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 - In the CSA segment, organic sales declined 8%, with residential sales down 30% driven by a 40% decline in volume, while commercial sales were up 30% [17][18] - 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] - The CSD segment reported organic sales up 6%, led by strong growth in container sales [19] Market Data and Key Metrics Changes - Field inventories were down 12% year-over-year at the end of Q3, with expectations to decrease by 30% by year-end [8][14] - In Europe, residential heat pump sales were up about 15%, with Germany seeing a 45% increase [9][10] - The overall backlog for data centers is expected to end the year around $900 million, supporting growth into 2026 [70] Company Strategy and Development Direction - The company is focused on three vectors of growth: products, aftermarket, and systems, with significant progress in each area [5][6] - 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 aggressively managing costs [14][15] Management's Comments on Operating Environment and Future Outlook - Management acknowledged challenges in the residential market, particularly in North America, but expressed confidence in recovery due to strong positions in commercial HVAC and aftermarket businesses [14][15] - The company expects to end 2025 with destocking behind them, although the first half of 2026 may present difficult comparisons [22][23] - Management anticipates a low single-digit organic growth for 2026, with a focus on structural cost reductions and maintaining competitive pricing [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][15] - The company is leveraging AI and other technologies to improve operational efficiency and reduce structural costs [39] Q&A Session Summary Question: Can you unpack the inventory situation 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] Question: How does the inventory destocking impact pricing for 2026? - Management expects to announce a mid-single-digit price increase for 2026, with a yield in the low single-digit range [37] Question: What is the outlook for the RLC business in Europe? - Management noted that the German heating market is at historic lows but anticipates a recovery, particularly in heat pump sales [92][93] Question: How is the demand in non-data center verticals? - Non-data center demand in the commercial HVAC business was up in the low teens, while data center orders were significantly higher [50][51] Question: What are the expectations for the data center backlog? - Management confirmed a target of about $1 billion in revenue for the data center segment this year, with a backlog expected to be around $900 million [70][68]

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]