Financial Data and Key Metrics Changes - Reported sales for Q3 were $5.6 billion, with adjusted operating profit at $823 million and adjusted EPS at $0.67, reflecting a year-over-year decline primarily due to lower volumes in the CSA residential business [16][17] - Total company organic growth was down 4%, with adjusted operating profit down 21% and adjusted EPS down 13% [16][17] - Free cash flow was approximately $225 million, impacted by lower operating profit and higher working capital levels due to a sudden reduction in sales [17] Business Line Data and Key Metrics Changes - Organic sales in the CSA segment declined 8%, with residential sales down 30% driven by a 40% decline in volume, while commercial sales increased by 30% [17] - The CSE segment saw residential and light commercial sales down low single digits, while commercial sales declined mid-single digits [18] - The CSAME segment experienced a 2% decline in organic sales, with strong growth in India and the Middle East offset by weakness in China [18] - CSD organic sales were up 6%, led by strong growth in container sales, which increased by 100% [19] Market Data and Key Metrics Changes - In Europe, residential heat pump sales were up about 15%, with Germany seeing a 45% increase [9] - The overall market for heating units in Germany is at 15-year lows, indicating potential for recovery [10] - The company expects field inventory levels to decrease by 30% year-over-year, reaching the lowest levels since 2018 [8] Company Strategy and Development Direction - The company is focused on three vectors of growth: products, aftermarket, and systems, with significant progress reported in each area [5] - A new $5 billion share repurchase authorization was approved, reflecting confidence in the company's strategy and execution [5] - The company aims to maintain a balanced portfolio with leading positions in targeted geographies and verticals, while controlling costs aggressively [14][15] Management's Comments on Operating Environment and Future Outlook - Management acknowledged challenges in the North American residential market, projecting a $500 million sales challenge and a 20%-25% adjusted EPS headwind [4] - The company expects continued strong performance in commercial HVAC and aftermarket businesses, which together constitute nearly 45% of sales [14] - For 2026, management anticipates a low single-digit organic growth assumption, with a focus on cost actions and maintaining a clean slate in inventory levels [23] Other Important Information - The company is taking aggressive cost actions, including the elimination of about 3,000 indirect positions to right-size for demand [5] - Connectivity and digital differentiation are foundational to the company's strategy, with significant growth in connected chillers and digital platform subscriptions [6] Q&A Session Summary Question: Inventory levels and sell-through dynamics - Management indicated that consolidated inventories are up about $500 million, primarily due to a sudden decline in residential volume and purposeful increases for components replacement [26][28] - They expect inventory levels to start reducing and aim for a clean slate at the beginning of the next year [29][30] Question: Repair versus replace dynamics - Management noted that while parts sales are up, there is a trend of consumers opting for repairs over replacements, although quantifying this is challenging [31] Question: Pricing dynamics for 2026 - Management plans to announce a mid-single digit price increase for 2026, expecting to yield low single-digit results [37] Question: Structural cost reductions - Management confirmed that the focus is on structural cost reductions, not just short-term cuts, with a goal to maintain efficiency and avoid adding back eliminated positions [39] Question: Outlook for CSA residential business - Management expects CSA residential sales to be down high single digits, with a focus on managing inventory levels and anticipating a difficult compare in early 2026 [20][22] Question: Data center backlog and growth - Management confirmed a target of about $1 billion in revenue from the data center segment for the year, with a strong backlog expected to support growth into 2026 [66][70]

Financial Data and Key Metrics Changes - The company reported sales of $6.1 billion with 6% organic sales growth, benefiting from a foreign currency translation tailwind [18][19] - Adjusted operating profit for Q2 was $1.2 billion, a 10% increase year-over-year, with adjusted EPS rising 26% to $0.92 [19][20] - Free cash flow for the quarter was $568 million, stronger than expected, contributing to a total of approximately $1 billion in the first half [20][30] Business Line Data and Key Metrics Changes - The CSA segment achieved organic sales growth of 14%, with commercial sales excluding Nuresco up 45% [21] - The CSE segment saw flat organic sales growth, with residential and light commercial sales remaining about the same [22] - The CS Asia Pacific segment experienced a 4% decline in organic sales, primarily due to weakness in residential China [24] Market Data and Key Metrics Changes - Total company organic orders were down high teens, with North America residential orders down about 60% compared to a year ago [27] - The Americas had strong performance, particularly in commercial HVAC, with significant growth in India, Japan, and the Middle East [5][24] - The European market showed mixed results, with residential sales in Germany down but heat pump unit sales up over 50% [14][15] Company Strategy and Development Direction - The company aims for sustained organic growth of 6% to 8% by exceeding customer expectations through differentiated products and unique system solutions [6] - Focus on expanding the data center business, with expectations to double revenues to $1 billion this year [7] - The integration of RLC and commercial HVAC in Europe is expected to create sales and cost opportunities, leveraging each other's strengths [16] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving close to 20% adjusted EPS growth this year despite unforeseen headwinds [17] - The company anticipates a strong second half of the year, supported by a robust backlog in commercial orders [27][30] - Management noted that the residential market in North America is expected to face challenges, with volume down more than initially anticipated [42][44] Other Important Information - The company is on track for $3 billion in share buybacks this year [6][30] - Adjusted operating margins expanded by 130 basis points to 19.1%, driven by strong organic growth and productivity [19][12] - The company expects to maintain free cash flow between $2.4 billion and $2.6 billion, reflecting roughly 100% conversion [30] Q&A Session Summary Question: Insights on Europe and margin guidance - Management acknowledged mixed performance in Europe, with stronger results outside Germany and ongoing efforts to capture cost synergies [33][35] Question: Price capture beyond tariffs - The company indicated that total price capture was about two points for both the quarter and the full year, excluding mix benefits [38] Question: U.S. Residential and light commercial market dynamics - Management noted that volume in the second half is expected to decline by 20% to 25%, with a mix in price of 10% to 15% [42][44] Question: Transportation market outlook - Management highlighted a return to growth in North America truck and trailer, with expectations for continued recovery in the second half [128] Question: Update on services and aftermarket performance - Services were up 13% in the quarter, with expectations for continued double-digit growth [120] Question: Canister issue resolution - Management confirmed that the canister issue is no longer a problem, with proactive measures taken to ensure supply [74] Question: Non-data center business performance - Non-data center activity was up 20% in the quarter, with strong growth in applied business and service sectors [77]

Financial Data and Key Metrics Changes - The company reported sales of $5.2 billion with 2% organic sales growth, including about 2 points from price increases [15][16] - Adjusted EPS was $0.65, up 27% year over year, driven by strong productivity performance [17][18] - Free cash flow for the quarter was $420 million, stronger than expected, driven by higher net income and lower capital expenditures [18][19] Business Line Data and Key Metrics Changes - Climate Solutions Americas (CSA) segment had organic sales growth of 9%, with residential and commercial sales up around 20% each [19][20] - Climate Solutions Europe (CSE) saw organic sales down 7%, with mid-single-digit growth in commercial offset by a decline in residential light commercial [21] - Climate Solutions Asia, Middle East, and Africa (CS AME) experienced a 6% decline in organic sales, primarily due to weakness in residential China [23] - Transportation segment's organic sales were up 2%, driven by a 20% increase in container sales [24] Market Data and Key Metrics Changes - Total company backlog was up about 10% year over year and 15% sequentially [4] - Organic orders momentum continued, with high single-digit growth across most segments except CS AME, where orders were down [24] Company Strategy and Development Direction - The company is focused on driving sustained growth through differentiated products, aftermarket services, and systems [5][6] - A new partnership with Google was announced to enhance grid resilience and support smarter energy management [8] - The company is committed to mitigating tariff exposure through supply chain and productivity actions, with a balance of $300 million via price increases [12][13] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving mid-single-digit organic sales growth for the full year, with adjusted EPS guidance increased to $3 to $3.1 [13][28] - The macroeconomic environment remains uncertain, but the company is focused on customer needs and investing in differentiation [13][28] Other Important Information - The company is on track to achieve over $200 million in cost synergies by the end of next year [10] - The new German coalition government supports heat pump subsidies and infrastructure investments, which is expected to boost demand [11] Q&A Session Summary Question: Confirmation of Q2 guidance and EPS expectations - Management confirmed expectations of mid-single-digit organic growth and sales of about $6 billion for Q2, with adjusted EPS growth close to 20% [30][31] Question: Insights on the Americas segment performance - The residential side is expected to see high single-digit to low double-digit growth, while light commercial is projected to decline by about 10% for the full year [38][40] Question: Clarification on tariffs and pricing impact - The company has effectively mitigated most tariff impacts, with $300 million remaining to be offset through pricing [35][114] Question: Update on Viasman and margin expectations - Management expects Viasman to remain flat for the year, with margin improvement anticipated in the low teens [55][59] Question: Dynamics of free cash flow in the quarter - Free cash flow was stronger than typical for Q1, driven by lower working capital use [104][105] Question: Service business growth and initiatives - The service business is expected to continue double-digit growth, with initiatives to harmonize operations globally [106][110]

Financial Data and Key Metrics Changes - The company reported sales of $5.2 billion with 2% organic sales growth, including about 2 points from price increases [16][17] - Adjusted EPS was $0.65, up 27% year over year, driven by strong productivity performance [18] - Free cash flow for the quarter was $420 million, stronger than expected due to higher net income and lower capital expenditures [18][19] Business Line Data and Key Metrics Changes - The Climate Solutions Americas (CSA) segment had organic sales growth of 9%, with residential and commercial sales up around 20% each [19][20] - The Climate Solutions Europe (CSE) segment saw organic sales down 7%, with mid single-digit growth in commercial offset by a 10% decline in residential light commercial [21] - The Climate Solutions Asia, Middle East, and Africa (CS AME) segment experienced a 6% decline in organic sales, primarily due to weakness in residential China [23] - The Commercial Systems Transportation (CST) segment had organic sales up 2%, driven by a 20% increase in container sales [24] Market Data and Key Metrics Changes - Total company backlog was up about 10% year over year and 15% sequentially [6] - Organic orders momentum continued with high single-digit growth across most segments, except for CS AME [25] - In the Americas, organic sales growth is expected to pick up in the second quarter, with mid-teens growth anticipated [33] Company Strategy and Development Direction - The company is focused on driving sustained growth through differentiated products, aftermarket services, and systems integration [7][8] - A new partnership with Google aims to enhance grid resilience and support smarter energy management [10] - The company is committed to mitigating tariff exposure through supply chain and productivity actions, with a focus on maintaining competitive pricing [13][14] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving mid-single-digit organic sales growth for the full year, with strong margin expansion and close to 20% adjusted EPS growth anticipated [28] - The macroeconomic environment remains uncertain, but the company is focused on customer needs and investing in differentiation [15][14] - Management noted that the new German coalition government supports climate goals, which is expected to drive demand for heat pumps [12] Other Important Information - The company repurchased $1.3 billion worth of shares in the quarter and plans to target $3 billion in share repurchases for 2025 [19] - Adjusted operating profit increased by 10% compared to last year, driven by strong productivity and pricing [17] Q&A Session Summary Question: Confirmation of Q2 guidance and EPS - Management confirmed expectations of mid-single-digit organic growth and approximately $6 billion in sales for Q2, with adjusted EPS growth close to 20% [30][31] Question: Insights on the Americas segment performance - Management indicated that residential sales in the Americas are expected to be strong, with a potential increase in guidance for the full year [40][41] Question: Clarification on tariffs and pricing impact - Management stated that they have effectively mitigated most tariff impacts, with $300 million remaining to be offset through pricing [35][119] Question: Update on Viasman and margin expectations - Management expects Viasman to remain flat for the year, with margin improvements anticipated as the business integrates [58][63] Question: Discussion on commercial HVAC business growth - Management highlighted strong growth in the commercial HVAC sector, particularly in data centers, and noted that capacity increases have allowed for more aggressive sales efforts [66][123] Question: Inquiry about inventory levels and pre-buy effects - Management acknowledged elevated inventory levels but indicated that movement has been strong, with careful monitoring of distributor inventory [99][127]