CARR · Q3 2025 Earnings

Bearish

Carrier Global

Reported October 28, 2025

30-second summary

Carrier cut FY25 revenue by $1B, EPS by ~13% (from $3.00-3.10 to ~$2.65), and operating margin by 150bps — a wholesale guide reset rather than a tactical trim. Q3 revenue fell 7% YoY to $5.58B with CSA Americas down 8% and residential volumes down 30%; management is now eliminating 3,000 indirect positions and explicitly engineering 2026 EPS via cost actions, tax, and buybacks while assuming only "low single digit" organic growth. The bull thesis (data center doubling to $1B, commercial HVAC Americas +30%, aftermarket +12%) is intact but no longer large enough to mask the residential and European reset.

Headline numbers

EPS

Q3 FY2025

$0.67

Revenue

Q3 FY2025

$5.58B

-7.0% YoY

Free cash flow

Q3 FY2025

$0.22B

Operating margin

Q3 FY2025

9.7%

Key financials

Q3 FY2025

Metric	Q3 FY2025	YoY	Q2 FY2025	QoQ
Revenue	$5.58B	-7.0%	$6.11B	-8.7%
EPS	$0.67	—	$0.92	-27.2%
Operating margin	9.7%	—	14.8%	-510bps
Free cash flow	$0.22B	—	$0.57B	-60.6%

Guidance

Guidance is issued for the full year only, refreshed each quarter. Prior and new below are the same FY updated this quarter.

Actuals vs prior guidance

Metric	Period	Prior guide	Actual	Δ	Result
Revenue	Q3 FY2025	~$6 billion	$5.579 billion	-$0.421 billion below guide	Missed
Organic Sales Growth	Q3 FY2025	mid-single-digit growth	-4%	declined ~9-13 percentage points below guide	Missed
Adjusted Operating Profit	Q3 FY2025	flat year-over-year	14.8% margin	implied decline below flat expectation	Missed
EPS (non-GAAP)	Q3 FY2025	~$0.80	$0.67	-$0.13 below guide	Missed

New guidance

Metric	Period	Guide	YoY
Adjusted Effective Tax Rate	FY2025	closer to 21%	—
CSA Residential Sales Decline	Q4 FY2025	down approximately 30%	—
CSA Residential Volume Decline	Q4 FY2025	down about 40%	—

Changes to prior guidance

Metric	Period	Prior guide	New guide	Δ	Result
Revenue	FY2025	~$23 billion	~$22 billion	-$1 billion (4.3% reduction)	Lowered
EPS (non-GAAP)	FY2025	$3.00 – $3.10 (midpoint $3.05)	~$2.65	-$0.40 to -$0.45 (13-15% reduction from midpoint)	Lowered
Adjusted Operating Margin	FY2025	16.5% – 17.0%	15.0% – 15.5%	-150 to -150 basis points	Lowered
Free Cash Flow	FY2025	$2.4 – $2.6 billion	~$2 billion	-$0.4 to -$0.6 billion (17-23% reduction)	Lowered
Organic Sales Growth	FY2025	mid-single digits	~flat	from mid-single-digit growth to flat; ~4-6 percentage point deterioration	Lowered

Segment KPIs

Q3 FY2025

Segment	Q3 FY2025	YoY
Climate Solutions Americas	$2.711B	-8.0%
Climate Solutions Europe	$1.29B	+4.0%
Climate Solutions Asia Pacific, Middle East & Africa	$0.833B	-1.0%
Climate Solutions Transportation	$0.745B	-20.0%
Commercial HVAC Americas Growth	+30%	—
Residential Americas Growth	-30%	—
Light Commercial Americas Growth	-4%	—

Other KPIs

Q3 FY2025

Segment	Q3 FY2025
Organic Sales Growth (Q3)	-4%
Adjusted Operating Margin (Q3)	14.8%
Free Cash Flow (Q3)	$224M
Operating Cash Flow (Q3)	$341M
Share Repurchases YTD	$2.4B

Management tone

Q2 anchor → Q3 anchor: "Reaffirmed FY guide despite hidden resi cut" → "Comprehensive guide cut, defensive cost posture"

Three months ago Carrier reaffirmed every FY line item while quietly absorbing a resi reset; this quarter every line is cut. Management opened the call with "Q3 was generally in line with what we shared in mid-September" — i.e. execution against the September pre-announcement, not against the July guide. The shift from "structural drivers offset tactical resi pain" to "tactical pain is now structural" is the entire story.

The 2026 framing pivoted from organic-growth-led to financial-engineering-led. In Q2, management defended FY25 EPS via mix, data center, and systems pricing power. This quarter: "we expect about 20 cents of adjusted EPS tailwind in 2026 from the combination of caddy over restructuring benefits, tax, and share repo... It is too early to comment on the levels of 2026 organic growth." EPS growth is now explicitly engineered through non-organic levers — an admission that visibility on the top line is gone.

The residential narrative deteriorated for the second consecutive quarter. Q2 disclosed H2 resi volumes down 20-25%; this quarter Q4 alone is guided -40% volume. "We now anticipate CSA resi to be down high single digits versus our prior outlook of up mid single digits... continued significant headwinds from under absorption as the channel continues to destock." Carrier has now revised resi expectations downward in three consecutive periods — what was framed as a "tactical Q3 mix event" three months ago is now a destocking cycle bleeding into 2026 H1 comps.

Europe shifted from forward-leaning to incremental cut. Q2's bullish "return to growth" framing on the RLC business gave way to: "In Europe, we now anticipate our RLC business to be down mid-single digits versus the prior outlook of about flat." German heating units are projected at ~600,000 — 15-year lows — and management openly stated they see "a hard time for further deterioration," which is a floor argument, not a recovery argument.

Cost restructuring went from "we'll meet or exceed $200M synergies" to a fresh standalone $3,000-headcount indirect reduction program. This is new and material. The willingness to take a separate restructuring action on top of synergy capture signals management no longer believes volume recovery will fund margins.

Recurring themes management leaned on this quarter:

Aggressive cost reduction and restructuring ($3,000 headcount elimination, 100M+ carryover savings)Residential market destocking extending through 2025; difficult 2026 comparablesData center commercial HVAC momentum offsetting residential weaknessAftermarket growth as stabilizing, recurring revenue stream (12% growth, 5 consecutive years double-digit)Portfolio rebalancing away from residential exposureEPS guided by cost actions and tax benefits rather than organic growth

Risks management surfaced:

Unexpected North American residential market decline creating $500M sales and 20-25 cent EPS headwindContinued channel destocking in CSA resi extending into Q4 and creating under-absorptionDifficult year-over-year comparables in H1 2026 for CSA resi businessHeating market unit declines in Europe offsetting heat pump growthHeightened levels of uncertainty impacting 2026 planningTariff exposure (though currently net neutral)

Q&A highlights

Jeffrey Sprake · Vertical Research Partners

Unpack the $500M consolidated inventory increase, particularly the $350M resi component within CSA. What are the moving pieces driving this counter-seasonal build, and what sell-through/movement dynamics support the path to inventory normalization by year-end?

Management attributed the inventory build to sudden residential volume decline requiring supply chain adjustment (~$400M of the $500M total), plus intentional increases in components/replacement inventory (~$100M). Field inventory expected down 30% YoY by year-end to 2018 levels. October movement down ~30%, November-December expected mid-20s decline. Management confident destocking won't be a headwind into 2026 given easier comps and inventory normalization.

$500M consolidated inventory increase$400M CSA segment increase, $350M from resiField inventory expected down 30% YoY by year-endTarget ending inventory at 2018 levels

Julian Mitchell · Barclays

How should we reconcile the assumption of low single-digit organic growth with CSA resi being flat-to-slightly-up volume, given that 40%+ of sales are growing double-digits? Detail the CSA resi outlook including sell-in/sell-out recoupling and movement dynamics beyond December.

Management clarified that 40%+ of portfolio (aftermarket and global commercial HVAC) expected to grow double-digits, yielding ~4% organic growth if rest of company flat. CSA resi estimated flat-to-slightly-up volume next year. European resi (especially Germany at 15-year lows) assumed flat; management sees hard time for further deterioration. Non-data center applied HVAC up low teens in Q3; data center applied up 60%, total HVAC up 30%.

40%+ of portfolio growing double-digits (aftermarket, global commercial HVAC)Implies ~4% organic growth if rest flatCSA resi: flat to slightly up volume expected for 2026German market expected near 600,000 units (15-year lows)

Scott Davis · Milius

Does the inventory destock and channel reset impact pricing realization for 2026? Management previously guided mid-single-digit price increases; with higher cost base, how does pricing dynamic change?

Management announced mid-single-digit price increase for 2026, expecting low single-digit yield realization. This year achieved ~10% price/mix (3% price, 8% mix in Q3). 2026 pricing expected closer to low single digits vs. mid-single digits this year. Management confirmed 100% focus on structural cost takeout (~3,000 indirect headcount) to offset modest pricing gains and protect margins.

2026 price increase: mid-single-digit announced2026 price yield expected: low single-digit realizationQ3 2025 resi price/mix: 3% price, 8% mix2025 year price: mid-single digits

Nigel Cole · Wolf

Confirm data center backlog expectations: is the $0.9B backlog targeted for year-end sufficient to drive nice 2026 growth? Also confirm $1.1B revenue guidance for this year. Given weak movement numbers, is the channel burn sufficient for a clean slate entry into 2026?

Management confirmed $1B revenue for data center in 2025 (consistent guidance). Targeting ~$900M backlog at year-end vs. $700M entry backlog to drive growth into 2026. Noted very strong October orders and recent MOU signing in Japan for infrastructure/data center investments. Acknowledged weak movement but expressed confidence in clean slate entry given planned 4Q/3Q similar production levels and expected continued weakness in movement through year-end.

Data center 2025 revenue target: $1BEntry backlog 2025: ~$700MYear-end backlog target: ~$900MStrong orders in October

Answers to last quarter's watch list

CSA segment margin vs the ~200bps YoY decline guide — Missed materially. CSA Americas revenue fell 8% YoY and segment dynamics were worse than the prior framework anticipated; the full-year operating margin cut of 150bps to 15.0%-15.5% is direct evidence that the resi mix damage spread beyond Q3 rather than being contained.

Resolved negatively

Data center revenue trajectory and 2026 backlog sizing — Both delivered. Management reaffirmed $1B in 2025 (doubling YoY), targeted ~$900M year-end backlog vs $700M entry, and disclosed projected 2026 entering backlog up ~20% YoY. Commercial HVAC Americas grew +30% in Q3. This is the cleanest line in the print.

Resolved positively

US residential sellout exiting Q3 and whether 20-25% H2 volume assumption holds — Further cut, not conservative. Q4 CSA resi now guided down ~30% sales and ~40% volume; October movement was already down 30%. Field inventory targeted down 30% YoY by year-end. Management now expects destocking complete by year-end but with difficult H1 2026 comps.

Resolved negatively

European boiler mix recovery, particularly German floor-standing units — No recovery. Europe RLC now guided down mid-single digits for full year vs prior flat outlook; German heating units projected at 15-year lows (~600,000 units). Management's floor argument ("a hard time for further deterioration") is a stabilization claim, not a recovery.

Resolved negatively

Cost synergy capture pace and potential acceleration — Superseded by larger standalone action. Carrier launched a new ~3,000-position indirect headcount reduction program projected to yield $0.20 of 2026 EPS tailwind. This dwarfs the original $200M synergy framework and signals management no longer expects volume to fund margins.

Continue monitoring

What to watch into next quarter

Q4 CSA resi volume vs the -40% guide and whether October's -30% movement deteriorates further — a Q4 miss against an already-cut guide would force a 2026 cut before the year begins.

Year-end field inventory vs the "down 30% YoY to 2018 levels" target — the entire 2026 H1 demand recovery thesis depends on this flush completing on schedule.

2026 organic growth disclosure on Q4 call — management committed to "low single digit" planning; any further downgrade undermines the EPS bridge built on cost actions plus modest growth.

Data center 2026 backlog confirmation — management projected ~20% YoY entering backlog. A formal number below that range would compromise the one growth pillar still intact.

Restructuring execution: $0.20 of 2026 EPS tailwind from the 3,000-position program needs in-quarter evidence of cost realization, not just charges taken.

European RLC trajectory and German unit volumes — whether the ~600,000-unit floor holds or breaks lower will determine if Europe is a 2026 tailwind or another cut.

Sources

Carrier Global Q3 2025 Earnings Release, SEC Filing: https://www.sec.gov/Archives/edgar/data/1783180/000178318025000063/a99-q32025earningsexhibit.htm
Carrier Global Q3 2025 Earnings Conference Call transcript commentary (as provided)
Tapebrief Q2 2025 CARR brief (prior coverage)

Get the next brief, free.

We publish analyst-grade earnings briefs the same day or morning after every call — headline numbers, segment KPIs, Q&A highlights, and tone analysis. Free during beta.

This is not investment advice.