Carrier Pricing Spineometer: 3 of 5 Vertebrae

Carrier, primarily a multinational heating, ventilation, and air-conditioning (HVAC) company, had a challenging Q2 2023. Revenue rose 15% to $6.0 billion but earnings before interest and taxes fell 40% to $489 million over the same period last year.

A review of Carrier July 27^th earnings call and financial report provided insight regarding the importance of pricing on performance.

David Gitlin, CEO, described this as “performing while transforming”.  Carrier is seeking to offload its fire and security, as well as its commercial refrigeration, lines of business while expanding its HVAC offering in Europe and the rest of the globe.  Carrier is investing in developing its “digitally enabled aftermarket solutions”, which includes SaaS offerings and investing in the heat pump market as part of its ESG goals.

With regards to pricing, David Gitlin indicates that the coming quarters should have only modest price improvements.  In the earning’s call, he said “I think that we will be in the normal what we assume to more typical levels on price, we don’t certainly see price reductions, but we see continued price increasing, but not at the kind of pace that of course we’ve seen over the last couple of years.”

We expect Carrier to have a team of 40 to 200 professionals ranging in title from analyst to vice president based on its revenue and best practices.  Given its geographic footprint, we would expect these professionals to be distributed across the Americas, Europe, and Asia-Pacific.  Given the CEO’s stated priorities, we would expect the numbers to be at the lower end of this spectrum.

Research into the investment by Carrier in pricing yielded underwhelming results.  A few professionals appeared to be focused on pricing, but the number was well below the lower end of best-practice expectations.  Their titles ranged from analyst and manager to director, leaving out the role of vice president and effectively making pricing subordinate to other functional areas.  In terms of breadth of responsibilities, pricing professionals were engaged more with both new offering pricing and pricing analytics, implying a real contribution to price decision making.  And yes, pricing professionals were identified in multiple geographies.

Overall, pricing appears to be stretched thin and more in the administrative, reporting, or pricing research role than the positive impact pricing strategy could have on decision making.
Consider the importance of pricing strategy in the initiatives Carrier has in aftermarket attachments, the burgeoning heat-pump market, and evolving with legislative changes to the acceptable products in the markets Carrier serves, and you will realize that Carrier has under invested in this capability.

It is not that management doesn’t know the importance of pricing.  Saif Siddiqui, President of Global Comfort Solutions, who was identified specifically by CEO David Gitlin for his success, has a background in pricing.  It is that their investment in this area is below expectations.

Given the importance and capability of pricing at Carrier as indicated in financial reports, management statements, and our pricing team research, and given their performance, we have come to the following conclusion as of September ‘23.

Carrier Pricing Spineometer: 3 out of 5 Vertebrae.

CARR (Carrier Global Corp.) rose from 54.4 the day prior to their earnings call to 57.1 one week later. FY 2022 revenue of $20.4 billion with a 22% operating margin and P/E ratio near 22.

For FY 2022, a 1% improvement in price would yield 4.5% improvement in operating profits holding all else constant at Carrier.