Carrier's 2025 Results Confirm Cyclical Headwinds Amid Strong Cash Flow

What happened

Carrier Global reported its 2025 financial results, revealing a 3% sales decline and 1% drop in organic sales, with adjusted EPS at $2.59 and adjusted operating margin of 15.1%. Fourth-quarter performance was particularly weak, with organic sales down 9% and GAAP EPS just $0.03, though free cash flow remained robust at $909 million. This aligns with the DeepValue report's warnings about persistent residential HVAC weakness in the Americas and stalled European heat-pump adoption, which have compressed margins. Despite operational challenges, Carrier aggressively returned $3.7 billion to shareholders via buybacks and dividends, emphasizing free cash flow generation in its PR narrative. However, the underlying pressure on core growth and margins confirms the cyclical downturn, reinforcing the need for investor caution beyond the optimistic spin.

Implication

Carrier's 2025 performance underscores that residential and European headwinds are more persistent than hoped, limiting upside until housing recovery and Viessmann integration improve. The strong free cash flow and shareholder returns provide some downside protection, but rising net debt from buybacks could erode balance-sheet flexibility if conditions worsen. Investors must monitor whether 2026 shows stabilization in organic sales and margin recovery, as projected in the base case, or if further deterioration triggers bear-case scenarios. The PR focus on capital returns distracts from operational weaknesses, so a disciplined entry near $50 or proof of sustained 4%+ organic growth remains prudent. Overall, the stock offers limited valuation cushion at current levels, making patience key over the next 6-12 months.

Thesis delta

The new results do not shift the investment thesis; they corroborate the DeepValue report's 'WAIT' rating by confirming flat organic growth, margin compression, and ongoing cyclical pressures. However, the strong free cash flow and aggressive capital returns highlight management's prioritization of shareholder value, yet without operational improvement, this could strain leverage and delay a re-rating.