Carrier Global (CARR 2.83%) is not your typical ESG (environmental, social, and governance) company, but it certainly is one. And its recently reported second-quarter earnings showed advancement in its most ESG-friendly business.
Last week, Carrier announced its results for the second quarter. Revenue was down by 4%, but part of that was due to the divestiture of its Chubb subsidiary last year. After factoring out revenues from that unit, organic revenue grew by 7%. Earnings per share were up 8% from last year to $0.69. In addition, the company raised its full-year adjusted earnings per share guidance from a range of $2.20 to $2.30 to a range of $2.25 to $2.35.
Reasons to be optimistic
Carrier is best known for its residential and commercial air conditioners, but the company is much more than that. For instance, its refrigeration business supplies equipment to operators of the cold supply chain that deliver food, pharmaceuticals, and other temperature-sensitive products.
The company's newest innovation for the cold supply chain is its Lynx platform, which remotely monitors each piece of equipment on the trucks, airplanes, ships, and warehouses that make up the cold logistics network. Once customers are connected to Lynx, they pay Carrier to monitor their equipment and prevent breakdowns. This allows those clients to reduce spoilage and use energy much more efficiently. Lynx not only saves its customers money but raises their ESG profiles. The company forecasts that it will increase its connected installed base from around 96,000 commercial products this year to 1.1 million by 2026.
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Perhaps the biggest benefit the Lynx platform is providing to Carrier is an increase in its aftermarket business, which accounts for about a quarter of the company's sales mix. As Lynx customers see the money and energy they save by keeping their cold supply equipment up and running, they can justify replacing depreciated equipment more regularly. Carrier believes its Lynx platform can accelerate the growth of its aftermarket business and achieve high-single-digit to low-double-digit percentage growth for that segment through 2026. Aftermarket growth was in the double-digit percentages in the second quarter.
An ESG powerhouse
Carrier plays a significant role in the ESG community and has ambitions to do much more. For instance, the company has already earned MSCI's top ESG rating. It plans to be responsible for more than 1 gigaton of greenhouse gas reduction and to be carbon neutral by 2030. In addition, it says about half of its executives are diverse. In the long run, growth in the popularity of ESG investing could be a boon to the stock.
Carrier's shares are down 23% this year, mainly due to fears of recession and economic downturns in markets around the world, particularly China. New orders from that country were down significantly in Q2 as it is facing severe issues in its real estate market. Interestingly, new orders from Carrier's Asian market (excluding China) were up about 15% year over year.
Based on the midpoint of management's 2022 forecast earnings range of about $2.30 per share, Carrier trades at a forward price-to-earnings multiple of 17.7 times. That might not be a bad valuation for a company with such solid growth prospects.
