Better than expected commercial HVAC sales in the Americas and big growth in data center systems helped Carrier Global Corp. offset an expected, but significant, drop in residential HVAC systems, the company reported this week in releasing its third quarter earnings results.
“Our investments in [commercial HVAC] technology, know-how, capacity and talent are paying off,” Carrier Chairman and CEO David Gitlin said on the company’s earnings call Tuesday. “Not only has the total business more than doubled in five years, but also our applied business, aftermarket and controls have all doubled during this period.” Commercial HVAC sales grew 30% for the quarter, thanks in part to new products and expanded chiller capacity, the company said.
The drop in residential HVAC sales – 30% year over year for the quarter – is one of the biggest pressure points on revenue, the company said. “When people buy new homes, our experience is that usually 20% to 25% of the time, that results in a change to their HVAC system,” Gitlin said. “So, I think … the depressed new home construction, but also the sale of existing homes, has been a double hit to demand.”
Aggressive action
The company reported $5.6 billion in sales for the quarter, down 7% net year-over-year.
“We are taking aggressive cost actions to reduce overhead, including the elimination of about 3,000 indirect positions,” Gitlin said.
Many of the positions cut will be on the corporate side as the company leverages technology. “We have 20,000 Copilot licenses that are starting to cascade across carriers,” he said. We are “100% focused on structural cost takeout that comes out and stays out.”
As part of its commercial HVAC business, data centers have been a bright spot, growing 250% year over year and they’re expected to double in sales, to $1 billion, by year’s end, the company said.
“Our traction has been excellent,” Gitlin said. “Relationships with all the hyperscalers and our [colocation] customers are very strong. Our win rate and size of wins have continued to increase. For example, in addition to multi-hundred million dollar wins with hyperscalers, we recently secured a win with a [colocation] customer in the Americas exceeding $100 million.”
The company’s large-scale, customized applied business segment within commercial HVAC in the Americas grew 60% year over year, and its aftermarket and controls sales were also up, indicating growth in its commercial business isn’t overly reliant on data centers.
“We're doing very, very well in things like the mega projects, health care,” Gitlin said.
Tariffs haven’t been a big factor and are expected to be “net neutral” next year in part because the company made incremental price increases earlier this year to help it offset them, Patrick Goris, the company’s senior vice president and CFO, said on the call.
“We said [earlier this year] it would require about $300 million of incremental pricing,” Goris said. “We updated that back in July with some of the additional actions we were taking. The pricing requirement was … closer to $200 million this year to offset tariffs. That number has not changed. So, we're still in that $200 million range.”
Nor has the shutdown of the federal government been an issue beyond some impact in light commercial, which is down 4% for the quarter, as small businesses tighten their belts, Gitlin said.
“That business is weaker than we thought,” he said. “We thought 4Q would be flattish. We're now saying down about 15% … Even though rates seem to be coming down a bit for some of the small businesses, they've been a little bit limited on lending and credit.”
