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1. Growth Rebounds
The American Supply Association reported this year that distributors and manufacturers of plumbing, heating, cooling, piping and industrial PVF products are reporting single-digit growth in 2011, though the distributors and manufacturers under $10 million in annual sales are still seeing declines overall. Heating, Airconditioning and Refrigeration Distributors International recently reported sales have grown only slightly, but growth trends vary depending on the U.S. region. Canadian distributors continue to see declines. Inventories are being rebuilt. Commodity prices continue to rise, squeezing distributors who are seeing high price sensitivity by end-users bidding on the few construction projects available.
2. Regulatory and Policy Shifts Change Demand
HVAC distributors in particular are affected by myriad policy and regulatory shifts, providing both challenges and opportunities. As new regulations are implemented in the U.S., and more efficient and cost-effective models are introduced, replacements have grown more attractive than repairs. "They're all going to break; they're all going to face extinction of some kind," Barry Logan, senior vice president of Watsco, said in late 2010.
That said, there has recently been a slide in the sale of high-efficiency units. HARDI, the association for HVACR distributors, cites the introduction of “dry-shipped” R-22 units this year and the significant reduction in the 25C tax credit as the main causes of this trend.
3. End-Market Diversification
With residential and commercial construction still down, many distributors in these sectors have shifted their focus to repair and remodel markets or to infrastructure projects. Multifamily housing is stronger than single-family housing construction. More distributors are opening showrooms and/or working with custom homebuilders to increase direct end-user exposure, as well. Diversification is attractive to these distributors. For industrial PVF distributors, oil and gas, as well as other energy segments continue to grow, but there is a definite trend of distributors diversifying away from these markets.
Some key moves by distributors in this sector:
Average sales growth 2009 to 2010 for Top HVAC/PVF/Plumbing Distributors: 8.1% (for available data)
Heating, Airconditioning and Refrigeration Distributors International (HARDI) announced North American HVACR average distributor sales for April 2011, the latest data available, were up just less than a percent from the same month last year snapping a string of 10 consecutive months with an average 10 percent annual growth rate.
Related economic indicators for this sector: