Q2 2026 Carrier Global Corp Earnings Call

July 28, 2026

Speaker #1: Good morning, and welcome to Carrier's second-quarter 2026 earnings conference call. I would like to introduce your host for today's conference, Michael Redner, Vice President of Investor Relations.

Operator: Good morning. Welcome to Carrier's Q2 2026 Earnings Conference Call. I would like to introduce your host for today's conference, Michael Rednor, Vice President of Investor Relations. Please go ahead.

Speaker #1: Please go ahead.

Speaker #2: Good morning, and welcome to Carrier's second quarter 2026 earnings conference call. On the call with me today are David Gitlin, Chairman and Chief Executive Officer, and Patrick Gorse, Chief Financial Officer.

Michael Rednor: Good morning. Welcome to Carrier's Q2 2026 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'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.

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 #1: Good morning, and welcome to CARRIER's second quarter 2026 earnings conference call. I would like to introduce your host for today's conference, Michael Rednor, Vice President of Investor Relations.

Speaker #2: We also remind listeners that the presentation contains forward-looking statements, which are subject to risks and uncertainties. Carrier'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.

Speaker #1: Please go ahead.

Speaker #3: Thanks, Mike, and good morning, everyone. With strong orders, record backlog levels, and first half results being better than expected, we are raising our full-year guidance on sales, operating profit, and EPS.

David Gitlin: Thanks, Mike. Good morning, everyone. With strong orders, record backlog levels, and H1 results being better than expected, we are raising our full year guidance on sales, operating profit, and EPS. Q2 orders were very strong, up about 40%, with commercial HVAC up about 65%, driven by continued strength in data centers, where orders were up 4x over last year. Our total company backlog, which excludes orders that we expect from long-term agreements with hyperscalers and colos, is now over $8 billion, up about 40% versus last year, and up 20% sequentially. Given the increasing demand for our differentiated commercial solutions, we have announced a new facility in India and are finalizing plans for a new site here in the US.

Speaker #2: We also remind listeners that the presentation contains forward-looking statements, which are subject to risks and uncertainties. Carrier’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.

Speaker #3: Two Q orders were very strong, up about 40% with commercial HVAC up about 65%, driven by continued strength in data centers where orders were up 4X over last year.

Speaker #3: Our total company backlog, which excludes orders that we expect from long-term agreements with Hyperscalers and colos, is now over $8 billion. Up about 40% versus last year, and up 20% sequentially.

Speaker #3: Thanks, Mike, and good morning, everyone. With strong orders, record backlog levels, and first-half results being better than expected, we are raising our full-year guidance on sales, operating profit, and EPS.

Speaker #3: Given the increasing demand for our differentiated commercial solutions, we have announced the new facility in India and our finalizing plans for a new site here in the U.S.

Speaker #3: Q2 orders were very strong, up about 40%, with commercial HVAC up about 65%, driven by continued strength in data centers, where orders were up 4x over last year.

Speaker #3: We are pleased that our resi businesses and CSA and CSE were both up high single digits, while CSA light commercial was up 10%, a similar rate to the first quarter.

David Gitlin: We are pleased that our resi businesses in CSA and CSE were both up high single digits, while CSA light commercial was up 10%, a similar rate to the Q1. Our strong free cash flow enabled us to continue to invest in growth. We returned about $640 million to shareholders. We continue to remain proactive in optimizing our portfolio with the divestiture of Riello complete. The sale of Noresco announced yesterday. In terms of acquisitions, we are excited to welcome 75F to the Carrier family, as you see on slide four. This acquisition accelerates our path to creating intelligent and fully autonomous buildings. There are three primary benefits from this combination. First, 75F's BMS platform is perfectly positioned for small and medium-sized businesses and for international markets.

Speaker #3: Our total company backlog, which excludes orders that we expect from long-term agreements with hyperscalers and co-los, is now over $8 billion. That's up about 40% versus last year and up 20% sequentially.

Speaker #3: Our strong free cash flow enabled us to continue to invest in growth, and we returned about $640 million to shareholders. We continue to remain proactive in optimizing our portfolio with the divestiture of Riello Complete and the sale of Neresco announced yesterday.

Speaker #3: Given the increasing demand for our differentiated commercial solutions, we have announced a new facility in India and are finalizing plans for a new site here in the U.S.

Speaker #3: In terms of acquisitions, we are excited to welcome 75F to the Carrier family as you see on slide 4. This acquisition accelerates our path to creating intelligent and fully autonomous buildings.

Speaker #3: We are pleased that our resi businesses and CSA and CSE were both up high single digits, while CSA light commercial was up 10%, a similar rate to the first quarter.

Speaker #3: There are 3 primary benefits from this combination. First, 75F's BMS platform is perfectly positioned for small and medium-sized businesses and for international markets. Because our ALC BMS offering has primarily been focused on larger building applications in the U.S., 75F expands our TAM by about $20 billion.

David Gitlin: Because our ALC BMS offering has primarily been focused on larger building applications in the US, 75F expands our TAM by about $20 billion. Second, 75F will significantly enhance our BMS capabilities. It is AI-enabled and cloud-native, which, when combined with Carrier's platforms, enables agentic AI applications for autonomy and other critical features to drive reliability, uptime, grid interaction, comfort, and energy optimization. Also, its wireless and auto-commissioning capabilities enable faster and seamless installations for both new applications and retrofits. Third, 75F plays an important role in our systems integration strategy, nicely complementing our equipment portfolio and Nlyte data center infrastructure management offering, along with our digital tech stack enabled by Abound and ALC. Intelligent and autonomous buildings are the buildings of the future, and Carrier, now enhanced by 75F, is positioned to lead the way. Turning to slide five.

Speaker #3: In terms of acquisitions, we are excited to welcome 75F to the Carrier family, as you see on Slide 4. This acquisition accelerates our path to creating intelligent and fully autonomous buildings.

Speaker #3: Second, 75F will significantly enhance our BMS capabilities, it is AI-enabled and cloud-native which, when combined with Carrier's platforms, enables agentic AI applications for autonomy and other critical features to drive reliability, uptime, grid interaction, comfort, and energy optimization.

Speaker #3: There are three primary benefits from this combination. First, 75F's BMS platform is perfectly positioned for small and medium-sized businesses and for international markets. Because our ALC BMS offering has primarily been focused on larger building applications in the U.S., 75F expands our TAM by about $20 billion.

Speaker #3: Also, it's wireless and auto-commissioning capabilities enable faster and seamless installations for both new applications and retrofits. And third, 75F plays an important role in our systems integration strategy, nicely complementing our equipment portfolio and lights data center infrastructure management offering, along with our digital tech stack enabled by Abound and ALC.

Speaker #3: Second, 75F will significantly enhance our BMS capabilities. It is AI-enabled and cloud-native, which, when combined with Carrier's platforms, enables agentic AI applications for autonomy and other critical features to drive reliability, uptime, grid interaction, comfort, and energy optimization.

Speaker #3: Intelligent and autonomous buildings are the buildings of the future, and Carrier now enhanced by 75F is positioned to lead the way. Turning to slide 5.

Speaker #3: Also, its wireless and auto-commissioning capabilities enable faster and seamless installations for both new applications and retrofits. And third, 75F plays an important role in our systems integration strategy, nicely complementing our equipment portfolio and lighting, data center infrastructure management offering, along with our digital tech stack enabled by Abound and ALC.

Speaker #3: In 2026, we expect that nearly half of our portfolio are commercial HVAC and aftermarket businesses, will have their 6-year in a row of double-digit growth, and these businesses remain very well-positioned for continued strong growth going forward.

David Gitlin: In 2026, we expect that nearly half of our portfolio, our commercial HVAC and aftermarket businesses, will have their sixth year in a row of double-digit growth. These businesses remain very well-positioned for continued strong growth going forward. In addition, it is encouraging that our shorter cycle RLC businesses in North America and Europe have returned to growth. Though the timing of the recovery in global truck trailer remains unclear, there is clearly pent-up demand as we head into 2027. With the record backlogs in our longer cycle businesses, combined with our shorter cycle RLC businesses in the Americas and Europe turning, we expect the H2 to be up mid-teens and are well-positioned for strong growth to continue. On slide six. Last quarter, we walked you through our transformational commercial journey since our spin.

Speaker #3: In addition, it is encouraging that our shorter cycle RLC businesses in North America and Europe have returned to growth. Though the timing of the recovery and global truck trailer remains unclear, there is clearly pent-up demand as we head into 2027.

Speaker #3: Intelligent and autonomous buildings are the buildings of the future, and Carrier, now enhanced by 75F, is positioned to lead the way. Turning to slide 5.

Speaker #3: So with the record backlogs in our longer cycle businesses combined with our shorter cycle RLC businesses in the Americas and Europe turning, we expect the second half to be up mid-teens and are well-positioned for strong growth to continue.

Speaker #3: In 2026, we expect that nearly half of our portfolio—our Commercial HVAC and Aftermarket businesses—will have their sixth year in a row of double-digit growth, and these businesses remain very well positioned for continued strong growth going forward.

Speaker #3: On slide 6, last quarter we walked you through our transformational commercial journey since our spin. I am very proud that our team's strategic investments and great work are yielding such strong results.

Speaker #3: In addition, it is encouraging that our shorter-cycle RLC businesses in North America and Europe have returned to growth. Though the timing of the recovery in global truck trailer remains unclear, there is clearly pent-up demand as we head into 2027.

David Gitlin: I am very proud that our team's strategic investments and great work are yielding such strong results. We are now increasing our full year data center sales outlook to about $2 billion, which will be our second year in a row of doubling our sales in this important vertical. With our recent significant wins, our 2026 data center sales forecast is all in backlog. We continue to partner with hyperscalers and colos to further strengthen our backlog for 2027 and beyond. We continue to gain market share, and the rapidly increasing install base that we are delivering today will drive attractive aftermarket growth over the long term. Turning to CSA resi on slide seven. Bottom line is that performance has been better than we expected with our Q2 sales up 9%.

Speaker #3: We are now increasing our full-year data center sales outlook to about $2 billion, which will be our second year in a row of doubling our sales in this important vertical.

Speaker #3: So, with the record backlogs in our longer-cycle businesses, combined with our shorter-cycle RLC businesses in the Americas and Europe turning, we expect the second half to be up mid-teens and are well positioned for strong growth to continue.

Speaker #3: With our recent significant wins, our 2026 data center sales forecast is all in backlog, and we continue to partner with Hyperscalers and colos to further strengthen our backlog for 2027 and beyond.

Speaker #3: We continue to gain market share, and the rapidly increasing install base that we are delivering today will drive attractive aftermarket growth over the long term.

Speaker #3: We are now increasing our full-year data center sales outlook to about $2 billion, which will be our second year in a row of doubling our sales in this important vertical.

Speaker #3: Turning to CSA resi on slide 7. Bottom line is that performance has been better than we expected with our two Q sales up 9%.

Speaker #3: With our recent significant wins, our 2026 data center sales forecast is now fully in backlog, and we continue to partner with hyperscalers and co-los to further strengthen our backlog for 2027 and beyond.

Speaker #3: We now expect the market to be around 7 to 7.5 million units this year, largely stable versus last year. Field inventory levels continue to remain healthy, ending two Q down about 25% versus last year.

David Gitlin: We now expect the market to be around seven to seven and a half million units this year, largely stable versus last year. Field inventory levels continue to remain healthy, ending Q2 down about 25% versus last year. We also continue to invest in differentiation, including building out our digital ecosystem, a key priority for us, leveraging Viessmann's cutting-edge digital platform. We now have about 55,000 channel partner technicians monitoring systems real time, up about 35% from a year ago, driving customer loyalty and channel efficiency. We are now raising our full-year expectations for CSA resi sales to be up high single digits. Resi sales in Europe are also improving, as you can see on slide eight. Sales were up high single digits in Q2 with heat pumps up about 20% and boilers down high single digits.

Speaker #3: We continue to gain market share, and the rapidly increasing installed base that we are delivering today will drive attractive aftermarket growth over the long term.

Speaker #3: We also continue to invest in differentiation, including building out our digital ecosystem—a key priority for us—leveraging Viessmann's cutting-edge digital platform. We now have about 55,000 channel partner technicians monitoring systems real-time, up about 35% from a year ago, driving customer loyalty and channel efficiency.

Speaker #3: Turning to CSA resi on slide 7. Bottom line is that performance has been better than we expected, with our Q2 sales up 9%.

Speaker #3: We now expect the market to be around 7 to 7.5 million units this year, largely stable versus last year. Field inventory levels continue to remain healthy, ending Q2 down about 25% versus last year.

Speaker #3: We are now raising our full-year expectations for CSA resi sales to be about high to be up high single digits. Resi sales in Europe are also improving, as you can see on slide 8.

Speaker #3: We also continue to invest in differentiation, including building out our digital ecosystem—a key priority for us—leveraging Viessmann's cutting-edge digital platform. We now have about 55,000 channel partner technicians monitoring systems in real-time, up about 35% from a year ago, driving customer loyalty and channel efficiency.

Speaker #3: Sales were up high single digits in two Q with heat pumps up about 20% and boilers down high single digits. Market dynamics remain favorable, with continued high prices for natural gas and Germany recommitting to subsidies.

David Gitlin: Market dynamics remain favorable with continued high prices for natural gas and Germany recommitting to subsidies. We also remain very encouraged by pre-order activity for our new Vitocal 200 unit. This Viessmann-branded offering has all the benefits that our customers have come to expect: high efficiency, low noise, great aesthetics and connectivity, along with lower product and installation costs. It will be a tremendous secondary offering for Germany and the primary offering for most other countries in Europe. We are on track to formally launch in the fall and expect this new product to significantly increase our TAM. Though our European commercial sales were lower than we expected in H1, our 20% Q2 orders growth and strengthening backlog give us confidence in H2 being up mid-single digits. Segment margins in Q2 were disappointing.

Speaker #3: We also remain very encouraged by pre-order activity for our new VitoCal 200 unit. This Viessmann-branded offering has all the benefits that our customers have come to expect.

Speaker #3: We are now raising our full-year expectations for CSA resi sales to be up high single digits. Resi sales in Europe are also improving, as you can see on slide 8.

Speaker #3: High efficiency, low noise, great aesthetics, and connectivity along with lower product and installation costs. It will be a tremendous secondary offering for Germany and the primary offering for most other countries in Europe.

Speaker #3: Sales were up high single digits in Q2, with heat pumps up about 20% and boilers down high single digits. Market dynamics remain favorable, with continued high prices for natural gas and Germany recommitting to subsidies.

Speaker #3: We are on track to formally launch in the fall and expect this new product to significantly increase our TAM. Though our European commercial sales were lower than we expected in the first half, our 20% two Q orders growth and strengthening backlog give us confidence in the second half being up mid-single digits.

Speaker #3: We also remain very encouraged by pre-order activity for our new VitoCal 200 unit. This Viessmann-branded offering has all the benefits that our customers have come to expect.

Speaker #3: High efficiency, low noise, great aesthetics, and connectivity, along with lower product and installation costs. It will be a tremendous secondary offering for Germany, and the primary offering for most other countries in Europe.

Speaker #3: Segment margins in two Q were disappointing. We are seeing the benefit from improved volume and price costs, but that was offset by unfavorable mix and selling investments.

David Gitlin: We are seeing the benefit from improved volume and price costs, but that was offset by unfavorable mix and selling investments. We will continue to drive strong growth initiatives and will take a more aggressive and structured approach to cost reduction and pricing discipline. Last month, we appointed Thomas Donato as the new President of this segment. I am confident that Thomas and the team will take the right actions to get this business to mid-teen operating margins over the next few years. Moving on to aftermarket on slide nine. We remain on track for double-digit aftermarket growth. Through H1, we are up high single digits, and we have the playbook team and plans in place to deliver double-digit growth for the full year.

Speaker #3: We will continue to drive strong growth initiatives and will take a more aggressive and structured approach to cost reduction and pricing discipline. Last month we appointed Thomas Donato as the new president of this segment.

Speaker #3: We are on track to formally launch in the fall and expect this new product to significantly increase our TAM. Though our European commercial sales were lower than we expected in the first half, our 20% two-quarter orders growth and strengthening backlog give us confidence in the second half being up mid-single digits.

Speaker #3: I am confident that Thomas and the team will take the right actions to get this business to mid-teen operating margins over the next few years.

Speaker #3: Segment margins in Q2 were disappointing. We are seeing the benefit from improved volume and price-cost, but that was offset by unfavorable mix and selling investments.

Speaker #3: Moving on to aftermarket on slide 9. We remain on track for double-digit aftermarket growth. Through the first half, we are up high single digits, and we have the playbook team and plans in place to deliver double-digit growth for the full year.

Speaker #3: We will continue to drive strong growth initiatives and will take a more aggressive and structured approach to cost reduction and pricing discipline. Last month, we appointed Thomas Donato as the new president of this segment.

Speaker #3: On slide 10, you see a lot more greens for our business units compared to our original guide, thus enabling us to raise our full-year outlook for sales, operating profit, and EPS, and will serve us well as we head into 2027.

David Gitlin: On slide 10, you see a lot more greens for our business units compared to our original guide, thus enabling us to raise our full-year outlook for sales, operating profit and EPS, and will serve us well as we head into 2027. With that, I will turn it over to Patrick. Patrick?

Speaker #3: I am confident that Thomas and the team will take the right actions to get this business to mid-teens operating margins over the next few years.

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

Speaker #3: Moving on to aftermarket on slide 9. We remain on track for double-digit aftermarket growth. Through the first half, we are up high single digits, and we have the playbook, team, and plans in place to deliver double-digit growth for the full year.

Speaker #2: Thank you, Dave, and good morning, everyone. Please turn to slide 11. For the quarter, reported sales were $6.4 billion, adjusted operating profit was $1.1 billion, adjusted EPS was $86.

Patrick Goris: Thank you, Dave, and good morning, everyone. Please turn to slide 11. For the quarter, reported sales were $6.4 billion, adjusted operating profit was $1.1 billion, adjusted EPS was $0.86. Better-than-expected organic sales growth of 3% was driven by improving resi and light commercial end markets in the Americas and Europe. Adjusted operating margin of 17.2% was a bit better than expected. The year-over-year decline largely reflects the benefit of organic growth and strong productivity, offset by unfavorable mix and increased input costs. Adjusted EPS declined 7%, driven by lower operating profit and a higher effective tax rate, partially offset by a tailwind from a lower share count. You will find the year-over-year adjusted EPS bridge on slide 20. Free cash flow of $810 million was very strong. Moving on to the segments, starting with CSA on slide 12. Organic sales for the segment increased 4%.

Speaker #2: Better-than-expected organic sales growth of 3% was driven by improving resin-like commercial end markets in the Americas and Europe. Adjusted operating margin of $17.2% was a bit better than expected.

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

Speaker #2: The year-over-year decline, largely reflects the benefit of organic growth and strong productivity, offset by unfavorable mix and increased input costs. Adjusted EPS declined 7%, driven by lower operating profit and a higher effective tax rate, partially offset by a tailwind from a lower share count.

Speaker #2: Better than expected, organic sales growth of 3% was driven by improving residential and light commercial end markets in the Americas and Europe. Adjusted operating margin of 17.2% was a bit better than expected.

Speaker #2: You will find the year-over-year adjusted EPS bridge on slide 20. Pre-cash flow of $810 million was very strong. Moving on to the segments, starting with CSA on slide 12.

Speaker #2: The year-over-year decline largely reflects the benefit of organic growth and strong productivity, offset by unfavorable mix and increased input costs. Adjusted EPS declined 7%, driven by lower operating profit and a higher effective tax rate, partially offset by a tailwind from a lower share count.

Speaker #2: Organic sales for the segment increased 4%. Dave already covered resin-like commercial. With respect to commercial, sales were down due to the timing of data center deliveries.

Patrick Goris: Dave already covered Resi and Light Commercial. With respect to commercial, sales were down due to the timing of data center deliveries. We expect a significant sequential and year-over-year pickup in Q3. Segment operating margin of 24.4% was ahead of our guide. Compared to the prior year, the margin decline reflects stronger pricing offset by unfavorable mix and increased input costs. I will skip slide 13 as Dave already covered the main points. Turning to the CSAME segment on slide 14. Organic sales grew 4%, ahead of expectations, reflecting continued strong performance in India, Southeast Asia, and Australia, with all three areas growing above 20% in the quarter. Driven by data centers, the Middle East delivered very strong sales growth of about 35%, despite a very challenging operating environment. Aftermarket continues to be strong in this region, up about 12%.

Speaker #2: We expect a significant sequential and year-over-year pickup in Q3. Segment operating margin of $24.4% was ahead of our guide. Compared to the prior year, the margin decline reflects stronger pricing offset by unfavorable mix and increased input costs.

Speaker #2: You will find a year-over-year adjusted EPS bridge on slide 20. Free cash flow of $810 million was very strong. Moving on to the segments, starting with CSA on slide 12.

Speaker #2: Organic sales for the segment increased 4%. Dave already covered resi and light commercial. With respect to commercial, sales were down due to the timing of data center deliveries.

Speaker #2: I will skip slide 13, as Dave already covered the main points. Turning to the CSAME segment on slide 14. Organic sales grew 4%, ahead of expectations, reflecting continued strong performance in India, Southeast Asia, and Australia, with all three areas growing above 20% in the quarter.

Speaker #2: We expect a significant sequential and year-over-year pickup in Q3. Segment operating margin of 24.4% was ahead of our guide. Compared to the prior year, the margin decline reflects stronger pricing, offset by unfavorable mix and increased input costs.

Speaker #2: Driven by data centers, the Middle East delivered very strong sales growth of about 35%, despite a very challenging operating environment. Aftermarket continues to be strong in this region, up about 12%.

Speaker #2: I will skip slide 13, as Dave already covered the main points. Turning to the CSAME segment on slide 14: organic sales grew 4%, ahead of expectations, reflecting continued strong performance in India, Southeast Asia, and Australia, with all three areas growing above 20% in the quarter.

Speaker #2: Residential and light commercial in China remains the main drag for the segment. As expected, segment operating margin was about 12%. Moving to the CST segment on slide 15.

Patrick Goris: Residential and Light Commercial in China remains the main drag for the segment. As expected, segment operating margin was about 12%. Moving to the CST segment on slide 15. Organic sales were flat. The container business had another very strong quarter with sales up 40%, offsetting continued pressure in global truck trailer, which was down low teens. The decline in segment operating margin reflects the margin differential between container and truck trailer. Turning to Q2 orders on slide 16. Total company orders in the quarter were very strong, up about 40% with growth across all segments and most businesses. Our backlog is at record levels and supports an accelerating organic growth outlook for the balance of the year. Moving on to slide 17 and shifting to our updated 2026 organic sales outlook.

Speaker #2: Organic sales were flat, the container business had another very strong quarter with sales up 40%, offsetting continued pressure in global truck trailer which was down low teens.

Speaker #2: The decline in segment operating margin reflects the margin differential between container and truck trailer. Turning to Q2 orders on slide 16. Total company orders in the quarter were very strong, up about 40%, with growth across all segments and most businesses.

Speaker #2: Residential and light commercial in China remain the main drag for the segment. As expected, segment operating margin was about 12%. Moving to the CST segment on slide 15.

Speaker #2: Our backlog is at record levels, and supports an accelerating organic growth outlook for the balance of the year. Moving on to slide 17 and shifting to our updated 2026 organic sales outlook.

Speaker #2: Organic sales were flat. The container business had another very strong quarter, with sales up 40%, offsetting continued pressure in Global Truck Trailer, which was down low teens.

Speaker #2: The decline in segment operating margin reflects the margin differential between container and truck trailer. Turning to Q2 orders on slide 16, total company orders in the quarter were very strong.

Speaker #2: We now expect full-year sales to be roughly $23 billion. With organic growth up mid to high single digits, and full-year data center revenue of approximately $2 billion versus $1.5 billion prior guide.

Patrick Goris: We now expect full-year sales to be roughly $23 billion, with organic growth up mid to high single digits and full-year data center revenue of approximately $2 billion versus $1.5 billion prior guide. We now expect CSA Resi and Light Commercial sales growth of approximately high single digits, and CSE Resi Light Commercial sales growth in the low single-digit range, compared to our prior outlook of down high single digits and roughly flat respectively. Note that our updated outlook now reflects about $125 million year-over-year revenue headwind due to the upcoming exit of Noresco. To summarize, we are increasing sales by over $1 billion organically versus the prior guide, with about half of that related to improved sales in CSA Resi Light Commercial, and the other half related to increased data center sales.

Speaker #2: Up about 40%, with growth across all segments and most businesses. Our backlog is at record levels, and supports an accelerating organic growth outlook for the balance of the year.

Speaker #2: We now expect CSA resin-like commercial sales growth of approximately high single digits, and CSE resin-like commercial sales growth in the low single-digit range, compared to our prior outlook of down high single digits and roughly flat, respectively.

Speaker #2: Moving on to slide 17 and shifting to our updated 2026 organic sales outlook. We now expect full-year sales to be roughly $23 billion, with organic growth up mid- to high-single digits, and full-year data center revenue of approximately $2 billion versus the $1.5 billion prior guide.

Speaker #2: Note that our updated outlook now reflects about $1125 million year-over-year revenue headwind due to the upcoming exit of Neresco. So, to summarize, we are increasing sales by over $1 billion organically versus the prior guide, with about half of that related to improved sales in CSA resin-like commercial, and the other half related to increased data center sales.

Speaker #2: We now expect CSA resi and light commercial sales growth of approximately high single digits, and CSE resi and light commercial sales growth in the low single digit range, compared to our prior outlook of down high single digits and roughly flat, respectively.

Speaker #2: About $200 million of sales will drop out of our outlook versus the prior guide from the Neresco divestiture, and relatively small changes across the other segments.

Patrick Goris: About $200 million of sales will drop out of our outlook versus the prior guide from the Noresco divestiture, and relatively small changes across the other segments, which takes our sales outlook to about $23 billion for 2026. Moving on to slide 18, Profit and Cash Guidance. We now expect adjusted operating profit of about $3.5 billion, and adjusted EPS of about $2.90, up from our prior guide of $3.4 billion and $2.80 of EPS. H2 adjusted operating profit and EPS will both be up about 50% year-over-year with strong earnings conversion. H2 earnings growth is driven by favorable volume and net productivity, partially offset by investments, mix, and the $0.05 headwind from the Noresco exit and start-up costs related to the new US site.

Speaker #2: Note that our updated outlook now reflects about a $1.125 billion year-over-year revenue headwind due to the upcoming exit of Neresco. So, to summarize, we are increasing sales by over $1 billion organically versus the prior guide, with about half of that related to improved commercial, and the other half related to increased data center sales.

Speaker #2: Which takes our sales outlook to about $23 billion for 2026. Moving on to slide 18, profit and cash guidance. We now expect adjusted operating profit of about $3.5 billion, and adjusted EPS of about $2.90, up from our prior guide of $3.4 billion and $2.8 or $2.80 of EPS.

Speaker #2: About $200 million of sales will drop out of our outlook versus the prior guide from the Neresco divestiture, and there are relatively small changes across the other segments.

Speaker #2: Second half adjusted operating profit and EPS will both be up about 50% year-over-year, with strong earnings conversion. Second half earnings growth is driven by favorable volume and net productivity, partially offset by investments mix and the 5-cent headwind from the Neresco exit and startup costs related to the new US site.

Speaker #2: Which takes our sales outlook to about $23 billion for 2026. Moving on to slide 18, profit and cash guidance. We now expect adjusted operating profit of about $3.5 billion and adjusted EPS of about $2.90, up from our prior guide of $3.4 billion and $2.80 of EPS.

Speaker #2: No change in outlook with respect to free cash flow as the impact of higher earnings is expected to be offset by about $100 million increase in capex related to the new US site.

Patrick Goris: No change in outlook with respect to free cash flow, as the impact of higher earnings is expected to be offset by about a $100 million increase in CapEx related to the new US site. We now expect full-year CapEx to be about $600 million. Share repurchases are expected to remain at $1.5 billion for the year. You will find full-year adjusted EPS bridges on slides 21 and 22. As usual, additional guide items are on slide 23. Finally, let me provide some color on the Q3. We anticipate Q3 revenues to be just below $6 billion, including about a $200 million year-over-year impact from the Riello and Noresco divestitures. Organic growth is expected to be about 10%, operating margin of about 16.5%, a 24% tax rate leading to about $0.75 of adjusted EPS.

Speaker #2: Second-half adjusted operating profit and EPS will both be up about 50% year-over-year, with strong earnings conversion. Second-half earnings growth is driven by favorable volume and net productivity, partially offset by investments, mix, and the $0.05 headwind from the Neresco exit and startup costs related to the new U.S. site.

Speaker #2: We now expect full-year capex to be about $600 million. Sherry purchases are expected to remain at $1.5 billion for the year. You will find full-year adjusted EPS bridges on slides 21 and 22.

Speaker #2: And as usual, additional guide items are on slide 23. Finally, let me provide some color on the third quarter. We anticipate Q3 revenues to be just below $6 billion including about a $200 million year-over-year impact from the yellow and Neresco divestitures.

Speaker #2: No change in outlook with respect to free cash flow, as the impact of higher earnings is expected to be offset by about $100 million increase in capex related to the new U.S. site.

Speaker #2: We now expect full-year CapEx to be about $600 million. Share repurchases are expected to remain at $1.5 billion for the year. You will find full-year adjusted EPS bridges on slides 21 and 22.

Speaker #2: Organic growth is expected to be about 10%, operating margin of about 16.5%, a 24% tax rate leading to about 75 cents of adjusted EPS.

Speaker #2: And as usual, additional guide items are on slide 23. Finally, let me provide some color on the third quarter. We anticipate Q3 revenues to be just below $6 billion, including about a $200 million year-over-year impact from the Yellow and Neresco divestitures. Organic growth is expected to be about 10%, operating margin of about 16.5%, and a 24% tax rate, leading to about $0.75 of adjusted EPS.

Speaker #2: The sequential decline in operating margin mainly reflects lower seasonal sequential resin-like commercial sales in the US and significantly higher commercial sales globally. With that, operator, please open the line for questions.

Patrick Goris: The sequential decline in operating margin mainly reflects lower seasonal sequential Resi and Light Commercial sales in the US, and significantly higher commercial sales globally. With that, operator, please open the line for questions.

Speaker #1: We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand.

Operator: We will now begin the question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, please press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you're muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Scott Davis with Melius Research. Your line is open. Please go ahead.

Speaker #1: To withdraw your question, please press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality.

Speaker #2: The sequential decline in operating margin mainly reflects lower, seasonal, sequential residential and light commercial sales in the US, and significantly higher commercial sales globally.

Speaker #1: If you're muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Scott Davis with Melius Research.

Speaker #2: With that, operator, please open the line for questions.

Speaker #1: Your line is open. Please go ahead.

Speaker #1: We will now begin the question-and-answer session. If you would like to ask a question, please press star 1 to raise your hand.

Speaker #3: Hey, good morning, guys. Morning, David, Patrick, Mike.

Scott Davis: Hey, good morning, guys.

Patrick Goris: Morning, Scott.

Patrick Goris: Morning, David, Patrick, Mike.

Speaker #4: Morning.

Speaker #3: Looked like a pretty good quarter overall. I just only nipped really is the margin decline issue. Can you go into a little bit more detail, kind of the mix versus price cost, kind of the challenges that you had there, how much of that was perhaps timing?

Speaker #1: To withdraw your question, please press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality.

David Gitlin: Morning.

Scott Davis: Look like a pretty good quarter overall. Just only nit really is the margin decline issue. Can you go into a little bit more detail, kind of the mix versus price cost, kind of the challenges that you had there? How much of that was perhaps timing? You mentioned a change in leadership, so perhaps a little bit of a different mandate as well, but maybe a little bit more detail would be helpful there.

Speaker #1: If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Scott Davis with Melius Research.

Speaker #3: You mentioned a change in leadership, so perhaps a little bit of a different mandate as well, but maybe a little bit more detail would be helpful there.

Speaker #1: Your line is open. Please go ahead.

Speaker #4: We'll do, Scott. So operating margin, operating profit and margin was down versus last year. Key elements, as I mentioned, favorable volume, price and productivity, we do have some unfavorable mix.

Speaker #3: Hey, good morning, guys. Morning, David, Patrick, Mike. Looked like a pretty good quarter overall. My only nit, really, is the margin decline issue.

Patrick Goris: Will do, Scott. Operating profit and margin was down versus last year. Key elements, as I mentioned, favorable volume, price, and productivity. We do have some unfavorable mix. I'll get to that in a little bit. Then of course, there is also the timing of the tariff mitigation and lower JV income. In terms of timing of the tariff mitigation, you may recall that the tariffs went into effect early April, and the pricing associated to mitigate some of that went into effect at the end of the month. As expected, during Q2, the impact of tariffs and pricing associated with tariffs was a net negative. That was a headwind to our margins in the quarter. With respect to mix, within Europe, we had besides strong heat pump growth, good growth in battery and solar, which actually has quite lower margins within container.

Speaker #3: Can you go into a little bit more detail on the mix versus price/cost—kind of the challenges that you had there? How much of that was, perhaps, timing?

Speaker #4: I'll get to that in a little bit. And then, of course, there is also the timing of the tariff mitigation. And lower the income.

Speaker #4: In terms of timing of the tariff mitigation, you may recall that the tariffs went into effect early April, and the pricing associated to mitigate some of that went into effect at the end of the month.

Speaker #3: You mentioned a change in leadership, so perhaps a bit of a different mandate as well. Maybe you could provide a little more detail? That would be helpful.

Speaker #4: Will do, Scott. So, operating margin and operating profit were down versus last year. Key elements, as I mentioned: favorable volume, price, and productivity. We do have some unfavorable mix.

Speaker #4: And so, as expected, during the second quarter, the impact of tariffs and pricing associated with tariffs was a net negative. And that was a headwind to our margins in the quarter.

Speaker #4: I'll get to that in a little bit. And then, of course, there is also the timing of the tariff mitigation and the lower income.

Speaker #4: With respect to mix, within Europe, we had, besides strong heat pump growth, good growth in battery and solar, which actually has quite a lower margins.

Speaker #4: In terms of the timing of the tariff mitigation, you may recall that the tariffs went into effect in early April, and the pricing associated to mitigate some of that went into effect at the end of the month.

Speaker #4: Within container, within transportation, container does well but has lower margins in truck and trailer. And then within CSA, think of it as a new construction was a little bit higher mix than what we expected which drove down overall margins.

Patrick Goris: Within transportation, container does well but has lower margins than truck and trailer. Within CSA, think of it as a new construction was a little bit higher mix than what we expected, which drove down overall margins. Still good margin, new construction, just not as strong as replacement. Those are some of the main elements, Scott.

Speaker #4: And so, as expected, during the second quarter, the impact of tariffs and pricing associated with tariffs was a net negative. That was a headwind to our margins in the quarter.

Speaker #4: Still good margin, new construction, just not as strong as replacement. So those are some of the main elements, Scott. Yeah, and Scott, on your second question.

Speaker #4: With respect to mix, within Europe, we had, besides strong heat pump growth, good growth in battery and solar, which actually have quite a bit lower margins.

Speaker #3: Go ahead. No, go ahead, please, David.

David Gitlin: Okay, great.

David Gitlin: Yeah, Scott, go ahead.

Speaker #4: Yeah. Scott, I was just going to say in the second part of your question on the leadership change, we're really excited to have Thomas Donato on board.

Scott Davis: No, go ahead, please, David.

Speaker #4: Within Container, within Transportation, Container does well but has lower margins in truck and trailer. And then within CSA, think of it as new construction was a little bit higher mix than what we expected.

Patrick Goris: Yeah. Scott, I was just going to say on the second part of your question on the leadership change, we're really excited to have Thomas Donato on board. We can't thank Thomas Heim enough for everything he did. In terms of this next chapter, we really have to do a better job on both price and cost, to state the obvious. I think that Thomas brings a great experience

Speaker #4: We can't thank Thomas Heim enough for everything he did. But in terms of this next chapter, we really have to do a better job on both price and cost to state the obvious.

Speaker #4: Which drove down overall margins. Still good margin in new construction, just not as strong as replacement. So those are some of the main elements, Scott.

Speaker #4: So I think that Thomas brings a great experience from his days at places like Rockwell Automation and ABB and Bosch. And we're going to be a lot more disciplined on the price side.

David Gitlin: From his stays at places like Rockwell Automation, ABB, and Bosch. We're going to be a lot more disciplined on the price side, and there's a lot of cost that we have to take out, and that includes footprint, supply chain, G&A. Thomas and the team know that the expectation that you have of us and that we have of ourselves is certainly to get to that mid-teen op profit margin, and I'm confident we'll get there.

Speaker #4: Yeah, Scott, on your second part, go ahead.

Speaker #3: No, go ahead, please, David.

Speaker #4: And there's a lot of costs that we have to take out, and that includes footprint, supply chain, G&A. So Thomas and the team know that the expectation that you have of us and that we have of ourselves is certainly to get to that mid-teen profit margin.

Speaker #4: Yeah, Scott, I was just going to say, in the second part of your question on the leadership change, we're really excited to have Thomas Donato on board.

Speaker #4: We can't thank Thomas Heim enough for everything he did. But in terms of this next chapter, we really have to do a better job on both price and cost, to state the obvious.

Speaker #4: And I'm confident we'll get there.

Speaker #3: Okay. And just a real quick one, guys. On the 75F, what are you buying here? Are you buying the technology? Are you buying an installed base?

Scott Davis: Okay. Just a real quick one, guys. On the 75F, what are you buying here? Are you buying the technology? Are you buying an installed base? Is it an enhancement of your own BMS? I'm just trying to get a sense of what you're getting.

Speaker #4: So, I think that Thomas brings great experience from his days at places like Rockwell Automation, ABB, and Bosch. And we're going to be a lot more disciplined on the price side.

Speaker #3: And is it an enhancement of your own BMS and just trying to get a sense of what you're getting?

Speaker #4: Technology primarily. They have their own 75F has its own BMS offering. It's primarily it's traditionally been targeted at kind of the smaller and medium-sized buildings.

Speaker #4: And there's a lot of costs that we have to take out, and that includes footprint, supply chain, G&A. So, Thomas and the team know that the expectation that you have of us, and that we have of ourselves, is certainly to get to that mid-teens profit margin.

David Gitlin: Technology, primarily. 75F has its own BMS offering. It's traditionally been targeted at kind of the smaller and medium-sized buildings. We're buying great technology that not only enables us to attack that market here in the United States, for small and medium-sized buildings, but it's great for an international offering. We're buying a great team. They have 91 engineers. They have a great leader, Deep, who's coming as well. We're buying talent, we're buying technology, and as I mentioned in the prepared remarks, it's really going to complement and make our ALC offering much better because it's cloud enabled. They have agentic AI built on top of it, and it's wireless, so it's much, much quicker and easier to commission a building. If you think about the building that Patrick and Mike and I are in right now, our headquarters, there might be 1,000 sensors.

Speaker #4: But we're buying great technology that not only enables us to attack that market here in the United States, for small and medium-sized buildings, but it's great for an international offering.

Speaker #4: And I'm confident we'll get there.

Speaker #3: Okay. And just real quick, guys, on the 75F—what are you buying here? Are you buying the technology? Are you buying an installed base?

Speaker #4: We're buying a great team. They have 91 engineers, they have a great leader, Deep, who's coming as well. So we're buying talent, we're buying technology, and as I mentioned in the prepared remarks, it's really going to complement and make our ALC offering much better because it's cloud-enabled, they have agentic AI built on top of it, and it's wireless.

Speaker #3: Is it an enhancement of your own BMS? Just trying to get a sense of what you're getting.

Speaker #4: Technology, primarily. They have their own—75F has its own BMS offering. It's traditionally been targeted at kind of the smaller and medium-sized buildings.

Speaker #4: But we're buying great technology that not only enables us to attack that market here in the United States for small and medium-sized buildings, but it's also great for an international offering.

Speaker #4: So it's much, much quicker and easier to commission a building. If you think about the building that Patrick and Mike and I are in right now, our headquarters, there might be 1,000 sensors, each one needs to be individually commissioned.

Speaker #4: We're buying a great team. They have 91 engineers. They have a great leader, Deep, who's coming as well. So we're buying talent. We're buying technology.

David Gitlin: Each one needs to be individually commissioned. With their wireless capabilities and auto-commissioning, those can be all auto-commissioned without human intervention. It's a great digital tech stack that we can build on top of.

Speaker #4: With their wireless capabilities and auto-commissioning, those can be all auto-commissioned without human intervention. So it's a great digital tech stack that we can build on top of.

Speaker #4: And as I mentioned in the prepared remarks, it's really going to complement and make our ALC offering much better, because it's cloud-enabled. They have agentic AI built on top of it, and it's wireless.

Speaker #3: Sounds good. Okay. Congrats, guys, and best of luck the rest of the year. I'll pass it on.

Scott Davis: Sounds good. Okay. Congrats guys, and best of luck the rest of the year. I'll pass it on.

Speaker #4: Thanks, Scott.

Speaker #1: Your next question comes from the line of Jeffrey Sprague with Vertical Research. Your line is open. Please go ahead.

David Gitlin: Thanks, Scott.

Speaker #4: So, it's much, much quicker and easier to commission a building. If you think about the building that Patrick and Mike and I are in right now—our headquarters—there might be 1,000 sensors.

Operator: Your next question comes from the line of Jeffrey Sprague with Vertical Research. Your line is open. Please go ahead.

Speaker #5: Hey, thanks. Good morning, everyone. Hope you're well. Great to see the resi inflecting here. Dave or Patrick, I just wonder if you could maybe just give us a little bit more color on kind of where we're at.

Jeffrey Sprague: Hey, thanks. Good morning everyone. Hope you're well. Great to see the resi inflecting here. Dave or Patrick, I just wonder if you could maybe just give us a little bit more color on kind of where we're at. I guess the nature of my question is, did we see any sort of the two-step bullwhip effect in this quarter, or are your volumes pretty close to kind of industry volumes this quarter? Your industry outlook for the year, I would assume we got some bullwhip effect in the H2 of the year. Just maybe how's movement, how's the channel? Did we see any of those machinations in Q2 here?

Speaker #4: Each one needs to be individually commissioned. With their wireless capabilities and auto-commissioning, those can all be auto-commissioned without human intervention. So, it's a great digital tech stack that we can build on top of.

Speaker #5: I guess the nature of my question is, did we see any sort of the two-step bullwhip effect in this quarter? Or are your volumes pretty close to kind of industry volumes this quarter?

Speaker #3: Sounds good. Okay, congrats, guys, and best of luck the rest of the year. I'll pass it on.

Speaker #4: Thanks, Scott.

Speaker #5: And then your industry outlook for the year, I would assume we got some bullwhip effect in the back half of the year. So just maybe how's movement, how's the channel, did we see any of those machinations in Q2 here?

Speaker #1: Your next question comes from the line of Jeffrey Sprague with Vertical Research. Your line is open. Please go ahead.

Speaker #5: Hey, thanks. Good morning, everyone. Hope you're well. Great to see the RESI inflecting here. Dave or Patrick, I just wonder if you could maybe just give us a little bit more color on kind of where we're at.

Speaker #4: We didn't really see them in Q2. We see them in the back half. We'll get 10 points of that benefit from the absence of de-stocking.

David Gitlin: We didn't really see them in Q2. We see them in the H2. We'll get 10 points of that benefit from the absence of destocking in the H2. If you think about the H2 of this year, Jeff, we'll see sales up about 20% in the H2, of course off of some relatively easy compares. 10 of that will come from the absence of destocking. We expect movement to be up mid-single digits, we should get price in the mid-single-digit range. We didn't see as much of it in Q2. We get that benefit in the H2.

Speaker #5: I guess the nature of my question is, did we see any sort of two-step bullwhip effect in this quarter, or are your volumes pretty close to industry volumes this quarter?

Speaker #4: In the second half. So if you think about the second half of this year, Jeff, we'll see sales up about 20% in the back half, of course, off of some relatively easy comparis.

Speaker #5: And then your industry outlook for the year—I would assume we got some bullwhip effect in the back half of the year. So just maybe, how's movement, how's the channel—did we see any of those machinations in Q2 here?

Speaker #4: But 10 of that will come from the absence of de-stocking. We expect movement to be a mid-single digits, and then we should get price in the mid-single digit range.

Speaker #4: So we didn't see as much of it in Q2. We get that benefit in the back half.

Speaker #4: We didn't really see them in Q2. We see them in the back half. We'll get 10 points of that benefit from the absence of de-stocking.

Speaker #5: Great. And then Dave, on the capacity, I assume it's all data center-related stuff, although I guess the question is, are you looking at any resi incremental capacity in the US, any footprint shift there?

Jeffrey Sprague: Great. Dave, on the capacity, I assume it's all data center-related stuff, although, I guess the question is, are you looking at any resi incremental capacity in the US, any footprint shift there? Just give us a little bit of color on sort of the nature of the ramp. We've had a few companies that we may be seeing in the electrical space and elsewhere sort of gagging on trying to catch up with this demand and getting capacity stood up. How do you de-risk that? What's the scope of the project? That sort of thing is the question.

Speaker #4: In the second half—so if you think about the second half of this year, Jeff—we'll see sales up about 20% in the back half.

Speaker #4: Of course, off of some relatively easy comparisons. But 10% of that will come from the absence of de-stocking. We expect movement to be up mid-single digits, and then we should get price in the mid-single digit range.

Speaker #5: And just give us a little bit of color on sort of the nature of the ramp. We've had a few companies that you may be seeing in electrical space and elsewhere sort of gagging on trying to catch up with this demand and getting capacity stood up.

Speaker #4: So, we didn't see as much of it in Q2. We get that benefit in the back half.

Speaker #5: So how do you de-risk that? What's the scope of the project? That sort of thing is the question.

Speaker #5: Great. And then Dave, on the capacity—I assume it's all data center-related stuff, although I guess the question is: Are you looking at any RESI incremental capacity in the U.S.? Any footprint shift there?

Speaker #4: Yeah. So we're very excited about it. If you think about our data center exit rate leaving this year, for next year, it would be around 2 and a half billion.

David Gitlin: Yeah. We're very excited about it. If you think about our data center exit rate leaving this year for next year, it would be around $2.5 billion. When we look at our backlog and the kind of discussions we're having with the hyperscalers and colos, we just need more capacity. We're all hands on deck. We want the facility up and running by the end of the Q1. We're primarily looking at Texas and Alabama. We hope to make a decision here in the next month or two and announce it so we can get the team rolling. We've already ordered some of our advanced lead time equipment and tooling that we're going to need for the facility. It's going to be not only both air-cooled and water-cooled chillers, some of the vertical integration with things like compressors.

Speaker #4: And when we look at our backlog and the kind of discussions we're having with the hyperscalers and colos, we just need more capacity. So we're all hands on deck.

Speaker #5: And just give us a little bit of color on the nature of the ramp. We've had a few companies that you may be seeing in the electrical space and elsewhere sort of gagging on trying to catch up with this demand and getting capacity stood up.

Speaker #4: We want the facility up and running by the end of the first quarter. We're primarily looking at Texas and Alabama. We hope to make a decision here in the next month or two and announce it so we can get the team rolling.

Speaker #5: So, how do you de-risk that? What's the scope of the project? That sort of thing is the question.

Speaker #4: Yeah, so we're very excited about it. If you think about our data center exit rate leaving this year, for next year, it would be around $2.5 billion.

Speaker #4: We've already ordered some of our advanced lead time equipment and tooling that we're going to need for the facility. And it's going to be not only both air-cooled and water-cooled chillers, some of the vertical integration with things like compressors.

Speaker #4: And when we look at our backlog and the kind of discussions we're having with the hyperscalers and colos, we just need more capacity. So we're all hands on deck.

Speaker #4: And then if you think about the resi side, yes, we are looking we already have a great presence for resi in places like Collierville, Tennessee, and Indianapolis.

David Gitlin: If you think about the resi side, yes, we are looking. We already have a great presence for resi in places like Collierville, Tennessee, and Indianapolis. We are looking at expanding some of our both ducted and ductless capabilities here in the US. Our primary focus for this new facility, though, is all things data centers. The thing I'll say is that we have to accelerate building it for the demand that we see in 2027 and beyond. The thing that gives me confidence is that, look, we started with very low share for commercial HVAC in the United States. Some of our peers started with much higher share.

Speaker #4: We are looking at expanding some of our both ducted and ductless capabilities here in the US. Our primary focus for this new facility though is all things data centers.

Speaker #4: We've already ordered some of our advanced lead-time equipment and tooling that we're going to need for the facility. And it's going to be not only both air-cooled and water-cooled chillers, but also some of the vertical integration with things like compressors.

Speaker #4: And the thing I'll say is that we have to accelerate building it for the demand that we see in 27 and beyond. The thing that gives me confidence is that, look, we started with very low share for commercial HVAC in the United States.

Speaker #4: And then if you think about the RESI side, yes, we are looking. We already have a great presence for RESI in places like Collierville, Tennessee, and Indianapolis.

Speaker #4: Some of our peers started with much higher share. So as we build out the product portfolio, the capacities, the number of technicians that we have, in the field, we're very well we've been gaining a lot of share in the data center space.

Speaker #4: We are looking at expanding some of both our ducted and ductless capabilities here in the U.S. Our primary focus for this new facility, though, is all things data centers.

David Gitlin: As we build out the product portfolio, the capacities, the number of technicians that we have in the field, we've been gaining a lot of share in the data center space, and we're really well-positioned as we think about 2027, 2028, 2029. Some really nice discussions that we're having with both hyperscalers and colos. Patrick, did you want to add anything?

Speaker #4: And we're really well positioned as we think about 27, 28, 29. Some really nice discussions that we're having with both hyperscalers and colos. Patrick, did you want to add anything?

Speaker #4: And the thing I'll say is that we have to accelerate building it for the demand that we see in 2027 and beyond. The thing that gives me confidence is that, look, we started with very low share for commercial HVAC in the United States.

Speaker #2: No, the capacity we're building goes beyond just data centers. It can be used for other applications as well in commercial.

Patrick Goris: No, the capacity we're building goes beyond just data centers. It can be used for other applications as well in commercial.

Speaker #4: Some of our peers started with much higher share. So, as we build out the product portfolio, the capacities, the number of technicians that we have in the field, we’re very well— we’ve been gaining a lot of share in the data center space.

Speaker #5: Great. Good stuff. I'll leave it there. Thanks a lot, guys.

Speaker #4: Yep, Jeff.

Jeffrey Sprague: Great. Good stuff. I'll leave it there. Thanks a lot, guys.

Speaker #1: Your next question comes from the line of Nigel Cole with Wolf Research. Your line is open. Please go ahead.

David Gitlin: Yep. Thanks, Jeff.

Operator: Your next question comes from the line of Nigel Coe with Wolfe Research. Your line is open. Please go ahead.

Speaker #3: Oh, thanks. Good morning, everyone. Good to see the back to growth here. Patrick, hate to ask the same question each quarter, but can you maybe just provide a bit more color on 3Q?

Speaker #4: And we're really well-positioned as we think about 2027, 2028, 2029. We're having some really nice discussions with both hyperscalers and colos. Patrick, did you want to add anything?

Nigel Coe: Thanks. Good morning, everyone. Good to see the back to growth here. Patrick, hate to ask the same question each quarter. Can you maybe just provide a bit more color on Q3? I think you said +10% organic, and margins, I think 16.5%. Any color on the segments would be great.

Speaker #3: I think you said plus 10% organic. And margins, I think 16.5%. Any color on segments would be great.

Speaker #3: No, the capacity we're building goes beyond just data centers. It can be used for other applications as well, in commercial.

Speaker #5: Great. Good stuff. I'll leave it there. Thanks a lot, guys.

Speaker #4: Sounds good, Nigel. So for Q3, we expect a strong pickup in sales. I'm missing about 10% organic sales growth. Driven by a big step up in commercial HVAC in data center deliveries, which will be up strong double digit.

Speaker #4: Yep. Thanks, Jeff.

Patrick Goris: Sounds good, Nigel. For Q3, we expect a strong pickup in sales. I mentioned about 10% organic sales growth driven by a big step up in commercial HVAC and data center deliveries, which will be up strong double digit. Then resi will be growing also because of the absence of the prior destocking, of course. From an operating profit point of view, favorable volume, and of course, also price cost partially offset by some investments we're making. From a margin point of view, margin of 16.5% driven by strong productivity and volume leverage, partially offset by investments and, of course, tariff-related pricing. We get pricing, but it's there to offset tariffs. We don't really get a margin benefit from that. It's actually slightly a margin dilutive impact. From a sequential point of view, we're going from 17.2% to 16.5%.

Speaker #1: Your next question comes from the line of Nigel Cole with Wolfe Research. Your line is open. Please go ahead.

Speaker #6: Oh, thanks. Good morning, everyone. Good to see the back to growth here. Patrick, hate to ask the same question each quarter, but can you maybe just provide a bit more color on Q3?

Speaker #4: And then resi will be growing also because of the absence of the prior de-stocking, of course. From an operating profit point of view, favorable volume and, of course, also price cost, partially offset by some investments we're making.

Speaker #6: I think you said plus 10% organic, and margins, I think, 16.5%. Any color on segments would be great.

Speaker #4: Sounds good, Nigel. So for Q3, we expect a strong pickup in sales. I'm modeling about 10% organic sales growth, driven by a big step-up in commercial HVAC and data center deliveries, which will be up strongly at double digits.

Speaker #4: From a margin point of view, margin of 16.5% driven by strong productivity and volume leverage, partially offset by investments and, of course, tariff-related pricing.

Speaker #4: We get pricing but it's there to offset tariffs and so we don't really get a margin benefit from that. It's actually slightly a margin dilutive impact.

Speaker #4: And then RESI will be growing also because of the absence of the prior de-stocking, of course. From an operating profit point of view, favorable volume and, of course, also price-cost, partially offset by some investments we're making.

Speaker #4: From a sequential point of view, we're going from 17.2 to 16.5. That's down about 70 bips about 400 million or so lower sales. And a lot of that is, of course, because of the lower residential light commercial sales.

Speaker #4: From a margin point of view, margin of 16.5% was driven by strong productivity and volume leverage, partially offset by investments and, of course, tariff-related pricing.

Patrick Goris: That's down about 70 bps, about $400 million or so lower sales. A lot of that is, of course, because of lower residential and light commercial sales and significantly higher commercial sales. There is a big mix.

Speaker #4: And significantly higher commercial sales. So there is a big mix.

Speaker #4: We get pricing, but it's there to offset tariffs, and so we don't really get a margin benefit from that. It's actually a slightly margin-dilutive impact.

Speaker #3: Okay. I'm just wondering if you can sorry, please go ahead.

Nigel Coe: Okay. I'm just wondering if you can. Sorry. Please go ahead.

Speaker #4: No, go ahead, Nigel.

Speaker #3: I was going to say, any color on Americas and Europe margins within 16.5%?

Speaker #4: From a sequential point of view, we're going from 17.2 to 16.5. That's down about 70 basis points, about $400 million or so lower sales. And a lot of that is, of course, because of the lower residential and light commercial sales.

Patrick Goris: No, go ahead, Nigel.

Nigel Coe: I was going to say, any color on Americas and Europe margins within the 16.5%?

Speaker #4: Yes. For the Americas, we'll be at around 22. Europe will be about double digits, close to double digits. And then AME, a little over 10.

Patrick Goris: Yes. For the Americas will be at around 22%. Europe will be about double digits, close to double digits. AME, a little over 10, mid-teens for transportation. That gets you total company-

Speaker #4: And significantly higher commercial sales. So, there is a big mix.

Speaker #4: Mid-teens for transportation. And that gets you total company at about 16.5.

Speaker #6: Okay. I'm just wondering if you can—sorry, please go ahead.

Speaker #4: No, go ahead, Nigel.

Nigel Coe: Okay

Patrick Goris: at about 16.5%.

Speaker #3: Okay. And then just my follow-on is really, I think the Americas margins, I think you're looking for sequential improvement. Q over Q sounds like price cost tariffs have been a bit more impactful, a bit more drag there.

Speaker #6: I was going to say, any color on Americas and Europe margins within that 16.5%?

Nigel Coe: Okay. Just my follow-on is really, I think the Americas margins, I think you're looking for sequential improvement Q over Q. Sounds like price cost tariffs have been a bit more impactful, a bit more of a drag there. Just wondering if you could just maybe unpack how the Americas margin is moving.

Speaker #4: Yes. For the Americas, we'll be at around 22. Europe will be about double digits, close to double digits. And then AME, a little over 10.

Speaker #3: So just wondering if you just maybe unpack how the Americas margin is moving.

Speaker #4: No, the Americas margin sequentially will drop from 24.4 that we have in Q2. I didn't mention the belt 22% in Q3. And the biggest driver there is sequential sales down.

Patrick Goris: No. The Americas margin sequentially will drop from 24.4% that we have in Q2. I just mentioned about 22% in Q3. The biggest driver there is sequential sales down, with a very large reduction sequentially in resi light commercial, which is the typical seasonal reduction, about $500, $600 million. A strong pickup in commercial sequentially. Mix clearly is a big headwind sequentially. Investments are up slightly sequentially as well. That's the main drivers of the sequential margin reduction in CSA.

Speaker #4: Mid-teens for Transportation. And that gets you total company at about $16.5.

Speaker #6: Okay. And then just my follow-on is really, I think the Americas margins— I think you're looking for sequential improvement quarter over quarter. It sounds like price-cost and tariffs have been a bit more impactful, a bit more of a drag there.

Speaker #4: With a very large reduction sequentially in resi light commercial, which is the typical seasonal reduction, about 5, 600 million dollars. And then a strong pickup in commercial sequentially.

Speaker #6: So, just wondering if you could maybe unpack how the Americas margin is moving.

Speaker #4: So mix clearly is a big headwind sequentially. And then investments are up slightly sequentially as well. That's the main drivers of the sequential margin reduction in CSA.

Speaker #4: No, the Americas margin sequentially will drop from 24.4% that we have in Q2. I didn't mention about 22% in Q3. And the biggest driver there is sequential sales down.

Speaker #3: Okay. That's great. Thanks, Patrick.

Speaker #4: Thank you.

Nigel Coe: Okay. That's great. Thanks, Patrick.

Speaker #4: We saw a very large sequential reduction in RESI light commercial, which is the typical seasonal reduction—about $5.6 billion. And then a strong pickup in commercial sequentially.

Speaker #1: Your next question comes from the line of Joe Richie with Goldman Sachs. Your line is open. Please go ahead.

Patrick Goris: Thank you.

Operator: Your next question comes from the line of Joe Ritchie with Goldman Sachs. Your line is open. Please go ahead.

Speaker #6: Hey, guys. Good morning.

Speaker #4: Morning, Jeff.

Speaker #2: Morning, Joe.

Joe Ritchie: Hey, guys. Good morning.

Speaker #4: So, mix clearly is a big headwind sequentially. And then investments are up slightly sequentially as well. That's the main driver of the sequential margin reduction in CSA.

Patrick Goris: Morning, Joe.

Speaker #7: Can we maybe just dig into

David Gitlin: Morning, Joe.

Speaker #6: this capacity ramp a little further? Obviously, the data center market continues to grow pretty aggressively for you guys, taking up the targets again. For the year, I'm just wondering, as you kind of think about the latent capacity you have that you're planning to build, I'm curious how far out you're going to go.

Joe Ritchie: Could we maybe just dig into this capacity ramp a little further? Obviously, the data center market continues to grow pretty aggressively for you guys, taking up the targets again for the year. I'm just wondering, as you think about the latent capacity you have that you're planning to build, I'm curious how far out you're going to go. What's the potential kind of revenue run rate of the new capacity? If there's any other color that you can provide on that $8 billion backlog, how much of that is coming from data center today?

Speaker #6: Okay. That's great. Thanks, Patrick.

Speaker #4: Thank you.

Speaker #1: Your next question comes from the line of Joe Ritchie with Goldman Sachs. Your line is open. Please go ahead.

Speaker #6: What's the potential kind of revenue run rate of the new capacity? And if there's any other color that you can provide on that $8 billion backlog, how much of that is coming from data center today?

Speaker #7: Hey, guys. Good morning.

Speaker #4: Morning, Jeff.

Speaker #3: Morning, Joe.

Speaker #4: Yeah, Joe, I'll start and let Patrick take the second part of that question. Look, we as I mentioned that we would be able to support two and a half billion in data centers with the capacity that we've effectively built.

Speaker #8: Can we maybe just dig

Speaker #7: Can you go into this capacity ramp a little further? Obviously, the data center market continues to grow pretty aggressively for you guys, taking up the targets again.

David Gitlin: Yeah, Joe, I'll start and let Patrick take the second part of that question. Look, as I mentioned that we would be able to support $2.5 billion in data centers with the capacity that we've effectively built. Remember that we've basically repurposed an entire facility to both air-cooled and water-cooled chillers that we have in North America. We've expanded Charlotte by 50%. It's clearly not enough to support the demand that we see for 2027, 2028, 2029 and beyond. We looked at it, and said that we want to build. We want to build here in the United States. The governors in both Alabama and Texas have been very, very supportive. It's an investment that is kind of in the zone of what you would expect for a building of that size.

Speaker #7: For the year, I'm just wondering, as you think about the latent capacity you have that you're planning to build, I'm curious how far out you're going to go.

Speaker #4: Remember that we've basically repurposed an entire facility to both air-cooled and water-cooled chillers that we have in Charlotte by 50%. And it's clearly not enough to support the demand that we see for 27, 28, 29, and beyond.

Speaker #7: What's the potential kind of revenue run rate of the new capacity? And if there's any other color that you can provide on that $8 billion backlog, how much of that is coming from data center today?

Speaker #4: Yeah. Joe, I'll start and let Patrick take the second part of that question. Look, we as I mentioned that we would be able to support two and a half billion in data centers with the capacity that we've effectively built.

Speaker #4: So we looked at it and said that we want to build, we want to build here in the United States, both Alabama and Governor the governors in both Alabama and Texas have been very, very supportive.

Speaker #4: It's an investment that is kind of in the zone of what you would expect for a building of that size. And it's the kind of thing that it's great as part of our expansion, but we're very careful not to get out over our skis if data center capex were to slow down the road because, number one, is that for someone like us, we would need to go from 10 to maintain share in the range of, say, 15 to 20, which we can and will do, versus others that may have started at 30 would have to maintain if the overall volume slows, they would have to get share to something like 45.

Speaker #4: Remember that we've basically repurposed an entire facility to both air-cooled and water-cooled chillers that we have in North America. We've expanded Charlotte by 50%.

Patrick Goris: It's the kind of thing that it's great as part of our expansion, but we're very careful not to get out over our skis if data center CapEx were to slow down the road. Because number 1 is that for someone like us, we would need to go from 10 to maintain share in the range of, say, 15 to 20, which we can and will do, versus others that may have started at 30 would have to maintain. If the overall volume slows, they would have to get share to something like 45. We feel good about the investments we're making. We're trying to be very purposeful to make sure that our lines that we're setting up and that our product portfolio is as fungible as possible to non-data center applications.

Speaker #4: And it's clearly not enough to support the demand that we see for 2027, 2028, 2029, and beyond. So we looked at it and said that we want to build, we want to build here in the United States. Both Alabama and the governors in both Alabama and Texas have been very, very supportive.

Speaker #4: It's an investment that is kind of in the zone of what you would expect for a building of that size. And it's the kind of thing that is great as part of our expansion, but we're very careful not to get out over our skis if data center CapEx were to slow down the road because, number one, for someone like us, we would need to go from 10 to maintain share in the range of, say, 15 to 20, which we can and will do, versus others that may have started at 30 and would have to maintain—if the overall volume slows, they would have to get share to something like 45.

Speaker #4: So we feel good about the investments we're making. We're trying to be very purposeful to make sure that our lines that we're setting up and that our product portfolio is as fungible as possible to non-data center applications.

Speaker #4: And I'm really proud that the kind of LTAs that we're establishing with both hyperscalers and some of the major colos give us tremendous contractual confidence in the kind of volume that we're going to see over these coming years.

Patrick Goris: I'm really proud that the kind of LTAs that we're establishing with both hyperscalers and some of the major colos give us tremendous contractual confidence in the kind of volume that we're going to see over these coming years.

Speaker #4: Patrick, in terms of the backlog.

Speaker #2: Yeah. Joe, our backlog, as I mentioned, it's actually north of 8 billion commercial backlog is about two-thirds, 70% of that. And 40% of that is data centers.

Joe Ritchie: Patrick, in terms of the backlog?

Patrick Goris: Yeah. Joe, our backlog, as I mentioned, it's actually north of $8 billion. Commercial backlog is about two-thirds, 70% of that, and 40% of that is data centers.

Speaker #4: So, we feel good about the investments we're making. We're trying to be very purposeful to make sure that the lines we're setting up and our product portfolio are as fungible as possible to non-data center applications.

Speaker #6: Got it. That's helpful. Patrick, just the one quick follow-up there. So you mentioned the data center delivery impact in Q2. I'm just curious of that $2 billion that you're now expecting for this year.

Joe Ritchie: Got it. That's helpful, Patrick. Just the one quick follow-up there. You mentioned the data center delivery impact in Q2. I'm just curious of that $2 billion that you're now expecting for this year, how much came through in H1 versus H2? Just basically trying to understand what the impact was in Q2 as well.

Speaker #6: How much came through in the first half versus the second half? Just basically trying to understand what the impact was in Q2 as well.

Speaker #3: Yeah. Joe, our backlog, as I mentioned, is actually north of $8 billion. Commercial backlog is about two-thirds, 70% of that, and 40% of that is data centers.

Speaker #4: Yeah. So Joe, in the first half, we saw about 500 million dollars. So of the 2 billion, 1.5 billion is the balance of the year.

Patrick Goris: Yeah. Joe, in H1 we saw about $500 million. Of the $2 billion, $1.5 billion is the balance of the year, with the huge ramp-up in H2, starting now.

Speaker #4: With the huge ramp-up in the second half. Starting now.

Speaker #7: Got it, that's helpful. Patrick, just one quick follow-up there. So, you mentioned the data center delivery impact in Q2. I'm just curious, of that $2 billion that you're now expecting for this year, how much came through in the first half versus the second half?

Speaker #6: Okay. Great. Thanks, guys.

Speaker #4: Yep. Thank you.

Joe Ritchie: Okay, great. Thanks, guys.

Speaker #1: Your next question comes from the line of Alexander Virgo with Evercore ISI. Your line is open. Please go ahead.

Patrick Goris: Yep. Thank you.

Operator: Your next question comes from the line of Alexander Virgo with Evercore ISI. Your line is open. Please go ahead.

Speaker #5: Yeah. Thanks very much, gents. Good morning. I wondered if you could just help us a little bit with the margin dilution point, I guess.

Speaker #7: Just basically trying to understand what the impact was in Q2 as well.

Alexander Virgo: Yeah. Thanks very much, gents. Good morning. I wondered if you could just help us a little bit with the margin dilution point, I guess. I'm just wonder if you can give us a sense of how much the impact was the investment in the quarter. Presumably, that's going to be a much bigger impact in the H2. I guess as we extend that into 2027, I'm just trying to get a sense for the moving parts on margins as commercial dilutes and resi is obviously accretive. The sequential point I get, Patrick, so that's fair enough. As we look at Q4 and then into 2027, that'd be super helpful. Thank you.

Speaker #4: Yeah. So, Joe, in the first half, you saw about $500 million. So of the $2 billion, $1.5 billion is the balance for the year.

Speaker #5: I just want to know if you can give us a sense of how much the impact was the investment in the quarter, presumably that's going to be a much bigger impact in the second half.

Speaker #4: With the huge ramp up in the second half. Starting now.

Speaker #5: And then I guess as we extend that into 2027, I'm just trying to get a sense for the moving parts on margins as commercial dilutes and resi is obviously accretive.

Speaker #7: Okay. Great. Thanks, guys.

Speaker #4: Yep. Thank you.

Speaker #1: Your next question comes from the line of Alexander Virgo with Evercore ISI. Your line is open. Please go ahead.

Speaker #5: But the sequential point I get, Patrick. So that's fair enough. But as we look at Q4 and then into 2027, I'd be super helpful.

Speaker #2: Yeah, thanks very much, gents. Good morning. I wondered if you could just help us a little bit with the margin dilution point, I guess.

Speaker #5: Thank you.

Speaker #4: Okay. Well, let me first maybe go and say compared to the new guide, for the full year, as I mentioned, our operating profit and adjusted EPS is about 50% year over year, with strong earnings conversion.

Speaker #2: I'm just wondering if you can give us a sense of how much the impact was from the investment in the quarter. Presumably, that's going to be a much bigger impact in the second half.

Patrick Goris: Okay. Well, let me first maybe go and say, compared to the new guide for the full year, as I mentioned, our operating profit and adjusted EPS were about 50% year-over-year with strong earnings conversion. Compared to the prior guide, we're raising $1 billion in sales and $0.10 of EPS. The reason why there is not a stronger, bigger fall through is the investments that I mentioned, and these are this year, they will be roughly in the $100 million range. I mentioned earlier, I thought the timing on the 6 April tariff change mitigation, I talked about that earlier when Scott asked the question. That's a timing point of view, we'd expect that to be a headwind next year.

Speaker #2: And then I guess as we extend that into 2027, I'm just trying to get a sense for the moving parts on margins as Commercial dilutes and RESI is obviously accretive.

Speaker #4: Compared to the prior guide, we're raising a billion dollars in sales and 10 cents of EPS. The reason why that is not a stronger or bigger fall-through is the investments that I mentioned.

Speaker #2: But the sequential point I get, Patrick, so that's fair enough. But as we look at Q4 and then into 2027, that'd be super helpful.

Speaker #4: And these are this year, there will be roughly 100 million dollar range. And then I mentioned earlier, I thought the timing on the April 6th tariff change mitigation.

Speaker #2: Thank you.

Speaker #4: Okay. Well, let me first maybe go and say, compared to the new guide, for the full year, as I mentioned, our operating profit and adjusted EPS are up about 50% year over year, with strong earnings conversion.

Speaker #4: I talked about that earlier when Scott asked the question. That's a timing point of view. So then we didn't expect that to be a headwind next year.

Speaker #4: And then the one-off items that should not repeat, which is the 5 cents. Related to the Neresco exits and the new US facility. I do not expect next year to have an incremental one-time set of investments related to data centers in top of the 5 cents that we're referring to now for the new site.

Speaker #4: Compared to the prior guide, we're raising $1 billion in sales and $0.10 of EPS. The reason why that is not a stronger or bigger fall-through is the investments that I mentioned.

Patrick Goris: The one-off items that should not repeat, which is the $0.05, related to the Noresco exits and the new US facility. I do not expect next year to have an incremental, one-time set of investments related to data centers on top of the $0.05 that we're referring to now for the new site and the investments for the new facility. Going forward, of course, the margin will all depend on what's the mix of resi versus commercial. If both of them grow at a similar rate, I would expect this to remain in that 25% to 30% conversion for the total company.

Speaker #4: And these are this year, there will be roughly 100 million dollar range. And then I mentioned earlier, I thought the timing on the April 6th tariff change mitigation.

Speaker #4: And the investments for the new facility. So going forward, of course, the conversion the margin will all depend on what's the mix of resi versus commercial.

Speaker #4: I talked about that earlier when Scott asked the question. That's a timing point of view, so don't really expect that to be a headwind next year.

Speaker #4: But if both of them grow at a similar rate, I would expect us to remain in that 25 to 30 percent conversion for the total company.

Speaker #4: And then the one-off items that should not repeat, which is the $0.05, related to the Neresco exits and the new US facility. I do not expect next year to have an incremental one-time set of investments related to data centers on top of the $0.05 that we're referring to now for the new site.

Speaker #5: Thanks, Patrick. Super helpful.

Speaker #4: Thank you.

Alexander Virgo: Thanks, Patrick. Super helpful.

Speaker #1: Your next question comes from the line of Andy Kaplowitz with Citigroup. Your line is open. Please go ahead.

Patrick Goris: Thank you.

Operator: Your next question comes from the line of Andrew Kaplowitz with Citigroup. Your line is open. Please go ahead.

Speaker #4: And the investments for the new facility. So, going forward, of course, the conversion margin will all depend on what’s the mix of RESI versus commercial.

Speaker #6: Hey, good morning, everyone.

Speaker #4: Good morning, Andy.

Andrew Kaplowitz: Hey, good morning, everyone.

Speaker #6: Dear Patrick, in CSE, maybe just an update. On Visma, you told us he pumps up 20%, blurs down high single digits. I think he mostly raised the forecast.

David Gitlin: Good morning, Andy.

Andrew Kaplowitz: David or Patrick, in CSE, maybe just an update on Viessmann. You told us heat pumps up 20%, boilers down high single digits. I think you monthly raised the forecast, mentioned continued German subsidies, but maybe you could give us a little more color on what you are seeing in the markets there. Then can you comment on the confidence level that you have in CSE commercial turning with that better orders that you mentioned?

Speaker #4: But if both of them grow at a similar rate, I would expect us to remain in that 25 to 30 percent conversion for the total company.

Speaker #6: Mentioned Jeremy continued German subsidies. But maybe give us a little more comment on what you're seeing in the markets there. And then can you comment on the confidence level that you have in CSE commercial turning with that better orders that you mentioned?

Speaker #4: Thank you.

Speaker #1: Your next question comes from the line of Andy Kaplowitz with Citigroup. Your line is open. Please go ahead.

Speaker #4: Yeah. Andy, I think they're really good news is that we kind of finally have seen that inflection point on heat pumps. To see that we had sales up 20%, orders for resi in the quarter were also up 20%.

David Gitlin: Yeah, Andy, I think the really good news is that we kind of finally have seen that inflection point on heat pumps. To see that we had sales up 20%, orders for resi in the quarter were also up 20%. We see very strong demand for heat pumps, clearly in Germany, it is pretty uniform. Also when you look at subsidy applications this year, in Germany, we would expect those numbers to be kind of back in that 2022 kind of numbers, which were of course at all-time highs. We are kind of inflecting up in heat pumps. We like this ratio of electricity to natural gas below three. We like that Germany has clarified the heating law. They have kept in place key elements, and they have also kept in place subsidies.

Speaker #5: Hey, good morning, everyone.

Speaker #4: Good morning, Andy.

Speaker #5: David or Patrick, on CSE, maybe just an update. On these, when you told us heat pumps up 20%, chillers down high single digits, I think you mostly raised the forecast and mentioned continued German subsidies.

Speaker #4: We see very strong demand for heat pumps clearly in Germany, but it's pretty uniform. Following a little bit following the war that broke out that drove up natural gas prices, but also when you look at subsidy applications this year, we would expect in Germany, we'd expect those numbers to be kind of back in that 2022 kind of numbers, which were of course, at all-time highs.

Speaker #5: But maybe you can give us a little more comment on what you're seeing in the markets there. And then, can you comment on the confidence level that you have in CSE Commercial turning with those better orders that you mentioned?

Speaker #4: Yeah. Andy, I think the really good news is that we've finally seen that inflection point on heat pumps. To see that, we had sales up 20% and orders for RESI in the quarter were also up 20%.

Speaker #4: So we're kind of inflecting up in heat pumps and so we like this ratio of natural gas electricity, natural gas below three. We like that Germany has clarified the heating law.

Speaker #4: They've kept in place key elements and they've also kept in place subsidies. We see that boilers will decline our model is typically said down around low to mid single digits.

Patrick Goris: We see that boilers will decline. Our model is typically set down around low to mid single digits. They were down high single digits, which impacted us a bit. We feel good with the overall formula, with heat pumps up, boilers will be coming down a bit. Then on the commercial side, our orders were in a little bit north of 20% in Q2. Frankly, that has kind of continued here in July. We saw some nice orders over these last few weeks. We are pretty well positioned for commercial HVAC to be up in the mid-single-digit range in H2. We feel good that things are turning on the resi side.

Speaker #4: They were down high single digits, which impacted us a bit. But we feel good with the overall formula with heat pumps up, boilers will be coming down a bit.

Speaker #4: So we're kind of inflecting up in heat pumps, and so we like this ratio of natural gas to electricity—natural gas below 3. We like that Germany has clarified the heating law.

Speaker #4: And then on the commercial side, our orders were in a little bit north of 20% in the second quarter. So we saw and frankly, that's kind of continued here in July.

Speaker #4: They've kept in place key elements, and they've also kept in place subsidies. We see that boilers will decline; our model is typically set down around low- to mid-single digits.

Speaker #4: We saw some nice orders over these last few weeks. So we're pretty well positioned for commercial HVAC to be up in the mid single digit range in the second half.

Speaker #4: We feel good that things are turning on the resi side. And we also hear in the fall, we have this new product coming out that I VitoCal 200 that's really perfect because it maintains that Viessmann brand and all the features that customers expect.

Speaker #4: They were down high single digits, which impacted us a bit. But we feel good with the overall formula—with heat pumps up, boilers will be coming down a bit.

Patrick Goris: We also here in the fall, we have this new product coming out that I mentioned in my prepared remarks on this Vitocal 200 that's really perfect because it maintains that Viessmann brand and all the features that customers expect. It's going to be at a price point that's not only at the premium, but just that one layer below, which is very attractive for countries like Poland, Italy, elsewhere. I think that if you look at the macro dynamics, you look at the new product introductions, you look at the way the team's overall performing, that we're really poised for some nice growth in Europe.

Speaker #4: And then on the commercial side, our orders were a little bit north of 20% in the second quarter. So, we saw—and frankly, that's kind of continued here in July.

Speaker #4: But it's going to be at a price point that's not only at the premium, but just at one layer below, which is very attractive for countries like Poland, Italy, elsewhere.

Speaker #4: We saw some nice orders over these last few weeks, so we're pretty well positioned for commercial HVAC to be up in the mid single-digit range in the second half.

Speaker #4: So I think that if you look at the macro dynamics, you look at the new product introductions, you look at the way the teams overall performing, that we're really poised for some nice growth in Europe.

Speaker #4: We feel good that things are turning on the RESI side. And we also hear in the fall, we have this new product coming out that I mentioned in my prepared remarks on this VitoCal 200 that's really perfect because it maintains that Viessmann brand and all the features that customers expect.

Speaker #4: The issue that we've had is that we should have been more aggressive on cost and we're going to be aggressive on cost now.

David Gitlin: The issue that we've had is that we should have been more aggressive on cost, we're going to be aggressive on cost now.

Speaker #6: Very helpful, David. And maybe just your opinion on what's going on in late commercial in CSA. I mean, obviously, you changed your forecast pretty significantly here as well.

Andrew Kaplowitz: Very helpful, Dave. Then maybe just your opinion on what's going on in light commercial and CSA. Obviously, you changed your forecast pretty significantly here as well, much better outlook. Where is it coming from, Dave? Which markets are driving it and confidence level there?

Speaker #4: But it's going to be at a price point that's not only at the premium, but just at one layer below, which is very attractive for countries like Poland, Italy, and elsewhere.

Speaker #6: Much better outlook. Where is it coming from, Dave? Which markets are driving it? And confidence level there?

Speaker #4: So I think that if you look at the macro dynamics, you look at the new product introductions, you look at the way the teams overall growth in Europe.

Speaker #4: Yeah. Look, the first half was clearly much stronger. Then we thought kind of up 10%. And then you look at what's stronger than we thought, we've won some really big strategic national accounts, especially in retail.

David Gitlin: Yeah. Look, the H1 was clearly much stronger than we thought, up 10%. Then you look at what's stronger than we thought. We've won some really big strategic national accounts, especially in retail. I can't list the customers' names, but they're household names that you would recognize right away, of course. We've won some big national strategic accounts. K-12 has been much better than we thought. Hospitality's been much better than we thought. And what I also was encouraged by is the field inventory levels are healthy. They ended Q2 down about 20%. Orders were strong. I think orders were up something like 30% in the quarter. The team's performing well. Our coverage for Q3 is quite good. It's largely going to be just like it is for commercial HVAC in the Americas.

Speaker #4: The issue that we've had is that we should have been more aggressive on cost, and we're going to be aggressive on cost now.

Speaker #5: Very helpful, David. And maybe just your opinion on what's going on in Commercial and CSA. I mean, obviously, you changed your forecast pretty significantly here as well.

Speaker #4: I can't list the customers' names, but they're household names that you would that you would recognize right away, of course. So we've won some big national strategic accounts.

Speaker #5: Much better outlook. Where is it coming from, Dave? Which markets are driving it, and what's your confidence level there?

Speaker #4: K through 12 has been much better than we thought. Hospitality has been much better than we thought. And what I also was encouraged by is that field inventory levels are healthy.

Speaker #4: Yeah. Look, the first half was clearly much stronger. Then we thought kind of up 10%. And then you look at what's stronger than we thought—we've won some really big, strategic national accounts.

Speaker #4: They ended Q2 down about 20%. Orders were strong. I think orders were up something like 30% in the quarter. So the teams performing well.

Speaker #4: Especially in retail, I can't list the customers' names, but they're household names that you would recognize right away, of course. So we've won some big national strategic accounts.

Speaker #4: Our coverage for 3Q is quite good. So it's largely going to be just like it is for commercial HVAC in the Americas. It's largely an execution issue.

Speaker #4: And we have a team that knows how to execute. So we feel pretty good. We feel very good about where light commercial was in the first half.

David Gitlin: It's largely an execution issue, and we have a team that knows how to execute. We feel pretty good. We feel very good about where light commercial was in H1 and where we'll be for H2. I think Q3 will be up mid-single digits. Q4 will be up in the mid-teens. We'll end up high single digits, we expect, for the full year.

Speaker #4: K-through-12 has been much better than we thought. Hospitality has been much better than we thought. And what I also was encouraged by is that field inventory levels are healthy.

Speaker #4: And where we'll be for the second half, I think Q3 will be up mid single digits. Q4 will be up in the mid teens.

Speaker #4: They ended Q2 down about 20%. Orders were strong; I think orders were up something like 30% in the quarter. So the team's performing well.

Speaker #4: So we'll end up high single digits, we expect for the full year.

Speaker #4: Our coverage for Q3 is quite good. So, it's largely going to be just like it is for commercial HVAC in the Americas. It's largely an execution issue, and we have a team that knows how to execute.

Speaker #1: Your next question comes from the line of Dean Dre with RBC. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Deane Dray with RBC. Your line is open. Please go ahead.

Speaker #4: Thank you. Good morning, everyone. Hey, Dean, before you ask your question, Patrick, Mike, and I all want to wish you a congratulations on your next phase.

Deane Dray: Thank you. Good morning, everyone.

Speaker #4: So we feel pretty good. We feel very good about where commercial was in the first half. And where we'll be for the second half, I think Q3 will be up mid-single digits.

David Gitlin: Hey, Dean, before you ask your question, Patrick, Mike and I all want to wish you a congratulations on your next phase, and we thank you. You've been such an icon in the industry for so many years. Congratulations to you on your retirement.

David Gitlin: Hey, Deane, before you ask your question, Patrick, Mike and I all want to wish you a congratulations on your next phase, and we thank you. You've been such an icon in the industry for so many years. Congratulations to you on your retirement.

Speaker #4: And we thank you you've been such an icon in the industry for so many years. So congratulations to you on your retirement.

Speaker #4: Q4 will be up in the mid-teens. So we'll end up high single digits, we expect, for the full year.

Speaker #7: Congratulations to you.

Speaker #4: I really appreciate that. It's been my privilege to follow Carrier as a public company, but also in the days going back to UTC. And I really appreciate all the support and insight you and the team have provided me over the years.

Andrew Kaplowitz: Congratulations, Dean.

Deane Dray: I really appreciate that. It's been my privilege to follow Carrier as a public company, but also in the days going back to UTCs. I really appreciate all the support and insight you and the team have provided me over the years. Wish you continued success, I still have a couple questions if that's okay.

Speaker #1: Your next question comes from the line of Dean Dre with RBC. Your line is open. Please go ahead.

Speaker #4: Thank you. Good morning, everyone. Hey, Dean, before you ask your question, Patrick, Mike, and I all want to wish you congratulations on your next phase.

Speaker #4: Wish you continued success. But I still have a couple of questions if that's okay.

Speaker #7: No. It's good talking to you, Dean. Go ahead.

Speaker #4: All right. I appreciate it. Hey, really good start to the cooling season. That Mother Nature helped you to a degree. Any surprises in the regional demand and your ability to supply?

Speaker #4: And we thank you. You’ve been such an icon in the industry for so many years, so congratulations to you on your retirement.

David Gitlin: No, it's good talking to you, Dean.

Deane Dray: All right.

David Gitlin: Go ahead.

Deane Dray: I appreciate it. Hey, really good start to the cooling season that Mother Nature helped you to a degree. Any surprises in the regional demand and your ability to supply? Sometimes that, depending when you've got low channel inventory, that can be challenging. It didn't sound like any of that happened. Maybe we can start there. Thanks.

Speaker #2: Congratulations, Dean.

Speaker #4: I really appreciate that. It’s been my privilege to follow Carrier, both as a public company and also going back to the days at UTC. I really appreciate all the support and insight you and the team have provided me over the years.

Speaker #4: Sometimes that depending when you've got low channel inventory, that can be challenging. It didn't sound like any of that happened but maybe we can start there.

Speaker #4: Thanks. No. I would say the we have not had issues with ability to supply. It's been in terms operationally, we've had some big swings, right?

Speaker #4: Wish you continued success. But I still have a couple of questions, if that's okay.

David Gitlin: No, I would say we have not had issues with ability to supply. In terms operationally, we've had some big swings, right? We purposely made the decision at the end of last year to keep the facilities moving. We knew we'd have a bit more inventory coming into the cooling season internally, not in our channel, but internally, because we kept the factories running. It helped our ability to supply. Clearly, cooling degree days, we don't like to get into the weather. They were, I think, up something like 4%. The heat did help, not only here, but in places like Europe. Europe, we saw air conditioning orders up 20%, which will position us as we go here into Q3. I think that things were a little bit strong in the Southeast and the South, in the middle of the country, places like Florida and Texas.

Speaker #2: No, it's good talking to you, Dean.

Speaker #4: All right. I appreciate it. Hey, really good start to the cooling season. Mother Nature helped you to a degree. Any surprises in the regional demand and your ability to supply?

Speaker #4: We've but we purposely made the decision at the end of last year to keep the facilities moving. We knew we'd have a bit more inventory coming into the cooling season internally, not in our channel, but internally because we kept the factories running.

Speaker #4: Sometimes, depending on when you've got low channel inventory, that can be challenging. It didn't sound like any of that happened, but maybe we can start there.

Speaker #4: So it helped our ability to supply clearly cooling degree days. We don't like to get into the weather. They were, I think, up something like 4%.

Speaker #4: Thanks.

Speaker #2: No, I would say that we have not had any issues with our ability to supply. Operationally, we've had some big swings, right?

Speaker #4: So the heat did help, not only here, but in places like Europe. Europe, we saw air conditioning orders up 20%, which will position us as we go here into 3Q.

Speaker #2: We've but we purposely made the decision at the end of last year to keep the facilities moving. We knew we'd have a bit more inventory coming into the cooling season internally, not in our channel, but internally, because we kept the factories running.

Speaker #4: But I think that things were a little bit strong in the southeast and the south in the middle of the country, places like Florida and Texas.

Speaker #4: New home construction is probably going to be a bit better this year than we thought. We thought it'd be flat to down a little bit.

Speaker #2: So it helped our ability to supply, clearly. Cooling degree days—we don't like to get into the weather—they were, I think, up something like 4%.

David Gitlin: New home construction is probably going to be a bit better this year than we thought. We thought it'd be flatted down a little bit. It's probably up low single digits. Other than that, I just think that at the end of the day, Dean, what we thought when we came into this year that all of the headwinds that we saw in the H2 of last year would continue throughout the year. Even though you're still dealing with higher interest rates, of course, and some pressure on the consumer, at the end of the day, there's pent-up demand in the United States for new homes. There's pent-up demand to increase existing homes, and we're fundamentally a replacement business, and there's only so long a customer can repair over replace. Things turned out that those kind of outweighed some of the tension in the macros.

Speaker #4: It's probably up low single digits. But other than that, I just think that at the end of the day, Dean, what we thought in the we thought when we came into this year that all of the headwinds that we saw in the second half of last year would continue throughout the year.

Speaker #2: So, the heat did help—not only here, but in places like Europe. In Europe, we saw air conditioning orders up 20%, which will position us as we go into Q3.

Speaker #2: But I think that things were a little bit strong in the Southeast and the South, in the middle of the country, places like Florida and Texas.

Speaker #4: And even though you're still dealing with higher interest rates, of course, and some pressure on the consumer, at the end of the day, there's pent-up demand in the United States for new homes.

Speaker #2: New home construction is probably going to be a bit better this year than we thought. We thought it would be flattened down a little bit.

Speaker #4: There's pent-up demand to increase existing homes. And we're fundamentally a replacement business. And there's only so long a customer can repair over replace. So things turned out that those kind of outweighed some of the tension in the macros.

Speaker #2: It's probably up low single digits. But other than that, I just think that at the end of the day, Dean, what we thought in the we thought when we came into this year that all of the headwinds that we saw in the second half of last year would continue throughout the year.

Speaker #7: That's real helpful. Just if you could expand on that last point. I know it's not an exact science, but any changes in the replace versus repair trends that we've seen?

Deane Dray: That's real helpful. Just if you could expand on that last point. I know it's not an exact science, but any changes in the replace versus repair trends that we've seen?

Speaker #2: And even though you're still dealing with higher interest rates, of course, and some pressure on the consumer, at the end of the day, there's pent-up demand in the United States for new homes.

Speaker #4: I think it's just less accentuated than it was last year. I think we're kind of returning to a replacement business. Last year, you had some nuances with things like the canisters that was big in the second quarter.

David Gitlin: I think it's just less accentuated than it was last year. I think we're kind of returning to a replacement business. Like last year, you had some nuances with things like the canisters that was big in Q2. Our parts was down a little bit. That drove a lot of parts increase in Q2, and we saw some of that headwind this year. Fundamentally, it feels to us like we're getting back to basics and it's a replacement market and we're heading back to it being a replacement market.

Speaker #2: There's pent-up demand to increase existing homes, and we're fundamentally a replacement business. There's only so long a customer can repair over replace, so things turned out that those kind of outweighed some of the tension in the macros.

Speaker #4: So our parts was down a little bit. That drove a lot of parts increase in the second quarter. And we saw some of that headwind this year.

Speaker #4: That's really helpful. If you could just expand on that last point— I know it's not an exact science, but have we seen any changes in the replace versus repair trends?

Speaker #4: But fundamentally, it feels to us like we're getting back to basics. And it's a replacement market. And we're heading back to it being a replacement market.

Speaker #7: Great. Thank you. And I appreciate all the kind words.

Speaker #2: I think it's just less accentuated than it was last year. I think we're kind of returning to a replacement business. Last year, you had some nuances with things like the canisters — that was big in the second quarter.

Deane Dray: Great. Thank you, and appreciate all the kind words.

Speaker #4: Thanks, Dean. And best to you.

David Gitlin: Thanks, Dean, and best to you.

Speaker #1: Your next question comes from the line of Chris Snyder with Morgan Stanley. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Chris Snyder with Morgan Stanley. Your line is open. Please go ahead.

Speaker #2: So, our parts was down a little bit. That drove a lot of parts increase in the second quarter. And we saw some of that headwind this year.

Speaker #5: Thank you. I wanted to follow up on some of the Americas margin discussion. Is there anything you could provide us around where Americas commercial margins are running?

Chris Snyder: Thank you. I wanted to follow up on some of the Americas' margin discussion. Is there anything you could provide us around where Americas' commercial margins are running as we think about the headwind into the back H2 on the big data center ramp? Presumably, that segment will continue to grow in the out years. Kind of on that same topic, anything that we should be thinking about from the capacity expansion in the out years and what it could mean for margin? We've just seen a lot of companies invest capacity for great reasons, obviously, with the demand and all the success you and others are having. I was kind of wondering, are you able to drive normalized incrementals through that? Thank you.

Speaker #2: But fundamentally, it feels to us like we're getting back to basics. And it's a replacement market, and we're heading back to it being a replacement market.

Speaker #5: As we kind of think about the headwind into the back half on the big data center ramp, we can presumably that segment will continue to grow.

Speaker #4: Great, thank you. And I appreciate all the kind words.

Speaker #5: In the out years. And then kind of on that same topic, anything that we should be thinking about from the capacity expansion in the out years?

Speaker #2: Thanks, Dean. And best to you.

Speaker #1: Your next question comes from the line of Chris Snyder with Morgan Stanley. Your line is open—please go ahead.

Speaker #5: And what it could mean for margin. We've just seen a lot of companies invest capacity for great reasons. Obviously, with the demand and all the success you and others are having.

Speaker #5: Thank you. I wanted to follow up on some of the America's margin discussion. Is there anything you could provide us around where America's commercial margins are running?

Speaker #5: But I just kind of wondering, are you able to drive normalized incrementals through that? Thank you.

Speaker #5: As we kind of think about the headwind into the back half on the big data center ramp, but then presumably that segment will continue to grow.

Speaker #4: Sure, Chris. With respect to margins, wouldn't CSA this year, we expect the margins to be about flat overall. So in the between 20 and And the margins for commercial would be a little bit below that.

Patrick Goris: Sure. Chris, with respect to margins within CSA, this year, we expect the margins to be about flat overall, so between 20% and 21% or so. The margins for commercial would be a little bit below that. They would be in the mid to high teens, the balance, of course, would be on the residential and light commercial side. We don't see that changing with data centers. We've mentioned in the past that generally margins with data centers are accretive to the overall commercial HVAC margins that we see, that is the case as well within CSA. In terms of capacity expansion and margins, obviously, we look at this over several years.

Speaker #5: In the out years. And then kind of on that same topic, anything that we should be thinking about from the capacity expansion in the out years?

Speaker #5: for margin. We've just seen a lot of companies invest in capacity for great reasons—obviously, with the demand and all the success you and others are having.

Speaker #4: So they would be in the mid to high teens. And then the balance, of course, would be on the residential and light commercial side.

Speaker #5: But I just kind of wondering, are you able to drive normalized incrementals through that? Thank you.

Speaker #4: And we don't see that changing with data centers. We've mentioned in the past that generally margins with data centers are accretive to the overall commercial HVAC margins that we see.

Speaker #2: Sure. Chris, with respect to margins within

Speaker #4: And that is the case as well within CSA. In terms of capacity expansion and margins, obviously, we look at this over several years. There is no indication we see that adding this capacity and especially given the expected volumes that we see over the next several years, that we would see our incrementals be lower than they otherwise would be.

Speaker #2: about flat overall. So in the between 20 and 21 percent or so. And the margins for commercial would be a little And what it could mean bit below that.

Speaker #2: So they would be in the mid to high teens, and then the balance, of course, would be on the residential and light commercial side.

Patrick Goris: There is no indication we see that adding this capacity, especially given the expected volumes that we see over the next several years, that we would see our incrementals be lower than they otherwise would be. The main driver of the incrementals, I think, will continue to be what is the growth from resi and light commercial versus commercial. If all of our growth comes from commercial, clearly the incrementals will be somewhat less than if they come from resi and light commercial, that's no different than what it is today. Depending on the mix, resi versus commercial, that will impact whether the incrementals are closer to 30 versus 25. I don't see the new capacity alone having a big impact on this.

Speaker #2: And we don't see that changing with data centers. We've mentioned in the past that, generally, margins with data centers are accretive to the overall commercial HVAC margins that we see.

Speaker #4: The main driver of the incrementals I think will continue to be what is the growth from resi and light commercial versus commercial. If all of our growth comes from commercial, clearly the incrementals will be somewhat less than if they come from resi and light commercial.

Speaker #2: And that is the case as well within CSA. In terms of capacity expansion and margins, obviously we look at years. There is no indication we see that adding this capacity, especially given the expected volumes that we see over the next several years, would lead us to see our incrementals be lower than they otherwise would be.

Speaker #4: But that's no different than what it is today. So depending on the mixed resi versus commercial, that will impact whether the incrementals are closer to 30 versus 25.

Speaker #4: But I don't see the new capacity alone having a big impact on this.

Speaker #2: The main driver of the incrementals, I think, will continue to be the growth from residential and light commercial versus commercial. If all of our growth comes from commercial, clearly the incrementals will be somewhat less than if they come from residential and light commercial.

Speaker #7: Yeah. The thing I'd add, Chris, to what Patrick said is in terms of commercial margins, we mentioned in the last earnings call that if you think about where we were when we spun, our commercial margins generally were about 5%.

David Gitlin: Yeah, the thing I'd add, Chris, to what Patrick said is in terms of commercial margins, we mentioned in the last earnings call that if you think about where we were when we spun, our commercial margins generally were about 5%. We needed to invest in the portfolio, invest in capacity, invest in technicians out in the field, spec engineers. It's been a complete revamp of our commercial HVAC business. We mentioned that our margins have gone from mid-single digits to up in the mid-teens, and the margins in the commercial HVAC business in the Americas has been a bit even higher than that. It's been a complete turnaround of that business. These investments and the great work by the team, the customer relationships, have really positioned us.

Speaker #2: But that's no different than what it is today. So, depending on the mix—resin versus commercial—that will impact whether the incrementals are closer to 30% versus 25%.

Speaker #7: We needed to invest in the portfolio, invest in capacity, invest in technicians out in the field, spec engineers, it's going to it's been a complete revamp of our commercial HVAC business.

Speaker #2: But I don't see the new capacity alone having a big impact on this.

Speaker #7: We mentioned that our margins have gone from mid single digits to up in the mid teens. And the margins in the commercial HVAC business in the Americas has been a bit even higher than that.

Speaker #4: Yeah. The thing I'd add, Chris, to what Patrick said is, in terms of commercial margins, we mentioned in the last earnings call that, if you think about where we were when we spun, our commercial margins generally were about 5%.

Speaker #7: So it's been a complete turnaround of that business. So these investments and the great work by the team, the customer relationships have really positioned us.

Speaker #4: We needed to invest in the portfolio, invest in capacity, invest in technicians out in the field, spec engineers—it's been a complete revamp of our commercial HVAC business.

Speaker #7: And as we start to see that volume come through the capacity that we've invested in, we'd expect very nice absorption in the factories.

David Gitlin: As we start to see that volume come through the capacity that we've invested in, we'd expect very nice absorption in the factories.

Speaker #5: No, I appreciate all of that. It's really been an incredible revamping of the commercial business over the last five or so years. Maybe if I could follow up on resi, and great to see the 20% growth guide for the back half.

Speaker #4: We mentioned that our margins have gone from mid-single digits to up in the mid-teens. And the margins in the commercial HVAC business in the Americas have been even a bit higher than that.

Chris Snyder: No, I appreciate all of that. It's really been an incredible revamping of the commercial business over the last five or so years. Maybe if I could follow up on resi. Great to see the 20% growth guide for the H2. I guess kind of my question is, what gives you guys confidence that underlying demand in resi is getting better? Because up 20, they are comping down 30 and 40, or it's just not showing improvement on a two-year stack. I guess, what do you guys see, whether it's anecdotally or in the data, that gives you guys confidence that the demand is turning and this market is back on a pathway to, I think, the 9 million medium-term outlook that you guys called out? Thank you.

Speaker #4: So it's been a complete turnaround of that business. These investments, the great work by the team, and the customer relationships have really positioned us.

Speaker #5: But I guess kind of my question is, what gives you guys confidence that underlying demand in resi is getting better? Because up 20, but they are comping down 30 and 40.

Speaker #4: And as we start to see that volume come through the capacity that we've invested in, we'd expect very nice absorption in the factories.

Speaker #5: So it's not necessarily or it's just not showing improvement on a two-year stack. So I guess what do you guys see, whether it's anecdotally or in the data that gives you guys confidence that the demand is turning and this market is back on a pathway to, I think, the 9 million medium-term outlook that you guys called out?

Speaker #5: No, I appreciate all of that. It's really been an incredible revamping of the commercial business over the last five or so years. Maybe if I could follow up on resin.

Speaker #5: And great to see the 20% growth guide for the back half. But I guess, kind of my question is, what gives you guys confidence that underlying demand in resin is getting better?

Speaker #5: Thank you.

Speaker #4: Yeah, Chris. We expect movement in the second half to be up mid single digits. So when you kind of get past all of the year-over-year comps and you get past the absence of destocking that's going to give us 10 points, at the end of the day, we're looking at movement up mid single digits.

David Gitlin: Yeah, Chris, we expect movement in the H2 to be up mid-single digits. When you kind of get past all of the year over year comps and you get past the absence of destocking, that's going to give us 10 points. At the end of the day, we're looking at movement up mid-single digits. We've been very careful on field inventory levels. I mentioned that we ended the quarter down 25% year over year. I think as we sit here today, we're down something like 20%. We've been working very closely with distributors, and we do things like track inbound calls into our dealers and distributors, and we're seeing that it's been healthier than we expected. After last year, we put work into refining some of the key indicators that we look at for our modeling.

Speaker #5: Because up 20, but they are comping down 30 and 40. So it's not necessarily—or it's just not showing improvement on a two-year stack.

Speaker #5: So I guess, what do you guys see—whether it's anecdotally or in the data—that gives you confidence that the demand is turning and this market is back on a pathway to, I think, the 9 million medium-term outlook that you called out?

Speaker #4: We've been very careful on field inventory levels I mentioned that we ended the quarter down 25% year-over-year. I think as we sit here today, we're down something like 20%.

Speaker #4: So we've been very working very closely with distributors. And we do things like track inbound calls into our dealers and distributors and we're seeing that it's been healthier than we expected.

Speaker #5: Thank you.

Speaker #4: Yeah, Chris, we expect movement in the second half to be up mid-single digits. So when you kind of get past all of the year-over-year comps and you get past the absence of destocking—that's going to give us 10 points—at the end of the day, we're looking at movement up mid-single digits.

Speaker #4: After last year, we put work into refining some of the key indicators that we look at for our modeling. Calls, especially into our bigger dealers and distributors, has been higher than we expected.

Speaker #4: We've been very careful on field inventory levels. I mentioned that we ended the quarter down 25% year-over-year. I think, as we sit here today, we're down something like 20%.

David Gitlin: Calls, especially into our bigger dealers and distributors, has been higher than we expected. I think at the end of the day, there's a sense that people are just getting a little bit more comfortable being uncomfortable with higher mortgage rates. There's some tension out there, of course, with higher fuel prices. At some point, there's just too much pent-up demand for new home construction because we have four or five million too-few homes in the United States. There's pent-up demand for existing home sales to increase because they've been at 20-year lows. We think we're just at a turning point where people are getting accepting a little bit of the macros that have been a little bit headwinds. Again, we're a replacement business. Some of the anecdotal information would support movement up mid-single digits in the back half.

Speaker #4: And I think at the end of the day, there's a sense that people are just getting a little bit more comfortable being uncomfortable with higher mortgage rates.

Speaker #4: So we've been working very closely with distributors. And we do things like track inbound calls into our dealers and distributors, and we're seeing that it's been healthier than we expected.

Speaker #4: There's some tension out there, of course, with higher fuel prices. But at some point, there's just too much pent-up demand for new home construction because we have four or five million too few homes in the United States.

Speaker #4: There's pent-up demand for existing home sales to increase because they've been at 20-year lows. So we think we're just at a turning point where people are getting accepting a little bit of the macros that have been a little bit headwinds.

Speaker #4: And I think at the end of the day, there's a sense that people are just getting a little bit more comfortable being uncomfortable with higher mortgage rates.

Speaker #4: And again, we're a replacement business. So some of the anecdotal information was support movement up mid single digits in the back half.

Speaker #5: Thank you, David. I really appreciate all that color.

Speaker #4: Yeah. Thanks, Chris.

Chris Snyder: Thank you, Dave. I really appreciate all that color.

Speaker #1: Your next question comes from the line of Andrew Oben with Bank of America. Your line is open. Please go ahead.

David Gitlin: Yeah. Thanks, Chris.

Speaker #4: There's pent-up demand for existing home sales to increase because they've been at 20-year lows. So, we think we're just at a turning point where people are getting accepting of a little bit of the macros that have been a little bit of headwinds.

Operator: Your next question comes from the line of Andrew Obin with Bank of America. Your line is open. Please go ahead.

Speaker #5: Yeah. Good morning.

Speaker #4: Hey, Andrew.

Speaker #5: Andrew? Just a question on Europe. Can you just talk about structurally what is taking place in Europe given the weather patterns? Because my understanding is just from a regulatory standpoint, there are barriers to putting HVAC units in schools and hospitals.

Andrew Obin: Yeah. Good morning.

David Gitlin: Hey, Andrew.

David Gitlin: Andrew.

Andrew Obin: Just a question on Europe. Can you just talk about structurally what is taking place in Europe given the weather patterns? My understanding is just from a regulatory standpoint there are barriers to putting HVAC units in schools and hospitals, and there is actually an ongoing discussion about changing it. What are sort of legislative and regulatory goalposts we need to see to see more adoption to 2027?

Speaker #4: And again, we're a replacement business, so some of the anecdotal information would support movement up mid-single digits in the back half.

Speaker #5: Thank you, David. Really appreciate all that color.

Speaker #4: Yeah. Thanks, Chris.

Speaker #5: And there is actually an ongoing discussion about changing it. But what are sort of legislative and regulatory goalposts we need to see to see more adoption to 27?

Speaker #1: Your next question comes from the line of Andrew Oben with Bank of America. Your line is open. Please go ahead.

Speaker #5: Yeah. Good morning.

Speaker #4: Yeah. It's a surprising thing because there has been some reluctance in parts of Europe to put in air conditioning when we're seeing the kind of fatalities that we're seeing in countries like France and Germany it really makes no sense because you think about the boiler industry.

Speaker #4: Hey, Andrew.

Speaker #5: Andrew, just a question on Europe. Can you talk about, structurally, what is taking place in Europe given the weather patterns? Because my understanding is that, from a regulatory standpoint, there are barriers to putting HVAC units in schools and hospitals.

David Gitlin: Yeah. It's a surprising thing because there has been some reluctance in parts of Europe to put in air conditioning when we're seeing the kind of fatalities that we're seeing in countries like France and Germany. It really makes no sense because you think about the boiler industry, it's essentially a fossil fuel industry. A lot of the, of course, the air conditioning that we're putting in is electric. I think we're starting to see some of the attitudes change in some of the key countries. There's been historical reluctance, but we're seeing attitudes start to change given the extended heat waves that we've been seeing now for a number of summers in a row, and this one has certainly been fairly extreme. Now you're unfortunately seeing fires in major countries. We have introduced great products. We of course have our Toshiba product line.

Speaker #4: It's essentially a fossil fuel industry. So and a lot of the of course, the air conditioning that we're putting in is electric. So I think we're starting to see some of the attitudes change in some of the key countries.

Speaker #5: And there is actually an ongoing discussion about changing it. But what are the sort of legislative and regulatory goalposts we need to see to see more adoption to 27?

Speaker #4: There's been historical reluctance, but we're seeing attitudes start to change. Given the extended heat waves that we've been seeing now for a number of summers in a row, and this one has certainly been fairly extreme.

Speaker #4: And now you're unfortunately seeing fires in major countries. So we have introduced great products. We, of course, have our Toshiba product line. We have both Viessmann and Carrier branded residential air conditioning that we've now introduced.

Speaker #4: It's essentially a fossil fuel industry. And a lot of the, of course, the air conditioning that we're putting in is electric. So I think we're starting to see some of the attitudes change in some of the key countries.

David Gitlin: We have both Viessmann and Carrier-branded residential air conditioning that we've now introduced. We have a phenomenal channel. Our dealer, our installer channel's chomping at the bit to get more engaged. We have a traditional channel that we've used on the Toshiba side, and we have a great presence. We do think that legislation will start to be more proactive in encouraging and not discouraging air conditioning, especially in schools where they're having to close schools down in the summertime for kids. We're seeing the key demand in hospitality. We're seeing demand in homes. I do think that as unfortunate as the impact has been on Europe over these past months, I think it's going to drive an inflection point. Again, we saw it in our orders where air conditioning residential orders were up 20% in Q2.

Speaker #4: There's been historical reluctance, but we're seeing attitudes start to change given the extended heat waves that we've been seeing now for a number of summers in a row.

Speaker #4: We have a phenomenal channel dealer, our installer channels chopping at the bit to get more engaged. We have a traditional channel that we've used on the Toshiba side.

Speaker #4: And this one has certainly been fairly extreme. And now you're unfortunately seeing fires in major countries. So, we have introduced great products. We, of course, have our Toshiba product line.

Speaker #4: And we have a great presence. So we do think that legislation will start to be more proactive in encouraging and not discouraging air conditioning, especially in schools where they're having to close schools down in the summertime for kids.

Speaker #4: We have both Viessmann and Carrier branded residential air conditioning that we've now introduced. We have a phenomenal channel—our dealer, our installer channels—chomping at the bit to get more engaged.

Speaker #4: We're seeing the key demand in hospitality. We're seeing demand in homes. So I do think that as unfortunate as the impact has been, on Europe over these past month, I think it's going to drive an inflection point.

Speaker #4: And again, we saw it in our orders where air conditioning residential orders were up 20% in the second

Speaker #4: We have a traditional channel that we've used on the Toshiba side, and we have a great presence. So, we do think that legislation will start to be more proactive in encouraging, and not discouraging, air conditioning—especially in schools where they're having to close schools down in the summertime for kids.

Speaker #5: And just a follow-up question. Thank you. Just a follow-up question on data centers. So you said that it's going to be a 2 billion for the year.

Andrew Obin: Just a follow-up question. Thank you. Just a follow-up question on data centers. You said that it's going to be $2 billion for the year. I think you said $500 million in H1, $1.5 billion in H2. I think you also said that exit rate is going to be at $2.5 billion. I'm just sort of trying to sort of do the math, and it implies the Q3 on data centers could be stronger than Q4. I'm clearly missing something. Could you just walk me through that? If you take $2.5 billion divided by four, you just sort of get less than half of $1.5 billion.

Speaker #5: I think you said 500 million in the first half. One and a half billion in the second half. But I think you also said that exit rate is going to be at 2 and a half billion.

Speaker #4: We're seeing the key demand in hospitality. We're seeing demand in homes. So I do think that, as unfortunate as the impact has been on Europe over these past months, I think it's going to drive an inflection point.

Speaker #5: And I'm just sort of trying to sort of do the math. And it implies the third quarter in data centers could be stronger than fourth quarter.

Speaker #4: And again, we saw it in our orders where air conditioning residential orders were up 20% in the second quarter.

Speaker #5: I'm clearly missing something. Could you just walk me through that? Just if you take 2 and a half billion divided by 4, you just sort of get less than half of one and a half billion.

Speaker #5: And just a follow-up question. Thank you. Just a follow-up question on data centers. So you said that it's going to be $2 billion for the year.

Speaker #4: Yeah. Those numbers were from before the billion the new site. Q4 will be higher than Q3 in data centers. And so if you just take Q4, do that times 4, you get well north of 2 and a half billion.

Speaker #5: I think you said 500 million in first half. 1 and a half billion in the second half. But I think you also said that exit rate is going to be at 2 and a half billion.

David Gitlin: Yeah, those numbers were from before the billion, the new site. Q4 will be higher than Q3 in data centers. If you just take Q4, do that times four, you get well north of $2.5 billion.

Speaker #5: And I'm just trying to do the math, and it implies the third quarter in data centers could be stronger than the fourth quarter.

Speaker #4: That's why we need the new.

Speaker #5: Okay. So okay. So the exit rate is not 2 and a half. Gotcha. Thank you.

Andrew Obin: Okay. The exit rate is now $2.5 billion. Got you. Thank you.

Speaker #5: I'm clearly missing something. Could you just walk me through that? Just if you take 2 and a half billion divided by 4, you just sort of get less than half of 1 and a half billion.

Speaker #1: Your next question comes from the line of Varun Govindaraj with Bernstein. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Varun Govindaraj with Bernstein. Your line is open. Please go ahead.

Speaker #4: Yeah, those numbers were from before the billion, the new site. Q4 will be higher than Q3 in data centers. And so if you just take Q4, do that times four, you get well north of $2.5 billion.

Speaker #5: Okay. Morning, everyone. Congrats on the strong trend.

Varun Govindaraj: Okay. Morning, everyone. Congrats on the strong print.

Speaker #4: Morning.

Speaker #5: Perfect. So quick question from my end. When you look at the back half of one and a half billion dollars of data center revenue, what's the degree of confidence over there?

David Gitlin: Morning, Varun.

Varun Govindaraj: Great. Perfect. Quick question from my end. When you look at the H2 of one and a half billion dollars of data center revenue, what's the degree of confidence over there? The reason I ask is because clearly it's back weighted, but there's also been some chatter from some of your peers about customers pushing out delivery and potential delays. Have you seen that in the H1? Any concerns over there? And if yes, how are you mitigating it?

Speaker #4: That's why we need the new.

Speaker #5: Okay, so the exit rate is not two and a half. Got it. Thank you.

Speaker #5: The reason I ask is because clearly. Backweighted, but there's also been some chatter from some of your peers about customers pushing out delivery and potential delays.

Speaker #1: Your next question comes from the line of Varun Govindaraj with Bernstein. Your line is open. Please go ahead.

Speaker #5: Have you seen that in the first half? Any concerns over there? And if yes, how are you mitigating it?

Speaker #4: Yeah. Look, there's it's never a perfect science when you're trying to work with your customers on the exact week that they're going to take the delivery.

David Gitlin: Yeah, look, it's never a perfect science when you're trying to work with your customers on the exact week that they're going to take the delivery. There's always a bit of perturbation from month to month. What I'll tell you is that we're fully booked for H2. There is huge demand from our customers, they are pushing us to accelerate deliveries, not risking pushing those out into 2027. As we think about H2 as purely an execution issue, we've moved a lot of additional resources into supply chain, into supplier quality, into the quality in our own factories. Our commitment to our customers is to be perfect quality, perfect delivery. It's not easy with this kind of ramp that we're seeing.

Speaker #5: Okay. Morning, everyone. Congrats on the strong trend.

Speaker #4: Morning.

Speaker #5: Perfect. So, quick question from my end. When you look at the back half of the $1.5 billion of data center revenue, what's the degree of confidence over there?

Speaker #4: So there's always a bit of perturbation from month to month. But what I'll tell you is that we're fully booked for the second half.

Speaker #5: The reason I ask is because clearly, it's backweighted, but there's also been some chatter from some of your peers about customers pushing out delivery and potential delays.

Speaker #4: There's huge demand from our customers. So they are pushing us to accelerate deliveries, not risking pushing those out into 27. As we think about the back half as purely an execution issue, we've moved a lot of additional resources into supply chain, into supplier quality, into the quality in our own factories.

Speaker #5: Have you seen that in the first half? Any concerns over there? And if yes, how are you mitigating it?

Speaker #4: Yeah. Look, there's it's never a perfect science when you're trying to work with your customers on the exact week that they're going to take the delivery.

Speaker #4: Our commitment to our customers is to be perfect quality, perfect delivery. It's not easy. With this kind of ramp that we're seeing, I've lived through ramps like this.

Speaker #4: So there's always a bit of perturbation from month to month, but what I’ll tell you is that we’re fully booked for the second half. There is huge demand from our customers.

Speaker #4: So we have all hands on deck to ensure that we have the capacity in our own factories, but we're into a level of detail of making sure that we have the right number of brazing people on second shift.

David Gitlin: I've lived through ramps like this, we have all hands on deck to ensure that we have the capacity in our own factories, we're into a level of detail of making sure that we have the right number of brazing people on second shift. We have the right people on site at our key suppliers. We're fully doing all the right things. Clearly, there's a ramp in H2, we're fully doing the right things to make sure that we achieve it, our customers want the product.

Speaker #4: So they are pushing us to accelerate deliveries, not risking pushing those out into '27. As we think about the back half as purely an execution issue, we've moved a lot of additional resources into supply chain, into supplier quality, into the quality in our own factories.

Speaker #4: We have the right people on site at our key suppliers. So we're fully doing all the right things. Clearly, there's a ramp in the second half, but we're fully doing the right things to make sure that we achieve it.

Speaker #4: Our commitment to our customers is to have perfect quality and perfect delivery. It's not easy. With the kind of ramp that we're seeing—I've lived through ramps like this.

Speaker #4: And our customers want the product.

Speaker #5: Understood. Very helpful. And then as a quick follow-up, when I look at Carrier's portfolio for data centers, it is heavily weighted towards chillers. Any concerns about things like double ordering over there just given the amount of demand that you're seeing from customers?

Varun Govindaraj: Understood. Very helpful. As a quick follow-up, when I look at Carrier's portfolio for data centers, it is heavily weighted towards chillers. Any concerns about things like double ordering over there, just given the amount of demand that you're seeing from customers? If yes, how are you sort of managing that, with penalties, with anything else?

Speaker #5: And then if yes, how are you sort of managing that with penalties, with anything else?

Speaker #4: No. We're not concerned about seeing is that we're building more strategic relationships with our customers. They're building almost think about it as kind of a rotable pool that we're delivering to.

David Gitlin: No, we're not concerned about double demand. I think what we're seeing is that we're building more strategic relationships with our customers. They're building, almost think about it as kind of a rotable pool that we're delivering to, they want to make sure that in terms of speed to power, speed to market, that they have the chillers that they need for their various sites. We've built strategic relationships we're delivering into a pool. They've established a certain amount of share that they expect to give us. We feel that the supply, the demand that we're receiving supports the demand that they need. We will see a continued increase in liquid cooling. I will mention that the team's doing a great job on that.

Speaker #4: And our customers want the product.

Speaker #5: Understood. Very helpful. And then, as a quick follow-up, when I look at Carrier's portfolio for data centers, it is heavily weighted towards chillers. Any concerns about things like double ordering over there, just given the amount of demand that you're seeing from customers?

Speaker #4: And they want to make sure that in terms of speed to power, speed to market, that they have the chillers that they need for their various sites.

Speaker #4: So we've built strategic relationships. We're building into we're delivering into a pool. They've established a certain amount of share that they expect to give us.

Speaker #5: And then if yes, how are you sort of managing that with penalties or anything else?

Speaker #4: No, we're not concerned about double demand. I think what we're seeing is that we're building more strategic relationships with our customers. They're building—almost think about it as kind of a rotable pool that we're delivering to.

Speaker #4: So we feel that the supply the demand that we're receiving supports that the demand that they need. We will see a continued increase in liquid cooling.

Speaker #4: I will mention that the team's doing a great job on that. We have a 1.3 megawatt CDU that we've seen good demand for here in the United States in Q2.

David Gitlin: We have a 1.3 megawatt CDU that we've seen good demand for here in the United States in Q2. We're going to be launching this quarter our 2.5, 2.6 megawatt CDU. We'll be on track for our 5 megawatt CDU around the end of this year. We've looked at acquisitions in this space. We've made the decision for now to focus on organic growth on liquid cooling. We've seen some nice demand there, and we'll continue to invest in that space as well.

Speaker #4: And they want to make sure that in terms of speed to power, speed to market, that they have the chillers that they need for their various sites.

Speaker #4: We're going to be launching this quarter our 2 and a half, 2.6 megawatt CDU. We'll be on track for our 5 megawatt CDU around the end of this year.

Speaker #4: So we've built strategic relationships. We're building into we're delivering into a pool. They've established a certain amount of share that they expect to give us.

Speaker #4: So we've looked at acquisitions in this space. We've made the decision for now to focus on organic growth on liquid cooling. We've seen some nice demand there, and we'll continue to invest in that space as well.

Speaker #4: So we feel that the supply the demand that we're receiving supports that the demand that they need. We will see a continued increase in liquid cooling.

Speaker #4: I will mention that the team's doing a great job on that. We have a 1.3-megawatt CDU that we've seen good demand for here in the United States in Q2.

Speaker #5: Very helpful. Thanks so much.

Speaker #4: Thank you.

Varun Govindaraj: Really helpful. Thanks so much.

Speaker #1: Your next question comes from the line of Steven Volkmann with Jefferies LLC. Your line is open. Please go ahead.

David Gitlin: Thank you.

Operator: Your next question comes from the line of Stephen Volkmann with Jefferies LLC. Your line is open. Please go ahead.

Speaker #4: We're going to be launching this quarter our 2 and a half, 2.6 megawatt CDU. We'll be on track for our 5 megawatt CDU around the end of this year.

Speaker #5: Great. Good morning, guys. Thanks for taking the question. Dave, can you just talk a little bit about price in North America resi? It sounds like it's going to accelerate more in the second half.

Stephen Volkmann: Great. Good morning, guys. Thanks for taking the question. Dave, can you just talk a little bit about price in North America resi? It sounds like it's going to accelerate more in H2. Are there more increases coming? How are you managing that?

Speaker #4: So, we've looked at acquisitions in the space. We've made the decision, for now, to focus on organic growth in liquid cooling. We've seen some nice demand there, and we'll continue to invest in that space as well.

Speaker #5: Are there more increases coming? How are you managing that?

Speaker #4: Yeah. We it's kind of moved around this year. We after the tariffs came out, we had said that we would increase price the list price around 8% and expect to yield kind of in that 6 to 7 percent range.

David Gitlin: Yeah. It's kind of moved around this year. After the tariffs came out, we had said that we would increase the list price around 8% and expect to yield kind of in that 6% to 7% range. We then, when the tariffs reduced from 25% for the 232 tariffs to 10% to 15%, depending on your steel content, we reduced price a little bit. What we ended up realizing with all of the perturbations in Q2 is, I think in Q2 we were around 3%. We do expect to get a little bit better price by a point or two in H2, and we're monitoring this very closely. We've actually been doing very well on share. I would expect, when all is said and done this year, that we gain a tiny bit of share, but we want to at least maintain share.

Speaker #5: Very helpful. Thanks so much.

Speaker #4: Thank you.

Speaker #1: Your next question comes from the line of Stephen Volkmann with Jefferies LLC. Your line is open. Please go ahead.

Speaker #4: We then when the tariffs reduced from 25% for the 232 tariffs to 10 to 15 depending on your steel content, we reduced price a little bit.

Speaker #5: Are there more increases coming? How are you managing that?

Speaker #4: What we ended up realizing with all of the perturbations in Q2 is I think in Q2 we were around 3%. We do expect to get a little bit better price by a point or two in the back half of the year.

Speaker #4: And we're monitoring this very closely. We've actually been doing very well on share. I would expect when all is said and done this year that we gain a tiny bit of share.

Speaker #4: We then, when the tariffs reduced from 25% for the 232 tariffs to 10 to 15, depending on your steel content, we reduced price a little bit.

Speaker #4: But we want to at least maintain share. So that's kind of a balancing act that we always have to manage. But I would say that when all is said and done for resi this year, we should be in the probably 4% range, and we're managing our way through that.

David Gitlin: That's kind of a balancing act that we always have to manage. I would say that when all is said and done for resi this year, we should be in the probably 4% range. We're managing our way through that.

Speaker #4: What we ended up realizing with all of the perturbations in Q2 is, I think in Q2 we were around 3%. We do expect to get a little bit better price by a point or two in the back half of the year.

Speaker #5: Okay. Great. Thanks. And then anything to say about China? Can that business kind of ever come back? How are you thinking about that?

Stephen Volkmann: Okay, great. Thanks. Anything to say about China? Can that business kind of ever come back? How are you thinking about that?

Speaker #4: And we're monitoring this very closely. We've actually been doing very well on share. I would expect when all is said and done this year that we gain a tiny bit of share.

Speaker #4: Yeah. I would bifurcate it between commercial and the residential business in China. We're well positioned on the commercial space. The team has been driving very good attraction from some key customers.

David Gitlin: Yeah, I would bifurcate it between commercial and the residential business in China. We're well-positioned on the commercial space. The team has been driving very good attraction from some key customers. Some of the verticals including here in July that we've seen some nice orders from the data centers. Electronics fab has been significant over there, some of the renewable space. Look, commercial HVAC is well-positioned. We have a great partnership with Shanghai Electric that goes back decades. We have a good product portfolio, a good team, and a good presence. We feel good about the commercial HVAC business. Clearly, the other parts of that region have done very well. India up 35, Southeast Asia was up north of 20, and I just want to give a shout-out to our team in the Middle East.

Speaker #4: But we want to at least maintain share, so that's kind of a balancing act that we always have to manage. But I would say that when all is said and done for resi this year, we should be in probably the 4% range.

Speaker #4: Some of the verticals including here in July that we've seen some nice orders from the data centers, electronics fab has been significant over there.

Speaker #4: And we're managing our way through that.

Speaker #5: Okay, great, thanks. And then, anything to say about China? Can that business ever come back? How are you thinking about that?

Speaker #4: Some of the renewable space. So look, commercial HVAC is well positioned. We have a great partnership with Shanghai Electric that goes back decades. We have a good product portfolio, a good team, and a good presence.

Speaker #4: So we feel good about the commercial HVAC business. Clearly, the other parts of that region have done very, very well. I mean, India up 35, Southeast Asia was up north of 20.

Speaker #4: Some of the verticals, including here in July, that we've seen some nice orders from—the data centers, electronics fab—have been significant over there.

Speaker #4: And I just want to give a shout-out to our team in the Middle East. In the Middle East, in last quarter, we were up 35% in the midst of a war.

David Gitlin: In the Middle East, in last quarter, we were up 35% in the midst of a war. Hats off to the team there. When it comes to the resi business in China, it's been soft for a while, and the housing market's very difficult in China. What we have to grapple with as a team is what's the investment required to fundamentally improve the business, and how long will this housing headwind continue for this RLC business in China? That's a question that we ask ourselves quite a bit.

Speaker #4: So hats off to the team there. When it comes to the resi business in China, it's been soft for a while. And the housing market's very difficult in China.

Speaker #4: And what we have to grapple with as a team is what's the investment required to fundamentally improve the business, and how long will this housing headwind continue for this RLC business in China?

Speaker #4: So, we feel good about the commercial HVAC business. Clearly, the other parts of that region have done very, very well. I mean, India was up 35%, Southeast Asia was up north of 20%.

Speaker #4: And I just want to give a shout-out to our team in the Middle East. In the Middle East, in the last quarter, we were up 35% in the midst of a war.

Speaker #4: And that's a question that we ask ourselves quite a bit.

Speaker #4: So, hats off to the team there. When it comes to the resi business in China, it’s been soft for a while, and the housing market’s very difficult in China.

Speaker #5: Great. Good color. Thank you.

Speaker #4: Thank you.

Stephen Volkmann: Great. Good color. Thank you.

Speaker #1: This concludes our question and answer session. I will now turn the call back to David Gitlin for closing remarks.

David Gitlin: Thank you.

Operator: This concludes our question and answer session. I will now turn the call back to David Gitlin for closing remarks.

Speaker #4: Okay. Well, thank you all for your continued confidence in us. And I want to thank our 50,000 team members around the world. This team continues to show up every day.

Speaker #4: And what we have to grapple with as a team is what's the investment required to fundamentally improve the business and how long will this housing headwind continue for this RLC business in China?

David Gitlin: Okay. Well, thank you all for your continued confidence in us, and I want to thank our 50,000 team members around the world. This team continues to show up every day, work as one Carrier, and deliver for our customers. A deep appreciation to our team. Thank you all.

Speaker #4: Work is one carrier and deliver for our customers. So a deep appreciation to our team. Thank you all.

Speaker #4: And that's a question that we ask ourselves quite a bit.

Operator: This concludes today's call. Thank you for attending. You may now disconnect.

Speaker #5: Great. Good color. Thank you.

Speaker #4: Thank you.

Speaker #1: This concludes our question and answer session. I will now turn the call back to David Gitlin for closing remarks.

Speaker #4: Okay. Well, thank you all for your continued confidence in us. And I want to thank our 50,000 team members around the world. This team continues to show up every day.

Speaker #4: Work is one carrier and deliver for our customers. So a deep appreciation to our team. Thank you all.

Q2 2026 Carrier Global Corp Earnings Call

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