HVAC and Plumbing Contractors
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Industry Overview
The annual revenues of the utility contractor industry in the US are more than $75 billion. This highly fragmented industry includes 40,000 mostly privately held companies that operate from a single location, and have annual sales under $5 million each. Companies that work mainly in the residential market are usually small, while large companies, including EMCOR Group and Comfort Systems USA, work mainly in the commercial field.
Competitive Landscape
Demand for services depends partly on new residential and commercial construction, but demand for maintenance and repair work is substantial. Larger companies may have a competitive advantage winning large projects that require design work and installation, and can provide services to corporations in several markets. Large companies operate through semi-autonomous local units. Profitability depends on the volume of work a company can acquire, since most costs are fixed.
Products, Operations & Technology
HVAC contractors install and service furnaces; air conditioning (AC) units; fans; and the associated ductwork and control units in residential and commercial buildings. While HVAC accounts for the bulk of industry revenues, many commercial HVAC contractors also have sheet metal operations to build custom HVAC ductwork. Plumbing contractors install bathroom and kitchen fixtures and the associated pipes in residential or commercial buildings, and may also install gas appliances and pipework.
Industry revenue is almost evenly split between commercial and residential segments; companies usually participate in only one, as the work differs fundamentally. Within both segments, revenues are further split between installation and maintenance; commercial companies usually do both, in many cases providing continuing maintenance under long-term service contracts.
Most residential companies perform mainly maintenance work. There are about 43 million central air conditioners, 54 million furnaces, and 9 million heat pumps in US homes. Maintenance, repair, and replacement of these units generate about $30 billion in annual revenue.
For installation work, companies buy equipment such as furnaces, coolers, and air conditioners from distributors. The markup on such equipment is fairly low. Major equipment is custom-ordered for each project. Some sophisticated HVAC systems incorporate computerized monitoring and control components. Compressors, chillers, blowers, and other equipment are bought from manufacturers like Carrier, Trane, and YORK. Most materials are bought from specialty distributors like True Value, Graybar, and WESCO, or from home improvement centers like Home Depot and Lowe's.