CARR · Q4 2025 Earnings

Q2 anchor → Q3 anchor → Q4 anchor: "Resi cut buried under reaffirmed guide" → "Comprehensive guide reset, defensive cost posture" → "Destocking declared over, recovery built on cost actions and data center scaling"

Three quarters ago Carrier was selling a "structural drivers offset tactical resi pain" story; two quarters ago it cut every FY line and pivoted to financial engineering; this quarter the destocking is declared finished and the 2026 EPS bridge is now explicitly built on ~$400M of productivity offsetting volume/mix and inflation. "We believe that the distributed inventory destocking that occurred in the second half of last year is substantially behind us. At year-end, field inventories for resi were down roughly 30% year-over-year, in line with our expectations." This is the cleanest "we are past the worst" statement management has made in three quarters — but it is paired with a Q1 resi guide of down >20%, meaning the destock ending and the demand recovery are not the same event.

The data center narrative has compounded across every quarter. In Q2 it was an "emerging opportunity" doubling to $1B; in Q3 it was tracking to $1B with 2026 backlog up ~20%; this quarter it is ~$1B realized, guided to $1.5B in FY26, with Q4 CSA data center orders up >5x. "Our data center investments are delivering results, with fourth quarter CSA data center orders up more than 5x... growing our data center business to around $1 billion... we're guiding to $1.5 billion for this year." The line has gone from story to pillar to single most important load-bearing element of the bull thesis — which also concentrates risk if hyperscaler capex cools.

The margin-recovery thesis is incremental, not heroic. "The benefit of modest organic growth and productivity including prior year overhead cost actions are partially offset by unfavorable business mix... Productivity, including the cost actions that we have taken, is close to $400 million." The FY26 adjusted operating margin steps from 15.1% to ~15.5% — a ~40bps expansion — built by spending most of the $400M productivity bucket on offsetting mix, inflation, merit, and investments. This is a grind-it-out year, not an inflection.

The forward-confidence rhetoric became more emphatic even as the near-term guide weakened. "We are the best positioned company in our industry when our short cycle businesses recover, which they surely will, and we are poised to see outsized gains when they in fact recover." The use of "surely will" is unusually strong language from a CEO who has cut three consecutive resi forecasts. Read against the Q1 FY26 guide of resi down >20%, this is a forward bet, not a current proof point — and investors should treat it accordingly.

Management's framing on capital returns shifted from offense to defense. Buybacks were $2.9B in FY25; the FY26 plan is $1.5B — a near-50% step-down. This was not flagged as a structural shift in capital allocation but it materially reduces one of the EPS levers that supports the FY26 bridge.