forecasts for a company. The company expects strong free cash flow, with over $1.5 billion available for acquisitions or share repurchases after paying dividends. They also aim to monetize a tax benefit to reduce their effective tax rate, potentially achieving a target of $3.60. The discussion then shifts to CST's mid-single-digit growth forecast. Despite some industry forecasts predicting a 15% decline in the North American truck trailer market, the company remains optimistic about its growth due to pent-up demand for trailers and skepticism about the accuracy of the negative forecast.

The paragraph discusses the outlook for different segments of the transportation industry. North American truck trailer growth is expected in the mid-single digits, while European truck trailer volumes are projected to be flat or slightly down, with growth in aftermarkets. Container demand is strong, with first-quarter growth of 20% and predictions for high single-digit growth for the year. The overall transportation segment is anticipated to grow at a mid-single-digit rate. Patrick Goris mentions that profit margins, which were 15% in Q1, are expected to increase by about 200 basis points in Q2 and remain at that level for the rest of the year, with a possible slight decrease in Q4. Tommy Moll, during a discussion with David Gitlin and Stephen Volkmann, notes that the outlook for the Americas light commercial business has dropped from a previous expectation of low to mid-single-digit growth to a current prediction of double-digit decline. He asks about the factors leading to this change in outlook.

In the paragraph, David Gitlin discusses the downside surprise in their business performance during the first quarter, attributing it to reduced spending by small and medium businesses, as well as delays in K-12 bond funding. He anticipates a slight recovery in the second half of the year, emphasizing that the overall business remains strong with high margins and recent growth from 2021 to 2023. Despite current challenges, Gitlin expresses confidence in the company's product line, channel, and brand strength. The discussion then shifts to a question from Tommy Moll about the company's partnership with Google, specifically inquiring about the nature and monetization of their involvement in a demand response program.

The paragraph discusses the collaboration between Carrier Energy and utilities to mitigate the impact on the energy grid from peak demand caused by data centers, particularly due to HVAC systems like heat pumps. Carrier aims to enhance grid management using AI and analytics tools from Google, fostering a partnership that benefits both companies and utility partners. They recently had a call with Google, indicating early stages of the partnership. Additionally, Carrier announced an upcoming Investor Day in New York City on May 19th, focusing on growth strategies, where key leaders will present.

The paragraph concludes a conference call by highlighting upcoming exciting initiatives aimed at achieving long-term growth, expressing gratitude to participants, and mentioning the next meeting on May 19th. The operator then closes the call.

This summary was generated with AI and may contain some inaccuracies.