Product and Service
Companies included in HVAC distributor sector in household equipment industry primarily are distributors of HAVC products.
Demand for Product and Service
As indicated by typical sales data, the demand for HAVC products has been stable and growing in the past several years. It seems that sales performance of companies have been related to demand for replacement as a result of nature of life of those equipment and higher efficient equipment (higher price).
The Sector
Sector’s current, trend, causes behind trend, and future
Current and Trend
- Generally, the demand for heating and cooling products has presented a solid growth in North America area as indicated by the increase in sale volume in the past several years.
- Demand has mainly come from replacement of existing equipment, especially from replacement for residential equipment. Commercial demand for replacement is catching up as well.
- It seems that there is trend in product mix to be shifting to higher price (more efficient products).
- The growth is presenting a slightly accelerating trend but have to undertake pressure of raising price due to increasing steel costs.
Causes behind the trend
The demand for residential replacement for HAVC equipment is primarily a result of the aging of the installed equipment and products’ upgrading to higher energy efficient models.
The increasing realizations of health life and increase household income have also been behind the trend of increasing demand for HAVC products.
Housing market including new construction and the remodeling existing homes should have contributed to the increasing demand as well.
Industry Future
Supported by favourable factors, demand in this sector may go up.
Numbers
General Financial Performance of Companies In the Sector
It seems that the growth in demand from US market for residential and commercial HAVC products has been strong in the past several years. This has been reflected by increase in the same store sale of a typical distributor in this sector, which presents an average of 3-5% annual growth during the same period and growth seems to be accelerating after entering 2018 driven by product mix’s shifting to higher price equipment and stronger commercial demand.
The typical companies’ gross margin in this sector is about 24% under the pressure of raising steel price and the typical operating margin is about 8% with a SG&A as percentage of sales of about 16% in 2018.
The typical average enterprise price/EBI(a) ratio is: 28(interest/EBI ratio of 2%) and stock price/sales ratio is about 1.5.
