As blistering summer temperatures sweep across the northern hemisphere, air conditioner manufacturers in the US are anticipating soaring sales figures, which could add billions to their already lucrative profits. Analyst estimates indicate that Carrier Global Corp, the second largest heating and cooling company in the US, is likely to generate more revenue in the second quarter than ever before. Additionally, four of its six main competitors are also heading for record-breaking sales this quarter.
Although the exceptional profits presently being projected do not yet fully reflect the ongoing heat waves, the relatively cooler second quarter experienced a decline in demand compared to expected levels. However, revenues increased as new US regulations compelled consumers to purchase more efficient but pricier air conditioning units. The extreme heat expected in the second half of the year is likely to push earnings even higher. According to a report published by the Air-Conditioning, Heating & Refrigeration Institute, volumes have dropped by 20.4% between January and May this year. The Jefferies analyst team highlighted in a research report that May and June were cooler than anticipated, resulting in reduced demand for air conditioners as people used their units less frequently and required fewer replacements.
Nonetheless, the introduction of new US Department of Energy minimum efficiency standards has resulted in the units purchased being priced significantly higher than in 2020, according to TD Cowen Industrials analyst Gautam Khanna. This favorable regulation, combined with the ongoing extreme heatwaves in the US and Europe, is expected to drive demand for new units in the latter part of the year.
Although May and June are traditionally the crucial months for air conditioner manufacturers, this year, July and August are likely to be the busiest period for the sector due to record-setting temperatures across many parts of the northern hemisphere. William Blair & Co. Building Products analyst Ryan Merkel predicts that sales in the third quarter will surpass already elevated levels, with Carrier, Lennox International Inc., Aaon Inc., Trane Technologies Plc, and Beijer Ref AB all projected to achieve record sales.
Further sales growth could be witnessed as labor costs rise along with the scorching temperatures. Many consumers may choose to invest in a new and upgraded unit over paying for repairs on an older model, as suggested by TD Cowen's Khanna. These replacement units would also need to comply with the new, higher-priced efficiency standards.
Investors have taken notice of this potential surge in demand. The HVAC Index, which tracks heating, ventilation, and air conditioning equipment manufacturers, has increased by 20% since the beginning of June and is approaching its all-time high. In comparison, the S&P 500 Index has risen by 9% during the same period. These record sales figures, driven by regulations and rising temperatures, symbolize a new normal for HVAC companies.
According to World Weather Attribution, a scientific project specializing in near-real-time analysis that links global warming to extreme weather events, climate change will result in longer and more frequent heatwaves.
On the regulatory front, William Blair's Merkel predicts double-digit industry sales growth due to changes in acceptable refrigerants in 2025 and increased efficiency requirements for gas furnaces. Additionally, he believes that the Inflation Reduction Act could boost shipments of higher-priced, higher-efficiency units.
Carrier and Lennox International will kick off the earnings season for HVAC companies, with their reports scheduled for Thursday morning in New York.