Carrier (CARR) Q2 2024: Data Center Orders Surge 40%, Reshaping Commercial HVAC Mix
Carrier’s Q2 was defined by a dramatic 40% jump in HVAC orders, led by data center demand and robust commercial activity in the Americas, even as European and Chinese residential markets remained soft. The company’s ongoing portfolio transformation, marked by major divestitures and the integration of Wiesman Climate Solutions, is accelerating Carrier’s shift toward higher-growth, sustainability-driven segments. With a multibillion-dollar buyback now in motion and a growing backlog in commercial HVAC, Carrier is positioning for a structurally higher margin and growth profile heading into 2025.
Summary
- Data Center Demand: Commercial HVAC orders accelerated, driven by surging data center wins and dedicated vertical focus.
- Portfolio Transformation: Divestitures and Wiesman integration are reshaping Carrier toward sustainable, resilient growth segments.
- Capital Deployment Shift: Net debt reduction and a $1B buyback reinforce management’s confidence in long-term earnings power.
Business Overview
Carrier Global is a leading provider of heating, ventilation, air conditioning (HVAC), refrigeration, and fire and security solutions. The company generates revenue through equipment sales, aftermarket services, and digital solutions, with major segments in HVAC (including commercial, light commercial, and residential), Refrigeration, and Fire & Security. Carrier is actively transforming its portfolio, divesting non-core businesses and expanding into intelligent climate and energy solutions, especially via the recent Wiesman Climate Solutions acquisition.
Performance Analysis
Carrier’s Q2 results highlight a business in transition, leveraging secular tailwinds in sustainability and digitalization. Organic sales growth was modest, but reported sales benefited from the Wiesman acquisition, and margin expansion was notable with adjusted operating margin up 200 basis points. Commercial and light commercial HVAC in the Americas delivered double-digit growth, offsetting persistent weakness in European and Chinese residential and light commercial markets.
Order momentum was a standout—total company orders up 30% and HVAC up over 40%, fueled by the data center vertical and strong commercial activity. North American residential HVAC returned to volume growth, with orders up over 100% (or 60% excluding pre-orders), reflecting both share gains and channel restocking. Refrigeration and Fire & Security segments delivered mixed results, with Fire & Security margins up sharply due to productivity and cost actions, while refrigeration margins were flat amid mixed end-market demand.
- Data Center Vertical Drives Mix Shift: Data center orders now comprise a rising share of commercial HVAC, with dedicated teams and product investments in both water- and air-cooled chillers.
- Wiesman Integration Adds Scale and Complexity: Wiesman contributed to sales and margin, though near-term headwinds in European resi and solar PV weighed on results.
- Aftermarket and Digital Solutions Expand Recurring Revenue: Aftermarket grew 9% in Q2, and digital platforms like Abound and Lynx are gaining traction.
Free cash flow was robust at $550M, enabling rapid net debt reduction and setting up a $1B buyback for the second half. This marks a turning point in capital allocation, as Carrier pivots from M&A to shareholder returns while executing its multi-year transformation.
Executive Commentary
"Q2 organic orders were up roughly 30% year over year and HVAC organic orders were up over 40% with very strong order intake in data centers... Our resi business in North America returned to year over year volume growth and given strong orders and low inventory channel levels, we are now poised for strong second half."
David Gitlin, Chairman and CEO
"Adjusted operating profit of over $1.2 billion was up 26% compared to last year, mostly driven by the contribution of Wiesman Climate Solutions, price, and productivity. Core earnings conversion... was over 200% in the quarter."
Patrick Gores, Chief Financial Officer
Strategic Positioning
1. Data Center and Commercial HVAC Focus
Carrier is capitalizing on the secular growth in data centers, with a dedicated vertical team and expanded capacity in the US and Mexico for both air- and water-cooled chillers. The company is also developing liquid cooling and hybrid solutions, positioning for long-term aftermarket and service opportunities as data centers demand reliability and uptime.
2. Portfolio Transformation and Divestitures
Carrier’s divestiture program is on track, with Access Solutions, Industrial Fire, and KFI exits completed, and the commercial refrigeration sale expected by Q3 end. The residential and commercial fire sale is progressing, with a signed agreement targeted before Q3 close. These moves will yield over $7B in proceeds, reduce net debt, and simplify Carrier’s focus on climate and energy solutions.
3. Wiesman Climate Solutions Integration
Wiesman integration is delivering channel and technology synergies, despite near-term European market softness. Direct-to-installer relationships are expanding, new heat pump launches are gaining share, and digital platforms are being cross-deployed. Cost synergy targets remain on track, with $75M in 2024 and $200M by year three.
4. Aftermarket and Digital Expansion
Aftermarket revenue and digital subscriptions are growing, with new tools and platforms supporting global execution. The Abound platform now monitors over 1.1B square feet, and Lynx cold chain has surpassed 150,000 paid subscriptions, driving recurring revenue and customer stickiness.
5. Capital Allocation Reset
Carrier is shifting to shareholder returns, with net debt down $5B and a $1B buyback planned for the second half. Management signaled that all Wiesman dilutive shares could be repurchased by end of next year if divestitures close as planned, underscoring confidence in the transformed earnings base.
Key Considerations
Carrier’s Q2 marks a decisive inflection in both business mix and capital strategy, but the evolving portfolio and market exposure bring new dynamics for investors to monitor.
Key Considerations:
- Commercial HVAC Backlog Strength: Data center and megaproject wins are building a multi-year backlog, with data centers expected to reach 15% of commercial HVAC sales next year.
- Wiesman Near-Term Headwinds: European residential and solar PV sales remain weak, but heat pump share gains and synergy realization are offsetting some of the drag.
- Aftermarket and Digital Recurrence: Growing aftermarket and digital subscriptions are increasing recurring revenue and margin resilience.
- Execution on Cost Actions: Stranded cost elimination and G&A reduction are critical as Carrier transitions to a leaner, more focused portfolio.
- Channel Dynamics and Regulatory Shifts: US resi pre-buying and refrigerant transitions (410A to 454B) are influencing order timing, but management expects a modest impact on annual results.
Risks
Carrier faces continued risk from macro volatility in European and Chinese residential markets, with Wiesman sales projected down 15% YoY and solar PV particularly weak. Currency headwinds and the complexity of executing multiple divestitures and integrations simultaneously add operational risk. The evolving regulatory landscape, especially around refrigerants and energy policy, could affect both demand and pricing power in coming quarters.
Forward Outlook
For Q3 2024, Carrier guided to:
- Sales of approximately $6.6 billion
- Adjusted EPS of about $0.80 (including a $0.06 tax rate headwind)
For full-year 2024, management maintained guidance:
- Reported sales of roughly $25.5 billion
- Adjusted operating margin of at least 15.5%
- Adjusted EPS range of $2.80 to $2.90
- Free cash flow outlook of $400 million (underlying $2.4 billion, excluding exit-related taxes and costs)
Management emphasized that commercial and light commercial HVAC strength, along with cost actions, are offsetting Wiesman and China softness. The commercial HVAC backlog and data center pipeline provide high visibility into 2025 growth, while the buyback and ongoing cost reductions underpin earnings leverage.
Takeaways
Carrier’s Q2 showcased the benefits of strategic focus and operational discipline, with data center demand and divestiture execution driving a higher-quality earnings mix.
- Commercial and Data Center Tailwinds: Order momentum and backlog strength signal durable growth in commercial HVAC, especially from data centers and megaprojects.
- Portfolio Simplification and Capital Return: Accelerated divestitures and rapid debt paydown enable a substantial buyback, supporting EPS growth and shareholder value.
- Wiesman Integration Watchpoint: European residential headwinds persist, but synergy and channel expansion position Carrier for recovery as the market normalizes in 2025.
Conclusion
Carrier’s Q2 marks a pivotal step in its transformation, with commercial HVAC and data center strength offsetting regional softness and portfolio exits unlocking capital for returns. The evolving business mix, robust backlog, and digital aftermarket expansion reinforce Carrier’s path to higher growth and margin resilience into 2025 and beyond.
Industry Read-Through
Carrier’s results confirm that data center infrastructure is a powerful secular driver reshaping the HVAC landscape, with dedicated teams, technology investments, and capacity expansion now table stakes for winning share. The company’s ability to offset regional weakness with vertical-specific strength underscores the importance of portfolio agility and recurring revenue from aftermarket and digital platforms. For peers, the pace of refrigerant transition, the stickiness of price increases, and the ability to execute large-scale divestitures without stranded costs are key competitive differentiators. The sector’s shift toward sustainability, electrification, and energy resilience remains intact, but execution on channel strategy and capital allocation will separate leaders from laggards as macro conditions remain mixed.