David Gitlin: Well, I think you answered it perfectly well, Dean. I do think that Viessmann clearly plays in the premium end of the market. So I do think that even though there will be more competition at the entry tier-level and the mid-tier, we think that because of the brand, the technology differentiation, the unique channel, we don’t see that as a major threat directly to Viessmann. I will add, by the way, that I was talking to the CEO of a major German company. And he was so impressed with the combination of Carrier and Viessmann Climate Solutions together he said that, if you look at German brands. If Viessmann is not number one, it’s in the top five most respected brands in the country. And he was saying to me, kind of unsolicited how powerful this combination will be.
So we’ll preserve the Viessmann brand at the very high-end. We are introducing carrier in the mid-tier range both for heating and for cooling. So we think that’s a unique space. And of course, we have Toshiba. So yes, there will be some new entrants in the market, but we feel not only is Viessmann protected on the high end, but we’re actually seeing a bit of price tailwind as well.
Deane Dray: Great to hear. Thank you.
David Gitlin: Thank you.
Operator: Thank you. Our next question comes from Noah Kaye with Oppenheimer & Company. Your line is open.
Noah Kaye: Yes. Thanks so much. Dave, I’d like to stick with VCS. You highlighted early on the new product introductions, expanding the TAM by $5 billion. Would just love some more color on those product introductions? Curious to know to what extent they were developed in kind of any kind of synergy or technology roadmap coordination with legacy Carrier? And to what extent that’s an opportunity going forward across the portfolio?
David Gitlin: Yes. Look, no, I wish I could take some form of credit, but this was done well before our watch. I mean, this was Viessmann, over a period of time, developing products for the 16 to 19-kilowatt range, which is in that very high-end single-family home which is a new market for them, which they introduced in the first quarter. And during the second quarter, they introduced 19 up to 40 kilowatts, which gets you into that small multifamily residential space. So very, very attractive new – very attractive new product introductions, I mentioned this $5 billion TAM that they now position themselves for. So again, it’s one1 of the many reasons why you can see headline articles about heat pumps being down in Germany in the many tenth percentage range, while we’ll be like flat or even heat pumps could be up for us this year.
One of the reasons is the new TAM. I will say, though, on the latter part of your question when it comes to revenue synergies, we are actively working on a whole bunch of technologies. And that’s why I said that we could see revenue synergies in the hundreds of millions, and we put virtually zero in our business case. I think that’s going to – when we look back five years from now, I think we’ll look and say that was one of the best upside to the business case that we saw. Even in North America, Viessmann has just introduced – traditionally in North America, Viessmann was a boiler sale company. They’ve just introduced an air-to-water heat pump for North America, which could be very attractive in places like New England and Canada and some other discrete locations.
And we can leverage their technology with our channel to go really attack the market in the United States, so a lot of interesting upside there.
Noah Kaye: Very interesting. Thanks. And just on applied strength. I mean how much of this is just the data center story? How broad-based is it? Maybe you can talk on some of the other verticals where the demand just continues to sustain?
David Gitlin: Well, a lot of it is data centers. That’s been very, very strong. Higher Ed still remains strong. Health care, like hospitals, remain strong. When you look at it, it varies a little bit by region. We’ve seen some changes in China, for example. What was very strong in China was EV, solar production, all things renewables that’s now shifted in China. So we’re now seeing strength in China from things like infrastructure and some of the other aspects of decarbonization. So some of the areas of strength will move, data centers is strong globally. And then what’s frankly been strong other than some changes within China remains strong. And what’s been weak like commercial office has generally remained weak.
Noah Kaye: Okay. Very helpful. Thank you.
David Gitlin: Thank you.
Operator: Thank you. Our next question comes from Nigel Coe with Wolfe Research. Your line is open.
Nigel Coe: Thanks. Good morning. And thanks for the question. I want to go back to the C&R fire sale. I’ve got to say we were expecting a capital markets transaction, Dave. So just wondering if you had some indication of interest for that asset that gives you confidence in that sale process? And Maybe, Patrick, if you could maybe size that business, we’ve got $2 billion of revenues, about 10% EBITDA margin, maybe it sounds like it’s having a good year. So maybe just give us a projection for 2024?
David Gitlin: Yes. Look – and Nigel, I mean you were expecting it, because I said it. So a very fair. So we’ve changed. We are 100% prioritizing sale. We completed about, I think, a 15-page teaser. We’ve discussed that with a number of interested buyers. The interest has been very high. So we’ve been extremely pleased with the reaction, because it’s a great set of assets. I mean, you could see our Fire & Security business is performing very well. You’re looking at Edwards very differentiated, GST very differentiated, kit very differentiated. You have a phenomenal set of brands that are uniquely positioned in their various spaces. So we’ll see exactly where it ends up, but I am very pleased with the level of interest thus far, and we’ll send out our offering memorandum in two weeks, Patrick, on the financials.
Patrick Goris: Yes, Nigel, you can think of that business being roughly $2 billion, I’m rounding. And the current run rate EBITDA is in about the mid-200s now. So much better, and so we’re happy with the improvement we’re seeing in that business.
Nigel Coe: Okay. That’s great color. Thanks. And then back to VCS. I mean, based on the comments, Patrick, you made about the dilutive impact on the segments, I’m backing into maybe a 14.5% operating margin, maybe 15% EBITDA margin. For the quarter, is that right? And I’m just wondering if that is correct, if my math isn’t too wonky, what is the path to high teens for the full year?
Patrick Goris: Yes. So from an operating profit margin point of view, Nigel, you can think of Q1 being about 12.5%. And for the full year, again at the EBIT low it will be around 15%. Actually, we think maybe a little higher than that. So, in line with the overall company average, but below the average for the HVAC segment. And that’s at the EBIT level. And you can probably add a couple of points for that two, three points to get to EBITDA.
Nigel Coe: Okay. That’s very helpful. Thanks guys.
Patrick Goris: Yes. Thank you.
Operator: Thank you. And our next question comes from Stephen Tusa with JPMorgan Chase & Company. Your line is open.
Stephen Tusa: Hi. Good morning guys. Thanks for coming.
David Gitlin: Good morning.
Patrick Goris: Good morning.
Stephen Tusa: Just on that EBIT comment, that’s EBITDA, right, excluding the amortization when you say EBIT?
Patrick Goris: Yes, that’s right, Steve. We adjust out the intangible amortization and some of the step-ups as well.
Stephen Tusa: Yes, you guys said, I think previously, you added a bunch to D&A versus the prior guidance. Is that just truing up some of the financials on Viessmann?
Patrick Goris: Yes, you’re right. In essence, at the time of the February guide, of course, we didn’t have all the detail to provide the best accurate estimate of the DNA. And so inventory and backlog step-up was not yet fully included there. And also since then, we refined the difference between the intangibles and then the goodwill, and that impacts the amortization as well. So you can think of that being the new driver.
Stephen Tusa: Got it. And then sorry, just on resi, just to follow up on the 454A21. Did you guys – I think – you guys are like – at least we had heard your amongst the earlier movers on that. You already have a product in the channel, which is congratulations on that. That’s definitely ahead of some of your peers. Did you kind of – have you been pivoting at all as far as evaluating the market and working the 410A product in there as the demand changes? Like how fluid is that situation? That’s kind of the first question. And then just a very quick follow-up for Patrick. Can you just give us the price and inflation for the first quarter? And then just any updates on that for the year for the bridge? Thanks.
David Gitlin: Yes. Let me – yes, Steve, let me start on the A2L. Our strategy is to – we did it with the SeaChange. We’re doing it with the A2L change, derisk everything, get way out in front. We don’t want any technical producibility, capacity, any issues as we get into the end of this year. Our number one priority is to support our customers to make this a seamless transition. So, we are getting way out in front, not only on shipping the product, but on training our dealers. We had 1,000 dealers – over 1,000 dealers together last week. We had closer to 10,000 together for a discussion probably about 18 months ago. So, we are getting all over in terms of the preparation. And I do think that – as I mentioned, I think it will be less than 20% H2L this year, probably a bit of pre-buy on 410, but I do think it will be higher than that 60% that I know others mentioned for next year.
Patrick Goris: Okay. And then Steve, following up on your questions about price. Price for the quarter was about 2%. For the overall company, we expect that to be about the same for the full year. So about half of our organic growth price. In terms of price and net productivity combined, that includes the headwinds of material inflation, for example, that combined was about $200 million in Q1, and we expect that to be about $600 million for the full year in our current guidance.
Stephen Tusa: Thank you.
Patrick Goris: Thank you.
Operator: Thank you. Our next question comes from Gautam Khanna with TD Cowen. Your line is open.
Gautam Khanna: Yes, thanks. Good morning guys.
Patrick Goris: Morning.
Gautam Khanna: I was wondering if – just talking about 2025 in that bridge, is the growth algorithm still kind of north of 10% earnings growth off of the adjusted base? If you could just talk through kind of your 2025 expectations, given the bridge that you provided on what the remainco is and the like? Just what basis, if you will?
Patrick Goris: Right. So, if you look at Slide 23 of the deck that we posted, our core business this year is up 12% – or in Q1 was up 12%. For the full year, we expect our core business, including the dilution from Viessmann in year one, the growth to be 17%. And our value creation framework says that we’d like to grow our business double digits every year. So, management, I think, would be very disappointed if our core business would not grow at least double-digit EPS in 2025. And on top of that, as you can see on that slide, there are the additional levers, redeploying net proceeds from industrial fire for half a year. That’s going to be debt reduces, crown or industrial and commercial fire. I mentioned earlier, run rate EBITDA of $250 million, you can assume a multiple on that and some tax leakage.
That would be available for redeployment, including buybacks, plus free cash flow generated in 2024 and 2025 ex-dividend, again, available for deployment, including buybacks. And so a long way of saying, we think there is significant earnings growth power available to us.
Gautam Khanna: And what would your opinion of free cash conversion in 2025 be off of that approximately $3 number?
Patrick Goris: I haven’t provided the $3 number, but whatever the number is, we target about 100% of net income.
Gautam Khanna: Appreciate it. And just a quick follow-up on resi. There’s been a lot of chatter about repair versus replace and potential trading down. Have you seen any evidence of that? I know it’s early in the cooling season, but any opinion on…
David Gitlin: Yes, sorry to interrupt. No, we have not seen any evidence of that. We ask that ourselves a lot, and we have not seen evidence of that.
Gautam Khanna: Thanks a lot guys.
David Gitlin: Thank you.
Operator: Thank you. Our next question comes from Brett Linzey with Mizuho. Your line is open.
Brett Linzey: Hi. Good morning and thanks for taking questions.
David Gitlin: Hi, Brett.
Brett Linzey: I wanted to come back to light commercial. Obviously, it’s been a source of strength for a few years here or did take a step down in the first quarter. But you did talk about the light commercial being a profit outperformer for the year. Maybe just some detail on the expectations on some of those moving pieces.
