Carrier Global Corporation

growth by delivering double-digit growth in global commercial HVAC and aftermarket, both for the fourth consecutive year, to help offset unexpected weakness in residential light commercial HVAC in Europe and China. Total company orders were up low teens, with HVAC America supplied up about 40%. Our global commercial HVAC backlog is up mid teens versus last year, positioning us for another year of double digit growth in 2025 in that business. For overall carrier, organic growth and strong productivity contributed to close to 100% core earnings conversion, 180 basis points of margin expansion, and 16% adjusted EPS growth. We delivered these strong results while we successfully completed our portfolio transformation. We integrated with Beesman Climate Solutions and executed on our divestitures, yielding over $10 billion in gross proceeds. And as committed, we paid down debt and returned to roughly 2x net leverage. We also returned over $2.6 billion to shareholders through dividends and share repurchases. Turning to slide three, I think of our year since spin in three phases. During our first phase, we built a foundation for a new carrier. We promoted and added key talent. We launched and have lived a new culture embedded in the carrier way that has given us tremendous energy and a focus on growth and innovation. We launched carrier excellence to drive operational execution, excellence, and productivity. We invested in our product portfolio and developed and implemented our aftermarket playbook to position us for sustained organic growth. We sold Chubb, added Toshiba, simplified the backed office, and paid down debt. 2023 and 2024 were defined by our mantra of performing while transforming. We sharpened our vision and successfully transformed our portfolio. We now have greater bandwidth to create even more value for our customers and thus our shareholders. Focus, simplification, differentiation, customers, win, grow. The new phase accelerating growth has begun, and there is tremendous energy within Carrier. As we navigated this transition, we have been purposefully increasing our addressable market and value proposition for our customers, as you can see on slide four. In 2020, we began to not only increase our investments in our product portfolio, we significantly increased our focus on digitally enabled lifecycle solutions. Aftermarket has increased our addressable market, contributed to margin expansion, all while creating greater customer stickiness and increasing recurring revenues. Now, in addition to driving differentiated products in aftermarket, we are introducing fully integrated systems, which further increase customer value across our three targeted ecosystems, homes, buildings, and the cold chain. For integrated systems in homes, we are significantly expanding and enhancing our European home energy management system offerings. And through a newly created business within Carrier called Carrier Energy, we are bringing similar offerings to the United States. For the U.S., we are actively working with utilities to provide an end-to-end integrated battery heat pump solution with automated controls to run the system using stored energy during peak hours, while recharging the system during the trough of energy grid usage. The interest from utilities and other customers has been very encouraging to address grid constraints and resiliency. Within building systems, one offering is our integrated cooling solution for data centers that we announced last week under the brand of Quantum Leap. By combining traditional cooling, liquid cooling, and our building and server management systems, we provide differentiated, more efficient solutions for our customers in this important and growing vertical. For cold chain solutions, we are transitioning from solely selling reefers to providing end-to-end systems enabled by our Lynx digital platform and Sensatech technologies. Selling complete, integrated systems provides us with a new and important opportunity for differentiation, customer value, and increased revenue streams. Slide five lays out our strategic focus areas and priorities for 2025. In addition to our growth initiatives that we just discussed, we also remain laser focused on margin expansion through carrier excellence while maintaining disciplined capital allocation. We deeply embed our priorities throughout our organization through a structured goal alignment process. Slide six shows how these priorities are reflected in our 2025 guidance. Given our strategic positioning, we expect organic growth of mid-single digits with our fifth consecutive year of double-digit growth in aftermarket and global commercial HVAC. We will continue to drive productivity and expect 100 basis points of year-over-year margin expansion. We expect adjusted EPS to be up 17% at the midpoint and about 100% free cash flow conversions. As we look ahead, we will continue to focus on execution with investment climate solutions, which we discuss on slide seven. Obviously, 2024 was well off what we expected coming into the year. Nevertheless, I am proud that the team controlled the controllables and drove share gains, significant cost synergies, and key new product introductions. The team also took the tough but necessary actions to significantly reduce both temporary and structural overhead costs positioning us for strong margin expansion as growth returns. Looking at our growth algorithm for 2025, given political and economic uncertainty in Europe, we assume that market volume will be flat to down mid single digits. In addition, we expect a five point full year revenue headwind associated with last year's Q1 backlog reduction, which normalized at the beginning of Q2 of last year. On the positive side, We expect continued positive mix with double digit growth in heat pumps, offsetting a modest decline in boilers. Similar to last year, we expect VCS aftermarket to grow double digits, and we also expect a point or so of price. New products introduced last year, including the 19 and 40 kilowatt heat pumps, will see a full year of sales in 2025. We are introducing a full lineup of cascadable heat pumps up to 560 kilowatts with natural refrigerants that we will be selling through the Wiesman Channel. As we think about revenue synergies, we are excited for the ISH trade show in Frankfurt in March, where we will showcase our new multi-brand products, such as our newly launched carrier branded air conditioning units that we will also be selling through the Wiesman Channel. We gained share in key European geographies last year and expect that to continue in 2025. And the team has been putting all the pieces together to significantly increase our complete home energy management system sales this year and beyond. We also remain confident in margin expansion and cost synergies. So all in, we expect a strong year across Carrier with accelerated organic growth, margin expansion, EPS growth, and strong free cash flow. With that, let me turn it over to Patrick. Patrick?

Thank you, Dave, and good morning, everyone. Please turn to slide eight. In short, Q4 earnings were ahead of our expectations in the guide we provided in October. Reported sales were $5.1 billion, with 6% organic sales growth, including about two points of price and four points of volume. We had a favorable 13% net impact from acquisitions and divestitures. Organic sales were in line with expectations, driven by continued strength in global commercial and North America residential HVAC, partially offset by weakness across residential light commercial HVAC in Europe and China. Q4 adjusted operating profit was up 65% compared to last year, driven by the contribution of Wiesman Climate Solutions, the benefit of organic growth and productivity. As a result, adjusted operating margin expanded by 370 basis points compared to last year. The absence of commercial refrigeration was about a half point tailwind to margin. Adjusted EPS of 54 cents was up 50% year over year. Operational performance was in line with our guide and we benefited from discrete tax items. Net interest expense was a bit light versus our guide, given the earlier close of the commercial and residential fire business. Free cash. and are now referred to both continuing and disc ops was an outflow of about 90 million in the quarter. Full year free cash flow of $30 million was about 200 million better than we guided. Having closed residential and commercial fire in early December, we picked up the pace on share repurchases and we ended 2024 with about $1.9 billion of share repurchases, about a billion dollar more than our October guide. Moving on to the segments, starting on slide nine. The HVAC segment had another strong quarter with organic sales growth of 11%. Organic sales in the Americas were up high teens. Within the Americas, commercial was up mid-teens, and light commercial was a little better than expected and down around 10%. In the fourth quarter of 2023, light commercial was up about 20%, so certainly a tough comp. Residential was up 35%, mostly driven by strong volume compared to a very weak Q4 last year, which was about minus 20%, as our channel was in destocking mode a year ago. On the last earnings call, we mentioned that we expected no material pre-buy in Q4. The actual pre-buy was in line with expectations and movement was stronger than expected. that is sales from our distributors to installers, has continued to be strong in January this year. Organic sales in EMEA were flat, driven by double-digit growth in commercial, offset by a decline in residential and light commercial HVAC, reflecting continued market weakness. Organic sales in Asia were slightly positive, driven by strength in Japan and South Asia, partially offset by declines, in our residential and light commercial business in China. The HVAC segment adjusted operating margins were up 250 basis points, driven by the benefit of organic growth and strong productivity. As you can see at the bottom of the slide, 2024 was another great year for our HVAC business with continued growth and margin expansion. Transitioning to refrigeration on slide 10. Q4 was the first quarter without commercial refrigeration given its exit on October 1. Overall results for this segment were as expected. Our global truck and trailer business was down around 10%, with North America down about 25% and Europe down low single digits, only partially offset by high single digit growth in Asia. Container was down low single digits. Our aftermarket and sensor tech businesses were both up mid single digits. Operating margin expanded by 160 basis points year over year. For the full year, this segment was down 1% organically with container up roughly 25%, mostly offset by declines in North America truck and trailer. Margins expanded 20 basis points. Turning to slide 11. Total company orders, total company organic orders were up low teens. Overall HVAC orders were up about 5% with continued strong orders growth in the Americas at about 10%. EMEA and Asia organic orders were down mid-single digits. In Asia, weak orders in China residential light commercial HVAC were partially offset by China commercial HVAC orders and strength in other countries. Globally, commercial HVAC orders were up about 10%. Refrigeration orders were up around 55% in the quarter, mostly as a result of very strong growth in North America truck trailer on an easy comp. Truck and trailer orders in Europe were up over 20% and Asia orders were up mid single digits. Overall, we entered 2025 with robust longer cycle backlogs in commercial HVAC and orders momentum in key businesses. Moving on to slide 12, and shifting to 2025 organic sales guidance. We expect mid single digit organic growth and reported sales of between $22.5 and $23 billion. This also includes a $750 million year-over-year headwind from the commercial refrigeration exit. We expect roughly one point of price and the remaining organic growth to come from volume and mix-up. We expect currency translation to be at about a point of headwind. The organic growth for bore segments is expected to be up mid-single digits for 2025. Within HVAC, we expect the Americas to be up high single digits, driven by continued double-digit growth in commercial, high single-digit growth in residential, driven by the new refrigerant mix-up, and low to mid-single-digit growth in light commercial. We expect Europe to be up low single digits with commercial up double digits and flat sales growth in residential and light commercial. David just walked you through our assumptions for flat sales growth in this market segment. Finally, within Asia, we expect low single digit sales growth with China sales flat and mid single digit growth outside of China. Within refrigeration, we expect global truck and trailer to be up mid single digits with North America truck trailer returning to growth in the second half of the year. We expect mid to high single digit growth in container and double digit growth in sensor tech. Moving on to slide 13, profit and cash guidance. Total company adjusted operating margin is expected to be up about 100 basis points compared to 2024, with half of the increase driven by volume price and net productivity partially offset by investments the absence of commercial refrigeration contributes 50 basis points of margin expansion core earnings conversion that is excluding the impact of acquisitions divestitures and effects is expected to be about 30 percent we estimate free cash flow to be about 2.4 to be between 2.4 and 2.6 billion dollars reflecting roughly 100 conversion with normal seasonality. Finally, we intend to repurchase about $3 billion in shares. Through last week, we repurchased about 900 million of shares so far this year. We estimate that average diluted share count for 2025 will be down about 5% from 2024. Moving to slide 14. We expect adjusted EPS between $2.95 and $3.05 up 17% at the midpoint. The building blocks are identical to what we shared with you on the last earnings call, except for currency. Adjusted EPS growth includes about 30 cents of operational performance, driven by volume leverage, price and net productivity, and about $45 million of corporate stranded cost elimination, partially offset by investments. We expect foreign currency translation to represent a headwind of about five pennies. As a result of debt pay down, we expect net interest expense to be a 5 to 10 cent tailwind. Finally, we expect a lower share count, partially offset by 22% tax rate and NCI, to provide another 10 to 15 pennies of EPS benefit. With respect to capital deployment, we'll pay down 1.2 billion worth of debt this quarter. The dividend per share increases by 18%. And as I mentioned earlier, share repurchase are expected to amount to $3 billion this year. As usual, additional guide items are in the appendix on slide 17. Finally, let me provide some additional color on the first quarter. We anticipate Q1 revenues to be about flat sequentially, a little more than $5 billion, with first quarter organic revenue growth flat to up low single digits. This reflects continued strength in global commercial HVAC and a tough comparison in Resulite commercial HVAC in Europe and China. We expect organic growth for refrigeration to be about flat. We expect about 100 basis points of margin expansion in Q1 and adjusted EPS to be between 55 and 60 cents. So overall, we ended 2024 on a strong note, and expect 2025 to be another year of strong financial performance. With that, we'll open it up for questions.

Thank you. If you'd like to ask a question, please press star 1-1. If your question has been answered and you'd like to remove yourself from the queue, please press star 1-1 again. Our first question comes from Jeffrey Sprague with Vertical Research. Your line is open.