Carrier (US:CARR)2023-07-26 16:00PART I – FINANCIAL INFORMATION Financial Statements Presents Carrier Global Corporation's unaudited condensed consolidated financial statements for Q2 and H1 2023 and 2022, covering operations, balance sheet, and cash flows Notes to Condensed Consolidated Financial Statements Details accounting policies and significant events, including the planned Viessmann acquisition, divestitures, KFI deconsolidation, TCC acquisition, and AFFF litigation - Announced a major portfolio transformation: acquiring Viessmann's climate solutions business for ~€12 billion and planning to exit the Fire & Security and Commercial Refrigeration businesses in 2024140231259 - Kidde-Fenwal, Inc. (KFI), a subsidiary, filed for Chapter 11 bankruptcy on May 14, 2023, leading to its deconsolidation from Carrier's financial statements and a recognized loss of $293 million141227287 - The acquisition of a majority stake in Toshiba Carrier Corporation (TCC) was completed on August 1, 2022, and its results are now consolidated within the HVAC segment14299288 Segment Sales Breakdown (Six Months Ended June 30) | Segment | 2023 Sales (in millions) | 2022 Sales (in millions) | | :--- | :--- | :--- | | HVAC | $7,838 | $6,358 | | Refrigeration | $1,870 | $2,017 | | Fire & Security | $1,801 | $1,705 | - The company is involved in significant litigation related to Aqueous Film Forming Foam (AFFF), with over 5,000 lawsuits consolidated in MDL proceedings, and is unable to estimate a range of possible loss at this time272226 Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Discusses financial performance, highlighting Q2 2023 sales growth driven by HVAC, impact of KFI deconsolidation, planned portfolio transformation, and solid liquidity Results of Operations - Three Months Ended June 30, 2023 Net sales increased 15% to $6.0 billion in Q2 2023, but operating profit and net income significantly declined due to KFI deconsolidation and hedging losses Q2 2023 vs Q2 2022 Financial Performance | Metric | Q2 2023 (in millions) | Q2 2022 (in millions) | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $5,992 | $5,211 | +15% | | Gross Margin | $1,755 | $1,447 | +21% | | Operating Profit | $489 | $819 | -40% | | Net Income (to common shareowners) | $199 | $573 | -65% | | Diluted EPS | $0.23 | $0.67 | -66% | Q2 2023 Net Sales Growth Components | Component | % Change | | :--- | :--- | | Organic | 6% | | Foreign currency translation | 0% | | Acquisitions and divestitures, net | 9% | | Total % change | 15% | - Operating profit was significantly impacted by a $293 million loss from the deconsolidation of KFI and a $111 million mark-to-market loss on forward contracts for the proposed VCS Business acquisition7 Results of Operations - Six Months Ended June 30, 2023 Net sales grew 14% to $11.3 billion in H1 2023, but operating profit and net income significantly declined due to the absence of the Chubb sale gain and current period losses H1 2023 vs H1 2022 Financial Performance | Metric | H1 2023 (in millions) | H1 2022 (in millions) | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $11,265 | $9,865 | +14% | | Gross Margin | $3,133 | $2,740 | +14% | | Operating Profit | $1,044 | $2,556 | -59% | | Net Income (to common shareowners) | $572 | $1,952 | -71% | | Diluted EPS | $0.67 | $2.25 | -70% | H1 2023 Net Sales Growth Components | Component | % Change | | :--- | :--- | | Organic | 5% | | Foreign currency translation | -1% | | Acquisitions and divestitures, net | 10% | | Total % change | 14% | - The significant year-over-year decrease in operating profit and net income was primarily due to the absence of the $1.1 billion gain from the Chubb sale recognized in H1 2022, coupled with the $293 million KFI deconsolidation loss and $111 million hedging loss in H1 202315 Segment Review Reviews Q2 and H1 2023 segment performance, highlighting strong HVAC growth, Refrigeration declines, and Fire & Security operating profit heavily impacted by the KFI deconsolidation and prior year's Chubb sale Q2 2023 Segment Performance vs Q2 2022 | Segment | Net Sales (in millions) | % Change | Organic % Change | Operating Profit (in millions) | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | | HVAC | $4,216 | +24% | +9% | $742 | +27% | | Refrigeration | $972 | -7% | -6% | $112 | -24% | | Fire & Security | $932 | +5% | +9% | ($157) | -217% | H1 2023 Segment Performance vs H1 2022 | Segment | Net Sales (in millions) | % Change | Organic % Change | Operating Profit (in millions) | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | | HVAC | $7,838 | +23% | +7% | $1,177 | +12% | | Refrigeration | $1,870 | -7% | -5% | $220 | -13% | | Fire & Security | $1,801 | +6% | +9% | ($64) | -105% | - The Fire & Security segment's operating profit for Q2 and H1 2023 was severely impacted by a $293 million loss on the deconsolidation of KFI, and the H1 2022 comparison also includes a $1.1 billion gain from the Chubb sale5429358 Liquidity and Financial Condition Details the company's liquidity as of June 30, 2023, including cash, debt, credit facilities, and cash flow from operations, highlighting improved operating cash flow Key Financial Condition Metrics (as of June 30, 2023) | Metric | Amount (in millions) | | :--- | :--- | | Cash and cash equivalents | $3,209 | | Total debt | $8,789 | | Net debt | $5,580 | | Total equity | $8,288 | Cash Flow Summary (Six Months Ended June 30) | Cash Flow Activity | 2023 (in millions) | 2022 (in millions) | | :--- | :--- | :--- | | Operating | $504 | ($170) | | Investing | ($296) | $2,645 | | Financing | ($506) | ($2,434) | - The year-over-year increase in operating cash flow was primarily driven by a more moderate increase in working capital balances compared to the prior period, which was affected by higher safety stock and supply chain constraints3561 - During H1 2023, the company used $62 million for share repurchases and $309 million for dividend payments36 Quantitative and Qualitative Disclosures About Market Risk Reports no significant change in the company's exposure to market risk during the first half of 2023, referring to the 2022 Form 10-K for details - There has been no significant change in the company's exposure to market risk during the first half of 202362 Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2023, with no material changes to internal controls over financial reporting - The company's CEO and CFO concluded that as of June 30, 2023, disclosure controls and procedures were effective37 - No material changes were made to internal controls over financial reporting during the quarter ended June 30, 2023350 PART II – OTHER INFORMATION Legal Proceedings Reports no material developments in legal proceedings, directing readers to Note 19 of the financial statements for detailed information - There have been no material changes or developments in legal proceedings, and for detailed information, refer to Note 19 in the financial statements64352 Risk Factors Reports no material changes to the company's risk factors from those disclosed in the 2022 Form 10-K - There have been no material changes in the Company's risk factors from those disclosed in the 2022 Form 10-K40 Issuer Purchases of Equity Securities Reports no common stock repurchases during Q2 2023, with approximately $2.1 billion remaining authorized for future repurchases - No shares of common stock were repurchased during the three-month period from April to June 2023375 - As of June 30, 2023, approximately $2.1 billion remained authorized for share repurchases under the current program368375 Exhibits Lists exhibits filed with the Form 10-Q, including agreements for the Viessmann acquisition, credit facilities, and officer certifications - Lists various agreements and certifications filed as exhibits, including the Share Purchase Agreement for the VCS Business and new credit facilities354