Core Portfolio Insight: Carrier Global (CARR)

Core Portfolio Insight: Carrier Global (CARR)

March 25, 2022

Willis Carrier was an American engineer who invented the electrical air conditioner in 1902 and later founded Carrier in 1915. Air conditioning quickly became a hit with people seeking better working conditions and more comfortable living in their homes. Carrier innovated over the years with large central air equipment for multistory buildings, compact units for individuals homes, and refrigeration for transporting food. United Technologies acquired Carrier in 1979 and recently spun Carrier off in 2020. Today, Carrier sells HVAC (Heating, Ventilation, and Air Conditioning), Refrigeration, and Fire & Security products and services in over 160 countries, while employing over 58,000 people. 


Carrier has three business segments: HVAC ($11B of sales as of FY21), Fire & Security ($3B of sales), and Refrigeration ($4B of sales).

At about 60% of total sales, the HVAC segment benefits from trends in commercial and residential HVAC. A long-term opportunity for Carrier in commercial HVAC is meeting customers' need for more eco-friendly solutions, along with higher performance and reliability. In addition, the pandemic accelerated a trend of health & wellness within commercial buildings as customers demanded increased air quality, comfort, and safety. In residential, the housing market saw a great increase in new home constructions that need HVAC units and replacement of units in existing homes. A growing middle class is expected to continue driving growth in residential. In HVAC, Carrier competes against Trane, Lennox, and Johnson Controls (York). 

Next, Carrier's refrigeration business sells refrigeration for trucks and shipping containers. If you look at the top of a truck in the US, there will likely be either one of Carrier's Transicold units or Trane's Themo King products. These refrigeration units help reduce food waste and increase sustainability.  Finally, Carrier's Fire & Security unit competes against Johnson and Honeywell with fire detection and security products. Carrier recently sold its Chubb Fire & Security business for $3.1B. 

Together, about 75% of sales in these three segments are new equipment. The other 25% is aftermarket revenue which includes maintenance and aftermarket parts for Carrier's large installed based of systems. In a recent presentation, Carrier said it had 330K commercial HVAC systems, 2M light commercial HVAC, 33M residential HVAC, 1.8M refrigeration equipment, and 90M fire & security units. Management sees over $7B of aftermarket sales by 2026 (compared to $4.5B today). 

One last item to note is Carrier's growing Digital business, led by the Abound (optimizes building performance) and Lynx (real-time visibility into the cold chain) cloud-based platforms. While these are not large revenue producers today, it gives Carrier upfront recurring revenue, aftermarket revenue, and better customer loyalty. 

Management sees double-digit earnings growth over time, led by 6-8% organic revenue growth, improved cost efficiency, and strong free cash flow. Major trends like Health & Wellness, Sustainability, Digitization, and the Growing Middle Class are seen as drivers of this above-market growth. Carrier is a GPM Grade company that competes and wins worldwide, while generating substantial cash flows to invest organically, make smart acquisitions, and increase its dividend. With a successful track record of execution spanning over 100 years, we can be confident Carrier's products and services will be demanded for years to come. 


Carrier History

Carrier presentation at JP Morgan conference


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