The operator introduces the host for the Carrier's First Quarter 2024 Earnings Conference Call, Sam Pearlstein, and reminds listeners that non-GAAP measures will be discussed. The company's SEC filings and the potential risks and uncertainties are also mentioned. The host then introduces the Chairman and CEO, David Gitlin, who discusses the company's strong first quarter results, including organic sales growth, adjusted margin expansion, and adjusted EPS growth.

The team is proud of their progress on their lean journey and driving productivity. Their formula of simplifying the business, reducing overhead, and investing in growth while increasing margins is working. They are focused on their North Star of being the global leader in intelligent climate and energy solutions, and have made great progress on their vision. They offer differentiated sustainability solutions for buildings, homes, and the cold chain, and their digital strategy is a critical enabler. They have seen a 10% increase in monitoring through Abound and their Viessmann's One Base digital platform is the only one in the world to integrate multiple energy systems with a grid interface.

The Viessmann One Base platform and North American Intelligence Platform allow for early detection of malfunctions and optimization of cooling, leading to a 50% increase in Lynx subscriptions. Aftermarket growth has also been strong, with a goal of $7 billion in revenue by 2026. The recent combination with Viessmann Climate Solutions further strengthens the company's position as a global climate champion.

Thomas Heim and his team at Viessmann Climate Solutions are focused on working together to share their expertise and resources in order to achieve success. They are committed to excellence and are confident in their ability to differentiate themselves in the market and provide top-notch customer satisfaction. While there are challenges in the European residential market, the team remains optimistic and is outperforming the market through various strategies such as new product introductions and pricing. Viessmann's sales in Q1 were down 12%, with solar PV sales being the main contributor to the decline.

The company is expecting VCS sales to be flat to down 5% for the full year, with a projected increase in the second half. Despite lower sales, the company expects a modest impact on adjusted EPS due to increased productivity and synergies. The company is also excited about the potential revenue synergies from the recent acquisition. The data center market is a significant opportunity for the company, with projected growth due to the increasing demand for cooling solutions for AI-driven data centers. This vertical represents a low double-digit percentage of the company's global commercial HVAC applied business.

The company is seeing significant growth potential in the commercial HVAC segment and plans to increase its sales in this area to over 20% in the next few years. The company has also made progress in its transformation, including the integration of Viessmann and the sale of its industrial fire business. The team is focused on becoming a higher growth, simpler, and leaner pure-play climate champion. Q1 earnings were well above expectations, with reported sales up 17% and adjusted operating profit up 44%.

The company saw strong financial performance in the first quarter, with a 280 basis point increase in adjusted operating margin and a 19% increase in adjusted EPS. This was driven by strong prices and productivity, which offset the impact of increased investments and the dilution from Viessmann. The HVAC segment saw a 25% increase in sales, with 2% organic growth and a significant contribution from Viessmann. Sales were strong in the Americas, but weaker in EMEA due to declines in resi and light commercial. Sales in Asia Pacific were flat, with growth in China offsetting a decline in Japan.

The article discusses the strong performance of a particular segment in the first quarter, with an increase in adjusted operating margin and favorable mix, productivity, and synergies. The refrigeration segment saw a decrease in sales, but is expected to improve in the future. The Fire and Security segment also had a strong quarter, with reported sales up 2% and organic sales up 7%.

In the first quarter, the company saw a significant increase in adjusted operating profit and margins, driven by volume growth, productivity, and currency. Overall orders were down 7%, mainly due to a tough comparison in North America truck and trailer orders. However, commercial orders in the Americas and residential orders in North America showed growth. Orders in EMEA and Asia also showed growth, but orders in Japan were weak. Commercial HVAC orders globally were up 10%, and the backlog continues to grow. Refrigeration orders were down due to a decline in global truck and trailer orders, but there was growth in the container business. Fire and Security orders were flat. The company's guidance has been updated to include industrial fire for the first half of the year.

The company's full year guidance for 2024 has been updated to include the exits of three businesses in the first half of the year, resulting in a reported sales of under $26 billion. The adjusted operating margin guidance has been increased to roughly 15.5%, with an expected earnings conversion of over 40%. Interest expense will be lower due to the sale of one of the businesses. The adjusted EPS guidance remains unchanged, with 50% of the full year earnings expected in the first half. The proceeds from the sale of businesses do not impact free cash flow, but tax payments on gains do.

The company's free cash flow outlook is now $400 million, with no change in the underlying performance. The adjusted EPS guide remains at $2.85, with operational performance offsetting the impact of exiting industrial fire and lower sales at Viessmann Climate Solutions. The company expects double-digit adjusted EPS growth and plans to use proceeds from the exits for debt reduction, buybacks, and free cash flow funded share repurchases. They also plan to repurchase at least 58.6 million shares while maintaining a solid credit rating.

The company expects a decline in sales for their Viessmann Climate Solutions business in the second quarter, with a potential recovery in the second half of the year. They anticipate the decline to be around 5% for the full year, but this could improve if orders increase.

The company expects positive growth in heat pumps and a decline in boilers and solar PV for the full year. The aftermarket segment is performing well. The HVAC segment is expected to see a 100 basis point increase in margins for the second quarter and the rest of the year. The company is prioritizing the sale of its Residential and Commercial Fire divisions and there may be a potential expedited process due to PFAS concerns.

David Gitlin, CEO of Carrier, discusses the progress the company has made in regards to PFAS and the upcoming sale of their Residential and Commercial Fire business. He also addresses the speculation about him potentially leaving Carrier for a position at Boeing, stating that he is fully committed to Carrier and has removed his name from consideration for the CEO position at Boeing.

David Gitlin expresses his excitement to be part of Carrier's transformational journey and his commitment to the company. He also discusses the potential growth in the data center market, with Carrier currently having low market share but being well-positioned with technology. The main focus for Carrier is expanding their capacity to meet the increasing demand for data center solutions.

In some cases, we sell a few water cooled chillers at a time, but we are now looking to sell hundreds in a single order. We have invested in liquid cooling and have a dedicated team focused on this market. In Q1, we saw a significant increase in productivity and are confident in our ability to sustain it. Materials and logistics are driving much of the productivity, and we are also reducing overhead and improving factory productivity.

David Gitlin, CEO of Carrier Global Corporation, is pleased with the company's progress and believes they are well positioned for the year. He mentions that they have seen some challenges with copper prices, but they have hedged half of their exposure for the year. He also provides an update on their A2L product, stating that they are on track to achieve a 15-20% price increase over two years. He notes that they have already started selling the new product and are confident in their pricing strategy. Gitlin also mentions that they may see more prebuying of their older product, which could offset any decrease in sales of the new product.

In this paragraph, the speaker discusses their company's performance in the residential and commercial HVAC markets. They mention a peer's prediction for next year's mix and their own estimate for the percentage of sales that will transition to a new product. They also mention a decline in orders for commercial HVAC but express confidence in their position for the year and potential for upside in the light commercial sector. The speaker emphasizes their company's success in taking market share through technology differentiation.

Deane Dray from RBC asks about Viessmann's destocking and the impact of resuming European country incentives. David Gitlin explains that they do not see the same destocking as their peers and that the backlog is back to normal levels. He also mentions that there may be a lag between the legislation being finalized and new orders, but now that the legislation is firm, they expect orders to pick up.

The speaker discusses the current state of the heating market and predicts an increase in orders in May and June leading up to the heating season in September and October. They also address concerns about competition from Asian players in the European heat pump market, but believe that Viessmann's premium brand and technology differentiation will protect them. The combination of Carrier and Viessmann is seen as a powerful force in the market, and they plan to introduce Carrier in the mid-tier range while keeping Viessmann at the high end. They also mention the positive impact of price increases.

Dave Gitlin, CEO of Carrier, discussed the recent product introductions by Viessmann, a company acquired by Carrier. These new products have expanded the total addressable market (TAM) by $5 billion and were developed prior to Carrier's acquisition. Gitlin also mentioned potential revenue synergies between Carrier and Viessmann, with hundreds of millions of dollars in potential upside. He also noted that Viessmann has traditionally focused on boiler sales in North America, but is now expanding into other areas.

The company has introduced a new air-to-water heat pump for North America, which could be successful in certain regions. The demand for data centers and other verticals remains strong, with some changes in China. The company has decided to sell its C&R business and has received indications of interest, and the business is projected to have $2 billion in revenues and a 10% EBITDA margin in 2024.

The speaker discusses the company's focus on selling assets and the positive reaction from interested buyers. They also mention the strong performance of the Fire & Security business and the expected value of the sale. The speaker then moves on to discussing VCS and mentions the expected operating and EBITDA margins for the quarter and the full year. They clarify that these margins will be in line with the company average but below the average for the HVAC segment.

Stephen Tusa from JPMorgan Chase & Company asks a question about the company's EBITDA, which excludes amortization. The company adjusted its previous guidance for depreciation and amortization due to new information about Viessmann. Tusa also asks about the company's strategy for the new A2L refrigerant and for updates on pricing and inflation for the first quarter.

The company's main priority is to support customers during the transition period at the end of the year. They are preparing for this by training dealers and getting ahead of any technical issues. The company expects less than 20% of sales to come from H2L this year, with a higher percentage in the following year. Price and net productivity combined, including material inflation, was $200 million in Q1 and is expected to be $600 million for the full year. The company's growth algorithm for 2025 is still expected to be north of 10% off of the adjusted base, with a 12% growth in their core business in Q1 and a 17% growth for the full year.

The speaker discusses their value creation framework and their goal of double-digit growth every year. They mention the potential for earnings growth through various levers and their target of 100% net income free cash conversion. They also address concerns about potential trading down in the residential market and state that they have not seen evidence of this. Lastly, they mention that light commercial has been a source of strength but saw a decrease in the first quarter and will still be a profit outperformer for the year.

The company's strong performance has been driven by share gains, strong underlying verticals, and a base price and mix increase. The 454B dynamic has also provided a tailwind for the light commercial sector. The container sector is expected to see a 30% increase for the full year, with the worst behind them. The company has also introduced a new digital platform for this sector, resulting in 130,000 subscriptions.

The company has the capacity to start a buyback in 2024, but it is not included in their current outlook. The focus is on using proceeds from recent exits to pay down debt, and any remaining cash may be used for buybacks. The company expects the buybacks to have a more significant impact in 2025 than in 2024. If orders at Viessmann do not pick up in the second half of the year, the company may accelerate restructuring, but there may be limitations on the timing of this in Germany.

David Gitlin explains that there are still levers on cost that can be pulled for Viessmann in 2024. He praises Thomas and the team for being aggressive on cost and taking actions that would have been necessary regardless of the combination with Carrier. These actions include reducing G&A, materials, logistics costs, and value engineering. The cost synergies mentioned in the agreement exclude these actions, but Viessmann can still accelerate internal cost control due to market conditions. The definition of cost synergies is specific and includes examples such as renegotiating with suppliers and giving more work to certain suppliers.

The speaker discusses the value engineering and cost takeout that has been possible since Toshiba, Carrier, GWA, and Viessmann joined forces. They mention cost synergies and factory optimization as well. The speaker thanks customers, team, and investors for their support and mentions that Sam will be available for questions. The call is then concluded.

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