Carrier Agrees to Pay $615M Over Fire Foam Claims: Major Legal Settlement and Strategic Shifts
Carrier Global Corporation has reached a pivotal settlement regarding the historical manufacture and sale of aqueous film-forming foam (AFFF), a product tied to environmental and health issues. This agreement, totaling $615 million over five years, is designed to resolve both ongoing and future litigation claims. The settlement stems from the company's legacy involvement with AFFF production, a fire suppression agent linked to per- and polyfluoroalkyl substances (PFAS), a group of chemicals raising environmental and health alarms.
The settlement agreements, disclosed in an October 2024 filing with the Securities and Exchange Commission, involve Carrier indemnifying its former parent company, United Technologies Corporation (UTC), now Raytheon Technologies Corporation (NYSE), for liabilities arising from AFFF-related claims. These settlements must be approved by U.S. courts in Delaware and South Carolina to become effective, signaling a significant step in addressing a large portion of the claims linked to KFI Wind-Down Corp., a former UTC subsidiary responsible for AFFF.
The Financials of the Settlement
Carrier has agreed to a structured payment plan of $615 million, plus proceeds from KFI’s asset sales and insurance recoveries. The total settlement is part of Carrier’s strategy to eliminate future liabilities while maintaining its financial stability, as the company expects to recover up to $2.4 billion from its insurance coverage, significantly offsetting the costs.
Despite the hefty settlement, Carrier's recent financial performance shows resilience. In Q2 2024, the company reported revenue growth of 11.63%, driven by strong demand in North America's HVAC market. Carrier’s adjusted earnings per share (EPS) of $0.87 also surpassed expectations. These financial metrics indicate that Carrier is well-positioned to manage the financial impact of the settlement.
Broader Strategic Moves
Beyond the AFFF settlement, Carrier is undergoing substantial corporate restructuring. The company divested its Commercial and Residential Fire business for $3 billion, a move aimed at sharpening its focus on core HVAC operations. Carrier intends to use the sale proceeds for share buybacks, reinforcing its financial outlook.
Carrier also launched an $800 million tender offer to acquire its outstanding debt, showcasing its commitment to reducing liabilities and improving its balance sheet. The company's proactive steps have garnered attention from analysts, with mixed ratings reflecting both optimism about its growth potential and caution about potential risks.
Investor Insights and Market Reactions
Carrier's strategic management of its legal and financial affairs has positioned it as a robust player in the building products industry. Analysts' price targets for Carrier range from $75 to $88, with firms like Baird and RBC Capital Markets maintaining an "Outperform" rating, while Morgan Stanley holds a more conservative "Equal Weight" stance.
Carrier Global’s $615 million AFFF settlement marks a turning point in its legal battles related to fire foam claims. While the financial burden is considerable, the company’s strong financial foundation, bolstered by robust revenue growth and strategic divestitures, ensures it can absorb these costs while continuing to thrive in its core business. Investors should remain attentive to Carrier’s ongoing legal and financial maneuvers, as the company navigates its complex liability landscape while capitalizing on growth opportunities in the HVAC sector.
