Record Sales Anticipated for A/C Manufacturers Amidst Widespread Heatwaves

Analysts Notebook wrote a column · Jul 27, 2023 16:26

The scorching summer heat in the US is anticipated to boost air conditioner sales to remarkable heights, contributing billions of dollars to companies that are already expecting record profits due to recent advantageous regulations. According to analysts' estimates, $Carrier Global (CARR.US)$, which is the second-largest US heating and cooling company by market value, is likely to generate more revenue in Q2 than ever before. Additionally, four out of its six biggest competitors are also expected to attain unprecedented sales this quarter.

Source: moomoo

Although the impressive profits of HVAC companies are yet to mirror the heat waves covering the northern hemisphere, demand decreased below anticipated levels during a relatively colder Q2. Nevertheless, revenues increased due to recent US regulations that encourage consumers to purchase more efficient but pricier AC units. The earnings for the second half of the year may escalate even further owing to extreme heat.

According to a report by the Air-Conditioning, Heating & Refrigeration Institute, volumes are down 20.4% this year through May, with reduced demand for air conditioners during May and June as temperatures were cooler than expected.

However, because of new US Department of Energy minimum efficiency standards, the units people did buy were priced substantially higher than in 2020. Additionally, the extreme heat currently scorching the US and Europe should boost demand for new units in the second half of the year. Sales in the third quarter are predicted to increase above already elevated levels, with Carrier, $Lennox International (LII.US)$, $AAON Inc (AAON.US)$, $Trane Technologies (TT.US)$, and Beijer Ref AB all set to achieve records. The HVAC Index, which monitors heating, ventilation, and air conditioning equipment manufacturers, is up 20% from the beginning of June, indicating that investors are taking note of the record sales driven by regulation and rising temperatures, signifying a new normal for HVAC companies.

Source: Bloomberg

World Weather Attribution, a scientific project that focuses on near-real-time analysis linking global warming to extreme weather events, claims that heatwaves will become more frequent and last longer due to climate change.

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.