Carrier Global Corporation — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Carrier provides HVAC, refrigeration, fire and security, building automation, and related services. Comparisons are with Q1 2021; Chubb Fire & Security was sold on January 3, 2022, so reported periods are not fully comparable.
Financial performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Net sales | $4.654 billion | $4.699 billion |
| Gross margin | $1.293 billion; 27.8% | $1.394 billion; 29.7% |
| Operating profit | $1.737 billion | $571 million |
| Net income attributable to common shareholders | $1.379 billion | $384 million |
| Diluted EPS | $1.58 | $0.43 |
| Operating cash flow | $(202) million | $184 million |
| Capital expenditures | $56 million | $53 million |
Reported operating profit and earnings included a $1.1 billion gain on the Chubb sale. Excluding the effect of the divestiture, organic sales increased 10%, with pricing and higher volumes contributing. Gross margin fell 190 basis points year over year, primarily reflecting Chubb’s absence and higher commodity, component, freight, and logistics costs, partly offset by pricing and productivity.
By segment, HVAC sales rose 19% to $2.970 billion and operating profit increased 29% to $470 million; Refrigeration sales fell 3% to $976 million and operating profit fell 16% to $107 million; Fire & Security sales declined 37% to $818 million following the Chubb sale, while its reported $1.218 billion operating profit included the sale gain. Excluding Chubb, Fire & Security sales increased 8%.
Cash, debt, and liquidity
- Cash and equivalents were $3.604 billion at March 31, 2022, versus $2.987 billion at year-end. Net debt was $4.957 billion, down from $6.709 billion.
- Total debt was $8.561 billion, down from $9.696 billion. Debt to total capitalization was 54%, versus 58% at year-end. Carrier reported compliance with debt covenants and no borrowings under its $2.0 billion revolving facility or $2.0 billion commercial paper program.
- Operating cash flow was negative, chiefly due to working-capital investment, including higher inventory and receivables. Investing cash flow was $2.820 billion, mainly reflecting $2.9 billion in net Chubb sale proceeds. Financing cash outflow was $2.020 billion, including $1.15 billion of debt tender offers, $734 million of share repurchases, and $129 million of dividends.
Material developments, outlook, and risks
- Carrier repurchased 15.7 million shares for $741 million during the quarter. The board declared a $0.15-per-share dividend payable in May 2022.
- Carrier agreed to acquire a majority stake in Toshiba Carrier Corporation for approximately $900 million, with closing expected by the end of Q3 2022, subject to customary conditions and regulatory approvals. Toshiba is to retain 5%; expected funding includes cash and a $400 million yen-denominated term loan.
- Management said strong demand continued, but supply-chain constraints, component shortages, inflation, and freight delays were expected to affect the business for the foreseeable future. Carrier was taking pricing, sourcing, and operational actions to mitigate these pressures. No specific financial guidance was provided in the supplied filing text.
- Carrier suspended new business in Russia in March 2022 while seeking to honor existing obligations where possible and in compliance with sanctions. Russia and Ukraine were each described as immaterial to Carrier, but the conflict may add market volatility, costs, and supply disruption. COVID-19’s continuing effects also remained uncertain.
- Carrier disclosed more than 2,200 individual and more than 160 government or public-utility AFFF-related lawsuits, plus other AFFF actions. It said it could not assess liability probability or reasonably estimate potential damages; it is pursuing indemnification and insurance coverage. Recorded environmental reserves were $218 million; asbestos liabilities were $236 million with $97 million of related recovery receivables.
Investor verification points
- Assess underlying earnings and margins apart from the $1.1 billion Chubb gain and the Chubb-related change in segment mix.
- Track whether working-capital pressure and supply-chain constraints ease, and whether pricing offsets continued cost inflation.
- Verify final Chubb sale working-capital adjustments and the timing, approvals, and funding of the Toshiba Carrier acquisition.
- Monitor AFFF litigation developments, indemnification and insurance recoveries, and any changes in the company’s ability to estimate exposure.
- Review the pace of share repurchases, dividend payments, and debt reduction alongside operating cash generation.