Carrier Global (NYSE:CARR) Reports Sales Below Analyst Estimates in Q2 Results

Heating, ventilation, air conditioning and refrigeration company Carrier Global (NYSE:CARR) did not meet analysts’ expectations in Q2 CY2024, with revenue growing 11.6% year-over-year to $6.69 billion. The company’s full-year revenue guidance of $25.5 billion at the midpoint also fell slightly short of analyst estimates. The company posted non-GAAP earnings of $0.87 per share, an improvement from earnings of $0.79 per share in the same quarter last year.

Is it time to buy Carrier Global? Find out by accessing our full research report, it’s free.

“Carrier delivered another quarter of strong financial results while making significant progress in transforming our portfolio,” said David Gitlin, Carrier chairman and CEO.

Founded by the inventor of air conditioning, Carrier Global (NYSE:CARR) manufactures heating, ventilation, air-conditioning and refrigeration equipment.

HVAC and water systems

Traditionally, home building materials companies have built economic moats through expertise in specialized areas, brand recognition, and strong relationships with contractors. More recently, advances in labor availability and on-site productivity have spurred innovation, which is driving demand growth. However, these companies are dependent on residential construction volumes, which tend to be cyclical and can be heavily impacted by economic factors such as interest rates. In addition, raw material costs can be driven by a myriad of factors worldwide and can significantly impact the profitability of home building materials companies.

Increase in sales

A company’s long-term performance can provide signals about the quality of its business. Even a bad business can shine for a quarter or two, but a top-shelf business tends to grow for years. Over the past five years, Carrier Global has grown sales at a weak 3.2% compound annual growth rate. This shows that it has failed to grow the company in any meaningful way, and it is a rough starting point for our analysis.

Long-term growth is key, but in an industry, a half-decade of historical perspectives can fail to account for new industry trends or demand cycles. Carrier Global’s 8% annual revenue growth over the past two years is higher than the five-year trend, suggesting some bright spots.

Carrier Global also reports organic revenue, which excludes one-time items like acquisitions and currency fluctuations, because they don’t accurately reflect its fundamentals. Over the past two years, Carrier Global’s organic revenue has averaged 3.8% year-over-year growth. Because this number is below normal revenue growth, we can see that a mix of acquisitions and currency boosted its headline results.

Carrier Global’s revenue rose 11.6% year over year in the quarter to $6.69 billion, falling short of Wall Street estimates. Looking ahead, Wall Street is expecting sales to grow 6.6% over the next 12 months, a slowdown from the quarter.

Unless you’ve been living under a rock, it should be obvious by now that generative AI is going to have a huge impact on how large corporations do business. While Nvidia and AMD are trading near all-time highs, we prefer lesser-known (but still profitable) semiconductor stocks benefiting from AI growth. Click here to access our free report on our favorite semiconductor growth story.

Operating margin

Operating margin is an important measure of profitability. It is the portion of revenue that remains after all basic expenses have been taken into account—from 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 for the past five years. It has demonstrated elite profitability for an industrial company, boasting an average operating margin of 17.4%. This was particularly impressive given its low gross margin, which is largely a factor of what it sells and requires massive changes to move in a meaningful way. Companies have more control over their operating margins, and it is a show of strength if they are high when gross margins are low.

Analyzing the company’s profitability trends, Carrier Global’s annual operating margin increased by 11.7 percentage points over the past five years, indicating significant improvements in the company’s efficiency.

Carrier Global generated an operating profit margin of 55.2% for the quarter, up 47 percentage points year over year. That growth was solid, and since the company’s gross margin actually declined, we can assume it has been more efficient recently because its overhead costs, such as sales, marketing, and administrative costs, have been growing slower than revenue.

EPS

Looking at long-term revenue trends allows us to assess a company’s historical growth, while the long-term change in earnings per share (EPS) indicates the profitability of that growth – for example, a company may be inflating sales by overspending on advertising and promotions.

Carrier Global’s EPS has grown at an unimpressive 4.4% compound annual growth rate over the past five years. On the bright side, that was better than the 3.2% annual growth rate for revenue and tells us the company has become more profitable as it has grown.

We can take a closer look at Carrier Global’s earnings to better understand the factors driving its results. As mentioned earlier, Carrier Global’s operating margin has increased by 11.7 percentage points over the past five years. This was the most significant factor (aside from the impact on revenue) behind the higher earnings; taxes and interest expense can also affect EPS, but they don’t tell us as much about the company’s fundamentals.

As with revenue, we also analyze EPS in a more recent period, as this can provide insight into an emerging theme or company development. In the case of Carrier Global, the two-year annual EPS growth of 10.5% was higher than the five-year trend. This acceleration made it one of the fastest growing industrial companies in recent memory.

In Q2, Carrier Global reported EPS of $0.87, compared with $0.79 in the same quarter last year. That print beat analyst estimates by 2.8%. Wall Street expects Carrier Global to grow its earnings over the next 12 months. Analysts are forecasting EPS of $2.91 last year to rise 1.2% to $2.95.

Key Takeaways from Carrier Global’s Q2 Results

It was nice to see Carrier Global beat analysts’ earnings per share expectations for the quarter. On the other hand, revenue fell short of Wall Street estimates and the company slightly lowered its full-year revenue forecast. Overall, it was a mixed quarter for Carrier Global. Shares were unchanged at $66.50 immediately after the report.

Is Carrier Global worth investing in now? When making such a decision, it is important to consider valuation, business features, as well as what happened in the last quarter. We discussed this in our full research report, which you can read here, it is free.