Q3 2025 Carrier Global Corp Earnings Call

Speaker #1: Good morning, and welcome to Carrier's Third Quarter 2025 Earnings Conference Call. I would like to introduce your host for today's conference, Michael Rednor, Vice President of Investor Relations.

Michael Rednor: Good morning and welcome to Carrier Global Corporation's third quarter 2025 earnings conference call. I would like to introduce your host for today's conference, Michael Redner, Vice President of Investor Relations. Please go ahead.

Speaker #1: Please go ahead .

Speaker #2: Good morning and welcome to Carrier's third quarter 2025 earnings conference call. On the call with me today are David Gitlin, Chairman and Chief Executive Officer, and Patrick Goris, Chief Financial Officer.

David Gitlin: Good morning and welcome to Carrier Global Corporation's third quarter 2025 earnings conference call. On the call with me today are David Gitlin, Chairman and Chief Executive Officer, and Patrick Goris, Chief Financial Officer. Except where otherwise noted, the company will speak to results from continuing operations excluding restructuring costs and certain significant non-recurring items. A reconciliation of these and other non-GAAP financial measures can be found in the appendix of the webcast. We also remind listeners that the presentation contains forward-looking statements which are subject to risks and uncertainties. Carrier Global Corporation's SEC filings, including our Form 10-K and quarterly reports on Form 10-Q, provide details on important factors that could cause actual results to differ materially. With that, I'd like to turn the call over to Dave. Thank you. Thanks Mike and good morning everyone.

Speaker #2: Except where otherwise noted, the company will speak to results from continuing operations, excluding restructuring costs and certain significant non-recurring items. A reconciliation of these and other non-GAAP financial measures can be found in the appendix of the webcast.

Speaker #2: We also remind listeners that the presentation contains forward looking statements , which are subject to risks and uncertainties . Carriers SEC filings , including our form 10-K and quarterly reports on form 10-q , provide details on important factors that could cause actual results to differ materially .

Speaker #2: With that, I'd like to turn the call over to Dave.

Speaker #3: Thanks , Mike , and good morning , everyone . Q3 was generally in line with what we shared in mid-September at the Laguna Investor conference .

David Gitlin: Q3 was generally in line with what we shared in mid-September at the Laguna Investor Conference. We indicated that North America CSA RESI softness would create about a $500 million sales challenge and a $0.20 to $0.25 adjusted EPS headwind in the quarter. The actual impact was consistent with that. Partially offsetting this was better than expected performance in commercial HVAC in the Americas, which was up 30% in the quarter, continued aftermarket traction, cost containment, and a discrete tax benefit. We also drove continued double-digit sales growth across multiple parts of our business including CSA, residential heat pumps, container, and our businesses in India and the Middle East.

Speaker #3: We indicated that North American residential softness would create about a $500 million sales challenge and a $0.20 to $0.25 adjusted EPS headwind in the quarter.

Speaker #3: The actual impact was consistent with that . Partially offsetting this was better than expected performance in commercial HVAC in the Americas , which was up 30% in the quarter .

Speaker #3: Continued aftermarket traction cost containment and a discrete tax benefit . We also drove continued double digit sales growth across multiple parts of our business , including CSC residential heat pumps , container , and our businesses in India and the Middle East .

Speaker #3: In addition to driving strong growth across many parts of our portfolio, we are taking aggressive cost actions to reduce overhead, including the elimination of about 3,000 indirect positions. This is on top of footprint and direct labor actions required to right-size for demand in our factories.

David Gitlin: In addition to driving strong growth across many parts of our portfolio, we are taking aggressive cost actions to reduce overhead including the elimination of about 3,000 indirect positions, which is on top of footprint and direct labor actions required to right-size for demand in our factories. Given confidence in our strategy and our track record of execution, our board approved a new $5 billion share repurchase authorization. Turning to Slide 4, we are laser focused on our strategic priorities and continue to gain traction on our key initiatives. Our three vectors of growth—products, aftermarket, and systems—are all progressing very well. With respect to our first vector, which focuses on gaining share through differentiated products, brands, and channels, we booked our largest order ever earlier this month, securing another major win with a key hyperscaler. We also converted a top U.S.

Speaker #3: Given confidence in our strategy and our track record of execution, our Board approved a new $5 billion share repurchase authorization. Turning to slide four.

Speaker #3: We are laser focused on our strategic priorities and continue to gain traction on our key initiatives . Our three vectors of growth products aftermarket and systems are all progressing very well with respect to our first vector , which focuses on gaining share through differentiated products , brands and channels .

Speaker #3: We booked our largest order ever earlier this month, securing another major win with a key hyperscaler. We also converted a top U.S. homebuilder to Carrier.

David Gitlin: homebuilder to Carrier, further enhancing our leading position in the new home construction sector. In Europe, we were again recognized for our market-leading Viessmann heat pump products. In addition, our newly introduced Toshiba VRF product line and energy efficient container units are both contributing to share gains in their respective markets. On aftermarket, we delivered 12% growth in the quarter and remain on track for our fifth consecutive year of double-digit growth. Connectivity and digital differentiation remain foundational. Connected chillers were up 30% in the quarter, and last week we had a major multi-year software win in the Middle East with Abound, our digital platform for buildings. Paid subscriptions for Lynx, our digital platform for transportation, were up 40% in the quarter to about 210,000.

Speaker #3: Further enhancing our leading position in the new home construction sector in Europe, we were again recognized for our market-leading vismin heat pump products.

Speaker #3: In addition, our newly introduced Toshiba VF product line and energy-efficient container units are both contributing to share gains in their respective markets.

Speaker #3: On aftermarket, we delivered 12% growth in the quarter and remain on track for our fifth consecutive year of double-digit growth. Connectivity and digital differentiation remain foundational.

Speaker #3: Connected chillers were up 30% in the quarter, and last week we had a major multi-year software win in the Middle East with Abound.

Speaker #3: Our digital platform for buildings paid subscriptions for links to our digital platform for transportation were up 40% in the quarter to about 210,000. Last on systems.

David Gitlin: Last, on systems field trials for our Carrier Energy HEMS offering in North America are progressing well, and we remain on track for market introduction mid next year. We also continue to make significant progress on our QuantumLeap integrated system offering for data centers, with customer discussions advancing well. In our CSE RLC business in Germany, we continue to qualify additional systems profi installers. Certified installers realized growth of 15% to 20% in the quarter, far above the average installer. Turning to CSA RESI on slide 5, though we are of course not pleased with the unexpected decline this year, this is a best-in-class business. We hold the number one market position and our share continues to grow. Our products and brands are second to none. Our extensive distribution and dealer partnerships help provide competitive differentiation. All of this results in great margins and cash flow in this business.

Speaker #3: Field trials for our Carrier Energy Hem's offering in North America are progressing well, and we remain on track for market introduction mid next year.

Speaker #3: We also continue to make significant progress on our quantum leap integrated system offering for data centers, with customer discussions advancing well in our CSC Rwlc business in Germany. We continue to qualify additional systems prof installers and certified installers, realizing growth of 15% to 20% in the quarter, far above the average installer.

Speaker #3: Turning to CSA , on slide five , though , we are of course not pleased with the unexpected decline this year . This is a best in class business .

Speaker #3: We hold the number one market position, and our share continues to grow. Our products and brands are second to none. Our extensive distribution and dealer partnerships help create competitive differentiation.

Speaker #3: All of this results in great margins and cash flow in this business. We are working with our channel partners to collectively take all of our medicine this year.

David Gitlin: We are working with our channel partners to collectively take all of our medicine this year. We are therefore being very purposeful about right-sizing field inventory levels as we head into 2026. At the end of Q3, field inventories were down 12% compared to last year. As of today, field inventory levels are down another 10 points since the beginning of the month and are down about 20% versus last year. By year end, we expect inventory levels in the field to be down 30% versus last year, the lowest level since 2018. We will continue to play offense, and given continued investments and our aggressive cost takeout, we expect to realize outsized returns as this business recovers. Turning to CSE's RLC business on slide six, the good news is that electrification across Europe is accelerating, and we are realizing the mix up benefit from heat pump adoption.

Speaker #3: We are therefore being very purposeful about rightsizing field inventory levels as we head into 2026. At the end of Q3, field inventories were down 12% compared to last year.

Speaker #3: As of today, field inventory levels are down another ten points since the beginning of the month and are down about 20% versus last year.

Speaker #3: By year-end, we expect inventory levels in the field to be down 30% versus last year, the lowest level since 2018.

Speaker #3: We will continue to play offense, and given continued investments and our aggressive cost takeout, we expect to realize outsized returns as this business recovers.

Speaker #3: Turning to provide CCE's, RLC business on slide six. The good news is that electrification across Europe is accelerating, and we are realizing the mix of benefits from heat pump adoption.

Speaker #3: Our residential heat pump sales in Europe were up about 15% in the quarter, with heat pump sales in Germany up about 45%.

David Gitlin: Our residential heat pump sales in Europe were up about 15% in the quarter, with heat pump sales in Germany up about 45%. We expect this trend to continue. For example, we have seen heat pump subsidy applications in Germany increase and expect them to double versus last year to 300,000. Nevertheless, in the category of controlling the controllables, we run the business to be successful independent of subsidies. This is why we have been focused on significantly reducing product and installation costs for our heat pumps to incentivize the continued transition to electrification independent of government subsidies. More broadly, we continue to see a desire across European countries to become less reliant on gas, and key leading indicators of continued heat pump adoption remain positive.

Speaker #3: We expect this trend to continue. For example, we have seen heat pump subsidy applications in Germany increase and expect them to double versus last year to 300,000.

Speaker #3: Nevertheless, in the category of controlling the controllables, we run the business to be successful independent of subsidies. This is why we have been focused on significantly reducing product and installation costs for our heat pumps to incentivize the continued transition to electrification independent of government subsidies.

Speaker #3: More broadly, we continue to see a desire across European countries to become less reliant on gas and oil, leading indicators of continued heat pump adoption remain positive.

Speaker #3: Just last week , the EU gave another vote of confidence for Ets2 to become effective . On January 1st , 2027 , which is a reminder as a reminder is the system for increased pricing on carbon and heating and transport , supporting the continued transition to electrification .

David Gitlin: Just last week, the EU gave another vote of confidence for ETS2 to become effective on January 1, 2027, which, as a reminder, is the system for increased pricing on carbon in heating and transport, supporting the continued transition to electrification. However, for the past couple of years, the strength that we have seen in heat pump unit growth has been more than offset by overall market unit declines driven by boilers, with heating units in markets such as Germany at 15-year lows. These markets are poised for recovery. Importantly, we continue to make key investments in market differentiation and expansion while taking significant costs out, positioning us well for 2026 and beyond. Turning to slide seven, our commercial HVAC business in CSA has had best-in-class performance over the past five years. At the time of our spin, this was the one area within our portfolio where we were underinvested.

Speaker #3: However , for the past couple of years , the strength that we have seen in heat pump unit growth has been more than offset by overall market unit declines , driven by boilers with heating units in markets such as Germany at 15 year lows .

Speaker #3: These markets are poised for recovery. Importantly, we continue to make key investments in market differentiation and expansion while taking significant costs out, positioning us well for 2026 and beyond.

Speaker #3: Turning to slide seven . Our commercial HVAC business in CSA has had best in class performance over the past five years . At the time of our spin , this was the one area within our portfolio where we were under invested .

Speaker #3: We said we would invest, gain share, and increase margins, and we have our investments in technology. Now, our capacity and talent are paying off.

David Gitlin: We said we would invest, gain share, and increase margins, and we have. Our investments in technology, know-how, capacity, and talent are paying off. Not only has the total business more than doubled in five years, but also our applied business, aftermarket, and controls have all doubled during this period. We have also significantly improved our margins. Given our strong backlog, we expect this performance to continue. We see data centers as an opportunity to further accelerate our share gains. As you see on slide 8, data centers remain a top priority for us and our traction has been excellent, especially on orders in the past few months. We remain on track to double our sales from $500 million last year to $1 billion this year.

Speaker #3: Not only has the total business more than doubled in five years, but also our applied business, aftermarket, and controls have all doubled during this period.

Speaker #3: We have also significantly improved our margins, given our strong backlog. We expect this performance to continue. We see data centers as an opportunity to further accelerate our share gains.

Speaker #3: As you see on slide eight, data centers remain a top priority for us, and our traction has been excellent, especially on orders in the past few months.

Speaker #3: We remain on track to double our sales from 500 million last year to $1 billion this year . We expect to see continued growth in this vertical next year , given that we project our backlog entering 2026 for 2026 to be up about 20% year over year .

David Gitlin: We expect to see continued growth in this vertical next year, given that we project our backlog entering 2026 for 2026 to be up about 20% year over year. Relationships with all the hyperscalers and our COLO customers are very strong. Our win rate and size of wins have continued to increase. For example, in addition to multi-hundred million dollar wins with hyperscalers, we recently secured a win with a COLO customer in the Americas exceeding $100 million. Our overall backlog has increased quite a bit over the past few months and now extends into 2028. Before I turn it over to Patrick, some high-level perspectives on slide 9. We are very well positioned to create outsized value for our customers and our shareholders through a purposeful transformation. We created a focused yet balanced portfolio with leading positions in targeted geographies and verticals.

Speaker #3: Relationships with all the hyperscalers and our colo customers are very strong. Our win rate and size of wins have continued to increase.

Speaker #3: For example, in addition to multi-hundred million dollar wins with hyperscalers, we recently secured a win with a Colo customer in the Americas exceeding $100 million.

Speaker #3: Our overall backlog has increased quite a bit over the past few months , and now extends into 2028 . Before I turn it over to Patrick , some high level perspectives on slide nine .

Speaker #3: We are very well positioned to create outsized value for our customers and our shareholders through a purposeful transformation. We created a focused yet balanced portfolio with leading positions in targeted geographies and verticals.

Speaker #3: We like that we are not overly exposed to any one geography or vertical, and in fact have balanced exposure to the right geographies and verticals.

David Gitlin: We like that we are not overly exposed to any one geography or vertical and in fact have balanced exposure to the right geographies and verticals. As we look ahead, we expect the parts of our portfolio that have been strong to remain strong, particularly commercial HVAC and our aftermarket business, which together constitute just under 45% of our sales. We expect that those parts that have faced near-term headwinds, particularly RLC in the Americas and Europe and Global Truck Trailer, to be positioned for a return to growth. When they do, we stand to have outsized benefit given our market-leading positions and the aggressive cost actions that we're taking this year in terms of controlling the controllables as we always do.

Speaker #3: As we look ahead, we expect the parts of our portfolio that have been strong to remain strong, particularly commercial HVAC and our aftermarket business, which together constitute just under 45% of our sales.

Speaker #3: And we expect that those parts that have faced near-term headwinds, particularly RLC in the Americas and Europe, and global truck trailer, to be positioned for a return to growth.

Speaker #3: And when they do, we stand to have outsized benefits given our market-leading positions and the aggressive cost actions that we're taking this year.

Speaker #3: In terms of controlling the Controllables , as we always do , you know , our formula from our Investor Day share gains through differentiation , sustained double digit aftermarket growth and investing in systems to drive unique value for our customers .

David Gitlin: You know our formula from our investor day: share gains through differentiation, sustained double-digit aftermarket growth, and investing in systems to drive unique value for our customers and TAM expansion. You can always count on us to drive cost out of the system in a programmatic and aggressive manner, and we will be disciplined with capital allocation with a near-term focus on share buyback. With that, I will turn it over to Patrick.

Speaker #3: And TAM expansion. You can always count on us to drive costs out of the system in a programmatic and aggressive manner, and we will be disciplined with capital allocation, with a near-term focus on share buyback.

Speaker #3: With that, I will turn it over to Patrick. Patrick, thank you.

Patrick Goris: Patrick, thank you, Dave, and good morning, everyone. Please turn to Slide 10. For the quarter, reported sales were $5.6 billion, adjusted operating profit was $823 million, and adjusted EPS was $0.67. The year-over-year decline in these financial metrics largely relates to much lower volumes in our CSA RESI business. The results are largely in line with what we outlined in September, with the exception that we saw a $0.07 benefit from a lower tax rate, about $0.05 of which was timing between Q3 and Q4. Total company organic growth was down 4%. The 2024 exit of commercial refrigeration was also a 4% headwind, partially offset by a 1% tailwind from currency. Adjusted operating profit was down 21%, primarily due to lower volume in our CSA RESI business. Tariffs were net neutral in the quarter. Adjusted EPS was down 13%.

Speaker #4: Dave , and good morning , everyone . Please turn to slide ten for the quarter . Reported sales were 5.6 billion . Adjusted operating profit was 823 million and adjusted EPs was $0.67 .

Speaker #4: The year over year decline in these financial metrics largely relates to much lower volumes in our CSA residential business . The results are largely in line with what we outlined in September , with the exception that we saw a seven cent benefit from a lower tax rate , about $0.05 of which timing between Q3 and Q4 .

Speaker #4: Total company organic growth was down 4% . 2020 for the 2024 exit of commercial refrigeration was also a 4% headwind , partially offset by 1% tailwind from currency adjusted operating profit was down 21% , primarily due to lower volume in our CSA business .

Speaker #4: Tariffs were net neutral in the quarter . Adjusted EPs was down 13% . We included a year over year adjusted EPs bridge in the appendix on slide 19 .

Patrick Goris: We included the year-over-year adjusted EPS bridge in the appendix on Slide 19. Free cash flow of about $225 million reflects lower operating profit as well as higher working capital levels given the sudden reduction in sales. Moving on to the segments, starting on Slide 11, organic sales in the CSA segment declined 8%. Commercial delivered another exceptional quarter with sales up 30%. Residential and light commercial sales came in right about where we expected per our September update. RESI sales were down 30%, driven by a roughly 40% decline in volume, offset by double-digit regulatory mix up and pricing. Light commercial sales declined 4%. Aftermarket sales across the segment increased mid-teens with particular strength in controls. Segment operating margin was 19.7%, down 560 basis points, reflecting the impact of much lower RESI volume.

Speaker #4: Free cash flow of about $225 million reflects lower operating profit, as well as higher working capital levels, given the sudden reduction in sales.

Speaker #4: Moving on to the segments starting on slide 11. Organic sales in the CSA segment declined 8%. Commercial delivered another exceptional quarter, with sales up 30%.

Speaker #4: Residential and light commercial sales came in right about where we expected per our September update . Resi sales were down 30% , driven by a roughly 40% decline in volume , offset by double digit regulatory mix up and pricing light .

Speaker #4: Commercial sales declined 4%. Aftermarket sales across the segment increased in the mid-teens, with particular strength in controls. Segment operating margin was 19.7%, down 560 basis points, reflecting the impact of much lower residential volume.

Speaker #4: Moving to the CSC segment on slide 12, residential and light commercial sales were down low single digits, reflecting continued heating market unit declines in the region.

Patrick Goris: Moving to the CSE segment on Slide 12, residential and light commercial sales were down low single digits, reflecting continued heating market unit declines in the region. As Dave mentioned, heat pump sales growth across Europe remained strong. Commercial declined mid-single digits, reflecting some large project timing that we expect to partially recover in Q4. Segment operating margin declined 110 basis points, driven by lower organic sales and mix, partially offset by productivity including cost synergies. We are accelerating additional reductions in headcount and other cost actions in this segment. Turning to the CSAME segment on Slide 13, organic sales declined 2%. Continued double-digit growth in India and the Middle East was more than offset by ongoing weakness in RESI and light commercial in China. Within China, our resi and light commercial business was down mid teens, partially offset by Commercial which was up mid single digits.

Speaker #4: As Dave mentioned, heat pump sales growth across Europe remained strong. Commercial declined mid-single digits, reflecting some large project timing that we expect to partially recover in Q4.

Speaker #4: Segment operating margin declined 110 basis points, driven by lower organic sales and mix, partially offset by productivity, including cost synergies.

Speaker #4: We are accelerating additional reductions in headcount and other cost actions in this segment. Turning to the CSA segment on slide 13, organic sales declined 2%.

Speaker #4: Continued double-digit growth in India and the Middle East was more than offset by ongoing weakness in residential and light commercial in China.

Speaker #4: Within China , our resin light commercial business was down mid-teens , partially offset by commercial , which was up mid-single digits . Segment operating margin of 11.6% was primarily driven by strong productivity gains , offset by lower volume .

Patrick Goris: Segment operating margin of 11.6% was primarily driven by strong productivity gains, offset by lower volume. Finally, moving to CST on slide 14, organic sales were up 6%, led by continued very strong growth in container, partially offset by mid single digit decline in Global Truck and Trailer. North America Truck and Trailer was flat. Segment operating margin of 15.4% expanded by 80 basis points year over year, primarily driven by the 2024 exit of commercial refrigeration. Turning to slide 15, total company organic orders were down high single digits for the quarter, excluding CSA RESI orders which were impacted by last year's elevated pre-ordering related to the refrigerant transition. Total company orders were up low single digits. CSA residential orders were down about 40% compared to orders up 30% last year.

Speaker #4: Finally moving to CST on slide 14 , organic sales were up 6% , led by continued very strong growth in container , partially offset by mid-single digit decline in global truck and trailer .

Speaker #4: North America truck and trailer had a flat segment operating margin of 15.4%, which expanded by 80 basis points year over year, primarily driven by the 2024 exit of commercial refrigeration.

Speaker #4: Turning to slide 15, total company organic orders were down high single digits for the quarter, excluding CSA resi orders, which were impacted by last year's elevated preordering related to the refrigerant transition.

Speaker #4: Total company orders were up low single digits . CSA residential orders were down about 40% compared to orders up 30% last year . As expected , commercial orders in CSA have been and will continue to be olympie , given large data center wins in CSA residential and light commercial orders grew low single digits and are up mid-single digits year to date .

Patrick Goris: As expected, commercial orders in CSA have been and will continue to be lumpy given large data center wins in CSA. Residential and light commercial orders grew low single digits and are up mid single digits year to date. We expect commercial orders in CSE to pick up in the coming quarters given a strong pipeline including data center projects in this region. Orders in CSAME were flat, with strong growth outside of China. CST orders were exceptionally strong, led by container up about 100% and global truck and trailer which was up about 25%. Shifting to guidance and moving to slide 16, the updated guidance primarily reflects market weakness in our residential and light commercial businesses in the Americas and Europe. We now anticipate CSA RESI to be down high single digits versus our prior outlook of up mid single digits.

Speaker #4: We expect commercial orders in CSC to pick up in the coming quarters . Given a strong pipeline , including data center projects in this region , orders in CSA were flat , with strong growth outside of China .

Speaker #4: CST orders were exceptionally strong , led by container up about 100% and global truck and trailer , which was up about 25% . Shifting to guidance and moving to slide 16 , the updated guidance primarily reflects market weakness in our residential and light commercial businesses in the Americas and Europe .

Speaker #4: We now anticipate CSA residential to be down high, single digits versus our prior outlook of up mid-single digits in Europe. We now anticipate our RLC business to be down mid-single digits versus the prior outlook of about flat.

Patrick Goris: In Europe, we now anticipate our RLC business to be down mid single digits versus the prior outlook of about flat. Partially offsetting these headwinds, the Americas commercial business is expected to grow over 25% this year, an outstanding performance overall. We now expect about $22 billion in sales for 2025. About $700 million of the reduction versus our prior guide relates to CSA RESI. Moving to profit and cash guide on slide 17, we are revising our full year adjusted operating margin guidance. Our updated margin expectation for CS Americas and CS Europe reflect volume declines in the RLC businesses in both segments. In addition, we are adjusting our margin outlook for transportation given stronger expected container sales and lower NATT sales.

Speaker #4: Partially offsetting these headwinds, the Americas commercial business is expected to grow over 25% this year, demonstrating outstanding performance overall. We now expect about $22 billion in sales for 2025.

Speaker #4: About $700 million of the reduction versus our prior guide relates to CSA, with residential moving to profit and cash guide on slide 17.

Speaker #4: We are revising our full-year adjusted operating margin guidance. Our updated margin expectation for CSA Americas and CS Europe reflects volume declines in the RLC businesses in both segments.

Speaker #4: In addition, we are adjusting our margin outlook for transportation given stronger expected container sales and lower Nat sales. We are adding to the cost reduction actions we initiated earlier this year to right-size the business and now expect carryover savings in 2026 to amount to over $100 million.

Patrick Goris: We are adding to the cost reduction actions we initiated earlier this year to rightsize the business and now expect carryover savings in 2026 to amount to over $100 million. The net full year tariff impact in our current guide remains zero. In terms of operating profit, we expect full year adjusted EPS of about $2.65 including a lower adjusted effective tax rate closer to 21% and expect free cash flow of about $2 billion reflecting lower earnings and higher anticipated cash restructuring costs of about $150 million. Finally, we continue to expect about $3 billion of share repurchases this year. Additional full year guide items are in the appendix on Slide 21. With respect to Q4, we expect CSA RESI sales down approximately 30% and volumes down about 40% and continued significant headwinds from under absorption as the channel continues to destock.

Speaker #4: The net full year tariff impact in our current guide remains zero . In terms of operating profit , we expect full year adjusted EPs of about $2.65 , including a lower adjusted effective tax rate closer to 21% , and expect free cash flow of about $2 billion , reflecting lower earnings and higher anticipated cash restructuring costs of about 150 million .

Speaker #4: Finally, we continue to expect about $3 billion of share repurchases this year. Additional full-year guidance items are in the appendix on slide 21. With respect to Q4, we expect CSA residential sales to be down approximately 30%, and volumes down about 40%.

Speaker #4: And continued significant headwinds from under-absorption as the channel continues to destock. Before moving to Q&A, let me make a few comments on how to frame 2026.

Patrick Goris: Before moving to Q&A, let me make a few comments on how to frame 2026. First, we expect to end 2025 with CSA RESI destocking behind us. Obviously we expect a difficult compare in the first half of 2026 in CSA RESI which will have an impact on total company performance particularly in the first quarter. Second, we are executing on significant cost actions which we have spoken about previously. This should amount to roughly $0.10 carryover adjusted EPS tailwind next year. Third, we expect about a 100 basis point ongoing benefit from a lower tax rate. In total, we therefore expect about $0.20 of adjusted EPS tailwind in 2026 from the combination of carryover, restructuring, benefits, tax and share repo. It is too early to comment on the levels of 2026 organic growth, but it's fair to say that we target about 30% conversion for planning purposes.

Speaker #4: First, we expect to end 2025 with CSA resi destocking behind us. Obviously, we expect a difficult compare in the first half of 2026.

Speaker #4: In CSA resi , which will have an impact on total company performance , particularly in the first quarter . Second , we are executing on significant cost actions , which we have spoken about previously .

Speaker #4: This should amount to roughly a ten-cent carryover adjusted EPs tailwind next year. Third, we expect about a 100 basis point ongoing benefit from a lower tax rate.

Speaker #4: In total, we therefore expect about $0.20 of adjusted EPS tailwind in 2026 from the combination of carryover restructuring benefits, tax, and share repurchase.

Speaker #4: It is too early to comment on the levels of 2026 organic growth, but it's fair to say that we target about 30% conversion for planning purposes, given heightened levels of uncertainty.

Patrick Goris: Given heightened levels of uncertainty, we are running the business assuming low single digit organic growth in 2026. In addition, the net carryover impact of pricing and tariffs is expected to remain dollar neutral based on tariffs and pricing in place today. With that, I would like to ask the operator to open the line for Q&A.

Speaker #4: We are running the business assuming low single digit organic growth in 2026 . In addition , the net carryover impact of pricing and tariffs is expecting is expected to remain dull or neutral based on tariffs and pricing in place today .

Speaker #4: With that, I would like to ask the operator to open the line for Q&A.

Speaker #1: Now opening the floor for the question and answer session. If you'd like to ask a question, please press star followed by one on your telephone keypad.

Michael Rednor: Now opening the floor for question and answer session. If you'd like to ask a question, please press STAR followed by one on your telephone keypad. That's STAR followed by one on your telephone keypad. Your first question comes from the line of Jeffrey Sprague of Vertical Research Partners. Your line is now open.

Speaker #1: That star, followed by one on your telephone keypad. Your first question comes from the line of Jeffrey Sprague of Vertical Research Partners.

Speaker #1: Your line is now open.

Speaker #5: Hey . Thank you . Good morning everyone . Hey , just obviously a couple questions around resi . Just first of all , David Patrick , looking at your consolidated inventories , they're , you know , they're up sequentially in the quarter , typically down .

David Gitlin: Hey, thank you. Good morning, everyone. Just obviously a couple questions around resi. First of all, Dave or Patrick, looking at your consolidated inventories, they're up sequentially in the quarter, typically down. Clearly you've pointed to more work to do to clear the channel. Can you unpack that for us? The volume decline that you're expecting in Resi plus, what other moving pieces might be going on in inventory and maybe as part of that, obviously getting the channel where you want it to be depends not only on your actions on production, but really how sell through is progressing. Maybe just a little bit of color on what you think kind of sell through or movement might be as we.

Speaker #5: You know , clearly you've pointed to more work to do to clear the channel . But can you unpack that for us ? You know , the the volume decline that you're expecting in resi .

Speaker #5: Plus what other other moving pieces might be going on in inventory and maybe as part of that , obviously , getting the channel where you want it to be depends not only on your actions , on production , but really how sell through is progressing .

Speaker #5: So maybe just a little bit of color on what you think kind of sell-through or movement might be as we execute.

Speaker #4: Sounds good . Jeff and good morning . I'll take the first part of the of the question . So far on consolidated level , our inventories are up about $500 million of that , about $400 million is in our CSA resi segment .

Patrick Goris: Sounds good, Jeff, and good morning. I'll take the first part of the question. So far on a consolidated level, our inventories are up about $500 million. Of that, about $400 million is in our CSA RESI segment. Of the $400 million increase in our CSA segment, the RESI element is about $350 million of that increase. Basically, it's a reflection of two things. One, a sudden decline in residential volume. It takes some time for our supply chain to adjust to that. The second element is we have purposefully increased inventories a little bit this year related to our components replacement business to ensure that we can satisfy demand over there. We do expect this inventory to start reducing. Actually, it started reducing already, and the inventory levels will come down by the end of the year.

Speaker #4: And of the 400 million increase in our CSA segment, the element is about 350 million of that increase. And basically, it's a reflection of two things.

Speaker #4: One , a sudden decline in residential volume . And so it takes some time for our supply chain to adjust to that . The second element is , is we have purposefully increased inventories a little bit this year related to our components replacement business , to ensure that we can satisfy demand over there .

Speaker #4: We do expect this inventory to start reducing. Actually, it started to reduce already. And the inventory levels will come down by the end of the year.

Speaker #4: They probably won't come down exactly to where we would like them to be. And the reason for that is we're really balancing within our factories.

Patrick Goris: They probably won't come down exactly to where we would like them to be. The reason for that is we're really balancing within our factories the levels of ongoing production with taking out a lot of labor that we just have then to rehire the first quarter of the year.

Speaker #4: The levels of ongoing production, with taking out a lot of labor that we just have them to rehire, the first quarter of the year.

Speaker #4: And so there is a little bit of a balance there between operating profit and free cash flow, ensuring that we can meet expected demand in the first quarter of the year.

David Gitlin: There's a little bit of.

Patrick Goris: A balance there between operating profits and free cash flow, ensuring that we can meet demand, expected demand in the first quarter of the year. You can expect that increase to start coming down by the end of the calendar year.

Speaker #4: So you can expect that increase to start coming down by the end of the calendar year.

Speaker #3: And Jeff, it's Dave. In terms of field inventory levels, we are going to great lengths with our distribution partners to try to start next year with a clean slate and take all of our medicine this year.

David Gitlin: Jeff, it's Dave. In terms of field inventory levels, we are going to great lengths with our distribution partners to try to start next year with a clean slate. Take all of our medicine this year. I mentioned that our expectation is that field inventory levels ending this year will be down 30% year over year. In terms of your question on movement, movement was down about 30%, it looks like in October, and we expect movement to be down in the mid-20% for November and December. Remember, movement was very strong in Q4 last year. It was up about 30% and then it started to get weaker as we got into Q1 of this year. Movement starting in Q1 of this year was negative. We'll start to see some easier comps on movement.

Speaker #3: I mentioned that our expectation is that field inventory levels ending this year will be down 30% year over year. In terms of your question on movement, movement was down about 30%.

Speaker #3: It looks like in October , and we expect movement to be down in the mid 20s for November and December . Now remember , movement was very strong in for Q last year .

Speaker #3: It was up about 30%, and then it started to get weaker as we got into Q1 of this year. So, the movement starting in Q1 of this year was negative.

Speaker #3: So, we'll start to see some easier comps on movement. So, when you end this year at inventory levels at 2018 levels, we feel like that's the right number.

David Gitlin: When you end this year at inventory levels, at 2018 levels, we feel like that's the right number. We don't feel like that destocking will be a further headwind as we get into next year. We'll have to see what movement does as we get into Q1. Maybe just a follow up. There's like 27 other questions, but I'll just ask one and pass the time. Patrick, in your answer you mentioned kind of repair. Where do you guys stand on what's going on in the repair versus replace dynamic and just sort of the health of the consumer and kind of managing through price and the question of price elasticity? Yeah, as you know, Jeff, we get this a lot and there's really no exact way to measure that. Our parts are up quite a bit. We've been very purposeful about increasing our share of wallet on part sales.

Speaker #3: We don't feel that destocking will be a further headwind as we get into next year, and then we'll have to see what movement does as we get into Q1.

Speaker #5: And maybe just a follow up , there's like 27 other questions , but I'll just ask one and pass the time . Patrick , in your in your answer , you mentioned kind of repair .

Speaker #5: Where do you guys stand on what's going on in the repair versus replace dynamic and just sort of the health of the consumer and kind of managing through price and the question of price elasticity?

Speaker #3: Yeah . As you know , Jeff , we get this a lot . And there's really no exact way to measure that . Our parts are up quite a bit .

Speaker #3: But we've been very purposeful about increasing our share of wallet on part sales. So we would expect that to be up given the initiatives we're driving. When we talk to our distribution partners, they do not see an outsized growth on discrete part sales, compressors, or other key components, where that would be indicative of a repair versus replace.

David Gitlin: We would expect that to be up given the initiatives we're driving. When we talk to our distribution partners, they do not see an outsized growth on discrete part sales, compressors, or other key components where that would be indicative of a repair versus replacement. Having said that, it's hard not to imagine that there are more consumers opting for repair over replace. We're hearing some sporadic pickup of that in certain locations. I would have to believe it's happening in the system, although it's really hard to dimensionalize just how much. Great, thank you. I'll leave it there. Thanks, Jeff.

Speaker #3: Having said that , it's hard not to imagine that there is a more , more consumers opting for repair over replace . And we're hearing some sporadic pickup of that in in certain locations .

Speaker #3: So, I would have to believe it's happening in the system, although it's really hard to dimensionalize just how much.

Speaker #5: Great. Thank you. I'll leave it there.

Speaker #3: Thanks , Jeff .

Speaker #1: Comes from the line of Scott Davis. Your line is now open.

Michael Rednor: Question comes from the line of Scott Davis. Your line is now open.

Speaker #6: Hey. Good morning, guys.

David Gitlin: Hey, good morning, guys.

Speaker #3: Hey , Scott .

Patrick Goris: Hey, Scott.

Speaker #6: Just to follow up a little bit on Jeff's question, if the inventory destocking has kind of reset, does that impact your ability to get the price that you wanted to get for 2026?

David Gitlin: Just to follow up a little bit on Jeff's question, if the inventory destock and kind of the reset, does that impact your ability to get the price that you wanted to get for 2026? When you think about, you know, you're still working off a little bit of a higher cost base overall. Does that change the price dynamic at all? You know, we'll have to see. Jeff, as we think about 2026 pricing. I mean, Scott, when we think about 2026 pricing, we'll announce a mid single digit price increase here for next year. We'll probably announce that in the next couple of weeks and we would expect to yield in the low single digit range. When you think about this year, we've said that the combination of mix and price have both been around in that 10% range. That'll continue here for Q4.

Speaker #6: And think about , you know , you're still working off a little bit of a , you know , a higher cost base overall .

Speaker #6: So, does that change the price dynamic at all?

Speaker #3: You know , we'll have to see , Jeff , as we think about 26 pricing . I mean , Scott , when we think about 26 pricing , we'll announce a mid-single mid-single digit price increase here for next year .

Speaker #3: We'll probably announce that in the next couple of weeks . And we would expect to yield in the low single digit range . When you think about this year , we've said that the combination of mix and price have both been around in that 10% range .

Speaker #3: That will continue here for for Q , we'll get a little bit less of the mix benefit in Q4 here because we started shipping some of the 454 B in the fourth quarter of last year , but in terms of price , I think this year's been probably closer to mid-single digits .

David Gitlin: We'll get a little bit less of the mix benefit in Q4 here because we started shipping some of the 454B in the fourth quarter of last year. In terms of price, I think this year has been probably closer to mid single digits and next year is probably closer to low single digits. Okay, that makes sense. If you don't mind, David, just giving us a little bit of detail on the restructuring. Are you talking about, or you didn't say structuring, you said cost containment. Is there structural cost out versus kind of just the usual cut in discretionary spend? Is there actual structural cost out that we can count on lingering not just into 2026, but going forward 100%? I mean, that's the entire purpose is to take out structural costs. This is not, we're not just trying to squeeze short term costs.

Speaker #3: And next year is probably closer to low single digits.

Speaker #6: Okay, that makes sense. And then, if you don't mind, David, could you give us a little bit of detail on the restructuring?

Speaker #6: Are you talking about or you didn't say structuring . You said cost containment . But is there is there structural cost out versus kind of just kind of the usual cut and discretionary spend ?

Speaker #6: Is there actual structural cost out that we can count on lingering not just into 2026, but going forward?

Speaker #3: 100% ? I mean , that's the entire purpose is to take out structural costs . This is not we're not just trying to squeeze short term costs .

Speaker #3: We're focused on indirect headcount . We're looking at about 3000 heads . And then the whole goal is to make sure that we are very we are very disciplined about not adding those heads back in .

David Gitlin: We're focused on indirect headcount. We're looking at about 3,000 heads. The whole goal is to make sure that we are very disciplined about not adding those heads back in. It's not just giving out targets and having people take the heads out. We're trying to do things like using Patrick's CBS organization to do things differently in terms of how we deal with collections or payables or do things much more efficiently. Bobby and our IT department using AI in groups like our legal department or elsewhere to make us more efficient in how we do things in the back office. We're trying to do things a lot smarter, a lot more efficiently. We have 20,000 Copilot licenses that are starting to cascade across Carrier. The answer is 100% focus on structural cost takeout that comes out and stays out. Okay, thank you, David, Patrick and Mike, good luck.

Speaker #3: And it's not just about giving out targets and having people take the heads out. We're trying to do things like using Patrick's CBA, CBS organization to do things differently in terms of how we deal with collections or payables, or to do things much more efficiently.

Speaker #3: Bobby and our IT department are using AI in groups, like our legal department or elsewhere, to make us more efficient in how we do things in the back office.

Speaker #3: So, we're trying to do things a lot smarter, a lot more efficiently. We have 20,000 Copilot licenses that are starting to cascade across carriers.

Speaker #3: So the answer is 100% focus on structural cost takeout that comes out and stays out.

Speaker #6: Okay . Thank you , David and Patrick and Mike . Good luck . This rest of the year .

Speaker #3: Thank you .

Patrick Goris: Thank you.

Speaker #1: Your next question comes from the line of Julian Mitchell of Barclays. Your line is now open.

Michael Rednor: Your next question comes from the line of Julian Mitchell of Barclays. Your line is now open.

Speaker #7: Hi . Good morning . So just running off the initial thoughts or comments on next year . Patrick , I suppose you know , one could surmise you get to something like a two 90 of EPs or something , maybe high single digit EPs growth and mid-single digit op growth based off the low single digit sales and 30% incremental placeholders within that framework .

[Analyst]: Hi, good morning. Just running off the initial thoughts or comments on next year, Patrick, I suppose you know one could surmise you get to something like $2.90 of EPS or something maybe high single digit EPS growth and mid single digit profit growth based off the low single digit sales and 30% incremental placeholders within that framework. Just trying to understand maybe a little bit deeper how you're thinking about CSA RESI in terms of the outlook as you think about sell out or movement dynamics and the recoupling of sort of sell in versus that. Maybe flesh that out a little bit please, as you think beyond December.

Speaker #7: Just trying to understand maybe a little bit deeper how you're thinking about CSA . In terms of the outlook as you think about sell out or movement dynamics and the recoupling of of sort of sell in versus that , maybe flesh that out a little bit , please , as you think beyond December .

Speaker #4: Sounds good . Julian . So first of all , in my comments , what I was saying was that we expect to see a 20 cent adjusted EPs benefit just from the restructuring benefits from tax and share repurchases .

Patrick Goris: Sounds good, Julian. First of all, in my comments, what I was saying was that we expect to see a $0.20 adjusted EPS benefit just from the restructuring benefits from tax and share repurchases, that is without any organic growth. We said for internal planning purposes, just as to how we run the business, that we're assuming low single digits of organic growth. If you look across our portfolio today, and Dave mentioned this, a little over 40% of our sales has been growing double digits and would expect that to continue next year. That's our aftermarket business and our global commercial HVAC systems business that would get you to about 4% organic growth next year if that continues with the rest of the company flat. The question really is what happens with the balance of the company. A big part of that is CSA RESI.

Speaker #4: That is , without any organic growth . And we said for internal planning purposes , just as to how we run the business that we're assuming low single digits of organic growth , if you look across our portfolio today and Dave mentioned this a little over 40% of our sales has been growing double digits , and we'd expect that to continue next year .

Speaker #4: That's our aftermarket business . And our global commercial HVAC business . That would get you to about 4% organic growth next year , if that continues with the rest of the company , flat .

Speaker #4: And so the question really is , is what happens with the balance of the company ? And a big part of that is CSA at this point , and it's still very early .

Patrick Goris: At this point, and still very early, our estimate is it may be flat to slightly up from a volume perspective. In Europe, as Dave mentioned, it has been quite weak for a long period of time. Our largest market, Germany, the market there is at 15-year lows. We see a hard time that getting worse and so we think flat might be a safe assumption, maybe it gets better.

Speaker #4: Our estimate is that it may be flat to slightly up from a volume perspective. In Europe, as Dave mentioned, it has been quite weak for a long period of time.

Speaker #4: Our largest market , Germany , the market there is at 15 year lows . We see a hard time that getting worse . And so we think flat might be a safe assumption .

Speaker #4: Maybe it gets better .

Speaker #7: That's very helpful. Thank you. And then just maybe my quick follow-up would be looking at the CSA commercial HVAC businesses in terms of light commercial as well as the larger applied business.

[Analyst]: That's very helpful, thank you. Maybe my quick follow up would be looking at the CSA Commercial HVAC businesses in terms of light commercial as well as the larger applied business. How are you seeing the demand in the non data center verticals there? I understand orders are lumpy. I think they were down in CSA commercial in the third quarter, but a big data center Q4 order. If we think about the non data center demand in CSA light and applied, how's that looking?

Speaker #7: How are you seeing the non the demand in the non data center verticals ? There ? You know understand orders are lumpy . I think they were down in CSA commercial in the third quarter .

Speaker #7: But a big data center Q4 order. But if we think about the non-data center demand in CSA light and applied, how's that looking?

Speaker #3: Yeah . Julian , if you look at the commercial HVAC business , Non-data centers were up . And from a sales perspective in the low teens .

David Gitlin: Yeah Julian, if you look at the commercial HVAC business, non data centers were up from a sales perspective in the low teens. The data center business in our commercial HVAC business was up about 250%. Non data centers up in the low teens. Total was up 30%. Our applied business in commercial HVAC in the Americas was up 60%. Non data centers, it continues to be a bit of a mixed bag. We're doing very, very well in things like the mega projects, healthcare, even more so in commercial than light commercial. Surprisingly, commercial real estate was even up again this quarter over last quarter. We don't see as a trend, you know, ABI is quite low. For whatever reason we've seen growth in commercial real estate two quarters in a row. Higher ed and K through 12 are weak both for commercial HVAC and light commercial.

Speaker #3: So see , the data center business and our commercial HVAC business was up about 250% . Non-data centers up in the low teens .

Speaker #3: So total was up 30% . So our applied business in commercial HVAC in the Americas was up 60% . Non non-data centers . It continues to be a bit of a mixed bag .

Speaker #3: We're doing very very well in things like the mega projects , healthcare , even more so in commercial than light commercial . But surprisingly commercial real estate was even up again this quarter over last quarter .

Speaker #3: We don't see that as a trend . You know , Abi is quite low , but for for whatever reason , we've seen growth in commercial real estate two quarters in a row , higher Ed and K through 12 are weak , both for commercial HVAC and light commercial .

Speaker #4: Actually , I believe Julian believe that in Q3 the within CSA Americas for commercial the Non-data center orders were actually up year over year as the data centers that were down given the lumpiness .

Patrick Goris: Actually, I believe, Julian, that in Q3 within CSA Americas for commercial, the non data center orders were actually up year over year. It's the data centers that were down, given the lumpiness.

Speaker #7: Perfect . Thank you .

[Analyst]: Perfect.

David Gitlin: Thank you. Thank you.

Speaker #3: Thank you .

Speaker #1: Your next question comes from the line of Steve Tusa of J.P. Morgan . Your line is now open .

Michael Rednor: Your next question comes from the line of Steve Tusa of JP Morgan. Your line is now open.

Speaker #8: Hey , good morning guys . Thanks , as always for the details .

David Gitlin: Hey, good morning guys. Thanks as always for the details. Hey Steve, just on this resi. You said you're getting mid single digit price this year. I guess when you think about the low double digit or whatever it was for the price mix, how much was mix and how much was price? I know in the beginning you were getting a bit more price than mix. How does that break out in resi for the third quarter? For Q3 it would have been 3 and 8. Okay, got it. That's super helpful. When you guys talk about the 30%, back to Julian's question, I think that includes services. The applied business, if non data center was or data center was up 250 and your applied was up 60, that still implies that kind of the—just getting more specific—the applied to CSA was up or was the applied.

Speaker #3: Hey ,

Speaker #9: Steve .

Speaker #8: Just on this So you said you're getting mid-single digit price this year . I guess when you think about the the low double digit or whatever it was for the resi .

Speaker #8: price mix , I guess how much was mix and how much was price ? I know there's , like in the beginning you were getting a bit more price than mix , but how does that break out in resi for the third quarter ?

Speaker #3: Yeah , for three Q it would have been three and eight .

Speaker #8: Okay . Got it . That's super helpful . And then when you guys talk about the 30% , I guess to back to Julian's question , I think that includes services .

Speaker #8: So I guess the applied business if if Non-data center was or data center was up 250 and you applied was up 60 , that's implies that kind of the just getting more specific the the apply to CSA was up or was the applied .

Speaker #8: You said it was a mixed bag . What was that actually up the applied CSA equipment .

David Gitlin: You said it was a mixed bag. Was that actually up, the applied CSA equipment? I'm sorry, I was just saying the mixed bag was around which verticals were strong and which wasn't. When we look at total CHVAC in the Americas, it was up 30%. The applied business, the equipment was up 60. Aftermarket was up mid teens and the controls business was up a little over 20%. That still implies the non DC applied equipment was still up in the quarter. Yes, up in the low teens. Okay, great. That's super helpful. Thanks a lot. Thank you.

Speaker #9: I'm sorry ,

Speaker #3: I was just saying the mixed bag was around which verticals were strong and which wasn't . When we look at total C.H. in the Americas was up 30% .

Speaker #3: The applied business , the equipment was up 60 . Aftermarket was up mid-teens , and the controls business was up a little over 20% .

Speaker #8: Okay , so that still implies the non DC applied equipment was was still up in the quarter .

Speaker #3: Yes. Up in the low teens.

Speaker #8: Okay . Great . That's super helpful . Thanks a lot .

Speaker #9: Thank you . Thank you .

Patrick Goris: Thank you.

Speaker #1: Your next question comes from the line of Nigel Coe of Wolfe . Your line is now open .

Michael Rednor: Your next question comes from the line of Nigel Coe of Wolfe. Your line is now open.

Speaker #10: Oh thanks . Good morning . Just just a quick one on on the data center backlog . Dave , I think you've mentioned you needed to to kind of build that backlog to , to kind of grow in 26 .

Patrick Goris: Oh, thanks.

David Gitlin: Good morning. Just a quick one on the data center backlog. Dave, I think you've mentioned you needed to kind of build that backlog to kind of grow in 2026. I just want to make sure that the $0.9 billion of backlog you expect at the end of this year is kind of where you expect to be for 2026. Therefore, we should see nice growth next year. Can you just confirm that we're still on track for about $1.1 billion of revenues this year? Yeah, I would say $1 billion for this year, Nigel, in revenue.

Speaker #10: I just want to make sure that the $0.9 billion of backlog at the end of this year is kind of where you expect to be for 2026 .

Speaker #10: And therefore , we should see nice growth next year . And can you just confirm that we're still on track for about $1.1 billion of revenues this year ?

Speaker #3: Yeah , I would say 1 billion for this year . Nigel , in revenue and .

Speaker #4: It always was 1 billion .

Patrick Goris: It always was $1 billion.

Speaker #3: Always 1 billion . So it was 1 billion . Still is 1 billion . And I will tell you , you know , in terms of , you know , we just discussed data center orders in three .

David Gitlin: Always $1 billion. So it was $1 billion. Still is $1 billion. I will tell you, in terms of—we just discussed data center orders in Q3, and we also mentioned that we've gotten really strong orders here in October. I've been very pleased. You know, we wanted to go into next year with a backlog that was higher than the backlog, of course, that we had coming into this year. This year we came in with around $700 million in backlog for the year. Obviously, the total backlog is much higher. I'm talking about backlog just for deliveries in that following year. We came in with $700 million for this year, and we'll do about $1 billion. We wanted to end close to $900 million so we could drive nice growth for next year. We're on track to end with backlog in that $900 million range.

Speaker #3: Q and we also mentioned that we've gotten really strong orders here in October . So I've been very pleased . You know , we wanted to go into next year with a backlog that was higher than the backlog , of course , that we had coming into this year .

Speaker #3: This year, we came in with around $700 million in backlog for the year. Obviously, the total backlog is much higher.

Speaker #3: I'm talking about backlog just for deliveries in that following year . So we came in with 700 million . And for this year , and we'll do about a billion .

Speaker #3: We wanted to end close to $900 million so we could drive nice growth for next year, and we're on track to end with backlog in that $900 million range.

Speaker #3: We're a little bit north of 700 today . We got some a lot of very strong irons in the fire . And there's just a lot of exciting activity .

David Gitlin: We're a little bit north of $700 million today. We got some—a lot of very strong irons in the fire. There's just a lot of exciting activity, frankly. I just got back late last night from Tokyo. We were over there. We've been working with our Japanese hosts. We've been working with the administration, had a number of meetings yesterday with Secretary Lutnick. We signed this morning. We had one of my colleagues, Michael Gerges, over there signing an MOU. There's going to be investments here in the Americas for infrastructure and data centers. We're continuing to push every angle with hyperscalers, colos, and some of the unique opportunities that are out there. We feel very well positioned for continued growth in this space as we go into next year. Okay, you sound surprisingly fresh considering you just got back to Japan.

Speaker #3: Frankly , I , I just got back late last night from Tokyo , so we were over there . We've been working . With our Japanese hosts .

Speaker #3: We've been working with the administration , had a number of meetings yesterday with Secretary Lutnick . So we signed this morning . We had one of my colleagues , Michael Gergis , was over there signing an MOU .

Speaker #3: There's going to be investments here in the for infrastructure and data centers . So we're continuing to push every angle with hyperscalers , colos and some of the unique opportunities that are out there .

Speaker #3: And we feel very well positioned for continued growth in this space as we go into next year .

Speaker #10: Okay . You sound surprisingly fresh considering you just got back from Japan , but in terms of , you know , the movement numbers you just threw out incredibly , incredibly weak .

David Gitlin: In terms of the movement numbers you just threw out, incredibly weak. I understand channel inventory is expected to be down to 2019 levels by the year end, but I'm just wondering, with end demand this weak, is that enough channel burn? Are you confident that we are going to move into 2026 on a clean slate? I am about as confident as we can be with kind of the soft movement market that we've been over these last few months and continue to be in. We've tried to plan Q4 in a way to avoid surprises like we had in Q3. Q4 and Q3 we assumed are effectively the same, with total sales down about 30%, movement down—I mean, volume down about 40%. We've tried to handicap movement continuing to be weak throughout the rest of the year.

Speaker #10: So I understand channel inventory is expected to be , you know , down to 2019 levels by the year end . But I'm just wondering with , you know , end demand this week , is that enough channel burn .

Speaker #10: You know , are you confident they'll be you know , we are going to move into 2026 on a clean slate .

Speaker #3: I am about as confident as we can be with , you know , kind of the the soft movement market that we've been over these last few months and continue to be in .

Speaker #3: So , you know , we we've tried to plan for Q in a way to avoid surprises like we had in three . Q .

Speaker #3: So four Q and three Q , we've assumed are effectively the same with total sales down about 30 movement down . I mean , volume down about 40% .

Speaker #3: And we've tried to handicap movement continuing to be weak throughout the rest of the year . So and that is even with a price increase that will become effective in January .

David Gitlin: That is even with a price increase that will become effective in January. We are working very hard with our distribution partners. When we wake up in January, we're not talking about further destocking. Obviously, we are going to see we can't have movement stay at these levels forever. We will have a little bit of year over year compare issues as we get into Q1, and that lightens, of course, as we go into Q2 and through the year. Even with a bit of a rebound on movement, we think we'll be very, very right sized on field inventory level starting in January. Okay, I'll leave it there.

Speaker #3: So we're working very hard with our distribution partners . So when we wake up in January , we're not talking about further destocking .

Speaker #3: Obviously we are going to see we can't have movement stay at these levels forever . We will have a little bit of year over year .

Speaker #3: Compare issues as we get into one . Q and that lightens of of course , as we go into to Q and through the year .

Speaker #3: But , you know , even with a bit of a , a rebound on movement , we think we'll be very , very right sized on field inventory levels starting in January .

Speaker #10: Okay . I'll leave it there . Thank you .

Patrick Goris: Thank you.

Speaker #1: Question comes from the line of Joe Ritchie of Goldman Sachs. The airline is now open.

Michael Rednor: Question comes from the line of Joe Ritchie of Goldman Sachs. Your line is now open.

Speaker #11: Hey good morning guys .

David Gitlin: Good morning, guys. Good morning, Joe. I really appreciate all the color you've given already on 2026. I'm trying to really understand the interplay between your own inventories, organic growth, and margins in the early part of the year, because typically you guys build inventory from the fourth quarter to the first quarter. Are we to assume that does not happen in 2026?

Speaker #9: Hey Joe. Good morning.

Speaker #11: So look , I really appreciate all the color you've given already on 2026 . I'm trying to really understand , like , the interplay between your own inventories , organic growth and margins in the early part of the year because typically you guys build inventory from the fourth quarter to the first quarter .

Speaker #11: Are we to assume that that does not happen this . In 2026 ? And then how do we kind of think about the decremental margins associated with the early part of the year , giving you guys do have tough comps , and you have elevated inventory levels on your own balance sheet .

Patrick Goris: How do we kind of.

David Gitlin: Think about, like, the decremental margins associated with the early part of the year, given you guys do have tough comps, and you have elevated inventory levels on your own balance sheet.

Speaker #3: Okay . Let me Joe , let me start and then turn it over to Patrick . Let me tell you how we're dealing operations , because we saw such a sudden and extreme shift in in our forecasts and our demand .

Patrick Goris: Let me.

David Gitlin: Joe, let me start and then turn it over to Patrick. Let me tell you how we're kind of dealing operations because we saw such a sudden and extreme shift in our forecast and our demand. As we think about Q4, we fundamentally had a decision to make. We frankly could have stopped production in a couple of our key lines and, frankly, sites, and we decided to keep them going. A cold start is very, very difficult for operations. You'd have to have a drastic reduction in headcount. Then you're suddenly hiring as you start to gear up for the season. We've kept operations going in places like Tennessee and Monterrey at very low levels, but continued levels. What that means for us is we've had a big absorption hit as we've got Q3 into Q4.

Speaker #3: So as we think about for Q , we fundamentally had a decision to make , we frankly could have stopped production in a couple of our a couple of our key lines .

Speaker #3: And , frankly , sites . And we decided to keep them going . A cold start is very , very difficult for operations .

Speaker #3: You'd have to have a drastic reduction in headcount. Then you're suddenly hiring as you start to gear up for the season. So we've kept.

Speaker #3: Going in places like Tennessee and Monterey at very low levels , but continued levels . So what that means for us is we've had a big absorption hit as we've got three Q into four Q , we've seen some of our inventory levels a little bit higher than we'd like .

David Gitlin: We've seen some of our inventory levels a little bit higher than we'd like. We're pretty disciplined on working capital. We've purposely made that trade off to keep operations going, which means as we get into the season in the March timeframe, we won't have as big a ramp in production, which might have a slight impact on absorption as we get in towards the end of Q1. I don't think anything major there, but we won't have the usual significant ramp as we get into season. Patrick.

Speaker #3: We're pretty disciplined on working capital , but we've we've purposely made that that trade off to keep operations going , which means as we get into the season in the March , March time frame , we won't have as big a ramp in production , which might have a slight impact on absorption as we get in towards the end of one Q , but I don't think anything major there , but we won't have the usual significant ramp as we get into season .

Speaker #3: Patrick .

Speaker #9: And then just .

Speaker #4: On the Incrementals Decrementals in Q1 .

Patrick Goris: On the incrementals, the decrementals in Q1, Joe, the first quarter of this year, CSA, which had very strong RESI volume and of course we had significant production levels as well, our incrementals were 69%. It is going to be a tough comp, and I would expect the decrementals in Q1 on the RESI side to be similar to what we're seeing in Q3 and Q4.

Speaker #9: Joe ,

Speaker #4: The first quarter of of this year . CSA , which had very strong resi volume and of course , we had a significant production levels as well , our incrementals were 69% .

Speaker #4: And so clearly that's it's going to be a tough comp . And I would expect the Decrementals in Q1 on the high side to be similar to what we're seeing in Q3 and Q4 .

Speaker #11: Got it . That's that's helpful . And then my , my quick follow up , you've given me accretion from the buyback . Any thoughts just given kind of the weakness in the stock this year , any thoughts on an accelerated share repurchase program .

David Gitlin: Got it.

Patrick Goris: That's helpful.

David Gitlin: You've given the accretion from the buyback. Any thoughts, just given kind of the weakness in the stock this year, any thoughts on an accelerated share repurchase program at this point, Joe?

Speaker #4: At this point ? Joe , we're focused on repurchasing about $3 billion for this year . And then the new authorization , our expectation is that it will take us into 2028 .

Patrick Goris: Focused on repurchasing about $3 billion for this year and then the new authorization. Our expectation is that will take us into 2028, but nothing I can share at this point in terms of an ASR.

Speaker #4: But nothing I can share this point in terms of a ASR .

Speaker #11: Okay , great . Thanks , guys .

David Gitlin: Okay, great. Thanks, guys. Thank you.

Speaker #9: Thank you .

Speaker #1: Your next question comes from the line of Andrew Kaplowitz of Citigroup. Your line is now open.

Michael Rednor: Your next question comes from the line of Andrew Kaplovitz, Citigroup. Your line is now open.

Speaker #12: Good morning everyone .

Patrick Goris: Good morning, everyone.

Speaker #9: Good morning Andy .

David Gitlin: Morning, Andy.

Speaker #12: Dave , can you give a little more color into RLC Europe and what you think is going on over there ? I think you recently said that the German heating market could bottom at 600,000 units , and the obvious drag on your results has been boilers .

Patrick Goris: Dave, can you give a little more color into RLC Europe and what you think is going on over there? I think you recently said that the German heating market could bottom at 600,000 units. The obvious drag on your results has been boilers. Maybe just how you see that market playing out in 2026. What's the conviction level that we will mark a bottom this year and maybe you can elaborate on what you're doing to get the margin up in that segment.

Speaker #12: So maybe just how you see that market playing out in 26 . What's the conviction level that we will mark a bottom this year .

Speaker #12: And you can elaborate on what you're doing to get the margin up in that segment .

Speaker #9: Yeah .

David Gitlin: Let me do the first one first. I think it's a bit of a fool's errand to call a bottom, but I will say that we saw such strong growth in 2022, so the market there has just taken a whole lot of medicine since. The market this year we thought would be closer to 650,000 or so. It's going to end up being in that 600,000 range. I'm talking about Germany specifically. It does feel like when you look at any kind of chart over the last 40 years, the German market does seem to be getting to historic lows and prepared for some level of recovery now in Europe versus the United States. The United States is almost all replacement. In Europe, you will see some planned replacement and a lot of that has been put on hold waiting for some things to settle out.

Speaker #3: Let me do the first one first . I think it's a bit of a fool's errand to call a bottom , but I will say that , you know , we saw such strong growth in 2022 .

Speaker #3: So the market there has just taken a whole lot of medicine since. So the market this year, we thought would be closer to $650,000 or so.

Speaker #3: It's going to end up being in that 600,000 range. I'm talking about Germany specifically. So it does feel like when you look at any kind of chart over the last 40 years, the German market does seem to be getting to historic lows and is prepared for some level of recovery.

Speaker #3: Now , in Europe versus the United States , the United States is almost all replacement in Europe . You you will see some planned replacement and a lot of that has been put on hold waiting for some things to settle out .

Speaker #3: The new German government is having more fiscal stimulus , which is positive . We'll see what happens with the heating law and subsidy levels .

David Gitlin: The new German government is having more fiscal stimulus, which is positive. We'll see what happens with the heating law and subsidy levels. Probably a little bit more clarity as we get into the end of this year, into early next year. The good news is that if you look at the ratio in Germany between heat pumps and boilers, it's almost getting closer to parity. In terms of what we saw this year with a big decline in boilers, in the 30% range and a very unique thing around very expensive floor standing boilers, which we don't expect to be talking about again next year, we do think that if we can continue, which we expect to see, that strong growth in heat pumps. Remember, we're seeing subsidy levels up 2x this year versus last, about 300,000 subsidy applications.

Speaker #3: Probably a little bit more clarity as we get into the end of this year into early next year . The good news is that if you look at the ratio in Germany between heat pumps and boilers , it's almost getting closer to parity .

Speaker #3: So in terms of what we saw this year with a big decline in boilers , you know , in the 30% range and a very unique thing around very expensive floor standing boilers , which we don't expect to be talking about again next year .

Speaker #3: We do think that if we can continue, which we expect to see, that strong growth in heat pumps. Remember, we're seeing subsidy levels up to 2x this year versus last, about $300,000.

Speaker #3: Subsidy applications, and we see a little bit more muted decline in the boilers. Germany should be poised for strength as we go into 2026.

David Gitlin: We see a little bit more muted decline in the boilers. Germany should be poised for strength as we go into 2026. You've seen a mixed bag outside of Germany. Certain countries like France and Poland were weak. We saw strength in places like UK and even Italy was a little bit better than we had thought. Throughout Europe we see continued heat pump adoption. We see really good traction on our initiatives, things like air conditioning sales and some of the system level sales. We're just going to have to watch the market dynamics. We've taken a lot of medicine over the last couple years, so hopefully we've seen bottom.

Speaker #3: Into Germany. Certain countries, like France and Poland, were weak. We saw strength in places like the UK, and even Italy was a little bit better than we had thought.

Speaker #3: So I think throughout Europe we've we see continued heat pump adoption . We see really good traction on our initiatives . Things like air conditioning sales and some of the system level sales .

Speaker #3: And we're just going to have to watch the market dynamics . But we've taken a lot of medicine over the last couple of years , so hopefully we've seen bottom .

Speaker #3: .

Speaker #4: And then Andy , very quickly on the cost out in in Europe . They've mentioned earlier about 300 , about 3000 positions , overhead positions that were in the process of taking out of that , about half of that is in European segment .

Patrick Goris: Very quickly on the cost out in Europe, Dave mentioned earlier about 3,000 overhead positions that we're in the process of taking out. About half of that is in the European segment in CS Europe. Thanks for that, guys. I think you had suggested recently that CSA and CST would return to organic growth in Q3 while transportation did. CSAME still lagged a little bit. Can you give more color into the outlook? Is that just China still being sluggish? That is really China, Andy. It goes back to resi China, so it's not on the commercial side. The one thing we're doing in China as well is going to carry over a little bit in Q4. Embedded in our guide is that we are also looking at the field inventories in our China residential business.

Speaker #4: In Europe .

Speaker #12: Thanks for that , guys . And then I think you had suggested recently that CSA and CST would return their organic growth in Q3 .

Speaker #12: And while transportation did CSA , I mean , still lagged a little bit . Can you give more color into the outlook ? Is that just China still being sluggish ?

Speaker #4: That is really China . And and and it goes back to resi China . And so it's not on the commercial side . The one thing we're doing in China as well , and that's going to carry over a little bit in in Q4 .

Speaker #4: And so embedded in our guidance is we are also looking at the field inventories in our China residential business . They have been somewhat elevated .

Patrick Goris: They have been somewhat elevated, and our team over there is in the process of working with our partners to reduce the inventory levels in the field there as well. Appreciate it, guys, thank you.

Speaker #4: And we are in the process, or team over there, in the process of working with our partners there to reduce the inventory levels in the field as well.

Speaker #12: Appreciate it guys .

Speaker #9: Thank you . Thanks , Andy .

David Gitlin: Thanks Andy.

Speaker #1: Miss Chen comes from the line of DeAndre , a Royal Bank of Canada . Your line is now open .

Michael Rednor: Question comes from the line of Dean Dray of Royal Bank of Canada. Your line is now open.

Speaker #13: Thank you . Good morning everyone .

Patrick Goris: Thank you. Good morning, everyone. Morning, Dean.

Speaker #9: Morning , Dean .

Speaker #13: I was hoping to circle back on the destocking . And you know Dave , if you could put some of this into context , you know , most of these decisions on the destocking are being made by your independent dealers .

David Gitlin: Was hoping to circle back on.

Patrick Goris: The destocking and Dave, you could put some of this into context. Most of these decisions on the destocking are being made by your independent dealers. I know if you could just kind of collectively their mindset in being aggressively taking inventory down to 8-year lows, and then once this is done, is there a risk that you get a normal seasonal demand in the spring, a couple hot days, and then we'll be back talking about inventory shortages and just how quickly can it ramp up assuming normalized.

Speaker #13: So I if you could just kind of collectively their mindset in being , you know , aggressively taking inventory down to eight year lows and then once this is done , is there a risk that , you know , just you get a normal seasonal demand in the spring ?

Speaker #13: A couple hot days and then we'll be back talking about inventory shortages and just how quickly can it ramp up . Assuming normalized demand in the spring ?

David Gitlin: Look, Dean, that would be a tremendous problem to have. What we have learned about this business is that it is very short cycle, and you can see sudden swings for a whole bunch of variables. I will say that we've looked hard at our forecasting model too. We had a model that's kind of withstood the test of time in a short cycle business over many, many years, but it clearly failed us over the past five months or so. We've looked at it. We're using AI to see if we can get more correlations between certain variables so we can have a bit better. It's going to take a couple quarters to figure out whether the new forecasting tool has some better correlation to some of these variables.

Speaker #3: Well , look , Dean , that would be a tremendous problem to have . You know , we we what we have learned about this business is that it is very short cycle .

Speaker #3: And you can see sudden swings and you can see sudden swings for a whole bunch of variables . So I will say that we've looked hard at our forecasting model to that we we had a model that's kind of withstood the test of time in a short cycle business over , over many , many years .

Speaker #3: But it clearly failed us over the past five months or so . So we've looked at it . We're using AI to see if we can get more correlations between certain variables , so we can have a bit better .

Speaker #3: It's going to take a couple of quarters to figure out whether the new forecasting tool has some better correlation to some of these variables , but having said that , I do think that our independent distributors are being very clear eyed about making sure that they start the year with inventory levels that they feel are balanced .

David Gitlin: Having said that, I do think that our independent distributors are being very clear eyed about making sure that they start the year with inventory levels that they feel are balanced. We're working very closely with them distributor by distributor to make sure that they have what they feel they need, but not a single unit more than what they need. Could we see a nice influx of orders as we get into the spring driven by whether it's weather or by consumer sentiment or by a rebound in new home construction? For sure. Right now, as we think about our own internal forecasting, and quite honestly our external forecasting, you'll see us err on the side of conservatism.

Speaker #3: And we're working very closely with them . Distributor by distributor , to make sure that they have what they feel they need . But not a single unit more than what they need .

Speaker #3: Could we see a nice influx of orders as we get into the spring , driven by whether it's weather or by consumer sentiment , or by a rebound in new home construction ?

Speaker #3: For sure . But right now , as we think about our own internal forecast forecasting and quite honestly , our external forecasting , you'll see us on the side of conservatism .

Speaker #13: Understood . And then as a follow up , the discussion about applied , we see vertical . If you take us through the verticals .

Patrick Goris: Understood. As a follow up, the discussion about applied, you know, we see vertical.

David Gitlin: If you take it through the verticals.

Speaker #13: You said they were mixed . Obviously data center is at the top , but just kind of take us through the rest of them .

Patrick Goris: You said they were mixed. Obviously, data center is at the top, just kind of take us through the rest of them. Anything on the government slowdown, project pushouts, delays, anything you would comment there?

Speaker #13: And anything on the government slowdown , project push out , delays , anything you would comment there ?

Speaker #9: Yeah .

Speaker #3: I'd say on the second part of your question , Dean , the only I'd say the only real impact we've seen on the government shutdown has we've seen it a bit in our light commercial business .

David Gitlin: I'd say on the second part of your question, Dean, the only real impact we've seen on the government shutdown is we've seen it a bit in our light commercial business. That business is weaker than we thought. Going into Q4, we thought Q4 would be flattish. We're now saying down about 15%. Part of it is even though rates seem to be coming down a bit for some of the small businesses, they've been a little bit limited on lending and credit, and some of that is loans processed by the SBA have been put on hold. That's the one area with the shutdown that we've seen that we can directly correlate to. A business has probably been in our light commercial business. Overall, the verticals of strength vary by region a bit. For example, in most parts of the world, healthcare has been very, very strong.

Speaker #3: That's that business is weaker than we thought going into four . Q we thought four Q would be flattish . We're now saying down about 15 , and part of it is , even though rates seem to be coming down a bit for some of the small businesses , they've they've been a little bit limited on lending and credit and some of that is loans processed by the SBA have been put on hold .

Speaker #3: So that's the one area with the shutdown that we've seen that we can directly correlate to a business is probably been in in our light commercial business , I would say overall , the verticals of strength vary by region a bit like for example , in most parts of the world , health care has been very , very strong and it's gotten a little bit weak over the last quarter in China and China , renewables has been weak .

David Gitlin: It's gotten a little bit weak over the last quarter in China. In China, renewables has been weak. If you're looking for trends globally, number one, two and three is data centers. That is strong in the Americas and it's very strong globally. We're seeing pockets of strength in the Middle East and Southeast Asia. We're winning orders in India. We have our sales folks in China diverting from projects they had been on, focused clearly on data centers. A lot of industrial production has been strong globally, including reshoring in the United States, some of the mega projects. Retail has been a mixed bag, but that's been an area of strength. Education K through 12 is generally weak globally, certainly here in the United States.

Speaker #3: But I would say if you're looking for trends globally , number one , two and three is data centers . That is strong in the Americas .

Speaker #3: And it's very strong globally . We're seeing pockets of strength in the Middle East and Southeast Asia . We're winning orders in India .

Speaker #3: We have our sales folks in China diverting from projects . They had been on , focused clearly on data centers . A lot of industrial production has been strong globally , including reshoring in the United States .

Speaker #3: Some of the mega projects. Retail has been a mixed bag, but that’s been an area of strength. Education, K through 12, is generally weak globally.

Speaker #3: Certainly here in the United States . So and another area that you'll be hearing us talk a lot more about is mods and upgrades .

Patrick Goris: So.

David Gitlin: Another area that you'll be hearing us talk a lot more about is mods and upgrades. Where we see limited new construction and commercial real estate in key parts of the world, especially in some very dense populations in certain cities, we're very, very focused on modifications and upgrades. That's a whole new vector for us. We've been at it for a while, but we're doubling down on that area right now.

Speaker #3: So where we see limited new construction and commercial real estate in key parts of the world , and especially in some very dense populations in certain cities , we're very , very focused on modifications and upgrades .

Speaker #3: So that's a whole new vector for us . We've been at it for a while , but we're doubling down on that area as well .

Speaker #3: Right now .

Speaker #13: Great. Thanks for that update.

Patrick Goris: Great, thanks for that update.

Speaker #3: Thank you . Dean .

David Gitlin: Thank you, Dean.

Speaker #1: Your next question comes from the line of Andrew Obin of Bank of America . Your line is open .

Michael Rednor: Your next question comes from the line of Andrew Obin of Bank of America. Your line is open.

Speaker #14: Yeah . Good morning . How are you ?

Patrick Goris: Yeah.

David Gitlin: Good morning, how are you? Good. Andrew, just a question on magnetic bearing chillers. Just where is the industry capacity? Where are you? Because you know our channel checks are picking up that overall the industry sort of was a bit too successful in getting orders and you know, there's not a lot of capacity out there. What's your ability to take market share or do you need to add capacity yourselves? We're in great shape, Andrew, and it's been very purposeful. We built a whole new facility in North America. We've expanded the existing facility that we have in Charlotte. If you look at our capacity just since 2023 in North America, our capacity for water cooled chillers is up 4x. Total chillers when you include air cooled is up 3x. I think that's been contributing to a lot of the share gains that we've seen on commercial HVAC.

Speaker #9: Good . Andrew .

Speaker #14: Just a question on magnetic bearing chillers . Just where is the industry capacity ? Where are you ? Because , you know , our channel checks are picking up that overall the industry is sort of was a bit too successful in getting orders .

Speaker #14: And, you know, there's not a lot of capacity out there. So what's your ability to take market share, or do you need to add capacity yourself?

Speaker #9: We're in .

Speaker #3: Great shape , Andrew , and it's been very purposeful . We've we've we've built a whole new facility in North America . We've expanded the existing facility that we have in Charlotte .

Speaker #3: So if you look at our capacity just since 2023 , in North America , our capacity for water cooled chillers is up forex total chillers .

Speaker #3: When you include air-cooled, it’s up 3x, and I think that’s been contributing to a lot of the share gains that we’ve seen in commercial HVAC.

Speaker #3: Some tremendous wins on the data center side. I could not be more proud of the team, and part of it is having the capacity now.

David Gitlin: Some tremendous wins on the data center side. I could not be more proud of the team and part of it is having the capacity now and we have a lot more capacity to continue to grow without further investments. Part of it is the way we're interfacing with our customers. We said to our team and we said to our customers, if you have confidence in us, we will never let you down. We will track deliveries by the hour. We'll make sure that we're always there for you, not only on the delivery side but technically in terms of installation, in terms of startup. A lot of our orders are coming from customers that we've proven that we are in their corner and then part of it is the investments that we've made in the technical portfolio.

Speaker #3: And we have a lot more capacity to go. Not capacity to go. We have a lot more capacity to continue to grow without further investments.

Speaker #3: And part of it is the way we're interfacing with our customers. We said to our team and we said to our customers, if you have confidence in us, we will never let you down.

Speaker #3: We will track deliveries by the hour . We'll make sure that we're always there for you , not only on the delivery side , but technically in terms of installation , in terms of startup .

Speaker #3: So a lot of our orders are coming from customers that we've proven that we are in their corner . And then part of it is the investments that we've made in the technical portfolio .

Speaker #3: We have a new air cooled chiller that has bearings , that's coming out right now , huge interest from us . Our data center customers .

David Gitlin: We have a new air cooled chiller that has mag bearings that's coming out right now. Huge interest from our data center customers. A lot of great wins and the investments that we've made over the last 24 months in the additional capacity are paying off. We don't need any more CapEx. We may do a little bit more in certain countries where that's a part of the win process and we'll see how that plays out. Right now we're well set in North America. Thank you. Just a little bit more pace on resi coming back in 2026. Should we be saying first you know, because you sort of set flat to slightly up. Should we be saying Q1 down and then it gets positive after second quarter? Is it first half, second half story?

Speaker #3: So, a lot of great wins, and the investments that we've made over the last 24 months in the additional capacity are paying off.

Speaker #3: We don't need any more CapEx . We may do a little bit more in certain countries where that's a part of the win process , and we'll see how that plays out .

Speaker #3: But right now , we're very we're well set in North America .

Speaker #14: Thank you. And just a little bit more pace on residential coming back in 2026. Should we be saying "first," you know, because you sort of said flat to slightly up?

Speaker #14: So should we be saying Q1 down and then it gets positive after second quarter . Is it first half second half story .

Speaker #9: I .

Patrick Goris: Clearly, the first half will be very difficult given the very strong first half we had this year.

Speaker #4: Clearly the first half will be very difficult given the very strong first half we had this year . And so I think it's fair to say that we would expect resi first half a significant , especially Q1 Q1 to be down year over year from a volume perspective .

David Gitlin: I think it's fair to.

Patrick Goris: We would expect CSA RESI first half, especially Q1, to be down year over year from a volume perspective.

Speaker #14: Thank you very much , Patrick . Thank you .

David Gitlin: Thank you very much, Patrick. Thank you.

Speaker #1: Your next question comes from the line of Chris Schneider of Morgan Stanley. Your line is now open.

Michael Rednor: The next question comes from the line of Chris Schneider of Morgan Stanley. Your line is now open.

Speaker #15: Thank you . I wanted to ask about America's margins into next year . It seems like the guide , if my math right , puts Q4 at maybe a low double digit to low teens exit rate .

David Gitlin: Thank you. I wanted to ask about Americas margins into next year. It seems like the guide, if my math right, puts Q4 at maybe a low double digit to low teens exit rate. If the company is, I guess, effectively under producing to maybe about Q2 of next year, I would think the absorption headwinds drag through maybe around mid year, I guess. Should we expect Americas margins down next year, just given how hard these first half comps are, even if the segment can collectively grow in 2026. Thank you.

Speaker #15: And you know , if the companies I guess , effectively underproducing to maybe about Q2 of next year , I would think the absorption headwinds drag through maybe around mid-year .

Speaker #15: I guess . Should we expect Americas margins down next year ? You know , just given how hard these first half comps are , you know , even if the segment can collectively grow in 26 .

Speaker #15: Thank you .

Speaker #4: Obviously quite early to comment on 2026 margins . But I think that CSA margin this year will be around 21% or so , unless for some reason resi would be significantly down next year , which we at this point do not expect .

Patrick Goris: Obviously quite early to comment on 2026 margins, but I think that CSA margin this year will be around 21% or so. Unless for some reason RESI would be significantly down next year, which we at this point do not expect, I would not expect the CSA margins to be down next year. Actually, I would expect them to be up.

Speaker #4: I would not expect the CSA margins in to be down next year . Actually , I would expect them to be up .

Speaker #15: Thank you . I appreciate that . And then just a follow up on the price . You know , I think you guys said expect low single digit realization on fresh 26 price .

David Gitlin: Thank you. I appreciate that.

Patrick Goris: To follow up on.

David Gitlin: The price, you know, I think you guys said expect low single digit realization on, you know, fresh 26 price. I guess, how do you think about balancing the need to cover cost inflation, which is still evident, versus potential demand destruction? We have seen these price increases get multiplied as they work their way through the channel and onto the homeowner. I think the risk would be that this just keeps the market in repair mode for longer. Any thoughts or how you guys balance that as an industry even? Thank you.

Speaker #15: I guess kind of . How do you think about balancing the need to cover cost inflation , which is still evident versus just potential demand destruction ?

Speaker #15: You know , we have seen these price increases get multiplied as they work their way through the channel and onto the homeowner . And I think the risk would be that this just keeps the market in repair mode for longer .

Speaker #15: Any thoughts on how you guys balance that as an industry Thank you .

Speaker #4: I think it will be important for us next year. And Dave mentioned that we expect to announce a price increase. We do expect to realize low single-digit price increases next year.

Patrick Goris: I think it will be important for us next year. Dave mentioned that we expect to announce a price increase. We do expect to realize low single digit price next year. Input costs are going up, and of course we haven't spoken about this yet, but should there be any additional tariffs, this might impact the requirement and the need to further adjust pricing. We certainly expect to realize additional pricing next year, though it will be much more modest, of course, absent any additional new tariffs.

Speaker #4: Input costs are going up . And of course we haven't spoken about this yet , but should there be any additional tariffs this might this might impact the requirement of the need to further adjust pricing .

Speaker #4: And so we certainly expect to realize additional pricing next year , though it will be much more modest . Of course , absent any additional new tariffs .

Speaker #4: .

Speaker #9: And I think thank you .

David Gitlin: I think.

Patrick Goris: Thank you.

Speaker #3: And we do watch these elasticity curves. So we are sensitive to not taking actions that drive that dynamic between replace and repair.

David Gitlin: We do watch these elasticity curves. We are sensitive to not taking actions that drive that dynamic between replace and repair. We'll continue to watch our curves, but even watching those quite carefully, we're confident we'll get some level of price next year, albeit more modest than this year. Thank you. I appreciate that. Thank you.

Speaker #3: And we'll continue to watch our curves. But even watching those quite carefully, we're confident we'll get some level of price next year, albeit more modest than this.

Speaker #9: Year .

Speaker #15: Thank you . I appreciate that .

Speaker #9: Thank you . Thank you .

Patrick Goris: Thank you.

Speaker #1: Your next question comes from the

Michael Rednor: Your next question comes from the line of Nicole Dubois of Deutsche Bank. Your line is now open. Thanks. Good morning, guys.

Speaker #1: Line of even? Nicole Dubois of Deutsche Bank, your line is now open.

Speaker #16: Yeah , thanks . Good morning guys .

Speaker #9: Good morning .

David Gitlin: Good morning.

Speaker #16: Can we just start with CST ? Orders were up pretty significantly . Do you think we're starting to see this market rebound off the bottom , or is it more about just easier prior year comps .

Michael Rednor: Can we just start with CSA RESI?

David Gitlin: Orders were up pretty significantly.

Michael Rednor: Do you think we're starting to see?

David Gitlin: this market rebound off the bottom, or is it more about just easier prior year comps? I would say on the good side, the container business has been tremendous, up 50% in the quarter. The year is going to be very strong, probably up 30%. That's been share gains, share gains the right way through our new product introduction. That has been just a very, very good news story for us. It's hard to say with the North American truck trailer business. We expect that to have some good growth here in the fourth quarter. It was flattish in the fourth quarter, so the trends there are right, but it's too early to call a strong rebound. We are seeing it move in the right direction. I would say European truck trailer was a little bit down. It was down a few % in Q3.

Speaker #9: You know .

Speaker #3: , I would say on the good on the good side , the container business has been tremendous . You know , I mean , up 50% in the quarter .

Speaker #3: The year is going to be very strong, probably up 30%. And that's been share gains. It's been share gains the right way through our new product introductions.

Speaker #3: So that has been just a very , very good news story for us . It's hard to say with the North American truck trailer business .

Speaker #3: We've seen , you know , we expect that to have some good growth here in the fourth quarter . It was flattish in the fourth quarter .

Speaker #3: So, the trends there are right. But it's too early to call a strong rebound. We are seeing it move in the right direction.

Speaker #3: And I would say European truck trailer was a little bit down . It was down a few percent in Q3 it'll be down another couple of percent here in Q4 .

David Gitlin: It'll be down another couple of % here in Q4. I kind of think of it similar to some of our resi businesses. Truck trailer, we're number one player, very good margins, very well positioned. As these markets, which have been a little bit depressed in Europe and the Americas, start to come back, and it's not clear exactly when, as they start to come back over these next couple of quarters, that'll drop through very well. Okay, got it. Thanks, Dave.

Speaker #3: So I kind of think of it similar to some of our our resi businesses truck trailer . We're number one player . Very good margins , very well positioned .

Speaker #3: So as these markets , which have been a little bit depressed in Europe and the Americas as they start to come back and it's not clear exactly when , but you know , as they start to come back over these next couple of quarters , that'll drop through very well .

Speaker #16: Okay . Got it . Thanks , Dave . And then can we just talk about Europe commercial as well ? I think it was down mid-single digits in the quarter .

Michael Rednor: Can we just talk about.

David Gitlin: Europe Commercial as well? I think it was down mid single digits in the quarter and you had expected something a bit better than that. Orders were also down a bit. Can we just unpack what's going on there? Is this more of a comps issue as well? I'd say it's a, I honestly would call it more of a timing issue than much of anything else. We see that even though orders weren't even great, orders tend to be lumpy, especially when we're pursuing some key data center customers. I think that this quarter will be up double digits. Internally we're shooting for a fairly strong number, but it should be up double digits here in Q4. We expect to have good backlog going into next year. The data center pursuits have been very strong.

Speaker #16: And you had expected something a bit better than that . Orders were also down a bit . Can we just unpack what's going on there .

Speaker #16: Is this more of a comp issue as well ?

Speaker #9: Yeah , I'd say it's a .

Speaker #3: I honestly would call it more of a timing issue than much of anything else . We see that even though orders weren't even great , orders tend to be lumpy , especially when we're pursuing some key data center customers .

Speaker #3: I think that this quarter will be a double digits . You know , internally , we're shooting for a fairly strong number , but it should be up double digits here in Q4 .

Speaker #3: We expect to have a good backlog going into next year. The data center pursuits have been very strong. There are a couple of unique things happening, where, for example, in Q3, our rentals business was down more than 20% compared to year-over-year comparisons with the Olympics and Paris.

David Gitlin: There's a couple unique things happening where, for example, in Q3 our rentals business was down more than 20% year over year. Compare issues with the Olympics in Paris. There's some things kind of at the margin within the factories and within aftermarket, but overall demand, very strong team, very well poised for double digit growth and we expect very strong growth in this space for next year as well. Thank you. I'll pass it on.

Speaker #3: So there are some things kind of at the margin within the factories and within aftermarket . But overall demand very strong team , very well poised for double digit growth .

Speaker #3: And we expect very strong growth in this space for next year as well .

Speaker #16: Thank you . I'll pass it on .

Speaker #1: Our last question for today comes from the line of Amit Mehrotra of UBS. Your line is now open.

Michael Rednor: Our last question for today comes from the line of Manit Mehrotra of UBS. Your line is now open.

Speaker #17: Thanks . Operator . Hi , everybody . Maybe just a couple quick ones for me . One is not to beat a dead horse on pricing , but any movement on pricing related to tariffs over the course of the year .

Patrick Goris: Thanks, operator. Hi, everybody. Maybe just a couple quick ones for me. One is not to beat a dead.

David Gitlin: On pricing, but any movement on pricing related to tariffs over the course of the year? I know you guys took a price increase on May 1. Pricing discipline obviously very strong, so no questions there.

Speaker #17: I know you guys took a price increase on May 1st , pricing discipline , obviously very strong . So no questions there . But just just with respect to any movement related to tariffs specifically vis a vis rebates or anything like that , just given how how tariff hits have evolved over the course of the year .

Patrick Goris: With respect to any movement.

David Gitlin: Relating to tariffs, specifically vis-à-vis rebates or anything like that, just given how tariffs have evolved over the course of the year.

Speaker #9: Yes .

Speaker #4: I mean , good memory . We implement incremental pricing earlier this year related to some of the new tariffs . That was at the time of our Q1 earnings that we said it was about .

Patrick Goris: Yes, I mean, good memory. We implemented incremental pricing earlier this year related to some of the new tariffs. That was at the time of our Q1 earnings. We said it was about $300 million of incremental pricing. We updated that back in July with some of the additional actions we were taking. The pricing requirement is only closer to $200 million this year to offset tariffs. That number has not changed. We're still in that $200 million range. As I mentioned earlier, the carryover impact of tariffs, pricing, and cost equation of that is expected to be net neutral in 2026 based on tariffs in place today.

Speaker #4: It would require about $300 million of incremental pricing. We updated that back in July with some of the additional actions we were taking.

Speaker #4: The pricing requirements only closer to $200 million . This year to offset tariffs . That number has not changed . We're still in that $200 million range .

Speaker #4: And as I as I mentioned , and as I mentioned earlier , the carry over impact of tariffs pricing in the cost equation of that is expected to be net neutral in 2026 based on tariffs in place today

David Gitlin: Right.

Speaker #17: And then Dave , just a quick follow up . We're all trying to figure out the drivers of the weakness in residential HVAC this year .

Patrick Goris: Dave, just a quick follow up.

David Gitlin: We're all trying to figure out the drivers of the weakness in residential HVAC this year. A lot got thrown at the market this year, whether it was the pre buy, the slower, shorter selling season, the refrigerant shortage. A lot of stuff happened this year. You made an interesting comment, I think.

Speaker #17: And just a lot got thrown at the market this year. Whether it was the pre-buy, the slower, shorter selling season, the refrigerant shortage—just a lot of stuff happened this year.

Speaker #17: You made an interesting comment . I think last month where you talked about a third of existing home sales translates to new HVAC shipments .

Patrick Goris: Last month where you talked about a.

David Gitlin: Third of existing home sales translates to new HVAC shipments.

Speaker #17: It just seems like I understand that that dynamic , but that number just seemed higher than I would have anticipated . So as you think about your demand models and the inputs to those demand models , we're all trying to answer this question about what volume looks like next year .

Patrick Goris: It just seems like.

David Gitlin: I understand that dynamic, but that number just seemed higher than I would have anticipated.

Patrick Goris: As you think about your demand.

David Gitlin: Models and the input to those demand models, we're all trying to answer this question about what volume looks like next year. What are the main kind of levers you're watching from a leading indicator perspective that may inform kind of how that market evolves? Let me just start by clarifying that when people buy new homes, our experience is that usually 20% to 25% of the time that results in a change to their HVAC system. I think seeing the depressed new home construction, but also the sale of existing homes, has been a double hit to demand. If you just step back and you think about resi as you go into next year, I would say the good news is that overall comps this year will be down high single digits. As Patrick said, we have much easier comps in the second half than the first half.

Speaker #17: What are the main kind of levers your you're watching from a leading indicator perspective that that may inform kind of how that market evolves ?

Speaker #9: Yeah .

Speaker #3: Let me let me just start by clarifying that when people buy new homes or experiences that usually 20 to 25% of the time , that results in a change to their HVAC system .

Speaker #3: So I think seeing the depressed new home construction , but also the sale of existing homes has been a double hit to demand .

Speaker #3: I think if if you just step back and you think about resi as you go into next year , I would say the good news is that overall comps this year will be down high single digits as Patrick said , we have much easier comps in the second half than the first half .

Speaker #3: We are taking a lot of actions to get field inventory levels ending this year at a level where we feel . Like destocking should not be a further headwind as we go into next year .

David Gitlin: We are taking a lot of actions to get field inventory levels ending this year at a level where we feel like destocking should not be a further headwind as we go into next year. On the positive side, interest rates hopefully will decline and that should help both new home construction and the sale of existing homes, which, as you know, as we just discussed, does result in changes typically to HVAC systems 20% to 25% of the time. I think those that have been opting to do some level of repair over replace, there will be pent-up demand there. The things that we got to watch is we do have tough comps in the first quarter, perhaps a bit into Q2 as well. It'll all come down to the strength of the consumer. It's just too early to say how that's going to play itself out.

Speaker #3: On the positive side , interest rates hopefully will decline and that should help both new home construction and the sale of existing homes , which , as you know , as we just discussed , does result in changes typically to HVAC systems and 20 , 25% of the time and I think those that have been opting to do some level of repair over replace , you know , there will be pent up demand there .

Speaker #3: The things that we got to watch is we do have tough comps in the first quarter , perhaps a bit into to Q as well .

Speaker #3: And it'll all come down to the strength of the consumer . And it's just too early to say how that's going to play itself out .

Speaker #3: We won't get too much of a mixed benefit next year . It's probably in the $20 million range or so . So it's going to come down .

David Gitlin: We won't get too much of a mixed benefit next year. It's probably in the $20 million range or so. It's going to come down. There are some reasons for optimism, there are some watch items, and we'll just have to see how next year plays out. Right.

Speaker #3: There's some reasons for optimism . There's some watch items and we'll just have to see how next year plays out .

Speaker #17: Right okay . Thanks very much . Appreciate it .

Patrick Goris: Okay, thanks very much. Appreciate it.

Speaker #3: Thank you . And let me just close by thanking you all for joining the call . And thanks to our 50,000 colleagues globally .

David Gitlin: Thank you. Let me just close by thanking you all for joining the call and thanks to our 50,000 colleagues globally. This is a time where people are working extremely hard to control the controllables and support our customers. I could not be more proud of our team and how energized and how hard they're working to make sure that we provide best in class support to our customers. Thanks to all my colleagues and thanks to all of our shareholders.

Speaker #3: You know , this is this is a time where people are working extremely hard to control the controllables and support our customers . And I could not be more proud of our team and how energized and how hard they're working to make sure that we provide best in class support to our customers .

Speaker #3: So thanks to all my colleagues and thanks to all of our shareholders .

Michael Rednor: Thank you for attending today's call. You may now disconnect. Goodbye.