Carrier Global sees $500M sales shortfall in Q3 versus prior expectation

While presenting at Morgan Stanley’s Laguna Conference, executives from Carrier Global (CARR) stated, according to a transcript of the event: “Nevertheless, because we saw movement weakening in June and July in our Q2 call, we reduced our Q3 volume forecast to being down 15% versus last year. We now expect volume in Q3 to be much lower than that. Just yesterday, trade association data was released indicating a nearly 30% reduction in industry volumes in July. And our volumes were down about the same. We estimate that industry volumes in August and September will be down in that range, if not worse. This would represent the weakest industry Q3 volume in over a decade. It is hard to pinpoint the exact root cause, but clearly the combination of high interest rates and pressure on the consumer are increasingly weighing on consumer spending, including on new and existing home sales, leading to delayed residential HVAC activity. As a result of weaker consumer demand, distributors are aggressively and purposefully reducing their inventory levels. We now expect that by the end of Q3, field inventory levels will be down 15% year over year. So, in essence, in Q3, we are seeing the combined impact of lower consumer demand as well as aggressive destocking by our distributors. Given these factors, we now expect North America resi volumes to be down a bit more than 40% in Q3. Total Q3 North America resi sales are expected to be down about 30%, with weaker volume offset by the continued double digit tailwind from the benefit of price and mix up on a base of approximately $1.6B. This represents just over $500M of a sales shortfall in Q3 versus our prior expectation. About half of the shortfall is from the field inventory reductions and half from lower consumer demand. The sales drop translates into about a 20 to 25 cent Q3 adjusted EPS headwind. We are, of course, very much focused on reducing this headwind through aggressive cost actions and targeted growth initiatives across our portfolio… As we look forward, we are controlling the controllables and will continue to play offense driving productivity is a way of life within Carrier, as reflected in the 100 basis points of annual margin expansion that we’ve achieved over the past few years. We are taking out fixed costs across our business to position ourselves for greater drop through as volume recovers.. We will provide an updated full year outlook during our Q3 call.”