Carrier’s Data Center Orders Surge 5x Amid Housing Market Woes

Date of Call: Feb 5, 2026

Financials Results

• Revenue: $4.8B (adjusted operating profit $455M, adjusted EPS $0.34)
• EPS: $0.34 per share
• Operating Margin: Company adjusted operating margin not explicitly stated; segment-level margins provided in Q&A context.

Guidance:

• Organic sales expected flat to low mid-single-digit growth, ~$22B revenue.
• Commercial HVAC and aftermarket to grow double-digits; offset by softness in short-cycle businesses.
• Adjusted EPS expected ~$2.80, up high single digits vs 2025.
• Free cash flow ~$2B.
• Q1 revenue ~$5B, organic down high single digits, operating margin ~10%.

Business Commentary:

Residential and Light Commercial Market Softness:

• Carrier's short cycle residential and light commercial market softened more than expected in the second half of 2025, contributing to a nearly 10% decline in CSA residential and a 20% decline in light commercial sales.
• This was due to reduced consumer confidence, higher mortgage rates, and lower new and existing home sales.

Commercial HVAC and Aftermarket Growth:

• Carrier's commercial HVAC segment achieved its fifth consecutive year of double-digit growth, while aftermarket sales also rose double digits for the fifth consecutive year.
• This growth was driven by investments in technology differentiation, increased salespeople and technicians, and strong demand for commercial HVAC products.

Data Center Business Expansion:

• Carrier's data center business grew to around $1 billion, with fourth-quarter CSA data center orders up more than 5x.
• The growth was driven by strategic investments and an expanded portfolio addressing major data center chiller applications.

Inventory and Cost Management:

• Carrier reduced channel inventory and overhead costs, with residential field inventories down 30% year-over-year and light commercial distributor inventories down 25%.
• These actions were part of cost-saving measures aimed at improving operational efficiency and positioning the company for stronger incrementals when short cycle markets recover.

China Market Challenges:

• Sales in China were down about 20%, with residential and light commercial segments down 30%.
• The decline was attributed to intentional inventory reductions and ongoing weakness in the residential and light commercial markets.

Sentiment Analysis:

Overall Tone: Positive

• Management emphasized being 'energized' for 2026, 'poised to see outsized gains' when markets recover, and highlighted progress in strategic priorities like data center growth (orders up >5x) and aftermarket (6th consecutive year of double-digit growth). Forward guidance anticipates returning to organic growth and margin expansion.

Q&A:

• Question from Nigel Coe (Wolfe): Can you detail Q1 margin drivers and recovery path for CSA?
  Response: Q1 operating margin expected ~15% for CSA; overall company margin ~10%. Key drivers include reduced residential sales headwinds vs Q4 and a lower tax rate.

• Question from Julian Mitchell (Barclays): What is the CSA residential volume forecast and pricing dynamic for 2026?
  Response: Industry units expected down 10%-15% in 2026; Carrier sales down high single digits, with low single-digit price benefit. First half sales down 20%-25%; second half up 10% due to absence of destocking.

• Question from Scott Davis (Melius Research): How low are CSA residential channel inventories?
  Response: Field inventory down ~32% year-over-year as of January, targeting 2018 levels.

• Question from Joe Ritchie (Goldman Sachs): Is the industry demand assumption conservative?
  Response: Guidance assumes industry units down 10%-15% in 2026, consistent with recent trends and no macro improvement; company plans based on this analysis.

• Question from Steve Tusa (J.P. Morgan): What are inflation and pricing assumptions?
  Response: Total company price realization low single digits. Commodity headwind of ~$60M for 2026, ~50% blocked.

• Question from Andrew Kaplowitz (Citigroup): How do cost benefits layer in 2026, and what drives CSAME flat guidance?
  Response: Targeting $100M incremental operating profit, offset by $100M volume/mix headwind and $100M-$200M price/tariff benefit. CSAME flat due to China down high single digits offset by rest of Asia growth.

• Question from Deane Dray (RBC Capital Markets): How prepared for potential stock-outs in cooling season?
  Response: Focusing on operational agility; inventory at channel low levels, but positioned to support demand if it picks up.

• Question from Chris Snyder (Morgan Stanley): What is the path for Americas margins to return to mid-20s?
  Response: Margin improvement expected sequentially in Q2-Q3 due to less under-absorption headwind and seasonal sales build.

• Question from Amit Mehrotra (UBS): Has the crisis prompted structural cost changes, and what are high incrementals when recovery comes?
  Response: Yes, using AI, rationalizing footprint, and platforming products. High incrementals expected as businesses recover, with minimal re-addition of prior cost actions.

• Question from Joe O’Dea (Wells Fargo): What drives path back to 9M unit industry, and why no margin drag from CDUs?
  Response: Reversion to mean requires macro improvement (consumer confidence, new home sales). CDUs are a differentiator, not a margin drag; company is in early stages of liquid cooling growth.

Contradiction Point 1

CSA Residential Volume & Pricing Outlook

Contradiction on 2026 market decline magnitude and Carrier's sales guidance.

Can you clarify the full-year guidance for the CSA Residential business, specifically on market pricing, industry discipline, and expected volume or outperformance against a double-digit market decline? - Julian Mitchell (Barclays)

2025Q4: The guidance assumes no macro improvement... estimated 10-15% decline in industry units for the full year. Carrier expects its sales to be down high single digits, with a low single-digit benefit from pricing. - [David Gitlin](CEO)

What is the outlook for CSA residential in 2026, including sell-out and sell-in dynamics? - Julian Mitchell (Barclays)

2025Q3: For 2026, internal planning assumes low single-digit organic growth. Over 40% of the company's sales (aftermarket and commercial HVAC) are growing double-digits and expected to continue. CSA residential volume may be flat to slightly up. - [Patrick Goris](CFO)

Contradiction Point 2

European Heating Market Outlook

Contradiction on the German heating market's near-term recovery trajectory.

What is the 2026 outlook for the CSE (Europe) RLC (Residential Heating) market and the competitive dynamics between heat pumps and boilers? - Julian Mitchell (Barclays)

2025Q4: The European heating market is expected to be down mid- to high-single digits in 2026... The most significant challenge remains in Germany... is expected to see a 'reversion to the mean' eventually, but not in 2026 due to regulatory uncertainty. - [David Gitlin](CEO)

Can you elaborate on RLC Europe, the outlook for the German heating market, and margin improvement? - Andrew Kaplowitz (Citigroup)

2025Q3: Germany's heating market may be near a bottom after strong growth in 2022... a recovery is poised for 2026. - [David Gitlin](CEO)

Contradiction Point 3

Data Center Revenue & Backlog Guidance

Contradiction on 2026 revenue guidance and backlog projection.

What are current CSA Residential channel inventory levels and the 2026 data center revenue pipeline, given $1B+ order growth? - Scott Davis (Melius Research)

2025Q4: The company is guiding to $1.5 billion in revenue for 2026, up from strong Q4 2025 orders. - [David Gitlin](CEO)

Confirm the data center backlog target for 2025 and the $1.1B revenue target? - Nigel Coe (Wolfe Research)

2025Q3: The revenue target remains $1B for 2025. Backlog entering 2026 is on track to be ~$900M... - [David Gitlin](CEO)

Contradiction Point 4

U.S. Residential Industry Volume and Sales Outlook

Guidance for industry unit decline and Carrier's sales growth shifts significantly between quarters.

Could you clarify the full-year guidance for the CSA Residential business, specifically regarding market pricing, industry discipline, and expected volume or outperformance amid a double-digit market decline? - Julian Mitchell (Barclays)

2025Q4: The guidance assumes no improvement in macro conditions... resulting in an estimated 10-15% decline in industry units for the full year. Carrier expects its sales to be down high single digits. - [David Gitlin](CEO)

What are the key assumptions for U.S. Residential and Light Commercial in the back half, including market trends, pricing, and repair/replace dynamics? - Julian Mitchell (Barclays)

2025Q2: For H2, volume is now assumed down 20-25%, leading to sales down ~10% in H2. Net-net, full-year residential sales are expected up single digits. - [David Gitlin](CEO)

Contradiction Point 5

Outlook for Americas Light Commercial (LC) Business

The business performance assessment and near-term outlook shifted from positive to significantly negative.

Can you clarify the full-year guidance for the CSA Residential business and the CSE Europe RLC (Residential Heating) market outlook? - Julian Mitchell (Barclays)

2025Q4: The Americas LC business is down high single digits for the full year, with 20-25% decline expected in H1 and 10% growth in H2 2026. - [David Gitlin](CEO)

Can you explain the drivers behind the full-year guidance changes for the Americas segment's residential and commercial sectors since February? - Julian Mitchell (Barclays)

2025Q1: Full-year guidance for Americas Light Commercial was increased from 'up low double digits' to down low double digits. Q1 was weaker than expected... Expect Q2 down ~20%, with a recovery to flat/slightly up in the second half. - [David Gitlin](CEO)