Carrier (US:CARR)2023-04-25 16:00PART I – FINANCIAL INFORMATION This section provides Carrier's unaudited condensed consolidated financial information for the first quarter of 2023, including statements, notes, and management's discussion Item 1. Financial Statements This section presents Carrier's unaudited condensed consolidated financial statements for Q1 2023, showing increased net sales but decreased net income due to the prior year's Chubb divestiture gain, alongside improved operating cash flow Condensed Consolidated Statement of Operations Net sales increased 13% to $5.27 billion, but operating profit and net income significantly declined to $555 million and $373 million respectively, primarily due to the prior year's Chubb divestiture gain | Financial Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Total Net Sales | $5,273 million | $4,654 million | | Operating Profit | $555 million | $1,737 million | | Net Income Attributable to Common Shareowners | $373 million | $1,379 million | | Diluted Earnings Per Share | $0.44 | $1.58 | Condensed Consolidated Balance Sheet Total assets slightly increased to $26.41 billion, with inventories and accounts receivable rising, while total liabilities decreased and total equity grew to $8.47 billion | Balance Sheet Item | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Current Assets | $10,158 million | $9,879 million | | Goodwill | $9,987 million | $9,977 million | | Total Assets | $26,411 million | $26,086 million | | Total Current Liabilities | $5,958 million | $6,032 million | | Long-term Debt | $8,708 million | $8,702 million | | Total Liabilities | $17,943 million | $18,010 million | | Total Equity | $8,468 million | $8,076 million | Condensed Consolidated Statement of Cash Flows Operating cash flow improved to a $120 million inflow, while investing activities used $100 million, and financing activities used $213 million, ending with $3.35 billion in cash | Cash Flow Activity | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net cash flows from operating activities | $120 million | ($202) million | | Net cash flows from investing activities | ($100) million | $2,820 million | | Net cash flows from financing activities | ($213) million | ($2,020) million | | Net (decrease) increase in cash | ($173) million | $597 million | | Cash and cash equivalents, end of period | $3,347 million | $3,604 million | Notes to Condensed Consolidated Financial Statements Detailed notes cover TCC acquisition, Chubb divestiture, segment performance, AFFF litigation, and subsequent events including the Viessmann acquisition and planned business exits - The company completed the acquisition of a majority ownership interest in Toshiba Carrier Corporation (TCC) on August 1, 2022, consolidating its results within the HVAC segment25105 - The sale of the Chubb Fire and Security business on January 3, 2022, resulted in a net gain of $1.1 billion recognized in Q1 202226111 - The company faces over 3,800 federal lawsuits related to Aqueous Film Forming Foam (AFFF), with an inability to assess liability or estimate potential damages currently101153 - Post-quarter, the company announced the acquisition of Viessmann's climate solutions business for approximately €12 billion and plans to exit its Fire & Security and Commercial Refrigeration businesses in 2024172200 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes Q1 2023 financial results, detailing a 13% net sales increase driven by TCC acquisition and organic growth, segment performance, liquidity, and capital allocation priorities Results of Operations Net sales rose 13% to $5.3 billion, with organic sales up 4%, while gross margin percentage decreased by 170 basis points, and operating profit declined 68% to $555 million due to the prior year's Chubb gain | Net Sales Change Driver | % Change YoY (Q1 2023) | | :--- | :--- | | Organic | 4% | | Foreign currency translation | (2)% | | Acquisitions and divestitures, net | 11% | | Total % change | 13% | - Gross margin as a percentage of net sales decreased by 170 basis points, with the TCC acquisition contributing a 240 basis point unfavorable impact189 - The effective tax rate increased to 24.0% from 17.8% in Q1 2022, primarily due to the prior year's lower effective tax rate on the $1.1 billion Chubb gain114246 Segment Review HVAC sales grew 22% to $3.6 billion due to TCC, Refrigeration sales declined 8% to $898 million, and Fire & Security sales increased 6% to $869 million with 9% organic growth | Segment | Net Sales Q1 2023 | Net Sales Q1 2022 | % Change | Operating Profit Q1 2023 | Operating Profit Q1 2022 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | HVAC | $3,622 M | $2,970 M | 22% | $435 M | $470 M | (7)% | | Refrigeration | $898 M | $976 M | (8)% | $108 M | $107 M | 1% | | Fire & Security | $869 M | $818 M | 6% | $93 M | $1,218 M | (92)% | - HVAC net sales grew 22%, driven by 18% from acquisitions (TCC), 6% organic growth, and -2% from foreign currency translation248 - Refrigeration organic net sales decreased 5%, primarily due to a 15% decline in commercial refrigeration volumes in Europe251 - Fire & Security operating profit declined 92% due to the $1.1 billion net gain from the Chubb sale in Q1 2022, with operational profit remaining flat year-over-year253254 Liquidity and Financial Condition Carrier held $3.3 billion in cash and $8.85 billion in total debt, with undrawn credit facilities, and repurchased $62 million in stock while paying $154 million in dividends | Metric | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $3,347 million | $3,520 million | | Total debt | $8,850 million | $8,842 million | | Net debt | $5,503 million | $5,322 million | | Total debt to total capitalization | 51% | 52% | - The company maintains a $2.0 billion revolving credit facility and a $2.0 billion commercial paper program, both undrawn as of March 31, 2023230231 - During Q1 2023, 1.4 million shares were repurchased for $62 million, with approximately $2.1 billion remaining under the authorization137237 - Dividends of $154 million were paid on common stock during Q1 2023238 Item 3. Quantitative and Qualitative Disclosures About Market Risk No significant change in market risk exposure occurred during Q1 2023, with further details referenced in the 2022 Form 10-K - No significant change in the company's exposure to market risk occurred during Q1 2023265 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2023, with no material changes to internal control over financial reporting - The CEO and CFO concluded that disclosure controls and procedures were effective as of March 31, 2023281 - No material changes in internal control over financial reporting occurred during the quarter266 PART II – OTHER INFORMATION This section provides other information including legal proceedings, risk factors, equity security purchases, and a list of exhibits filed with the Form 10-Q Item 1. Legal Proceedings No material developments in legal proceedings occurred, with further details available in Note 19 of the financial statements regarding matters like AFFF litigation - No material developments in legal proceedings occurred, with further details in Note 19 of the financial statements269283 Item 1A. Risk Factors No material changes to the company's risk factors were reported from those disclosed in the 2022 Form 10-K - No material changes in the company's risk factors from those disclosed in the 2022 Form 10-K244 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q1 2023, Carrier repurchased 1.386 million shares for approximately $62 million at an average price of $44.70 per share | Period (2023) | Total Shares Purchased (in thousands) | Average Price Paid per Share | Approx. Dollar Value Remaining in Program (in millions) | | :--- | :--- | :--- | :--- | | January | 459 | $43.55 | $2,171 | | February | 421 | $45.10 | $2,152 | | March | 506 | $45.40 | $2,129 | | Total Q1 | 1,386 | $44.70 | $2,129 | Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including award agreements, CEO/CFO certifications, and XBRL data files - The report includes exhibits such as management compensation plans, certifications, and XBRL financial data275276