Carrier Global Corporation (NYSE:CARR): Delivering Sustainable Growth and Shareholder Value

Published on September 24, 2024 | Ticker: CARR

Carrier Global Corporation (NYSE:CARR) is a global leader in intelligent climate and energy solutions, offering a diverse portfolio of industry-leading brands that provide innovative HVAC, refrigeration, fire, and building automation technologies. The company's relentless focus on innovation, operational excellence, and strategic portfolio transformation has positioned it for sustained growth and margin expansion.

Financials

Carrier's financial performance in 2024 has been impressive, with annual net income reaching $1.35 billion and annual revenue of $25.5 billion. The company's annual operating cash flow stood at $2.61 billion, while free cash flow reached $2.14 billion, showcasing its strong cash generation capabilities.

In the second quarter of 2024, Carrier reported net sales of $6.69 billion, a 12% increase compared to the same period in 2023. This growth was driven by a 2% increase in organic sales, complemented by an 11% contribution from acquisitions and divestitures, primarily the addition of Viessmann Climate Solutions. Adjusted operating profit for the quarter was $1.2 billion, up 26% year-over-year, with a 200 basis point expansion in adjusted operating margins to 18.1%.

Segmental Performance

Carrier's three operating segments – HVAC, Refrigeration, and Fire & Security – have all demonstrated strong performance in the second quarter of 2024.

The HVAC segment reported an 18% increase in net sales, with organic sales growth of 2% and a 17% contribution from the Viessmann Climate Solutions acquisition. Adjusted operating margins in the HVAC segment expanded by 110 basis points, driven by net price and strong productivity.

In the Refrigeration segment, net sales were flat compared to the prior year, with a 1% increase in organic sales offset by a 1% foreign currency translation headwind. Adjusted operating margins in the Refrigeration segment were flat year-over-year, as favorable net price and productivity were offset by business mix.

The Fire & Security segment reported a 7% decrease in net sales, with a 3% organic sales increase more than offset by a 10% headwind from the absence of one month of Access Solutions and the deconsolidation of Kidde-Fenwal, Inc. (KFI) in the prior year. Adjusted operating margins in the Fire & Security segment expanded by 310 basis points, driven by organic volume growth and strong productivity.

Transformative Acquisitions and Divestitures

Carrier's strategic portfolio transformation has been a key focus, with the company completing the acquisition of Viessmann Climate Solutions in January 2024 and the divestiture of its Access Solutions business in June 2024. The Viessmann acquisition has strengthened Carrier's position in the European residential and light commercial HVAC market, while the Access Solutions divestiture has allowed the company to focus on its core climate and energy solutions offerings.

The company also announced the divestiture of its Commercial Refrigeration and Industrial Fire businesses, which are expected to close in 2024. These strategic moves are aligned with Carrier's vision of becoming the global leader in intelligent climate and energy solutions, with a stronger focus on sustainability, electrification, and energy resilience.

Operational Excellence and Innovation

Carrier's commitment to operational excellence and innovation has been a key driver of its success. The company's Carrier Excellence business operating system has enabled significant margin expansion, with the second quarter of 2024 seeing a 200 basis point increase in adjusted operating margins.

Carrier's focus on innovation has also been a differentiator, with the company introducing several new sustainable products during the quarter. This includes a low-GWP variant of its award-winning AquaEdge Water Cooled Chiller and the first 3-ton to 10-ton entry-tier rooftop units using its EcoBlue fan technology with low-GWP refrigerants.

The company's investments in digital solutions and connectivity have also been a key focus, with its Abound intelligent building platform now monitoring over 1.1 billion square feet and its Lynx cold chain platform having over 150,000 paid subscriptions.

Outlook

For the full year 2024, Carrier expects reported sales of approximately $25.5 billion, with underlying organic growth in the mid-single digits. The company is maintaining its adjusted operating margin guidance of around 15.5% and expects full-year core earnings conversion to be north of 40%.

In the third quarter of 2024, Carrier anticipates sales of approximately $6.6 billion and adjusted EPS of around $0.80, including a few pennies from businesses yet to be divested. The company expects the adjusted effective tax rate to be up 500 basis points compared to the prior year, representing a $0.06 headwind.

Liquidity

Carrier's strong cash flow generation has enabled the company to maintain a healthy liquidity position and pursue strategic capital allocation initiatives. As of June 30, 2024, the company had cash and cash equivalents of $2.92 billion.

During the second quarter of 2024, Carrier generated free cash flow of approximately $550 million, a 35% increase compared to the same period in 2023. The company has also announced a multi-billion dollar share repurchase program, with $1 billion targeted for the second half of 2024.

Carrier's disciplined approach to capital allocation, combined with its focus on operational excellence and strategic portfolio transformation, positions the company for continued growth and value creation for its shareholders.

Conclusion

Carrier Global Corporation has demonstrated its ability to navigate a dynamic market environment and deliver strong financial and operational performance. The company's strategic focus on intelligent climate and energy solutions, coupled with its commitment to innovation and operational excellence, has positioned it as a global leader in its industry.

With a robust pipeline of new product introductions, a transformative acquisition, and strategic divestitures, Carrier is well-positioned to capitalize on the growing demand for sustainable and energy-efficient solutions. The company's solid financial position, strong cash flow generation, and disciplined capital allocation further reinforce its ability to create long-term value for its shareholders.

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