Carrier (CARR) - 2023 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Organic sales growth increased by 6%, with HVAC and Fire & Security segments both up by 9% [4] - Adjusted operating profit rose by 12%, and adjusted EPS increased by 13% [22] - Free cash flow was strong at over $300 million, positioning the company to deliver approximately $1.9 billion for the full year [29] - Adjusted operating margin for Q2 was 16.1%, with a 100 basis point headwind from the consolidation of Toshiba Carrier [28] Business Line Data and Key Metrics Changes - HVAC segment saw organic sales up by 9%, driven by high-teens growth in commercial HVAC and over 60% growth in light commercial [50] - Refrigeration reported sales were down 7%, with organic sales down 6% [52] - Fire & Security sales were up 5% on a reported basis, with organic sales up 9% [35] Market Data and Key Metrics Changes - North America residential HVAC sales were down mid-single digits, with overall residential volumes down mid-teens [15] - North America truck and trailer sales were up double digits, while European truck/trailer sales were up mid-teens [33] - Healthy buildings pipeline increased over 2x to $1.6 billion, driven by K-12 orders up over 20% in the quarter [24] Company Strategy and Development Direction - The company is focused on sustainability and healthy buildings, with about half of sales expected to relate directly to clean tech by 2030 [6] - The integration of Viessmann Climate Solutions is a key focus, with expectations of significant growth opportunities in sustainable heating and home energy management [10][12] - The company aims to deliver $300 million of gross productivity this year, driven by price/cost improvements and productivity [22] Management's Comments on Operating Environment and Future Outlook - Management raised full-year guidance for organic growth, adjusted operating margins, and adjusted EPS due to strong first-half performance [23] - The backlog remains well above historical levels, up 30% on a two-year stack, indicating strong future demand [22] - Management expressed confidence in the growth of Viessmann regardless of legislative changes in Germany [63] Other Important Information - The company is on track to achieve carbon neutrality in its operations by 2030 and aims to reduce customers' carbon emissions by more than 1 gigaton [6] - The deconsolidation of KFI and mark-to-market adjustments related to foreign currency hedges impacted GAAP results but were excluded from adjusted results [14] Q&A Session Summary Question: View on political wrangling in Germany regarding heat pump incentives - Management remains confident in Viessmann's growth regardless of the outcome of German legislation, noting strong growth in heat pumps without legislative support [63] Question: Inventory levels and residential HVAC performance - Inventory levels are balanced, with residential HVAC expected to grow despite mid-single-digit declines [71] Question: Price/cost dynamics and future pricing expectations - Price realization contributed approximately 4 points to the 6% organic growth, with expectations for price realization to be closer to 3% for the full year [96] Question: Backlog trends and normalization of lead times - Backlogs remain healthy, with expectations for normalization in shorter-cycle businesses like residential HVAC, while longer-cycle businesses maintain strong demand [92][144] Question: Divestiture plans for Fire & Security and commercial refrigeration - The company plans to have commercial refrigeration and security businesses in the market by September, with industrial fire following a month later [47][137]