Carel Industries SpA (FRA:CIG) (Q2 2026) Earnings Call Highlights: Record Revenue and Margin ...

Negative Points

• External environment remains challenging with geopolitical tensions and macro volatility, limiting visibility in the business model.

• Working capital absorbed EUR32.2 million in H1 2026 due to seasonal trends, strong growth, and increased safety stock, with trade working capital expected to remain around 21% of sales for the year.

• Raw material cost headwinds, particularly for memories and relays, are increasing, requiring cost discipline and selective price adjustments.

• Commercial business in EMEA is softer, growing only in the low single-digit range, though not decelerating.

• Q3 2026 growth is expected to be slightly lower than Q2 due to seasonal effects from August closures in Europe.

• The Coats acquisition carries integration risks and is expected to close only in Q3 after regulatory approvals, with no contribution to Q3 revenues.

• Pricing power is limited, with price increases expected to be in the low single-digit range in H2, reflecting a reactive approach to cost increases.

• The company faces potential margin pressure from raw material costs, though management aims to manage gross margin without material penalization.

• US tariffs on imports have required applications for reimbursement, with amounts collected but not yet reflected in P&L, indicating potential financial uncertainty.

• Refrigeration growth in Europe is driven more by stabilization than acceleration, with only 35% adoption of natural refrigerants, suggesting a long but steady transition.

Q & A Highlights

Q: Can you quantify refrigeration growth in Q2 excluding North America, and is the US strength driven by a few specific projects or a broader trend? A: (Francesco Nalini, CEO) Excluding North America, refrigeration growth would have been in the high teens. The US strength is not just a few projects; we have passed the trial phase with several significant supermarket chains and are now in the rollout phase. This is driven by the success of our decentralized architecture (variable speed compressors on cabinets), which is highly valued in the US for redundancy and continuity of operations. We have a strong pipeline of other customers, making this a long-lasting structural opportunity.

Q: Regarding the Coats acquisition, what is the potential for commercial synergies and growth in the industrial vertical, given the company's historical focus on offshore wind? A: (Francesco Nalini, CEO) Coats has underexploited the industrial vertical due to a lack of a proprietary sales network. We can leverage our existing global sales network, which already operates in the same niches (pharma, food processing, batteries), to drive significant growth. Additionally, their proprietary desalinization technology for offshore wind opens up new applications in marine and defense. We see strong potential for cross-selling and technological synergies.

Q: Can you elaborate on the supply chain dynamics, particularly regarding data center-related components, and any impact on production or costs? A: (Francesco Nalini, CEO) We have seen tensions in categories like memories and relays due to the data center supply chain. However, we anticipated this risk and have been stocking up on strategic safety stock for almost a year, which is reflected in higher working capital. We do not face production bottlenecks, but we are seeing cost increases which we are managing through cost discipline and selective price adjustments.

Q: Is the demand in the residential HVAC market reflecting true end-demand, or are OEMs stocking up on components? A: (Francesco Nalini, CEO) We believe there was some restocking by OEMs in the second half of last year to rebuild inventory. However, for the last two to three quarters, stock levels have normalized, and we are now closely tracking end-demand rather than seeing significant new stockpiling.

Q: Given the strong operating leverage in Q2, should we expect another quarter of strong margins in Q3 despite the slightly lower growth guidance? A: (Francesco Nalini, CEO) Yes, the 20% growth guidance for Q3 is strong, though slightly lower than Q2 due to seasonal effects from August closures in Europe. With growth above our mid-cycle guidance, we expect a good level of profitability. While there are raw material headwinds, they are manageable, and we remain optimistic about maintaining strong margins.

Q: Can you provide a strategic update on Kiona, including its expansion into the US and its role in your technology roadmap? A: (Francesco Nalini, CEO) Kiona is performing very well with double-digit growth and a 30% EBITDA margin. We are finalizing a specific solution for North America, which will start deployment towards the end of the year, tightly linked to our hardware growth in the US. Strategically, Kiona is becoming a key part of our vision for software and algorithms, integrating our cloud, plant-level, and edge controllers to extract more value for customers.

Q: Regarding working capital absorption and US tariffs, should we expect working capital levels to rise further, and have you applied for tariff reimbursements? A: (Nicola Biondo, CFO) We are targeting trade working capital at around 21% of sales for this year, which is higher than last year but not permanent. We expect this ratio to remain for the end of the year before improving. Regarding US tariffs, we have applied for and collected reimbursement of duties paid, but we have prudently kept this amount on the balance sheet and not yet reflected it in the P&L while we assess the accounting treatment.

Q: How far along is the European refrigeration industry in meeting the 2030 regulations, and will demand accelerate or decelerate? A: (Francesco Nalini, CEO) The adoption of natural refrigerants in European stores is around 35%, so there is still 65% to go. We believe the regulation will sustain and stabilize investment rates for at least a few years rather than cause a sharp acceleration. Beyond regulation, the market is driven by technological improvements, such as our new algorithms and edge controllers, which will sustain growth for many years.

Q: Can you elaborate on the pricing environment and the expected impact in the second half, and what is driving the strong refrigeration growth beyond just variable speed technology? A: (Francesco Nalini, CEO) We have applied selective price increases reflecting actual cost increases, and we expect a stronger price effect in the second half, likely in the low single-digit range. Our refrigeration growth is driven by our complete system know-how in natural refrigerants (especially transcritical CO2), unique software content, and our ability to provide "total store solutions" combining HVAC and refrigeration controlsan advantage unique to us. We are clearly gaining market share, particularly in the US.

Q: Given the slight gross margin erosion in Q2, do you expect to maintain the gross margin year-on-year in the second half with the limited pricing? A: (Francesco Nalini, CEO) Yes, that is our goal. There is a lag effect in pricing, but we aim to manage the gross margin without material penalization. While there can be quarterly fluctuations due to mix, we do not expect significant problems on the gross margin overall.

For the complete transcript of the earnings call, please refer to the full earnings call transcript .