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WIKI ANALYSIS
AAON, Inc. (NASDAQ: AAON) manufactures and sells air-conditioning and heating equipment. Its products include rooftop units, chillers, air-handling units, make-up air units, heat recovery units, among others. The company makes money by serving the commercial and industrial construction sector and replacement markets, but usually for units installed on commercial buildings fewer than 10 stories high.[1] By purchasing certain components such as sheet metal and tubing, AAON assembles the products into finished products. However, as a company that supplies construction parts, the company is exposed to an extremely cyclical industry.
Business Growth
AAON posted FY2010 sales of $245 million, and based on those figures has roughly 14% market share of the rooftop market and 1% of the coil market.[2] Approximately 55% of the $245 million figure comes from new construction and the rest from renovation/replacements. However, the ultimate business growth comes from the stage of development of the customers. By offering four different groups of rooftop units, ranging from one to six tons for its RQ series, and RL series for example, ranging from 40 to 230 tons, AAON can target multiple market segment niches.
Key Trends and Forces
Construction Demand is Highly Dependent Upon the Real Estate Market
The majority (55%) of AAON sales come from new construction, and as such, the price which the company may price its products is highly dependent upon the current real estate market.[3] In particular, the existing real estate market comes in a two-fold fashion; one for the resale of existing property and a second from the rental sphere. In a downturn of the economy, existing owners of industrial facilities are less inclined to fix or purchase new air conditioning units unless absolutely necessary, while new real estate will not pick up until final sales prices are high enough to justify the capex of construction. As such, an economic recovery or economic upturn means greater business for companies such as AAON.
AAON is Highly Dependent upon the US macroeconomic factors
The majority of AAON's sales come from non - "superstar" cities, or areas that tend to see generally rising house prices such as San Francisco. Cities such as Las Vegas for example have a more elastic supply, in which construction may always fulfill the needs of increasing demand. While this is not particularly great for rental companies, construction companies such as AAON may profit from this because greater construction in non super-star city regions mean more business. But the risk of oversupply and not enough growth to sustain those empty units mean that AAON is exposed to a very cyclical industry.[4]
Competition
AAON operates in a mature industry where product innovation is minimal. AAON competes with other more recognized brands and local construction companies competing in supplying air conditioning units and other construction materials. These companies include:
- Lennox International (LII) is a global provider of climate control solutions and designs, manufactures and markets a range of products for the heating, ventilation, air conditioning and refrigeration industry.
- A O Smith Corp CL A (SAOSA) is a manufacturer of water heating equipment, serving a diverse mix of residential and commercial end markets in the US.
- Regal-Beloit (RBC) is a global manufacturer of commercial and industrial electric motors, heating, ventilation and air conditioning products.
References
- ↑ AAON FY2010 Form 10-K, Pg 2
- ↑ AAON FY2010 Form 10-K, Pg 3
- ↑ Ameron to build new factory in north Tulsa
- ↑ Burlington heating plant shut down
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