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Heating, ventilation, air conditioning, and refrigeration company Carrier Global (NYSE:CARR) missed analysts' expectations in Q2 CY2024, with revenue up 11.6% year on year to $6.69 billion. The company's full-year revenue guidance of $25.5 billion at the midpoint also came in slightly below analysts' estimates. It made a non-GAAP profit of $0.87 per share, improving from its profit of $0.79 per share in the same quarter last year.
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Carrier Global (CARR) Q2 CY2024 Highlights:
- Revenue: $6.69 billion vs analyst estimates of $7.07 billion (5.4% miss)
- EPS (non-GAAP): $0.87 vs analyst estimates of $0.85 (2.8% beat)
- The company dropped its revenue guidance for the full year from $26 billion to $25.5 billion at the midpoint, a 1.9% decrease
- Gross Margin (GAAP): 28.1%, down from 29.3% in the same quarter last year
- Free Cash Flow of $549 million is up from -$64 million in the previous quarter
- Organic Revenue rose 2% year on year (6% in the same quarter last year)
- Market Capitalization: $59.46 billion
Founded by the inventor of air conditioning, Carrier Global (NYSE:CARR) manufactures heating, ventilation, air conditioning, and refrigeration products.
HVAC and Water SystemsTraditionally, home construction materials companies have built economic moats with expertise in specialized areas, brand recognition, and strong relationships with contractors. More recently, advances to address labor availability and job site productivity have spurred innovation that is driving incremental demand. However, these companies are at the whim of residential construction volumes, which tend to be cyclical and can be impacted heavily by economic factors such as interest rates. Additionally, the costs of raw materials can be driven by a myriad of worldwide factors and greatly influence the profitability of home construction materials companies.
Sales GrowthA company’s long-term performance can give signals about its business quality. Even a bad business can shine for one or two quarters, but a top-tier one tends to grow for years. Over the last five years, Carrier Global grew its sales at a weak 3.2% compounded annual growth rate. This shows it failed to expand in any major way and is a rough starting point for our analysis.
Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Carrier Global's annualized revenue growth of 8% over the last two years is above its five-year trend, suggesting some bright spots.
Carrier Global also reports organic revenue, which strips out one-time events like acquisitions and currency fluctuations because they don't accurately reflect its fundamentals. Over the last two years, Carrier Global's organic revenue averaged 3.8% year-on-year growth. Because this number is lower than its normal revenue growth, we can see that some mixture of acquisitions and foreign exchange rates boosted its headline performance.
This quarter, Carrier Global's revenue grew 11.6% year on year to $6.69 billion, falling short of Wall Street's estimates. Looking ahead, Wall Street expects sales to grow 6.6% over the next 12 months, a deceleration from this quarter.
Operating Margin Operating margin is an important measure of profitability. It’s the portion of revenue left after accounting for all core expenses–everything from the cost of goods sold to advertising and wages. Operating margin is also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.
Carrier Global has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 17.4%. This was particularly impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it's a show of strength if they're high when gross margins are low.
Analyzing the trend in its profitability, Carrier Global's annual operating margin rose by 11.7 percentage points over the last five years, showing its efficiency has significantly improved.
This quarter, Carrier Global generated an operating profit margin of 55.2%, up 47 percentage points year on year. This increase was solid, and since the company's gross margin actually decreased, we can assume it was recently more efficient because its general expenses like sales, marketing, and administrative overhead grew slower than its revenue.
EPS Analyzing long-term revenue trends tells us about a company's historical growth, but the long-term change in its earnings per share (EPS) points to the profitability of that growth–for example, a company could inflate its sales through excessive spending on advertising and promotions.
Carrier Global's EPS grew at an unimpressive 4.4% compounded annual growth rate over the last five years. On the bright side, this performance was better than its 3.2% annualized revenue growth and tells us the company became more profitable as it expanded.
We can take a deeper look into Carrier Global's earnings to better understand the drivers of its performance. As we mentioned earlier, Carrier Global's operating margin expanded by 11.7 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; taxes and interest expenses can also affect EPS but don't tell us as much about a company's fundamentals.
Like with revenue, we also analyze EPS over a more recent period because it can give insight into an emerging theme or development for the business. For Carrier Global, its two-year annual EPS growth of 10.5% was higher than its five-year trend. This acceleration made it one of the faster-growing industrials companies in recent history.
In Q2, Carrier Global reported EPS at $0.87, up from $0.79 in the same quarter last year. This print beat analysts' estimates by 2.8%. Over the next 12 months, Wall Street expects Carrier Global to grow its earnings. Analysts are projecting its EPS of $2.91 in the last year to climb by 1.2% to $2.95.
Key Takeaways from Carrier Global's Q2 Results It was good to see Carrier Global beat analysts' EPS expectations this quarter. On the other hand, its revenue fell short of Wall Street's estimates and it slightly lowered its full-year revenue guidance. Overall, this was a mixed quarter for Carrier Global. The stock remained flat at $66.50 immediately after reporting.
