Carrier Global Corporation (NYSE: CARR) — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. Figures are in U.S. dollars; financial amounts are generally in billions unless stated otherwise. Comparisons are with 2022.
Business context
Carrier is a global provider of HVAC, refrigeration, fire and security products and related services. In 2023, sales were concentrated in HVAC; 58% of sales came from the Americas, 22% from EMEA and 20% from Asia-Pacific. New equipment accounted for 76% of sales and parts and services for 24%. International operations, including U.S. exports, represented about 48% of sales.
Key financial results
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Net sales | $22.098B | $20.421B | +8% |
| Gross margin | $6.383B; 28.9% | $5.464B; 26.8% | +17%; +210 bps |
| Operating profit | $2.296B | $4.515B | -49% |
| Net income attributable to common shareowners | $1.349B | $3.534B | -62% |
| Diluted EPS | $1.58 | $4.10 | Down |
| Operating cash flow | $2.607B | $1.743B | +$864M |
| Capital expenditures | $469M | $353M | +$116M |
Sales growth included 3% organic growth and a 5% net contribution from acquisitions and divestitures, principally the inclusion of Toshiba Carrier Corporation (TCC) for a full year. Gross margin improved on pricing, demand and productivity, partly offset by commodity, component and supply-chain costs. Operating expenses rose substantially, while 2022 included large gains from the Chubb sale and TCC acquisition; therefore, the year-over-year decline in operating profit and net income reflects significant nonrecurring items in both periods.
Segment results: HVAC sales were $15.139B (+13%) and operating profit was $2.275B (-13%; 15.0% margin). Refrigeration sales were $3.818B (-2%) and operating profit was $428M (-11%; 11.2% margin). Fire & Security sales were $3.633B (+2%) and operating profit was $209M versus $1.630B in 2022; the prior-year comparison included the $1.1B Chubb sale gain. Segment sales include intercompany amounts and do not equal consolidated sales.
Liquidity, debt and capital allocation
- Cash and cash equivalents were $10.015B at year-end, versus $3.520B in 2022. Total debt was $14.293B, versus $8.842B; net debt was $4.278B, down from $5.322B.
- Total debt to total capitalization was 61% (52% in 2022); net debt to net capitalization was 32% (40%). The company reported compliance with debt covenants and no borrowings under its $2.0B revolving credit facility or $2.0B commercial paper program at year-end.
- Financing cash flow was $4.612B, primarily reflecting issuance of $3.0B of U.S.-dollar notes and €2.35B of euro notes. Annual interest payments on long-term notes were expected to be about $507M; reported 2023 interest expense was $362M.
- Dividends paid totaled $620M, or $0.74 per share. Repurchases totaled $62M in 2023; the program was paused after the Viessmann acquisition was announced, with about $2.1B remaining under authorization.
- Management said available cash and operating cash flows should be sufficient for future operating needs, with committed facilities and capital markets as additional funding sources.
Material changes, outlook and unusual items
- Portfolio shift: Carrier completed its $14.2B acquisition of Viessmann Climate Solutions (VCS) on January 2, 2024, after the reporting date. Consideration included $11.2B cash and 58,608,959 Carrier shares. VCS reported €3.4B of sales for 2022. Management expects growth and operating synergies, but the filing provides no quantified synergy target or 2024 financial guidance.
- Carrier agreed to sell Access Solutions to Honeywell for approximately $4.95B enterprise value and Commercial Refrigeration to Haier for approximately $775M enterprise value. Both were expected to close in 2024, subject to customary conditions. Industrial Fire was also classified as held for sale. Year-end held-for-sale assets were $3.314B and liabilities were $862M.
- Kidde-Fenwal, Inc. (KFI) filed for Chapter 11 in May 2023 and was deconsolidated. Carrier recorded a $297M loss and a $134M investing cash outflow; its retained interest was valued at zero. KFI-related AFFF litigation is subject to stays, and Carrier says it cannot assess the probability of liability or reasonably estimate possible loss.
- Other significant items included a $96M loss on VCS-related currency forwards, $220M in acquisition- and divestiture-related costs, and an effective tax rate of 30.9% versus 16.5% in 2022. A $1.3B Swiss tax credit was granted in 2023, but Carrier recorded a full valuation allowance while it assesses future realizability.
- Management cited pricing, customer demand and productivity as supports to results; lower commercial refrigeration and container volumes weighed on Refrigeration. Inflationary cost pressures moderated but remained elevated. Risks include economic and construction-market weakness, weather and seasonality, foreign exchange, supply constraints, regulation and climate-transition costs, cyber incidents, acquisition integration, indebtedness and litigation.
- The company reported no material cybersecurity impact to date. Management and the auditor concluded internal control over financial reporting was effective at December 31, 2023; the financial statements received an unqualified audit opinion.
Important facts for investors to verify
- Post-close VCS financing, purchase-price allocation, integration progress, realized synergies and the effects of the 58.6M shares issued to Viessmann.
- Completion timing and net proceeds from the Honeywell and Haier divestitures, as well as the status and treatment of Industrial Fire.
- Exposure from AFFF litigation, KFI’s bankruptcy and any related insurance or indemnification recoveries; the filing states potential loss cannot currently be estimated.
- Debt service, refinancing needs and credit ratings following the VCS transaction; the reported year-end debt includes financing arranged for the acquisition.
- Whether the Swiss tax credit and other tax attributes will be realizable, and developments in tax examinations and uncertain tax positions.
- Underlying segment profitability and cash generation, distinguishing recurring operations from sale gains, acquisition accounting, deconsolidation losses and other unusual items.