Financial Data and Key Metrics Changes - Reported sales for Q3 2025 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 [16] Business Line Data and Key Metrics Changes - Organic sales in the CSA segment declined 8%, with residential sales down 30% due to a 40% decline in volume, while commercial sales increased by 30% [17] - CSE segment saw residential and light commercial sales down low single digits, while commercial declined mid-single digits [18] - CSAME segment organic sales declined 2%, with strong growth in India and the Middle East offset by weakness in China [18] - CSD segment organic sales were up 6%, led by strong growth in container sales [19] Market Data and Key Metrics Changes - In Europe, residential heat pump sales were up about 15%, with Germany seeing a 45% increase [9][10] - The overall market for heating units in Germany is at 15-year lows, indicating potential for recovery [10][11] - Commercial HVAC business in CSA has shown best-in-class performance, with expectations for continued growth driven by data centers [12][13] 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 [4][5] - A new $5 billion share repurchase authorization was approved, reflecting confidence in the company's strategy and execution [4] - The company aims to reduce overhead by eliminating about 3,000 indirect positions and is taking aggressive cost actions to right-size for demand [4][14] 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% to 25% adjusted EPS headwind [3] - The company expects to end 2025 with CSA residential destocking behind it, anticipating a difficult comparison in the first half of 2026 [23][24] - Management remains optimistic about the recovery of the CSA residential business and expects continued strong performance in commercial HVAC and aftermarket segments [13][24] Other Important Information - The company is implementing significant cost actions expected to yield over $100 million in carryover savings for 2026 [21] - Adjusted EPS for the full year is projected to be about $2.65, with free cash flow expected to be around $2 billion [22] 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][27] - They expect inventory levels to start reducing and aim for a 30% year-over-year decrease by year-end [29] Question: Pricing dynamics for 2026 - Management plans to announce a mid-single digit price increase for 2026, expecting to yield low single-digit range [34] Question: Structural cost reductions - The company is focused on structural cost reductions, targeting about 3,000 indirect positions, with a commitment to not add those back [35][36] Question: Outlook for CSA residential business - Management expects CSA residential volume to be flat to slightly up, with a focus on reducing inventory levels in the field [40][41] Question: Demand in non-data center verticals - Non-data center demand in commercial HVAC was up in the low teens, with mixed performance across various sectors [42][43] Question: Data center backlog and growth expectations - The company is on track to end the year with a backlog around $900 million, supporting growth expectations for 2026 [54][55]