The paragraph introduces the speaker and provides important information about the conference call, including the company's non-GAAP measures, potential risks, and guidelines for asking questions. The CEO then expresses pride in the team's performance and highlights the company's strong sales and growth in the HVAC and aftermarket sectors. Adjusted operating profit and EPS also saw significant increases.

In the second quarter, both the HVAC and Fire & Security segments achieved record adjusted operating margins. The company's strong free cash flow performance positions them for exceeding their full year guidance. Despite macro challenges, the company remains focused on controlling what they can, driving operational excellence, and consistently delivering on commitments. They are confident in their ability to deliver mid-single-digit organic growth, 15% adjusted EPS growth, margin expansion, and strong free cash flow in 2023. The company is also seeing growth in aftermarket and recurring revenue, with 80,000 chillers under long-term agreements and 30,000 connected chillers by year-end. They have also launched a new software application to help predict and address supply chain disruption.

Lynx has over 100,000 paid subscriptions and is expected to continue double-digit growth in 2023. The company is also focused on driving sustainability leadership through the introduction of industry-leading products that help customers achieve their sustainability targets. These include a new refrigerated container unit with best-in-class energy efficiency, a line of high and very high temperature heat pumps, and a zero GWP refrigerant air to water heat pump. The company's existing business is also gaining momentum, with European commercial heat pump sales up 70% in Q3 and 40% year-to-date. Lynx is committed to reducing customers' greenhouse gas emissions by one gigaton by 2030 and has already achieved 270 million metric tonnes of reduction since 2020. The company continues to invest heavily in sustainability differentiation and has been recognized by various publications for its sustainability leadership.

The combination with Viessmann Climate Solutions will help the company become a leader in intelligent climate and energy solutions. The company is confident and excited about the opportunities for growth and value creation. The trend towards heat pumps in Europe is expected to continue, and Viessmann Climate Solutions is well positioned for share gains with its diverse offerings and connected ecosystem. The company is also introducing a new heat pump that will give it access to a large portion of the single-family home heating market.

The brand-new Vitocal 250-A Pro heat pump, set to launch in Q1, will offer outputs of up to 40 kilowatts, making it ideal for multifamily and commercial buildings. The integration of Toshiba Carrier has been successful and has potential for both cost and revenue synergies. Viessmann Climate Solutions is expected to close in January 2024. The company is also making progress with the sale of its Fire & Security and Commercial Refrigeration businesses, with signed agreements expected in 1Q. Sales in the quarter were $5.7 billion with 3% organic growth, a 1% boost from foreign currency translation, and a 1% contribution from acquisitions and divestitures.

In the third quarter, the company saw strong growth in adjusted operating profit and reported sales, driven by the consolidation of Toshiba Carrier. Despite a slight headwind from this consolidation, the company was able to expand its adjusted operating margin and reported earnings conversion. Adjusted EPS also saw a significant increase, thanks to improved operating performance and discrete tax items. The HVAC division had a good quarter, with organic sales up 4% and strong growth in commercial, light commercial, and aftermarket segments. However, North America residential HVAC sales were down due to destocking and are expected to continue to decline in the fourth quarter. The company expects field inventories to be down by mid-teens by the end of 2023, positioning them for better levels in 2024.

In the third quarter, the HVAC segment's sales are expected to increase by 30% in the light commercial sector, with an adjusted operating profit of 33% and a record high operating margin. The Refrigeration segment's reported sales were flat, with a 3% benefit from foreign currency, and the Container business experienced a 25% decline. The Fire & Security segment had good financial performance with a 2% increase in reported sales, 6% organic sales growth, and a 1% tailwind from foreign currency. However, there was a 5% headwind from the KFI deconsolidation.

In the third quarter, organic growth was strong in both Industrial Fire & Security and commercial and residential fire, leading to a 13% increase in adjusted operating profit. Total company orders were down due to declines in shorter cycle businesses, but HVAC orders remained flat with a strong backlog. Refrigeration orders were down, but strong international truck and trailer orders offset the decline in North American orders. Fire & Security orders were up, particularly in industrial fire. The company expects a return to organic growth in the fourth quarter and believes that lead times have normalized.

The company is expecting full year sales of $22.1 billion to $22.2 billion with mid-single-digit organic sales growth. Adjusted operating margin guidance is raised to 14.5%, driven by strong performance. The HVAC segment is expected to have a margin of 16.5%, while Fire & Security remains at 15.5%. Refrigeration margin may be slightly lower at 13%. Adjusted EPS guidance is increased by $0.10 to $2.70, with improved operational performance and a lower tax rate driving the increase. Free cash flow is expected to be slightly over $1.9 billion in 2023. The Viessmann acquisition will be funded through a combination of equity, cash, and debt, with interest rate marks in place to mitigate interest rate exposure. The company plans to issue bonds in Q4 for the acquisition, with an expected close in early January.

The company plans to focus on deleveraging after the acquisition and will use free cash flow and proceeds from business exits to do so. They intend to provide 2024 guidance in February, which will include a full year of Viessmann Climate Solutions. The timing and proceeds of the business exits are not known yet, but the company plans to adjust their guidance accordingly. The business exits may not qualify as discontinued operations for reporting purposes until all transactions have been executed. The company expects to have a better understanding of the timing and proceeds of the business exits by the time they provide guidance in February. Overall, the company had a strong quarter and increased their outlook for 2023, in line with their value creation framework.

The Viessmann Climate Solutions business has been performing well, with sales up 18% and strong margin expansion. However, there may be some impact on the adoption rate of heat pumps due to government regulations and subsidies. Backlogs have been high due to supply chain issues, but are expected to return to normal levels. There may be some short-term movement in order rates in countries like Germany and Italy, but overall, there is a continued transition to heat pumps in Europe.

The speaker discusses the potential for growth in the oil and gas industry and how the company is well-positioned to outgrow the market. They mention the introduction of new products and the advantage of having complete home energy management solutions. They also express confidence in the value proposition of a recent business combination. The speaker then addresses the 30% increase in sales in the light commercial sector, citing strong demand in certain verticals such as K-12 and value-based retailers. While some verticals may be under pressure, the overall demand and backlog remain high.

The company's backlog extends into the second quarter of next year and they will continue to monitor inventory levels. The demand and backlog for Viessmann should normalize over time. The company is well positioned for the first quarter of next year, but they are also considering the EPA ruling and the transition to new regulations. The North America residential HVAC market is expected to be down mid-single digits this year, with volume down in the mid-teens. The company expects sales to be down mid-single digits in the fourth quarter for residential products. The company is also discussing the potential impact of the refrigerant change on their business, with some uncertainty about which products will be affected.

The company's top priority is to decrease inventory levels by at least 15% compared to last year. They are working closely with their channel partners to achieve this goal and are prepared for the upcoming regulatory changes. The recent EPA ruling will likely increase demand for 454-B systems in 2024, which is seen as a favorable mix. The company is ready to comply with the cutover to 450-4B and believes their ability to manage this transition will give them a competitive advantage. They are also urging the EPA to clarify their position on replacing outdoor units with 410-A and are confident in their understanding of the administration's intent to transition to a more environmentally friendly refrigerant.

The company is facing some complexity in the channel and supply chain due to the EPA ruling on 454-B. They plan to raise prices for 410-A due to increased carrying costs and reduced supply. The company is prepared to handle the switchover. There are temporary headwinds and tailwinds in the HVAC segment, and the guidance includes a low double-digit margin for Q4 and mid-20s operating leverage for the whole year, including the impact of Toshiba.

Patrick Goris confirms that the thought processes are correct and addresses questions about HVAC margins and the impact of Toshiba Carrier consolidation. He explains that the main drivers of the margin expansion are strong price cost and productivity, with minor headwinds from acquisitions. Jeffrey Sprague asks about the company's cash position and how much of it can be used for the deal. David Gitlin responds that about $1 billion is not accessible, but the rest can be used for the deal.

The company plans to use cash for an acquisition and expects to have access to additional cash from Viessmann at the time of closing. They anticipate a conservative blended rate of 6% to finance the transaction and a weighted cost of debt of 4%. In the previous quarter, there was a $116 million gain in the HVAC segment, offset by a $16 million tax gain and other smaller items. The company's CEO discusses the potential impact of the current market environment on their business and the progress of mega projects.

The speaker discusses the recent performance of ABI and the company's ability to pivot to areas of strength. They mention strong verticals in commercial HVAC, particularly in education and data centers. They also note the strength in industrial sectors, particularly in China and the United States. The speaker takes a balanced view of the company's performance and highlights their success in the light commercial and aftermarket spaces. They also mention the company's efforts to drive recurring revenues and smooth out cycles.

The speaker discusses the company's recent performance in various businesses, including container and HVAC. They mention a rough patch in container but expect it to recover in the fourth quarter and next year. They also mention a balanced view and solid growth in the longer-cycle businesses. The speaker then addresses a question about HVAC margins in the fourth quarter, citing lower sales, downsizing of field inventories, and seasonal factors as contributing factors. Finally, they respond to a question about commercial orders, stating that they have been flat over multiple quarters.

David Gitlin, CEO of Carrier, discusses the 4Q orders trends in the commercial sector. He mentions that last year, orders were up around low double digits and it's too early to tell for 4Q. However, the backlog is up 40% on a 2-year stack. Europe has been surprisingly resilient, with strong demand for heat pumps. North America is improving after facing some operational issues, and China is a mixed bag with pressure on real estate but strong infrastructure spending. David also talks about the performance of the Viessmann business, which has done well despite headlines about heat pump demand.

The speaker explains that changes in regulations and subsidy levels can cause short-term fluctuations in sales, but overall, the company's transition to heat pumps in Europe is expected to continue. The company is well-positioned due to its mixed factories and product lines, and is expected to see growth in both heat pumps and boilers.

The company is confident in the performance and potential of their business, citing strong margins on boilers and potential synergies with a recent acquisition. They have not seen evidence of trading down or increased repair instead of replacement in their residential business, and are focused on preparing for a refrigerant change in the coming year.

The speaker responds to a question about potential pricing changes in the future, stating that they have not seen any evidence of significant changes. They mention a potential increase in prices for residential units, and a potential increase in cost for new units with added features. They also mention a potential transaction involving a public trading of a business in late spring, which could take different forms such as a spin or split.

The speaker discusses the recent market performance of J&J and their preparations for different scenarios. They mention their plans for a clean exit, accelerating buyback, and paying down debt. The team is working hard to be ready for public trading in the late spring of next year. They also mention the strong performance of international truck and trailer sales, with a focus on transitioning to electric vehicles. Despite a moderation in the order book, the team is confident in their position for next year, with increases in orders and sales expected.

The company is cautiously looking ahead at the next year, considering factors such as the shift to electrification and the focus on recurring revenues. Despite weak performance in Europe and parts of APAC, Toshiba Carrier has seen strong financial results due to cost synergies. The HVAC margins in the current quarter were very strong, even without the impact of a tax item, but the forecast for the next quarter is slightly weaker.

The speaker asks about the impact of price costs on HVAC strength in the fourth quarter. The company's CFO responds that margins will be similar to the first quarter, but there will be more downtime in factories due to inventory destocking. There will be no incentive spending to shift inventory. The next question is about the backlog and the speaker asks where the company is in the process of adjusting it. The CEO believes it will eventually go back to historical levels after unique challenges in the supply chain and strong consumer demand over the past couple of years.

The speaker discusses how people are getting in line to secure their orders due to supply chain uncertainty. They mention that there has been a return to more historic levels in shorter-cycle businesses, but longer cycle businesses like commercial HVAC still have elevated lead times and backlog levels. They expect things to start normalizing by the end of 2024, with shorter-cycle businesses getting back to normal sooner. The speaker also notes that they don't focus on quarter-to-quarter orders and instead look at backlog levels and lead times to gauge strength.

The speaker discusses the potential for generating net income and free cash flow above net income for another year, depending on the company's working capital. They also mention the growth in the light commercial business and the impact of resi declines on the overall business mix. They believe that resi will see some destocking in the fourth quarter and a recovery in the coming year, while light commercial may face tough comparisons.

The company is focusing on connected devices and the aftermarket opportunity. They believe there is a lot of potential in this area. The commercial side is dealing with a significant backlog, but the controls and aftermarket businesses are performing well. The company has seen growth in mega projects, such as data centers and semiconductor fabs, and has introduced new offerings to meet the demand. They have also acquired a business called Nlyte to provide comprehensive controls for data centers.

The speaker expresses their excitement for the progress of large construction projects and thanks investors and their team for their hard work and teamwork. The call concludes with the availability of Sam for the rest of the day.

This summary was generated with AI and may contain some inaccuracies.