Great. We're gonna get started again with the Wolfe 19th Annual Transports and Industrial Conference with Carrier, and it's a great pleasure to welcome back Chairman and CEO Dave Gitlin, and we also have Mike Rednor from IR on stage as well. Mike. Dave, I thought it'd be a good opportunity to maybe just give us a lay of land in terms of what you're seeing out there as we enter the summer season.
Well, Nigel, first, thanks to you, thanks to Wolfe for having us back. When you look at Carrier, the part of our portfolio that has been really good is off the charts good. Over 40% of the portfolio is a combination of Commercial HVAC and aftermarket. Commercial HVAC with the tailwind of data centers has been strong, double digits five years in a row, six years in a row. This year will be up certainly double digits again. You saw data center orders in the first quarter up 500%. Data center orders will be good again in the second quarter. We had said that we would grow from $1 billion last year to $1.5 billion this year.
We have orders to now our coverage for the year supports the $1.5 billion, so it becomes an execution issues. It is a little bit back-end loaded. Internally, we're certainly driving to exceed that number, and it's not gonna be a function of more orders for the year, it's gonna be a function of output. We feel very good about certainly 2026. A lot of our focus supporting our customers for 2026, but the anxiety we have is despite all the investments we've made in capacity in North America, up 4x for water-cooled chillers, up 3x for air-cooled chillers, we may not have enough capacity for 2027. That's an issue that is a really nice problem to have, which is how do we continue to support the demand we're seeing for 2027 and 2028.
Data centers and overall CHVAC, very strong, not only in North America, but globally. Aftermarket has been double digits five, six years in a row, will be double digits again this year. We now have 100,000 connected chillers, 200,000 linked subscriptions, leveraging AI to drive unique solutions for our customers, whether it's prognostics, diagnostics, anticipating failures before they occur. Very excited about aftermarket in the DNA of the business. That piece is going well.
In the short cycle businesses, whether it's, if you look at the RLC business in Europe, one of the, I guess, side, positive side effects of what we're seeing with the higher fossil fuel prices, is a shift to the heat pumps, a little bit analogous to what we saw after the Russian invasion of Ukraine. You know, that really sudden shift to heat pumps, we're starting to see maybe not to the extremes we saw back in 2022, but we're seeing variations of that now. That's been a bit positive, and that's continued. We can get more into that, Nigel.
Yep.
Some of the shorter cycle stuff like RLC in North America, light commercial, we thought would be down in the first quarter, was up almost 10%. you know, we've seen some continued positive signs there. The Resi business was a little bit better in the first quarter and, you know, we're early in this quarter, but, you know, it hasn't, you know, it's been tracking along the lines that we thought.
Okay.
Overall, we can get into all pieces of that, but what's been good has been great, and the pieces that have been facing a little bit of headwind have been doing better than we thought.
Okay, that's good. Just to maybe just emphasize. Resi sounds like it's tracking in line with expectations for 2Q so far.
Yes.
Light Commercial a bit better.
Probably.
Europe is encouraging signs.
Yes.
Okay. Okay. Does that mean Europe is back to growth in 2Q?
I would say that, the RLC business, you know, it's early, but, the Commercial HVAC. You know, what I actually think will happen is that the RLC business will probably grow a little bit more than the Commercial HVAC business, just given timing of orders for CHVAC, which I think coming into the quarter, we thought it would be inverse. I think overall, for what we think, we thought for CSE, it probably lands about where we thought. Just probably how we get there will be a little bit inverted.
Obviously, you got tough comps coming up in the U.S. Resi business this quarter. What's your lay of land in terms of inventory right now? Channel inventory, where does that sit? Are we now in a situation where sell in, sell through is virtually matched up at this point?
Yes. That's been good news. Inventory, we ended the first quarter, I think it was down 35% year-over-year. We ended April down about 40%. That's very good. We're kind of in that mid-30 range of year-over-year inventory levels. We feel very good about that. To your question, Nigel, we've done a much better job of tracking that exact ratio of sell-in to sell-out. If you could turn the clock back, if we could turn the clock back to 2025, we would have seen that that ratio was a bit elevated in the first quarter of last year. Right now, it's actually completely in balance to what we would expect to see, what we've historically seen. Inventory levels in check.
You know, really the quarter will go the way of not the first six weeks of the quarter, but the second six weeks of the quarter. It's wonderful to see this heatwave in New York. I'm hoping everyone in the room rushes to replace their systems if they're living in the suburbs of Connecticut. We, you know, so far it's been, you know, we're kinda cautiously optimistic about how things are playing out despite some of, you know, the macros that are out there.
Did it last year, Dave.
Yes, thank you.
I'm not gonna do it every year.
Carrier. You could do it once a year. It wouldn't be a good sign about our reliability though.
Yeah. Today's the first 90 degree day in New York, so it's.
Yeah, keep it going
Signs, the signs are good.
Yeah.
I mean, there's a lot of questions about pricing and, you know, what price actions have been announced, what's been the reaction from the channel, what do we expect to see in 2Q, 3Q? Maybe just bring us up to speed on that.
I'll, first of all, our share has been either maintaining or growing. You know, if you look at the first quarter, we've been fine on share, probably a little bit of upside there. We did announce the price increases in Resi was in the high single-digit range, expecting mid single digits. In the Light Commercial, it was kind of in the mid single-digit range. We have done pricing based on the input cost. We said at a Carrier level, we said that we'd get about a point of price coming into the year. Based on some of the recent input cost impacts, we've now said that's closer to three points. You could think about that as $200 million, now it's more like $600 million, an additional $400 million.
Look, we've been very, very close with our distribution and our dealer partners. We've done a lot of explanation of some of the tariff progression, so there's an understanding of that. We're very targeted in how we manage pricing to make sure that we really support our key accounts. We've had great wins on the residential new construction side. We had some great wins last year, and we'll see some of the benefits of that this year. Look, no one likes additional pricing. We're managing that, and then we'll have to see how tariffs play out. You know, if tariffs change over time, then we'll change our pricing over time.
Okay. I wanna come back to that point in a second. The point on the share gains in Resi construction, is that an attractive part of the market? It's viewed as low price, low margin. Is that attractive for Carrier?
Our margins are higher in replacement than they are in new construction. It's still attractive. You know, it's nice to have close to 1/3 of the market. It drives absorption, it drives the need for continuously upgrading your technology. These are great customers. We're very close with these customers to provide solutions for 'em. Even though it's a little bit lower margin than our replacement, that's a great part of the market.
Okay. You mentioned $4 million of incremental price coming into the P&L this year. I don't think that's quite enough to cover the inflation and the tariffs. Correct me if I'm wrong, what other measures are you taking to mitigate those two waves?
Yeah. We are thinking about pricing to offset, you know. I would say, Nigel, it is actually dollar for dollar in terms of how we think about it. If you look at the incremental $400 million of pricing, probably $300 or so is related to tariffs, and then the $100 or, you know, in that ballpark is related to the mix of fuel and raw materials.
Okay. What else are you doing around supply chain, around productivity to really overdrive on that if any?
Well, those are kind of net numbers. We're doing, Like, I would say the team's doing a tremendous job on just all things controllable in terms of productivity. Because, you know, what we thought coming into the year has been a bit different on things like raw material, logistics impacted by some of the fuel surcharges. We have to overdrive all things supply chain. The way we look at it internally is there's some things in part of, as terms of the supply chain, just negotiations with our suppliers and trying to figure out how to do strategic partnerships with them where we benefit from price. There's redesign of the products, either with our suppliers, our own, our own activity with our own products, to just fundamentally take costs out of the product through redesign. That's going extremely well.
We are doing a much better job in terms of factory productivity, so the team's doing a very nice job in terms of the controllables there. In terms of just base productivity, which we track weekly, those parts of the business are going very, very well.
Okay. Coming back to tariffs, the engagement with the administration. I mean, I don't want you to talk out of school or anything here, but maybe just give us a color in terms of the engagement with the administration and trying to, y ou know, educate is the wrong word, but communicate the industry viewpoints.
You know, I would say hats off to President Trump and the administration in terms of having an open door policy to discuss, you know, the impact that policy has on business. I can tell you that whether it's President Trump, Secretary Lutnick, the desire is to increase investments in the United States, which we've been doing and we will continue to do. I just mentioned, we're looking at capacity needs for data centers for 2027, and do we have enough in the United States? We expanded Charlotte, North Carolina, 50%. We're gonna need to do more. You know, we've been clear with the administration that we are committed to U.S. jobs, U.S. investments, and we will continue to accelerate those activities. Excuse me.
They're very receptive to the discussions and to adjusting policy as needed to support more U.S. jobs, U.S. investment, and supporting the consumer in the United States. We've had, we being, you know, a number of companies, very productive discussions, we'll have to see how things play out. We really appreciate the receptivity of this administration to just listening and understanding course correcting if they think it's appropriate.
Okay. Worth the space. Dave, your 6.5 million-7 million units market assumption this year is quite a way below Trane, Lennox industry peers. If you actually crunch the numbers on January through March, I mean, it's early days, but it seems that we're pointing towards an 8 million unit market perhaps. Is that math wonky, or are you conservative? Is the answer somewhere in the middle? I mean, any sort of lay of the land from what you see right now?
You know, look, coming off the heels of the second half of last year, we did wanna be, we did wanna err on the side of conservative conservatism. It's too early to say whether it's conservative because it's a short cycle business. There are some, obviously, there's some macros out there that you have to keep an eye on. We would love to see the 30-year start with a five. We have to watch the consumer. Obviously, there's inflationary pressures out with fuel and some of the raw materials. Looking at the impact of tariffs. We put all that in there. The way I in my conversations, and I think this applies both on the truck trailer side and on the new construction side and just the overall residential market, is there is true underlying demand.
When we meet with customers, there's 4 million too few homes in the U.S., 4 million or 5 million too few homes. They're raring to go. I saw some of the home builder sentiment yesterday come out, it was a few points better than what we thought. I sit with some of the CEOs of home builders, I meet with some of our major distributors and dealers when I travel, they're like, "My customers, they need to replace their equipment. We need to build some new homes. We need to replace some of the trucks and trailers and equipment related to those We've been putting CapEx off for a few years," they're ready to go. Like, there is a desire to, like, just go.
Now you overlay on that some of these macros that are sort of holding them back in the near term. It's not a question of whether, it's just a question of when that true underlying demand's gonna come. You know, so far, so good on the, some of the shorter cycle stuff this year. We'll have to see how it plays out, but we don't wanna get out over our skis until we get through the cooling season.
For sure. For sure. Obviously, the repair versus replace equation gets a lot of attention.
Yes.
What's your perspective on that? We saw, obviously, the needle shift last year towards repair. Any sense on how that's tracking so far?
I think we're kind of back a little bit more in a replacement cycle. It's hard to answer it precisely in a very data-based way, because You're looking at a lot of indicators that don't have precision. I would say that the, at least anecdotally, there was a move a bit last year to repair, and I think we're kinda back into a normal ratio of replacement to repair.
Okay. Okay. Any questions on Resi, Light Commercial from the audience? Nope. Everyone's quiet. Okay, great. Dave, before we turn to Europe, I just wanna track back to data center.
Yeah.
Sounds like the problem there is more capacity than demand right now.
Yep.
Number one, based on the order flow for this quarter, the backlog you're building, how does 2027 start looking to you? 'Cause, you know, outside of capacity constraints, and what are you doing to address those capacity constraints?
I mentioned for this year we said 1.5 billion. We're pushing to do better. We'll have to see. For next year, we would certainly expect it to be up. The question's gonna be how much. You know, we're still in the process of building capacity here in North America, so without a significant investment in additional capacity, we would still grow next year. When we meet with customers, they're incredibly invigorating discussions. A couple of the major hyperscalers where we've had very major wins, the relationship is just extremely strong. Their appetite for spend in 2027, 2028 to 2029 is there at the most senior levels.
We're discussing the product, the exact products they need, not only for 2026, but what are they gonna need 'cause we're making investments not only in capacity, but the products that they are specifying for 2027, 2028. We're just in discussion of how much could it be. It's a little bit in the art of what's possible, but it's also true of the colos. You know, I was with one of the colos, a couple months ago, and he would have normally raised $5 billion. He's raised $50 billion, and he wants to spend it. There's an appetite not only here in the U.S., but globally, and it's our challenge to keep up.
I just got back from India, where they're gonna grow from 1.5 GW to 10 GW, and I met with one customer who he himself wants to spend close to that amount. The appetite in places like China, India, parts of the Middle East, here in the United States. Europe was a little bit behind, they're starting to catch up. That's why with HVAC in Europe, it's been a little bit lumpy for us in terms of the timing of orders. The conversations are happening, and those orders will land. Nigel, it's too early to say what next year could be, but is there a scenario where we invest, make another investment here in the United States for data centers? That's something we're looking at.
Would that be 50% increase in capacity? 100%? I mean, how are you thinking about that?
It would be sizable. I think if it were excuse me, if it wasn't material, then we would just add on to Charlotte. If it's material, the only way we would do it, if it's material enough to support the demand we're seeing for 2027, 2028, 2029 and beyond. I think if we do it'll be meaningful.
Okay. Would that be across both air and water cools?
Yes.
Yeah. Okay. Maybe just talk about why you're gaining share in chillers in data centers. It is a pretty competitive space. There's some really good players here. How is Carrier, you're overachieving in that market?
Look, we have great competitors. But what I will tell you is there's a misconception amongst a couple of the private meetings that I've had, where people think that we've gained some share 'cause we have some capacity that our competitors don't. That's just not true. Yes, we have capacity. Yes, we've been adding to capacity. I can tell you to a person, when we meet with the chief technology officers of our customers, we're partly winning 'cause of our technology. Data centers used to be built in cold ambient temperatures. Now they're being built in Arizona and in Texas and in Spain and some of the higher ambient temperatures. You need compressor technology that can give you the same kind of efficiency levels with high ambient temperatures, where you don't have the benefit necessarily of free cooling. We've done that.
We've done for air-cooled, we've done better packaging where we can get the same efficiency with a smaller footprint in the packaging. We've done it. We've actually When the hyperscalers give you their specifications and they witness their FOAK, their first of kind unit, we've been there shoulder to shoulder with our customers, where they're watching the witness test. They've given us specs that are more stringent than our competitors to see if we can beat them, we meet those specifications, they make it harder. We are right there giving them the products that they need, and they like that we commission the product, that they like that we track it. Our on-time delivery has been essentially 100%.
They like that we are working with them not only for what they need for today but for tomorrow, that we've been making the investments. I'm telling you, we've admitted that we were a little bit later than a couple of our peers to this. We came in, you know, a few years ago, but we've come in very hot, and I am very confident that our growth rate will continue to exceed others.
Okay. Then before we leave this topic, maybe talk about the importance of the CDU and other parts of the QuantumLeap offering and, you know, where we are in that ramp-up.
That's a big part of our formula that I think is differentiating. When you think about what we've termed QuantumLeap, it's the combination of traditional cooling with liquid cooling in a way that's very differentiated. I think ultimately one of the key differentiators that we have is our ALC or Automated Logic Controls business, which is a building management system business. How to have a digital twin that can do the controls between traditional cooling and liquid cooling is really where the secret sauce is. I've seen that in other industries where you really transition from a product-only company to a solutions company, and that's what Carrier is. If you think about, all right, where's Carrier in five years? We're transitioning. We will always be a product company. We are constantly innovating new products. That's part of the secret sauce.
It's part of our DNA as a company, and we will always do that. Innovating new products to win head-to-head on the product side. We're overlaying that as more of a solutions company differentiated by digital, AI, and systems differentiation. That's where we're investing, that's where we're growing. In the data center space, if you can combine traditional cooling, liquid cooling, the BMS, we have this Nlyte DCIM business, providing unique solutions there is what our customers are looking for. With CDUs itself, we've looked at acquisitions. Obviously, there's very high expectations following some of the recent sales that we've seen out there, but we've organically developed, I would say, a very differentiated 1 MW CDU. We have a 2.6 coming out here in a couple of quarters.
We have a 5 MW coming out at the end of this year or early next year. We can buy another company. You know, we'll continue to look at, I would call them bolt-ons, not like, you know, multi-billion dollar type acquisitions. We can keep developing. A CDU is essentially a mini chiller, and we have more than 5,000 brilliant engineers, so that's what they do for a living.
Yep. If we look at your global Commercial HVAC business, take out services, take out data centers, you're not really baking a whole lot of growth ex data centers for equipment. Maybe just give us a lay of the land in terms of the other verticals.
Yeah. I would tell you that the non-data center will be up low single digits this year. Excuse me. What's good is, things like. Actually, warehouse has been good. Higher ed is coming back. That was a little bit soft for a little while. Healthcare, anything that has to do with infrastructure spend like semiconductor fab. It varies by region. Some things are strong in China that are not as strong here in the Americas and vice versa. K through 12 has continued to be a bit weak. That impacts Light Commercial and some of the Commercial HVAC side. I think that commercial real estate's been a bit soft. If I look at our growth in non-data centers, it has a little bit less to do with the strength or non-strength of the verticals.
It just has been a lot of our investment and capacity has been going to try to keep up on the data center side. We wanna balance that out as much as we can over time, but I would call it low growth, low- single- digit growth on non-data centers.
Does that mean that you're being more selective in some of the other verticals to kind of feed the data center capacity?
Yes and no. We wanna make sure that we continue to invest in both. We're very careful about that because, you know, the data center growth, as far as we can tell, it has, you know, multi-year legs. You know, it cannot continue at the same pace forever, you know, 10, 20 years. Who knows exactly when? We wanna make sure that with our capacity that we're building, with the technology we're building, that we have nice balance in the system. We're actually going out of our way to make sure we invest in both. We have balance. I will tell you, the orders in data centers have just been extremely significant. We are making sure that we support those customers while we try to balance the investments.
Thanks, Dave. I want to touch on two more topics. We've got five more minutes. If there are any last questions, please get ready for that. In Europe, I think we're a little bit data starved. There's not great data.
Yeah
In Europe. Maybe help us think about what are you seeing on subsidy applications in Germany and other countries, the impact that high energy prices, high gas prices is having on that, and then how that plays out with the boiler situation, 'cause the offset has been boilers in that market?
Yeah, you know, I think some of the algorithm that we had when we combined with Viessmann was double-digit growth heat pumps, boilers down five. I think that the really good news is that if you look at a volume basis, heat pump demand has been very strong since the Middle East War. The ratio of electricity to gas, we, you know, it's ideal for that ratio to be less than three. It's been 2.5. We've seen strong demand in Germany, France, Poland. We've seen some nice trends there. U.K. continues to be strong. Italy's been a little bit better than we thought. The demand has been more widespread. Heat pump, if you look at subsidy applications, Germany, they were up 30% in the first quarter, and they've been very strong in April
I think May subsidy applications will be very strong in Germany. I think it's just a reminder across Europe that any kind of subsidy to transition the continent away from gas, you're gonna continue to see those. Even in Germany, the government has said they have enough funding to support subsidies through at least 2029. The heating law probably will change in Germany. You know, it's been needs to be voted on and passed by parliament, but that's okay. You know, what we're focused on is if there's still some level of subsidies, that's a positive thing. Even without it, we're introducing this new product that we've talked about, Nigel, which is just below the premium level, but it's gonna be Viessmann branded. We haven't even introduced it.
It's coming out just before the heating season. It's already won an award from this iF association. We always win awards for the prior Viessmann Vitocal unit. This product coming in even right before its introduction, winning awards for Because it's gonna be state-of-the-art in terms of a Q6 efficiency, everything else, but priced just below the existing. It's gonna be very complementary, very sought after in countries like Poland. Heat pump demand, very strong. Boiler, probably that mid-single-digit type decline, which is what we want and expect. I do think that what we were hoping for a couple years ago for Europe, we are now starting to see.
That sounds really good. I mean, it sounds like there's upside to your plan. I mean, I'm not asking you to raise numbers here, but it does feel like there's more of an upside.
I think it's what I was saying earlier is that I think that CSE lands about where we thought. I think that if CHVAC was going to be up mid and CSE for the quarter was going to be flattish, it could be the inversion of that. I just say the fundamentals are there. I mean, what happened in the first quarter was we started to see the demand. We did some pricing activity in Germany that is now behind us. We raised price starting in April, we a few points of price, a few points of surcharges. I think if the volume continues and we are very disciplined on pricing, the indicators are positive for Resi.
After the last, like, nine quarters or so, we're going to be careful not to get out over our skis there as well.
Yeah.
All I'm saying is that since the Middle East activity happened, the inflection point for heat pump demand across Europe has, is started to hit.
Is the key driver of margin recovery there, is that volumes? You're seeing the volumes recovering in that market?
That will help. Certainly, we've had some absorption issues, so just gotta be disciplined on price. I think the margins on this new product we're introducing will be as strong as what we have for the existing Vitocal. The margins on boilers are obviously quite strong. I think we continue to take costs out of the system. You know that about half of the headcount reduction we did last year on the G&A side was in Europe. I think we're set up for margin recovery as we start to see the absorption come back, from volume start to come back. Margins were a little bit disappointing for us in the first quarter. I'm confident that margins will start to recover. We always said that it would be EBIT ROS in the mid-teens, and I'm confident we'll get there.
Okay.
Over time.
Mid-teens in Europe. Americas margins, you've got penciled in quite a ramp from 1Q to 2Q. Make sure we're still on that ramp path.
Nigel, maybe I'll take that one. Thanks for having us. You're right. The step up Q1 to Q2 on CSA Americas, think of it as we get the seasonal impact of step up in Resi volumes. Then as we get in the second half of the year, we're gonna get a lot of absorption out of the growth in the Commercial business, while continuing to drive productivity across the board, and that kinda gets you to the guide of up 25 basis points - 50 basis points for the year.
Yeah.
So.
The 2 Q ramp, so part of that's seasonal, four, five points perhaps, and then the other side is just factory absorption?
Better factory absorption, versus Q1 and we'll continue to drive productivity there.
The price cost, sort of equation is still on track?
In general, yes. You recall we put in price increases basically at the end of April to cover all the input costs, which includes logistics, fuel, and the tariffs. The tariffs went into effect in early April, there is a little bit of gap there. You actually get a little bit of better price versus cost as you get into Q3, but all in Q2 should be okay.
Great. I think we're more or less out of time, but we have time for one question. Yes, yes. Right here, please.
I'm just curious.
I think they want you to.
Yeah. Come on, Jack.
Hi. I just wanna clarify. The 50% growth in data center sales this year, the billion and a half revenue versus $1 billion last year, is that all organic equipment sales growth?
Yes.
Okay. Thank you.
Great. Great. I think that does it. Dave, thanks for the time.
Thank you, Nigel.
Mike too, great discussion. Thank you.
Appreciate it.
Thank you, Nigel.