Carrier Global (NYSE:CARR) Reports Sales Below Analyst Estimates In Q4 Earnings, But Stock Soars 6.1%

Heating, ventilation, air conditioning, and refrigeration company Carrier Global (NYSE:CARR) missed Wall Street’s revenue expectations in Q4 CY2024, but sales rose 19.3% year on year to $5.15 billion. The company’s full-year revenue guidance of $22.75 billion at the midpoint came in 0.9% below analysts’ estimates. Its non-GAAP profit of $0.54 per share was 11.4% above analysts’ consensus estimates.

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"We capped a transformational year for Carrier with robust fourth quarter financial results including 6% organic growth, significant adjusted operating profit margin expansion of 370 basis points and 50% adjusted EPS growth. The quarter also marked the completion of our portfolio transformation, which resulted in total divestiture proceeds of over $10 billion," said Carrier Chairman & CEO David Gitlin.

Company Overview

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

HVAC and Water Systems

Many HVAC and water systems companies sell essential, non-discretionary infrastructure for buildings. Since the useful lives of these water heaters and vents are fairly standard, these companies have a portion of predictable replacement revenue. In the last decade, trends in energy efficiency and clean water are driving innovation that is leading to incremental demand. On the other hand, new installations for these companies are at the whim of residential and commercial construction volumes, which tend to be cyclical and can be impacted heavily by economic factors such as interest rates.

Sales Growth

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Unfortunately, Carrier Global’s 3.9% annualized revenue growth over the last five years was sluggish. This fell short of our benchmark for the industrials sector and is a tough 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 4.9% over the last two years is above its five-year trend, but we were still disappointed by the results.

We can better understand the company’s sales dynamics by analyzing its organic revenue, which strips out one-time events like acquisitions and currency fluctuations that don’t accurately reflect its fundamentals. Over the last two years, Carrier Global’s organic revenue averaged 2.9% 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 results.

This quarter, Carrier Global’s revenue grew by 19.3% year on year to $5.15 billion but fell short of Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 2.6% over the next 12 months, a slight deceleration versus the last two years. This projection doesn't excite us and implies its products and services will face some demand challenges.

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Operating Margin

Carrier Global has been an efficient company over the last five years. It was one of the more profitable businesses in the industrials sector, boasting an average operating margin of 15.1%. This result 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 well-managed operations if they’re high when gross margins are low.

Looking at the trend in its profitability, Carrier Global’s operating margin decreased by 5.9 percentage points over the last five years. Even though its historical margin is high, shareholders will want to see Carrier Global become more profitable in the future.

This quarter, Carrier Global generated an operating profit margin of 15%, up 2.5 percentage points year on year. Since its gross margin expanded more than its operating margin, we can infer that leverage on its cost of sales was the primary driver behind the recently higher efficiency.

Earnings Per Share

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Carrier Global’s flat EPS over the last five years was below its 3.9% annualized revenue growth. This tells us the company became less profitable on a per-share basis 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 improved this quarter but declined by 5.9 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its lower 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 analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Carrier Global, its two-year annual EPS growth of 4.5% was higher than its five-year trend. Accelerating earnings growth is almost always an encouraging data point.

In Q4, Carrier Global reported EPS at $0.54, up from $0.35 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Carrier Global’s full-year EPS of $2.56 to grow 16.5%.

Key Takeaways from Carrier Global’s Q4 Results

We liked that Carrier Global beat analysts’ EBITDA and EPS expectations this quarter. On the other hand, its revenue missed and its full-year revenue guidance fell slightly short of Wall Street’s estimates. Zooming out, we think this was a mixed quarter featuring some areas of strength but also some blemishes. It seems expectations were low, and the stock traded up 6.1% to $70.20 immediately after reporting.

So should you invest in Carrier Global right now? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.