Carrier Earnings: Solid Q2 Results Despite Lower Sales From Viessmann; Transformation on Track

Narrow-moat-rated Carrier delivered a solid second-quarter performance with low-single-digit percentage organic revenue growth across all three segments and strong margin expansion from the heating, ventilation, and air conditioning and fire and security segments. That said, consolidated revenue fell short of our expectations (and was 5% below the FactSet consensus estimate) as the recently acquired Viessmann Climate Solutions business navigates challenging end markets. Indeed, Viessmann’s second-quarter sales fell 30% year over year, with one third of that decline due to lower solar photovoltaic sales, and management expects Viessmann’s full-year revenue to be down 15%. Weaker-than-anticipated revenue from Viessmann was the primary factor behind Carrier’s downward-revised full-year revenue guidance (now $25.5 billion from $26 billion previously). Nevertheless, guidance for adjusted operating margin (15.5%), adjusted EPS ($2.80-$2.90), and free cash flow ($0.4 billion) is unchanged. Carrier’s 2024 free cash flow will be unusually low due to approximately $2 billion of cash expenses tied to divestiture-related tax payments and transaction costs as well as restructuring.