US boiler market losing steam
In the three to four weeks leading up to the Interview, the price of steel was up by as much 20-25%, we heard. “Most companies who are heavily dependent upon steel for manufacturing are experiencing broken contracts or seriously extended lead times.”
The pandemic has also exacerbated existing macro trends, namely environmental awareness, which is creating a headwind for Cleaver-Brooks. “You have a lot of pressure to find other ways to create energy and boilers is one that is absolutely dependent upon fossil fuels.”
Lower fuel prices are also having a ripple effect. “If one of the single biggest drivers in deciding to replace an industrial boiler was the return on investment through energy reduction, a more efficient design, then when fuel prices decline, there are fewer people interested in buying boilers.”
In terms of Cleaver-Brooks’ market position, “their strength is their market footprint, they’ve been around a very long time, it’s a well-known brand.” The company is also the go-to for industrial-scale projects. “However, there is increasing competition and you cannot rest on your laurels.”
Another issue explored in the Interview was deflation, driven by a “significant reduction in unit demand across the entire boiler industry”. The expert also used New York City as an example of another industry headwind: “a tremendous move away from this monstrous machine that used to occupy the basement”. Indeed, the replacement market is becoming increasingly impacted by more efficient and lower-cost alternatives.
The Interview also touched on the industry’s labour shortage, the competitive landscape for larger boilers, and risks pertaining to Cleaver-Brooks’ distribution model, which relies on around 30 family businesses.
To access all the human insights in Third Bridge Forum’s Cleaver-Brooks – US boiler market dynamics & outlook Interview, click here to view the full transcript.
The information used in compiling this document has been obtained by Third Bridge from experts participating in Forum Interviews. Third Bridge does not warrant the accuracy of the information and has not independently verified it. It should not be regarded as a trade recommendation or form the basis of any investment decision.
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