Carrier Global Corp Q3 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Jeffrey Sprague - Vertical Research Partners - Analyst : Thank you. Good morning, everyone. Patrick, I don't know what you're going to do with all your spare time now. You got all this done with your finance team there but -- hey, Dave, on Veissmann, obviously, it's been a moving target here, trying to find the bottom of what seem feels like we're REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 24, 2024 / 11:30AM, CARR.N - Q3 2024 Carrier Global Corp Earnings Call likely there. But can you share your view on what the bottoming process and turn might look like, and give us some indication of how you're expecting things to kind of travel from a revenue standpoint into 2025?

Question: Jeffrey Sprague - Vertical Research Partners - Analyst : And then just shifting completely to the pre-buy question. I think either you or Patrick said you're not expecting a pre-buy. It sounds like what is happening real time. So maybe just elaborate on that and do you have the capacity to meet the demand for a 410A prebuy if they're getting that impulse from the channel?

Question: Jeffrey Sprague - Vertical Research Partners - Analyst : Understood. Thank you.

Question: Julian Mitchell - Barclays Capital Inc. - Analyst : Hi, good morning. First off, I just wanted to circle back to slide 24 and 25. So just trying to understand if you could clarify a little bit more that $0.10 delta sort of what exactly is moving on slide 24 between the core and the continuing ops guide. And then also, I guess on slide 25, you have that $0.40 operational tailwinds guided, in the last quarter, that number was about $0.55. So just trying to understand the moving pieces on those two items, please.

Question: Julian Mitchell - Barclays Capital Inc. - Analyst : That's really helpful. Thank you, Patrick. And then maybe just one last clarification one. Just on the fourth quarter core assumptions there, it looks like I think it's about a just on the sort of $0.50 or so. And you've got about mid-single digit organic growth year on year and a mid-teens operating margin. Just wondered if you could flesh out any of the guide, post fourth quarter on the go-forward basis?

Question: Julian Mitchell - Barclays Capital Inc. - Analyst : That's great. Thank you.

Question: Andrew Kaplowitz - Citi Investment Research - Analyst : Good morning, everyone. David and Patrick, as we think about the bridge to '25, interestingly, you gave us the 68% organic growth profile for the New Carrier, which I know it's not a '25 guide per se. But would you say at this point you have above average visibility of that growth profile in '25 given the double-digit increase in backlog exiting Q3? And then you mentioned core incrementals in Q3 of 40%. I know you've been focused on improved productivity. So can you continue that kind of performance into '25?

Question: Andrew Kaplowitz - Citi Investment Research - Analyst : Patrick, that's helpful. And then just following up on light commercial and residential, obviously, there seems to be some market share movement. But could you help us separate a bit how much better, for instance, Americas light commercial markets are residential to [match] your initial expectations? I know, you know, you have more 410A maybe than competitors, but how might that also [trend] into '25. Forgetting about the pre-buy for a second, it seems like there's some market share movement as well.

Question: Andrew Kaplowitz - Citi Investment Research - Analyst : Appreciate all the color.

Question: Nigel Coe - Wolfe Research, LLC - Analyst : Yes, thanks. Good morning, everyone. Lots going on here that's for sure. Patrick, I just wanted to pick up on the 4Q moving pieces. I just want to confirm a 12% adjusted operating margin for 4Q. Maybe just help us on how that divides between the -- I see in the segments and perhaps the broad line just given the corporate costs moving around with the discontinuation.

Question: Nigel Coe - Wolfe Research, LLC - Analyst : Okay. That's helpful. And then you think these benefits will be another 10 basis points of impact?

Question: Nigel Coe - Wolfe Research, LLC - Analyst : Okay. Because of the ramp up sequentially. Okay. And then just on the buyback, I think determining the sizes of buyback on the way, does that imply that you already in the market buying back stock. And on that $4.7 billion between now and year end '25, is that you're putting regular regular-way buybacks in the open market? Or would you consider some full ASR or tender?

Question: Nigel Coe - Wolfe Research, LLC - Analyst : That's really helpful. Thank you.

Question: Deane Dray - RBC Capital Markets - Analyst : Thank you. Good morning, everyone. Just want to wish Sam best of luck, thanks for your help. And welcome to Mike. Just first question on data center, a couple of points here. One is, can you elaborate on that five- times multiplier because that's right in the range of what we've been looking at, it's much better to sell HVAC equipment to data centers than a one-time electrical equipment doesn't have that kind of aftermarket. So what are the assumption and that five-times multiplier. And Dave, are there differences in the equipment that you're providing to the hyperscalers today because they require significant redundancy? So are there any complexities in the equipment or how standardized is that as it as it looks today?

Question: Deane Dray - RBC Capital Markets - Analyst : Great. That's exactly what I was looking for. And then for Patrick on the -- congrats on the AFFF settlement. I know that's a difficult process and it still needs court approval. What will the circumstances be where you would be able to collect above that [615] has referenced the $2.4 billion, what will be the circumstances, will there have to be new claims filed? How might that play out? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 24, 2024 / 11:30AM, CARR.N - Q3 2024 Carrier Global Corp Earnings Call

Question: Deane Dray - RBC Capital Markets - Analyst : Congratulations. Thank you.

Question: Joe Ritchie - Goldman Sachs & Company, Inc - Analyst : Hey, good morning, guys.

Question: Joe Ritchie - Goldman Sachs & Company, Inc - Analyst : So real quickly just on the resi for 3Q, 4Q, you talked about the HVAC being up double digits in the third quarter. I'm curious like how much was it up specifically and what's embedded in the HVAC, up 10% in 4Q for you're resi business. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 24, 2024 / 11:30AM, CARR.N - Q3 2024 Carrier Global Corp Earnings Call

Question: Joe Ritchie - Goldman Sachs & Company, Inc - Analyst : Got it. That's super helpful, guys. And then as you're thinking about the dynamics for next year, Dave, with series of transition that's happening, then I know you mentioned that 90% of what you're going to sell is going to be R454B, I guess -- I think, do you have any concerns around the 410A unit? Just perhaps like being -- you mentioned that like your distributors aren't really stocking in, but that's basically having enough inventory on hand for the first half of the year such that the R454B units are a little bit slower to pick up. And then as you're thinking through pricing specifically for R454B, I know that you guys are expecting double-digit pricing, but how do you think about the net realized price associated with those units?

Question: Joe Ritchie - Goldman Sachs & Company, Inc - Analyst : Got it. That's very helpful. Thanks, guys. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 24, 2024 / 11:30AM, CARR.N - Q3 2024 Carrier Global Corp Earnings Call

Question: Stephen Tusa - J. P. Morgan Securities LLC - Analyst : Hey, good morning.

Question: Stephen Tusa - J. P. Morgan Securities LLC - Analyst : Sam, thanks again for all the help and best of luck. So just on this light commercial business, how are you kind of looking at that into next year and any impact you're seeing from the Ester [cliff]?

Question: Stephen Tusa - J. P. Morgan Securities LLC - Analyst : Got it. That's helpful. And then just for Veissmann, there's a little bit of math required here, which is always a challenge, I guess, early in the morning, but it looks to me to be about, I don't know, a 10% margin for adjusted OPE margin for 3Q. And then for the year now you're at like more like 11. Is that about right for the margin? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 24, 2024 / 11:30AM, CARR.N - Q3 2024 Carrier Global Corp Earnings Call

Question: Stephen Tusa - J. P. Morgan Securities LLC - Analyst : Mid-teens EBITDA. But the adjusted OPE that's running through your adjusted P&L?

Question: Stephen Tusa - J. P. Morgan Securities LLC - Analyst : Okay. Thanks a lot, guys.

Question: Noah Kaye - Oppenheimer & Co. Inc - Analyst : Thanks, good morning. Just to spend a minute on refrigeration. I think first, can you sort of level set what the margin profile ex-CCR looks like just to have a base as we enter '25. Is this sort of like a 14% type or a little bit lower EBIT margin business since CCR is immaterial? And the second part of the question is, it's good to see orders in for trailer in flat. So maybe just talk a little bit about the business trends and how those might set up for growth for 2025.

Question: Noah Kaye - Oppenheimer & Co. Inc - Analyst : Last quick question. The $200 million of cost synergies for VCS by year three, could see that you reiterated, where do you expect that to pencil out for this year, specifically as it so $75 million or so? And then should we think about kind of a ratable amount of synergies captured in '25 as well?

Question: Noah Kaye - Oppenheimer & Co. Inc - Analyst : Great. Thanks guys.

Question: Andrew Obin - BofA Global Research - Analyst : Hi, guys, good morning.

Question: Andrew Obin - BofA Global Research - Analyst : Just to follow up on Steve's question on Ester running over. What we've been hearing is that sort of folks have been able to tap into other sources at the IRA. So that's what's smoothing out of the process. Would that be consistent with what you're hearing in the channel?

Question: Andrew Obin - BofA Global Research - Analyst : Got you. And just a follow-up question, I know you sort of provided initial framework for '25, just a question as it relates to free cash flow, any one-time items that we should consider within that framework that were maybe related to this many acquisition, how you treated some of the items on the balance sheet, anything that we should think about it for '25? Or should we just model normal free cash flow conversion rate within historical range for '25?

Question: Andrew Obin - BofA Global Research - Analyst : Thanks so much. And Sam, congratulations.

Question: Chris Snyder - Morgan Stanley - Analyst : Thank you. I wanted to ask on orders, obviously you're up nearly 20%, very strong mark. But you guys said at the Laguna during a conference that the first two months of the year, we're tracking up 20 to 30. So I guess my question is that anything soften in September? Anything get pushed out? Or is there some impact from the move into discontinued ops? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 24, 2024 / 11:30AM, CARR.N - Q3 2024 Carrier Global Corp Earnings Call

Question: Chris Snyder - Morgan Stanley - Analyst : Appreciate that. Thank you. And then Dave, you also talked recently about an aftermarket 2.0 strategy. So maybe can you talk a little bit about how that differs from the existing aftermarket go to channel approach? And is there a cost associated with the new strategy? And then ultimately, what opportunity does that bring for Carrier?

Question: Chris Snyder - Morgan Stanley - Analyst : Appreciate that. Thank you.