Carrier Earnings: HVAC Segment Drives Strong Performance; Transformative Deals Set for 2024

After reviewing Carrier’s CARR third-quarter financial results, we’ve maintained our $49 per share fair value estimate. The narrow-moat-rated manufacturer of heating, ventilation, and air conditioning, refrigeration, and fire and security products reported good results. Reported revenue increased 5% year over year (3% organic) to $5.7 billion, adjusted operating margin expanded 240 basis points to 18.2%, and free cash flow increased 36% to $949 million.

Carrier’s HVAC segment (70% of third-quarter revenue) was the primary driver behind the firm’s solid results. While residential HVAC demand remains subdued following two above-average years, demand for commercial HVAC products remains robust. Indeed, third-quarter light commercial HVAC sales were about 30% higher than last year and commercial HVAC sales increased by a high-single-digit percentage. Conversely, North America residential HVAC sales decreased by a low-single-digit percentage as favorable price and mix were more than offset by a low-double-digit volume decline. HVAC segment adjusted operating margin expanded a resounding 410 basis points to 20.8%

Fire and security reported revenue grew 2% (6% organic) amid solid demand across commercial, industrial, and residential markets. Segment adjusted operating margin expanded 170 basis points to 18.3%. Refrigeration reported revenue was flat (negative 3% organic). Strong international truck and trailer growth was offset by slowing demand in North America. Segment adjusted operating margin fell 80 basis points to 12%.

2024 will be a transformative year for Carrier as management expects to close on the Viessmann Climate Solutions acquisition in early January. Furthermore, management expects to announce sales terms of its security, industrial fire, and commercial refrigeration businesses by the end of first-quarter 2024. Finally, the residential and commercial fire businesses will separate into one publicly traded company by the spring of 2024.