Carrier Global Corporation (CARR) Q3 2026 earnings review
Carrier raises its sales outlook, but costs cap its profit
Carrier's order boom finally turned into shipments across its heating and cooling businesses, but one-off items and costs clouded its profit. Underlying sales jumped 15% as Americas home cooling rebounded and data center orders quadrupled, lifting the order backlog past $8.5 billion. Chairman and chief executive David Gitlin raised the full-year sales outlook by about $900 million, yet a $3.1 billion write-down in Europe pushed bottom-line results into a loss.
| Sales from businesses owned a year ago | +15% -4% a year ago |
|---|---|
| Profit per share, excluding one-offs | $0.87 +30% from a year ago (includes $0.08 net tariff refund) |
| Backlog of unfilled orders | >$8.5B +60% from a year ago |
| Full-year sales outlook | Raised $900M profit outlook held at ~$3.5B |
⚖️ Verdict: ⚪ Neutral
The story is unchanged because booming revenue is not flowing through to the full-year profit plan. Shipments caught up with the order book and home cooling recovered, but third-quarter margins relied on a $130 million tariff refund to beat the company's target. Even with nearly $1 billion of extra sales in the full-year outlook, Carrier kept its operating profit target flat and trimmed the middle of its profit per share range, implying fourth-quarter margins will drop to 12% by our math.
The question now is whether the data center and commercial cooling boom will dilute profit margins as it scales. Either higher factory volumes and price increases will overcome tariff and raw material costs in 2027, or lower-margin commercial equipment and new factory overhead will cap earnings growth. Fourth-quarter operating margin and the initial 2027 profit outlook next quarter will settle it.
🐂 Bull Case
Orders and Backlog Now Turn Into Shipments
Carrier makes heating, air conditioning and refrigeration systems. For two quarters, its customer orders grew much faster than its revenue because factories took time to build the equipment. Chief executive David Gitlin said "record backlog levels give us confidence to sustain this momentum into 2027 and beyond." This quarter, shipments caught up as sales from businesses owned a year ago rose 15%.
- Total orders: up about 35% from a year ago, excluding sold businesses
- Commercial heating and cooling orders: up about 60%
- Data center orders: up about 300%
- Backlog of unfilled orders: over $8.5 billion, up 60% from a year ago and up from over $8.0 billion last quarter
The company also "Signed LTAs valued at multiple billions of dollars with minimum volume commitments" — long-term agreements with large data center customers that sit on top of the $8.5 billion backlog. While building new factories for this boom could leave Carrier with empty plants if data center construction slows, these guaranteed minimums help protect the investment.
What to watch: fourth-quarter underlying sales, which the full-year outlook puts at about 24% growth by our math. Hitting that mark would prove the factories can ship the data center backlog on schedule.
Short-Cycle Heating and Cooling Rebounded
Home and small-building heating and cooling systems — which ship quickly rather than sitting in a multi-quarter backlog — spent late 2025 in a slump as distributors cleared extra inventory. In the third quarter, Climate Solutions Americas (CSA), Carrier's largest division, grew underlying sales 25% to $3.35 billion, with home systems up over 30% and commercial systems up over 25%.
In Climate Solutions Europe (CSE), underlying sales rose 12% to $1.34 billion. Residential and Light Commercial (RLC), its home and small-business unit, grew in the low teens as heat pumps and air conditioners each jumped about 35%, outweighing a high-single-digit drop in gas boilers. Even against last year's weak third quarter, selling 35% more heat pumps shows customers are switching to electric heating.
What to watch: Americas home heating and cooling growth in the first half of 2027, once the easy comparison against last year's distributor inventory clearing ends. Growth above mid-single digits would show homeowner demand is rising on its own.
🐻 Bear Case
Tariff Refunds Carried the Margin Beat
Carrier reported an operating margin excluding one-offs of 17.4%, up 2.6 percentage points from a year ago. On the surface, cost of goods and services sold fell 0.9 percentage points of revenue to 73.1%, and selling, general and administrative overhead fell 2.3 points to 12.1%. The company said the margin gain was "predominantly due to favorable volume and price partially offset by the impact of increased input costs and tariffs".
- Tariff refunds in operating profit: about $130 million under the International Emergency Economic Powers Act (IEEPA)
- Operating margin without tariff refunds: 15.3% by our math, below the roughly 16.5% target set last quarter
- Americas segment margin without ~$120 million of refunds: 18.6% by our math, down from 19.7% a year ago
- Full-year profit per share outlook, excluding one-offs: $2.85 to $2.90, down from about $2.90 previously
This cuts against the upbeat headline because Carrier raised its full-year sales plan by about $900 million at the middle of the range, yet kept full-year operating profit excluding one-offs at roughly $3.5 billion and trimmed the profit per share midpoint. Raw material costs, tariffs and a shift toward commercial equipment are eating into the profit from the extra sales.
What to watch: fourth-quarter operating margin excluding one-offs, which the full-year outlook implies at 12.1% by our math. A result above 13% without one-time refunds would show pricing has caught up with tariff and material costs.
Europe Took a $3.1 Billion Write-Down
Carrier bought the German heating maker Viessmann to lead its European division, Climate Solutions Europe. This quarter, the company took a $3.1 billion non-cash write-down on the goodwill — the purchase premium on its balance sheet — of that European unit. That charge pushed total company GAAP operating results to a loss of $2.27 billion and a loss per share of $3.16.
Europe's segment operating margin rose 3.3 percentage points from a year ago to 12.6% as underlying sales grew 12%. However, the release notes that about 1 percentage point of that margin came from "the correction of a prior period item offset by increases in inventory-related reserves". Without that accounting fix, the margin was 11.6% by our math, and for the first nine months of 2026 Europe's margin sits at 8.9%, barely above last year's 8.7%.
What to watch: Europe's segment operating margin in the fourth quarter. Holding above 11% without prior-period adjustments would show that heat pump volume and cost cuts are finally lifting the division's earning power.
Asia Residential and Truck Markets Still Lag
Several standing concerns outside the Americas and European home markets remained weak or unread in the third-quarter release.
- Asia Pacific, Middle East and Africa (CSAME): underlying sales rose 3% to $848 million as a 10% gain in commercial equipment was held back by a mid-single-digit drop in home and small-building sales; a return to positive home sales in China would ease this drag.
- Climate Solutions Transportation (CST), which cools shipping containers and trucks: sales fell 3% to $726 million because "continued growth in Container was more than offset by Truck and Trailer", and its 16.1% margin only rose because of tariff refunds; positive truck and trailer orders would turn this around.
- Antitrust lawsuits and new factory details: the release gave no update on pending price-fixing lawsuits or the exact state chosen for the over $600 million U.S. factory investment; the quarterly 10-Q filing and conference call will carry those details.
What to watch: underlying sales in Transportation and Asia home cooling next quarter. Positive growth in either market would show the industrial and Asian real estate slumps are ending.
👓 Other Themes
Divestitures and Tariffs Shape the Year
Carrier closed the sale of its Riello heating business on July 1 and its NORESCO energy services unit on August 3, collecting $395 million in cash during the quarter. Those exits cut third-quarter reported sales growth by 3 percentage points and will trim full-year 2026 revenue by about $350 million ($225 million from Riello and $125 million from NORESCO), while management stays focused on "navigating industry-wide macro pressures, including tariffs and increasing input costs".
💲 Other KPIs
Free cash flow — operating cash left after capital spending — more than tripled from $224 million a year ago. Operating cash flow rose to $813 million from $341 million as higher customer payables offset a rise in unpaid customer bills, while capital spending rose to $139 million from $117 million. Nine-month free cash flow reached $1.47 billion.
Unpaid customer bills on the balance sheet rose 32.6% from $2,639 million at the end of December 2025, and grew 11.8% from $3,129 million in September 2025, matching the 12.3% rise in third-quarter reported sales. That build consumed $320 million of operating cash during the third quarter and $971 million over the first nine months.
The average number of shares fell 4.3% from 858.6 million a year ago, helping lift profit per share faster than net profit. Carrier spent $399 million buying back stock in the third quarter and $1.14 billion over the first nine months, down from $2.41 billion in the first nine months of 2025 as it directs more cash to factory building.
🔮 Guidance
Raised. The middle of the new range is $23.9 billion, up $900 million from last quarter's plan and up 9.9% from 2025 by our math. That leaves $5.95 billion of sales for the fourth quarter by our math, a 22.9% jump from a year ago despite a $350 million full-year drag from selling Riello and NORESCO. This is the second raise this year: +$0M, +$1,000M, +$900M.
Raised. The outlook moved up from mid-to-high single digits (5% to 9%) to roughly 10% growth. Because underlying sales grew 6% over the first nine months, the full-year target implies fourth-quarter underlying growth of about 24% by our math, compared with a 9% drop in the fourth quarter of 2025 when distributors were clearing inventory.
Unchanged. The plan still calls for about 6.3% growth over 2025's $3.29 billion by our math, even though sales were raised by $900 million. Subtracting the $2.78 billion earned in the first nine months leaves $720 million for the fourth quarter by our math — up 58% from a depressed year-ago quarter, but equal to a 12.1% operating margin, down from 17.4% in Q3.
Cut. Management narrowed the target to $2.85–$2.90, putting the middle of the range at $2.875 — 2.5 cents below last quarter's ~$2.90 target and up 11% from $2.59 in 2025 by our math. With $2.31 already earned in the first nine months, the plan leaves $0.54 to $0.59 for the fourth quarter by our math, down from the $0.72 implied three months ago.
Unchanged. The target has stayed at roughly $2 billion all year, down 5.7% from $2.12 billion in 2025 by our math as capital spending rises. With $1.47 billion generated in the first nine months, the plan requires about $531 million in the fourth quarter by our math, compared with $909 million in the fourth quarter of last year.
❓ Key Questions
Why did higher sales not lift the profit outlook?
Carrier raised its full-year revenue outlook by about $900 million and booked a $130 million tariff refund in Q3, yet kept full-year operating profit at ~$3.5 billion and trimmed the EPS midpoint. How much of the Q4 margin pressure is tariffs versus commercial product mix?
How big are the new data center volume commitments?
The company signed multi-billion-dollar long-term agreements with minimum volume commitments that sit outside the $8.5 billion backlog. Over how many years do those minimums run, and do they carry take-or-pay penalties if a customer delays a data center build?
Where is the $600 million U.S. factory going?
Management previously said it would choose between Texas and Alabama within a month or two and launch a 2.5-megawatt cooling unit in Q3. Which site was selected for the >$600 million U.S. investment announced alongside earnings, and is the Q1 2027 opening date intact?
What triggered the $3.1 billion Europe goodwill write-down?
Europe's underlying sales grew 12% and heat pump sales rose 35% in Q3, yet Carrier wrote off $3.1 billion of goodwill in the division. Which long-term growth or margin assumptions for Viessmann were lowered in the impairment test?