Dear Fellow Shareowners,
2022 marked our second full year as an independent public company, and I am proud of our team’s continued strong performance in a dynamic macroenvironment.
We have the opportunity — and obligation — to drive disruptive innovation to make a positive impact for our customers and the planet. Long-term secular trends are transforming our industry, and we are leaning in as an industry leader uniquely positioned to solve our customers’ most important challenges. The result has been a galvanized workforce focused on a compelling mission, a supportive customer base eager for solutions, an investor base benefiting from the resultant growth and margin expansion, and a positive impact on our planet for generations to come.
Protecting the Planet — For Our Customers and the Future
Today, 15% of global greenhouse gas emissions originate from heating and cooling systems, while about 10% are derived from food waste. At Carrier, we embrace our leadership role in helping to reduce greenhouse gas emissions through more efficient heating, cooling and cold chain solutions.
We combine digital offerings with innovative technologies to help our customers reduce their carbon footprint and achieve their sustainability commitments. Our two flagship digital platforms, Abound for buildings and Lynx for the cold chain, enable customers to track and report emissions and to leverage artificial intelligence and machine learning to optimize asset utilization and help reduce their environmental impact.
Our digital solutions are complemented by our differentiated technology. Through our acquisition of Toshiba’s HVAC business, we are supporting the transition to electrification with additional highly efficient variable refrigerant flow (VRF) and heat pump offerings. This complements our leading heat pump position in North America and our leading commercial HVAC heat pump position in Europe. Similarly, we are leading the transition toward electrification in transport refrigeration — now operating fully electric refrigeration units in 15 countries.
In addition, we are making our portfolio more energy efficient and differentiated. We introduced a new HVAC rooftop lineup featuring our patented EcoBlue technology with 40% more energy efficiency powered by 75% fewer moving parts. Our Infinity offering for the North American residential market is 85% more efficient than the minimum-efficiency SEER product. These and other innovative technologies are key to helping us reduce our customers’ carbon footprint by more than 1 gigaton by 2030 — and we are on track to do so.
We collaborate globally with government officials to promote the use of incentives to increase the transition to climate-friendly solutions. For example, in the United States, we worked closely with the executive branch and Congress to ensure that the Inflation Reduction Act supports increased heat pump adoption and the shift toward energy-efficient air-conditioning solutions.
The impact of our innovation and new product introductions is well recognized. Fast Company named Carrier’s Vector eCool a finalist in the transportation category and Abound in the workplace category as part of the 2022 World Changing Ideas Awards. Our Lynx digital platform was recognized as a finalist in the Edison Awards and won a silver ranking for excellence in the supply chain innovation category. And Carrier’s all-electric, fully autonomous Vector eCool trailer refrigeration system was recognized by Environment + Energy Leader as a Top Product of the Year. These recognitions affirm our strong talent and the positive impact our climate solutions have on customers and the planet.
Leaning Into Secular Trends — Healthy, Sustainable and Intelligent — To Expand the Addressable Market to Drive Sustained Growth
While environmental, social and governance (ESG) tailwinds continue to drive demand for our differentiated offerings, interest in healthy and more intelligent offerings is increasing as well. People spend 90% of their time indoors, shining a light on the criticality of healthy indoor environments. In fact, indoor air can be up to five times more polluted than outdoor air, which is why Kidde expanded its Healthy Homes offering with the launch of the industry’s first integrated smart detection system for smoke, carbon monoxide and indoor air quality. Beyond homes, we see increased demand for better ventilation and filtration systems in schools, office buildings, restaurants, retail stores and airports. Demand for healthy building solutions remains high, with orders up approximately 50% from the prior year.
Connected and smart offerings allow our customers to reduce maintenance and logistics costs, improve asset utilization and reduce their energy usage by up to 20%. In addition to our Abound and Lynx platforms experiencing tremendous market adoption in 2022, we are tracking to our commitment to have 1.1 million connected devices by 2026.
All in, secular trends focused on healthy, sustainable and intelligent offerings will increase our total addressable market by $250 billion by 2030, and Carrier is poised and well positioned to capture more than our share of that opportunity.
Increasing Recurring Revenues and Another Year of Double-Digit Parts and Service Growth
When we became a stand-alone company in early 2020, we committed to driving higher recurring revenues and aftermarket growth. We delivered on our commitment to double-digit parts and service growth in 2022. This continued growth is enabled by our disciplined playbook, which is increasing total assets under long-term agreements, subscription-based offerings and multitiered BluEdge contracts, and prioritizing aftermarket in everything we do — from talent to design, to supplier and customer contracts. As a result of these efforts, we are on track to increase parts and service revenues from approximately $5 billion in 2022 to $7 billion in 2026.
Delivering Strong Financial Results Despite Macro Challenges
2022 presented our industry with a set of challenges, including inflation, supply chain disruption, geopolitical uncertainty, the war in Ukraine and lockdowns in China. As demonstrated by our strong financial results, we successfully navigated the ever-evolving global environment by executing our playbook and controlling the controllables.
In 2023, we recognize that higher interest rates may constrain global economic growth, but we will lean into favorable secular trends, stay committed to innovation and differentiation, double down on our aftermarket initiatives, and tenaciously reduce costs to fund growth investments and drive margin expansion.
Driving Shareowner Value Through Disciplined Capital Allocation and Portfolio Optimization
Our priorities for capital deployment are clear: funding organic growth, making strategic acquisitions, delivering a growing and sustainable dividend, and completing share repurchases, while maintaining solid investment-grade credit ratings. We increased our dividend in December 2021 by 25% and announced another 23% increase in December 2022. In addition, we repurchased approximately $1.4 billion of stock in 2022 and the board approved an additional $2 billion share repurchase authorization, reflecting the board’s confidence in our ability to continue delivering consistent earnings and cash flow.
We clinically review our portfolio and are becoming a more focused, differentiated, higher-growth, higher-margin business. In 2022, we completed the $3.1 billion divestiture of Chubb and the acquisition of Toshiba’s HVAC business. We introduced Carrier Ventures, which connects our proven expertise and resources with the best thinkers outside of Carrier to accelerate the development of sustainable innovations and disruptive technologies.
Carrier 2.0: Creating Positive Outcomes for Our Customers’ Most Pressing Challenges
We have come a long way since our April 2020 spin, and there is tremendous opportunity ahead. We are well positioned for our next phase of growth, which we refer to as Carrier 2.0. We will leverage our strong foundation and differentiated portfolio as we shift from an equipment-centric company to becoming a provider of digitally enabled lifecycle solutions. We have significant opportunity to use our digital offerings to further embed ourselves in our customers’ ecosystems, and through Abound and Lynx, we will add value and generate greater recurring revenues with higher margins and pull through incremental equipment sales and services.
We are confident in our long-term prospects and are determined to remain market leaders in our fast-growing, dynamic and highly impactful industry.
Thank you for your confidence in Carrier. I am thrilled with the accomplishments achieved this past year and know the best is yet to come.
Sincerely,
David Gitlin
Chairman & Chief Executive Officer
Carrier
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