Carrier Sees Residential HVAC Returning to Replacement Mode

Residential sales within CSA rose 9%, a sharp improvement from the 12% year-over-year decline reported in the first quarter. Light commercial sales increased 10%. The residential result also came in well ahead of Carrier’s Q1 forecast, which had called for Q2 sales to decline in the mid-teens. 

“Bottom line is that performance has been better than we expected,” said Dave Gitlin, chairman and CEO of Carrier. “We now expect the market to be around 7 million to 7.5 million units this year, largely stable versus last year.” 

Managing Inventory 

The company raised its full-year sales forecast for both CSA residential and light commercial to high-single-digit growth. Much of the expected second-half increase will reflect easier comparisons following the distributor destocking that weighed heavily on Carrier’s results last year. Gitlin said residential sales could rise approximately 20% during the second half, but about half of that increase would come from the absence of destocking. 

Gitlin pointed to healthier distributor inventories as one reason for his confidence in the rest of the year. Residential field inventory ended the second quarter about 25% below the prior year, while light commercial inventory was down approximately 20%. In addition, Carrier has been tracking incoming calls to dealers and distributors, which Gitlin said have been running higher than expected.  

Carrier also avoided product availability problems during a relatively strong start to the cooling season. “We knew we’d have a bit more inventory coming into the cooling season internally — not in our channel — because we kept the factories running,” said Gitlin. That extra inventory helped Carrier keep up with demand during a hot start to the cooling season, when cooling degree days increased about 4%. 

Stronger Outlook 

Although higher interest rates and consumer affordability concerns remain market headwinds, replacement demand appears to be strengthening.  

“We’re fundamentally a replacement business, and there’s only so long a customer can repair over replace,” said Gitlin. He added that while repair activity was unusually strong last year, that trend has become less pronounced. 

“Fundamentally, it feels to us like we’re getting back to basics, and it’s a replacement market,” he said. 

New construction is also providing more business than Carrier anticipated. Gitlin said housing construction may increase by the low single digits this year, compared with the company’s earlier expectation that it would be flat or slightly lower. Demand has been particularly strong in the Southeast and South, including Florida and Texas. 

“There’s a sense that people are just getting a little bit more comfortable being uncomfortable with higher mortgage rates,” said Gitlin. “At some point, there’s just too much pent-up demand for new home construction, because we have 4 or 5 million too few homes in the U.S. There’s pent-up demand for existing home sales to increase because they’ve been at 20-year lows. We think we’re just at a turning point where people are accepting the macros that have been little headwinds.” 

In light commercial, Carrier attributed the stronger outlook partly to major national account wins in retail. The company also reported better-than-expected demand from K-12 schools and the hospitality sector. Light commercial orders increased approximately 30% during the quarter. 

“We feel very good about where light commercial was in the first half and where we’ll be for the second half,” said Gitlin. “I think Q3 will be up mid-single-digits. Q4 will be up in the mid-teens, so we’ll end up high single-digits we expect for the full year.”

Price Pressures

Pricing remains a balancing act as Carrier tries to recover tariff-related costs without giving up market share. After tariffs were imposed, the company announced an approximately 8% residential list-price increase and expected to realize 6% to 7%. When the tariff rate later fell from 25% to between 10% and 15%, depending on steel content, Carrier pulled back on some of that increase. 

The company ultimately realized about 3% residential pricing in the second quarter. Gitlin said Carrier expects another percentage point or two in the second half, bringing the full-year residential price increase to roughly 4%. He added that the company expects to gain a “tiny bit of share,” while continuing to manage the tradeoff between price and market position. “It’s a balancing act that we always have to manage,” he said. 

Patrick Goris, executive vice president and chief financial and strategy officer at Carrier, said the timing of the company’s tariff-related price increases also created pressure during the quarter. Tariffs took effect in early April, but Carrier’s corresponding price increases did not begin until the end of the month.  

“As expected, during the second quarter, the impact of tariffs and pricing associated with tariffs was a net negative,” he said. “That was a headwind to our margins in the quarter.” 

He added that the increases were intended only to offset the added tariff costs, rather than improve margins. 

Data Centers 

Data centers remain a major growth market for Carrier, which raised its full-year sales outlook for the sector to about $2 billion. Gitlin said that would mark the second consecutive year in which Carrier has doubled its data center sales. 

“With our recent significant wins, our 2026 data center sales forecast is all in backlog, and we continue to partner with hyperscalers and colos to further strengthen our backlog for 2027 and beyond,” he said. 

To support that growth, Carrier is planning an additional U.S. commercial HVAC manufacturing facility, potentially in Texas or Alabama. Gitlin said the company’s existing facilities can support about $2.5 billion in annual data center sales, in part because Carrier repurposed an entire plant to produce both air-cooled and water-cooled chillers. Even so, he said that capacity is “clearly not enough to support the demand that we see for 2027, 2028, 2029 and beyond.” 

Demand shows little sign of slowing. Gitlin said data center customers are pressing Carrier to accelerate deliveries rather than delay them into 2027, so the challenge now is simply producing and delivering the equipment fast enough. 

“We’ve moved a lot of additional resources into supply chain, into supplier quality, into the quality in our own factories,” he said. “Our customers want the product.”