So even though that the market says — I think the market could be down double digits, ACT, I think, is saying 37,000 units this year from 42,500 or so last year. We actually think that we’ll end up probably flattish in both NATT, maybe kind of give or take a point or two. And then I would say flattish on the European truck trailer side as well. Europe would probably be down maybe 1 point or 2, but we continue to see strength in Asia truck trailer. And we see commercial refrigeration business starting to rebound this year, and we’re looking at double-digit growth in that business.
Noah Kaye: Extremely helpful, Dave. I think when we adjust free cash flow profile back for the onetime cash outflows looking at core free cash flow conversion north of 90%. I guess as we move past some of these transformation initiatives, how do we think about the core free cash flow conversion on a go-forward basis? Is there still that potential to get to 100%? And what are you going to be focused on over the course of this year to get you there?
Patrick Goris: Yes. We’re always focused on free cash flow conversion. As I mentioned this year in 2023, if you adjust for items like restructuring and some of the M&A-related fees which we adjust out, so they’re not part of our adjusted income, we’re actually well over 100% of free cash flow conversion. So some of it relates back to you take it over GAAP income or adjusted net income. Now for 2024, our guide for free cash flow. I mentioned $700 million, that includes $1.7 billion of those items. So take $2.4 billion, we expect 2024 to be elevated from a CapEx perspective as well, which is embedded in that guide for 2024. And a key reason for that is that within our Viessmann Climate Solutions business, we’re finalizing some of the larger projects.
And so we think that our CapEx outlook for 2024 of about $550 million is probably about $75 million or so million higher than what the underlying run rate would be. And so that’s an element in 2024. But obviously, taking into account the cash spend on restructuring, we would always target to be at 100% free cash flow conversion. And I think in 2023, if you take that into account, we absolutely didn’t.
Noah Kaye: Appreciate that. Thanks, Partick.
Patrick Goris: Thank you.
Operator: One moment for our next question. Next question comes from Joe Ritchie with Goldman Sachs. Your line is open.
Joe Ritchie: Thanks. Good morning, guys.
David Gitlin: Good morning.
Joe Ritchie: Dave, I want to focus my first question just on Viessmann. So what were kind of like the exit trends for 2023? And then just embedded in that mid-single-digit number for the year, kind of what’s expected in the first half of the year? I know it’s expected to be a slower start.
David Gitlin: Yes. Look, we did see that orders were lighter in the second half, and that did impact — I would say the fourth quarter came in a little bit lower than we thought. It was still up mid-single digits versus the fourth quarter of last year. But when we look at the calendarization of this year, from a sales perspective, you’re probably looking at about 45% or so of the sales in the first half and about 55% of the sales in the back half. When you look at the EBITDA, it’s more — a little bit more weighted towards the back half because that’s when we see our synergies start to come in. But as I was mentioning earlier, Joe, I think the encouraging piece is once we got the definitive legislation out of Germany, and you can apply for the subsidies, which become retroactively beneficial effective in — as of January, we did see — it was kind of like a tale of two cities.
You saw activity on the Viessmann web pages picked up. You started to see energy amongst the installers. And you started to see heat pump applications increase. So clearly, some of that dithering we saw on the legislative side impacted new orders. Now that we have a level of certainty, we’re very confident that we’ll start to see the heat pump orders and sales pick up in the second half. And Patrick, are you going to add something?
Patrick Goris: Yes, Joe, I was just going to say, for Q4 of 2023, Viessmann sales were down about mid-single digits. And then so for Q1 of this year, we expect them to be about flattish with a pickup in the second half of 2024 as Dave just mentioned.
Joe Ritchie: Got it. That’s perfect. That’s good color. Thank you both. And I guess just I know we’ve already kind of talked through the resi HVAC inventory cycle and where we are. I’m just curious just across the rest of your portfolio. Can you maybe just provide some color on inventories? I’m specifically curious on the security business and what you’re seeing in that business right now.
David Gitlin: Well, look, we — on the security side, as Patrick said, we’ve guided for half the year. We feel calibrated on where we are — for where we are in the first half. And I think that we’re sort of back to more normal levels of backlog in security. When we look at other parts, I mean, for our commercial HVAC side, we’re still looking at backlog up 30% on a two year stack. So we’re well — we have very good coverage going into the second half of this year. So we feel good about the growth projections that we have for commercial HVAC. And not — when we look at the light commercial piece, we’re watching the inventory levels in the channel. It’s partly helped frame our — when we said we think of sales down in the mid-single-digit range, it’s partly because we’re watching that.
Now I will say we actually, even with our 2024 forecast, it would still be lower than the kind of numbers we saw in 2019, 2018. So we’re watching the inventory levels, but we still have very strong coverage heading into 2Q and beyond. So we’ll keep an eye on that, but — and we obviously have a tough compare there. And remember, light commercial is about 5% of all of Carrier. But we’ll watch the inventory levels, but we are encouraged by the coverage that we have.
Joe Ritchie: Helpful. Thank you, guys.
David Gitlin: Thank you.
Operator: One moment for our next question. The next question comes from Nigel Coe with Wolfe Research. Your line is open.
Nigel Coe: Thanks. Good morning. And I echo Julian’s comments, thanks for making a pretty complex setup a little bit easier for us. So thanks for details. Just want to go back to Viessmann. And the comments about 45-55, Patrick, I think you mentioned that — based on our model, we got 50-50 roughly for 2023. So I just want to make sure that’s sort of more normal seasonality. And then can you just maybe comment on where we finished up on EBITDA for Viessmann, I think, EUR0.7 billion was sort of the benchmark. And the spur of the question really is, I think, Patrick, you mentioned Viessmann be fairly neutral to margins in 2024. I’ve got EBITDA margins in the 16.5%, 17% range for 2024. So I just want to make sure that’s where you see the Viessmann margins for 2024?
Patrick Goris: Okay. Quite a few things there. Nigel, I’ll start with the — where Viessmann ended in 2023. We had said about EUR4 billion and about $700 million in EBITDA. So EUR4 billion in sales.
David Gitlin: $700 million.
Patrick Goris: In EBITDA. On both items, they came in slightly below. So sales were close to EUR3.9 billion and EBITDA came in about $50 or so million below that. So that’s where Viessmann ended the year. In terms of VCS margins for the full year, from an operating margin point of view, Viessmann embedding our guide is right at mid-teens. So right at the, call it, middle of mid-teens. And I think from an EBITDA margin point of view, they’re in the high teens. So their EBITDA margin is slightly accretive to the overall company. The operating margin is basically right in line with the company average as well.
Nigel Coe: Okay. I’ll follow up offline. I thought the depreciation was quite low there, but we’ll follow up offline. And just a quick follow-on…
Patrick Goris: To that point, that there was a step-up in the fixed assets as part of the transaction and that boosted the depreciation.
Nigel Coe: Okay. That makes total sense. And then just thinking about — Dave, you talked about the ability for Viessmann to pivot between heat pumps and boilers. Just wondering about the mix impact there, because my understanding is, heat pumps are much higher ticket price than boiler. So just wondering if there’s a mix impact we should consider as well?
David Gitlin: Yes. I think on the margin side, they’re both very similar. But clearly, on the sales side, we’re looking at about 3 times the price for heat pumps than you’re seeing for boilers. So when we look at that heat pump growth, we think long term, you’re looking at heat pump growth more than 20%. It remains to be seen whether obviously, a bit of a tough compare last year, whether we’ll get that 20% growth in 2024, but the mix that we see between expected heat pumps and boilers is baked into our mid-single-digit guide for them for the top line for this year.
