CARRIER GLOBAL Corp quarterly report, Q1 FY2024

Carrier Global Corporation — Q1 2024 Form 10-Q

Reporting period: Three months ended March 31, 2024. Carrier provides HVAC, refrigeration, fire and security products and related services. The quarter includes Viessmann Climate Solutions (VCS) from its January 2 acquisition date; prior-year comparisons are therefore affected by acquisition and divestiture activity. Financial statements are unaudited and were reviewed, not audited, by PwC.

Financial performance and liquidity

Metric	Q1 2024	Q1 2023
Net sales	$6.182 billion	$5.273 billion
Operating profit	$500 million	$555 million
Net income attributable to common shareowners	$269 million	$373 million
Diluted EPS	$0.29	$0.44
Operating cash flow	$40 million	$120 million

Sales rose 17%, but organic growth was 2%; acquisition and divestiture effects added a net 15%. Gross margin increased to 27.6% from 26.1%, while operating profit declined 10% and net income attributable to common shareowners fell 28%.
Net interest expense increased to $165 million from $46 million, principally reflecting debt used to finance VCS. The effective tax rate fell to 13.7% from 24.0%, helped by discrete tax benefits.
Cash and equivalents were $1.313 billion at quarter-end, down from $10.015 billion at year-end. Total debt was $16.895 billion, up from $14.293 billion; net debt increased to $15.582 billion from $4.278 billion. The company reported total debt to capitalization of 59% and net debt to net capitalization of 57%.
Investing cash outflow was $11.081 billion, including $10.772 billion for the VCS acquisition. Financing provided $2.379 billion, including borrowing proceeds; dividends paid were $159 million. Operating cash flow was down year over year, mainly due to working-capital changes.
Approximately 96% of quarter-end cash was held by foreign subsidiaries. The company had no borrowings under its $2.0 billion revolving credit facility or commercial paper program and reported compliance with debt covenants.

Material changes and segment results

VCS acquisition: Completed for $14.157 billion, comprising $11.156 billion cash and 58.6 million Carrier shares. VCS contributed $875 million in revenue and a $124 million net loss from acquisition through quarter-end. Its results included $111 million of inventory and backlog step-up amortization and $139 million of intangible amortization. Purchase accounting remains preliminary.
HVAC: Sales increased 25% to $4.541 billion, including 24% acquisition contribution and 2% organic growth. Operating profit decreased 1% to $429 million; margin declined to 9.4% from 12.0%, reflecting acquired-asset amortization and other effects.
Refrigeration: Sales decreased 2% to $884 million and operating profit decreased 10% to $97 million. Management cited softer end-market demand in Europe, China and North America.
Fire & Security: Sales increased 2% to $887 million, including 7% organic growth partly offset by the KFI deconsolidation. Operating profit increased to $153 million from $93 million, benefiting from volume, pricing and productivity.
Carrier plans to exit Fire & Security and Commercial Refrigeration businesses. Announced 2024 sales include Access Solutions to Honeywell for approximately $4.95 billion, Commercial Refrigeration to Haier for approximately $775 million, and Industrial Fire to Sentinel Capital Partners for approximately $1.425 billion. Each transaction remained subject to closing conditions.

Outlook, commentary, risks and unusual items

The filing provides no specific numerical earnings or sales guidance. Management said cash on hand, operating cash flows and committed credit facilities should be sufficient for operating needs, while noting future financing access depends on credit ratings, indebtedness and capital-market conditions.
Management cited favorable long-term demand trends in climate and energy solutions, but noted economic activity, construction and shipping, currency movements, commodity costs and supply disruptions may affect results. End-market conditions were mixed, with reduced residential demand in EMEA and weaker demand in some refrigeration markets.
Q1 results included an $86 million loss on mark-to-market valuation of acquisition-related currency forwards, $89 million of acquisition- and divestiture-related costs, and a $23 million charge at an HVAC equity-method investment in Egypt. Tax benefits included a $21 million benefit tied to UTC tax matters, plus benefits related to held-for-sale basis adjustments and business reorganizations.
Foreign-currency translation reduced other comprehensive income by $388 million; comprehensive income was a loss of $100 million.
Contingencies: Carrier disclosed more than 7,000 individual and more than 800 governmental or utility AFFF-related lawsuits. It said it cannot assess liability probability or reasonably estimate a possible loss range, and future exposure could be material. KFI is in Chapter 11 and was deconsolidated; a proposed sale of certain KFI assets was approved by the bankruptcy court on April 1, 2024, but proceeds allocation was not determined. Carrier said it does not believe resolution of other disclosed legal matters will materially adversely affect results or financial condition.
The company reported disclosure controls were effective and no material change in internal control over financial reporting. It reported no material changes to risk factors from its 2023 Form 10-K.

Important facts for investors to verify

Whether VCS delivers expected growth and synergies, and how final purchase-price allocation and acquired-business performance develop.
Progress, closing conditions and final proceeds from the three announced divestitures, and the resulting impact on the continuing business.
Debt reduction, interest costs, cash generation and working-capital performance following the acquisition.
Developments in AFFF litigation and KFI’s bankruptcy and asset sale, including any potential financial exposure.
Whether organic growth, margins and end-market demand improve or weaken across HVAC, Refrigeration and Fire & Security.