Carrier Global Corporation (CARR) 2024 Q2 Earnings Call Summary

Optimistic Highlights

• Strong Order Intake: Q2 organic orders surged by approximately 30% year-over-year, with HVAC organic orders climbing over 40%, driven by robust demand in data centers.

• North America Residential Business Growth: The residential business in North America returned to year-over-year volume growth, poised for a strong second half due to strong orders and low inventory levels.

• Margin Expansion and EPS Growth: Q2 adjusted operating margins expanded by 200 points to 18.1%, with adjusted EPS up double-digits, fueled by strong productivity.

• Significant Net Debt Reduction: Achieved through strong free cash flow of about $550 million in the quarter and progress on business exits, positioning for a multi-billion dollar share buyback.

• Advancements in Connectivity and AI: Nearly 40,000 connected chillers and over 150,000 paid subscriptions for the Lynx cold chain platform, alongside the establishment of an AI center of excellence.

Pessimistic Highlights

• Weakness in RLC Businesses: Noted weakness in Residential and Light Commercial (RLC) businesses in Europe and China, offsetting strong sales growth in other segments.

• Lower Viessmann Climate Solutions Sales: Revised outlook for 2024 assumes about a 15% drop in year-over-year sales for Viessmann Climate Solutions, with Q2 sales down about 30% year-over-year.

Company Outlook

• 2024 Sales and EPS Guidance Maintained: Full-year sales expected to be roughly $25.5 billion with adjusted EPS guide range of $2.80 to $2.90, reflecting mid-single digits organic growth.

• Focus on Portfolio Transformation: Continued integration with Viessmann Climate Solutions and progress on divestitures, aiming for a more focused, higher growth company.

• Anticipation of Strong Growth in 2025: Positioned for strong growth across a significant percentage of the portfolio, with continued focus on sustainability, electrification, and energy resilience.

Q & A Highlights

• Q: Can you characterize the new guidance for Viessmann Climate Solutions? (Andrew Kaplowitz, Citigroup)

  A: The guidance is more de-risked, with about 15% to 20% growth in the second half over the first half, coming off a lower base. Typical seasonality suggests a 15% to 20% increase in orders as heating months approach. (David Gitlin)

• Q: Could you give more color on the order trends seen in the quarter? (Andrew Kaplowitz, Citigroup)

  A: Orders were strong across U.S. residential, commercial HVAC, and data centers, with share gains in U.S. residential and significant order intake in commercial HVAC. (David Gitlin)

• Q: Can you elaborate on the comment about preorders into the back half? (Jeffrey Sprague, Vertical Research Partners)

  A: It's about production planning and ensuring distributors have what they need on the shelf at the end of the year. There's no formal cutoff date for 410A orders. (David Gitlin)

• Q: On Fire & Security margins, was there something unusual in the quarter? (Jeffrey Sprague, Vertical Research Partners)

  A: The strong margin performance was driven by price, productivity, and actions related to stranded costs. (Patrick Goris)

• Q: Could you clarify the third quarter commentary? (Julian Mitchell, Barclays)

  A: Expect sales of about $6.6 billion and adjusted EPS of about $0.80 for Q3, with margins down about 100 bps year-over-year. (Patrick Goris)

• Q: Any update on the resi side with longer lead orders? (Noah Kaye, Oppenheimer)

  A: Expecting lower 454B this year, closer to 5%, with a shift towards 80% or more next year. (David Gitlin)

• Q: Can you talk about the progress with data center orders? (Joseph Ritchie, Goldman Sachs)

  A: Very enthusiastic about data center opportunities, with a dedicated team and significant order intake. Adding capacity for both water cooled and air cooled chillers. (David Gitlin)

• Q: Any update on light commercial expectations for the year? (Joseph Ritchie, Goldman Sachs)

  A: Feel good about light commercial, expecting up low-single-digits for the year, with positive orders in Q2. (David Gitlin, Patrick Goris)

• Q: Can you provide more details on the 3Q margin and Viessmann second half? (Nigel Coe, Wolfe Research)

  A: Expect Q3 sales for Viessmann Climate Solutions to be down high teens, with EBITDA for the full year in the ballpark of 550. (Patrick Goris, David Gitlin)

• Q: Any evidence of trade downs by consumers opting for repair over replacement? (Gautam Khanna, Cowen)

  A: No material trend seen in customers opting to repair instead of replace. (David Gitlin)

• Q: Any changes at the margin competitively with Bosch now as a competitor and Lennox's JV with Samsung? (Deane Dray, RBC Capital Markets)

  A: No material change to the competitive landscape seen with these moves. (David Gitlin)