Executive Summary / Key Takeaways

• Strategic Transformation Complete: Carrier Global has successfully transformed into a pure-play leader in intelligent climate and energy solutions, divesting non-core assets and integrating the transformative Viessmann Climate Solutions (VCS) acquisition. This strategic focus positions Carrier for accelerated growth in high-demand sectors.
• Robust Financial Performance & Outlook: The company delivered strong Q2 2025 results with 6% organic sales growth and 26% adjusted EPS growth, reaffirming its full-year 2025 guidance for mid-single-digit organic sales growth and close to 20% adjusted EPS growth. This performance is driven by operational excellence and strategic pricing.
• Technological Leadership & Integrated Systems: Carrier is leveraging proprietary technologies and strategic partnerships (e.g., Google Cloud for HEMS, Quantum Leap for data centers) to offer differentiated, energy-efficient, and digitally-enabled lifecycle solutions across homes, buildings, and the cold chain, enhancing its competitive moat.
• High-Growth Verticals & Aftermarket Strength: Data centers are a significant growth driver, projected to double revenues to $1 billion in 2025, complemented by a consistently strong, double-digit aftermarket business. These areas provide resilient, high-margin revenue streams.
• Disciplined Capital Allocation & Risk Mitigation: Carrier is actively reducing debt, targeting approximately 2x net leverage, and executing substantial share repurchases ($3 billion planned for 2025). The company has also largely settled the inherited AFFF litigation, with expected insurance recoveries covering the settlement, removing a significant overhang.

Carrier's Climate Mandate and Strategic Evolution

Carrier Global Corporation is rapidly solidifying its position as a global leader in intelligent climate and energy solutions. The company's overarching strategy centers on providing differentiated, digitally-enabled lifecycle solutions across three core ecosystems: homes, buildings, and the cold chain. This focused approach is a culmination of a multi-year transformation, moving Carrier beyond its conglomerate roots to a specialized powerhouse.

The journey began with its spin-off from United Technologies Corporation (UTC) in April 2020, initiating a phase of foundational building and strategic investment in its core product portfolio and aftermarket capabilities. The years 2023 and 2024 marked a period of "performing while transforming," characterized by significant portfolio reshaping. This included strategic divestitures of non-core businesses like Access Solutions, Industrial Fire, and Commercial and Residential Fire, alongside the pivotal acquisition of Viessmann Climate Solutions (VCS) in January 2024. This strategic pivot has streamlined Carrier, positioning it to capitalize on powerful secular trends such as urbanization, population growth, digitalization, energy efficiency, decarbonization, and the burgeoning demand from AI-driven data centers.

Technological Edge: The Engine of Differentiation

Carrier's competitive advantage is deeply rooted in its differentiated technology and relentless innovation. The company is not merely selling products; it is delivering advanced, integrated systems that offer tangible benefits to customers and bolster its market position.

A prime example is Carrier's new large capacity air-cooled chiller, featuring a proprietary magnetic bearing centrifugal compressor. This technology is designed to be significantly more efficient than alternatives and capable of operating effectively at elevated ambient temperatures, meeting critical performance requirements from customers, particularly in demanding environments like data centers. In the residential sector, Carrier's Infinity variable speed heat pumps with "dream speed intelligence" demonstrate remarkable performance, operating at 100% capacity at 0 degrees Fahrenheit and reliably at negative 13 degrees Fahrenheit. Furthermore, the new Vector Trailer Refrigeration unit showcases Carrier's commitment to sustainability, designed to reduce CO2 emissions by 73% while maintaining best-in-class performance.

The company's R&D efforts are strategically aligned with future market needs. In Home Energy Management Systems (HEMS), Carrier is leveraging Viessmann's expertise in battery integration and digital solutions. A new partnership with Google Cloud (GOOGL), announced in March 2025, aims to enhance grid resilience and support smarter energy management by integrating Carrier's HEMS technology with Google's AI and analytics. This initiative seeks to increase energy infrastructure efficiency, reduce grid congestion, and lower energy costs for homeowners, with pilots expected in the U.S. this year and market introduction next year. For data centers, Carrier introduced "Quantum Leap," an integrated cooling solution combining traditional cooling, liquid cooling, and building/server management systems, designed to provide highly efficient solutions for this rapidly expanding vertical. Digital platforms like Abound and Lynx are also being enhanced, with Abound leveraging AI for operational insights and Lynx subscriptions nearing 200,000, reflecting a 3x increase in connected chillers over the last three years (from ~20,000 to 63,000). These technological advancements are foundational to Carrier's competitive moat, enabling higher average selling prices, lower operational costs for customers, and stronger margins for the company.

Competitive Arena: Outmaneuvering Rivals

Carrier operates in a highly competitive landscape against formidable players such as Johnson Controls International (JCI), Trane Technologies (TT), Lennox International (LII), and Honeywell International (HON). Carrier's strategic positioning emphasizes its ability to offer integrated, end-to-end solutions, often providing a more holistic approach compared to some rivals.

Compared to JCI, Carrier's focus on specialized climate control and integrated HVAC-security offerings can provide greater efficiency in specific applications, while JCI often offers a broader, more generalized portfolio. Against Trane Technologies, Carrier's global footprint and diverse product lines, including refrigeration and fire systems, offer a unique value proposition as a comprehensive provider, potentially appealing to customers seeking streamlined solutions. In residential HVAC, where Lennox International is a strong competitor, Carrier's ability to integrate refrigeration and security features into its offerings provides a more comprehensive solution, potentially leading to greater customer retention. While Honeywell International excels in broader digital innovation, Carrier's focused expertise in climate control and building automation often translates to stronger customer loyalty in its core markets.

Carrier's competitive advantages, or "moats," include its strong brand recognition, which supports pricing power and customer loyalty, driving recurring aftermarket revenues. Its proprietary technologies, such as the magnetic bearing compressors and advanced HEMS, offer superior energy efficiency, contributing to robust growth and margins. Furthermore, Carrier's extensive global distribution channels, including leveraging the Viessmann channel in Europe, enhance its market access and capital efficiency. The company has demonstrated its ability to gain market share, notably increasing its U.S. residential HVAC share by approximately 100 basis points in 2024. Carrier's proactive management of supply chain dynamics and tariffs, through strategic sourcing and pricing actions, further underscores its operational resilience in a challenging global environment.

Financial Performance: A Story of Transformation and Growth

Carrier's financial performance in the second quarter and first half of 2025 underscores the success of its strategic transformation. In Q2 2025, net sales increased 3% year-over-year to $6.11 billion, driven by a robust 6% organic growth. This organic expansion was primarily fueled by the Climate Solutions Americas (CSA) segment, which saw net sales jump 14% organically to $3.25 billion. Within CSA, commercial HVAC surged 39%, while residential sales grew 11%, benefiting from favorable pricing and mix despite a mid-single-digit volume decline due to a late cooling season.

Profitability metrics reflect strong operational execution. Q2 2025 adjusted operating margin expanded by 130 basis points year-over-year to 19.1%, a testament to ongoing productivity initiatives and the absence of prior-period acquisition-related amortization costs. Adjusted EPS climbed 26% year-over-year to $0.92. For the first half of 2025, net sales were flat at $11.33 billion, with 4% organic growth. Gross margin expanded by 230 basis points, and net cash flows from continuing operating activities increased to $752 million from $609 million in the prior year period, contributing to approximately $1 billion in free cash flow for the first half.

Segment-specific performance highlights the diversified nature of Carrier's growth. While CSA demonstrated exceptional strength, Climate Solutions Europe (CSE) reported flat organic sales in Q2 2025, reaching $1.25 billion, as strong heat pump unit sales (up over 50% in Germany) were offset by a weak overall German heating market. The segment's operating profit margin was 7.9%. Climate Solutions Asia Pacific, Middle East Africa (CSAME) saw organic sales decline 4% to $882 million, primarily due to residential weakness in China, though growth in India (up nearly 30%), Japan (up high teens), and the Middle East (up mid-teens) provided partial offsets. Climate Solutions Transportation (CST) organic sales were down 1% to $726 million, with container business up 6%, and its operating margin expanded 340 basis points, largely due to the divestiture of the commercial refrigeration business.

Carrier's balance sheet reflects disciplined capital allocation. The company reduced outstanding debt by $3 billion in 2024 and an additional $1.2 billion in the first half of 2025, aiming for approximately 2x net leverage by year-end 2024. Liquidity remains robust, with $1.8 billion in cash as of June 30, 2025, and access to a $2.5 billion revolving credit facility and a $2.0 billion commercial paper program, both undrawn. Shareholder returns are a priority, with $1.9 billion in share repurchases in the first half of 2025 and a target of $3 billion for the full year.

Outlook & Strategic Initiatives: The Path Ahead

Carrier has reaffirmed its full-year 2025 guidance, projecting mid-single-digit organic sales growth, approximately 100 basis points of adjusted operating margin expansion, and close to 20% adjusted EPS growth, targeting a midpoint of $3.00-$3.10. Free cash flow is expected to be between $2.4 billion and $2.6 billion, representing roughly 100% conversion. For Q3 2025, the company anticipates sales of approximately $6 billion with mid-single-digit organic growth, flat adjusted operating profit year-over-year, and adjusted EPS of about $0.80. Q4 2025 adjusted EPS is expected to be up approximately 20%, benefiting from productivity and cost actions.

Key assumptions underpinning this outlook include a mid-single-digit increase in U.S. residential sales for the full year, despite a projected 10% volume decline in the second half to balance channel inventory. Pricing, including the 10% mix-up from the 454B refrigerant transition, is expected to remain firm. In Europe, while the overall market remains challenging, RLC sales outside of Germany are expected to accelerate in the second half, and CSE margins are projected to improve to around 12% in Q4, driven by cost synergies from the Viessmann integration, which are on track to exceed $200 million by the end of 2026. The company also expects to fully mitigate the impact of announced tariffs through supply chain actions and approximately $200 million in incremental pricing.

Strategic initiatives continue to drive future growth. Carrier is investing an additional $1 billion over five years in U.S. manufacturing, R&D, and workforce expansion, creating 4,000 jobs. The "double digit forever" aftermarket growth strategy remains a core focus, supported by increasing connected devices and digital platform enhancements. The successful integration of Viessmann Climate Solutions is enabling new product introductions and multi-brand strategies, such as Carrier-branded air conditioning units sold through the Viessmann channel in Europe. Furthermore, the company has largely settled the inherited AFFF litigation, with a $615 million cash settlement expected to be covered by $2.4 billion in insurance recoveries, effectively removing a significant legacy overhang and allowing full focus on core business execution.

Conclusion

Carrier Global Corporation stands at a pivotal juncture, having successfully executed a profound transformation into a focused leader in intelligent climate and energy solutions. The company's strategic divestitures and the transformative acquisition of Viessmann Climate Solutions have created a streamlined, higher-growth enterprise. This new Carrier is leveraging its deep technological expertise, particularly in high-efficiency HVAC systems, advanced digital platforms, and integrated energy management solutions, to capture significant opportunities in data centers, electrification, and decarbonization.

Despite macroeconomic uncertainties and regional challenges, Carrier's disciplined operational execution, robust productivity initiatives, and strategic pricing actions are driving strong financial performance and margin expansion. The company's commitment to disciplined capital allocation, including substantial debt reduction and shareholder returns, further strengthens its investment profile. With the AFFF litigation largely resolved and a clear strategic roadmap for sustained organic growth, Carrier is well-positioned to capitalize on enduring secular tailwinds, making it a compelling investment in the evolving climate and energy landscape.