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    Carrier Global Corp (CARR)

    Business Description

    Carrier Global Corporation is a global leader in intelligent climate and energy solutions, focusing on providing differentiated, digitally-enabled lifecycle solutions . The company's operations are divided into three main segments: HVAC, Refrigeration, and Fire & Security . Carrier's product portfolio includes industry-leading brands such as Carrier, Toshiba, Automated Logic, Carrier Transicold, Kidde, Edwards, and LenelS2, offering innovative heating, ventilating, and air conditioning (HVAC), refrigeration, fire, security, and building automation technologies .

    1. HVAC - Provides products and services to meet heating, cooling, and ventilation needs, leveraging industry-leading brands to deliver innovative solutions.
    2. Refrigeration - Focuses on cold chain solutions for food, medicine, and other perishable cargo, ensuring safe and efficient transportation and storage.
    3. Fire & Security - Includes fire safety and security solutions, although Carrier plans to exit this segment .

    Q3 2024 Summary

    Initial Price$64.02July 1, 2024
    Final Price$79.35October 1, 2024
    Price Change$15.33
    % Change+23.95%

    What went well

    • Carrier expects double-digit adjusted EPS growth in 2025, driven by strong organic growth across key businesses like Commercial HVAC and Residential HVAC, which have shown strong performance and increasing backlogs.
    • Operating margin is expected to increase by over 300 basis points year-over-year in Q4 2024, due to stronger volume and mix, good pricing, and productivity improvements.
    • Carrier plans to benefit from significant share repurchases, elimination of stranded costs, and net interest tailwinds, which will further enhance EPS growth in 2025.

    What went wrong

    • Margin headwinds from the Viessmann Climate Solutions (VCS) acquisition: VCS represented about a 200 basis point margin headwind in the HVAC segment in Q3 , and is expected to be a 0.5 point headwind in Q4 . Additionally, VCS's adjusted operating margin for the full year is approximately 11%, which may be lower than anticipated .
    • Weakness in residential and light commercial HVAC markets in Europe and China: Organic sales in EMEA were up low single digits, but this was offset by a decline in residential and light commercial sales, reflecting continued market weakness in that segment . Sales in Asia Pacific were down low single digits, driven by continued weakness in residential and light commercial markets in China .
    • Expected decline in light commercial business in Q4: Carrier expects the light commercial business to be down 15% in the fourth quarter, due to efforts to balance inventory levels . This indicates ongoing challenges in that segment.

    Q&A Summary

    1. 2025 Outlook and Growth Visibility
      Q: Do you have high visibility on 2025 growth prospects?
      A: Management expects double-digit EPS growth in 2025 driven by organic growth, particularly in Commercial HVAC and Residential HVAC segments, and is confident due to a double-digit increase in backlog exiting Q3.

    2. Share Buyback Plans
      Q: What are your plans for the $4.7 billion share buyback?
      A: Carrier has repurchased about $400 million in Q3 and plans to complete about $1 billion in buybacks this year. The company is considering open market purchases as well as an ASR and may do more depending on proceeds from divestitures and market conditions.

    3. Viessmann Outlook
      Q: Can you give an update on Viessmann's outlook into 2025?
      A: While not confident enough to call a bottom, management notes that Viessmann's September orders were up about 10%, and October orders have been even stronger. There are signs of turning a corner, supported by subsidy applications in Germany.

    4. Residential HVAC Pre-Buy and R-454B Transition
      Q: Is there a pre-buy of R-410A units occurring, and how is the R-454B transition affecting pricing?
      A: Carrier does not see a material pre-buy of R-410A units this year but expects to sell a fair amount in Q1 next year. The base price of R-454B units will be 10% higher than R-410A, with expected total increases of 15%-20% over two years due to escalation.

    5. Market Share Gains in Residential and Light Commercial
      Q: How have you performed in residential and light commercial markets?
      A: Carrier has gained over 100 basis points of market share in residential HVAC, partly due to better support with R-410A units. Light commercial also saw share gains, with the business expected to be up low single digits this year.

    6. Q4 Guidance and Segment Margins
      Q: Can you provide guidance on Q4 margins by segment?
      A: For Q4, Carrier expects an overall operating margin of about 12.5%, with HVAC margins at 15%-15.5% and refrigeration around 13%. Viessmann's impact on Q4 margins will be flat overall but a headwind of about 0.5 percentage points on the HVAC segment.

    7. AFFF Settlement
      Q: What’s the status of the AFFF settlement and potential insurance recoveries?
      A: Carrier has effectively put AFFF-related liabilities behind them, subject to court approval. The company has insurance coverage exceeding $2.5 billion and may collect more depending on negotiations. This positions Carrier to focus on growth going forward.

    8. Refrigeration Margins Excluding CCR
      Q: What is the margin profile for refrigeration excluding CCR entering 2025?
      A: Refrigeration margins excluding CCR are up about 300 basis points this year. The exit of CCR will remove $750 million in revenue but with immaterial operating profit, leading to an expected 50 basis point increase in operating margin next year.

    9. Viessmann Cost Synergies
      Q: How are Viessmann cost synergies tracking for this year and next?
      A: Carrier expects about $75 million in cost synergies from Viessmann this year, potentially a bit more. Synergies are expected to be realized ratably, contributing to future margin expansion.

    10. Light Commercial Outlook and ESSER Funding
      Q: How is ESSER funding impacting the light commercial business?
      A: ESSER funding continues to support the K-12 segment and is expected to drive strength through 2025. Carrier assumes a 15% decline in light commercial in Q4 to balance inventory but remains optimistic due to ongoing funding and potential pent-up demand.

    11. Data Center Business and Aftermarket Opportunity
      Q: Can you elaborate on the data center business and the 5x aftermarket multiplier?
      A: Carrier is experiencing significant wins in the data center market, especially with hyperscalers. The aftermarket opportunity is transformational, with service revenues expected to be at least 5 times the equipment value due to extensive aftermarket services.

    12. Orders Growth and Softness
      Q: Did orders soften in September compared to earlier in the year?
      A: Overall orders were up around 20%, slightly lower than earlier indications of 20%-30%, primarily due to swings in residential orders for R-410A units, which slowed in September.

    13. Aftermarket 2.0 Strategy
      Q: How does the Aftermarket 2.0 strategy differ from your current approach?
      A: The Aftermarket 2.0 strategy focuses on greater sophistication, including rotable pools, better algorithms for inventory placement, and enhanced digital connectivity. This initiative aims to capitalize on the aftermarket's 10% higher margin compared to the base business.

    14. Residential HVAC Growth in Q3 and Q4
      Q: How did residential HVAC perform in Q3 and what's expected for Q4?
      A: Residential HVAC was up 11% in Q3 and is expected to be up 20%-30% in Q4 due to an easy comparison from last year's 20% decline. The increase is not driven by pre-buy activity.

    15. Viessmann Margins
      Q: What are Viessmann's adjusted operating margins?
      A: Viessmann's adjusted operating margin is around 11% for the full year, with EBITDA margins in the mid-teens.

    16. Free Cash Flow Expectations for 2025
      Q: Should we expect any one-time items affecting free cash flow in 2025?
      A: Management does not foresee significant one-time items and aims for free cash flow conversion of 100% of adjusted income, accounting for cash restructuring charges.

    Key Metrics

    View all financials →
    Revenue by Segment - in Millions of USDQ1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    HVAC3,6224,2164,0083,29315,1394,5414,9705,058
    - Product8138698648383,384825809-
    - Service566359712496262-
    Refrigeration8989729241,0243,818884973938
    Fire & Security8699329239093,633887871-
    Eliminations and Other--(124)-(492)---
    Total Revenue5,2735,9925,7315,10222,0986,1826,6895,984
    Revenue by Geography - in Millions of USDQ1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    United States2,8603,3893,3352,62112,2052,9673,4773,154
    Europe1,1961,2051,1241,2044,7291,9711,8891,723
    Asia Pacific1,0331,1941,0611,0644,3521,0401,104923
    Other184204211213812204219184
    Total Revenue5,2735,9925,7315,10222,0986,1826,6895,984

    Executive Team

    NamePositionStart DateShort Bio
    David GitlinChairman and Chief Executive OfficerJune 2019David Gitlin has been serving as the Chairman of the Board since April 2021 and as the President and Chief Executive Officer since June 2019. He was previously with United Technologies Corporation (UTC) .
    Ajay AgrawalSenior Vice President, Global Services and Healthy BuildingsMarch 2021Ajay Agrawal was appointed to this position in March 2021. He previously served as Senior Vice President, Strategy & Services for Carrier from October 2019 to March 2021 and held positions at Collins Aerospace .
    Kyle CrockettVice President, ControllerJanuary 2020Kyle Crockett was appointed as Vice President, Controller in January 2020. Before joining Carrier, he held several positions at General Motors .
    Patrick GorisSenior Vice President and Chief Financial OfficerNovember 2020Patrick Goris was appointed as the Senior Vice President and Chief Financial Officer in November 2020. He previously served as the CFO of Rockwell Automation, Inc. .
    Kevin J. O'ConnorSenior Vice President, Chief Legal Officer2020Kevin J. O'Connor was appointed as Senior Vice President and Chief Legal Officer in 2020. He joined Carrier from Point72 Asset Management and is set to step down on January 1, 2025 .
    Jurgen TimpermanPresident, Fire & SecurityFebruary 2019Jurgen Timperman was appointed as President, Fire & Security in February 2019. He previously served as President, Global Fire & Security Products .
    Nadia VilleneuveSenior Vice President, Chief Human Resources Officer2015Nadia Villeneuve was appointed as Senior Vice President, Chief Human Resources Officer in 2015. She previously served as Vice President and Chief Human Resources Officer for Pratt & Whitney .
    Timothy WhitePresident, RefrigerationAugust 2021Timothy White was appointed as President, Refrigeration in August 2021. Before joining Carrier, he was CEO, Onshore Wind Americas for General Electric .
    Francesca CampbellSenior Vice President and Chief Legal OfficerJanuary 1, 2025Francesca Campbell was appointed as Senior Vice President and Chief Legal Officer, with the announcement made on December 2, 2024. She will assume her role following Kevin O'Connor's departure on January 1, 2025 .

    Questions to Ask Management

    1. Given the anticipated decline of 15% in light commercial HVAC in Q4 due to inventory adjustments, how do you plan to manage channel inventory levels to avoid impacting sales next year?
    2. With your strategy to price R-454B units 10% higher than R-410A units amid the SEER transition, how confident are you that this price increase won't negatively affect demand or market share, especially considering potential competitor pricing actions?
    3. You mentioned targeting over $200 million in cost synergies from the Viessmann acquisition by 2026; can you provide more details on the specific initiatives to achieve these synergies and the risks that could prevent you from realizing them?
    4. Given that organic orders are up over 20% despite headwinds in residential and light commercial HVAC in Europe and China, how sustainable is this growth, and what strategies do you have in place to mitigate these regional market challenges?
    5. Regarding the anticipated AFFF settlement and the potential to collect beyond the initial $615 million, what are the remaining liabilities, and how might they impact your future financial performance and ability to invest in key strategic areas?

    Share Repurchase Program

    Program DetailsProgram 1Program 2
    Approval DateFebruary 2021 October 2024
    End Date/DurationN/AN/A
    Total Additional Amount$4.1 billion $3 billion
    Remaining Authorization$400 million $1.7 billion
    DetailsInitial authorization Additional authorization

    Past Guidance

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Full Year Sales: Expected to be roughly $22.5 billion, with underlying organic growth of about 3% .
      2. Adjusted Operating Margin: Roughly 15.5%, up 150 basis points year-over-year .
      3. Adjusted EPS: About $2.50 for continuing operations .
      4. Free Cash Flow: Expected outflow of $200 million .
      5. Capital Expenditures: About $500 million .
      6. Cash Restructuring: Closer to $150 million .
      7. Net Leverage: About 2x at year-end .
      8. Share Repurchases: About $5 billion between H2 2024 and end of 2025 .
      9. Dividend Payout: Targeting about a 30% payout .
      10. Q4 2024 Adjusted EPS: A little less than $0.50 .
      11. HVAC Segment: Close to 10% growth in Q4 2024 .
      12. Refrigeration Segment: Down mid-single digits in Q4 2024 .

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Full Year Sales: Roughly $25.5 billion .
      2. Adjusted Operating Margin: Roughly 15.5% .
      3. Adjusted EPS: $2.80 to $2.90 .
      4. Interest Expense: About $510 million .
      5. Free Cash Flow: $400 million .
      6. Third Quarter Sales: About $6.6 billion .
      7. Third Quarter Adjusted EPS: About $0.80 .
      8. Adjusted Effective Tax Rate: Up 500 basis points .
      9. Viessmann Climate Solutions: EBITDA mid-teens .
      10. Third Quarter Margins: Down about 100 basis points .

    Q1 2024 Earnings Call

    • Issued Period: Q1 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Full Year Sales: A little less than $26 billion .
      2. Adjusted Operating Margin: Roughly 15.5% .
      3. Adjusted EPS: Maintained despite a $0.05 headwind .
      4. Interest Expense: About $25 million lower .
      5. HVAC Segment Margins: About 17.5% .
      6. Refrigeration Segment: Up low-single digits .
      7. Free Cash Flow: $400 million .
      8. Viessmann Climate Solutions Sales: Flat to down 5% .

    Q4 2023 Earnings Call

    • Issued Period: Q4 2023
    • Guided Period: FY 2024
    • Guidance:
      1. Sales: About $26.5 billion .
      2. Adjusted Operating Margin: Between 15% and 15.5% .
      3. Adjusted EPS: $2.80 to $2.90 .
      4. Free Cash Flow: About $700 million .
      5. Organic Growth: Mid-single-digit in all segments .
      6. Fire & Security Operating Margin: About 14% .
      7. Viessmann Climate Solutions: Neutral to operating margin .
      8. Seasonality: Low single-digit organic revenue growth in Q1 .
      9. Capital Deployment: Focus on deleveraging .
      10. CapEx: About $550 million .

    Latest news

    Recent developments and announcements about CARR.

    Corporate Leadership

      Leadership Change

      ·
      Dec 3, 2024, 10:11 PM

      Kevin O'Connor is leaving his position as Senior Vice President and Chief Legal Officer at Carrier Global Corporation. He is stepping down with an expected departure date of January 1, 2025. Francesca Campbell has been appointed to take over his role as the new Senior Vice President and Chief Legal Officer .

    Financial Actions

      Debt Issuance

      ·
      Nov 8, 2024, 12:00 AM

      Carrier Global Corporation (CARR) Creates Direct Financial Obligation

      On November 8, 2024, Carrier Global Corporation (CARR) completed a private offering of €750,000,000 aggregate principal amount of 3.625% euro-denominated notes due 2037 (the “Notes”). The net proceeds from the sale of the Notes, along with cash on hand, were used to redeem the company’s 4.375% Notes due 2025 and to cover fees and expenses related to the offering .

      Details of the Obligation

      • Principal Amount: €750,000,000
      • Interest Rate: 3.625% per annum, payable annually on January 15, starting January 15, 2025
      • Maturity Date: January 15, 2037
      • Redemption Terms: Prior to October 15, 2036, the Notes can be redeemed at a “make-whole” premium plus accrued interest. On or after October 15, 2036, the Notes can be redeemed at 100% of the principal amount plus accrued interest .
      • Change of Control: If a change of control triggering event occurs, holders can require the company to purchase the Notes at 101% of the principal amount plus accrued interest .

      Potential Effects on Financial Health

      • Debt Levels: The issuance of the Notes increases Carrier’s long-term debt by €750,000,000, which could impact leverage ratios and interest coverage metrics.
      • Interest Expenses: The annual interest expense associated with the Notes will be approximately €27,187,500, which will affect the company’s net income and cash flow .
      • Liquidity: The redemption of the 4.375% Notes due 2025 will reduce short-term debt obligations, potentially improving liquidity in the near term .
      • Covenants: The Indenture includes covenants that limit the creation of liens, consolidation, mergers, and sale-leaseback transactions, which could restrict the company’s operational flexibility .

      This financial obligation is significant and will have various implications for Carrier’s balance sheet and overall financial health. It is important for stakeholders to monitor how the company manages this new debt and its impact on financial performance.

    Legal & Compliance

      Legal Proceedings

      ·
      Nov 8, 2024, 12:00 AM

      Summary of Legal Matter Involving Carrier Global Corporation (CARR):

      Key Parties Involved:

      • Carrier Global Corporation: The issuer of the notes.
      • Deutsche Bank Trust Company Americas: Acts as the trustee.
      • Initial Purchasers: Includes J.P. Morgan Securities plc, HSBC Continental Europe, Morgan Stanley & Co. International plc, and others involved in the purchase agreement.

      Nature of the Proceedings:

      • Carrier Global Corporation completed a private offering of €750,000,000 aggregate principal amount of 3.625% euro-denominated notes due 2037. The notes were issued under a Supplemental Indenture dated November 8, 2024, which supplements the Base Indenture dated November 29, 2023 .
      • The company used the proceeds from this offering to redeem its 4.375% Notes due 2025 and to cover fees and expenses related to the offering .
      • A Registration Rights Agreement was entered into, obligating Carrier to file a registration statement for an exchange offer or a shelf registration statement for resales of the notes .

      Potential Financial or Operational Consequences:

      • Financial Obligations: The issuance of the new notes creates a long-term financial obligation for Carrier, with interest payments due annually at a rate of 3.625% .
      • Redemption and Repurchase Options: Carrier has the option to redeem the notes before maturity under certain conditions, which could impact cash flow depending on market conditions and strategic financial decisions .
      • Covenants and Restrictions: The Indenture includes covenants that limit Carrier's ability to create liens, consolidate, merge, or sell assets, which could affect operational flexibility .
      • Change of Control Provisions: If a change of control event occurs, noteholders can require Carrier to repurchase the notes, potentially impacting financial stability .

      This legal matter involves significant financial transactions and obligations that could influence Carrier's financial strategy and operational decisions moving forward.