Carrier, Trane execs see path forward amid residential weakness

Chi-town: Following weak residential earnings — and downbeat commentary — over the past few weeks, executives from Carrier and Trane struck an optimistic tone at a Chicago conference last week, anticipating that this year’s residential market choppiness will begin to subside next year. 

The big picture: “We estimate that there are about 145 million homes in the United States, and about 90 percent of those have HVAC systems,” said Carrier CEO David Gitlin. “So about 130 million installed units, and we estimate that the replacement rates in the years preceding COVID have been around six percent annually,” he added, noting that the figure can vary year-to-year. 

• “The six percent replacement rate on a base of 130 million homes would equate to just under eight million homes needing replacement annually,” Gitlin continued. “New home construction adds another roughly one to 1.5 million units per year, [putting] the total units on average at a bit over nine million annually.”
• “As we exit this year, we expect the market will be well below this rate at about 7.5 million units.”

What’s happening: Despite the expectation, both shifting replacement dynamics and the absence of this year’s unique challenges are causes for optimism going forward, executives argued. 

• While homeowners may have decided to “limp along with either a change to a motor or a controller,” getting them by for another few years, Gitlin said, “now that we’ve switched to a different refrigerant, there’s going to be pent-up demand for full replacements” — particularly as the cost of R-410A “starts to increase,” he noted.

Meanwhile, “There were three factors this year for the [residential] market,” said Donald Simmons, president of Trane’s Americas region. “One was a refrigerant change, which caused a pre-buy. The second factor was a canister shortage. And the third is cooling season was shorter than we had expected.”

• The kicker: Of those factors — which “caused a lot of problems for the entire industry,” he added — “two we know won’t repeat next year.”

Looking ahead: The market will return to historical levels, from Gitlin’s perspective, though exactly when remains unclear. 

• “We do believe the coming few years are poised for a gradual recovery to that nine million [annual unit figure] I mentioned,” he said, though he noted that while “some” are projecting it, “we do not believe we’ll get back to those levels in just one year.”
• Echoing the long-term confidence, “Structurally, we don’t see a change here in the industry,” added Trane CFO Chris Keuhn.

Related: HVAC shipments plunge 42% in September