8-K: Carrier Global Reports Strong 2023 Results, Announces 2024 Outlook

Carrier Global Corporation announced strong fourth quarter and full-year 2023 results, along with a positive outlook for 2024, including significant business divestitures and a focus on debt reduction.

Summary

• Carrier Global Corporation reported its fourth quarter and full year 2023 financial results on February 6, 2024.
• Fourth quarter sales were $5.1 billion, flat compared to the prior year, with a 340 basis point operating margin expansion.
• GAAP EPS for the fourth quarter was $0.49, a 53% increase year-over-year, and adjusted EPS was $0.53, up 33% from 2022.
• Net cash flow from operating activities for the quarter was $1.1 billion, with free cash flow of $829 million.
• Full-year 2023 sales reached $22.1 billion, an 8% increase from 2022, including 3% organic growth.
• Gross margins for the full year increased by 210 basis points compared to 2022.
• Full-year GAAP EPS was $1.58, and adjusted EPS was $2.73.
• Net cash flow from operating activities for the full year was $2.6 billion, and free cash flow was $2.1 billion, up 49% and 53% respectively.
• The company expects 2024 sales of approximately $26.5 billion with mid-single-digit organic growth.
• Adjusted operating margin for 2024 is projected to be between 15.0% and 15.5%, an increase of over 50 basis points compared to 2023.
• Adjusted EPS for 2024 is expected to be between $2.80 and $2.90.
• Free cash flow for 2024 is projected to be around $0.7 billion, which includes $1.7 billion of expected tax payments related to business exits.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with strong financial results and strategic moves, indicating a favorable sentiment from an investment perspective. The company is showing good growth and is making strategic moves to improve its business.

Positives

• Carrier demonstrated strong operating profit growth and EPS growth of over 30% in the fourth quarter compared to the prior year.
• The company grew gross margins by 210 basis points on 3% organic sales growth for the full year.
• Both operating and free cash flow were up about 50% for the full year compared to the prior year.
• Carrier completed its combination with Viessmann Climate Solutions in January.
• Definitive agreements were reached to sell the Global Access Solutions and Commercial Refrigeration businesses for close to $6 billion combined.
• The company has a solid backlog and expects another year of strong financial performance in 2024.
• The Refrigeration segment returned to growth in the fourth quarter, with organic sales up 6%.

Negatives

• HVAC segment sales declined 1% organically in the fourth quarter.
• North America Residential & Light Commercial HVAC sales declined high single digits due to weaker than expected residential sales.
• Fire and Security organic sales were down 1% in the fourth quarter.
• GAAP operating profit for the full year decreased 49% due to prior year gains on the sale of Chubb and the acquisition of Toshiba Carrier.

Risks

• The company's forward-looking statements are subject to risks, uncertainties, and other factors that may cause actual results to differ materially.
• The company's 2024 free cash flow guidance includes $1.7 billion of expected tax payments on gains from business exits, restructuring, and transaction-related costs.
• The company's performance is subject to fluctuations in foreign currency exchange rates, the impact and timing of potential acquisitions and divestitures, and future restructuring costs.

Future Outlook

Carrier projects continued solid organic growth in 2024, supported by double-digit aftermarket growth, innovation, and secular tailwinds. The company expects sales of ~$26.5B with mid-single digit organic growth, adjusted operating margin of 15.0% 15.5%, adjusted EPS of $2.80 $2.90, and free cash flow of ~$0.7B (including $1.7B of expected tax payments).

Management Comments

• Carrier Chairman & CEO David Gitlin stated that the fourth quarter results show Carrier's ability to perform while transforming, with strong operating profit growth and EPS up over 30% compared to the prior year.
• David Gitlin also mentioned that for full-year 2023, the company grew gross margins 210 basis points on 3% organic sales growth with both operating and free cash flow up about 50% compared to the prior year.
• He noted the completion of the combination with Viessmann Climate Solutions and the agreements to sell the Global Access Solutions and Commercial Refrigeration businesses.
• Gitlin expressed confidence that solid backlog levels and sustainability leadership position Carrier for another year of strong financial performance.

Industry Context

This announcement reflects a strategic shift for Carrier, focusing on core climate and energy solutions while divesting non-core businesses. The company's emphasis on organic growth, margin expansion, and free cash flow generation aligns with broader industry trends towards efficiency and profitability. The acquisition of Viessmann Climate Solutions and the divestitures of Global Access Solutions and Commercial Refrigeration indicate a move towards a more focused portfolio.

Comparison to Industry Standards

• Carrier's 3% organic sales growth for 2023 is comparable to other large industrial companies in the HVAC and refrigeration sectors, such as Trane Technologies and Johnson Controls, which have also reported moderate organic growth in recent periods.
• The 210 basis point increase in gross margins is a positive sign, indicating improved pricing power and cost management, which is a key focus for companies in this sector.
• Carrier's adjusted EPS of $2.73 for 2023 is within the range of its peers, but the projected 2024 EPS of $2.80 $2.90 suggests a positive outlook.
• The free cash flow of $2.1 billion for 2023 is a strong result, demonstrating the company's ability to generate cash, which is crucial for debt reduction and future investments.
• The divestiture of Global Access Solutions and Commercial Refrigeration for close to $6 billion is a significant strategic move, similar to other companies streamlining their portfolios to focus on core businesses.

Stakeholder Impact

• Shareholders are likely to react positively to the strong financial results and positive outlook.
• Employees may benefit from the company's growth and strategic initiatives.
• Customers may see improved products and services as the company focuses on its core businesses.
• Suppliers may experience increased demand as the company grows.
• Creditors may view the company's debt reduction plans favorably.

Next Steps

• The company will continue to execute its strategic plan, focusing on organic growth, margin expansion, and free cash flow generation.
• Carrier will use the ~$4.5 billion net proceeds from business exits for debt reduction.
• The company will host a webcast of its earnings conference call on February 6, 2024, at 7:30 a.m. ET.

Key Dates

Keywords

Carrier Global, Financial Results, Earnings, HVAC, Refrigeration, Operating Margin, EPS, Free Cash Flow, Divestiture, Viessmann, Organic Growth