Carrier at Global Conference: Strategic Growth Insights

On Tuesday, 20 May 2025, Carrier Global Corp (NYSE:CARR) executives detailed their strategic growth plans at the 18th Annual Global Transportation & Industrials Conference. The company aims to accelerate growth by leveraging its strong market position, focusing on differentiated products, and expanding aftermarket services. While optimistic about margin expansion and market opportunities, Carrier is also mindful of competitive pressures and tariff impacts.

Key Takeaways

• Carrier targets a 6-8% annual organic growth rate and aims to grow EPS by 10% per year.
• The company plans significant investments in aftermarket services and integrated systems solutions.
• Data centers and heat pumps in Europe are key growth areas, with expectations of doubling data center sales.
• Carrier is focused on productivity improvements through its Carrier Alliance program and factory optimization.
• The company is cautiously optimistic about the European market, driven by government initiatives and increased heat pump orders.

Financial Results

• Carrier aims for a 6-8% annual organic growth rate, with a target to grow EPS by 10% annually, already achieving 15% growth.
• Cash flow has been equal to net income, with a commitment to 50 basis points or more of annual margin expansion.
• EBITDA margins are targeted above 20% in the medium term, with an operating margin outlook between 16.5% and 17%.
• European margins are expected to reach 15% in two to three years.

Operational Updates

• Carrier’s growth strategy focuses on products, aftermarket services, and systems, with aftermarket comprising 25% of the business and growing at a double-digit rate.
• The company is the leader in residential and commercial markets in the U.S., Germany, and Europe, aiming to gain share in commercial HVAC in the Americas.
• Productivity initiatives include the Carrier Alliance program and improvements in factory productivity and logistics optimization.

Future Outlook

• Residential inventory buildup is anticipated due to a transition in product standards, with Q2 residential growth expected between 15% and 20%.
• The European market is expected to see modest growth in Q2, with stronger growth in the second half of the year.
• Carrier expects data center sales to reach $1 billion this year, with a focus on the Quantum Leap offering for differentiation.

Q&A Highlights

• Carrier sees no cyclical peaks in the commercial HVAC market, with strong demand in data centers, semiconductor fabs, healthcare, and pharma.
• The company is capitalizing on a strong recovery in heat pump orders in Europe, driven by government initiatives and a shift away from fossil fuels.
• Carrier’s strategy in data centers includes expanding product portfolios and customer relationships, with a focus on the Quantum Leap offering.

For a more detailed analysis, readers are encouraged to refer to the full transcript below.

Full transcript - 18th Annual Global Transportation & Industrials Conference:

Nigel Coe, Analyst, Wolf Research: Great. So I think we’re live. So thank you very much. And for the benefit of those who are on the webcast, welcome to the Wolf Transport Industrial Conference. My name is Nigel Coe, and I cover the multi industry companies here at Wolf Research.

It’s my great pleasure to be joined on the stage by Carrier Corporation Dave Goodland, Chairman and CEO and Patrick Goris, CFO. Gentlemen, thank you for being here with us. And Dave, if you want to make opening remarks, we’ll get into Q and A.

Dave Goodland, Chairman and CEO, Carrier Corporation: Thanks, Nigel. Thanks to you and Wolfe Research for having us. Yesterday was a big day for us. We had our first Investor Day since 2022. And the bottom line is that we look back at what

Nigel Coe, Analyst, Wolf Research: we said we were going to do in 2022, and we did what

Dave Goodland, Chairman and CEO, Carrier Corporation: we said we were going to do. We said we were going to grow 50 basis points of margin a year, we grew 100 basis We said we would grow our EPS 10% a year, we did 15%. We said we would have cash flow equal to net income, we did that. We did exactly what we said on our ETR and so on. The key focus we had yesterday was accelerating growth.

We said that we would grow six to 8% a year, we grew 4%. So what’s changed? And that was the entire focus of four hours of yesterday’s Investor Day. We said that the market we were very, I think, conservative. We said market globally around LSD, which low single digits, where we like our exposure to the right verticals, the right geographies and the right secular trends.

And then we went through a three pronged growth strategy, and we can get into them into follow-up questions on that, Nigel. But one was products, where we said we would gain share through differentiated products, channels and brands. One was aftermarket, 25% of our business growing double digits, that gives you 2.5%. And the new frontier is systems where we’re doing HEMS, Complete Home Energy Management Solutions in Europe and The United States, Quantum Leap for data centers, integrated solutions for things like hospitals. So you put that all together, it’s about a third, a third, a third, a third from the market, a third from aftermarket and a third from the combination of products and systems.

So we’ve done so much over these last five years to get the portfolio just right. We’ve done so much with our foundation, with the Carrier Way and the team that we have in place, and you got to hear from many of these great leaders yesterday. Now it’s just heads down, be there for our customers, innovate, grow, execute, and we’re excited about this next phase ahead of us, growing 6% to 8% a year.

Nigel Coe, Analyst, Wolf Research: Thanks, Dave. So we prepared these questions in the course yesterday with the Investor Day. A lot of these questions are now redundant or have been answered already. But yesterday, was all about growth. And the six to 8% organic growth is not the most conservative target you’ll see out there.

So what gives you confidence that Carrier can be that sort of consistent level of growth? Let me get into the three pronged strategy.

Dave Goodland, Chairman and CEO, Carrier Corporation: I think that if you look at these last few years, we were very much anchored by two very discrete acute areas of weakness,

Unidentified speaker: which I think are ephemeral in nature that you cannot have Europe residential and China residential down 20% forever.

Dave Goodland, Chairman and CEO, Carrier Corporation: So if you see those markets just come back to flattish, we don’t need them. We don’t need those markets to be up 20%. But as you see, especially Europe, residential come back, the market itself come back to kind of flat to low single digits, we should very much be able to have the entire portfolio grow in that six to 8%. Were they flattish? We would have been growing kind of in those numbers.

So Americas has been strong, continue to stay strong. You look at European and Asian commercial, those have been strong, those will stay strong. And I think you look at Germany, total residential units this year will be at like historic lows over the last thirty years. So just coming off a low base. And then everything else was that three pronged strategy, products, aftermarket systems, each with very detailed roadmaps that we not only shared with you, our investors yesterday, but this is how we run the business.

The stuff we reviewed, how are you gaining share in resi in The United States? That’s what we share with our Board. That’s what we do in our business reviews. So there is a lot of detailed plans behind us that we have confidence in.

Unidentified speaker: Okay.

Nigel Coe, Analyst, Wolf Research: Market share was part of the outgrowth. And you’re number one clear number one in residential and commercial in The U. S. You’re number one in Germany residential and commercial. I think you’re number one European and APAC commercial.

List goes on. There are pockets where you’re not. So the market share gain, being large and dominant, does that help you gain share? Or does it just put a target in your back? And what gives you confidence you can actually gain that share?

Dave Goodland, Chairman and CEO, Carrier Corporation: I think it’s going to vary by vertical, by business, by region. I don’t think we’ll gain huge share in resi in North America. That’s not part of our growth algorithm where we have very good share in resi like commercial North America, very good margins. Our goal is just keep winning and make sure that we retain the share that we’ve gained. We’re probably up 300 basis points in resi over the last three to five years.

We’re up 100 bps over the last year. We get the question every time or some of the competitors going to come back at you to try to take that share. We’ve converted dealers. We’re retaining those dealers. We just keep growing those businesses and we’ll be just fine.

Commercial HVAC in The Americas is all upside. We know we’re number three. We don’t like that we’re number three, but we like that we’re number three because there’s so much room because we now have the capacity, we have the product portfolio, we’ve added spec engineers, we’ve added technicians, we’ve added salespeople. We’ve put the foundation in place to grow commercial HVAC. So shame on us if we don’t take share every year in commercial HVAC in The Americas.

There’s so much upside. We’ll continue to gain share in resi light commercial in Europe because of what we put together with Wiesman. We’ll gain share in commercial HVAC in both Asia and Europe. And then it’s hard to say with resi in China. I think just we just need some stability of that market there, but it’s only 700 or $800,000,000 so we’ll have to just see how that piece of the business plays out.

Nigel Coe, Analyst, Wolf Research: Okay. Aftermarket was an area where you said double digit growth forever, which is pretty good. Double

Dave Goodland, Chairman and CEO, Carrier Corporation: digit growth It’s a long time.

Nigel Coe, Analyst, Wolf Research: Scales into pretty big numbers. Now when you think about the installed base of chillers and other devices, your service penetration, I think, is roughly across the board, I think, about 45%, forty % or so, 30% in The Americas. Your parts penetration is very low at 25% on average, I think. Yet when you take a step back, think wouldn’t this just be the most obvious thing in the world to milk that installed base? Just maybe just take us back five, ten years, fifteen years, why this was the priority and then how you’re scaling that up to where it should be?

Dave Goodland, Chairman and CEO, Carrier Corporation: I’ll take this and then no matter what you ask next, I’ll take it to Patrick.

Nigel Coe, Analyst, Wolf Research: So you could ask about my family history. It’s going to Okay.

Dave Goodland, Chairman and CEO, Carrier Corporation: Yeah. But I will tell you that I cannot answer why it was not more of a focus for us five or six years ago because it should have been. It’s clear that you look at the opportunity around the aftermarket, and there is just so much low hanging fruit for us as a company. And you mentioned our parts capture rate was twenty percent five years ago when we spun. All that is, is what percentage of the parts are going that we sell carrier parts, part of our systems go to us as opposed to go directly to one of our suppliers and bypasses us.

It’s gone from 20. We said we’re on our way to 65%, so we’ve come a long way, but it should be a hundred. You know? So getting to 65%, we’re proud that we’re no longer at 20. We’re proud that we’ve come a long way since then.

But you have to actually have the right contractual relationships with your suppliers, with your distribution partners. You have to actually have the parts in situ so the customer has when a part fails, they need it. They need it within hours. So you have to we have to look at our logistics to give the customers the parts they need them when they need them. And then we have to work pricing.

We have to work a whole bunch of approaches on how we make sure that we capture our parts, but that’s just a way of doing business. Now when we go to a factory, we open it up and say, do we have our own nameplates on all the parts, whether it’s a compressor, a motor, a fan, a control? We want to see a carrier label on there as opposed to one of our suppliers. So there’s a whole formula to it. We know the formula.

We’ve come a long way with huge runway. And that’s the same with attachment rates, total coverage. We said we’ve gone from two fifty thousand. We’ve gone from 1,000,000 connected devices to 3,500,000. So we know the formula.

We know exactly how to do it. Mods and upgrades. We should know where every single chiller is. 400,000 chillers around the world. Where are they?

So we know when they’re coming towards the end of their life, so we can actually go to the customer proactively, have them replace it because of energy efficiency savings or other benefits to the customer. So we know the formula. We say double digit forever for a couple of reasons. Number one is because we only capture 25% of our own aftermarket today. But two is we know the playbook, we have the team to execute it, and we’re still in the early innings because there’s so much low hanging fruit there.

Nigel Coe, Analyst, Wolf Research: This is a follow on question. So the next question, we’ll go to Patrick, this is a follow on question.

Dave Goodland, Chairman and CEO, Carrier Corporation: Sure.

Nigel Coe, Analyst, Wolf Research: So how is the as you connect more devices, how is the nature of the service model changing? So instead of break fix, to what extent are we starting to get recurring revenues and getting that RMO?

Dave Goodland, Chairman and CEO, Carrier Corporation: Oh, it’s much higher. I mean, this is kind of the new frontier for the aftermarket. It’s not new to either our industry or the world, but it’s a new ish to Carrier. But we know that connectivity, it drives higher margin, higher more revenue and more recurring revenue. So if you take I’ll take Europe for an example for the Wiesemann business.

We have vGuide with our installer partners. We have v care with our homeowners. And what we can do is, it used to be that because we have everything connected, a typical installer would make two truck rolls a year. Now they can get it down to one. So now they’ve there’s money savings in the system somewhere.

How do you monetize that? How does Carrier, Wiesman, monetize that? You do it through more recurring revenue type agreements. So if we do more subscription based agreements, then the avoidance of cost benefits all of us. Less cost to the installer because they’re not sending trucks out to a home just unnecessarily as a preventative prophylactic measure, but it’s also a benefit to us because we get to monetize it.

Nigel Coe, Analyst, Wolf Research: Okay. Thanks. Patrick, so you’re committing to 50 basis points or more of margin expansion. Obviously, came up in the Q and A yesterday. It sounds like that’s a level you feel very, very comfortable with, that 50 basis points plus.

Maybe just recap us on of the productivity initiatives in place. You talked about material productivity. You talked about platforming technology, platforming reduction and then investment levels. So I just wondered if you maybe just talk about some the push and pull on margins going forward.

Patrick Goris, CFO, Carrier Corporation: The reason we dug a little bit deeper yesterday in our productivity opportunities is frankly because we wanted to send a message that while we’ve driven a lot of productivity since the spin, there is a lot more to be had. And yesterday, we talked we shared a little bit more detail about our Carrier Alliance program with our biggest suppliers, still opportunity to consolidate suppliers. We talked about factory productivity, reducing the time it takes to produce a unit. Again, there, we see significant opportunity there. We talked about warehousing and logistics, and I don’t think we ever spoke frankly publicly about warehousing and logistics, but it’s about $2,000,000,000 in spend.

And it’s an opportunity for us to basically optimize from a company perspective, whereas in the past, it was optimized by site. And so optimized company lanes, optimized modes of transportation from a company point of view and a much more robust SiOp process. Then you mentioned platforming, and it’s just one additional example of where there is plenty of opportunity. Carrier was run-in a very decentralized way. So even within a business or within a segment, you could have duplicative investments in R and D.

And so now what we’re doing is we’re platforming, for example, on controls across the company, including transportation, not just HVAC. And so we’re significantly reducing the number of SKUs, reducing complexity, improving time to market. It only has benefits. And so an enormous opportunity for us and the message we also wanted to send is some of these benefits are not going to happen tomorrow. We’ll see some benefit tomorrow.

They’re to build up over time. And that’s why we’re comfortable saying that we’ll see continued strong productivity for many years to come. In terms of investments, since the spin, you can think of us making incremental investments each year, about $100 to $150,000,000 And while we’ve done that, we’ve generated strong margin expansion, strong core earnings conversion. And so going forward, we can easily continue to make those incremental investments at that rate. If we have room, actually, frankly, if we grow six to 8% at 50 bps of more margin expansion, we could actually reinvest more.

It would all depend on do we get the return on these investments. And that is key.

Nigel Coe, Analyst, Wolf Research: Maybe a couple of more questions just emanating from the Investor Day before we move on to more sort of current affairs. There might be a tariff question. Do warn you on that. Thinking about sort of the median multi industry company right now is EBITDA margin about 22% roughly. That’s increased from high teens several years ago.

Best in class HVAC would be high teens 20%. Do you think there’s any reason why over time the HVAC sector, yourself included, can’t be above 20% EBITDA margins?

Patrick Goris, CFO, Carrier Corporation: I don’t because today, our outlook is for operating margin to be at about between 16.517%, add a few points of that of D and A, continued opportunity for margin expansion. I don’t see any reason at all where over the medium term we cannot get to 20% or more EBITDA margins. Right. Yes.

Nigel Coe, Analyst, Wolf Research: Yes. Great. And then on the surplus capital, you talked about $10,000,000,000 over and above dividends over the medium term. It seems like that’s a five year view. It is.

That’s a five year view. Yes. It is. But then you mentioned $14,000,000,000 keeping leverage So that obviously prick my ears as well. So is the protocol here that you basically will use free cash flow, surplus free cash flow for buybacks and then use leverage for M and A?

Mean, do we think about that?

Patrick Goris, CFO, Carrier Corporation: The way we really think about the $10,000,000,000 of excess capital is this, we follow our priorities for capital deployment, organic growth, inorganic, a growing sustainable dividend and then share repurchase. Now that is a lot of capital just for acquisitions. And you heard Dave and I say yesterday that the acquisitions we intend to make are more of the bolt on size. And so I think it will be a combination of acquisitions and repurchases. And frankly, we’ll toggle between the two depending on what the number and size of acquisitions is.

I would not want you to think that the extra $4,000,000,000 if we keep leverage the same, that, that would just go towards acquisitions. That’s the flexibility we have, and we’re very comfortable keeping our net leverage at about 2x.

Nigel Coe, Analyst, Wolf Research: Great.

Unidentified speaker: Okay. And then when you

Nigel Coe, Analyst, Wolf Research: think about the bolt ons, Dave, I think this is for you, where do you see the white spaces in the portfolio? Because just from the outside in, it doesn’t seem like there’s a whole lot you’re lacking right now.

Dave Goodland, Chairman and CEO, Carrier Corporation: There’s really not. I mean, if you look at our pipeline, it’s in the three categories that we focus on strategically. So in the product space, there could be some technologies that instead of just organically developing on ourselves that we would just go buy. So for example, Ed Dryden yesterday mentioned AdVolt, which give us a lot of power control electronics, which is not only very important for our reefer business and the electrification that’s happening there, the same technology technology is going to be used on the HEM side as well. So we could have developed it, but they had phenomenal technology with a great team, a great group of engineers, so we bought that.

The same could have been true for liquid cooling for our system solution. We did look at buying some of the smaller liquid cooling companies, but we decided the key thing that we needed to develop was the CDU, the coolant distribution unit, which is effectively a mini chiller. So we said, we know exactly how to do that. We can either end the multiples people were looking for were a bit higher than we wanted to pay. So we just organically developed it.

We have it. We’re now in the marketplace with it. So it can be technology. It can be channel. We bought some of our branches for the ALC business, some of the distribution channel.

Those have done very, very well. So we’ll continue to do those same on the commercial HVAC side where that makes sense. And then things that we kind of need to round out our systems portfolio or even aftermarket like a services company.

Patrick Goris, CFO, Carrier Corporation: Okay.

Nigel Coe, Analyst, Wolf Research: Great. I’ll take one or two more and then I’ll open up the Q and A to the room. Maybe keeping it a bit more current, we’re sort of halfway through the quarter, Dave, Patrick. What are we seeing? Anything any big changes in demand across the geographies?

Or anything you’d call out within the businesses?

Dave Goodland, Chairman and CEO, Carrier Corporation: No, not really, Nigel. I think what Patrick said yesterday is no new news, that is true. We’re fundamentally tracking to where we said. What we will look at every single month in a short cycle business, there are some parts of the portfolio that might be a little bit better, a little bit worse than we thought. But frankly, everything is right where we thought it was going to be just a few weeks ago.

Nigel Coe, Analyst, Wolf Research: Okay. You’ve called out pockets of inventory builds, I think, in residential. Is this something to be worried about? Or is this more a function of the transition from 4.10A to 4.54B? I think it’s more

Dave Goodland, Chairman and CEO, Carrier Corporation: of the latter. I think it’s just there’s the industry is just, I think, playing out how this transition happens. So if you look at us, for example, we had a very strong first quarter. We were up 20%. As we got towards the end of the first quarter, we had effectively transitioned out of 4.10A quicker than our peers because they obviously a couple of our peers in particular, ship more direct from their dealers.

We ship through distribution. So pretty much everything that was four ten was out of our is effectively out of our four walls. They were still shipping. So what was happening in the channel was there was some switchover that was happening from the four ten to the 454B, which I think did create a little bit of elevated inventory. We said on our last earnings call, inventory was higher than we would like it to be.

We’re very purposeful at working with our distributors to get their inventory back to where we think it should be in balance, So we are working our way through that. We said that 2Q for resi would be up 15% to 20%. We still feel like that’s the right number. But we are trying to do is bring inventory down. If you look at our full year guide for resi, we’ve said high single digits to low double digits, so call that 10%.

First quarter was up 20%, second quarter up 15% to 20. To get to 10% for the full year, you need the second half to be flattish. And we get probably 10% by showing up because we know that we’ve been getting four fifty four B pricing in that 10, maybe even a little bit higher than that. So that means volume in the second half has to be down. And that factors in all the inventory that we’re keeping an eye on.

Nigel Coe, Analyst, Wolf Research: Okay. And that 15 to 20, so if you think about the movements at your channel partners, the sell through, that would be flattish, I guess, flat to maybe low single digits when we back up price mix and inventory.

Dave Goodland, Chairman and CEO, Carrier Corporation: Yeah. That’s the balancing act we’re looking at right now, Nigel, is we’re looking at inventory, we’re looking at those movement levels. We’re looking a little bit at ordering rates, but I’m not that’s not something that we’re going to if it’s super positive or negative, is going to keep us up at night. The key for us right now is really watching those movement numbers. We saw what they were in April, watching them here in May and making sure that movement stays strong and then the inventory gets out of our dealers to the homeowners to see that pick back up.

Great. Thanks, Dave.

Nigel Coe, Analyst, Wolf Research: Any questions from the room? Just this one here. Do you have a mic?

Dave Goodland, Chairman and CEO, Carrier Corporation: Oh, I have a mic. Right right here. Oh. I’m sorry.

Unidentified speaker: Hear me?

Dave Goodland, Chairman and CEO, Carrier Corporation: Yes. I

Unidentified speaker: was just curious if you could comment on your end markets for commercial HVAC in terms of are any of them currently at a cyclical peak such as data centers, education, or any other end markets? Thank you.

Dave Goodland, Chairman and CEO, Carrier Corporation: I would not call a peak for any of them right now. I think when we look at our verticals, we see some that are stronger and some that are weaker. But I don’t we don’t see a peak. Data centers, we did $500,000,000 of sales last year. We’ll do $1,000,000,000 this year.

We’re trying to fill the pipeline of orders for the coming years. So different hyperscalers are buying at different rates, same with the colos. But we certainly don’t see a peak there. The areas of strength are things like semiconductor fab, not only in The United States, but globally. We’ve had some great wins in China, for example.

We see health care globally, typically an aging population, so hospitals. And we see pharma has been quite strong for us, so that’s been good. Some of the higher ed has been good. K-twelve was a little bit weaker in the first quarter than we thought, but we think that’s sort of short term. We don’t see that as a concern because there’s $76,000,000,000 of bond funding out there for K-twelve.

So we just see that as a timing issue. Some of the things that were weaker, commercial real estate has been soft and it continues to be soft. And I think that’s generally it. Great. Thanks for question.

Patrick Goris, CFO, Carrier Corporation: Anyone else?

Nigel Coe, Analyst, Wolf Research: Great. Maybe Patrick, tariffs. Obviously, since you reported the quarter and you sort of updated you have refreshed your guidance, we’ve had China tariffs roll back. I think you said yesterday nothing’s changed with the $300,000,000 of net offsets to the tariffs. Just maybe just talk about why that’s the case because it does feel like you’ve got a bit of a cushion here.

Patrick Goris, CFO, Carrier Corporation: Yes. So first of all, in terms of context, we mentioned that with the tariffs, we it was a gross impact offset by some supply chain actions. There was a net impact of about 300,000,000 which was offset through incremental prices that we have put through. One, the reason why you said nothing has changed at the moment is, one, it’s still really early. Who knows what will happen?

Two, it’s not like we haven’t seen other pockets of price increases in the system. And so and that’s really the reason why I made the comment. It’s still an environment where a lot of things move really fast, and we are seeing some pockets of other price increases. And so we may need the $300,000,000 anyway to cover that.

Nigel Coe, Analyst, Wolf Research: Okay. And the price increases you put through the channel, how would you describe those in terms of acceptance by the customers in the channel?

Patrick Goris, CFO, Carrier Corporation: For the moment, they’re all holding. The last one went into effect May 1.

Nigel Coe, Analyst, Wolf Research: That’s good news. But as a customer of Carrier, that’s not good news. Do feel that. As somebody doing replacements right now of Carrier Systems, it is a lot.

Patrick Goris, CFO, Carrier Corporation: Your home is really comfortable, though.

Nigel Coe, Analyst, Wolf Research: It feels good, I’ve to say that. Appreciate the business. Europe, I think you’re guiding for obviously, it was down low doubles in the first quarter. You’re guiding for flat in the second quarter and then a return to growth in the second half of the year. Maybe just bring us up to speed in terms of what you’re seeing right now in Europe and the confidence levels in that inflection.

Patrick Goris, CFO, Carrier Corporation: So reason why we expected and we saw a weak first quarter was frankly because last year, we benefited from a significant backlog reduction. And so we fully expect that Q1 to be down about 10%, which it was. We expect flat to modest growth starting in Q2 for a couple of reasons. One, the comps get a whole lot easier. And two, we’re seeing some early but positive signs of a market that is stabilizing and an increase in the number of applications for heat pumps.

And we’ve seen actually the order intake for heat pumps pick up quite substantially. In addition to that, I think it’s fair to say within our biggest market there, which is Germany, with the new government, I think there is more stability now than we’ve seen over the last six or nine months. New government is formed. New government has kept the incentives, has committed to lowering the cost of electricity, which is good, has also committed to more infrastructure spend. And as importantly, the new government has also committed to the decarbonization goals for 02/1930 and beyond.

And so overall, we think the market is we’re cautiously optimistic. We certainly don’t think the market will get worse, but actually we see signs that it may improve.

Nigel Coe, Analyst, Wolf Research: Okay. Maybe just talk about why we’re seeing the strong recovery right now in heat pump orders in Europe, not just Germany, but in Europe. Is it because we’re at a hard floor here and then we’re just bouncing off a very low level? Or is there anything else we should bear in mind?

Dave Goodland, Chairman and CEO, Carrier Corporation: I think what’s happening in Europe is you will see an accelerated shift to heat pumps because I think there’s a reluctance to buy fossil fuel right now. When you think about Europe, only 10% or so of the gas that’s consumed in Europe is produced in Europe. And I don’t think a lot of Europeans want to be overly reliant on importing gas from Russia, The United States, The Middle East. So I think you’re going to continue to see an accelerated shift to electrification. I think the government in Germany, the shift to reducing electricity prices, that will bring that ratio of gas to electricity to gas significantly lower, which is very helpful.

So you have this combination of electricity pricing coming down, especially in places like Germany and France, which is nuclear and so on. And then you have the increased taxes that we’re going to see on gas. So gas going up, electricity coming down, that ratio mix is very helpful. So we said when we said that we would get three to four points of growth in RLC business, that is from mix, that assumed heat pumps up 15%, boilers down 5%. I think what we’re going to see this year and then probably for the coming years, heat pumps will probably be higher than 15% and boilers will probably be down more than five because any new home like your new homeowners are really they were trying to figure out what’s happening with subsidies, what’s happening with regulation.

And they’re really I think you’re going to see an accelerated shift to electric heat pumps.

Nigel Coe, Analyst, Wolf Research: Thanks, Dave. Back to margins, Patrick. You’ve got a target of 15% on the medium term. You said two to three years to get to 15% margins in Europe versus 9.4% last year. And it seemed to me that you were indicating that, look, we think we can do better, but let’s get there first before we move on.

But is there any structural reason why we should have a big gap between The Americas at 22% and Europe at 15%?

Patrick Goris, CFO, Carrier Corporation: I think we’ll see the margins convert over time. I think and of course, the objective is to get as close to and exceed The U. S. Margins. But the in The United States, we really benefit from a really large country, homogeneous, where we have tremendous scale.

And we are the we believe we have the market the leading market share. And so we’ll see them converge. We’ll, of course, have asked the team in Europe to get us close to or exceed the like a horse race to get close to the margins in The United States. But what we wanted to share yesterday that our step one is to get to mid teens, given that we’re at 9% today, that alone is a big

Nigel Coe, Analyst, Wolf Research: Okay. And then we’ve one more minute, actually forty seconds. So in the last minute or so, maybe just, Dave, just recap what is Carrier’s strategy in the data center? Because it does seem like you’re trying knit together something quite special here.

Dave Goodland, Chairman and CEO, Carrier Corporation: I think it started with win in the trenches, which was add capacity, make sure we have the product portfolio that we needed to build, make sure that we have the right customer relationships with the hyperscalers and the colos, the right sales force, the right dedicated integrated product management team. So we’ve done all that. And because of that, we’ve gained a lot of wins and gained great positions with both colos and hyperscalers. The next phase is differentiation. And that is going to come, I believe, through our Quantum Leap offering, which is a one stop shop with this integrated offering.

Nigel Coe, Analyst, Wolf Research: Right. Dave, well, for the time. Patrick, thanks for the time. This is a great discussion. And we’ll look forward to catching up with you soon.

Dave Goodland, Chairman and CEO, Carrier Corporation: Thank you, Nigel. Thanks for having us.

Operator: This presentation has now finished. Please check back shortly for the archive. This presentation has now finished. Please check back shortly for the archive.

Nigel Coe, Analyst, Wolf Research: Great. So I think we’re live. So thank you very much. And for the benefit of those who are on the webcast, welcome to the Wolf Transport Industrial Conference. My name is Nigel Coe, and I cover the multi industry companies here at Wolf Research.

It’s my great pleasure to be joined on the stage by Carrier Corporation, Dave Goodland, Chairman and CEO and Patrick Goris, CFO. Gentlemen, thank you for being here with us. And Dave, if want make opening remarks, we’ll get into Q

Dave Goodland, Chairman and CEO, Carrier Corporation: and A. Thanks, Nigel. Thanks to you and Wolfe Research for having us. Yesterday was a big day for us. We had our first Investor Day since 2022.

And the bottom line is that we look back at what

Nigel Coe, Analyst, Wolf Research: we said we were going to do in 2022, and

Dave Goodland, Chairman and CEO, Carrier Corporation: we did what we said we were going to do. We said we were going to grow 50 basis points of margin a year, we grew 100. We said we would grow our EPS 10% a year, we did 15%. We said we would have cash flow equal to net income, we did that. We did exactly what we said on our ETR and so on.

The key focus we had yesterday was accelerating growth. We said that we would grow 6% to 8% a year, we grew 4%. So what’s changed? And that was the entire focus of four hours of yesterday’s Investor Day. We said that the market we were very, I think, conservative.

We said market globally around LSD, which low single digits, where we like our exposure to the right verticals, the right geographies and the right secular trends. And then we went through a three pronged growth strategy and we can get into them into follow-up questions on that, Nigel. But one was products, where we said we would gain share through differentiated products, channels and brands. One was aftermarket, 25% of our business growing double digits. That gives you 2.5%.

And the new frontier is systems where we’re doing HEMS, Complete Home Energy Management Solutions in Europe and The United States, Quantum Leap for data centers, integrated solutions for things like hospitals. So you put that all together, it’s about a third, a third, a third, a third from the market, a third from aftermarket and onethree from the combination of products and systems. So we’ve done so much over these last five years to get the portfolio just right. We’ve done so much with our foundation, with the Carrier Way and the team that we have in place, and you got to hear from many of these great leaders yesterday. Now it’s just heads down, be there for our customers, innovate, grow, execute, and we’re excited about this next phase ahead of

Nigel Coe, Analyst, Wolf Research: us, growing 6% to 8% a year. Thanks, Dave. So we’ve prepared these questions in the course yesterday with the Investor Day. A lot of these questions are now redundant or have been answered already. But yesterday, was all about growth.

And the six to 8% organic growth is not the most conservative target you’ll see out there. So what gives you confidence that Carrier can be that sort of consistent level of growth? Let me get into the three pronged strategy.

Dave Goodland, Chairman and CEO, Carrier Corporation: I think that if you look at these last few years, we were very much anchored by two very discrete acute areas of weakness, which I think are ephemeral in nature that you cannot have Europe residential and China residential down 20% forever. So if you see those markets just come back to flattish, we don’t need them. We don’t need those markets to be up 20%. But as you see, especially Europe, residential come back, the market itself come back to kind of flat to low single digits, we should very much be able to have the entire portfolio grow in that six to 8%. Were they flattish?

We would have been growing kind of in those numbers. So Americas has been strong, continue to stay strong. You look at European and Asian commercial, those have been strong, those will stay strong. And I think you look at Germany, residential units this year will be at like historic lows over the last thirty years. So just coming off a low base.

And then everything else was that three pronged strategy, products aftermarket systems, each with very detailed roadmaps that we not only shared with you, our investors yesterday, but this is how we run the business. The stuff we reviewed, how are you gaining share in resi in The United States? That’s what we share with our Board. That’s what we do in our business reviews. So there is a lot of detailed plans behind us that we have confidence in.

Nigel Coe, Analyst, Wolf Research: Okay. Market share was part of the outgrowth. And you’re number one clear number one in residential and commercial in U. S. You’re number one in Germany residential and commercial.

I think you’re number one European and APAC commercial. List goes on. There are pockets where you’re not. So the market share gain being large and dominant, does that help you gain share? Or does it just put a talk in your back?

And what gives you confidence you can actually gain that share?

Dave Goodland, Chairman and CEO, Carrier Corporation: I think it’s going to vary by vertical, by business, by region. I don’t think we’ll gain huge share in resi in North America. That’s not part of our growth algorithm where we have very good share in resi like commercial North America, very good margins. Our goal is just keep winning and make sure that we retain the share that we’ve gained. We’re probably up 300 basis points in resi over the last three to five years.

We’re up 100 bps over the last year. We get the question every time where some of the competitors going to come back at you to try to take that share. We’ve converted dealers. We’re retaining those dealers. We just keep growing those businesses and we’ll be just fine.

Commercial HVAC in The Americas is all upside. We know we’re number three. We don’t like that we’re number three, but we like that we’re number three because there’s so much room because we now have the capacity, we have the product portfolio, we’ve added spec engineers, we’ve added technicians, we’ve added salespeople, we’ve put the foundation in place to grow commercial HVAC. So shame on us if we don’t take share every year in commercial HVAC in The Americas. There’s so much upside.

We’ll continue to gain share in resi light commercial in Europe because of what we put together with Wiesemann. We’ll gain share in commercial HVAC in both Asia and Europe. And then it’s hard to say with resi in China. I think just we just need some stability of that market there, but it’s only 700 or $800,000,000 So we’ll have to just see how that piece of the business plays out.

Nigel Coe, Analyst, Wolf Research: Okay. Aftermarket was an area where you said double digit growth forever, which is pretty good. Double digit

Dave Goodland, Chairman and CEO, Carrier Corporation: growth for It’s a long time.

Nigel Coe, Analyst, Wolf Research: Scales into pretty big numbers. Now when you think about the installed base of chillers and other devices, your service penetration I think is roughly across the board I think about 45%, forty % of it’s also, 30% in The Americas. Your parts penetration is very low at 25 on average I think. Yet when you take a step back, think, wouldn’t this just be the most obvious thing in the world to milk down salt base? Just maybe just take us back five, ten years, fifteen years, why this was the priority?

And then how you’re scaling that up to where it should be?

Dave Goodland, Chairman and CEO, Carrier Corporation: I’ll take this, and then no matter what you ask next, I’ll take it to Patrick.

Nigel Coe, Analyst, Wolf Research: Okay. So you could ask about my family history. It’s going to Okay.

Dave Goodland, Chairman and CEO, Carrier Corporation: Yeah. I’ll do that. But I will tell you that I cannot answer why it was not more of a focus for us five or six years ago because it should have been. It’s clear that you look at the opportunity around the aftermarket, and there is just so much low hanging fruit for us as a company. And you mentioned our parts capture rate was twenty percent five years ago when we spun.

All that is, is what percentage of the parts are going that we sell, carrier parts, part of our systems go to us as opposed to go directly to one of our suppliers and bypasses us. It’s gone from 20. We said we’re on our way to 65%, so we’ve come a long way, but it should be a hundred. You know? So getting to 65%, we’re proud that we’re no longer at 20.

We’re proud that we’ve come a long way since then. But you have to actually have the right contractual relationships with your suppliers, with your distribution partners. You have to actually have the parts in situ so the customer has when a part fails, they need it. They need it within hours. So you have to we have to look at our logistics to give the customers the parts they need them when they need them.

And then we have to work pricing. We have to work a whole bunch of approaches on how we make sure that we capture our parts, but that’s just a way of doing business. Now when we go to a factory, we open it up and say, do we have our own nameplates on all the parts, whether it’s a compressor, a motor, a fan, a control, we want to see a carrier label on there as opposed to one of our suppliers. So there’s a whole formula to it. We know the formula.

We’ve come a long way with huge runway. And that’s the same with attachment rates, total coverage. We said we’ve gone from 2,000 connected chillers to 50,000. We’ve gone from 1,000,000 connected devices to 3,500,000. So we know the formula.

We know exactly how to do it. Mods and upgrades. We should know where every single chiller is, 400,000 chillers around the world. Where are they? So we know when they’re coming towards the end of their life, so we can actually go to the customer proactively, have them replace it because of energy efficiency savings or other benefits to the customer.

So we know the formula. We say double digit forever for a couple of reasons. Number one is because we only capture 25% of our own aftermarket today. But two is we know the playbook, we have the team to execute it, and we’re still in the early innings because there’s so much low hanging fruit there.

Nigel Coe, Analyst, Wolf Research: This is a follow on question. The next question, we’ll go to Patrick. This is a follow on question.

Dave Goodland, Chairman and CEO, Carrier Corporation: Sure.

Nigel Coe, Analyst, Wolf Research: So how is the as you connect more devices, how is the nature of the, you know, the service model changing? So instead of break fix, to what extent are we starting to get recurring revenues and getting that RMR?

Dave Goodland, Chairman and CEO, Carrier Corporation: Oh, it’s it’s much higher. I mean, is this is kind of the new frontier for the aftermarket. It’s not new to either our industry or the world, but it’s a new ish to Carrier. But we know that connectivity, it drives higher margin, higher more revenue and more recurring revenue. So if you take I’ll take Europe for an example for the Wiesemann business.

We have vGuide with our installer partners. We have vCare with our homeowners. And what we can do is it used to be that because we have everything connected, a typical installer would make two truck rolls a year. Now they can get it down to one. So now they’ve there’s money savings in the system somewhere.

How do you monetize that? How does Carrier, Wiesman, monetize that? You do it through more recurring revenue type agreements. So if we do more subscription based agreements, then the avoidance of cost benefits all of us. Less cost to the installer because they’re not sending trucks out to a home just unnecessarily as a preventative prophylactic measure, but it’s also a benefit to us because we get to monetize it.

Okay. Thanks.

Nigel Coe, Analyst, Wolf Research: Patrick, so you’re committing to 50 basis points or more of margin expansion. Obviously, came up in the Q and A yesterday. It sounds like that’s a level you feel very, very comfortable with, that 50 basis points plus. Maybe just recap us on of the productivity initiatives in place. You talked about material productivity.

You talked about platforming technology, platforming reduction and then investment levels. So I just wondered if you maybe just talk about some of the push and pull on margins going forward.

Patrick Goris, CFO, Carrier Corporation: The reason we dug a little bit deeper yesterday in our productivity opportunities is frankly because we wanted to send a message that while we’ve driven a lot of productivity since the spin, there is a lot more to be had. And yesterday, we talked we shared a little bit more detail about our Carrier Alliance program with our biggest suppliers, still opportunity to consolidate suppliers. We talked about factory productivity, reducing the time it takes to produce a unit. Again, there, we see significant opportunity there. We talked about warehousing and logistics, and I don’t think we ever spoke frankly publicly about warehousing and logistics, but it’s about $2,000,000,000 in spend.

And it’s an opportunity for us to basically optimize from a company perspective, whereas in the past, it was optimized by site. And so optimized company lanes, optimized modes of transportation from a company point of view and a much more robust SIOP process. Then you mentioned platforming, and it’s just one additional example of where there is plenty of opportunity. Carrier was run-in a very decentralized way. So even within a business or within a segment, you could have duplicative investments in R and D.

And so now what we’re doing is we’re platforming, for example, on controls across the company, including transportation, not just HVAC. And so we’re significantly reducing the number of SKUs, reducing complexity, improving time to market. It only has benefits. And so an enormous opportunity for us and the message we also wanted to send is some of these benefits are not going to happen tomorrow. We’ll see some benefit tomorrow.

They’re to build up over time. And that’s why we’re comfortable saying that we’ll see continued strong productivity for many years to come. In terms of investments, since the spin, you can think of us making incremental investments each year about 100,000,000 to $150,000,000 And while we’ve done that, we’ve generated strong margin expansion, strong core earnings conversion. And so going forward, we can easily continue to make those incremental investments at that rate. If we have room, actually, frankly, if we grow 6% to 8% at 50 bps of more margin expansion, we could actually reinvest more.

It would all depend on do we get the return on these investments. That is key.

Nigel Coe, Analyst, Wolf Research: Maybe a couple of more questions just emanating from the Investor Day before we move on to more sort of current affairs. There might be a tariff question. Do warn you on that. Thinking about sort of the median multi industry company right now is EBITDA margin about 22% roughly. That’s increased from high teens several years ago.

Best in class HVAC would be high teens 20%. Do you think there’s any reason why over time the HVAC sector, yourself included, can’t be above 20% EBITDA margins?

Patrick Goris, CFO, Carrier Corporation: I don’t because today, our outlook is for operating margin to be at about between 16.517%, add a few points of that of D and A, continued opportunity for margin expansion. I don’t see any reason at all where over the medium term, we cannot get to 20% or more EBITDA margins.

Nigel Coe, Analyst, Wolf Research: Right. Yes. Yes. Great. And then on the surplus capital, you talked about $10,000,000,000 over and above dividends over the medium term.

It seems like that’s a five year view. It is. That’s a five year view. Yes. Is.

But then you mentioned $14,000,000,000 keeping leverage constant. So that obviously pricked my ears as well. So is the protocol here that you basically will use free cash flow, surplus free cash flow for buybacks and then use leverage for M and A? Mean, do we think about that?

Patrick Goris, CFO, Carrier Corporation: The way we really think about the $10,000,000,000 of excess capital is this, we follow our priorities for capital deployment, organic growth, inorganic, a growing sustainable dividend and then share repurchase. Now that is a lot of capital just for acquisitions. And you heard Dave and I say yesterday that the acquisitions we intend to make are more of the bolt on size. And so I think it will be a combination of acquisitions and repurchases. And frankly, we’ll toggle between the two depending on what the number and size of acquisitions is.

I would not want you to think that the extra $4,000,000,000 if we keep leverage the same, that, that would just go towards acquisitions. That’s the flexibility we have, and we’re very comfortable keeping our net leverage at about 2x. Great.

Unidentified speaker: Okay. And then when you

Nigel Coe, Analyst, Wolf Research: think about the bolt ons, Dave, I think this is for you. Where do you see the white spaces in the portfolio? Because just from the outside in, it doesn’t seem like there’s a whole lot you’re lacking right now.

Dave Goodland, Chairman and CEO, Carrier Corporation: There’s really not. I mean, if you look at our pipeline, it’s in the three categories that we focus on strategically. So in the product space, there could be some technologies that instead of just organically developing on ourselves that we would just go buy. So for example, Ed Dryden yesterday mentioned AdVolt, which give us a lot of power control electronics, which is not only very important for our reefer business and the electrification that’s happening there, the same technology technology is going to be used on the HEM side as well. So we could have developed it, but they had phenomenal technology with a great team, a great group of engineers, so we bought that.

The same could have been true for liquid cooling for our system solution. We did look at buying some of the smaller liquid cooling companies, but we decided the key thing that we needed to develop was the CDU, the coolant distribution unit, which is effectively a mini chiller. So we said, we know exactly how to do that. We can either end the multiples people were looking for were a bit higher than we wanted to pay. So we just organically developed it.

We have it. We’re now in the marketplace with it. So it can be technology. It can be channel. We bought some of our branches for the ALC business, some of the distribution channel.

Those have done very, very well. So we’ll continue to do those same on the commercial HVAC side where that makes sense. And then things that we kind of need to round out our systems portfolio or even aftermarket like a services company.

Nigel Coe, Analyst, Wolf Research: Okay. Great. I’ll take one or two more and then I’ll open up the Q and A to the room. Maybe keeping it a bit more current, we’re sort of halfway through the quarter, Dave, Patrick. What are we seeing?

Anything? Any big changes in demand across the geographies? Or anything you’d call out within the businesses?

Dave Goodland, Chairman and CEO, Carrier Corporation: No, not really, Nigel. I think

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