CARRIER GLOBAL Corp Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Organic Growth: Organic orders up 20%, organic sales growth 4%. Double-digit aftermarket growth for fourth consecutive year.
• Portfolio Moves: Closed sale of commercial refrigeration business on Oct 1, on track to close fire business divestiture by year-end. Reached AFFF settlement subject to court approval.
• Viessmann Climate Solutions: Backlog returned to traditional levels. Orders turned positive, up low-single-digits. Integration benefits include technology harmonization, cost savings, revenue synergies targeting over $100M next year, cost synergies on track for over $200M by 2026.
• Sustainability: Achieved DOE cold climate heat pump challenge. Introduced Vector Trailer Refrigeration unit reducing CO2 by 73%. On track to reduce customers' carbon emissions by one gigaton ahead of 2030 goal.

Segment Performance

• HVAC: Reported sales growth of 26% (organic sales growth 6% + Viessmann Climate Solutions contribution). Americas organic sales up high-single-digits (commercial HVAC up ~20%, residential up double-digit). EMEA organic sales up low-single-digits (commercial HVAC up double-digit, offset by resi/light commercial decline). Asia-Pacific down low-single-digits (China residential/light commercial weakness, offset by Rest of Asia strength). Operating margins down 100 basis points due to VCS consolidation.
• Refrigeration: Reported and organic sales up 1%. Transport refrigeration up 3% (container up 30%, global truck/trailer down mid-single digits, Asia truck/trailer up ~20%, Sensitech up double-digit). Commercial refrigeration down low-single-digits. Adjusted operating margin expanded 50 basis points due to productivity.

Guidance

• 2024: Reported sales ~$22.5B, underlying organic growth ~3%. Adjusted operating margin ~15.5%, up 150 basis points. Adjusted EPS from continuing operations ~$2.50, better than guide by ~$0.03. Preliminary free cash flow outflow ~$370M, underlying ~$700M.
• 2025: Expect double-digit adjusted EPS growth from organic revenue, tailwinds from cost elimination, lower net interest expense, and share repurchases. Plan to issue 2025 guide in early Feb.

Risks

• AFFF Settlement: Subject to court approval, but settlement aims to permanently resolve claims related to AFFF manufacturer/sale. Direct claims from UTC's actions between 2005-2013 also settled, but subject to court approval.

Question and Answer

Q: On Viessmann bottoming process and 2025 revenue from VCS A: Orders in VCS improved, subsidy applications up, but not confident in calling a bottom yet. Targeting over $100M revenue synergies from VCS next year.

Q: Pre-buy for 410A A: No material pre-buy expected, but capacity available. Distributors asked about inventory needs, entering next year with some 410A inventory.

Q: Viessmann margin impact A: Q3 margin headwind from VCS consolidation, but core operational performance unchanged.

Q: Refrigeration margin and truck trailer trends A: Excluding CCR, refrigeration margins up ~300 basis points. North American truck trailer tough, but confident in growth next year.

Q: Aftermarket 2.0 strategy A: Builds on existing aftermarket basics with more sophistication in rotable pools, prognostics, diagnostics, and value-added services, with modest investments but higher margin potential.