Q3 2024 Summary
Published Feb 7, 2025, 7:58 PM UTC- 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.
- 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.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +4% | The moderate revenue growth was driven by expansion in Europe and steady performance in North America, partly offset by weaker demand in Asia-Pacific. Pricing improvements and continued aftermarket demand also contributed. However, softness in certain U.S. residential markets and foreign exchange headwinds tempered overall gains. |
HVAC Segment | +26% | The strong double-digit increase reflects robust commercial HVAC performance, ongoing pricing actions, and acquisition contributions. While Europe’s heat pump demand boosted segment results, the U.S. residential market remained mixed, and Asia-Pacific volumes declined, though these headwinds were outweighed by strong EMEA growth. |
United States | -5% | The decline was mainly due to slower residential replacement activity and tighter channel inventory. Commercial HVAC demand stayed relatively stable, but not enough to offset softness in residential. High interest rates and inflationary pressures also curbed some discretionary spending. |
Europe | +53% | This significant surge was propelled by heat pump adoption, sustainability initiatives, and new regulations incentivizing more energy-efficient systems. Commercial HVAC showed robust gains, and demand for electric transport and refrigeration also contributed, offsetting some weakness in retail refrigeration. |
Asia Pacific | -13% | The drop resulted from weaker residential and light commercial demand, particularly in China. While Southeast Asia saw modest improvements, broader macroeconomic uncertainties and ongoing property market issues in China continued to weigh on results. |
Operating Income (EBIT) | -459% | A large negative swing was driven by one-time charges, including potential impairment or restructuring items and acquisition-related accounting. Despite pricing gains and productivity savings, these extraordinary costs more than offset improvements. |
Net Income | +25% | The strong net income increase benefited from one-time gains, including items such as divestiture proceeds or favorable tax adjustments. Underlying operations improved from pricing and cost actions, but the significant boost came largely from gains on strategic transactions rather than core operating expansion. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Sales | Q3 2024 | ~$6.6B | no current guidance | no current guidance |
Adjusted EPS | Q3 2024 | ~$0.80 | no current guidance | no current guidance |
Adjusted Effective Tax Rate | Q3 2024 | +500 bps year-over-year (≈ $0.06 headwind) | no current guidance | no current guidance |
Organic Growth | Q4 2024 | no prior guidance | mid-single-digit | no prior guidance |
HVAC | Q4 2024 | no prior guidance | close to 10% | no prior guidance |
Refrigeration | Q4 2024 | no prior guidance | down mid-single digits | no prior guidance |
Adjusted EPS | Q4 2024 | no prior guidance | a little less than $0.50 | no prior guidance |
Operating Margin | Q4 2024 | no prior guidance | up about 300 bps year-over-year | no prior guidance |
Full-Year Sales | FY 2024 | ~$25.5B | ~$22.5B | lowered |
Organic Growth | FY 2024 | mid-single digits | about 3% | lowered |
Adjusted Operating Margin | FY 2024 | ~15.5% | ~15.5% | no change |
Adjusted EPS | FY 2024 | $2.80–$2.90 | ~$2.50 | lowered |
Free Cash Flow | FY 2024 | $400M inflow | $200M outflow | lowered |
Capital Expenditures | FY 2024 | no prior guidance | ~$500M | no prior guidance |
Cash Restructuring | FY 2024 | no prior guidance | ~$150M | no prior guidance |
Net Leverage | FY 2024 | no prior guidance | ~2x | no prior guidance |
Interest Expense | FY 2024 | ~$510M | no current guidance | no current guidance |
Core Earnings Conversion | FY 2024 |
| no current guidance | no current guidance |
Light Commercial HVAC | FY 2024 | up low single digits | no current guidance | no current guidance |
Commercial Refrigeration | FY 2024 | 9 months contribution | no current guidance | no current guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Revenue | Q3 2024 | ~ $6.6B | $4,467M | Missed |
EPS | Q3 2024 | ~ $0.80 | $0.49 | Missed |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Data center growth | Consistently strong growth mentioned in prior quarters (exponential order growth in Q2 2024, identified as an early-growth segment in Q1 and Q4 2023). | Orders up 250% YTD; strong data center vertical demand; 5x aftermarket opportunity. | Continues to accelerate |
Residential HVAC demand | Previously weaker but improving (down high teens in Q4 2023 ; mid-single-digit growth in Q2 2024 , slightly down in Q1 2024 ). | Sales up 11% in Q3; Q4 expected to grow 20%-30%; 100 bps market share gain. | Recovery from prior slump |
Commercial HVAC growth | Has delivered strong double-digit growth in previous quarters, supported by verticals like education, healthcare, and data centers. | Double-digit Q3 growth; outsized strength in key verticals including data centers; data center orders up over 3x YTD. | Steady expansion |
Viessmann Climate Solutions | Weakness in 2024 with sales down ~30% in Q2; ~12% decline in Q1; mid-single-digit decline in Q4 2023. Integration synergies and share gains highlighted. | Q3 sales down ~25% vs. prior year; orders turned positive with low single-digit growth; heat pump subsidy apps up 50%. | Short-term dip, recovering orders |
Refrigeration segment performance | Q2 2024 was up 1%, Q1 down 2%, Q4 2023 up 6%. Container consistently strong; truck & trailer mixed. | Sales up 1%; container up 30%, global truck & trailer down mid-single digits; margin expanded by 50 bps. | Marginal improvement |
Aftermarket expansion | Has delivered double-digit growth for multiple quarters; integral part of strategic focus in Q2, Q1, and Q4 2023. | Emphasizing Aftermarket 2.0 with premium data center services (e.g., real-time monitoring, on-site technicians). | Sustained bullish outlook |
Exiting commercial and residential fire businesses | Q2 2024 signaled an agreement by Q3; Q1 2024 highlighted strong buyer interest; Q4 2023 evaluating sale vs. public market exit. | Classified as held for sale in Q3 2024; closing anticipated by year-end; impacts on EPS and tax payments discussed. | Ongoing divestiture |
Stranded costs elimination | Mentioned a prior $80 million cost reduction program in Q2 2024; no references in Q1 or Q4 2023. | About $200 million in run-rate costs eliminated, some residual benefits into 2025. | Further progress |
Share repurchases | Q2 2024 announced $1 billion for the second half; Q1 2024 noted repurchases likely in late 2024; Q4 2023 aimed to offset Viessmann shares. | Repurchased $400 million in Q3; targeting $1 billion for 2024; new plan for $5 billion by end of 2025. | Accelerating buyback program |
European regulatory environment | Previously cited strong regulations pushing heat pump adoption (e.g., 55% emission reduction by 2030 in Q2; EPBD in Q1; new legislation in Q4 2023). | No specific mention for Q3 2024. | Not discussed in Q3 |
A2L refrigerant transition | Q2 2024 reiterated 15-20% cost increase plan; Q1 2024 expected a low share of R-454B mix initially with further transition in 2025. | Base R-454B units priced ~10% above R-410A, projecting 15-20% higher over two years. | Consistent implementation |
Material cost inflation | Q2 2024 mentioned copper volatility; Q1 2024 partially hedged materials. No Q4 2023 discussion. | Aggressive cost reductions cited to offset higher inputs; team focused on direct/indirect savings. | Well-managed challenges |
China market weakness | Noted in Q2 2024 (mid-teens declines) and Q4 2023 (focus shifting from real estate to infrastructure). Q1 commentary mixed but recognized broader volatility. | Residential and light commercial remain soft; partially offset by other Asia markets. | Continued softness |
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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. -
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. -
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. -
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. -
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. -
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. -
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. -
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. -
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. -
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. -
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. -
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. -
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. -
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. -
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. -
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.