Patrick Goris
Chief Financial Officer at Carrier Global
Thank you, Dave, and good morning, everyone. Please turn to slide 8. Sales in the quarter were $5.7 billion, with organic growth of 3%, a 1% tailwind from foreign currency translation and a 1% net contribution from acquisitions and divestitures. The latter was substantially all driven by one month of Toshiba Carrier, before becoming organic at the beginning of August.
Q3 adjusted operating profits of over $1 billion was up more than 20% compared to the prior year on 5% reported sales growth. Strong productivity and price cost helped us expand our adjusted operating margin by 240 basis points to 18.2%. That is, despite a 30-basis point headwind related to the Toshiba Carrier consolidation, reported earnings conversion was 65% in the quarter. Core earnings conversion, that is, excluding acquisitions, divestitures and currency was far higher than that.
Adjusted EPS of $0.89 is up 27% year-over-year, and includes a tailwind from discrete tax items in the quarter. Free cash flow of about $950 million was up 35% compared to last year. Year to date, we have generated over $1.3 billion in free cash flow compared to about $400 million during the same period last year, reflecting improved working capital performance and higher earnings. Overall, a good quarter and better than we expected, mainly as a result of better operating performance and the discrete tax items I mentioned earlier.
Please turn to slide 9. Q3 was another good quarter for HVAC. Organic sales were up 4%, driven by high single digit growth in commercial HVAC, 30% growth in light commercial, and double-digit growth in aftermarket. North America residential HVAC sales were down low single digits in the quarter. Overall Resi volume was down low double digits, and revenues continued to benefit from price realization and positive mix from the 2023 tiered transition.
Destocking is expected to continue in Q4, and we expect North America Residential HVAC volumes to be down mid-teens for the full year. We expect field inventories to end 2023 also down mid teens from the beginning of the year, which should position them at more appropriate levels heading into 2024. Offsetting lower expected residential volume in 2023, we now expect light commercial HVAC sales to be up about 30% versus about 20% in our prior guidance.
Adjusted operating profit for the HVAC segment was up 33 compared to last year on 7% reported sales growth, driven by productivity and price cost. Adjusted operating margin reached a record high and was up 410 basis points compared to last year, despite a 50-basis point headwind from the consolidation of Toshiba Carrier. You will see in the 10-Q later today that there was a one-time $60 million tax benefit from a joint venture that is included in equity income, but that was more than offset by other discrete items in this segment. In short, excellent financial performance for this segment in the quarter.
Moving to slide 10 for refrigeration. Reported sales were flat in the quarter, with organic sales down 3%, offset by a 3% benefit from foreign currency translation. Within transport refrigeration, global truck and trailer sales were up high single digits, driven mostly by over 20% growth in European truck and trailer.
Container continued to experience demand softness, however, and was down roughly 25% year-over-year. Commercial refrigeration sales were down about 10% in the quarter, but orders for this business returned to year-over-year growth. Looking ahead to Q4, we expect the container business, commercial refrigeration and the entire refrigeration segment to return to organic sales growth.
Adjusted operating margin for this segment was down 80 basis points compared to last year, mainly due to the lower volume in container and commercial refrigeration, which more than offset the benefits from productivity and price cost in this segment.
Moving on to Fire and Security on slide 11. Just like HVAC, this segment had good financial performance in the quarter. Reported sales were up 2% with 6% organic sales growth and a 1% tailwind from foreign currency, partially offset by a 5% headwind from the KFI deconsolidation. Organic growth was broad based, with high single digit growth in Industrial Fire and Security, and mid-single digit growth in Commercial and Residential Fire combined.
Adjusted operating profit was up 13% versus the prior year. Similar to HVAC, adjusted operating margins hit a record level, and we're up 170 basis points year-over-year, driven by volume, productivity and price cost.
Turning to slide 12, total company orders were down a little less than 10% in the quarter, mostly due to the declines in the shorter cycle businesses. Overall, HVAC orders were down about 10% in the quarter, with expected declines in residential and light commercial HVAC.
Commercial HVAC orders were flat against a difficult comp. Last year orders were up 15% to 20% and the backlog remains robust, up over 40% on a two-year stack and extends well into next year.
Refrigeration orders were down approximately 15% to 20% in the quarter, largely driven by transport. Very strong orders growth in International Truck and Trailer, up 60% year-over-year, was more than offset by over 50% order declines in North America Truck and Trailer. For North America Truck and Trailer, we opened the 2024 order book in Q2 of this year. For 2023, we opened the order book in Q3 of last year. On a year-to-date basis, North America Truck Trailer orders are up low single digits, which is probably more indicative of underlying demand.
Commercial refrigeration and container orders in October give us confidence in the refrigeration segment's return to organic growth in Q4. Orders in Fire and Security were up around 5%, with particularly strong growth in Industrial Fire. We believe that lead times for the majority of our shorter cycle businesses across our three segments have normalized, with backlogs close to more typical levels. Our longer cycle backlog continues to grow year-over-year.
Now moving on to guidance on slide 13. We expect full year sales to come in around $22.1 billion to $22.2 billion, including mid-single digits organic sales growth. We are raising our full year adjusted operating margin guidance to about 14.5%, driven by strong year to date performance. Within the segment, we are increasing our full year HVAC adjusted operating margin guidance to about 16.5%, while maintaining our Fire and Security guidance at 15.5%.
Refrigeration full year adjusted operating margin is impacted by lower volume in container and commercial refrigeration, and as a result will likely end up a little lower than 13%. We are increasing our full year adjusted EPS guidance by $0.10 compared to our prior midpoint to about $2.70. We have included a 2023 Guide to Guide adjusted EPS Bridge in the Appendix for your reference. In essence, improved operational performance drives about half the increase. The balance is mostly driven by a lower expected adjusted tax rate.
Our full year adjusted effective tax rate is now expected to be between 21.5% and 22% compared to our prior guidance of about 23%. As for free cash flow, we now expect to generate slightly more than $1.9 billion in 2023.
Before I turn it back over to Dave, let me give you a couple of updates. You may recall that we will be funding the Viessmann acquisition through a combination of mix -- through a combination of equity, cash on hand and debt. The latter will be a mix of term loans and long-term debt.
We previously shared that we hedged the cash portion of the consideration against currency swings. In the third quarter, we entered into a number of interest rate locks to mitigate interest rate exposure on the expected issuance of debt with maturities 10 years and beyond. As a result, we do not expect a significant change in our cost of financing for Viessmann, compared to our original business case. We expect to be in the market for the bond offerings in Q4 in advance of an early January close.
As we communicated previously, we will be very focused on deleveraging post acquisition, and will use free cash flow and proceeds from the business exits to do so. We continue to expect to return to share repurchases as soon as our net leverage returns to about two times.
One last topic, I'd like to share our current thoughts on how we will provide 2024 guidance in February, given the acquisition and the four business exit transactions. We currently expect that our 2024 guidance will include a full year of Viessmann Climate Solutions. The exact timing and the proceeds of the business exits are of course not known as of today.
For context, there are specific rules that determine when a business can be treated as discontinued operations in the financial statements, and it is our current assessment that the Fire and Security businesses being exited will likely not qualify as Discops for reporting purposes until all of the transactions have been executed. We do not expect commercial refrigeration to qualify for Discops.
Therefore, we intend to provide guidance consistent with how actual results will be reported. This means that we will include the earnings of the businesses to be exited into our 2024 guidance. We will then adjust guidance as needed for the exact timing of the exit and the use of the proceeds. By the time we provide guidance in February, we expect to have a better sense on timing and proceeds for several of the business exits.
With that, I'll turn it back over to you, Dave.
