“It is hard to pinpoint the exact root cause, but clearly the combination of high interest rates and pressure on the consumer are increasingly weighing on consumer spending, including on new and existing home sales, leading to delayed residential HVAC activity,” he said.

In response, distributors are deliberately reducing their stock, with Gitlin forecasting field inventories to be down about 15% year over year by the end of Q3. By Q4, he expects inventory levels to return to pre-pandemic levels. “So, in essence, in Q3, we are seeing the combined impact of lower consumer demand, as well as aggressive destocking by our distributors,” he said.

By Carrier’s estimates, about half of its $500 million Q3 sales shortfall will stem from destocking, with the rest tied to soft demand. The company has responded with sharp cost-cutting, including a reduction of more than 2,000 indirect employees and scaling back factory output.

Gitlin also took a firm line against any potential EPA extension of R-410A production, warning it would disrupt the industry’s transition to R-454B and ultimately raise costs for homeowners. “We've switched our factories over to R-454B, so to switch back to R-410A would be an investment, and that investment would have to go somewhere, and it would probably go to the consumer,” he said. “We hope not only for Carrier but for the industry that we do not go back to R-410A.”

Trane: A Difficult Year

Trane Technologies CEO Dave Regnery acknowledged similar headwinds, with the company’s residential business expected to be down as much as 20% in Q3 and high single digits for the full year. However, he stressed that Trane’s residential business represents only about 15% of Trane’s enterprise, which gives the company a broader base of support.

“Yes, the residential business is running into some tough times, and yes, we are managing the business appropriately from a cost standpoint,” said Regnery. “We have taken some time out of our factories so that we can balance the inventory load within the channel. We're doing all the right things to make sure that we can maximize the opportunities that we have within residential.”

In addition to inventory challenges, other dynamics such as high interest rates and weak home sales are weighing down the market, said Regnery. The rocky start of the transition to R-454B also didn’t help, and consumers may be growing uneasy about higher equipment prices.

“Pricing has been sticky,” said Regnery. “We had a regulatory change on the refrigerant. From an engineering standpoint, that went fine, but from a supply of 454B cylinders in the marketplace, that did not go so well. So people lost some confidence there. I think it's a lot of different variables that are causing that. I think structurally, the resi business is fine. It's a great business. It'll be a great business well into the future. Look, 2025 is going to be a difficult year for a lot of different reasons. But at the end of the day, I think, we will move beyond this in 2026.”

Lennox: Bracing For Headwinds

Lennox CFO, Michael Quenzer outlined a host of challenges in the residential market, from tariffs and cooler weather to R-454B shortages, lingering R-410A inventory, and weak existing home sales.

“We’ve known coming into this year that it was going to be a bit of a noisy year going through this regulatory challenge,” he said. “We knew there was going to be destocking. And as we went into the year, all of a sudden, we had to navigate tariffs. The weather was cold. We had an R-454B canister shortage. Existing home sales were soft. All of these variables were hitting at the same time.”

He added that many distributors still have R-410A stock to clear by year-end, which will pressure results in the near term. “We think longer term, though, structurally, the industry is still very disciplined in how we go to market, and we’re looking forward to getting into next year.”

Quenzer also noted that while homeowners may be opting for repairs now, those decisions will eventually lead to replacements. “It’s not like there is a great substitute for HVAC unless people don’t want to have heating and air conditioning. We also see some megatrends, where the average life of the system continues to get stressed and shorter. As you do these repairs, they’re not going to last as long, and the cost of the legacy gas – R-410A – is going to put more pressure on the cost of repairs, as well as electricity usage and cost.”

On pricing, CEO Alok Maskara added that OEMs are holding firm. “I think so far, we’ve seen very rational pricing from all the OEMs. A lot of these OEMs have the same input costs as we did … I expect price and cost will continue to go up. I don’t think inflation is going to stop there. I think the next level will be early next year when we all come out and announce our next level of price increases. But for the balance of the year, I think we’re pretty well set from a price perspective.”

Watsco: Maintain Margin

As the largest HVAC distributor in North America, Watsco offered a ground-level perspective on the market. Executive vice president of planning and strategy Barry Logan described 2025 as a year of “heaviness,” with unit volumes down about 12% year-to-date -- a trend consistent with the company’s second-quarter earnings call.

“I would say that's a very consistent percentage for what we're seeing right now. So no real change in trend or behavior as we got through the summer, positive or negative,” he said. “In July, our revenue dollars were flattish. I would say the same thing sitting here in September. Our earnings were up slightly in the second quarter, and I would say we have that opportunity for the third quarter.”

Logan echoed OEMs in pointing to inventory distortions and the refrigerant transition as key factors weighing on residential sales. Weak demand is also a factor. “The reality is that the demand structure this year isn't what any of us would have thought going into the year,” he said.

Pricing, however, has remained firm, with new products trending about 12% higher. Logan noted that included a mix of introductory pricing and subsequent increases, and margins are holding steady.

Watsco’s priority, he stressed, is to maintain pricing, margins, and share through the current downturn. Lower interest rates could help, particularly as existing home sales -- down 15% to 20% in some markets -- remain a drag on demand. Logan noted that industry shipments this year may end up close to 2019 levels, even though today there are 15% more installed units in the field.

While consumers may be in a “trough” at the moment, Watsco is investing in initiatives and incentives to support contractors. As Logan noted, “The focus is on how do we get the contractor to have the swagger to go replace more units next year and not necessarily count on what the economy is doing.”