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$CARR Q1 Earnings Review & Acquisition Announcement
Since Carrier ($CARR) is one of my largest holdings, I want to share my thoughts on their Q1 earnings reported this week.

Some quick hits:
  • Sales up 13% Y/Y
  • Adjusted EPS of $0.52
  • $50 Free Cash Flow for the quarter
  • Confirmed full year guidance
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Margins across all three business units (HVAC, Refrigeration and Fire & Security) are all >10%.

EPS was lower than Q1 2022, but still beat market expectations.

One thing that stood out to me reviewing the call transcript was that net debt has been paid down by 50% from $10B to $5B. All the while, Carrier bought back $2B worth of shares and increased dividend. Being able to maintain positive (although lower) free cash flow stood out to me as something significant.

Carrier has been working to build itself as an independent entity since it was spun off from United Technologies in April of 2020. They have done that, and more. By focusing on building their HVAC business through transformation to sustainable heating and cooling products has paid off to the tune of a share price appreciation of 229% since spin-off (+66% vs. S&P 500)!

As Carrier continues to evolve and focus on their core business, they announced some major moves to the structure of the organization:
  1. Acquisition of Viessmann Group
  2. Sale of Commercial Refrigeration and Fire & Security businesses

CEO Dave Gitlin said the following of the sale of the the CR and F&S units:
"We love these businesses and our people in them. We have tremendous brands, gross margins, market positions and customer stickiness. But we saw the benefit of focus as we spun from UTC and we are confident that further focus will create additional tremendous value."

This statement resonates with me. The purpose of spinning off a company, in theory, is to unlock shareholder value by exposing efficiencies in units within a larger conglomerate. That is exactly what $CARR has been able to do and will continue to do with this move. These two units are their smaller and underperforming units, compared to the namesake HVAC business.

To double-down on the focus on HVAC, Carrier is also acquiring the Viessmann Group out of Germany. Gitlin calls Viessmann, "...Europe's premier company in the most attractive market in our space, allowing us to capitalize on the energy transition in Europe".

Viessmann group specializes in heat pumps and renewable fueled HVAC systems including solar options. This aligns with Carrier's growth towards sustainable and renewable products and gains them a significant entry into Europe. Europe is on the forefront of renewable transformation and this will give Carrier an opportunity to take significant market share in the region and potentially bring that technology to the Americas.

I do not know too much about the Viessmann products, but one series mentioned in the earnings call is a product line of heat pumps that can be designed to work aesthetically within the home to replace traditional radiator/boiler systems that is built on a platform that can be later on converted to solar power. The compartmental, building block technology is a fantastic template. The ability to incorporate and localize in various locations within the home where heat is needed makes the units even more sufficient and sustainable.

I think the market overreacted this week with $CARR getting beaten down significantly with this news. With the pay down of debt and continued focus on building and growing the core HVAC business, I think this could be a strong driver for Carrier moving forward.

What are your thoughts on the acquisition? Any European followers have any experience with Viessmann products?

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