Carrier Corp: Impact of IMMEX on Operating Profit Between 2020–2024

Since 1991, Carrier — a top three global HVAC manufacturer — has operated its own IMMEX facility in Santa Catarina, Nuevo León, Mexico. In 2020, Carrier spun off from United Technologies Corporation (“UTC”).

From 2020–2024, Carrier’s HVAC unit accelerated its use of its IMMEX facility to drive margins. Over that period, the IMMEX share of the product cost base grew from 23% to 30%. In turn, operating margins grew from USD 1,143M to USD 2,292M. That operating margin grew at a CAGR of 19.0%.

Carrier never disclosed its IMMEX-driven margin expansion in its own financials. If you combine Carrier’s own financials and the Mexican Pedimento dataset, you find evidence of Carrier’s strategy.

Carrier’s IMMEX-Driven Margin Expansion Strategy

Exhibit 1: Carrier HVAC Revenues and Operating Profit — By Organic/Operational Percentage 2020–2024 (Figures in USD Millions)

Exhibit 1: Between 2020–2024, Carrier’s annual reports detail how normal operating events and non-operating events affected their HVAC unit’s revenue and operating margin. Carrier makes the distinction between “organic growth” and non-operating events (i.e., foreign currency swings and acquisitions). If you reframe the reporting for “organic growth” alone, the differences are substantial. See the arithmetic below.

Carrier IMMEX Facility: Physical Flows

While Carrier grew its operating margins from 14% in 2020 to 20% in 2024, Carrier was increasing its production of condensing units at its IMMEX facility. By 2024, Carrier had almost an equal mix of production between condensing units and air conditioning equipment.

Exhibit 2: Carrier’s IMMEX Exports — By Product Category 2020–2024 (Figures in USD Millions)

Exhibit 2: (1) “Air Conditioning Equipment” is shortened to “AC Equipment”. (2) The categories are derived from the detailed descriptions on the Mexican export pedimentos. The pedimento requires that a broker declare a harmonized code and a detailed description that exceeds the harmonized code’s description.

Fundamentally, Mexico’s IMMEX program requires that companies add value to imported parts within Mexico and then export finished products. Under IMMEX, Mexican customs does allow companies different methods of importation to meet the requirements of the companies’ supply chain.

Exhibit 3: Carrier IMMEX Imports — By Mexican Customs Import Program 2020–2024 (Figures in USD Millions)

Exhibit 3: Each pedimento filed by a broker has its own import program. For those in the know: we substituted the term — “import program” — for “customs regime”.

To accommodate the growth in its IMMEX exports, Carrier augmented its “V1” IMMEX imports with “IN” IMMEX imports.

“V1” allowed Carrier’s IMMEX facility and its Mexican suppliers to collaborate on inventory replenishment at short distances. This was an adequate policy until Carrier wanted to increase its condensing unit production.

“IN” represents a plain vanilla type of IMMEX import. With “IN”, companies import foreign parts. That is, the imported parts are foreign to Mexico.

“V1” is Mexican customs’ virtual import program. Within the “V1” framework, IMMEX A can move inventory into IMMEX B. To remain compliant with “V1”, IMMEX B must export the inventory transformed and at a higher value. You’ll notice two parts to the virtual move: IMMEX B’s virtual import is IMMEX A’s virtual export.

Granted, Carrier is a single example of a global manufacturer using the IMMEX program to expand margins. Maybe Carrier represents a hunch on an investment thesis. Mexico’s IMMEX program has just over 2,000 of the world’s largest manufacturers.

Carrier’s HVAC Revenue & Operating Revenue Reconciliation

Reconciliation A: Total Net Sales to Organic-Only Product Revenue 2020–2024 (Figures in USD Millions)

Reconciliation A: Carrier’s annual reports clearly state revenues from their HVAC business unit. Carrier also provides two other granular details to estimate HVAC product revenues: organic growth and revenue from HVAC services. (1) Carrier divides the growth drivers between organic and several extraordinary items (i.e., foreign currency changes and acquisitions/divestitures). We subtract the extraordinary items and recast HVAC revenue as “Organic-Only Total Net Sales”. (2) We also subtract service revenue from “Organic-Only Total Net Sales” to derive “Organic-Only Product Revenue”.

Reconciliation B: Operating Income to Organic-Only Product Operating Income 2020–2024 (Figures in USD Millions)

Reconciliation B: Carrier annual reports provide almost equal granularity on its operating profits. Carrier states how organic growth and extraordinary items affect operating profits. There’s one exception to the revenue reporting. Carrier doesn’t state the operating profits on HVAC services. For our estimate, we derive the proportion of service revenues from total revenues and allocate service revenues with that same proportion.