Financial Data and Key Metrics Changes - Revenue for the third quarter declined by 5% due to soft residential and commercial end markets, despite growth initiatives and share gains [5][10] - Operating cash flow was $301 million, lower than the previous year due to elevated finished goods inventory levels [6] - Adjusted EPS reached a record of $6.98, marking a 4% year-over-year increase [6][10] - Full-year revenue is now expected to decline by 1%, down from a previous guidance of 3% growth [15][16] Business Line Data and Key Metrics Changes - Home Comfort Solutions (HCS) segment revenue declined by 12%, primarily due to a 23% drop in unit sales volumes [11] - Building Climate Solutions (BCS) segment saw a 10% revenue growth with profit margins expanding by 330 basis points, despite weak end markets [6][12] Market Data and Key Metrics Changes - The residential market is experiencing a significant decline, with total sales down about 10% in sell-through and 20% in sell-in [27][29] - The company anticipates that channel inventory will normalize by Q2 of next year, with destocking trends expected to continue into the first half of next year [46][100] Company Strategy and Development Direction - The company is focusing on four growth vectors: heat pump penetration, emergency replacement share gains, higher attachment rates for parts and services, and market expansion through joint ventures [7][8] - Recent acquisitions, including Durodyne and SUPCO, are expected to enhance the attachment rates for parts and accessories, contributing to growth in 2026 [8][15] Management's Comments on Operating Environment and Future Outlook - Management acknowledges the challenges posed by destocking, higher interest rates, and shifting consumer patterns but remains optimistic about a rebound in 2026 [18][19] - The company expects to gain market share through new product introductions and joint ventures, despite ongoing economic pressures [19][22] Other Important Information - The company has repurchased approximately $350 million in shares year-to-date, with $1 billion remaining under its current authorization [14] - Free cash flow guidance for the full year has been revised to approximately $550 million, down from previous estimates [13][16] Q&A Session Summary Question: Can you put the residential volume declines into perspective? - Total sales in Q3 saw a 10% decline in sell-through and a 20% decline in sell-in, with destocking occurring on both contractor and dealer sides [27][29] Question: What are the key assumptions for fourth quarter margins? - The primary factor affecting margins is the pullback on manufacturing to right-size inventory levels, leading to reduced absorption benefits [32] Question: When will inventory levels normalize? - Destocking is expected to continue into Q2 of next year, with contractors previously holding more inventory than anticipated [40][46] Question: What is the outlook for the emergency replacement market share? - The company sees significant growth potential in emergency replacement, with nearly 100% growth on a small base in the quarter [41] Question: How will pricing be approached moving into next year? - The company expects pricing to offset inflation, similar to past trends, with a focus on maintaining pricing discipline [57][58] Question: What is the expected impact of the Durodyne and SUPCO acquisition? - The acquisition is expected to contribute approximately $0.30 to $0.40 in accretion, with strong EBITDA margins before amortization [75] Question: How does the company view the repair versus replace dynamics? - The primary reason for the shift towards repair is the hesitance of contractors to sell new products due to canister shortages, rather than misaligned incentives [49][80]

Financial Data and Key Metrics Changes - Revenue for Q3 2025 declined by 5% due to weak residential and commercial end markets, despite growth initiatives [5][11] - Operating cash flow was $301 million, lower than the previous year due to elevated finished goods inventory levels [6][14] - Adjusted EPS reached a record of $6.98, marking a 4% year-over-year increase [6][11] - Full-year revenue outlook adjusted to a decline of 1%, with adjusted EPS expected in the range of $22.75 to $23.25 [7][17] Business Line Data and Key Metrics Changes - Home Comfort Solutions (HCS) segment revenue declined by 12%, with a 23% drop in unit sales volumes attributed to a weak summer selling season and inventory rebalancing [6][12] - Building Climate Solutions (BCS) segment saw a 10% revenue growth and a 330 basis point expansion in profit margins, driven by share gains in emergency replacement and business development in refrigeration [6][13] Market Data and Key Metrics Changes - The residential market faced significant challenges, with total sales down approximately 10% in sell-through and 20% in sell-in [25][26] - The company anticipates that channel inventory will normalize by Q2 2026, as contractors reduce excess inventory [34][39] Company Strategy and Development Direction - The company is focusing on four growth vectors: heat pump penetration, emergency replacement share gains, higher attachment rates for parts and services, and market expansion through joint ventures [7][9] - Recent acquisitions, including Durodyne and SUPCO, are expected to enhance the parts and accessories portfolio and provide cost synergies [8][9] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenging environment due to destocking, higher interest rates, and shifting consumer patterns but expressed confidence in a rebound in 2026 [19][20] - The company expects to gain market share through new product introductions and joint ventures, despite some anticipated headwinds [20][21] Other Important Information - Free cash flow guidance for 2025 revised to approximately $550 million, reflecting elevated inventory levels [14][17] - The company has repurchased approximately $350 million in shares year-to-date, with $1 billion remaining under the current authorization [14] Q&A Session Summary Question: Can you provide more context on residential volume declines? - Total sales in Q3 saw a 10% decline in sell-through and 20% in sell-in, with destocking occurring on both contractor and dealer sides [25][26] Question: What are the expectations for fourth quarter margins? - The primary factor for margin decline in Q4 is the pullback on manufacturing to right-size inventory levels [29] Question: When will inventory levels normalize? - Destocking is expected to continue into Q2 of next year, with contractors reducing excess inventory [34][39] Question: What is the outlook for the BCS segment? - Emergency replacement market share is expected to grow significantly, with nearly 100% growth observed in the quarter [35] Question: How will pricing be approached moving into next year? - The company expects pricing to offset inflation, similar to past trends, with a focus on maintaining pricing discipline [47][48] Question: What is the expected impact of the new commercial plant on productivity? - The new Saltillo plant is expected to deliver $10 million in productivity, contributing positively to the bottom line [91]