Patrick Goris
Chief Financial Officer at Carrier Global
Thank you, Dave, and good morning, everyone. Please turn to slide 7. We had record reported sales of about $6 billion, up 15% versus the prior year with 6% organic growth. 9% growth from acquisitions and divestitures was substantially driven by Toshiba Carrier whose results will become organic starting in August. The deconsolidation of KFI was not material to Q2 total company sales, but had a three-point negative year-over-year impact due to Fire and Security segment reported sales.
Q2 adjusted operating profit of $964 million was up 12% compared to the prior year. Adjusted operating margin in the quarter was 16.1% and includes a 100 basis-point headwind from the consolidation of Toshiba Carrier. This means adjusted operating margins would have expanded about 60 basis points, excluding the impact from the TCC consolidation, driven by volume, productivity and price-cost as well as strong margins in TCC.
Core earnings conversion was about 30% in the quarter. Adjusted EPS of $0.79 was ahead of our expectations, mostly because of stronger-than-expected sales, price cost and TCC performance. Free-cash flow generation of $310 million was up significantly compared to last year, helped by inventory reduction. This positions us well to deliver approximately $1.9 billion of free-cash flow for the full-year.
You will notice that our U.S. GAAP results include the impact of the deconsolidation of KFI and the mark-to-market adjustments related to foreign currency hedges associated with the Viessmann acquisition. You may recall that we fully hedged the cash portion of the euro dominated purchase price. As of yesterday's rates, most of the Q2 non-cash loss on the hedges would be neutralized. We exclude these items from our adjusted results.
Now please turn to slide 8 to cover our segment's performance in more detail. HVAC had an excellent performance in Q2. Organic sales were up 9% driven by high-teens growth in commercial HVAC, double-digit growth in aftermarket and controls, and over 60% growth in light commercial. North-America residential HVAC sales were down mid-single digits in the quarter, a bit weaker than we expected.
Overall, residential volumes were down mid-teens, as we adjusted to slower-than-expected movements in the quarter. North America residential revenues continued to benefit from price realization and mix-up from the 2023 SEER transition. Adjusted operating profit for the HVAC segment was up 29% compared to last year, driven by volume, productivity, TCC performance and favorable price cost.
Adjusted operating margin was up 70 basis-points compared to last year despite a 200 basis-point headwind from the consolidation of TCC. All three businesses within HVAC had strong margin expansion, residential light commercial, commercial and global comfort solutions. Based on the first-half performance, we now expect 2023 full-year HVAC segment margins to be closer to 16% versus our prior guide of over 15%.
Let me move to Slide 9 and provide a brief update on our Toshiba Carrier acquisition, as we closed that transaction about one year ago. As a reminder, we acquired Toshiba Carrier for $900 million, about 10 times EBIT. We committed to a $100 million in cost synergies in five years and projected to achieve mid-teens EBITDA margins in that same timeframe. Our Tokyo based team is doing an outstanding job, and performance is running ahead of all of our projections. Japan returned to profitability earlier this year. We are already achieving double-digit operating margins, and are now projecting $200 million of cost synergies, which would drive EBITDA margins in the high-teens, rather than mid-teens. In short, excellent performance by that management team, and we are of course, using their experience and playbook as we plan for the Viessmann integration.
Moving to refrigeration on slide 10. Reported sales were down 7% in the quarter, with organic sales down 6%. The difference is a small divestiture we discussed in the first quarter. Within transport refrigeration, North-America truck and trailer sales were up double digits, and European truck/trailer was up mid-teens. This continued strong performance was more than offset by container, which was down roughly 35% in the quarter year-over-year. Importantly, we delivered more container units sequentially, and we expect the sequential improvement to continue in Q3 and Q4. As a result, we expect the container business and the entire refrigeration segments to return to organic sales growth in the second-half of this year.
Commercial refrigeration was down high-teens year-over-year, as a European food retail customers continue to see pressures. The commercial refrigeration team is doing a great job managing working capital and adjusting our cost base to position this business for strong financial performance as the top-line improves.
Adjusted operating margin was down 240 basis-points compared to last year, mainly due to the volume declines in container and commercial refrigeration, and the absence of the $7 million gain in last year's second quarter. Price cost was favorable. Excluding the onetime gain on sale in the first-quarter, Q2 adjusted operating margins for refrigeration grew 250 basis-points sequentially from Q1, and we are pleased with the progress this segment made in the quarter.
Moving onto Fire and Security, on Slide 11. Fire and Security sales were up 5% on a reported basis. Organic sales were up 9%, this was partially offset by 1% currency and a 3% decline from the deconsolidation of KFI. We saw a strong organic growth across the F&S portfolio, including double-digit growth in industrial Fire and Security, and high-single-digit growth in both residential and commercial fire.
Adjusted operating profit was up 1% versus the prior year, which includes the year-over-year headwinds from the deconsolidation of KFI, which was about $10 million or about a penny of adjusted EPS for Carrier. Adjusted operating margins were down 50 bps in the quarter as favorable price-cost volume and productivity were offset by mix, and the year-over-year impact of the KFI deconsolidation. Sequentially, adjusted operating margins were up 230 basis-points, and we expect adjusted operating margins to improve as the year progresses.
Turning to slide 12, total company organic orders were down mid single-digits in the quarter, as lead times continue to normalize throughout our businesses. As you can see on the left, backlogs remain at very healthy levels, about two times 2019 levels, and for our longer-cycle businesses extend into next year. We believe that strong backlogs and normalizing supply chains are reflected in our order rates.
Overall, HVAC orders were down 5% to 10% in the quarter, with both business units seeing some declines. Commercial HVAC orders were down mid single-digits, but the backlog remains robust and grew sequentially, excluding NORESCO. Over the past month, commercial HVAC orders have returned to growth.
Refrigeration orders were up 10% in the quarter, with growth in transport refrigeration and a decline in commercial refrigeration. Global truck and trailer demand remained strong, with orders up about 40%, and those were partially offset by declines in container. Container orders were about flat sequentially as demand begins to recover. Orders in Industrial Fire remained strong and were up double-digits with lead times improving in security and Commercial Fire, orders moderated and were down in the quarter.
Now moving on to guidance on slide 13. Performance in the first half of 2023 was better than we expected. We now expect 2023 revenues to be a couple of $100 million more than $22 billion, with mid-single-digit organic growth. The increase is primarily driven by commercial and light commercial HVAC, and somewhat higher net price. We now expect adjusted operating margins to be between 14% and 14.5%, a little higher than what we previously guided, driven by slightly higher organic sales, improved price-cost and better performance at Toshiba Carrier. We now expect full-year price-cost to be about $300 million positive for the year.
As a result, despite a $0.03 adjusted EPS headwind from the deconsolidation of KFI, we are increasing our adjusted EPS guidance range by $0.05, and we expect full-year adjusted EPS to be at the midpoint of the new range.
For your benefit, we included an adjusted EPS guide to guide bridge on slide 17. As the free-cash flow, we continue to expect to generate approximately $1.9 billion this year. So overall, another good quarter, and an improved outlook for 2023.
With that, I'll turn it back over to you, Dave.
