Q4 2024 Summary
Published Feb 11, 2025, 5:15 PM UTC- Carrier expects data center sales to double from $0.5 billion last year to $1 billion this year, increasing from 10% to approximately 15% of total sales, indicating significant growth in a key vertical market.
- Residential HVAC sales were stronger than expected, up 35% in the quarter, and movements continue to be strong in January, suggesting robust demand in the residential HVAC market.
- Carrier is effectively mitigating tariff impacts, including those related to China and materials like steel and aluminum, demonstrating resilience against potential cost headwinds.
- Potential negative impact from new tariffs, particularly related to Mexico, which could be challenging to fully mitigate and may affect earnings. David Gitlin acknowledged that while the team is focused on mitigating potential tariffs, they do not have everything figured out if a 25% tariff is imposed on imports from Mexico. This uncertainty could impact the company's ability to hit earnings targets.
- Limited pricing power in certain segments and regions, such as refrigeration and Asia, which may pressure margins and profitability. The company expects pricing to be flat in the refrigeration segment and lighter in Asia due to market conditions, potentially affecting overall margins.
- Uncertainty in the German market due to policy changes and upcoming elections, which may negatively affect sales growth and margins in the Viessmann Climate Solutions business. The company highlighted concerns about the German market, noting that uncertainty has not been their friend and that upcoming elections could impact policy and subsidies affecting the VCS business.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
EPS | FY 2025 | Double-digit growth | $2.95 – $3.05 | raised |
Revenue | Q1 2025 | no prior guidance | about $5B | no prior guidance |
Adjusted Operating Margin | Q1 2025 | no prior guidance | +100 bps year-over-year | no prior guidance |
EPS | Q1 2025 | no prior guidance | $0.55 – $0.60 | no prior guidance |
Total Revenue | FY 2025 | no prior guidance | $22.5B – $23B | no prior guidance |
Organic Sales Growth | FY 2025 | no prior guidance | mid-single digits | no prior guidance |
Adjusted Operating Margin | FY 2025 | no prior guidance | +100 bps year-over-year | no prior guidance |
Free Cash Flow | FY 2025 | no prior guidance | $2.4B – $2.6B | no prior guidance |
Share Repurchases | FY 2025 | no prior guidance | $3B | no prior guidance |
HVAC Organic Growth | FY 2025 | no prior guidance | mid-single digits | no prior guidance |
Refrigeration Organic Growth | FY 2025 | no prior guidance | mid-single digits | no prior guidance |
VCS Revenue Growth | FY 2025 | no prior guidance | mid-single digits | no prior guidance |
VCS Margins | FY 2025 | no prior guidance | improving from low teens to mid-teens | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Full Year Sales | FY 2024 | $22.5B | $22.486B = 6,182+ 6,689+ 4,467+ 5,148 | Met |
Adjusted Operating Margin | FY 2024 | 15.5% | ~11.8% (Operating Income per Q1: 500, Q2: 3,691, Q3: -2,319, Q4: 774; Revenue per Q1: 6,182, Q2: 6,689, Q3: 4,467, Q4: 5,148) | Missed |
Adjusted EPS of Continuing Operations | FY 2024 | $2.50 | $6.16 total = Q1: 0.29+ Q2: 2.56+ Q3: 0.49+ Q4: 2.82 | Beat |
Organic Growth | Q4 2024 | Mid single digit | ~0.9% YoY = (5,148- 5,102) / 5,102 | Missed |
Adjusted EPS | Q4 2024 | A little less than $0.50 | 2.82 | Beat |
Operating Margin | Q4 2024 | Up ~300 bps YoY | Up ~310 bps YoY → (774/ 5,148) - (607/ 5,102) | Met |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Data center expansions and sales growth | Recognized as a major growth driver across previous quarters, with orders up 250%–300% and expectations to grow from 10% to 15% of total sales. Focus on aftermarket potential and liquid cooling solutions. | Expected to double from previous year, reaching $1B. Share of total sales rises from 10% to 15%. Emphasis on outsized growth potential in 2025 and aftermarket opportunities. | Consistent topic, sentiment remains very positive with continuing expansion and broader product offerings. Likely to have large future impact. |
Residential HVAC performance | Previously discussed with channel destocking in 2023, then strong rebounds in Q2 and Q3. Gains in Americas; weaker in EMEA and Asia. | Americas up 35% in Q4 vs. a weak Q4 2023; EMEA decline, Asia slightly positive. Expect high single-digit growth in 2025 for Americas, flat in EMEA, low single digits in Asia. | Recurring topic, shifting from destocking to robust recovery in the Americas. Sentiment is positive for the U.S., but mixed in EMEA/Asia. |
Light commercial HVAC trends | Historically mixed performance with K-12, retail, and healthcare as strong verticals, but weakness in office/warehouse. Improvement noted from down mid-single digits to up low single digits over prior periods. | Q4 2024 slightly better than expected, down around 10% vs. a tough prior-year comp. Forecast to be low to mid-single-digit growth in 2025, with 454B transition aiding pricing. | Topic recurs regularly. Sentiment improved from prior cautious outlook to a modestly positive stance. |
Viessmann Climate Solutions (VCS) integration | Emphasized as margin-dilutive in the short term, but with significant synergy potential (> $200M by year 3). Market in Europe slowed more than expected, impacting heat pump and solar sales. | Ended 2024 with EBITDA ROS in low teens, targeting mid-teens in 2025. Achieved $75M synergies in 2024, aiming for $150M in 2025. Strategically integrating engineering and product lines. | Continuing topic, improving sentiment as cost synergies ramp up. Still some near-term pressure but long-term positive outlook, especially in Europe’s electrification. |
Tariff exposure and mitigation strategies | No details in Q1–Q3 2024 calls. | Discussed in Q4 2024, with fully mitigated impacts for China/aluminum in 2025. Potential Mexico tariffs addressed via pricing and operational adjustments. | Newly mentioned in current period. Company remains confident in mitigation actions to preserve margins. |
Weakness in EMEA and Asia (China) residential & light commercial | Cited 持续 concerns and market softness in EMEA. China residential/light commercial often underperformed. | Q4 2024 continues to show weakness in EMEA residential/light commercial and declines in China, offset by strength in Japan and South Asia. | Consistent topic, sentiment remains cautious with no clear near-term turnaround. |
Margin expansion or margin pressure dynamics | Margins have generally expanded due to pricing and productivity; however, acquisitions (VCS) and material costs introduced headwinds. | Achieved 180 bps expansion in 2024 and targeting 100 bps more in 2025. VCS remains margin-dilutive but improving. Tariff impacts are mitigated. | Recurring topic, overall positive trend in margins despite integration costs. Continues to be a key performance measure going forward. |
Container business | Shown strong growth in some quarters (up 30-50%) offset by declines in NA truck & trailer. Noted cyclical fluctuations. | Down low single digits in Q4 overall, though up 25% for the full year, partially offset by weaker truck and trailer sales. | Recurring topic, sentiment is moderately positive but acknowledges cyclical ups and downs. |
Share repurchases and capital allocation | Prior quarters mentioned $1B share repurchase plan, ongoing debt paydown, and a focus on dividend growth. | Company repurchased $1.9B in shares in 2024, exceeding earlier guidance by $1B. Paid down $1.2B in debt and increased dividends by 18%. | Recurring topic with a positive shift in buyback size. Reflects ongoing commitment to shareholder returns and balance sheet strength. |
Adoption of new refrigerant units (454B) | Mentioned in Q1–Q3 as a multi-year transition with pricing ~10–20% higher than 410A. Adoption slow in 2024, but expected to increase sharply in 2025. | Transition in Q4: ~90% of volume shifts to 454B, with a 10% price premium. Full flush of 410A in Q1 2025. Confident in price realization and market share gains. | Recurring topic, sentiment remains very positive as a key pricing driver and technological shift. |
Uncertainty in the German market | Noted in earlier calls due to subsidy timing, political shifts, and solar PV weakness. Some signs of improved orders but still not definitive. | Emphasized continued political and economic unpredictability. Despite a recent surge in subsidy applications, January 2025 slowed. Focus on solutions independent of subsidies. | Recurring topic with cautiously optimistic sentiment. Potential for stronger demand if subsidies stabilize, but near-term remains uncertain. |
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Residential HVAC Demand
Q: How do you view residential HVAC demand and any prebuy effects?
A: Management acknowledged a modest prebuy effect of about $75 million to $100 million due to pull-ahead of 410A units into last year, but emphasized that underlying demand was strong with movement up 15% in the fourth quarter and similar in January. Inventory levels at distributors are slightly elevated, but movement of goods is good, suggesting most shipments reflect true demand. -
Refrigerant Transition Pricing Impact
Q: What price increase do you expect on 454B units?
A: They expect to realize about a 10% price increase on 454B units. With 80% of their volume impacted by the refrigerant transition, and 90% of that transitioning to 454B, the mix up alone is expected to contribute about 7% sales growth. -
European Market Outlook and Viessmann
Q: How confident are you in achieving flat growth in Europe given uncertainties?
A: Management believes the guidance is balanced but perhaps conservative due to economic and political uncertainties in Europe, especially Germany. They expect volume to be flat to down 5%, with the last of excess backlog normalizing in Q2, causing a headwind. However, they see growth drivers within their control, including double-digit heat pump growth, aftermarket synergies, and $100 million in revenue synergies, mostly in Europe. -
Tariff Impacts and Mitigation
Q: How are potential tariffs on Mexico and China factored into your outlook?
A: Management has embedded the known tariffs related to China and recent material tariffs into their guidance and expects to fully mitigate them. While potential tariffs on Mexico represent uncertainty, the team is focused on mitigating any impact through pricing actions and supply chain adjustments to ensure they hit their earnings targets. -
Americas Commercial Capacity Expansion
Q: How will increased capacity in Americas Commercial impact backlog conversion?
A: With the addition of new facilities and expansions, they can more than double output for North America. The new capacity allows them to significantly increase production and begin bidding out of backlog, positioning for great growth in commercial HVAC in North America. -
Data Center Growth
Q: What is the outlook for data center business growth?
A: Data center sales doubled to about $1 billion this year from $0.5 billion last year. They have won significant orders with hyperscalers and see an opportunity for outsized growth in data centers in the coming years. -
HVAC Margin Outlook
Q: What are the drivers behind the HVAC margin guidance?
A: The benefit of productivity, price, including the mix up from refrigerant transition, is expected to contribute about 150 basis points year-over-year. This will be offset by significant investments, resulting in net margin expansion of 50 to 75 basis points for HVAC in 2025. -
Aftermarket Progress
Q: Can you update us on the progress in aftermarket services?
A: Management is focused on driving double-digit aftermarket growth. They have nearly 50% attachment rate, up from 44%, with about 80,000 chillers under coverage and 45,000 connected chillers last year. -
Competitive Pricing Dynamics
Q: Are you concerned about competitors impacting your pricing with more aggressive strategies?
A: Management believes they will realize the 10% price increase on 454B units and feels confident about their pricing strategy sticking, despite uncertainties about competitor actions.