CARR Q4 Deep Dive: Residential Weakness Offsets Data Center and Aftermarket Momentum

Heating, ventilation, air conditioning, and refrigeration company Carrier Global (NYSE:CARR) missed Wall Street’s revenue expectations in Q4 CY2025, with sales falling 6% year on year to $4.84 billion. Its non-GAAP profit of $0.34 per share was 4.5% below analysts’ consensus estimates.

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StockStory’s Take

Carrier Global’s fourth quarter results were shaped by persistent softness in its residential and light commercial heating and cooling markets, which management described as having "softened more than we expected in the second half of the year." CEO David Gitlin pointed to continued destocking and lower volumes, particularly in the Americas, as primary drivers behind the revenue decline. While commercial HVAC and aftermarket segments posted double-digit growth, these gains were not enough to offset broader market headwinds and unfavorable business mix, leading to a notable decline in company-wide margins.

Looking ahead, Carrier Global’s guidance reflects ongoing caution about slow recovery in its short-cycle residential and light commercial businesses. Management expects demand to remain muted until macroeconomic indicators such as mortgage rates and consumer confidence improve. Gitlin emphasized, “We have positioned ourselves for stronger growth when our short cycle markets recover,” but also acknowledged the company’s outlook assumes no significant change in market conditions for the coming year. Investments in data center technologies and aftermarket services are expected to remain key priorities, with targeted cost reductions set to deliver over $100 million of savings in 2026.

Key Insights from Management’s Remarks

Management attributed the quarter’s underperformance mainly to weakness in residential and light commercial markets, while highlighting wins in data centers and aftermarket services.

• Residential demand remains depressed: Carrier’s leadership noted that U.S. and European residential volumes fell sharply, with CEO David Gitlin citing channel destocking and persistent macro uncertainty as key factors. The company estimates the U.S. industry absorbed about 45% of excess inventory over the past year, but expects muted demand to continue until broader economic indicators improve.
• Data center business expansion: Carrier’s data center-focused HVAC solutions saw significant order growth, with fourth quarter orders in the Americas up more than five times year-on-year. Management highlighted recent product launches, including advanced chillers and liquid cooling units, and expects this segment to approach $1.5 billion in revenue next year, underscoring its role as a strategic growth driver.
• Aftermarket services resilience: The company’s aftermarket business achieved double-digit growth for the fifth consecutive year, with a notable increase in service contract attachment rates and coverage. Management believes modifications and upgrades, particularly in complex chillers, offer the highest growth potential for the coming years.
• Cost discipline and productivity: Carrier executed aggressive cost actions, including workforce reductions and operational streamlining, to offset tariffs and unfavorable business mix. CFO Patrick Goris stated that cost actions taken in 2025 are expected to deliver over $100 million of savings in 2026, partially mitigating ongoing headwinds.
• Geographic and segment disparities: While commercial HVAC and transportation segments delivered strong results, ongoing weakness persisted in China’s residential and light commercial markets, as well as in European heating. Management noted that localized strategies and product innovation are being deployed to address these varied market conditions.

Drivers of Future Performance

Carrier’s outlook is shaped by continued investment in data center growth, aftermarket services expansion, and cautious expectations for residential recovery.

• Data center and commercial HVAC growth: Management expects double-digit revenue increases in commercial HVAC and data center solutions, supported by recent capacity investments and product introductions. The pace of large project deliveries and backlog conversion, particularly in the second half of the year, will be critical to achieving these growth targets.
• Residential and light commercial headwinds: The company forecasts ongoing weakness in short-cycle businesses, with U.S. residential and light commercial demand likely to remain subdued due to high interest rates and low consumer confidence. The absence of further destocking is expected to provide some relief, but organic growth will be limited until macro conditions improve.
• Productivity and cost management: Ongoing productivity initiatives, including the use of artificial intelligence in operations and additional cost rationalization, are expected to partially offset inflationary pressures and unfavorable business mix. Carrier’s guidance assumes no major change in tariffs or input costs, but management stressed that execution on cost actions will be vital to maintaining margin stability.

Catalysts in Upcoming Quarters

In upcoming quarters, our team will monitor (1) the rate of recovery in Carrier’s residential and light commercial HVAC demand, particularly as the spring and summer seasons unfold; (2) the pace of data center order conversion into recognized revenue, especially in the Americas; and (3) the effectiveness of cost actions and operational streamlining in offsetting ongoing margin pressures. Progress in aftermarket service contract growth and market share shifts in commercial HVAC will also be key indicators.

Carrier Global currently trades at $62.37, down from $63.55 just before the earnings. Is the company at an inflection point that warrants a buy or sell? See for yourself in our full research report (it’s free).

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