Carrier Global (CARR)

Heating, ventilation, air conditioning, and refrigeration company Carrier Global (NYSE:CARR) met Wall Street’s revenue expectations in Q3 CY2025, but sales fell by 6.8% year on year to $5.58 billion. The company’s full-year revenue guidance of $22.5 billion at the midpoint came in 1.4% above analysts’ estimates. Its non-GAAP profit of $0.67 per share was 17.7% above analysts’ consensus estimates.

Company Overview

Founded by the inventor of air conditioning, Carrier Global (NYSE:CARR) manufactures heating, ventilation, air conditioning, and refrigeration products.

Many HVAC and water systems companies sell essential, non-discretionary infrastructure for buildings. Since the useful lives of these water heaters and vents are fairly standard, these companies have a portion of predictable replacement revenue. In the last decade, trends in energy efficiency and clean water are driving innovation that is leading to incremental demand. On the other hand, new installations for these companies are at the whim of residential and commercial construction volumes, which tend to be cyclical and can be impacted heavily by economic factors such as interest rates.

Other companies offering HVAC or refrigeration solutions include Trane Technologies (NYSE:TT), Johnson Controls International, (NYSE:JCI), and Lennox International (NYSE:LII)

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Unfortunately, Carrier Global’s 4.9% annualized revenue growth over the last five years was tepid. This was below our standard for the industrials sector and is a poor baseline for our analysis.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Carrier Global’s annualized revenue growth of 5.7% over the last two years aligns with its five-year trend, suggesting its demand was consistently weak.

Carrier Global also reports organic revenue, which strips out one-time events like acquisitions and currency fluctuations that don’t accurately reflect its fundamentals. Over the last two years, Carrier Global’s organic revenue averaged 2% year-on-year growth. Because this number is lower than its two-year revenue growth, we can see that some mixture of acquisitions and foreign exchange rates boosted its headline results.

This quarter, Carrier Global reported a rather uninspiring 6.8% year-on-year revenue decline to $5.58 billion of revenue, in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 5.2% over the next 12 months, similar to its two-year rate. This projection doesn't excite us and indicates its newer products and services will not catalyze better top-line performance yet.

Carrier Global has bad unit economics for an industrials company, giving it less room to reinvest and develop new offerings. As you can see below, it averaged a 26.9% gross margin over the last five years. That means Carrier Global paid its suppliers a lot of money ($73.13 for every $100 in revenue) to run its business.

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.

Carrier Global has been an efficient company over the last five years. It was one of the more profitable businesses in the industrials sector, boasting an average operating margin of 14.7%. This result was particularly impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it’s a show of well-managed operations if they’re high when gross margins are low.

Analyzing the trend in its profitability, Carrier Global’s operating margin decreased by 4.2 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

This quarter, Carrier Global generated an operating margin profit margin of 9.7%, down 3.1 percentage points year on year. The contraction shows it was less efficient because its expenses increased relative to its revenue.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Carrier Global’s EPS grew at a solid 10.7% compounded annual growth rate over the last five years, higher than its 4.9% annualized revenue growth. However, this alone doesn’t tell us much about its business quality because its operating margin didn’t improve.

Diving into Carrier Global’s quality of earnings can give us a better understanding of its performance. A five-year view shows that Carrier Global has repurchased its stock, shrinking its share count by 2.6%. This tells us its EPS outperformed its revenue not because of increased operational efficiency but financial engineering, as buybacks boost per share earnings.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Carrier Global, its two-year annual EPS growth of 3.4% was lower than its five-year trend. We hope its growth can accelerate in the future.

In Q3, Carrier Global reported adjusted EPS of $0.67, down from $0.77 in the same quarter last year. Despite falling year on year, this print easily cleared analysts’ estimates. Over the next 12 months, Wall Street expects Carrier Global’s full-year EPS of $2.78 to grow 9.1%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Carrier Global has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 6.5% over the last five years, slightly better than the broader industrials sector.

Carrier Global’s free cash flow clocked in at $224 million in Q3, equivalent to a 4% margin. Its cash flow turned positive after being negative in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, causing temporary swings. Long-term trends carry greater meaning.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although Carrier Global hasn’t been the highest-quality company lately, it historically found a few growth initiatives that worked out well. Its five-year average ROIC was 16.3%, impressive for an industrials business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Carrier Global’s ROIC has unfortunately decreased significantly. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Carrier Global reported $1.42 billion of cash and $12.34 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $4.5 billion of EBITDA over the last 12 months, we view Carrier Global’s 2.4× net-debt-to-EBITDA ratio as safe. We also see its $351 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was good to see Carrier Global beat analysts’ EPS expectations this quarter. We were also glad its full-year revenue guidance slightly exceeded Wall Street’s estimates. On the other hand, its full-year revenue guidance was lowered and its full-year EPS guidance fell short of Wall Street’s estimates. The market seems willing to forgive the outlook and focus on the EPS beat in the quarter. The stock traded up 5.1% to $61.23 immediately following the results.

Updated: December 4, 2025 at 10:17 PM EST

When considering an investment in Carrier Global, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

Carrier Global doesn’t pass our quality test. To begin with, its revenue growth was uninspiring over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its strong operating margins show it’s a well-run business, the downside is its diminishing returns show management's prior bets haven't worked out. On top of that, its projected EPS for the next year is lacking.

Carrier Global’s P/E ratio based on the next 12 months is 19.4x. While this valuation is reasonable, we don’t see a big opportunity at the moment. There are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $72.44 on the company (compared to the current share price of $54.26).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.