Carrier Global Corporation (CARR) Earnings Call Transcript & Summary

And again, we are very excited to have a Carrier Corporation with us today. We've got Dave Gitlin, who is the CEO of Carrier. We also have Mike Rednor, who is the VP of Investor Relations.

Dave, as I come over to you may be just the first question is like Carrier has been through a very significant amount of change, as you know, over the last several years since you've been CEO. Maybe talk about how you've been able to navigate this change? Where the portfolio is now? Are you happy with it? Are you where you envisioned being at this point?

We could not be happier with the portfolio. We find that a, we're focused, but we -- within that focus that balance because we know not every single vertical or geography within HVAC-R is going to be strong every year. But we like our exposure to, obviously, North America resi light commercial and commercial globally. We like our exposure to resi light commercial in Europe, which I'm very confident will continue -- will grow and will grow strong over time. We like our aftermarket piece. We like that we're expanding into the system. So we're very pleased with the portfolio.

Very nice. And then Dave, maybe just let's get it out of the way now. Any update on sort of near-term dynamics around orders. I know you reported very recently, but I think investors are going to watch Q1 U.S. resi orders, in particular, but also U.S. light commercial orders tend to be quite lumpy, as you know. And then there's a question always about how Viessmann orders are trending. So...

Yes. We look -- in resi, in particular, we're tracking movement because orders have swung quite a bit with a little bit of prebuy that we've talked about. So what really matters to us is, is the inventory moving from our distributors to our dealers. It was up above -- movement was up 15% in the fourth quarter or 15% or so in January, slowed a little bit in February, but we expected that because you're going to have a transition period where there's still some guys that are selling the 410A, we are going to be transitioning to the 454B. So during that switchover, movement may slow a tiny bit, but we still feel good about double-digit growth in the resi business in the first quarter. Light commercial we expected that to be down in the first quarter, and there's no change to that. And Viessmann is about where we thought. We knew that the first quarter was going to be our toughest of the year, down about 15%, but 10% to 15%. But again, that's versus our tough compare versus the first quarter of last year where we were still shipping a bit out of backlog. That starts to normalize and improve as we get into 2Q for Viessmann. So really no new news since the last week or so on 1Q or orders.

It's helpful, Dave. And then I have this question here about you have this accelerating growth in '25 and beyond. But since we do have 2 conferences down here, I get to react to sort of you already being this morning. So let me just ask it to you like this. I think you told Julian, you're incentivized for 26, right, to a number that's $3.60. Like how do you get there in terms of that, probably the best way to ask the question.

Yes, Julian did ask that with a special grant that a couple of us got. It was tied to a 3-year EPS. And he asked what was that number? And it's going to be in our proxy. So I just answered it, which is the midpoint of that incentive was $3.60 for next year. So that would have about an 18% 3-year CAGR. We were up about 16% last year. If we hit the midpoint of our guide of $3 this year, that's about 18% versus the $2.56 of last year. And then, of course, $3 to $3.60 would be 20% next year. We're not guiding to that. We're not saying that's what we're going to do. There's a lot of work to do between now and then. It's just the factual answer of that's how the Board thought about the investments we've made in our portfolio and the expectation that we deliver outsized EPS growth for our investors. So that's their rightful expectation of me, and we're going to drive very hard not to get there because of anyone's compensation, but to get there because that's what our shareholders deserve. And more to come on our '26 guide, but that's the answer to the specific question.

It's very helpful, David. But let me put it like this. If I think about your longer-term growth potential compared to the plus mid-single digits in '25, like how do you accelerate? What are the accelerators that are needed on top of that?

The way we think about -- we've said 6% to 8% is our expected annual growth rate. This year is mid-single digits. And we said that when we combine with Viessmann, it would be closer to 8%. When you look at our portfolio, there's a bunch that's growing high single digits all the way up to the mid-teens. And that's kind of in the 8% to 12% range, that part of the portfolio. We've had commercial aftermarket -- commercial -- the applied business, commercial HVAC has been up double digits, 4 years in a row, double digits this year, and we think that continues. Very strong, of course, data center is propelling a lot of that. Then we look at aftermarket, which we expect double digits from ourselves, resi up high single digits. So you take that preponderance of our portfolio in that range. It's been pulled down by a couple of acute issues that we've had in our resi business in Europe and in China. Those businesses last year were down 20%. This year, they're flattish. If we get them to where they ought to be in that 5% to 7% range, when they were down 20%, we ended up overall organic last year 3%. With them flattish, we end up mid-single digits. When they get into that 3%, 5%, 7% range, which they should be, we are confident in certainly European resi coming off some lows going into next year, that should start to grow. China should start to recover. As those even get into a modest mid-single digits, that brings the overall portfolio closer to that 8%.

It's helpful, Dave. And maybe just another related question. You have a slide, I think, either your earnings deck or pretty recently noting systems as a future growth driver, layering on top of your product in the aftermarket. So remind us what you mean by systems and when you think these offerings could start to ramp?

We're very excited about systems. First of all, from a differentiation perspective, from a TAM perspective, from a recurring revenue perspective that makes us less reliant on cycles. So when we think systems, you could think of it this way, I'll give you 3 examples. One is complete home energy management solutions in the United States where for a home, instead of selling a heat pump, we would sell a battery integrated with a heat pump. In Europe, it's the entire system for the home. It's solar PV, it's battery, it's heat pump, that whole digital overlay on top of it. And then with data centers, we launched something that we call QuantumLeap, which integrates traditional cooling with liquid cooling with the BMS, the building management system, plus our Nlyte business in the U.K. that does a lot of server management. So we're looking at telling our hyperscaler and colo customers, you worry about running the data center, let us worry about cooling it.

I got to ask, was it a Quantum Leap fan that named it or like...

No. They had a different name. And I didn't even know it's a TV show, but -- so I pushed for it and then apparently, a couple of people liked it. And then afterwards, they told me that was a TV show.

Right. So on to commercial HVAC. Orders were up 10% in Q4 globally, good underlying strength. We know data centers, and I want to talk about data centers more specifically in a second. But maybe talk about what verticals within commercial HVAC besides data centers are driving your growth momentum.

Yes. What's been good recently has continued to be good. So health care, aging population, so hospitals, walk-in clinic type things. If you look at semiconductor and fab, the chip business has been very good, including some of the megaprojects, K through 12 has been good, it's kind of switching from that federal ESSER funding to now state bond, about $76 billion that's going towards that. So we see the momentum that we've had on K through 12 continue, which cuts across light commercial and the commercial applied business and then higher end has been very strong. So what's been good has continued. Things move around. What's good in China can change relatively quickly. But those verticals I just mentioned have been pretty strong globally.

Dave, just you get the question, I get the question a lot about the ESSER spending. Like do you think higher ed can pick up the slack? Or is it they're just enough like whether it's bonds or whatever that are going to support K through 12. So you don't really see some sort of air pocket in education spend?

We don't see an air pocket in education. That's been one of our best verticals. Obviously, K through 12 on the heels of ESSER has been strong, but a lot of that transitioning to those state bonds that business -- that's been growing 20%. We think that continues at very high levels.

Excellent. And then just following up from data center vertical, you said $500 million in sales last year, $1 billion in '25. Extended growth. I mean, first of all, in terms of growth, I mean, that's a big jump. So talk about sort of how you've been able to do just capacity? Is that sort of new products, how should we think about the next few years in terms of the growth rate or where you can go in that business?

It's all of the above. I mean it is capacity, it is new product introduction. It is making sure that our customers have the confidence that we can support them through the life cycle. So it's been everything. And frankly, a lot of it's been focused. We put a dedicated team, cross-functional, purely focused on data centers and to see operations, engineering program office, finance, everyone engineer -- everyone come together to create solutions for our customers. I would tell you that if we were to be self-critical, I would say we were a little bit late to the party. If we were to be a little bit self-complementary, we'd say we came in guns a-blazing. So we've taken some really nice share with the hyperscalers. We are going aggressively after the colos. If you think about capacity in North America for just water cooled chillers, we will have had a 4x increase in our capacity in North America between 2024 and 2026. And that's just to keep up with demand. We're not only building the pipeline for '26, we're building some of the pipeline for '27. So -- and I have to tell you that our engineering team has done a phenomenal job building out the product portfolio and making sure that we win with the hyperscalers engineering teams and their purchasing teams and their program teams. So I would say we're in very early days. The $0.5 billion to $1 billion, we feel very confident in, it wouldn't surprise you that we're pushing our team for more than that. And then our orders, it's all about -- if you fast forward to 2029, we think the cooling market is $20 billion. And we think we should get certainly more than our fair share of that.

Dave, we started talking about QuantumLeap a little bit. How does that help you in this? And again, to your point, you've "caught up very quickly" right? But the fear that some of us would have is you do that somewhat in price. So talk about sort of is this margin accretive business? Have you been able to do it without sort of jamming on price?

Yes. I can assure you and our investors, Andy, that we have not done this through undercutting anyone on price.

Good.

So we're very pleased with the margin levels on the OE side. What really matters to our customers is ensuring that the product is reliable and they get what they need when they need it and then we can support it. As long as we do those things, we both want to be very reasonable on the commercial aspects which we -- I think we all have been. We started really focused on the hyperscalers. We've had some tremendous progress with them. In addition to more capacity to win more with the hyperscalers, we are going now much more aggressively at their colos, which -- there are some, in many cases, some slight technology differences, which we have. There's go-to-market differences. So for example, China, you may hit some more triples and home runs in the United States. China may be more singles because it is much more distributed with the data centers. So we need to address the playing field as it presents itself to us. But the QuantumLeap thing is very exciting because we believe system solutions offers a bit of differentiation where we can provide, of course, traditional cooling, chillers and air handlers, we can also provide liquid cooling. We've developed our own CDU internally. We've also invested in some start-ups that do direct-to-chip like STL. And yesterday, we announced our investment in ZutaCore, which comes with a Board seat. We do the BMS and then we do the Nlyte with our U.K. business. We believe that is differentiating.

I'm just curious, like it's tempting to just say the U.S. market is where you'd be stronger. But I guess your view on data center orders more U.S., you mentioned China singles, doubles. What about Europe? Like how is the playing field just geographically?

Well, if you start with our position in commercial HVAC globally, we're very strong in Europe and Asia. We have less share in North America. The bigger opportunity is in North America right now. So call it, 60% to 70% of the market is in North America for data centers. But we think given the order book that we've been building, I think we had outsized orders versus peers last year. Certainly on a percentage basis, not necessarily absolute because a couple of our peers are bigger in North America, but we feel very positioned to outgrow on a percentage basis in North America and globally.

Interesting. And then service tail, I know you're very focused on aftermarket. Are these types of projects better at service, the same? Like how do you think about that?

I think it's going to change the way we, as a company, think about supporting our customers in the aftermarket because if you're typically thinking about Chicago with many buildings that have 1 to 3 chillers, now you have a single data center that could have 200. So how you think about on-site support, how you think about parts, where you locate those parts? How you think about technicians, monitoring, diagnostics, remote prognostics the entire situation -- the entire approach to supporting a single data center can now be the approach we use to supporting Chicago. So how we get much more sophisticated on what parts we stock, where we stock them, how many technicians we have, how much we do with controls and monitoring of equipment. I think it's going to be transformational for us as a company. And look, we're building the pipeline now for OE growth on the data center side. Three years, we're going to be talking, I think, about material numbers certainly on the aftermarket side.

It's very exciting. So Dave, maybe I asked you about geography for data centers, but let me step back and ask you just in general for commercial HVAC, right? U.S. obviously strong. North America is good strong. Europe maybe seems like it was plus 5% in terms of orders and then it was flattish in Q4. So how are you thinking about commercial HVAC demand in Europe in general?

We feel good about it. I think, again, it does come back to data centers. I mean we're very well positioned for data center growth in Europe. And I have to tell you, we actually reviewed it a few days ago, I'm very pleased with the orders growth. One of the things the team is trying to figure out is, can we pull some of the orders we've been building for '26 into '25. But we expect for commercial HVAC, all 3 regions to grow double digits this year.

Very helpful. So I want to go back to NAM resi for a second. You talked about orders this quarter already. One thing you said on the call was that sales from distributors and dealers were a tailwind in Q4. But you said don't have perfection vision in dealer channel, which I totally understand. So I often get the question of, first of all, how do you get visibility, how do you guys do it? And then given rates are high, all that kind of stuff, what's causing sort of end demand to still kind of hang in there?

Well, one of the ways we get visibility into dealer stocking levels is through our distributors and listening to Watsco's call the other day, they said they don't see inventory levels anywhere -- any higher than usual in the dealer channel. So that is reassuring. Obviously, we have some relationships with the dealer channel. But to see our biggest partner and distributor in the U.S. say they don't see any elevated inventory levels in the dealer channel is certainly encouraging. Look, we've gotten a lot of questions about resi and prebuy. Last year, we gained about 100 bps of share. We had some good wins, certainly in multifamily, which was some nice wins as we got into 4Q. And we were very judicious. If you think about the 410 units that we built, we had to make a decision in the August time frame, how many we were going to build. Then we were trying to work with our distributors to figure how much were we going to ship in 4Q and how much were we going to ship in 1Q. And we didn't want to ship any more in 4Q then we absolutely needed to. So we were watching movement from our distributors to our dealers. We were watching inventory levels. We ended up kind of in balance, maybe a tiny bit higher than where we ended the previous year. So we were very careful not to preship. If you look -- if you kind of smooth the years, '22, '23, '24 in resi, and you were to say kind of normalize that because there was a pull from '23 into '22, maybe a little bit of pull from '25 into '24, you just smooth that. This year is up low single digits on a volume basis. So nothing extreme. We said high single digits for this year. And we feel very balanced around those numbers.

That's helpful. And so let's go to Europe resi for a second. You laid out a very specific road map for how you think Viessmann can drive market out growth in '25. Maybe how VCS can augment Carrier's offerings, capabilities across the channel. But can you talk about your views of Viessmann's potential growth profile for a multiyear period. I think when you bought it, you thought of it as a double-digit growth business, ability to achieve high teens margins. So maybe step back and tell us where you think it is now.

Yes. If you look at the growth algorithm that we laid out in our earnings call, let me skip past the first bar we had in there. And you go to the other bars, we had 3 to 4 points of mix. That's just mixing from boilers to heat pumps, which we price about 4x higher. Then you get a point or so of price. This year, we expect 1 point. Frankly, we're driving to a little bit more than that, but we said 1 point of price, a point or 2 of aftermarket and then 4 to 5 points from a host of controllables, things like revenue synergies, share gains, new product introductions and now this new frontier, which I just mentioned, the system level selling. If you add all those numbers up, the first -- the question, if you assume we can go drive those numbers, which we have confidence we can, what's the first bar? What's the market? Now we said that, that first bar could be down about 10% this year because market flat to down 5%, and then we have the last bit of hangover from a bit of shipment in the first quarter of last year out of kind of an increased backlog. If that first bar becomes kind of market growing 2% to 3%, which is very modest. Now you add those all up, you're back to our original algorithm, which would be in that 10% range. So what we've -- if you look at the volume -- total unit volume in Germany, last year was down close to 50%. So that gets you to about 720,000 units that includes boilers and heat pumps for Germany last year. We've tried to kind of derisk this year by saying it's going to be down another 8%, which gets you to like 665,000 units. Now you're at numbers for Germany that go back to the financial crisis. You're in the 2010, 2011 range. And what happened during that 2007 to 2010 range was market was up a little bit before, came down to historic lows, which is what we're seeing like now. And then they've been -- if you look at the CAGR since then, it has been growing low to mid-single digits. So if we take our medicine last year, take our medicine this year with the market being a little bit sketchy. But then after you start to grow just base volume 2% to 5%, which is very modest expectation and all those other bars come together, it does get you into that 10% range.

Just without getting too much in the weeds, how much do you -- I think care is the wrong word. I know you care like France, Italy, these other places, how do you sort of factor that into the equation?

On a personal level or from a business perspective?

Personally, it's a great place to come...

No, I care about France. We -- I'll tell you that we're about -- if you look at BCS, about 50% of its sales are Germany, 50% everywhere else, and it's kind of spread out. There's a bit of bumpiness right now in both France and Poland because for short term, they suspended some of the subsidies. We think as those come back, hopefully, this summer, we should see a bit of tailwind there. Italy is always a little bit up and down. One of the biggest factors of growth has been U.K., which we feel very, very good about growth there. And then you have different -- I think Belgium starts to recover a bit. So we do -- we have a great leader that leads all of our business outside of Germany, doing a great job, and we feel good about our positioning in those countries. And we see potential for big market share gains in some of those countries.

And you've been very focused on the cost side, Dave, of Viessmann. So maybe talk about the journey to get to high teens margins. Can you do that on lower volume compared to what you thought when you bought it?

Oh, 100%. I mean the -- first of all, they have great gross margins. Some of the best gross margins in our portfolio. The -- we ended last year, low teens from an EBITDA ROS. We said we'll grow 200 basis points this year to the mid-teens. We fully expect to get to that high teens part of it. Thomas and the team took the tough but the right actions last year to take a bunch of fixed costs out. So as we start to see volume recover, we feel very good about the margin expansion, including cost synergies, which last year $75 million, another $75 million or so this year. So we'll get north of a couple of hundred million of cost synergies by the end of next year.

Great. So let me ask you a couple of questions about light commercial again, and then I'll open it up to the audience. I know you're predicting a flat market with pricing mix up from 454B that gets you to low to mid-single-digit revenue growth. I'll ask this question slowly so you can take a drink of water, but when you step back how do you get a read on this business? Because it feels lumpy, maybe even lumpier than resi, but yet it's held up extremely well. So how do you guys get a good read on this business?

We really -- we track -- first of all, our positioning has been very strong. We've had new product introductions. We have a team that every time people think that light commercial finally take its medicine, it always outperforms. So we went through a number of really good years, taking a lot of share, very high-margin business. We came into last year saying we'd be down low mid -- down mid-single digits, we ended up low single digits. We said this year, low to mid, up for light commercial. I think the first quarter will be a little bit bumpy. We've said that it will be down a bit. But we look at are we winning with some of our scale customers. We've had some great wins there. We do look at some of the key verticals, for example, I think others have been struggling with warehouse. We've seen some great wins in warehouse. So that's grown. K through 12 cuts across both light commercial and commercial. Some of the retail has been quite good for us recently. So I think our guide of low to mid is right in the ballpark. We'll see. I think if those verticals hang in there, we have the product, we have the differentiation, and we have the team and some key national accounts.

Dave, I'm just curious, a follow-up like warehouse, you mentioned key wins, but it seems like it's turning when I talked to Honeywell or Rockwell or whatever the play in this space. So how do I think about it for you guys? And you've mentioned commercial real estate also being sort of weak. I assume that's not turning.

No, commercial state -- commercial real estate has been bad, and it looks like it's continuing to be very slow. ABI came out with continued low numbers. So I'll tell you, we don't -- we do not see any kind of near-term inflection point on commercial real estate. The good news is we're not overly exposed to that, but that is an unfortunate weak area for us, I think, in the market. Warehouse has turned. We went through a couple of years -- we went through a period where warehouse was extremely strong, then it got much softer I would say, over the last 12 months, I think it's turned a little bit for the overall market. I think we've gotten a little bit of outsized growth in that space.

Any questions from the audience? Anyone has a question? Over there.

So 2 questions, just broadly on the topic of tariffs. I'm sure that's been beaten down so much. But with the Mexico tariffs, how do you guys think about your positioning versus your competitors? And then two, with Viessmann heat pump subsidies in Germany, the German elections are this weekend, and there's a lot of focus on defense spending. So there might be some movements around the budget. So how do you guys think about that or have you heard anything from your counterparts in Germany?

Sure. Thanks for the question. Let me hit tariffs first. For tariffs, we watch Mexico. We feel like we are okay when it comes to China, Europe, both reciprocal ways, both shipments from Europe to the United States. And then if there is some response from Europe, shipments from the United States to Europe are very low. So raw material, steel and aluminum, we feel protected on. So the one that we do watch is Mexico. Our entire industry buys a lot from Mexico. There are some that may have more assembly and test in Mexico. But typically, in our world, 80% of your cost of goods sold is in that range is typically things you buy. And whether or not some have more assembly and test in the United States than others, many of us buy a lot of our engineered items and other parts from Mexico. So I think it affects all of us. It's something that we watch. We have a 3-pronged approach, kind of a war room approach that the minute they hit, we're ready to launch. One is we have no choice but to do pricing. Two, is we have no choice, but to work with our suppliers to make sure that we don't get caught in the middle that we all have to kind of participate in dealing with the tariffs. So we have about 40 suppliers that make up about 80% of our spend. So we would work directly with them. Part of the rationale with our suppliers is the peso would devalue, we pay in U.S. dollars. So we would reduce the price. We have no choice, reduce the price that we pay our suppliers. And then our goal is that our expectation for ourselves is we deliver that -- the midpoint of that $3 per share to our shareholders no matter what comes our way. So we would go to great lengths to do that. And the third way we would do is taking cost out somewhere in the system. So I don't want to pretend that 25% in Mexico would not be painful because it would. But I will tell you that we have a very thoughtful strategy as a team to go address it head on. Our expectation is it's not. So we're hoping and expecting that it doesn't end up at that point, but we're preparing for the worst in case it does. When it comes to Germany, we're really not in the business of projecting elections, but it does look like the Christian Democrats would win, Merz would win. And we don't know what he would do in terms of subsidies. The subsidies today are in the 40% to 70% range. If you look at where we play, to get up to 70% is usually for the lower income folks, and that is not the folks typically buying Viessmann. We're a premium brand. So the typical people that get the subsidy for a Viessmann brand is in that 40% to 50% range. If Merz were to lower the subsidy to something like 30% to 50% in that range, we really wouldn't see much of a difference. But we truthfully don't know what -- if there is a new administration, what that new administration will do. We want to work very closely with them to find solutions that are good for the homeowner. You are going to hear us talking more and more about system sales. I mentioned it to Andy a little bit earlier on. But if you think about the -- from a homeowner's perspective, you could buy a $10,000 boiler and now you have a fossil home or you could get an entire system financed, solar PV, heat pump, battery, all the other digital systems that come with it and the delta between what you pay for your financing costs and the annual savings you get on your energy bill could be $1,000, $4,000 versus $3,000. So by spending $1,000 a year is about what you would spend upfront for a boiler. And at the end of those 10 years, you now own PV, battery, heat pump and your house is worth a heck of a lot more because you have a nonfossil home and you're not reliant on German elections, you're not reliant on subsidies as much and you're not tracking necessarily electricity to gas ratios because you've removed yourself a bit from the grid. So you're going to hear us -- we're in the first inning on this. We're one of the few that have the ability to do the entire system. We have relationships with banks to do the financing, but we're going to put a lot more energy into this.

Any other questions? Okay. So I want to ask you a related question, Dave. Just around overall margin guidance and your execution. You're talking about 100 basis points of operating margin expansion in HVAC is 50 to 75 basis points and refrigeration is 350 basis points. But this is really the first year that Carrier has transformed, right? So you've talked a lot about focusing on productivity, higher aftermarket growth. How much more effective can you be in terms of productivity or aftermarket growth on a kind of trim down business, if you may. And let's say that growth is a little slower or tariffs is a little worse, how much can you lean into your initiatives to still hit your targets?

Well, if I may, let me hit aftermarket and productivity, and Mike, maybe you could comment a little bit on the margin side. Aftermarket, it does feel like a pretty aggressive thing to say double digit forever, which feels like a long time, but we feel very confident that our ability to drive double-digit growth as far as the eye can see is very good because we're starting from such a low point. We have so many customers that go around us buying parts from our suppliers. That's just not okay. And we -- as we drive attachment rates higher than 50%, we stop the leakage, which is not acceptable that people going around us not buying parts directly from us. We put in place all of our systems being fully connected. We put in place our tiered agreements and drive -- work with our customers to end up at higher tier lead agreements. We're in the very early phases of what's an aftermarket transformation. So we -- we feel like it's not aspirational. I feel it's almost disappointing to end up at 10%. We drive ourselves internally to more than that. So I feel still a lot of progress. It's nice that we've grown aftermarket double digits over the last 4 or 5 years. But I will tell you that we are in early phases on that. And it comes with more recurring revenues, more sticky revenues with our customers and about 10 basis points of higher margin. Productivity, Adrian Button and our operations team have put in place a really impressive flywheel where we use our operating system, Carrier Excellence, which has become part of our DNA. We now have one digital tool, one source of the truth. We can sort it by direct versus indirect. With indirect, we can sort it by commodity, by supplier. And we used to come into the year, let's say, we gave -- we target 2% to 3% gross productivity. We come in, let's say, the number is $500 million, just for discussion purposes. We would come in with $100 million that's basically in the bag. We're now coming in with $400 million. So the ability to not only drive in-year productivity, but to drive initiatives that set up the following year has been very transformational for us, and that's going to continue.

Maybe just to add on the margin -- in addition to productivity, we called out we're going to get some price in 2025. So we called that about 1 point. Now as you have price productivity, those are good tailwinds offsetting that, we're still investing in the business. You heard Dave earlier talk about a lot of what we're doing on the system side. So we continue to invest in that. And we have our, what I'd say, is normal inflation increases on things like SG&A. So those are kind of your offsets. But all in, good year in '24 on margin expansion, expect another good year in 2025.

Thanks for that, Mike. And then Dave, on refrigeration, there's some moving pieces here. You're guiding to a weaker first half, stronger second half. You did have orders in truck and trailer up 80%, 85% in each of last 2 quarters. So like maybe talk about the visibility to that second half rebound or the puts and takes overall in refrigeration.

It is the only problem like when orders are sometimes incredibly negative, I tell people not to overreact. When they're incredibly positive, I tell people not to overreact. Because you don't know what the -- not you -- we don't know what the base is, we don't know what happened, like what weird has happened the year before. What we're looking at what is our plan, what is our coverage for that demand? And how is our -- how are the underlying characteristics of the business going to drive the growth we need. We think 1Q in North -- North American truck trailer is probably our best margin business, not probably, it is our best margin business within our refrigeration business. And Ed Dryden and the team are setting ourselves up for growth as we get into 2Q and beyond. I think that if we look at some of the underlying fundamentals of that business, they do lend themselves to growth as we start getting in the second half when we work with our dealers on utilization rate, freight rates. So we are feeling good about a second half recovery. I think ACT would talk about a 5% to 10% type growth for the market. We've consistently gained share in that space. So we feel good about that recovering. Asia truck trailer has been strong, will continue to be strong. And then we see a little bit of growth in Europe as well.

You mentioned Asia, so let me just ask you about Asia HVAC, you're expecting flattish organic in China, mid-single digits elsewhere. Given that China has already had a little bit lower growth, how are you thinking about the longer-term opportunities in China and Greater Asia?

Well, I think, first of all, Southeast Asia has been double digits. That's been -- when we think about places like Thailand, India, we've seen very strong growth there. We think Australia is going to provide some growth. And then we look at even places Malaysia, Vietnam. So we feel very good about Asia. In fact, yesterday, we announced a new leader for our Asia Pacific, Middle East HVAC business. Michael Lotfy Gierges is joining us from Schneider Electric, which we have huge respect, of course, for Jean-Pascal and Schneider Electric. It's a great, great company. And this guy is a superstar. He's -- we were thrilled to get him in. He's going to start at the end of March, but the current leader has done a phenomenal job, and I'm really confident that Michael working with the team there with the foundation that's been laid will take the business to even new heights. So we're excited about Southeast Asia. We're excited about the prospects in the Middle East, places like Saudi, where we've been working on some deals and arrangements in Saudi. And then when you think China, overall, Asia is about $3.5 billion, about a little bit more than half of that in China. Commercial feels good. Commercial HVAC, we feel well positioned in those verticals I mentioned, data centers, electric fab has been very good. Aftermarket has been good. Health care has been good. So we think that we're going to see double-digit growth in China in the commercial HVAC business. When you look at the resi business, it's been tough. It was really tough last year. That's continued. I think the first quarter will be down quite a bit in resi. Again, it's not a huge business for us, not even a huge margin business. But we think that between the growth in commercial declines in resi, it does get you to that kind of flattish number. I don't think resi and housing can be bad forever in China. I do think that you're going to start to see more stimulus, you're going to see more stability, both in the project space and retail space. So we think that, that does start to recover, but we've tried to take a conservative plan view of that business because it was tough last year. Our expectation remains tough this year.

So before we run out of time, I want to ask you the question I ask every company, which is what are the top 2 or 3 innovations and structural changes affecting your company over the next 5 years? Are there any emerging industry trends that are perhaps being overlooked in the current discourse?

Well, I do think that because there's such an emerging trend around liquid cooling for data centers, I do think that our ability, because we're such a big player for traditional cooling, I think we can win in and of ourselves in liquid cooling. I think that if we are effective and when we are effective at combining a holistic solution that combines liquid cooling with traditional cooling, I think that uniquely positions us. Look, I love the hand we're dealt. I mean there's going to be some times, some years where something is particularly weak that pulls what would have been 8% growth in the portfolio down to something like 5%. But once you -- when you look at an industry, not every single part of every industry is going to be strong every year. So if you're overly weighted towards one thing, and that one thing turns a little bit, your whole portfolio goes down. So we feel good about the stuff that has been down a little bit, at least getting to more flattish levels as those, as I said earlier, start to recover the whole portfolio gets up in that 8% range.

And then cash, you're doing what we expect you to do, which is buy back stock and that's basically what you're doing with.

Yes. That's what we're doing. We're investing in organic growth. We're not looking at any major M&A, some small stuff, but we are going to complete our $5 billion buyback by the end of this year. We probably have about 2 left to go on that.

Excellent. Thank you very much for being here, guys.

Thank you and appreciate it.

Thank you.