HVAC sales and hurricanes

[jacob]

A/C---particularly sales in the SE of the US---is one area of investments I expect to pick up over the next decades as part of a [still unrealized] mega-trend. However, in reading analyst reports, something boggles my mind: I understand that hurricanes influence sales, but I'd expect a hurricane to generate more revenue rather than less on account of necessary(??) repairs whereas the reports seem to indicate otherwise as in more hurricanes, less revenue. Or perhaps the unstated premise is less hurricanes than anticipated ...

In short, my question is, given a[n additional] hurricane, will sales of HVAC equipment go up or down?

[jennypenny]

Not sure. Do you mean A/C specifically? I ask because many in the south (and all new construction) uses heat pumps instead of traditional HVAC. Also, storm ravaged areas have been renovated more recently, so include better, updated materials (heat pumps, solar, spray foam insulation, etc). Those materials are more efficient and put less stress on the pumps, helping them to last longer. The southeast has actually switched over to climate-change-ready materials more quickly than the rest of the country. I assume they'll hit market saturation more quickly, even with the construction boom.

I'd think A/C sales would pick up in the north, not the south, because there are still plenty of people either without A/C or who rely solely on window units. Southerners know how to do heat, it's the Yankees that can't deal.

[Chris]

I understand that hurricanes influence sales, but I'd expect a hurricane to generate more revenue rather than less on account of necessary(??) repairs whereas the reports seem to indicate otherwise as in more hurricanes, less revenue.

I think that would depend on how much of the market for A/C is due to replacement vs. new build. If hurricanes delay new construction, then revenue might be pushed out.

[oldbeyond]

To quite a considerable extent, the need for A/C can be mitigated by better construction. I guess energy prices will be influential in determining which route is taken, but a lot has changed for builders - more knowledge in the industry, new insulation materials, better windows, heat cameras etc. New construction would require about half the heating/cooling of my retrofitted 50 years old apartment, for example.

[IlliniDave]

I think hurricanes' physical destruction to the level that would require replacing an HVAC probably don't affect enough of a footprint to drastically alter the regional/national market for them. In areas that get hit directly there's probably a lull while damage is cleared and insurance issues settled, then gradually structures get rebuilt and are eventually finished off. So all the replacement sales are probably peanut-buttered across a 1-2 year period that starts some number of months after the event. Perhaps if data for areas/counties directly affected is available it would show more dynamic response to an event.

[Lucky C]

I would think the biggest HVAC equipment profits would be from new construction of large houses getting top of the line equipment rather than someone who has to replace their 20 year old unit and is looking for a smaller or just more economical model. So I would expect HVAC earnings to track home building more than hurricanes, but what do I know...

In the Northeast I have noticed mini split systems are getting popular - not sure if they are becoming more popular or I personally have just been noticing them more. The cheap window mount A/Cs seem like the "poor people" solution now and Mitsubishi mini splits are the stylish middle class solution for homes where central A/C doesn't make sense. Plus the cold weather models nowadays can provide heat when it's down below freezing outside, so it's good for middle class house additions, garages, man caves, etc.

I wouldn't know what company to invest in with the different solutions (central air, mini split, window mount, geothermal, swamp coolers...). There are too many companies and too much competition - where's the monopoly/moat? Are you thinking of a certain company that dominates a certain part of A/C e.g. compressors?

[Tyler9000]

I've never lived in hurricane country, but hurricanes reducing HVAC sales wouldn't surprise me once you consider the effort people take to secure their homes for a storm.

https://gulfcoastairsystems.com/hvac-sy ... ne-season/

Compound the bunkering instinct with reduced usage (due to cooler temps and evacuations) and no chance to install for a week or so at a time, and I can't imagine that's good for the A/C business.

[Sclass]

I’m surprised there is a significant signal either way.

How does a hurricane change AC equipment sales at all? If you think AC gets destroyed in a hurricane I think you need to examine exactly what is on the outside of the house/building. A condenser, fan and Freon tubes are pretty well armored. Even if you submerge them a short time they will still work. Except if the motor severely corrodes during a flood...but again take a look at the motor’s location. It’s often elevated off the ground. On a roof for commercial units.

Does a hurricane destroy the stuff in the house? The controls are mounted at eye level on the wall. My battery operated thermostat throws a relay at the motor. If we had 1’ of water in the house I think the AC would survive.

I have some shares of United Tech. I forget if they still own Carrier. Good steady earnings but I’m not sure if I’d correlate increasing profits with storm patterns.

My old landlord in grad school was a door to door salesman for Trane in San Jose. He was recognized as top salesman for several years there. I used to ask him how he sold so many systems those years. His answer - a heat wave. He’d just start walking neighborhoods and knocking on doors at high noon and asking people if they were interested in a central AC.

[Toska2]

Plywood and OSB (sheeting) prices double or more in Michigan when a hurricane affects one of the mega cities. But thats a spike and not necessarily a trend. Unless population and storms increasing is faster than demand growth. I dunno.


I would bet an aging population that physically can't deal with the heat matters more than hurricanes.

[subgard]

I recently helped replace a roof blown away by hurricane Michael. The HVAC system of the building was intact, but the roof was gone. Half the buildings in the neighborhood were similar.

Hurricanes destroy roofs far more than any other part of a structure. So, money goes toward that instead of A/C.

[Sclass]

Hurricanes destroy roofs far more than any other part of a structure. So, money goes toward that instead of A/C.

Now this makes sense. Getting a roof over your head or windows replaced happens before AC.

I’m currently rebuilding the AC on a vintage car. Actually I’m adding AC from nothing. It is absolutely amazing how cheap the components are now. I recall these retrofits being really expensive but thanks to China it is dirt cheap. I’m putting in a parallel flow condenser, evaporator, expansion valve, Sanden compressor, Parker barrier hose and all steel fittings for only $325. I’m impressed but I’m not sure anyone is going to get rich making this kind of equipment.

I guess it will sell as the temperatures increase and real estate prices in cities force people into high occupancy concrete structures.

I think I’m only brave enough to own some shares of UTC for Carrier and some shares in Emerson. Parker sells good hose and seals and so does Goodyear and others. Apparently Honeywell has an interest in the new R410 gas. I don’t own any of that. Maybe it’s time to look. Those are big diversified businesses.

@jacob are you looking at more focused investments in businesses that make only AC equipment?

The more I think about it it has only grown all over the world. AC makes concrete jungles like Singapore and Penang habitable. South America may have similar needs and may be growing faster as people get richer and crowd into the metro areas. Do people there use locally manufactured kits? China probably uses locally made stuff. I suspect their AC industry growth is faster than the US companies I mentioned. I’m trying to recall the name of one that bought Kuka AG. Midea. I wonder how they’re doing.

[jacob]

@Sclass - WSO (they're a distributor, not a maker ... so kinda like the Grainger (GWW) of A/C)

[Sclass]

Very interesting. I really like Grainger (as a store not as an investment). Great resource.

[Tyler9000]

Fun fact -- back when RadioShack was still a thing, hurricanes provided massive boosts to sales of weather radios to the point where they'd adjust their supply chain ahead of storms to meet demand and actively plan marketing around it. So there's no doubt that hurricanes can be profitable if you know where to look.