DUBLIN, Sept. 7, 2018 /PRNewswire/ --
The "Global and US HVAC (Heating, Ventilation and Air Conditioning) Market Research Report, 2018-2019" report has been added to ResearchAndMarkets.com's offering.
2017 was another solid year for the HVAC industry, with an ongoing recovery continuing to generate solid MSD type levels of growth in residential with low to MSD growth in commercial. While both cycles are getting longer, we are somewhat more balanced around risks to the upside and downside. We see another few years of above average normalized growth in residential (MSD) as the tailwinds from the housing echo replacement boom are likely at least partially real and pent-up demand from the recession is not quite done yet, while the non-res cycle is shifting to lower growth but still has some legs left to sustain growth.
The key risk item, outside of weather or a drastic shift in the US economy, is price/cost, with commodity prices rising and OEMs committing to pass through price to offset, but with some differences in timing which could cause near term hiccups to quarterly earnings. Overall, industry fundamentals remain solid and steady, with a positive setup and mostly stable competitive dynamics with little risk of disruption despite increasing technological evolution in the space.
US Resi momentum continues amid strong fundamental demand backdrop: little debate near term but focus shifting to length and sustainability of the cycle.
Replacement rates have now reached the high end of historical ranges, and the market has officially regained its long term trend line, as pent-up replacement demand from the recession has consistently bolstered MSD+ type growth over the past several years. Our analysis assumes that there is still some legs left in the pent-up demand story, but with further upside dependent on the handoff to the housing boom echo effect, which most expect to create some level of above average replacement demand as units put in during the housing bubble in the early to mid-2000s are now coming up for replacement. Simple arithmetic would indicate significant upside over the next several years, but we do see caveats as the housing bubble was focused in the South where units may not last as long (and hence upside would have already been realized), the market is now moving past trend line, and rates are rising along with system prices on higher commodity costs.
US Commercial HVAC steady.
This market remains a more straightforward call, where we see 3-4% growth in 2018/19, following ~5% growth in 2013-17. This assumes ~3-4% underlying construction growth over the next two years, with replacement steady in the ~4% range. We expect unitary and applied to grow at similar rates, with applied potentially growing slightly faster due to strength in institutional non-res verticals. Overall, the commercial HVAC market depends more on the macro and commercial construction than any industry-specific driver, and we expect steady growth here as the market remains well below peak and the non-res cycle remains solid, though getting later in the cycle with less relative upside.
Price/cost the key debate as inflation and tariffs driving incremental commodity headwinds; price should offset in resi/unitary, but risk in large commercial applied.
Overall commentary from companies entering the year had mostly been positive that price increases would be enough to offset rising commodities, but with potential for tariffs and another recent run-up in prices there could be incremental risk. Residential and light commercial unitary pricing should be able to offset higher commodities with potential for another round of price increases later this year to offset any incremental headwinds, while those at the larger end and with more applied exposure sounded incrementally more negative versus standing guidance.
Technology: VRF and inverter technology are factors, but legacy business models have proven resilient; IOT an increasing focus.
Ductless remains a key strategic theme, and we continue to think it should represent ~15% of the industry for both resi and commercial. However, growth rates appear to have cooled somewhat over the past year or two, more in the low DD range than 20%+, and while Asian partnerships are critical, the US remains solidly a ducted market. After VRF, the next wave of hype around the industry has been inverter technology, with almost all OEMs talking up capabilities at the premium end of the market, with some making noise around bringing this technology to more mainstream products.
Competitive dynamics mostly stable; potential for another round of consolidation but properties limited.
Competitively, dynamics remain stable, overall, but with some incremental share shift and a more pronounced focus on new product introductions over the past year. In terms of share, Trane appears to be the biggest winner near term, growing solidly above market in both resi and commercial, while Lennox continues to grow at or above market as well. Carrier and York have generally underperformed, though they have introduced some new products and relative growth is showing signs of improvement.
Daikin appears to be growing about in line, and we have been impressed with what we have seen from Rheem as an up and comer. Trane and Lennox aggressively invested in new products over the past several years, smartly reinvesting during a cycle uptick with low commodity prices, but appear to be switching more to a harvesting mode near term, whereas, Carrier and York had underinvested but are now rolling out new products to address key markets.
Daikin is focused on ramping its new facility near term, while Watsco has invested heavily in new technology and EMR remains the technology leader in compressors, deftly navigating an evolving landscape to remain on top. In terms of potential OEM consolidation, we continue to see rationale for another round of consolidation, but we don't view anything as imminent near term given other portfolio concerns at UTX/JCI, and a limited amount of other properties which could be for sale.
Key Topics Covered:
1.2 HVAC Technology
1.2.1 Cooling Basics
1.2.2 Residential Cooling Applications
1.2.3 Commercial Cooling Applications
2.1 Global Market Overview
2.2 Residential HVAC
2.3 Commercial HVAC
2.4 Strategy Landscape
2.5 Snapshot & Key Players
2.6.1 A Look Back at the 14 SEER Transition
2.6.2 A look back at 10-13 SEER transition
2.6.3 A look back at the 2010 refrigerant changeover
3. Residential HVAC Market
3.1 Near-term Outlook
3.1.1 Market Size
3.1.2 Replacement Demand
3.1.3 AC/Heat Pump Unit Forecast
3.2 Long-term Outlook
3.2.1 Market Model Basics
3.2.2 New Construction
3.2.3 Non-Construction Adoption
3.2.4 Replacement Demand
3.3 Residential HVAC Market Landscape
3.3.1 Market Share
4. Commercial HVAC Market
4.1 Construction Trends
4.2 Order & Revenue Trends
4.3 International Markets
4.4 Overview of Commercial Services Sector
4.4 Energy Efficiency-Key Commercial Driver
4.5 Market Landscape
5. Ductless Market in North America
5.2 Market Status
5.3 Competitive Landscape
7. Industry Consolidation Outlook
8. Research on HVAC Margins and Financial Performance of Major Players
8.1 Industrial Margins
8.2 Financial Analysis of Major Players
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Laura Wood, Senior Manager
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