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February 20, 9:45 a.m. EST
Watsco, Inc.
Barclays Capital Industrial Select Conference
February 21, 9:45 a.m. EST
United Technologies
Barclays Capital Industrial Select Conference
March 1, 10 a.m. EST
Comfort Systems USA, Inc.
Fourth Quarter 2012 Results
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All 50 States Have Improving
Residential Housing Markets
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The NAHB produces an "Improving Markets Index" or the IMI.
By tracking employment level changes, house price changes, and housing permit levels, they attempt to take the temperature of 361 US Metropolitan Statistical Areas [MSA]. To be designated as "Improving," all three measures must be improving for six consecutive months. That sounds like a tough hurdle to clear, but 259 or 72% of that list is now registered as improving.
NAHB Press Release
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Trane Q4 Earnings Review,
2013 Outlook and Spin-Off
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 Trane's fourth quarter revenues from commercial HVAC in North America grew in the low single digits versus the prior year quarter. Orders in North American commercial HVAC also increased slightly. Residential HVAC shipments were flat and revenues were down 5% in the fourth quarter versus the final quarter of 2012. Ingersoll-Rand management indicated the fourth quarter last year was unusually strong, making the negative comparison a misleading indicator of the actual health of the segment.
Trane is expecting low single-digit growth for North American Commercial HVAC revenues in 2013. They consider the ABI to be a good leading indicator, and the choppy performance of that index is a fair characterization of Trane's market outlook. Residential HVAC revenue guidance for 2013 is 4% to 6% revenue growth due to modest improvement in the new and replacement market, with continued mix toward lower SEER products.
 Ingersoll Rand will spin off their commercial and residential security businesses. These units were responsible for about $2 billion (or nearly 15%) of the $14 billion 2012 revenues. They hope to have approval for this tax-free spin-off by the end of the calendar year. They also announced their intention to repurchase up to $2 billion of stock over the next 12 to 15 months. At the current $16 billion market value, that would be a 12.5% reduction of outstanding shares. The most interesting aspect of these decisions will be how much debt they dump onto the spin-off.
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Lennox Q4 Earnings
Review and 2013 Outlook
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2012 revenues at Lennox International increased only 5% on a constant currency basis. Residential revenues increased 9% to nearly $1.4 billion. Sales to the new construction market increased 30% versus the depressed 2011. Commercial HVAC equipment and service revenues increased 3% constant currency in 2012 to $785 million. Their Commercial segment signed 29 new national accounts in 2012, matching their 2007 record total. Fourth quarter 2012 residential revenues increased 9% to $350 million and commercial revenues increased 4% to $188 million.
PartsPlus ended the year at 108 stores. They now intend to open 28 additional stores in 2013, an increase from the 27 they had on the drawing board at their last update in December.
There was no change in the 2013 market outlook since the December presentation: low single-digit unit growth in the North American residential and commercial unitary markets.
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REITS Indicate Commercial Markets Healthy
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 The Macerich Company is an NYSE traded [MAC] real estate investment trust with headquarters in Santa Monica, California, and a market capitalization that exceeds $8 billion. MAC engages in the acquisition, ownership, development, redevelopment, management and leasing of shopping centers. Their portfolio stretches from the Northeast to the Southwest. Mall tenants reported annual sales per square foot increased 5.7% to $517 for the year ended December 31, 2012, compared to $489 in 2011. As of the end of September 2012, 17% of their operations were in Southern California, 16% in the Pacific Northwest, including Northern California, and 18% in Arizona with a concentration near Phoenix. They describe the Phoenix real estate market as being "on fire" as well as Northern California. The Santa Monica area [Silicon Beach] is also "on fire" with multiple bidders for many properties. The real estate markets in those regions may be burning up, but their stores in the central region generated the hottest growth as sales per square foot increased 7%. MAC's core market tenants in Northern California reported +6.6% sales gain, Southern California +5.3%, and Arizona +4%. Even the Eastern region did better than the core markets with a +5.5% sales/square foot gain during 2012.  The Simon Property Group of Indianapolis, Indiana, is widely considered the largest real estate property management company in the world. The NYSE traded company [SPG] owns or manages about 330 properties and has a market capitalization of more than $50 billion. Average retail tenant sales per square foot increased 6.6% in 2012 to $568. Their comments were not as market specific as Macerich, but did paint a generally healthy operating picture. Their occupancy rate is over 95%, and rates will increase on the leases that were signed when the market was softer.
 General Growth Properties is a NYSE traded [GGP] real estate investment trust with a market capitalization near $19 billion and headquarters in Chicago, Illinois. Average tenant sales increased 6.6% in 2012 to $545 a square foot. They began the year with 57 "big box" locations vacant, but signed leases on 47 of them during the year comprising about 1.6 million square feet. |
Emerson Quarterly Earnings
Review and 2013 Outlook
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 Emerson's first quarter, fiscal September 2013 earnings release featured top line growth of 5% to $5.6 billion, up 6% constant currency, margin expansion, O/S -1.5%, and EPS +24%.
The Climate Technology division is Emerson's HVAC unit for residential, industrial, and commercial applications. The $3.8 billion of sales in fiscal September 2012 were 15% of $25 billion total company sales, and generated 16% of earnings. Climate Technology sales increased 2% in the first fiscal quarter that ended December 2012. Sales in the US increased 1%, but they are expecting improvement along with the recovery of the residential end markets for the balance of the year and beyond.
Emerson recently discussed their strategy and outlook at a presentation to the investment community. They expect the U.S. residential recovery to continue into 2015.
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Watsco Discusses 2012 Earnings
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 Watsco reported 15.2% sales growth in 2012 to $3.43 billion. Sales per store increased 4%. We believe the end of year store footprint is very similar to the 579 locations reported at the end of the third quarter 2012, which was a 7% increase from 542 at the end of the calendar year 2011. 35 of the new stores were part of the early Q2-2012 JV with Carrier resulting in Watsco's 60% ownership of 35 locations in Canada. HVAC equipment sales increased in the 5% to the $2 billion area in 2012, HVAC product sales declined 2% to near $1.1 billion, and commercial increased 21% to the $200 million area. Chairman and CEO Albert Nahmad stated that Watsco gained market share domestically. Earnings guidance for 2013 will be provided later in the year. They are encouraged by the results YTD, but will be more confident about their outlook after seeing the results for March since more than half of the first quarter sales typically occur during that last month of the quarter. |
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DDN pairs recent data with the historic performance of multiple data streams to enhance your efficiency when assessing market health and developing your understanding of the current HVACR market.
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