The December 2005 acquisition of York International Corp. by Johnson Controls Inc. created a $12 billion global business within Johnson Controls called Building Efficiency. The new business immediately held a leadership position in energy management and building systems and services. York's Unitary Products business brought a new presence for Johnson Controls in the residential and light commercial HVAC market along with a large, established distribution network. On the one-year anniversary of this significant acquisition, HVACR Distribution Business reports on the integration of these two prominent companies and, through interviews with senior managers, considers the impact on distributors. When the acquisition was finalized a year ago, C. David Myers, former president and CEO of York International, was elected as a vice president and corporate officer of Johnson Controls. He also became president of the Building Efficiency business, which combined the former York businesses with what was the Controls Group of Johnson Controls. The new Building Efficiency business serves customers in 125 countries from more than 700 locations.
Myers recently reflected on the events of the past year: “When we officially announced our acquisition, we did so under the theme Together We Can Do More. We did that based on customer research, and customers have indicated their preference for a single provider for their entire HVAC system.”
“As soon as the acquisition was announced, a team of employees from both companies started working together to plan for the quick and effective integration of our organizations. Because of our similar cultures and values, we were able to work productively from the very start, and we are pleased with the progress in year one,” Myers continued. “We now provide customers access to integrated systems and services; a single source for enhanced HVAC&R, controls, fire and security systems.”
“The complementary capabilities of the two businesses created an offering that is reshaping our industry. Customers benefit from our ability to serve the low-, mid- and high-end marketplace and do it globally. In addition, I believe they are seeing efficient service delivery and lower costs.”
The synergy with York in the nonresidential market has been clear from the outset. For example, fans attending Indianapolis Colts football games in 2008 will find the new Lucas Oil Stadium is comfort-controlled by Johnson Controls. Under a $7.2 million equipment and controls contract, a Metasys® building management system will control the stadium. It is fitted with 28 York® air-handling units with factory-mounted controls. Johnson Controls will also supply a fire alarm system and a chiller.
It's clear, too, that Johnson Controls' business diversification strategy is working. In October, as the company's new fiscal year began, it forecast revenue growth and margin expansion that would enable a double-digit increase in earnings over fiscal 2006. The company said it expects sales for 2007 to increase to approximately $34 billion.
“Johnson Controls continues to perform as a diversified growth company, generating consistently strong earnings growth,” said John M. Barth, Johnson Controls chairman and CEO, in a published statement. “Our positive outlook for 2007 is driven by substantial growth and acquisition synergies in our Building Efficiency business; market share gains for our Power Solutions business; and market diversification and operational strength in our Interior Experience business.” Barth also cited several notable achievements in 2006, including the “successful acquisition and integration of York International” and introduction of more energy-efficient HVAC products.
But what, more specifically, about the unitary portion of the HVAC business?
“Johnson Controls has completely embraced the residential and light commercial business,” declares Tom Huntington, vice president and general manager, Unitary Products. “We have spent significant time with senior management looking for opportunities to invest in Unitary Products at a far greater rate than even our current levels of investment. This is a very exciting time for Unitary Products.”
Huntington outlined two major initiatives underway within Unitary Products - the first, an investment in business systems including SAP. “Unitary Products will definitely be a much better, stronger business as we work our way through the implementation of SAP into our field sales and finance functions. Although we had some things to learn in the early phases of implementation, we have continued to enhance the initial SAP offering and will continue to improve throughout the winter months. We see solid improvements on a weekly basis.”
Huntington also described the company's investment in product development this way: “As we continue to grow our investment in new products, we will focus on the miniaturization of our product lines to help offset the larger sizes that are inherent in a 13 SEER world. This miniaturization is relevant on the outdoor and indoor side of our residential product lines.
This year, Unitary Products introduced its York [mc]2 MicroChannel MiniCube 13 SEER air conditioner that eliminates the need for a thermostatic expansion valve (TXV) - a component that has been in short supply throughout the industry as all equipment manufacturers move to 13 and higher SEER designs. This new, compact air conditioner uses an aluminum coil with microchannel technology to provide higher efficiency without a corresponding increase in coil surface area. A piston metering device takes the place of a TXV, meaning less refrigerant is required.
These technologies allow a significant reduction in system size. The unit's footprint is 21-3/4 inches square, making it the smallest 13 SEER air-conditioning system in the HVAC industry and the perfect fit for multifamily applications, or anywhere cooling is essential and space is limited.
On the indoor side, another innovative system in the Johnson Controls' lineup is the York Affinity™ modulating gas furnace. This unit maintains a constant temperature while delivering improved comfort, quieter operation and reduced energy costs. With 95 percent Annual Fuel Utilization Efficiency (AFUE), the modulating furnace also qualifies for the federal tax credit for high-efficiency furnaces.
In addition to being energy-efficient and quiet, the York Affinity modulating gas furnace is as simple to install as a traditional single-stage furnace, with no additional steps needed. The furnace doesn't require complicated or expensive controls either: It uses a standard one heat/one cool thermostat to function. The modulating control employs multiple feedback loops to dynamically adjust the operation of the furnace and optimize the overall temperature control.
“The residential and light commercial market offers strong growth potential, and Johnson Controls is strongly supporting that growth,” adds Matt Peterson, vice president - sales and marketing, Unitary Products. “We have averaged double-digit growth over the past five years, and we have outpaced the industry each year as well. These increases are the result of a consistent strategy focusing on an innovative branding message, new products supporting the replacement segment and a focus on retail dealers and training. Our distribution is also stronger than it was five years ago. Senior management has recognized the strength of our strategy, and current leadership is only interested in investing at a higher level in Unitary Products.”
“At the same time,” Peterson continued, “existing Johnson Controls relationships have opened doors to new distribution opportunities for us since day one, and we are exploiting these opportunities together. It is not just conversation, it is happening.”
In August, for example, F.W. Webb, the largest distributor of plumbing, heating, cooling and piping products in the Northeast, signed an agreement with Johnson Controls Inc. to sell York brand residential and light commercial HVAC equipment. F.W. Webb now supplies York products throughout eastern New York, Vermont, New Hampshire, Maine, Massachusetts, Rhode Island and Connecticut.
The agreement provided a key underpinning in helping F.W. Webb achieve its goal of becoming a major HVAC equipment supplier in its territory. It expanded Johnson Controls' distribution of York-branded HVAC products from five locations throughout New England to more than 70 locations throughout the Northeast.
“This agreement made sense on many levels,” says Jeffrey Pope, president of F.W. Webb. “Johnson Controls is a long-term, valued supplier to F.W. Webb, and its … acquisition of York provided the opportunity to offer an expanded range of products and programs. Also, F.W. Webb is able to continue its commitment and growth in the HVAC segment by offering high-quality York-brand residential and light commercial equipment.”
According to Johnson Controls' Brian Hawthorne, director - products, Americas, strengthening distributor and dealer networks is a priority. “We have increased our ability to grow coverage, accelerate product development and to broaden our capabilities through the distributor and dealer network. As such, we are targeting even faster growth in the next several years.”
Hawthorne suggests that the acquisitions of York International and, more recently, of Environmental Technologies Inc. (a supplier of HVAC terminal products under the ENVIRO-TEC® brand name) demonstrate the value Johnson Controls places on strong, established distribution.
“With both York Unitary Products and Environmental Technologies, we are continuing to market products under existing, strong brand names and through established distributor or rep channels. No changes are planned in this successful distribution strategy,” Hawthorne says.
Unitary Products' Peterson agrees: “The strategies we have developed over the past few years have not changed with Johnson Controls' acquisition of York. We will continue to invest in brand building, new products and retail dealer selling focused on the replacement market. The benefit we all see with Johnson Controls is that we now have the opportunity to execute at a faster pace, with a greater level of investment.”
Peterson North America, Unitary Products, expanded on some of those key strategies:
“We're employing a differentiated brand strategy for the York, Coleman® and Luxaire® brands, with distinct distribution networks for each. We've also differentiated the product lines while equipping each brand and its distribution with innovative residential replacement systems that are addressing customer requirements for aesthetic appeal, energy efficiency and ease of installation, among others. And that innovation extends to our light commercial systems, too, where installation flexibility, energy efficiency and high reliability are required.”
“In addition to the ‘hardware,’ Unitary Products has developed a comprehensive suite of tools and resources that distributors need to grow their dealer networks. These programs are designed to strongly support the independent contractor in an increasingly competitive and demanding business environment,” Peterson says.
“Under our umbrella Liberties™ program, dealers can access a wide range of resources to help them operate, manage and market their businesses. And one of the most important resources is training,” Peterson noted. “Our Business Training University, or BTU, is much more sophisticated today and includes offerings for both distributor and contractor personnel.”
For example, territory managers with Unitary Products distributors can attend week-long “boot camp” training programs that highlight the resources available to dealers who represent the York, Coleman and Luxaire brands. They help prepare territory managers (TMs) to serve as “business consultants” to their contractor customers.
According to Peterson, the boot camps provide TMs in the field with the information they need to improve their performance. “It's critical that TMs understand the dealer-level business and marketing programs available from Unitary Products. We want them to become experts at explaining these programs to dealers. Ultimately, we want TMs to be able to focus on consultative selling, helping dealers plan for and achieve success in their businesses.”
The classroom-style boot camp introduces TMs to marketing programs for their respective brand and the dealer-focused Liberties program. Participants learn about consultative selling and understanding the HVAC contracting business in the areas of finance, operations, marketing and human resources.
On the marketing side, Peterson says Unitary Products is driving consumer awareness for its brands with national advertising, regional co-marketing and special event programs.
The 2006 York brand national consumer advertising campaign includes TV spots during the most popular morning and evening news broadcasts by ABC, NBC and CBS as well as print ads in consumer magazines including Newsweek, Good Housekeeping, Courier, Time, Discover, Country Home, Country Living, Home, Reader's Digest, This Old House®, Woman's Day and House Beautiful. A national, homeowner-oriented public relations program delivers seasonal messages on energy savings, indoor air quality and choosing a qualified contractor - all with an 800 phone number or website link that allows the consumer to locate his or her nearest York, Coleman or Luxaire dealer.
Regional co-marketing programs allow distributors to apply cooperative marketing dollars to help dealers conduct local-market consumer advertising, most often linked to seasonal promotions. For example, this fall, consumers who purchased eligible products between Sept. 1 and Dec. 15 had a choice of cash rebates, special financing or an extended warranty plan on systems included in the promotion. UP dealers and homeowners alike have embraced the seasonal promotions in recent years.
“We're conducting targeted special events, too, that bring distributors, dealers and consumers together,” Peterson noted. For example, a touring display of York residential products with color and college-logo panels visits major college sports venues across the country for “tailgating” events designed to connect dealers with prospective customers. And for the Luxaire brand, Unitary Products continues its sponsorship of the national Make-A-Wish Foundation®. This program creates multiple opportunities for distributors and dealers to tie in with Make-A-Wish® chapters in their communities for special wish-grant and fundraising events.
“It's a comprehensive marketing program that goes way beyond traditional trade advertising and works to support retail-focused dealers right down to the local level,” Peterson says.
Andy Armstrong has been in the HVACR industry for 18 years and is currently senior director of marketing - North America, Unitary Products, Building Efficiency, Johnson Controls. He can be reached by phone at 405/419-6538 or by e-mail at email@example.com.