Blistering summer temperatures are pushing push air conditioner sales to lofty levels in the US, adding billions to companies already eyeing record profits following newly favorable regulations.
(Bloomberg) — Blistering summer temperatures are pushing push air conditioner sales to lofty levels in the US, adding billions to companies already eyeing record profits following newly favorable regulations.
Carrier Global Corp — the second largest US heating and cooling company by market value — posted a record $6 billion in revenue in its second quarter results Thursday, leading it to raise its full year profit forecast. Lennox International Inc. also boosted its guidance after a company-best $1.4 billion in sales. Three of their five largest competitors are headed for record-breaking quarters.
The standout profits don’t yet reflect the heat waves blanketing the northern hemisphere. A relatively chilly second quarter saw demand drop below expected levels, but revenues rose as new US regulations push consumers to buy more efficient, but costlier units. Extreme heat could send second half earnings even higher.
Volumes are down 20.4% this year through May, according to a report published by the Air-Conditioning, Heating & Refrigeration Institute. May and June were cooler than expected, Jefferies analysts wrote in a research report, depressing demand for air conditioners as Americans used their units less and needed fewer replacements.
Because of new US Department of Energy minimum efficiency standards, however, the units people did buy were priced “substantially higher” than in 2020, TD Cowen Industrials analyst Gautam Khanna said in an interview.
On top of that favorable regulation, the extreme heat currently scorching the US and Europe should boost demand for new units in the second half of the year.
While May and June are typically manufacturer’s key months, this year July and August look to be the sector’s busiest as record setting temperatures grip much of the northern hemisphere, William Blair & Co. Building Products analyst Ryan Merkel said in an interview. Sales in the third quarter will likely grow above already elevated levels, with Carrier, Lennox International Inc., Aaon Inc., Trane Technologies Plc and Beijer Ref AB all set to hit records, estimates show.
Sales could be driven higher still as soaring labor costs combine with the brutal temperatures. More consumers may opt for a new, better unit rather than paying someone to repair an older model, TD Cowen’s Khanna said. And those replacement units would also be at the new, higher priced standards.
Investors are taking note. The HVAC Index, which tracks heating, ventilation, and air conditioning equipment manufacturers is up 20% from the start of June and nearing an all-time high. The S&P 500 Index is up 9% over that time.
Record sales driven by regulation and rising temperatures exemplify a new normal for HVAC companies.
Climate change will cause heat waves to last longer and occur more frequently, according to World Weather Attribution, a scientific project that specializes in near-real-time analysis linking global warming to episodes of extreme weather.
On the regulation side, William Blair’s Merkel sees double-digit industry sales growth on the back of changes to acceptable refrigerants in 2025, and increased efficiency requirements for gas furnaces. The Inflation Reduction Act could also boost shipments of higher priced, higher efficiency units, he said.
(Updates with results from Carrier and Lennox in the second paragraph.)
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.