Specialist background
- Experienced sales expert responsible for budget over USD 1bn
- Well-versed with a large distributor network to provide national account customers with industry-leading Carrier products
- Knowledgeable on the major players in the HVAC space, including channel dynamics between HVAC OEMs and residential contractors in North America
- Well-placed to discuss historical and current trends in different end markets and geographies, including competitive landscape and potential outcomes in a recessionary scenario
Questions
1.
Hopefully you'll be able to provide a very good perspective, just given your prior experience at Carrier. Was there any change in the way things were run? In terms of the strategy, the culture. Maybe some perspective, at a higher level, would be interesting just to hear, just given your unique perspective there.
2.
I know that's not the case across all the major OEMs, I think Trane may have more of a 50/50 split, thereabouts. I think Lennox has more of an in-house distribution system. Would just love to hear how Carrier thought about their distribution channels and maybe the pros and cons of whether it was better to go through more in-house vs more third-party distribution because, clearly, different players have different approaches. Would just love to hear the thinking behind how different players would rationalise their approaches.
3.
Just help me understand, when Carrier works with Watsco or some other independent distributor, I'm guessing that Carrier probably set the pricing and how do the distributors think about it? Do they charge a mark-up on it? They're aiming for a margin on top of it?
4.
Recognising that market shares are going to be different based on different geographical regions and all that, if you were to zoom out, big picture, I'm just wondering where you would rank the different players, in terms of just their general competitiveness? Maybe we can do this on one hand, in the residential market and then, on the other hand, in the light commercial market because I think market shares are generally not too far apart but there is a distinction, so, would just love to hear, based on your recent read of the market, how things are shaking out.
5.
I want to go back to something you mentioned earlier, on the residential side, between some of the players being more focused on the new construction side vs some of them being more focused on the replacement side. Which side actually has the higher margins? Just curious. I'm sure there are pros and cons to each, but would you rather play more in the new construction side, or would you rather have more replacement activity? Recognising that, I guess, the replacement cycle's one every 15 years, thereabouts.
6.
We're going to revisit that side in a bit but just curious, on the replacement side, what's the volatility to just general macroeconomic conditions, generally speaking? Because on one hand, for example, if my HVAC system breaks down, I have to replace it pretty urgently and that's one element of demand but I'm guessing there's also a degree of demand that's maybe a bit tied to more discretionary replacement, whether that's people moving into existing homes or renovation and remodel activity. I guess, what's your stance of how sensitive the replacement market is to how the general economy is trending? What drop off might we see in various kinds of recessionary scenarios?
7.
What was the experience like during 2007-08? Having lived through that. Did you guys see it coming? How fast did it hit you? When did things (talking over each other) relative to the broader economy? Maybe the last mini question, how long did it take for things to normalise, coming out on the other side?
8.
What I'm gathering from that is pricing clearly didn't go up during that period. Historically, during downcycles, have you seen pricing get revised downwards over time? Is there that element of pricing competition when things get tough or does the industry generally hold tight and hold firm where they are and just absorb the volume loss? Do people start undercutting on price?
9.
I guess, from what you're saying, if the customer or the distributor comes up to you and say, "If you don't reduce the price, we'll go somewhere else," there is a change in volume in that case. You're not gaining volume, but you might lose volume. I guess you're saying that, "I wouldn't cut price even in that case. Feel free to walk away"?
10.
Shifting timelines closer to the present day, you alluded to this earlier as well, the past 36 months, we have seen insane levels of residential construction. I think everyone knows that things are slowing down. Just curious, where do you see the residential market today? Are we close to the trough yet? Is there more pain to be had? Just given it takes some time for interest rates to take its toll on construction activity. Just would love to get your perspective on how far along are we in that correction cycle today.
11.
I want to go back to, I think, a slight comment that you made earlier on in our discussion. Obviously, we have seen a huge uptake in demand over the last couple of years and I think you mentioned that you expected volume to be down low-single-digits this year, with revenue as maybe flat (ph), slightly up. How do you square that volume comment, being down low-single-digits, after we've been up a tremendous amount? Obviously, to your point you made, in all the areas (ph) we don't expect the trough to be all the way down from where we first started 36 months ago but how are you thinking about that low-single-digit vs how far we have come over the last 36 months or so?
12.
Let's stick on the replacement side of the market because I think that's obviously a bigger slice of the pie compared to new construction. I want to revisit this thought where we've basically pulled forward some demand over the last couple of years, maybe one or two years, to the prior 36 months. Let's say that was replacement activity, if I had a old HVAC system, I thought, "I have a bit more cash now, I might maybe choose to replace it." How do you think about that?
13.
Has your outlook changed in any way from when you were trying to size up the market at the end of last year vs where we are now, after the first quarter of 2023? Do you think the outlook as improved or worsened or maybe not changed in any way? Things are how you saw it.
14.
That would still be a net positive as opposed to growing concern around the mixed portion of it?
15.
Let me try and understand a bit better, as well. The contractor who purchased the HVAC from a Trane or Carrier distributor or maybe one of the OEM's wholly owned distributors themselves, they will basically pick up financing from a partner bank, that'll fund, in some ways, the working capital as they install HVAC. Is that more applicable for the new construction side, or is it also applicable for the replacement side?
16.
The last topic I want to hit on, I know we are out of time but very quickly, this ties into what we just discussed. That's really the idea of inventory levels at the distributor level. Given the supply chain issues over the last couple of years where things were so tight, no one could get their hands on the end product, how concerned are you with any possibility that the distributors may have actually tried to build out some inventory buffers and now, in a downcycle scenario, that would roll its way through the entire value chain?
17.
It's a bit broad and generic, is your outlook for the next 12-24 months. Is it generally pretty positive or pretty negative on where you see the HVAC market trending?
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