Carrier Global Corporation — FY2022 Form 10-K
Reporting period: Year ended December 31, 2022. This is an annual report; the supplied filing text does not provide clear standalone fourth-quarter results. Carrier is a global provider of HVAC, refrigeration, fire and security products and services.
Financial performance
| Metric | FY2022 | FY2021 |
|---|---|---|
| Net sales | $20.421 billion | $20.613 billion |
| Gross margin | $5.464 billion; 26.8% of sales | $5.980 billion; 29.0% |
| Operating profit | $4.515 billion | $2.645 billion |
| Net income attributable to common shareowners | $3.534 billion | $1.664 billion |
| Diluted EPS | $4.10 | $1.87 |
| Cash from operating activities | $1.743 billion | $2.237 billion |
| Capital expenditures | $353 million | $344 million |
Margins and earnings quality: Gross margin fell 220 basis points, reflecting TCC acquisition-related costs, higher commodity and component costs, supply constraints and freight. Operating profit and net income rose sharply but included a $1.1 billion gain on the Chubb sale and a $705 million non-cash gain from remeasuring Carrier’s previously held TCC interest. The effective tax rate was 16.5%, versus 29.1% in 2021, partly due to the favorable tax treatment of these gains and $45 million of foreign tax credits.
Segment results: HVAC sales rose 18% to $13.408 billion, including TCC; operating profit increased to $2.610 billion. Refrigeration sales fell 6% to $3.883 billion, while operating profit increased 2% to $483 million. Fire & Security sales fell 35% to $3.570 billion, largely because Chubb was sold; excluding Chubb, sales rose 6%. Segment operating profit includes the Chubb sale gain, so its reported increase to $1.630 billion is not indicative of recurring performance.
Liquidity, debt and capital allocation
Year-end cash and cash equivalents were $3.520 billion, up from $2.987 billion. Total debt was $8.842 billion, down from $9.696 billion; net debt was $5.322 billion. The company reported $2.0 billion of revolving credit capacity and a $2.0 billion commercial paper program, with no borrowings outstanding under either at year-end. It reported compliance with debt covenants and investment-grade ratings. Scheduled debt maturities include $1.202 billion in 2025 and $1.306 billion in 2027.
Operating cash flow declined by $494 million, principally due to higher working capital, including inventory and receivables. Approximate free cash flow, calculated as operating cash flow less capital expenditures, was $1.390 billion, versus $1.893 billion in 2021. Investing cash flow was positive $1.745 billion, mainly due to $2.902 billion in Chubb sale proceeds. Financing cash outflows included $1.380 billion of share repurchases and $509 million of dividends. The company paid $0.60 per share in 2022 and announced a quarterly dividend increase to $0.185 per share.
Material changes and outlook
- Organic sales increased 8%, but reported sales declined 1% after foreign currency effects and net divestitures/acquisitions. Pricing improvements more than offset inflationary impacts, according to management.
- Carrier acquired majority ownership of Toshiba Carrier Corporation (TCC) on August 1, 2022 for $930 million, less cash acquired; Toshiba retained 5%. TCC contributed to HVAC sales from the acquisition date.
- Carrier completed the Chubb sale on January 3, 2022 for net proceeds of $2.9 billion. The sale reduced Fire & Security revenue but generated the reported gain.
- Management said supply-chain constraints, component shortages, inflation and transportation delays were expected to continue affecting the business for the foreseeable future. It described demand for energy-efficient, digital and healthy-building solutions as supportive, but provided no specific financial guidance in the supplied filing text.
- Carrier suspended Russian business in March 2022 and stated that Russia and Ukraine were not material to its sales or operations; the conflict could nonetheless contribute to market volatility and supply disruption.
Risks and contingencies
Key disclosed risks include supply-chain and input-cost pressures, economic and construction-market weakness, foreign currency movements, weather-related HVAC seasonality, climate regulation and product-transition costs, cybersecurity incidents, labor matters, acquisition integration and leverage. AFFF-related litigation is a significant unresolved contingency: Carrier disclosed more than 3,150 individual lawsuits and more than 300 claims by states, municipalities and water utilities. The company said it could not assess the probability of liability or reasonably estimate potential damages; future exposure could be material. It is pursuing indemnification and insurance coverage. Environmental reserves were $235 million; asbestos liabilities were $228 million, partly offset by $95 million of recorded recovery receivables. Management stated that it did not believe the resolution of the matters discussed would materially adversely affect the company, while noting the uncertainty of the AFFF claims.
The financial statements received an unqualified audit opinion, and management and the auditor concluded internal control over financial reporting was effective. TCC was excluded from the 2022 internal-control assessment while integration work continued; it represented approximately 7% of consolidated assets and 4% of net sales for the period, per the filing.
Investor facts to verify
- How much of reported earnings growth is recurring after removing the Chubb and TCC remeasurement gains and related tax effects?
- Whether working capital normalizes and operating cash flow recovers after the 2022 inventory and receivables build.
- TCC integration progress, realized synergies and the effect of acquisition-related amortization on HVAC margins.
- Developments in AFFF litigation, including bellwether trials, insurance recoveries and indemnification prospects; potential damages remain unquantified.
- Debt maturities, capital returns and the company’s ability to balance repurchases and dividends with investment needs.
- Whether supply constraints, inflation, foreign-exchange movements and end-market demand continue to pressure margins and sales.