Okay, just introduce you, Patrick. Thanks so much. We continue with our sessions, and with us we have Carrier. With us we have Patrick Goris, Senior Vice President and the company's CFO. I think Patrick will make a couple of comments with slides, and then we'll go to formal fireside chat. Thank you.
Excellent. Thank you, Andrew. Good morning, everyone. Our story is a lot more exciting than the music we just were listening to. Carrier, you may have heard of Carrier. We've been in business for over 100 years, but we've been an independent public company for only three years, actually less than three years. I thought I'd provide you an overview of our company, and so you can learn more about our exciting story. At the end of the day, we think we're a very attractive investment opportunity, and to understand that there are some five key elements here. one, we have iconic brands and leading market positions in a very attractive industry and in end markets with important secular drivers, and I'll talk more about that.
On top of that, there are some Carrier-specific elements that we think make our investment thesis even more attractive. One, we are underrepresented in our own aftermarket, so we have an outsized opportunity to grow in high margin, high growth aftermarket. Two, we have a significant opportunity to simplify our company and take cost out. We've done a lot of that already. There is a lot more to come. Then three, we've done some work already on simplifying our portfolio, but there again, there is more work there to be done, and we have significant capital available for value add capital deployment. Let me first provide a brief overview of our company. At the end of the day, we are a global leader in healthy, safe, sustainable, intelligent building and cold chain solutions. We're a very global company.
We compete on technology differentiation, we invest in digital platforms such as Abound and Lynx to drive more customer intimacy, more recurring revenue. Of course, this is a key enabler for our aftermarket revenue growth. You also see there that we are focused on ESG excellence. We help companies achieve their carbon reduction or carbon emission reduction goals. We are really an important player in helping our customer achieve their objectives and drive more sustainability and efficiency in everything they do. Organized in three segments. Each one of these segments, as you can see on this slide, has leading positions in each market that it operates in. All three segments are global, and all three segments are really focused on important things.
In HVAC, of course, we help with the quality of life of many people, the indoor air quality, indoor comfort, fire and security speaks for itself. We keep people in buildings and individuals safe and secure. Of course, in refrigeration, we ensure that medicine and foods get transported in the best way possible, meaning reducing waste. Across those three segments, a key element on reducing energy consumption, so increasing efficiency, and of course, a big opportunity in driving aftermarket growth, and I'll touch on that in a little bit. About a year ago, we had a investor day, and we laid out our value creation framework, and it's the same that you see here. We're focused on above market organic revenue growth. We have different levers available for margin expansion.
Aftermarket is just one of them. We will talk about productivity as well. We are continuously looking to drive more tax efficiency, deliver strong free cash flow, and then reinvest our capital into higher growth opportunities. The outcome of this is what you see on the bottom line. We expect double-digit EPS growth through the cycle. In the last few years, we've actually done pretty well following this model. I talked to you that we have some secular tailwinds that are really attractive to our business, and I would expect that you recognize the ones you see on the top of this page, and each one of these benefit our business. You see healthy indoor environments. The move towards electrification, a huge tailwind for our HVAC business, but also our transport refrigeration business.
Anything digital enhances our capability to provide aftermarket service and more sticky, recurring revenue streams. What is not on this slide, but is in the takeaway is that more recently, whether it's in the U.S. or in Western Europe, there has been a tremendous increase in government incentives or regulations to drive more adoption on some of our technologies. For example, the Inflation Reduction Act in the U.S., some of the incentives available in Western Europe towards the move towards more heat pumps. It really turbocharges some of the secular tailwinds you see at the top of the page, and we are really well positioned to benefit from that. Let me talk a little bit about aftermarket. We estimate that our current aftermarket business is about $5 billion, so it's about a quarter or so of our business.
We believe that the annual revenue available with our installed base globally is about four or 5x our current aftermarket business. In other words, we're significantly underrepresented in our own aftermarket. We had a late start. Our CEO, our aftermarket leader, they both come from the aerospace business where they make all their money on aftermarket. In the last few years, we've had a tremendous focus on aftermarket. Since then, our aftermarket business has grown by double digits. Why do we like this? At the end of the day, it's our equipment, so we are the OEM. They're our customers. The aftermarket business on average has gross margins over 10 points higher than the company average. There is a high level of recurring revenue streams associated with this.
Increases customer intimacy, increases customer loyalty, increases the level of pull we get for from customers for equipment. Only good news on aftermarket, and it's probably the number one internal focus we have from a commercial viewpoint across all of our businesses, given the enormous installed base we have across all our businesses globally. Let me talk a little about productivity. I mentioned that we have a tremendous opportunity to continue to simplify our company. By whichever metric I would look at internally, whether it's number of systems, number of vendors, number of legal entities, we are complex, and we are reducing that complexity to drive out cost. We target every year to take out 2% to 3% of our cost base. We've done that last year. We took out $300 million.
We will again take out $300 million this year. This will go on forever. Of course, in our operations, we target a lot more than 2%-3%. In our plants, it's typically 5% or more through the implementation of automation and other technologies. Our focus on productivity gets translated into our P&L. Actually, of all our peers, we have the largest margin expansion in our operating margin last year. A big focus there, continued opportunity for many years to come. Let me talk a little bit about portfolio and capital deployment. It's another element that I mentioned I think is Carrier-specific. Since the spin in April 2020, we made significant efforts in simplifying our portfolio. We sold non-core assets, our stake in Beijer. We sold Chubb, reduced the number of joint ventures.
All of that helps us with more focus, reducing complexity. We made some acquisitions as well that were very strategic and right in the middle of what we're focused on as a company. We're not done with our portfolio work. That assessment is continuing, and I will also say it is across the different segments of the company where we see opportunities to continue to look at our portfolio and see where there are opportunities to further improve our portfolio. I will also say, though, while portfolio work continues, we expect to be a net buyer, not a net seller of assets. Our work on portfolio and strong free cash flow generation has significantly improved our financial position since the spin.
One of the prices of liberty or freedom we had to pay was we got quite a little bit of debt from our former parent. We reduced debt, as you can see that on the slide. At the same time, we have significantly increased our returns to shareholders, and we have all the capability now to continue to do so. We have about $3 billion-$3.5 billion of cash on the balance sheet. In terms of capital deployment, you see some of the M&A priorities on the right side. You'll recognize it's very much focused on sustainability, adjacencies, geographic expansion, and anything that can help us accelerate our aftermarket revenues. Capital deployments are pretty clear and are not changing. The best returns we can deliver is by growing faster organically.
Aftermarket is just one of the opportunities we have there. I'm sure we'll talk in a little bit more about heat pumps. I talked just about our priorities for inorganic growth. Today, paying down debt is not a priority for Carrier. We continue to focus on being a solid investment-grade company, and that is exactly where we are today. After funding inorganic growth, it's all about shareholder returns, and we have the capability to do both, dividends and share repurchases as we did last year. I talked or I mentioned earlier how important of a player we are for our customers in driving their sustainability goals. Many companies that you follow have made commitments for greenhouse gas reduction.
Typically, they cannot achieve those commitments without investing in some HVAC equipment, or depending on the industry, of course, in electrifying some of their fleet. That is exactly where we come in. We're recognized by many third-party leading organizations as being a key player and a key beneficiary of the trend towards more sustainability in the world. Of course, the more efficient the equipment that we sell, the more costly that equipment is, which means it's only good news from a financial perspective for Carrier as a company. Finally, a quick recap of the key messages this morning. Iconic brands, leading market positions. We play in a really attractive market. There are some long-term secular tailwinds we expect to benefit from for a long period of time. The aftermarket is a key opportunity for us.
We are investing in digital platforms as a key enabler for that, driving more asset-light recurring revenues. I mentioned about productivity and simplification, not just from a cost basis, but also from a portfolio basis, and of course, significant flexibility from a capital deployment. I shared with you our priorities there. With that, I will turn it over to you, Andrew.
Okay. Patrick, Dave, thanks so much for being here. Always a pleasure.
Good to be here.
Yeah. Maybe we can start with the crazy HVAC cycle. We have your friends from Florida here as well, in one of the rooms, so they're saying interesting stuff. You know, maybe, you know, big debate, how has demand held up so far in the first few months of 2023? Maybe that's a good place to start.
By resi, you mean residential HVAC, I assume?
Yeah, resi HVAC, yeah.
Yeah, that question comes up once in a while.
We can talk about resi-
First of all.
... resi fire security.
That's. Yeah.
It's probably less exciting.
First of all, residential HVAC is a really good business. We have a leading position in the U.S. in residential HVAC. I mentioned earlier the move towards more sustainability. That translates as well into residential HVAC. We believe we have the leading position in heat pumps in the U.S. We're seeing very strong growth there. Again, move towards more sustainability. We'll only benefit from that, including in our largest market. We've had some really good years in residential HVAC. For this year, what we expect is our residential HVAC sales to be about flattish compared to last year. Underlying that is volumes being down, but that volumes being down offset with price and then the impact of the mix-up.
As people move towards more efficient units, whether it's regulation-driven or whether it's people being focused more on efficiency, basically it means higher priced units. Full year, we expect sales to be flat with volumes down, offset by the mix-up effect and price. For Q1, what we expect is our sales to be down high single digits in residential HVAC, with volumes down in the teens.
Yep.
Again, part of that offset with the impact of price and mix. As the year progresses, we expect that will improve. The second half of the year, we expect low single digit growth in residential HVAC. That's of course when the comps will become more easier. In Q1, we have quite a difficult comp. One year ago, residential HVAC sales were up well over 20%, clearly industry leading, and so we'll lap that and then from there on we expect to get better on the resi HVAC side.
I'll ask about the question because I think the sequentially the comps during the year could be weird.
Mm-hmm.
I'll ask that question. Just maybe, you had the 2022, you sort of commented that you ended up with more channel inventory level that you were planning. Where are we? I guess it's March.
Yep.
What has happened so far, and do you anticipate any destocking?
Yeah
into the spring selling season?
What we're referring to is the inventory held in the field, so by some of our partners of our products. The 2022 ended higher than we intended, and we expect therefore this year to be some destocking, and we expect that to particularly happen in the second half of the year.
Okay.
First half of the year, typically people actually increase inventory levels, in preparation for the season, the season in North America. They would expect inventory levels then to reduce by the end of the year, which is embedded in our guidance. I don't expect big movements downwards till the second half of the year in field inventory.
Gotcha. I think it was back in December when you talked to distributors, there was a concern about this air pocket, maybe March, April, in terms of production. It just seems talking to folks in the channel, those have dissipated. It's just sort of. Right? There was a fear that those, you know, sort of March, April production volumes, those big question mark, there was talk about discounting. You know, what we're hearing is that that actually may be getting better, right? At the AHR Expo in Atlanta, people I think were quite constructive. I think some of the distributors we talked to are being more constructive. Can you just comment how that played out?
Yeah. The only thing I will say is, we don't talk about discounting internally.
Right.
There is certainly not a discussion, around it. I think that generally the situation is similar to what you just described.
Yep.
We're certainly not expecting an air pocket that you referred to was being discussed.
No, it clearly didn't, it did not happen. Yep. You know, maybe we can talk about. Yeah, so the sell-in, right? Maybe we can talk about sell-in and sell-through. Actually from the channel perspective on the sell-through, You know, if you go through the math, like third quarter, there is a scenario in the third quarter sell-through in terms of units could actually be flat to positive, right? Is that You know, how should we think about sell-in progressing through the year versus sell-through in the channel?
I will look at my expert here.
Yeah, I don't know whether it necessarily does that for-
Yeah
... Q3. Clearly we call that the movement to sell.
Yeah
That was down in the fourth quarter.
Right.
We haven't commented necessarily about the first quarter, but certainly, you know, that's where the demand we have to watch in terms of how that will play out. I just don't know from a comp standpoint. Certainly from our selling, the comps get easier in the back half of the year, but I don't know what that necessarily means.
For you, we should be thinking for you specifically of a Carrier. You know, right now we're anticipating destocking in the second half.
Yeah. There is some level of destocking embedded in our outlook.
Has that thinking changed so far this year, or is that pretty much in line with where you were at the end of last year?
It's in line what we expected back in February when we provided guidance.
Gotcha. Maybe we can talk about sort of just broader, residential cycle and how to think about replacement, because I know there are people who use that framework. I know that's not necessarily your framework. Just, can we talk about as equipment is getting more sophisticated, more energy efficient, you know, what is the life of a piece of equipment in the field, and how do you think about it?
We do believe that the life of the equipment has shortened a little bit. Before we were thinking the high teens, maybe 17 years or so in terms of life cycle, we think now it's probably closer to 15.
Mm-hmm. Oh, wow.
it's a little bit-
A lot more than I would've thought.
It's a little bit shorter than what it was before.
Right.
With, if you move towards more heat pumps, and heat pumps, of course, can do both heating and cooling.
Right.
There is a thought that with the move towards more heat pumps, that could shorten some of the life cycle because you have one piece of equipment doing both heating and the cooling.
Gotcha. You know, and maybe this is a very, very interesting angle because I think you are unique in that you own some of the key components of your Asia supply chain, specifically Toshiba.
Mm-hmm.
Giwee. I know that the focus right now for these products in Asia, but I think it does open very interesting opportunities for you, in North America, particularly-
Yeah.
The inverter heat pumps. Can you talk about the technology path, right? Just maybe explain to folks what does a Toshiba-
Mm-hmm.
Do in Asia? What do they do in the U.S. today? Where can you take that? Maybe the same thing for Giwee because, you know, at AHR, I did not appreciate... Well, I'll let you.
Yeah.
I'll let you talk about Giwee yourself.
Good.
How do you envision both Toshiba and Giwee brand in North America down the line?
Yeah.
What doors does it open for you in Asia?
Toshiba Carrier was a joint venture between Toshiba and Carrier, long-standing, a couple of decades. We were the minority partner, and about a year ago, we bought out our partner, and so we actually own 95% of this. We're very excited about this acquisition. We paid about $900 million for $90 million in incremental operating profit. In addition to that, we committed to $100 million in cost synergies, and we're confident we'll do more than that. Besides the financials, the reason why we're interested in very excited about this acquisition is, one, direct access to VRF technology with a leading player in Asia, so directly on a roof. As Andrew, you were referring to, we now have a direct ownership of differentiated inverter technology.
Again, really attractive to us as well. Three, Toshiba also has compressor technology. Those three things enable us to do a few things. One, they enable us to compete in Asia in a growing market with a very strong brand, Toshiba. We will continue to operate under that brand for several more decades. Two, we can use some of that technology in other regions of the world, and one part of the world is right here in Europe. All of you probably have read about the significant shift towards more heat pumps. The technology from Toshiba helps us with heat pump technology for residential applications in Europe. It's a key area of growth for us. With the acquisitions of Giwee and Toshiba and our existing footprint here in Europe, we're focused on growing the residential heat pump space in Europe.
We can also use this technology in the U.S., not just the inverter technology, but longer term, we're also looking at the compressor technology. It's an acquisition that helps us from a commercial point of view, technology point of view, and we can scale this in different parts of the world. Actually, in our very first meeting this morning, one of our Scandinavian investors that we met with mentioned how pleased he was with this Toshiba unit he had installed.
Right.
Because it's so efficient, significantly reduces his energy bills at home. It just confirms it's a differentiated offering, attractive not just in Asia and in Europe, but also for heat pump applications in this region and then for technology point of view in this region.
Toshiba and Giwee, they have independent presence right now, both in Europe and in the U.S., right?
Giwee is mostly in Asia.
Right.
basically what we have now is a tiered branding, particularly in Asia, where Toshiba is the premium brand.
Right.
Carrier, then Giwee.
Okay. Is the idea that over time, the compressor technology and all the... You can integrate, the back end of it, right?
That is the plan. First is the heat pump opportunity.
Right.
In resi in Europe.
Right.
Of course, looking at how can we use that technology...
Right.
In our home market in the U.S. as well.
Gotcha.
So very-
And-
Very pleased with that acquisition.
No, I think it was very interesting. I'll just make it at AHR show, it's very interesting how Asian players are because of the integrated compressor technology.
Yep.
Because, right, Asia is the biggest heat pump market. I mean, I think people underestimate, in my view, you know, the array, you know, and heat pump emphasis that it has opened the door, I think, for a lot of technology from Asia into the U.S. in places like Massachusetts.
Yep.
you know, Illinois to this technology, and I think you are the only vertically integrated player.
We're very pleased with our position, and if I look at the heat pump footprint that we have, our direct heat pump sales are probably about $2 billion. If you include the VRF technology.
Right.
What we would sell to some of the JV partners, it's probably well over 2x of that.
Right.
From a commercial HVAC applications, the two larger markets we believe are China and the U.S.
Right.
We believe we have leading positions there. Leading position in heat pumps in residential applications in the U.S. As I mentioned earlier, our focus now is the residential heat pump market in Europe with the very significant incentives that are available here, and that's both an organic play as well as an inorganic play for us.
Can we just talk a little bit about what opportunities do you have on the commercial side, right? I think residential heat pump market. On the commercial side, what is your current position on the commercial heat pumps, and what does Toshiba and Giwee do, if anything, to help you on the commercial side in heat pumps?
Toshiba will probably help us more on the light commercial side.
Right
than it will do on the commercial side.
Right.
On the commercial side.
That's the core Carrier.
On the commercial side, it's really in Europe, where, as I mentioned, leading position. Same in China. Toshiba will help us, but mostly on the light commercial side.
Gotcha.
The commercial HVAC heat pump will be mostly organic investments.
Okay. fantastic. Maybe we can talk about the incentives and.
Yep
... you know, a lot to talk about this. Can we just talk about, A, how do we think. I think it's a two-part question, right? one, I think the early incentives were related to educational investment.
Mm-hmm.
I think broader clearly, there is impact from the IRA as well.
Yep.
Maybe two separate issues. A, how much is still left to go on the education front from the original stimulus? How do we think about the IRA? It does seem that sort of government's ability in the U.S. to staff, you know, it's just the government is just not writing checks fast enough. What is the timing and how delayed is it?
Yep. The first incentive that Andrew was referring to was kindergarten through twelve in the U.S. $190 billion made available by the government to invest in schools upgrading their HVAC systems and basically the infrastructure. We are seeing the benefit of that, and actually less than half of that has already been doled out of these funds.
Okay.
more than half still has to come.
Right.
K through twelve, as we call this in the U.S., our business, that business in the U.S. used to be about 10% of our commercial HVAC sales.
Yeah
... has significantly increased. Measuring it is a little bit of art besides science, but we think it's probably about 2x of what it used to be.
As a percent of
% of North America.
As a %, yes.
Okay.
still a lot of runway there to go.
Right
... because less than half of the funds has been doled out.
Okay.
We're seeing that. We're working with the biggest school districts. How can they find the money? What is the right equipment, Carrier equipment, of course, to invest in to upgrade their systems? The Inflation Reduction Act is more recent, actually passed earlier this year, and there is still some of the fine print that is
Right
... determined. I'd say, do we expect big tailwind of that this year? Probably not. Again, this will be something where we will benefit from.
Right.
An example I can provide is a little bit personal. I bought a new system earlier this year, and I bought a heat pump, and I could choose between different levels of efficiencies.
Mm-hmm.
The cost from going from a lower level efficiency unit to a higher level of efficiency is a higher cost, meaning more price to Carrier. More than that entire difference was offset by the tax credit that I will receive.
Okay.
What the IRA will do, we expect as, one, may drive, more unit sales because people wanna take advantage of the incentives available. Certainly a possibility. Two, for sure, what we think it will do is will push people, and obviously that's the intention, towards more efficient units.
Mm-hmm.
because it more than pays for itself.
Right
and with the incentive. The result for Carrier, of course, is we will sell. We call it the mix-up. We will sell more efficient units, more higher price unit, and the margin dollars per unit are of course higher than the lowest efficiency units. What I explained there, if you look at other countries, including in Europe, most countries have their own individual incentive plan to incent people to move towards more electrification, and we see that we see that happening, and that's something that we think will last many years. The EU has an objective of implementing 30 million more heat pumps just by 2030.
As a-
All of that is, will be beneficial.
We have a question from the audience. Those have been hard to come by for my presentation. I'll take it.
Thank you. Good morning. I've got actually a few questions regarding the, you know, the heat pump business. I'd like to understand a couple of things. The first one is, for you, is heat pump as profitable as the, you know, I would say, whatever, regular HVAC or, you know?
Yes
Cool. Yeah, it is as profitable?
Yes.
Okay. The other question is regarding inorganic growth that you were talking about, especially for Europe.
I mean, overall in the U.S., you know, if we start with America, would you say it's a very fragmented market? A fragmented market? How do you look at the market? When we look at European players, that's, you know, the main way for us to look at it, like, you know, small players, whether it's Ariston or any other small players like that. In Europe, it's extremely fragmented market. When they try to go inorganic provide that, at least that's the way I see it. You know, they look at mom-and-pop businesses sometimes slightly bigger businesses, it's a very fragmented business. Obviously, you know, depending on what part of the business you're willing to address, the profitability is not the same.
The kind of customers you are going to address is not the same as well. I mean, for example, in Europe, you go from, you know, the low end, especially because of what you said, the incentives, it's very profitable for, you know, for customers to move from gas to heat pump because of the incentives. It's the case in France, it's the case in a lot of European countries. Obviously if you buy Ariston or whatever, if you buy Daikin, it's not exactly the same for the customers, not the same for the margin as well. Where, where would you want to compete? You know, low end, high end, everywhere. And also since everyone is willing to go inorganic, we've seen a big acquisition of Ariston in Germany.
Do you think that the overall, the metrics, the valuation metrics is gonna still work or, you know, how do you look at it in terms of return on capital employed? The last question, it's all about heat pump. The last question is, what about the grid? You know, it's, it seems like in some countries people are rushing to heat pumps, but then the grid is not, you know, is not enough, so it's not as good as customers were expecting it to be.
Good. There were quite a few questions there. maybe I'll, I mentioned the profitability. I started by saying yes, and let me provide some additional color there. A heat pump typically replaces a legacy boiler, and the price of those heat pump can be 3X of what it replaces, and so it's significantly higher price per unit, and so the margin dollars are significantly higher as well. We really like the profitability and the margin profile of heat pumps, whether it's in the U.S. or elsewhere. Two, in terms of acquisitions, I mentioned earlier that our approach to heat pump is both an organic play because we have the technology available with the acquisitions we made, Giwee and Toshiba and our existing footprint in Europe with our Riello business, so clearly there is a focus on organic.
We'd like to complement that with inorganic investments, i.e. acquisitions. You're right, there is no one single leader in Europe. They tend to be smaller, family-owned business or independent companies, which means that also it makes it difficult for them necessarily to be available, but it's a focus for us. So we're focused on our organic playbook, but at the same time, if one of these assets would become available, and of course we would remain disciplined in terms of pricing the returns it generates, we would absolutely be interested in looking in that space. I think the last part of your question was more...
Yeah
about the grid. Clearly, all governments will have to make continued investments in the grid, not just for the EVs, but all the other electrification that is happening, whether it's heat pumps, whether it's the electrification that's happening in the cold chain, that will be a key enabler for all of that.
How about Applied? You know, that's a small part of your business.
Commercial HVAC? Yep.
You know, can we just talk about what are the lead times for Applied right now?
Yep.
I think the two things that we're concerned about into 2023, right, if you look at the state where the interest rates are, right, commercial real estate clearly not doing really well. If you look at muni bond issuance last year was flat, I think because of interest rate dislocations.
Yep
...like down 25% year to date. If you look at tax receipts, that's relatively flat, right? I appreciate that there is a wall of tax incentives coming out, but can you just sort of put together, you know, thinking about Applied for 2023, given the headwinds and tailwinds on the balance?
Well, we expect commercial HVAC to be up, mid to high single digits this year. We had eight quarters of double-digit order intake.
Mm-hmm.
It's one of our businesses, whether it's commercial HVAC, light commercial HVAC, North America truck or trailer, demand is not the issue. It's more we're focused on making sure we can serve all of that demand.
Okay.
We have not seen any signs yet on our business of that slowing down. Again, we talked earlier about some of the secular tailwinds. We believe that they're gonna be there for a while, that move towards more efficient units, not just commercial HVAC, but also light commercial, the electrification of the fleets in transport refrigeration, those are long-term trends. Might there be a little bump on the road? Sure. We're not seeing signs of that yet.
On the Applied, we have a couple of minutes. You know, my understanding that, for example, a semi fab would have a very, very large HVAC unit. Like we've heard numbers like a $10 billion fab would have like $250 million HVAC unit. Is there, A, are you seeing orders there? B, we've heard concerns in the industry about just capacity availability to service it because I think some of the capacity comes from the data centers. A, are you seeing orders? B, do you need to increase industry capacity to service the build out, on the fab side, maybe EV side? I guess fabs is probably more important.
I think it's fair to say that as we see some of these bigger picture investments, we expect to benefit from these. The benefit, frankly, that we see of the sustainability focus, some of the incentive focus is today bigger than what you referred to. We are not yet in a position where we have to increase capacity. With the existing footprint that we have, that's not the key issue. In some areas, it's really supply chain more than bricks and mortar.
I guess we have one more minute. What worries you about... You know, are you concerned? You know, as I said, interest rates, credit availability, tax receipts. Does that concern you in any way as a headwind for the Applied business in 2023 and 2024?
For this year, because we have so much in backlog, I don't see that.
Okay.
For next year, again, we have not seen the signs yet.
And-
Frankly, those signs may not come because our orders continue to be really healthy.
Are you seeing any sort of? What are you seeing on light commercial?
Again, demand very strong, and it's more about, meeting that, demand. Again, very well-positioned. Came out with, new products, more efficient, and so significant tailwinds to that business.
Let's just hit refrigeration in the last 30 seconds. You know, I think the truck cycle looks peaky.
People said that a year ago, and we grew last year, and then they said this about this year. We, North America truck and trailer, we think will be up over 10% this year.
Yeah.
Again, very strong order intake in the U.S., in India, in China, where we see secular tailwinds. Europe, very well-positioned for the first half of the year. We'll see what orders do in the first half to position us for the second half. Again, very good business. The move towards more electrification is a big tailwind for that business because we have a lot of electric units now on the road. We are the leader. We are now in 14 or 15 different countries, significantly outperforming some of our competition in this space, and it positions us well for the, for the future.
We are out of time. Thanks so much.
Thank you for having us.
Thank you. Yeah, of course.