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3334120Heating20-20Air20Conditioning20Equipment20Manufacturing20in20the20US20Industry20Report.pdf
US INDUSTRY (NAICS) REPORT 33341
Heating & Air Conditioning Equipment Manufacturing in the US
Chilled out: Continued strength in consumer spending is expected to drive industry demand Dmitry Diment | September 2020
IBISWorld.com +1-800-330-3772 [email protected]
Contents
About This Industry...........................................5
Industry Definition.......................................................... 5 Major Players................................................................. 5 Main Activities................................................................5 Supply Chain...................................................................6 Similar Industries........................................................... 6 Related International Industries.................................... 6
Industry at a Glance.......................................... 7
Executive Summary..................................................... 10
Industry Performance..................................... 11
Key External Drivers..................................................... 11 Current Performance................................................... 13
Industry Outlook............................................. 17
Outlook......................................................................... 17 Performance Outlook Data......................................... 19 Industry Life Cycle....................................................... 19
Products and Markets..................................... 21
Supply Chain................................................................ 21 Products and Services.................................................21 Demand Determinants................................................ 23 Major Markets.............................................................. 24 International Trade.......................................................25 Business Locations..................................................... 27
Competitive Landscape...................................30
Market Share Concentration....................................... 30 Key Success Factors................................................... 30 Cost Structure Benchmarks........................................ 31 Basis of Competition................................................... 33 Barriers to Entry........................................................... 34 Industry Globalization..................................................35
Major Companies............................................ 36
Major Players............................................................... 36 Other Players................................................................40
Operating Conditions...................................... 42
Capital Intensity........................................................... 42 Technology And Systems........................................... 43 Revenue Volatility........................................................ 45 Regulation & Policy...................................................... 46 Industry Assistance..................................................... 47
Key Statistics.................................................. 49
Industry Data................................................................ 49 Annual Change.............................................................49 Key Ratios.................................................................... 50 Industry Financial Ratios............................................. 51
Additional Resources...................................... 52
Additional Resources.................................................. 52 Industry Jargon............................................................ 52 Glossary Terms............................................................ 52
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About IBISWorld IBISWorld specializes in industry research with coverage on thousands of global industries. Our comprehensive data and in-depth analysis help businesses of all types gain quick and actionable insights on industries around the world. Busy professionals can spend less time researching and preparing for meetings, and more time focused on making strategic business decisions that benefit you,your company and your clients. We offer research on industries in the US, Canada, Australia, New Zealand, Germany, the UK, Ireland, China and Mexico, as well as industries that are truly global in nature.
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Covid-19 Coronavirus Impact Update
IBISWorld's analysts constantly monitor the industry impacts of current events in real-time – here is an update of how this industry is likely to be impacted as a result of the global COVID-19 pandemic:
• Revenue for the Heating and Air Conditioning Equipment Manufacturing industry is expected to decline in 2020 due to the global COVID-19 (coronavirus) pandemic. For more detail, refer to the Current Performance chapter.
• International trade with countries such as China is expected to be influenced in 2020. For more information, refer to the International Trade chapter.
• Profit is expected to decline dramatically in 2020. For more detail, please see the Cost Structures Benchmarks chapter.
Note: The content in this report is currently being updated to reflect the trends outlined above.
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About This Industry Industry Definition Companies in this industry manufacture residential, commercial and industrial
heating, ventilation, air conditioning and refrigeration (HVACR) equipment. Industry revenue includes miscellaneous receipts for the resale of products without further manufacturing, contract work done for others on respective items and acknowledgements for repair, scrap and refuse sales. Automotive units are excluded from this industry.
Major Players Johnson Controls International PLC
Ingersoll Rand Inc.
Carrier Global Corporation
Main Activities The primary activities of this industry: Manufacturing air conditioning, warm-air heating and refrigeration equipment
Manufacturing heating equipment (except warm-air furnaces)
Generating receipts from resales and service work
Manufacturing air purification equipment
Manufacturing commercial and industrial fans and blowers
The major products and services in this industry:
Air conditioning, warm air heating and refrigeration equipment
Unitary air conditioners
Heating equipment
Air purification equipment
Industrial and commercial fans and blowers
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Supply Chain
SIMILAR INDUSTRIES
Boiler & Heat Exchanger Manufacturing in the US
Power Tools & Other General Purpose Machinery Manufacturing in the US
Vacuum, Fan & Small Household Appliance Manufacturing in the US
Major Household Appliance Manufacturing in the US
RELATED INTERNATIONAL INDUSTRIES
None
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Industry at a Glance Key Statistics
$42.9bn Revenue
Annual Growth Annual Growth Annual Growth
2015-2020 2020-2025 2015-2025
-2.2% 1.8%
$2.5bn Profit
Annual Growth Annual Growth 2015-2020 2015-2025
-6.0%
5.9% Profit Margin
Annual Growth Annual Growth 2015-2020 2015-2025
-1.3%
2,544 Businesses
Annual Growth Annual Growth Annual Growth
2015-2020 2020-2025 2015-2025
-1.4% 0.7%
128k Employment
Annual Growth Annual Growth Annual Growth
2015-2020 2020-2025 2015-2025
-0.3% 1.1%
$6.7bn Wages
Annual Growth Annual Growth Annual Growth
2015-2020 2020-2025 2015-2025
-1.8% 1.4%
Key External Drivers % = 2015-2020 Annual Growth
-0.8% Demand from heating and air-conditioning contractors
0.5% Demand from refrigeration equipment wholesaling
1.3% Consumer Confidence Index
2.8% Per capita disposable income
1.5% Value of residential construction
-2.1% Value of private nonresidential construction
1.4% Trade-weighted index
Industry Structure
POSITIVE IMPACT
Capital Intensity Low
MIXED IMPACT
Life Cycle Mature
Revenue Volatility Medium
Industry Assistance Medium
Concentration Medium
Regulation Medium
Technology Change Medium
Barriers to Entry Medium
Globalization Medium
Competition Medium
NEGATIVE IMPACT
None
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Key Trends
Demand for the industry has softened during the second half of the period
Replacement and remodeling activity significantly affects the need for HVACR systems
Many of the industry's largest players have expanded their production operations overseas
The continuation of low interest rates will likely make it easier to build new structures
Energy conservation issues and technological advances will likely drive the industry moving forward
The need to innovate will likely increase specialization among the industry's labor force
The value of private nonresidential construction has declined significantly, undermining industry demand
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Products & Services Segmentation
Air conditioning, warm air heating and refrigeration equipment
58.2%
Unitary air conditioners
17.4%
Heating equipment
10.3%
Air purification equipment
6.5%
Industrial and commercial fans and blowers
7.6%
Heating & Air Conditioning Equipment Manufacturing Source: IBISWorld
Major Players % = share of industry revenue SWOT
STRENGTHS
Low Capital Requirements
WEAKNESSES
Low Profit vs. Sector Average High Customer Class Concentration High Product/Service Concentration Low Revenue per Employee
OPPORTUNITIES
High Revenue Growth (2020-2025) Trade-weighted index
THREATS
Low Revenue Growth (2005-2020) Low Revenue Growth (2015-2020) Low Outlier Growth Low Performance Drivers Value of private nonresidential construction
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Executive Summary
Operators in the Heating and Air Conditioning Equipment Manufacturing industry manufacture residential, commercial and industrial heating, ventilation, air conditioning and refrigeration (HVACR) equipment.
Over most of the five years to 2020, residential construction activity has expanded due to strong underlying drivers, including rising per capita disposable income and relatively low interest rates. These trends have bolstered industry sales, as HVACR equipment is required in most new buildings to regulate climate and provide ventilation. As disposable income has increased, consumers have had more funds available to invest in home improvements, including HVACR upgrades. Conversely, the value of private nonresidential construction, a significant market for new HVACR equipment has declined more significantly, undermining demand. However, the COVID-19 (coronavirus) pandemic is expected to result in severe economic disruptions and a widespread decline in construction activity, hurting demand for industry products. As a result of these trends, industry revenue is projected to decline 8.6% in 2020 alone. Cumulatively, the desperate trends are projected to push the industry into significant decline. Therefore, industry revenue has fallen at an annualized 2.2% to $42.9 billion over the five years to 2020.
Furthermore, industry revenue growth has been tempered by a widening trade gap, as major global HVACR manufacturers have expanded their production facilities in countries with low labor costs, such as China. Industry imports have increased while industry exports have declined over the past five years. This trade gap has also been exacerbated by an appreciation of the US dollar, which makes industry exports relatively more expensive and less attractive to buyers overseas. Industry profit, measured as earnings before interest and taxes, is expected to account for 5.9% of industry revenue in 2020.
Industry revenue is expected to increase at an annualized rate of 1.8% to $46.9 billion over the five years to 2025. Much of this revenue growth is expected to be driven by an expected recovery of domestic residential and nonresidential construction activity, which boosts demand for HVACR installations, upgrades and retrofits. Continued strength in consumer spending is also expected to drive demand for industry products, especially among downstream industries. Energy- efficiency expectations are anticipated to spark sales, as the inherent cost savings in new HVACR equipment are expected to boost replacement rates for industry products.
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Industry Performance
Key External Drivers
Value of private nonresidential construction Demand for industry products is linked to new building construction, as new commercial and retail facilities require the installation of new heating and air conditioning equipment. As a result, demand for industry products moves in line with construction markets. The value of private nonresidential construction is expected to decrease in 2020.
Value of residential construction Residential construction is a key market for industry products because new homes are typically built with related systems. Therefore, an increase in housing construction boosts demand for industry products. The value of residential construction is expected to decline in 2020.
Trade-weighted index The trade-weighted index (TWI) represents the strength of the US dollar relative to the currencies of its major trading partners. Exports of HVACR equipment make up less than one-fifth of industry revenue. An appreciating dollar can make imported goods more attractive to domestic consumers, while HVACR exports become relatively more expensive for foreign buyers. The TWI is expected to increase in 2020, posing a potential threat to the industry.
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Consumer Confidence Index The Consumer Confidence Index (CCI) measures the general confidence and sentiment toward the economy by US citizens. As the CCI increases, so too does consumer spending, business activity and investment. In 2020, the CCI is expected to decline.
Demand from heating and air-conditioning contractors Contractors primarily install and service heating and air conditioning equipment through new installations, additions, maintenance or repair. As contractors' workloads increase, demand for heating and air conditioning equipment increases. Demand from heating and air conditioning contractors is expected to increase in 2020, representing a potential opportunity for the industry.
Demand from refrigeration equipment wholesaling Refrigeration equipment wholesalers demand commercial refrigeration equipment from this industry. Wholesalers supply restaurants, hotels, fast-food outlets, supermarkets, convenience stores, gas stations and mobile food service operators with refrigerated trucks, display cases and storage units. Demand from refrigeration wholesalers is expected to increase in 2020.
Per capita disposable income Per capita disposable income measures the amount of disposable income the average US consumer has. When disposable income rises, so does the potential for demand for industry products. Per capita disposable income is expected to decline in 2020.
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Current Performance
Operators in the Heating and Air Conditioning Equipment Manufacturing industry manufacture residential, commercial and industrial heating, ventilation, air conditioning and refrigeration (HVACR) equipment.
Demand for HVACR equipment heavily depends on the level of building activity in the residential, commercial and industrial construction sectors. Industry revenue hinges on demand from contractors that install and repair climate-control systems in new construction and renovation projects. Since almost every new structure requires some form of HVACR equipment, new construction activity has the most significant effect on the industry. Another major market is construction projects related to the retrofitting or upgrading of HVACR systems in existing structures. Internationally, the industry sells a variety of products to global markets, rounding out the various channels of demand.
Over most of the five years to 2020, strong residential construction has helped demand for HVACR installations. Similarly, rising disposable income during most of the period increased private spending on home improvements, which includes heating and air conditioning upgrades and replacements. Nevertheless, a decrease in commercial construction and an increasing trade-weighted index has counteracted the positive effects. Demand for the industry has softened during the second half of the period as nonresidential investment has fallen due to slowing global growth, which has been brought about due to concerns regarding monetary policy and geopolitical tensions. Despite interest rates declining in 2020, the value of private nonresidential construction is expected to decline further as a result of a widespread slowdown in economic activity stemming from the COVID-19
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(coronavirus) pandemic. Due to these combined factors, industry revenue has decreased an annualized 2.2% to $42.9 billion over the five years to 2020, including a dramatic decline of 8.6% in 2020 alone.
Construction demand
The construction market comprises the largest segment of industry revenue.
Industry products are typically installed in new building projects to provide heating and air conditioning for commercial and residential housing, regulate climate conditions, refrigerate inventories and provide ventilation for commercial venues. Therefore, the rising value of residential construction over most of the past five years was largely negated by the decreasing demand from commercial construction. The value of private nonresidential construction has decreased an annualized 4.4% over the five years to 2020, while the value of residential construction experienced significant growth between 2015 and 2017. Nonetheless, the coronavirus pandemic has severely hurt residential construction, with IBISWorld projecting it will decline 8.7% in 2020 as economic activity stalls.
Aided by historically low interest rates, housing starts, which measure the number of new, privately owned housing units built in a given year, have increased rapidly over most of the past five years. Similar to demand from new construction, replacement and remodeling activity significantly affects the need for HVACR systems. Consistent growth in disposable income during much of the period made consumers more willing to spend on remodeling projects, including replacing air conditioners and heaters. Due to volatile residential, commercial and municipal construction activity, in addition to higher private spending on home improvements, demand for HVACR equipment as fluctuated in recent years.
Additionally, as disposable income levels have risen, consumers have begun to spend more on dining out at restaurants and other food service operators. Increased revenue for the food service sector has translated into higher sales for refrigeration equipment, as restaurants have begun to upgrade existing equipment or expand operations to increase capacity. Prior to 2020, improvements in employment and income also led to higher rates of private spending on home and small-business improvements, which have aided the HVACR retrofit and repair market. However, HVACR replacements have continued to be determined by consumers' trade-off between repair, replacement and energy-efficiency concerns. As with other trends, the coronavirus pandemic has undermined the growth of disposable income levels in 2020, reversing this trend.
Regulations increase
The minimum efficiency standard for new central air conditioning (AC) systems manufactured after January 2006 was raised to 30.0%, with air conditioners and heat pumps are now rated on a seasonal energy-efficiency ratio (SEER).
HVACR units with a greater heating or cooling output per unit of energy consumption receive a higher SEER rating. Therefore, heating and air conditioning systems with the highest SEER ratings are the most energy efficient. Older climate
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systems have lower ratings, and as a result of the minimum efficiency standards, a new AC system must have at least a 13 SEER rating.
Moreover, in January 2015, new regional SEER standards for central AC units took effect. The US Department of Energy upgraded its efficiency standards for split- system heat pumps, which are also commonly produced by industry operators. All regions have moved to a higher national minimum standard of 14 SEER. To encourage purchases of these new efficient HVAC products, consumers have been able to receive tax credits of 30.0% of the cost for energy-efficient HVAC systems, or up to $1,500. This incentive has stimulated demand for environmentally friendly industry products.
Industry structure
Industry profit, measured as earnings before interest and taxes, accounts for an estimated 5.9% of industry revenue in 2020, declining as a result of the decrease in downstream demand due to the pandemic.
As revenue has declined and HVACR manufacturers have increased operational efficiencies, industry employment and wages have declined during the period. Consequently, industry employment has fallen at an annualized rate of 0.3% to 128,395 workers over the five years to 2020. Industry wages have declined at an annualized rate of 1.8% to $6.7 billion during the same period.
In addition, many of the industry's largest players have expanded their production operations overseas over the past five years. As a result, the trade gap in the industry has widened, with the value of industry imports rising during much of the period. As a result, the value of imports has risen only, increasing at an annualized rate of 0.2% to $14.5 billion over the five years to 2020. However, imports have outpaced the value of industry exports, which has declined at an annualized rate of 6.3% to $5.6 billion during the same period. However, in 2018, the Trump administration implemented tariffs on a wide range of consumer goods imported from China, which may affect industry operators if more are put in place. Additionally, overseas competition has facilitated a decline in industry participation. The number of industry enterprises has decreased at an annualized rate of 1.4% to 2,544 operators over the five years to 2020.
Historical Performance Data Year Revenue IVA Estab. Enterprises Employment Exports Imports Wages Domestic
Demand Value of
Private Non-
residential Constructio
n ($m) ($m) ($m) ($m) ($m) ($m) ($b)
2011 45,254 9,857 2,973 2,710 124,563 8,354 11,987 6,682 48,887 424 2012 47,597 10,443 3,097 2,822 128,176 7,615 11,947 6,782 51,929 479 2013 48,038 10,123 3,025 2,761 131,063 8,154 12,524 6,945 52,407 486 2014 46,442 10,252 3,041 2,776 129,032 7,891 14,381 6,914 52,932 539 2015 47,906 11,337 3,008 2,735 130,233 7,834 14,380 7,300 54,452 522 2016 46,389 11,016 2,903 2,639 127,961 7,280 14,715 7,092 53,824 496
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Year Revenue IVA Estab. Enterprises Employment Exports Imports Wages Domestic Demand
Value of Private
Non- residential
Constructio n
($m) ($m) ($m) ($m) ($m) ($m) ($b) 2017 45,403 10,394 2,830 2,565 129,305 7,156 15,941 7,041 54,188 520 2018 45,390 10,765 2,878 2,606 131,301 7,156 17,093 7,015 55,328 541 2019 46,944 11,129 2,889 2,617 136,565 6,798 16,720 7,206 56,866 518 2020 42,890 9,804 2,799 2,544 128,395 5,649 14,531 6,674 51,771 418
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Industry Outlook Outlook Over the five years to 2025, demand for heating, ventilation, air
conditioning and refrigeration (HVACR) products produced by the Heating and Air Conditioning Equipment Manufacturing industry is expected to increase, driven by rebounding nonresidential construction and export growth.
In addition, concerns about climate change and energy consumption are expected to likely stimulate demand for newer, eco-friendly systems to replace less efficient ones. Meanwhile, a recovery in per capita disposable income is expected to further fuel replacement demand. As a result of these trends, IBISWorld expects industry revenue to increase an annualized 1.8% to $46.9 billion over the five years to 2025. However, as a result of the COVID-19 (coronavirus) pandemic, industry revenue is not expected to eclipse its 2016 peak until the end of the outlook period.
Expanding demand
Nonresidential construction activity is anticipated to expand over the next five years, signaling an increase in demand for HVACR equipment.
Further expansion in corporate profit levels have given corporations more cash to build more stores or offices and upgrade old capital equipment, such as heating and air conditioning units. The expected continuation of low interest rates will likely make it easier for companies to build new structures or make costly improvements to older offices and buildings.
In the residential market, housing construction for single and multifamily homes is expected to increase over the next five years, aided by the Federal Reserve's cuts to raise short-term interest rates. The Federal Reserve reversed course in July 2019 when it cut the rate amid economic uncertainty and continued to cut rates in September and October 2019.
While the Federal Reserve initially sought to maintain rates in early 2020, the rapid spread of the coronavirus pandemic and its severe effect on both global and US economic growth has changed the Federal Reserve's course of action. In 2020, the Federal Reserve slashed interest rates and undertook an extensive bond purchase program to support financial markets, which experienced yields substantially drop.
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The pace of future rate hikes is expected to be measured, as inflation is expected to rise modestly over the next five years. Any potential increase in short-term interest rates may temper construction activity as builders will likely pay higher rates on loans and potential homeowners are anticipated to experience a rise in mortgage rates, which is expected to negatively affect home affordability.
Spending on residential and commercial construction and improvement are expected to steadily increase during the period, driving demand for HVACR installations and upgrades. Furthermore, steady per capita disposable income growth and higher consumer spending is anticipated lead to increased spending at restaurants and other food service operators. Therefore, growth in these sectors is expected to stimulate further demand for refrigeration equipment, such as walk-in coolers and refrigerated display cases.
The value of industry exports is expected to increase an annualized 3.3% to $6.6 billion over the five years to 2025, while the value of industry imports is anticipated to increase an annualized 6.1% to $19.5 billion during the same period. Stronger domestic construction, higher anticipated consumer spending, slower economic growth in China and an expected increase in the costs of shipping HVACR equipment are expected to encourage domestic manufacturing. Moreover, large global operators are expected to maintain their domestic manufacturing footprint by keeping facilities within the United States.
Growing upgrades
Concerns about energy consumption and the environment will likely continue to aid the retrofit market for HVACR manufacturers.
In North America, buildings account for about 40.0% of total energy consumption, while HVACR equipment accounts for an estimated 40.0% of that consumption, according to 2019 data from the US Energy Information Administration. Additionally, almost three-fourths of US buildings were built before 1979, necessitating frequent and widespread maintenance equipment upgrades.
Energy conservation issues and technological advances, such as shifts in building design to improve energy efficiency, will likely drive the industry moving forward. Green building practices will likely lead to growth in the commercial replacement or retrofit market, boosting revenue for HVACR manufacturers over the next five years. Furthermore, the government has increased its efforts to enforce regulations concerning hydrochlorofluorocarbons (HCFCs). By 2030, US regulations is expected to prohibit the production or importation of any HCFCs. As a result, the industry's largest manufacturers are dedicating funds to research and development, trying to develop viable and marketable air-cooling equipment that does not rely on environmentally harmful HCFCs.
Industry profit
Industry profit, measured as earnings before interest and taxes, will likely account for 6.1% of revenue in 2025, up from in 2020 of 5.9%. Over the five years to 2020, many of the industry's largest companies have engaged in cost-cutting practices, such as layoffs, wage cuts and offshoring certain manufacturing operations.
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These operational improvements are expected to keep profit stable over next the five years.
Additionally, the same environmental and efficiency pressures experienced by operators during the current period are expected to encourage replacement demand, and is also expected to drive the industry to modify or create new appliances and equipment. The need to innovate within the HVACR market will likely increase specialization among the industry's labor force. This push for innovation is expected to lead to an increase in wages, which are expected to increase an annualized 1.4% to $7.2 billion over the five years to 2025. This is also expected to open the door for new, niche manufacturing companies that specialize in energy-efficient products and equipment. Accordingly, the number of industry operators is expected to increase an annualized 0.7% to 2,631 companies over the five years to 2025.
Performance Outlook Data Year Revenue IVA Estab. Enterprises Employment Exports Imports Wages Domestic
Demand Value of
Private Non-
residential Constructio
n ($m) ($m) ($m) ($m) ($m) ($m) ($b)
2020 42,890 9,804 2,799 2,544 128,395 5,649 14,531 6,674 51,771 418 2021 43,597 9,884 2,818 2,560 129,572 6,148 16,825 6,756 54,275 417 2022 44,970 10,308 2,854 2,590 132,157 6,382 17,655 6,928 56,243 446 2023 45,897 10,425 2,880 2,611 133,829 6,544 18,357 7,041 57,710 466 2024 46,440 10,553 2,893 2,622 134,707 6,608 18,934 7,103 58,766 487 2025 46,925 10,770 2,904 2,631 135,454 6,647 19,514 7,156 59,793 508
Industry Life Cycle The life cycle stage of this industry is Mature
LIFE CYCLE REASONS
IVA has grown at a slower rate than the overall economy
Downstream markets exhibit wholehearted acceptance of industry products
Replacement demand and energy efficiency will likely drive sales
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IBISWorld analysis indicates that the Heating and Air Conditioning Equipment Manufacturing industry is in the mature stage of its life cycle. Industry value added (IVA), which measures an industry's contribution to the overall economy, is expected to decline at an annualized rate of 0.5% over the 10 years to 2025. Meanwhile, US GDP is projected to grow an annualized 1.9% during the same period. While IVA growth that is below overall economic growth is indicative of an industry in its decline stage, other indicators point to this industry's maturity.
For example, downstream markets exhibit wholehearted acceptance of this industry's product segments, and demand for new air conditioning equipment depends on new building construction and replacement demand. Accordingly, much of the industry's revenue growth over the five years to 2020 has been driven by the steady increase in residential and commercial construction activity. In addition, there has been demand for replacement systems in the residential remodeling markets as a result of increased environmental and energy efficiency awareness. However, the industry exhibits wholehearted acceptance in its chief downstream markets, which largely comprises residential and nonresidential builders, contractors and similar construction related segments.
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Products and Markets Supply Chain KEY BUYING INDUSTRIES
1st Tier Heating & Air-Conditioning Contractors in the US
Refrigeration Equipment Wholesaling in the US
Refrigerated Storage in the US
Heating & Air Conditioning Wholesaling in the US
2nd Tier Municipal Building Construction in the US
Home Builders in the US
Apartment & Condominium Construction in the US
Commercial Building Construction in the US
Consumers in the US
KEY SELLING INDUSTRIES
1st Tier Metal Pipe & Tube Manufacturing in the US
Aluminum Manufacturing in the US
Iron & Steel Manufacturing in the US
Electrical Equipment Manufacturing in the US
Screw, Nut & Bolt Manufacturing in the US
2nd Tier Ferrous Metal Foundry Products in the US
Navigational Instrument Manufacturing in the US
Valve Manufacturing in the US
Products and Services
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The Heating and Air Conditioning Equipment Manufacturing industry consists of four main product segments, including air conditioning, warm air heating and refrigeration equipment; heating equipment; air purification equipment; and industrial and commercial fans and blowers.
In addition, the industry generates revenue from miscellaneous receipts.
Air conditioning, warm air heating and refrigeration equipment
Air conditioning, warm air heating and refrigeration equipment is consistently the industry's largest segment, comprising an estimated 58.2% of industry revenue in 2020.
Products include mechanically refrigerated and self-contained heat transfer equipment; compressors and compressor units using all refrigerants, excluding automotive; and commercial refrigerators and related equipment.
This segment includes industrial heat transfer equipment, such as plate heat exchangers. Heat transfer equipment is widely used in space heating, refrigeration, air conditioning, gas and chemical processing applications. Unitary air conditioners are another major product in this segment, accounting for an estimated 17.4% of industry revenue in 2020. Unitary air conditioners represent the single-largest product category in the industry. They are made of air-to-air conditioning systems, such as residential central air conditioning systems (single-package and split systems), packaged air-to-air systems and split systems for commercial air conditioning, including commercial rooftop air conditioners. Over the five years to 2020, this segment's share of revenue increased, as demand from the housing and construction markets rebounded.
Lastly, this segment includes miscellaneous receipts for air conditioning, heat transfer and refrigeration equipment. Miscellaneous receipts include the resale of products without further manufacturing; contract work done for others on their materials; and receipts for repairs, scrap and refuse sales. This subsegment's share of industry revenue declined over the past five years, as rising disposable incomes and corporate profit levels have enabled consumers and businesses to opt for HVAC replacements as opposed to equipment repairs.
Heating equipment
The heating equipment segment includes domestic heating stoves; cast iron, aluminum and other nonferrous metal boilers, radiators and convectors; furnaces, heaters, mechanical stokers and parts; and steel boilers for steam or hot water that are less than or equal to 15 pounds per square inch.
However, this segment excludes warm air furnaces. In this segment, sales of domestic heating stoves generate the majority of revenue. In 2020, heating equipment accounts for 10.3% of industry revenue. The proliferation of central
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HVAC equipment has reduced this segment's share of revenue over the past five years.
Industrial and commercial fans and blowers
The major products manufactured in the industrial and commercial fans and blowers segment include centrifugal, axial and propeller fans and blowers; and shutters, guards and other parts and accessories.
In 2020, this segment is expected to generate 7.6% of revenue. The US industrial sector has managed to increase gradually over the past five years, bolstering demand for related fans and blowers over the past five years.
Air purification equipment
Air purification systems account for an estimated 6.5% of industry revenue in 2020.
These systems include dust collection and purification equipment for industrial gasses; filters for air conditioners and furnaces; and parts for related equipment. This segment has decreased as a share of revenue over the past five years.
Demand Determinants
The Heating and Air Conditioning Equipment Manufacturing industry is highly dependent on several demand variables, economic variables and weather patterns.
The industry is leveraged to residential and commercial construction, in that almost all new buildings require the installation of new heating or air conditioning equipment. Therefore, the majority of product demand comes from heating and air conditioning contractors (IBISWorld report 23822a), plumbing contractors (23822b), construction industries and wholesalers (42373).
Residential and commercial construction markets
Demand for single and multifamily housing construction is subject to economic influences, such as employment and the affordability of housing through low interest rates and mortgage rates.
Demographic trends, such as population growth and migration patterns, influence sales of heating, ventilation, air conditioning and refrigeration (HVACR) equipment.
Commercial or nonresidential construction markets are dependent on corporate revenue and profitability, whereby increased revenue and demand compels companies to increase capacity by building new stores, factories or offices. Like the residential market, fully functioning credit markets and low interest rates are helpful in that building projects are financed through credit.
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Remodeling and replacement markets
Replacement sales are strongest in those areas where heating and cooling equipment is already installed.
The age of equipment, the trade-off between repair and replacement and the environmental acceptability of newer equipment also influence product demand. The retrofit market can be divided into two categories, which include the replacement of old or damaged equipment and the upgrade of current HVACR equipment for more energy efficient, environmentally conscious models. Aside from ordinary wear and tear, hurricanes, floods and other forms of severe weather often cause damage to existing HVACR equipment. Demand for replacement products, repair parts and services generally increase during summer months, however, the overall effect of seasonality is mitigated by sales of new equipment, where demand is less seasonal. Rising energy costs, continual tax incentives for purchasing energy-efficient products and increased public favor for less harmful environmental options have all spurred sales of HVACR retrofits that were not necessitated by equipment breakdown.
Major Markets
Products manufactured in the Heating and Air Conditioning Equipment Manufacturing industry are sold primarily to construction, wholesaling, contracting and specific manufacturing markets. There are a large number of market segments within the building and construction industry. The major customers are residential builders, air conditioning and heating installers and plumbing and heating wholesalers.
Replacement and remodeling
The replacement and remodeling markets within the residential and nonresidential segments are usually driven by a variety of factors. Employment growth and higher income levels positively affect private investments in home improvements, as consumers have more money to spend on upgrades to their existing heating and cooling units. Ordinary wear and tear as well as natural disasters, such as hurricanes and floods, can lead to damage of existing equipment, spurring
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replacement demand. In 2020, this market is expected to account for 63.1% of industry revenue. Government regulations, tax incentives and realized savings from replacing old heating, ventilation, air conditioning and refrigeration (HVACR) systems with new energy efficient equipment, and an increased awareness of environmental concerns, have led to increasing demand for HVACR replacements over the five years to 2020. This segment has increased as a share of revenue over the past five years.
New residential and commercial construction
New residential and commercial construction is expected to account for 22.8% of industry revenue in 2020. Residential construction is a key demand industry for HVACR products because new homes are typically built with related systems. An increase in housing construction boosts demand for industry products. Over the five-years to 2020, rising employment, corporate profit and an easing of lending conditions has helped encourage residential and commercial construction and has increased this segment's share of industry revenue. However, the current year is expected to reverse these positive trends as a result of the COVID-19 (coronavirus) pandemic.
The major nonresidential users of warm air heating and air conditioning equipment and supplies include large office buildings, retail shopping centers and large entertainment centers. The nonresidential building construction market relies on private corporate investment. Like residential construction, commercial building is dependent on the availability of credit. Increases in consumer spending and corporate revenue and profit increases the need for companies to build new offices, stores or factories to meet increased demand.
Exports
Exports are expected to account for 14.1% of industry revenue in 2020. Exports of heating, air conditioning and refrigeration equipment have declined, as an appreciating US dollar has made domestically manufactured HVACR relatively more expensive to consumer markets overseas. Moreover, exports have declined as a share of revenue over the past five years, which can be attributed to slower global growth, especially in emerging nations, such as China. In 2020, exports are expected to decline significantly due to the COVID-19 pandemic. For more information on exports, refer to the International Trade section.
International Trade
Exports in this industry are Medium and Decreasing
Imports in this industry are Medium and Steady
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International trade is important to the Heating and Air Conditioning Equipment Manufacturing industry. According to data from the US International Trade Commission's DataWeb, export and import levels are both medium and steady. Over the five years to 2020, exports and imports have fluctuated as share of revenue and demand, respectfully. Consequently, the industry consistently operates at a trade deficit. Manufacturers in the industry benefit from reduced regulatory requirements and the use of less costly labor in mostly developing, foreign markets. The presence of Mexico and Canada as major US trading partners reflects operational efficiencies created by shared geographical borders. Also, these countries mutually benefit from NAFTA.
Imports
The value of industry imports has increased at an annualized rate of 0.2% to $14.5 billion over the five years to 2020. The top import sources include Mexico, China, Canada and Thailand. The air conditioning and warm air heating equipment and industrial and commercial refrigeration equipment product segments make up the majority of imports, followed by the industrial and commercial fans and blowers segment, heating equipment and air purification equipment. Imports have risen as a share of domestic demand over the past five years. The increasing trend of manufacturing activities being relocated to cost-competitive regions in the Asia- Pacific, such as China, has driven import growth in recent years. US-based manufacturers have also set up factories in Mexico to take advantage of trade benefits offered by NAFTA.
Imports from China have fallen over the past five years. According to IBISWorld estimates, imports from China are expected to account for 30.0% of imports in 2020, down from 30.9% in 2015. However, this decline stems from declines over the past two years, the result of trade restrictions levied by the Trump administration and the decline in economic output as a result of the COVID-19 (coronavirus) outbreak in 2020. In 2018, the Trump administration moved forward with tariffs on a wide-range of consumer goods imported from China, resulting in a decline of 16.6%. In 2020, pandemic is expected to decrease industry-relevant imports from China by 20.5%.
Exports
The value of industry exports has declined at an annualized rate of 6.3% to $5.6 billion over the five years to 2020. The top export destinations include Canada, Mexico, United Kingdom and China. Based on USITC data, major exported products
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include heating equipment, industrial and commercial fans and blowers and air purification equipment. Over the past five years, slowing economic growth in China has led to a recent decline in industry exports. In 2020, industry exports to China is also expected to be strained by global trade fluctuations stemming from the coronavirus pandemic.
Nevertheless, the industry has experienced steadily rising export demand from warm-climate countries, such as Mexico. The air conditioning, warm-air heating equipment and industrial and commercial refrigeration equipment segments are projected to grow as a share of exports over the five years to 2025 as emerging economies continue to expand construction and manufacturing activities.
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Business Locations
Business Concentration in the United States
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0 4 8 12
Percentage of Establishments (%)
Heating & Air Conditioning Equipment Manufacturing in the US Source: IBISWorld
According to data from the US Census Bureau's Statistics of US Businesses report, business locations in the Heating and Air Conditioning Equipment Manufacturing industry are most heavily concentrated in the Southeast, which accounts for 23.3% of industry establishments in 2020; Great Lakes (20.6%); and West (14.5%). Demand is distributed based on weather and population patterns. New houses built in the warmer states are more likely to be fitted with air conditioning than those built in the cooler states, where the installation of central heating systems tends to be higher. In addition to weather patterns, the spread of industry establishments generally follows US population and construction activity. By state, California (10.7%), Texas (8.2%), Florida (6.4%) and Pennsylvania (5.9%) have the highest numbers of establishments in 2020.
The Great Lakes region has a higher share of industry establishments than its share of the US population, largely due to the concentration of industrial activity in the region, which comprises the third-largest share of industrial construction companies. Cold winters in the region, combined with an abundance of manufacturing activity, creates a strong demand base for industrial and residential heating, ventilation, air conditioning and refrigeration equipment. For example, Wisconsin has the third-highest concentration of locations in the industrial and commercial fan and blower segment, a common product for large-scale heating.
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Competitive Landscape Market Share Concentration
Concentration in this industry is Medium
Concentration in the Heating and Air Conditioning Equipment Manufacturing industry is medium, with the top four companies expected to account for 50.0% of industry revenue in 2020. During the five-years to 2020, the industry has become more concentrated. Industry concentration stems partly from the economy of scales of manufacturing products in this industry, but is kept in check by the high number of small- and medium-sized businesses. According to data from the US Census Bureau, over half of all locations employ fewer than 20 employees. Some industry operators specialize in products for specific downstream markets in nonresidential buildings, such as commercial and industrial blowers and fans. Other operators may contribute to the industry through the production of compressors, parts or other tertiary goods. Still, some industry establishments employ more than 500 workers, indicating that major heating, ventilation, air conditioning and refrigeration manufacturing companies do affect industry employment composition.
Key Success Factors
IBISWorld identifies 250 Key Success Factors for a business. The most important for this industry are:
Availability of resource: A disruption in raw material supplies adversely affects a company's ability to meet its production commitments.
Ability to vary services to suit different needs: Due to the diverse range of HVACR systems available, industry operators must have the flexibility to manufacture models and
sizes that suit customer requirements.
Ability to accommodate environmental requirements: In light of concerns over CFCs and other environmentally damaging processes, many industry operators compete on the
ability to accommodate environmentally friendly goods and services.
Control of distribution arrangements: Control of distribution arrangements or company- owned retail outlets is a key success factor for industry operators manufacturing brand
names.
Establishment of brand names: Successful companies are able to establish strong connections between their brands and perceptions of quality and reliability.
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Cost Structure Benchmarks
Profit
Profit was largely stagnant as a share of industry revenue over much of the five years to 2020. Many industry operators have benefited from lower energy and raw material costs, which has been driven by slowing economic growth in emerging countries. Profit has been affected by decreasing industry revenue, as cost-control measures have kept profit steady as industry operators learned to streamline production. In 2020, profit margins are expected to decline as a result of the COVID-19 (coronavirus) pandemic, which has undermined downstream demand and disrupted global supply lines. Profit, measured as earnings before interest and taxes, has declined as a share of industry revenue during the current five-year period, accounting for 5.9% of revenue in 2020. According to IBISWorld estimates, profit accounted for an estimated 7.2% in 2015.
Wages
In 2020, wage costs are expected to comprise 15.6% of industry revenue. Industry wage growth has been constrained over the past five years, as heating, ventilation, air conditioning and refrigeration (HVACR) manufacturers have learned to increase operational efficiencies during and in the years following the recession. Even as industry revenue expanded and the economy improved, industry wages and employment have experienced only a modest
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rise, as industry operators relied heavily on automation and labor-saving machinery. Wages have risen as a share of industry revenue. In comparison, wages accounted for an estimated 15.2% of industry revenue in 2015.
Purchases
Purchases account for an expected 48.7% of industry revenue in 2020. The industry purchases a broad range of materials including steel, copper tubing, aluminum, ferrous and nonferrous castings, clays, motors and electronics. Raw material prices have fluctuated over the past five years as a result of changes in the overall economy and global demand. Steel, for instance, which makes up a major component of heating and air conditioning equipment, has exhibited tremendous price volatility. For example, the world price of steel has experienced double digit growth in 2017 and 2018. However, the price of steel declined substantially in 2019 and is expected to fall even further in 2020, as weaker demand from rapidly developing countries, such as China, drives down steel and other commodity prices. This trend has been accelerated by the outbreak of the COVID-19 virus, which has dampened demand and has resulted in a significant economic disruption in 2020, further driving down the price of commodities, such as steel. In comparison, purchases accounted for an estimated 50.0% of industry revenue in 2015.
Depreciation
Depreciation for buildings, machinery, equipment and computers is expected to account for 1.4% of industry revenue in 2020. Steady depreciation costs over the past decade reflect investments into automation machinery that reduce the need for human labor. In comparison, depreciation accounted for an estimated 1.3% of industry revenue in 2015.
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Marketing
Marketing costs are expected to account for 0.2% of industry revenue in 2020, representing a slight decline from 0.3% in 2015. Marketing costs are relatively low in this industry, as operators primarily rely on long-term contracts with customers.
Rent
Rent costs are expected to account for 0.7% of industry revenue in 2020. Rent costs are moderate in this industry, as operators fluctuate between owning and leasing the facilities they use. Rent costs have remained stable as a share of industry revenue during the current five-year period.
Utilities
Utility costs in the industry are moderate, accounting for an expected 0.6% of industry revenue in 2020. Manufacturers operate large facilities with machinery constantly expending fuel and electricity. Utility costs have remained stable as a share of industry revenue during the current five-year period.
Other Costs
All other expenses include interest, tax expenses, selling, legal, accounting and administrative expenses. Other costs are expected to account for 26.9% of revenue in 2020. In 2015, other costs amounted to an estimated 24.8% of industry revenue.
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Basis of Competition
Competition in this industry is Medium and Increasing
There is a high degree of brand loyalty in the Heating and Air Conditioning Equipment Manufacturing industry; customers associate quality with certain brand names.
Competition in the industry is also heavily determined by pricing. Most heating, ventilation, air conditioning and refrigeration manufacturers are diversified industrial conglomerates that produce a wide variety of industrial goods. Diversified manufacturers share the use of productive machinery and facilities, thereby lowing per unit capital costs. These manufacturers also purchase large quantities of commodities, such as steel and aluminum, for the production of everything from helicopters to refrigeration equipment, lowering per unit purchasing prices. As a result, smaller industry participants have trouble competing with the economies of scale and scope exhibited by the industry's major players. Technology is an important competitive issue because, as a result of growing environmental issues, energy efficiency has become an important factor. Introducing new or improved product designs and product lines at different price points is a key way of maintaining and increasing product and market share in a slow-growing environment. Such product innovation usually entails a good degree of expenditures in the form of research and development spending. While the industry experiences some internal competition, the industry experiences minimal external competition due to the specified nature of industry services.
Barriers to Entry Barriers to entry in this industry are Medium and Steady
The Heating and Air Conditioning Equipment Manufacturing industry exhibits a medium level of barriers to entry. In the majority of product and market segments, customers are aware of the brand names of key components. To a certain extent, this gives the industry's largest manufacturers more pricing power as knowledgeable buyers weigh quality and brand loyalty above price considerations.
Also, there is a moderate level of capital investment required to operate in the industry. High initial capital costs are associated with the construction and development of specialized plants and machinery. Purchasing costs in this industry can be quite considerable. Key commodity inputs such as steel, aluminum, copper or electric components are necessary for the production of heating, air conditioning and refrigeration equipment. The availability of these products is also crucial to operating a successful business. Supply disruptions, can threaten a manufacturer's ability to timely fulfill production orders and jeopardize future business relationships. Larger, established companies have a better relationship with key commodity suppliers. Many of the industry's largest players are integrated, diversified manufacturers that engage in large scale commodity purchases. Given
Barriers to entry checklist Competition Medium
Concentration Medium
Life Cycle Stage Mature
Technology Change Medium
Regulation & Policy Medium
Industry Assistance Medium
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the size of their purchases, major players receive pricing benefits that further discourage competition from smaller competitors.
Industry Globalization
Globalization in this industry Medium and Increasing
The Heating and Air Conditioning Equipment Manufacturing industry a medium level of globalization. Over the five years to 2020, imports have accounted for an estimated one-fifth to one-quarter of domestic demand, while exports have risen to about one-fifth of revenue. Increasing manufacturing activity in the Asia-Pacific and European Union regions has been driving the industry's globalization, as several US- based manufacturers have moved operations to countries where labor and other resources are relatively less expensive. For example, Johnson Controls International PLC has manufacturing facilities in Mexico, Brazil, England, France, South Africa, Denmark, China and Thailand, while Lennox International Inc. has investments in Europe, Latin America, South America and the Asia-Pacific region.
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Major Companies
Major Players JOHNSON CONTROLS INTERNATIONAL PLC
Market Share: 15.5%
Johnson Controls International PLC (Johnson Controls) was founded in Milwaukee in 1885, and employs an estimated 104,000 people worldwide. During the fourth quarter of fiscal 2016, Johnson Controls completed its merger with Ireland-based Tyco International PLC (Tyco) as part of a $14.0 billion deal, and the combined company is now headquartered in Ireland. Johnson Controls continues to specialize in manufacturing heating, ventilation and air conditioning (HVAC) equipment, while Tyco will offer security and fire-suppression systems for offices, factories, schools and other nonresidential buildings. In fiscal 2019 (year-end September), the company generated an estimated $24.0 billion in global revenue (latest data available).
Johnson Control's building-efficiency segment, which is the most relevant to this industry, manufactures, sells and services commercial and industrial refrigeration systems and other related products. The company first entered the heating,
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ventilation, air conditioning and refrigeration (HVACR) manufacturing business when it acquired York International Corporation in December 2005.
Johnson Control's building-efficiency unit makes, sells and services chillers, air handlers, split systems, compressors, control devices and other products for residential and commercial use and for the food, chemical and petroleum industries. The company's brand names include York and Metasys, the latter of which monitors HVAC systems and other building features to maximize efficiencies and lower operating costs. According to the company's 2019 Securities and Exchange Commission filings, Johnson Control's building efficiency unit accounts for an estimated 35.0% of total net sales. Industry-relevant revenue is largely driven by construction activity, as slightly less than half the building efficiency segment's sales are derived by sales of HVACR products installed for the construction or retrofit markets.
Financial performance
Only about one-third of the company's industry-relevant revenue in generated in the United States. Latin America and Asia, especially China, represent areas of strong revenue growth for the company, which currently employs more than 30,000 workers in China. As business conditions began to improve, Johnson Control has also invested in developed economies through a series of strategic purchases, mergers and acquisitions.
Although the company has expanded through acquisitions, organic revenue growth has stalled over the five years to fiscal 2020, as an appreciating US dollar and lower demand from emerging markets led to declining HVAC exports. As a result, IBISWorld expects the company's industry-relevant revenue to increase at an annualized rate of 19.5% to $6.6 billion over the five years to fiscal 2020. Strong US construction demand for industrial, educational and healthcare facilities have proved to be growth markets for the company's commercial HVAC sales. However, sales are expected to slow in 2020 as the COVID-19 (coronavirus) pandemic causes widespread economic disruption, undermining demand. Lower global commodity prices have decreased input and operational costs, with company operating income increasing at an annualized rate of 22.3% to $665.7 million over the five years to fiscal 2020.
Johnson Controls International PLC (US industry-specific segment) - financial performance*
Year** Revenue Growth Operating Income Growth ($m) (% change) ($m) (% change)
2014-15 2719.6 N/C 243.8 N/C 2015-16 3090.2 13.6 296.6 21.7 2016-17 6339.2 105.1 789.6 166.2 2017-18 6509.3 2.7 831.8 5.3 2018-19 6682.9 2.7 853.2 2.6 2019-20 6638.9 -0.7 665.7 -22.0
Source: Annual report and IBISWorld Note: *Estimates; **Year-end September
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INGERSOLL RAND INC.
Market Share: 15.5%
Trane Technologies is an Irish major manufacturer of commercial, residential, institutional and industrial heating, ventilation and air conditioning (HVAC) products, cementing the company's position as a major industry player. The company was acquired by NC-based Ingersoll-Rand PLC (Ingersoll Rand) in 2008, cementing the company's position as a major industry player. In 2019, Ingersoll Rand separated its industrial segment and combined it with Gardner Denver, creating a global industrial leader in mission critical flow creation and industrial technologies, renamed Ingersoll Rand Inc. The company's remaining HVAC and transport refrigeration businesses was separated into and renamed Trane Technologies PLC (Trane Technologies). The company generated $16.6 billion in total company revenue in 2019 (latest data available) and is one of the largest HVACR manufacturers in the world.
Trane Technologies operates through three segments: enterprise, climate, and industrial. Both the climate and industrial segment produces Trane and American Standard brand HVAC systems, as well as Thermo King brand transport temperature control components used on ships, trucks and trailers. Other products in the climate solutions segment include refrigerated display merchandisers, beverage coolers, auxiliary power units and walk-in storage coolers and freezers. Currently, the company's climate and industrial segment accounts for more than half the company's revenue.
Over the five years to 2020, Trane Technologies acquired engage in acquisition activity to boost revenue through its previous parent company, Ingersoll Rand. In 2017, the company acquired multiple businesses to complement their existing products, primarily independent dealers for its climate segment. In 2018, the company acquired ICS Group Holdings Limited, which specializes in renting energy efficient chillers for commercial customers. As a result of these acquisitions, I Trane Technologies is expected to remain one of the industry's leading companies over the coming years.
Financial performance
Trane Technologies industry-relevant revenue represents its performance under Ingersoll Rand prior to its separation from the company in 2019. IBISWorld estimates that Trane Technologies industry-relevant revenue has increased at an annualized rate of 3.8% to $7.0 billion over the five years to 2020. Much of this growth has been driven by higher sales of HVAC equipment and parts in the United States, as the company was positively affected by US construction growth, which bolstered demand for HVAC equipment upgrades and replacements. However, depressed demand from emerging markets has continued to temper HVAC exports and company revenue growth over the past five years. In 2020, growth is expected to decline substantially as result of the COVID-19 (coronavirus) pandemic. IBISWorld estimates that industry-relevant revenue will decline 9.4% in 2020.
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Moreover, the company has announced year-over-year margin improvements in 2015 and 2016, which were largely the result of lower raw material costs as well as higher sales volumes and operational productivity. The company's operating income grew for much of the current five-year period as a result of lower input and energy prices. However, the COVID-19 pandemic has resulted in severe disruptions during the current year. As a result, Trane Technologies' industry-relevant operating income, measured as earnings before interest and taxes, has declined at an annualized rate of 0.9% to $705.1 million over the five years to 2020.
Ingersoll-Rand PLC (US industry-specific segment) - financial performance* Year Revenue Growth Operating Income Growth
($m) (% change) ($m) (% change) 2015 5793.8 N/C 738.1 N/C 2016 5975.5 3.1 871.3 18.0 2017 6091.4 1.9 857.8 -1.5 2018 6943.4 14.0 993.5 15.8 2019 7691.7 -10.8 1122.6 13.0 2020 6971.1 --9.4 705.1 -37.2
Source: Annual report and IBISWorld Note: *Estimates
CARRIER GLOBAL CORPORATION
Market Share: 14.9%
Headquartered in Massachusetts, Raytheon Technologies is an aerospace and defense company that provides advanced systems and services for commercial, military and government customers worldwide. The company was formed in 2020 through the combination of Raytheon Company and the United Technologies Corporation (UTC) aerospace businesses, and is headquartered in Waltham, Massachusetts. Cumulatively, the two companies that now comprise Raytheon Technologies employed nearly 200,000 people, including more than 60,000 engineers in 2019. During the year, total global revenue reached $74.0 billion in 2019.
While financial information on the operation of the newly formed company is not yet available, IBISWorld analysis covers the industry-relevant operations of UTC's Carrier Corporation (Carrier). Carrier is a brand of UTC's climate division, based in Palm Beach Gardens, FL. Carrier is a leading provider of HVAC equipment and refrigeration solutions for commercial, industrial and transportation applications through its Carrier brand. Carrier manufactures heaters, air conditioning and refrigeration units for commercial, residential, transportation and food service applications.
Financial performance
Carrier's industry-relevant revenue has increased at an annualized rate of 10.3% to $6.4 billion over the five years to 2020. For much of the current five-year period,
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increases in US residential construction and private investments in home improvements have helped drive demand for Carrier's equipment over the past five years. Slowing global economic growth, particularly in Europe, has remained a concern for Carrier. Moreover, ebbing growth in Asia and Latin America led to revenue declines in 2018, as lower overseas construction activity and a stronger US dollar dampened demand for HVAC equipment overseas. In 2020, industry-relevant growth is expected to slow as a result of the COVID-19 (coronavirus) pandemic, which is expected to slow growth and challenge supply chains across the world. Additionally, the company's industry-relevant operating income, measured as earnings before interest and taxes, has increased at an annualized rate of 4.5% to $859.8 million over the five years to 2020, as lower energy and raw material costs diminished operating expenses.
Carrier Corporation (US industry-specific segment) - financial performance* Year Revenue Growth Operating Income Growth
($m) (% change) ($m) (% change) 2015 3931.1 N/C 690.8 N/C 2016 4284.2 9.0 855.2 23.8 2017 5589.1 30.5 993.1 16.1 2018 5475.2 -2.0 925.4 -6.8 2019 6247.4 14.1 905.5 -2.2 2020 6410.1 2.6 859.8 -5.0
Source: Annual report and IBISWorld Note: *Estimates
Other Players DAIKIN INDUSTRIES LTD.
Japan-based Daikin Industries Ltd. (Daikin) manufactures and distributes heating, ventilation and air conditioning (HVAC) systems and refrigerant gases. The company's product offerings include air conditioning systems, heat pump and room-heating systems, air purifiers, water chillers and air-handling units. Daikin is also a manufacturer of gases, resins, elastomers and chemicals. According to estimates, an estimated 89.8% of the Daikin's global sales are driven by the company's air conditioning product segment. However, most of the company's air conditioning manufacturing facilities are located internationally, and therefore, are not industry-relevant.
In November 2012, Daikin increased its US presence with the $3.7 billion acquisition of Goodman Manufacturing (Goodman), an air conditioning producer and distributor. Prior to the acquisition, Goodman employed more than 4,500 workers, with plant locations in Texas and Tennessee. Combined, Daikin's operations provide mid- to large-scale HVAC systems, including unitary and packaged air conditioning systems, air purifiers, fan-coil units, air handling units, total heat exchangers and duct-ventilating fans sold through the Goodman, Amana and Daikin AC brands. Moreover, in 2016, Daikin completed the construction of a new $417.0 million manufacturing facility near Houston. The 4.0 million square-foot facility will manufacture the company's Goodman-, Amana- and Daikin-branded residential and commercial HVAC products.
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Over the five years to 2020, Daikin's industry-relevant revenue has increased due to strength in the residential and commercial air conditioning market as well as an expansion in the company's product offerings. Additionally, a surge in demand for energy-saving air conditioning systems, driven by more stringent regulations, boosted sales of heating and cooling systems for commercial and medium-scale office buildings. Consequently, IBISWorld estimates that the company will generate $1.7 billion in industry-relevant revenue in 2020.
LENNOX INTERNATIONAL INC.
Lennox International Inc. (Lennox) sells HVAC systems for residential and commercial uses under the Lennox, Armstrong Air and Ducane brands. Lennox is headquartered in Richardson, TX, and employs over 11,350 workers. Lennox's refrigeration business unit provides prebuilt or custom-built unit coolers, condensing units and other commercial equipment for cold-storage applications, primarily to preserve perishables in supermarkets, convenience stores, restaurants, warehouses and distribution centers. These products are available in a range of efficiency levels and sold at various price points.
In 2020, IBISWorld expects the company to generate $1.7 billion in industry-relevant revenue. Over the five years to 2020, sales volumes for Lennox's residential and commercial heating and cooling equipment have steadily grown as US construction activity has expanded. In addition, the company has captured a rising share of the replacement market, as private spending on home and commercial improvements has increased. Moreover, the company has reported strong sales volumes and demand for refrigeration products from wholesalers and retailers that rely on cold storage.
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Operating Conditions
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Capital Intensity The level of capital intensity is Low
The Heating and Air Conditioning Equipment Manufacturing industry exhibits a low level of capital intensity. Using wages as a proxy for labor and depreciation as a proxy for capital, for every $1.00 spent on labor in 2020, an estimated $0.09 is spent on capital. Research and development in this industry is moderate, and therefore, capital expenditure is carried out mostly to improve manufacturing productivity, reduce costs and provide environmental enhancements to machinery. High initial capital costs are associated with the construction and development of specialized industry plants and machinery. Purchasing costs in this industry can also be quite considerable.
Labor costs are relatively low. Wages comprise an estimated 15.6% of revenue in 2020. Wages as a proportion of industry revenue has stagnated over the five years to 2020, as a result of the increased offshoring of low-cost labor and the implementation of other operational efficiencies related to labor saving technology. During the current five-year period, capital intensity has remained relatively stable. In comparison, for every $1.00 spent on labor in 2015, an estimated $0.08 is spent on capital.
Technology And Systems
Potential Disruptive Innovation: Factors Driving Threat of Change
Level Factor Disruption Description
Very High Market Concentration
Very Likely
A ranked measure of the largest core market for the industry. Concentrated core markets present a low-end market or new market entry point for disruptive technologies to capture market share.
High Rate of Innovation
Likely
A ranked measure for the number of patents assigned to an industry. A faster rate of new patent additions to the industry increases the likelihood of a disruptive innovation occurring.
Moderate Ease of Entry Potential
A qualitative measure of barriers to entry. Fewer barriers to entry increases the likelihood that new entrants can disrupt incumbents by putting new technologies to use.
Low Rate of Entry Unlikely
Annualized growth in the number of enterprises in the industry, ranked against all other industries. A greater intensity of companies entering an industry increases the pool of potential disruptors.
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Level Factor Disruption Description
Very Low Innovation Concentration
Very Unlikely
A measure for the mix of patent classes assigned to the industry. A greater concentration of patents in one area increases the likelihood of technological disruption of incumbent operators.
The industry has a high rate of new patent technologies but limited concentration. This higher rate of new technologies creates a greater pool of potential disruptors. The range of patenting technologies is broad, which limits the threat of disruptions niche areas. A lack of concentration in patent types creates an environment where incumbent companies are more likely to have sustaining innovations in more areas.
Industry operators are exposed to a low rate of new entrants and a moderate level of entry barriers. This combination of factors creates an environment where entry trends are not a key threat of disruption.
The major markets for this industry are highly concentrated, which implies that the market has a focus on key customer segments. This presents an opportunity for strategic entrance into lower-end markets or unserved markets for innovations to take on a disruptive trajectory.
The Heating and Air Conditioning Equipment Manufacturing industry is not subject to significant technological advances.
As a manufacturing industry, new technology is typically used for making heating and air conditioning systems more efficient and durable, which is not considered to be a form of technological disruption. Additionally, the manufacturing process is largely unaffected by any recent technological advances that would change the market structure in which companies operate.
The level of technology change is Medium
In the Heating and Air Conditioning Equipment Manufacturing industry, technological advancement mainly concerns two areas, which includes manufacturing operations and product development.
Costs are kept relatively high because manufacturers' activities and technologies are often redesigned in response to changes in inputs and outputs. Operators invest in technology to configure more innovative products that comply with changing customer needs.
Nearly all businesses and the products they manufacture make use of the latest controls technology to enhance product performance. Some of the larger industry operators develop next generation controls to meet market demands. For instance, there are intensive manufacturing operations that use computer-controlled machinery to manufacture products.
Another important part of an operators' growth strategy is to invest in research and new product development. Many companies have research and development centers focused on combustion technology, air movement and indoor air quality,
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heat transfer and power generation. Large-scale commercial and industrial buildings are increasingly constructed to include computer-controlled and internet connected equipment for managing heat, elevators, security, lighting, ventilation and room pressurization. For example, in 2016, United Technologies Corporation (UTC) agreed to acquire EcoEnergy, the energy services division of global industrial conglomerate Wipro Limited. EcoEnergy's products are expected to be integrated with UTC climate and security brands, as big data and analytics will increasingly be used to help customers control energy costs and consumption.
Lastly, the development of suitable alternative refrigerants to ozone-depleting chlorofluorocarbons, which are being phased out, has also driven technology. Industry operators also use commercially available computer-aided design, computer-aided manufacturing and computational fluid dynamics not only to streamline the design and manufacturing processes, but also to give the ability to run computer simulations on a product design before a working prototype is created.
Revenue Volatility The level of volatility is Medium
Note: Revenue growth and decline reflective of 5-year annualized trend. Y-axis is in logarithmic scale. Y-axis crosses at long-run GDP. X-axis crosses at high volatility threshold.
The Heating and Air Conditioning Equipment Manufacturing industry exhibits a low to moderate level of revenue volatility.
Industry revenue is expected to increase for most of the five years to 2020. During the period, revenue grew as housing starts and the value of private nonresidential construction have increased, which has boosted sales of HVACR systems for new buildings and structures. However, the COVID-19 (coronavirus) pandemic is expected to result in a large decline in industry-revenue in 2020. Over the five years to 2025, industry revenue volatility is expected to continue to stabilize, as downstream markets in construction improve.
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Regulation & Policy
The level of regulation is Medium and is Increasing
Federal, state, local and international laws and regulations concerning the environment form the main regulatory hurdles challenging the Heating and Air Conditioning Equipment Manufacturing industry.
Also, industry operators are challenged by appliance-efficiency regulations. Stricter standards in the future will likely require additional research and development investment and capital expenditures to maintain compliance and offer customers environmentally friendly choices.
Environmental regulations
Over the past decade, the US Environmental Protection Agency has been increasing regulatory and political pressure to phase out the creation, use, importing and exporting of certain ozone-depleting substances, including hydrochlorofluorocarbons (HCFCs).
HCFCs were commonly used as refrigerants for air conditioning and refrigeration equipment. Companies, together with chemical manufacturers, are reviewing and addressing the potential effects of refrigerant regulations on products. Most companies believe that the combination of products that presently use HCFCs and new products using alternative refrigerants will permit new commercial and industrial products. As of January 2015, a 90.0% reduction in the consumption cap of HCFCs is required. The cap increases to a 99.5% reduction by 2020 and a 100.0% reduction by 2030.
Customers are not required by law to replace any existing HCFC equipment and are permitted to keep using their existing equipment beyond 2020. However, IBISWorld anticipates these regulations will create a growth opportunity for the replacement segment through the five years to 2025.
COVID-19
In response to the COVID-19 (coronavirus), the Centers for Disease Control and Prevention (CDC) has released a series of guidelines for businesses including those in Storage & Warehouse Leasing industry, which are subject to change.
For example, employees who appear to have symptoms are to be separated from work, while employees that test positive are required to inform fellow employees of their possible exposure. Businesses are encouraged to maintain extra precautions for employees at higher risk for serious illness, such as older adults and those with chronic medical conditions. Moreover, the CDC has advised employers to implement flexible sick leave and supportive policies and practices. Under the Coronavirus Aid, Relief and Economic Security (CARES) Act, temporary paid sick leave benefits were enacted for many workers not previously covered. However, the
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law includes exemptions for businesses with less than 50 or more than 500 employees.
Industry Assistance
The level of industry assistance is Medium and is Steady
There are numerous tariffs levied on products produced by the Heating and Air Conditioning Equipment Manufacturing industry.
Depending on the product and the country of origin, normal trade relation (NTR) duties range from zero to 2.2%. Tariffs from nonNTR countries, or imports from a small number of countries that do not have NTR duty status, such as Cuba, have tariffs ranging from 27.5% to 35.0%. The major trading partners of this industry have NTR status. Some products are eligible for special tariff treatments under various programs.
CARES Act and paycheck protection program
In response to the emergence and consequences of COVID-19 (coronavirus), the federal government passed the Coronavirus Aid, Relief and Economic Security (CARES) Act.
The act consists of a $2.2 trillion stimulus bill, which includes a number of programs aimed at assisting businesses as they weather the effects of the coronavirus. There are several provisions in the bill that may assist sector operators moving forward, ranging from an extended the deadline for payroll tax payments to the Paycheck Protection Program (PPP) from the United States Small Business Administration (SBA). The PPP is primarily aimed at assisting smaller operators that employ fewer than 500 employees and have been affected by the coronavirus and economic downturn, including cash strapped home health care operators. The program permits small businesses to take out loans of up to $10.0 million for payroll costs, covering employees earning up to $100,000.00 annually. Furthermore, the loans are eligible for being forgiven if the operator uses the loan for payroll, rent or utility costs.
The CARES Act included $350.0 billion in loans allocated to the Small Business Administration's (SBA) Paycheck Protection Program (PPP), a small-business loan program aimed at keeping workers employed. However, the PPP was quickly exhausted as demand outstripped available funds. In response, the US government passed additional legislation to provide greater funding, an additional $484.0 billion dollar bill to address the fallout of the coronavirus, including an $380.0 billion in PPP funding. In July, the federal government approved an additional five-week extension of the PPP program, running through the beginning of August. As of July 2020, the PPP has an estimated $129.0 billion in funding remaining.
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Industry associations
The Air-Conditioning, Heating and Refrigeration Institute (AHRI) is the national trade association representing the majority of industry manufacturers.
With 315 members, AHRI claims to represent more than 90% of the industry. AHRI's national headquarters are located in Arlington, VA. As one of its most important functions, AHRI develops and publishes technical standards for products and lobbies the government in the areas such as adoption of energy-efficient equipment.
The American Society of Heating, Refrigerating and Air conditioning Engineers is an international organization with headquarters in Atlanta and more than 55,000 members worldwide. According to its website, the organization's main mission is to promote HVACR technology and research through sustainable development, standard writing and education. The organization sets standards for the industry and also publishes a four-volume handbook focusing on HVACR technology.
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Key Statistics Industry Data
Year Revenue IVA Estab. Enterprises Employment Exports Imports Wages Domestic Demand
Value of Private
Non- residential
Constructio n
($m) ($m) ($m) ($m) ($m) ($m) ($b) 2011 45,254 9,857 2,973 2,710 124,563 8,354 11,987 6,682 48,887 424 2012 47,597 10,443 3,097 2,822 128,176 7,615 11,947 6,782 51,929 479 2013 48,038 10,123 3,025 2,761 131,063 8,154 12,524 6,945 52,407 486 2014 46,442 10,252 3,041 2,776 129,032 7,891 14,381 6,914 52,932 539 2015 47,906 11,337 3,008 2,735 130,233 7,834 14,380 7,300 54,452 522 2016 46,389 11,016 2,903 2,639 127,961 7,280 14,715 7,092 53,824 496 2017 45,403 10,394 2,830 2,565 129,305 7,156 15,941 7,041 54,188 520 2018 45,390 10,765 2,878 2,606 131,301 7,156 17,093 7,015 55,328 541 2019 46,944 11,129 2,889 2,617 136,565 6,798 16,720 7,206 56,866 518 2020 42,890 9,804 2,799 2,544 128,395 5,649 14,531 6,674 51,771 418 2021 43,597 9,884 2,818 2,560 129,572 6,148 16,825 6,756 54,275 417 2022 44,970 10,308 2,854 2,590 132,157 6,382 17,655 6,928 56,243 446 2023 45,897 10,425 2,880 2,611 133,829 6,544 18,357 7,041 57,710 466 2024 46,440 10,553 2,893 2,622 134,707 6,608 18,934 7,103 58,766 487 2025 46,925 10,770 2,904 2,631 135,454 6,647 19,514 7,156 59,793 508
Annual Change Year Revenue IVA Estab. Enterprises Employment Exports Imports Wages Domestic
Demand Value of
Private Non-
residential Constructio
n (%) (%) (%) (%) (%) (%) (%) (%) (%) (%)
2011 4.37 4.32 0 0 5 8.38 13.0 5.33 5.68 2.73 2012 5.17 5.94 4 4 3 -8.85 -0.34 1.49 6.22 13.0 2013 0.92 -3.07 -2 -2 2 7.08 4.82 2.40 0.92 1.27 2014 -3.33 1.26 1 1 -2 -3.24 14.8 -0.46 1.00 11.0 2015 3.15 10.6 -1 -1 1 -0.72 -0.01 5.57 2.87 -3.07 2016 -3.17 -2.84 -3 -4 -2 -7.08 2.32 -2.86 -1.15 -4.98 2017 -2.13 -5.65 -3 -3 1 -1.70 8.33 -0.72 0.68 4.65 2018 -0.03 3.57 2 2 2 -0.01 7.22 -0.37 2.10 4.11 2019 3.42 3.37 0 0 4 -5.00 -2.18 2.71 2.78 -4.33 2020 -8.64 -11.9 -3 -3 -6 -16.9 -13.1 -7.38 -8.96 -19.2 2021 1.65 0.81 1 1 1 8.83 15.8 1.22 4.84 -0.20 2022 3.14 4.28 1 1 2 3.81 4.92 2.54 3.63 6.85 2023 2.06 1.13 1 1 1 2.53 3.97 1.63 2.61 4.50 2024 1.18 1.22 0 0 1 0.97 3.14 0.87 1.83 4.50 2025 1.04 2.05 0 0 1 0.59 3.06 0.75 1.75 4.20
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Key Ratios Year IVA/Revenue Imports/Demand Exports/Revenue Revenue per
Employee Wages/Revenue Employees per
estab. Average Wage
(%) (%) (%) ($'000) (%) 2011 21.8 24.5 18.5 363 14.8 41.9 53,643 2012 21.9 23.0 16.0 371 14.2 41.4 52,912 2013 21.1 23.9 17.0 367 14.5 43.3 52,993 2014 22.1 27.2 17.0 360 14.9 42.4 53,584 2015 23.7 26.4 16.4 368 15.2 43.3 56,051 2016 23.7 27.3 15.7 363 15.3 44.1 55,419 2017 22.9 29.4 15.8 351 15.5 45.7 54,451 2018 23.7 30.9 15.8 346 15.5 45.6 53,430 2019 23.7 29.4 14.5 344 15.3 47.3 52,765 2020 22.9 28.1 13.2 334 15.6 45.9 51,982 2021 22.7 31.0 14.1 336 15.5 46.0 52,142 2022 22.9 31.4 14.2 340 15.4 46.3 52,422 2023 22.7 31.8 14.3 343 15.3 46.5 52,611 2024 22.7 32.2 14.2 345 15.3 46.6 52,728 2025 23.0 32.6 14.2 346 15.3 46.6 52,833
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Industry Financial Ratios April 2018 - March 2019 by company revenue Liquidity Ratios April 2015 -
March 2016 April 2016 - March 2017
April 2017 - March 2018
April 2018 - March 2019
Small (< $10m)
Medium ($10m-50m)
Large (> $50m)
Current Ratio 1.9 1.8 1.9 2.0 1.8 1.9 2.1 Quick Ratio 1.0 1.1 1.1 1.0 1.0 1.1 1.0 Sales / Receivables (Trade Receivables Turnover) 8.2 8.1 8.2 7.9 8.5 8.1 7.5 Days' Receivables 44.5 45.1 44.5 Cost of Sales / Inventory (Inventory Turnover) 5.6 5.5 5.6 5.6 7.5 5.7 5.0 Days' Inventory 65.2 66.4 65.2 Cost of Sales / Payables (Payables Turnover) 13.9 12.7 12.9 13.3 16.7 13.6 10.7 Days' Payables 26.3 28.7 28.3 Sales / Working Capital 7.0 7.4 6.6 7.0 8.1 8.1 5.5
Coverage Ratios Earnings Before Interest & Taxes (EBIT) / Interest 14.0 10.2 9.8 7.1 4.2 9.2 6.5 Net Profit + Dep., Depletion, Amort. / Current Maturities LT Debt
7.0 4.2 3.8 3.1 2.0 3.7
Leverage Ratios Fixed Assets / Net Worth 0.5 0.5 0.5 0.5 0.5 0.4 0.7 Debt / Net Worth 1.5 1.5 1.5 1.6 1.6 1.4 2.2 Tangible Net Worth 37.1 33.2 35.2 28.5 15.2 37.8 25.0
Operating Ratios Profit before Taxes / Net Worth, % 27.0 27.4 26.9 27.6 34.1 26.8 27.9 Profit before Taxes / Total Assets, % 10.9 9.4 9.3 9.6 8.4 12.2 7.8 Sales / Net Fixed Assets 14.7 17.2 13.0 12.8 19.3 15.4 9.5 Sales / Total Assets (Asset Turnover) 2.1 2.0 2.0 1.9 1.9 2.2 1.6
Cash Flow & Debt Service Ratios (% of sales) Cash from Trading 30.1 32.2 31.7 29.0 34.0 29.0 26.1 Cash after Operations 7.2 7.1 6.8 5.9 4.1 6.1 6.9 Net Cash after Operations 6.5 6.5 7.1 5.1 3.8 5.4 6.3 Cash after Debt Amortization 2.7 1.9 1.8 0.7 -0.9 1.1 1.7 Debt Service P&I Coverage 4.9 2.5 3.4 2.1 1.1 3.2 2.5 Interest Coverage (Operating Cash) 12.2 7.1 9.9 7.2 3.0 11.3 5.6
Assets, % Cash & Equivalents 11.4 13.3 11.5 10.5 12.6 11.4 7.5 Trade Receivables (net) 27.1 27.3 27.5 27.7 29.9 29.2 23.9 Inventory 26.7 24.7 25.8 25.4 24.9 26.8 23.8 All Other Current Assets 4.9 3.0 3.2 4.0 1.4 3.6 6.5 Total Current Assets 70.1 68.3 67.9 67.6 68.7 71.0 61.6 Fixed Assets (net) 17.6 17.1 17.4 17.5 19.3 16.2 18.0 Intangibles (net) 6.6 9.2 9.1 10.2 6.3 8.0 16.3 All Other Non-Current Assets 5.6 5.4 5.5 4.8 5.7 4.8 4.1 Total Assets 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Total Assets ($m) 9,479.4 7,226.8 7,817.0 8,455.0 151.6 1,421.8 6,881.5
Liabilities, % Notes Payable-Short Term 8.5 8.1 7.8 7.6 9.6 8.5 4.8 Current Maturities L/T/D 2.2 2.1 1.9 3.0 4.4 2.6 2.6 Trade Payables 13.5 14.7 14.5 13.9 15.7 13.9 12.5 Income Taxes Payable 0.2 0.3 0.3 0.3 0.0 0.4 0.2 All Other Current Liabilities 13.4 13.5 13.2 15.9 20.2 14.2 15.3 Total Current Liabilities 37.8 38.7 37.6 40.8 50.0 39.7 35.3 Long Term Debt 11.1 12.2 11.6 12.7 15.5 7.8 17.8 Deferred Taxes 0.4 0.5 0.4 0.5 0.2 0.5 0.7 All Other Non-Current Liabilities 7.1 6.2 6.1 7.4 12.8 6.2 4.9 Net Worth 43.7 42.4 44.3 38.7 21.5 45.8 41.3 Total Liabilities & Net Worth ($m) 9,479.4 7,226.8 7,817.0 8,455.0 151.6 1,421.8 6,881.5
Maximum No. of Statements Used 254.0 242.0 227.0 236.0 56.0 108.0 72.0
Source: RMA Annual Statement Studies, rmahq.org. RMA data for all industries is derived directly from more than 260,000 statements of member financial institution's borrowers and prospects.
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Additional Resources Additional Resources
The Air-Conditioning, Heating and Refrigeration Institute http://www.ahrinet.org
American Society of Heating, Refrigerating and Air-Conditioning Engineers http://www.ashrae.org
US Census Bureau http://www.census.gov
Industry Jargon CHLOROFLUOROCARBONS (CFCS) A common type of refrigerant used in air conditioning systems that is being phased out
because it contributes to depleting the ozone layer.
HYDROCHLOROFLUOROCARBONS A type of CFC, known in the industry as HCFC-22, which is thought to be more
environmentally friendly than other chemicals, but is currently being phased out.
REFRIGERANT A chemical compound or coolant used to achieve low temperatures in air conditioning and
refrigeration equipment.
Glossary Terms BARRIERS TO ENTRY High barriers to entry mean that new companies struggle to enter an industry, while low
barriers mean it is easy for new companies to enter an industry.
CAPITAL INTENSITY Compares the amount of money spent on capital (plant, machinery and equipment) with
that spent on labor. IBISWorld uses the ratio of depreciation to wages as a proxy for capital
intensity. High capital intensity is more than $0.333 of capital to $1 of labor; medium is
$0.125 to $0.333 of capital to $1 of labor; low is less than $0.125 of capital for every $1 of
labor.
CONSTANT PRICES The dollar figures in the Key Statistics table, including forecasts, are adjusted for inflation
using the current year (i.e. year published) as the base year. This removes the impact of
changes in the purchasing power of the dollar, leaving only the "real" growth or decline in
industry metrics. The inflation adjustments in IBISWorld’s reports are made using the US
Bureau of Economic Analysis’ implicit GDP price deflator.
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DOMESTIC DEMAND Spending on industry goods and services within the United States, regardless of their
country of origin. It is derived by adding imports to industry revenue, and then subtracting
exports.
EMPLOYMENT The number of permanent, part-time, temporary and seasonal employees, working
proprietors, partners, managers and executives within the industry.
ENTERPRISE A division that is separately managed and keeps management accounts. Each enterprise
consists of one or more establishments that are under common ownership or control.
ESTABLISHMENT The smallest type of accounting unit within an enterprise, an establishment is a single
physical location where business is conducted or where services or industrial operations are
performed. Multiple establishments under common control make up an enterprise.
EXPORTS Total value of industry goods and services sold by US companies to customers abroad.
IMPORTS Total value of industry goods and services brought in from foreign countries to be sold in
the United States.
INDUSTRY CONCENTRATION An indicator of the dominance of the top four players in an industry. Concentration is
considered high if the top players account for more than 70% of industry revenue. Medium
is 40% to 70% of industry revenue. Low is less than 40%.
INDUSTRY REVENUE The total sales of industry goods and services (exclusive of excise and sales tax); subsidies
on production; all other operating income from outside the firm (such as commission
income, repair and service income, and rent, leasing and hiring income); and capital work
done by rental or lease. Receipts from interest royalties, dividends and the sale of fixed
tangible assets are excluded.
INDUSTRY VALUE ADDED (IVA) The market value of goods and services produced by the industry minus the cost of goods
and services used in production. IVA is also described as the industry's contribution to GDP,
or profit plus wages and depreciation.
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INTERNATIONAL TRADE The level of international trade is determined by ratios of exports to revenue and imports to
domestic demand. For exports/revenue: low is less than 5%, medium is 5% to 20%, and high
is more than 20%. Imports/domestic demand: low is less than 5%, medium is 5% to 35%,
and high is more than 35%.
LIFE CYCLE All industries go through periods of growth, maturity and decline. IBISWorld determines an
industry's life cycle by considering its growth rate (measured by IVA) compared with GDP;
the growth rate of the number of establishments; the amount of change the industry's
products are undergoing; the rate of technological change; and the level of customer
acceptance of industry products and services.
NONEMPLOYING ESTABLISHMENT Businesses with no paid employment or payroll, also known as nonemployers. These are
mostly set up by self-employed individuals.
PROFIT IBISWorld uses earnings before interest and tax (EBIT) as an indicator of a company’s
profitability. It is calculated as revenue minus expenses, excluding interest and tax.
REGIONS West | CA, NV, OR, WA, HI, AK
Great Lakes | OH, IN, IL, WI, MI
Mid-Atlantic | NY, NJ, PA, DE, MD
New England | ME, NH, VT, MA, CT, RI
Plains | MN, IA, MO, KS, NE, SD, ND
Rocky Mountains | CO, UT, WY, ID, MT
Southeast | VA, WV, KY, TN, AR, LA, MS, AL, GA, FL, SC, NC
Southwest | OK, TX, NM, AZ
VOLATILITY The level of volatility is determined by averaging the absolute change in revenue in each of
the past five years. Volatility levels: very high is more than ±20%; high volatility is ±10% to
±20%; moderate volatility is ±3% to ±10%; and low volatility is less than ±3%.
WAGES The gross total wages and salaries of all employees in the industry.
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- 1 About This Industry
- 1.1 Industry Definition
- 1.2 Major Players
- 1.3 Main Activities
- 1.4 Supply Chain
- 1.5 Similar Industries
- 1.6 Related International Industries
- 2 Industry at a Glance
- 2.1 Executive Summary
- 3 Industry Performance
- 3.1 Key External Drivers
- 3.2 Current Performance
- 4 Industry Outlook
- 4.1 Outlook
- 4.2 Performance Outlook Data
- 4.3 Industry Life Cycle
- 5 Products and Markets
- 5.1 Supply Chain
- 5.2 Products and Services
- 5.3 Demand Determinants
- 5.4 Major Markets
- 5.5 International Trade
- 5.6 Business Locations
- 6 Competitive Landscape
- 6.1 Market Share Concentration
- 6.2 Key Success Factors
- 6.3 Cost Structure Benchmarks
- 6.4 Basis of Competition
- 6.5 Barriers to Entry
- 6.6 Industry Globalization
- 7 Major Companies
- 7.1 Major Players
- 7.2 Other Players
- 8 Operating Conditions
- 8.1 Capital Intensity
- 8.2 Technology And Systems
- 8.3 Revenue Volatility
- 8.4 Regulation & Policy
- 8.5 Industry Assistance
- 9 Key Statistics
- 9.1 Industry Data
- 9.2 Annual Change
- 9.3 Key Ratios
- 9.4 Industry Financial Ratios
- 10 Additional Resources
- 10.1 Additional Resources
- 10.2 Industry Jargon
- 10.3 Glossary Terms
