Dear HARDI members: We start this edition with news you can use like insight into distributor operating efficiency and end market equipment demand. We turn to what you need to know with a review the latest tariff actions, and close with something exciting we are developing for you. Thank you for reading our Data Driven Newsletter − Brian
Is Your Cash Conversion Cycle Healthy? By Brian Loftus
Source: HARDI Annual Benchmarking Survey
The cash conversion cycle measures the pace of the financial oxygen flowing through distributors. It is the number of days from when a distributor begins obligations to their suppliers with Accounts Payable to when customers pay their Accounts Receivable. The big step between those two items is the number of days that distributors hold onto inventory before it is sold. Some teammates at distributor branches want a lot of inventory because “we can’t sell it if we don’t have it!” It is also true that if distributors have too much inventory for too long then they won’t be around to sell it. The orange dots in this chart are the median number of cash conversion cycle days for HARDI distributors during the past twelve years, and the vertical lines stretch between the top and bottom quartile of participants for each year. After being in the 155-day area pre-Covid, the cycle stretched to more than 180 days by 2023 after inventories expanded to accommodate the broken supply chain. That was possible because of an unusual profitability bump.
Source: HARDI Annual Benchmarking Survey
The normal Operating Profit Margin for HARDI distributors was in the 2% to 3% range before the Covid related supply chain disruptions. By 2022 it had more than doubled due to unusually strong demand and supply shortages. The elevated profitability helped fill the cash flow gap while the cash conversion cycle was extended. Profitability was drifting back to normal during 2024, but the inventory adjustment was delayed by the A2L transition. Demand was not hot enough during 2025 to melt the accumulated inventory, so new orders by distributors declined precipitously during the back-half of the year. What does this mean for distributor’s financial oxygen level for 2026?
The best insight into the health of HARDI distributor’s cash conversion cycle will be in May with the results of our Annual Benchmarking Survey [ABS]. This information will be available to all HARDI distributors who complete the survey, which we will begin distributing this week. It is much more than just insight into the cash conversion cycle. There are three primary reasons why ABS is an indispensable tool for HARDI distributors:
The first reason is because the CoMetrics benchmarking analysis platform is amazing. It remains the best available and easily allows participants to see the historic trends of countless metrics, like those in the charts above. If you click here, then you will see a brief demonstration of how easy it is to navigate the site and learn about your results. Comparing your results to others is traditional benchmarking. We have developed for HARDI members an innovative new way to benchmark, which starts with one of the many wonderful features available to us from CoMetrics.
The second reason to complete the annual benchmarking survey is for insight into challenges to achieving your operating plan. ABS participants can export their results to Excel. You can copy those results into an Excel workbook we designed called Objectives & Drivers. This allows you to refine or develop your operating objectives with the support of the benchmarks. Objectives & Drivers provides insight into what is necessary to achieving your goals, and if you will be stretching the benchmarks with your current capability levels. With O&D you can select an inventory turnover target, and it will calculate the days inventory and cash conversion cycle consistent with your sales goal. There is a chart to show your latest results, the benchmarks, and the results based on your goals. Objectives & Drivers provides you with early insight into potential challenges or constraints to achieving your operating goals. We designed this for you with the feedback and support of thoughtful data oriented HARDI distributors. Inspired distributors like that also participate in Share-and-Compare meetings.
The final reason is the benefit participants can realize through Share-and-Compare meetings. Many HARDI distributors are part of small, trusted networks, typically through their buying groups or supplier groups, where they discuss operating results and trends. Part of that discussion is how to address the latest efficiency challenges. Share-and-Compare is an Excel-based platform that allows your group to easily compare your ABS results for a more constructive discussion. There are tabs associated with different aspects of your operations with the associated operating ratios. This summary of the group’s results will lead to more constructive discussions. Seeing the results of your trusted network leads to more productive feedback and insights. This share-and-compare ability, that starts with your annual benchmarking survey participation, will accelerate your efficiency evolution.
Distributors must attain a little more efficiency every year just to stay even in this ultra-competitive industry. Participants see their operating abilities or level of efficiency versus others with the amazing CoMetrics benchmarking platform. They can use our innovative Objectives & Drivers workbook for early insights into constraints to achieving their goals. Annual benchmarking survey participation enables you to sharpen your operating efficiency with the insights from other distributors in your trusted network. We hope all HARDI distributors will benefit from our annual benchmarking insights. It is available to you as part of your annual dues.
We will begin sharing the fiscal 2025 survey with distributors this week. Instead of waiting for our notification, you can click here to request a survey, ask a question or schedule a detailed demonstration of any of these three amazing abilities that are available to you. The survey deadline is May 15, and we intend to share the results with participants on May 20. We hope all HARDI distributors will benefit from the insights available from this amazing tool.
HARDI Unitary Program Update
By Grace Helser
Through the month of January, unitary equipment volumes reported by participants of HARDI’s Unitary Market Program continued to decline sharply – down an estimated 12 percent – driven primarily by weaker air conditioner and heat pump sales. Despite this, distributor revenues held up, growing at a rate of 2.3% for the last 12 months through January, supported by strength in parts, supplies, non-unitary categories, and pricing.
Source: HARDI Unitary Market Program
Sales of ducted air conditioners and air source heat pumps are the primary contributors to the decline in unitary volumes, decreasing by 18% and 14%, respectively over the past 12 months. Strong equipment sales through the end of 2024 on both the sell-in and sell-through sides made for extremely challenging year over year comparisons. Distributor unit sales growth remained positive through the first half of 2025, further strengthening the prior-year base and weighing on 2026 comparisons. The pace of decline in the three-month growth rate has slowed over the past two months, suggesting that conditions are beginning to stabilize.
Source: HARDI Unitary Market Program
Economic and industry conditions over the past year, including high mortgage rates, elevated equipment costs, weak consumer sentiment, and high uncertainty, have tilted the demand balance in favor of repair activity over replacement. Equipment sales data from the Unitary Market Program reinforce the view that affordability constraints shaped residential purchasing decisions in 2025. As shown in the chart above, the share of lower-efficiency air conditioners has increased relative to higher SEER equipment. For air conditioners, the mix of base efficiency models (13-14 SEER) increased 35 percentage points from June 2024 to January 2026. Encouragingly however, the same negative mix shift trend is not visible in ducted ASHPs. Compared to 2024, there is a clear and distinct increase of higher, 15+ SEER equipment being sold through the channel.
Distributors interested in gaining real-time access to insights like those above are encouraged to participate in the Unitary Market Program. Participation is a free member benefit and provides access to the powerful dashboards that bring sales trends beyond exclusively unitary product categories to your fingertips upon submission. Contact Grace Helser for more information or to schedule a demo of the dashboards or fill out this onboarding form to get started today.
Tariffs Continue to Evolve
By Joey James
Through the first year of his second term, President Trump levied tariffs primarily under authority granted through the International Emergency Economic Powers Act (IEEPA) and Section 232 of the Trade Expansion Act of 1962. The IEEPA tariffs, which were implemented to address persistent U.S. trade deficits (i.e. “reciprocal” tariffs) and curb the flow of fentanyl into the U.S., were overturned by the U.S. Supreme Court in late-February. In their ruling, the Supreme Court determined that IEEPA does not authorize the President to impose broad, across-the-board tariffs, invalidating the baseline 10 percent baseline tariff rate that had been in place since April 5th.
In response, President Trump invoked Section 122 of the Trade Act of 1974, which allows for the temporary imposition of an import surcharge to address balance-of-payments concerns. As a result, a new tariff structure was implemented under Section 122. The chart below from Bloomberg Economics illustrates the impact on average tariff rates of replacing tariffs imposed under the International Emergency Economic Powers Act (IEEPA) with tariffs imposed under Section 122 of the Trade Act of 1974.
Source: HARDI Unitary Market Program
The Supreme Court’s February ruling has generated significant discussion across the HVACR industry. The key takeaway is that while the decision removed one legal pathway for broad tariffs, it did not eliminate tariff exposure for the sector. In response, the Administration has already begun shifting parts of the tariff framework toward Section 122 of the Trade Act of 1974. At the same time, Section 232 tariffs on steel and aluminum and Section 301 tariffs on imports from China remain in place. Together, these measures continue to affect components, inputs, and finished goods throughout the HVACR supply chain.
In practice, this represents a change in tariff structure rather than a broad rollback. Replacing portions of the IEEPA framework with a Section 122 tariff in the 15% range tends to flatten the overall tariff system. As highlighted in the Yale Budget Lab’s State of Tariffs: March 9, 2026 report, removing stacked tariff layers generally compresses differences across countries—reducing effective rates for some higher-tariff trading partners while modestly increasing them for others.
For HVACR distribution, the net effect appears incremental rather than transformative. The shift from IEEPA toward Section 122 may modestly moderate costs but is unlikely to fundamentally change pricing strategies or margin planning. As a result, the most prudent assumption for 2026 is that tariffs will remain embedded in landed costs, even as the legal authority and rate structures evolve.
Calling All Map Lovers
By Joey James
HARDI is currently developing GeoInsights, a new mapping application designed to help members better understand the geographic drivers of HVACR demand. The platform provides curated geospatial data that allows users to explore market conditions, infrastructure, demographics, and other industry-relevant indicators across the United States. By bringing these datasets together in an interactive environment, GeoInsights will give distributors, suppliers, and other partners a clearer view of how local market conditions vary and where opportunities may emerge.
GeoInsights is intended to help members translate data into practical business insights. For example, distributors could use the platform to identify high-growth housing markets, evaluate contractor density in different regions, compare local demographic trends, or explore infrastructure and construction activity that may signal future HVACR demand. By making these datasets easier to access and visualize, the platform aims to support more informed decisions around territory planning, market expansion, and sales strategy.
We aim to soft launch GeoInsights with a volunteer group of members over the coming months and are currently targeting a release of the full platform in the second half of the year. Members interested in a sneak peek of the application or learning more about how GeoInsights may support their business are encouraged to reach out as development continues can reach out to Joey James (jjames@hardinet.org) for more information.
DID YOU SEE THAT?
FAIct or fiction
This bit of fictional “research” was topical in some circles last month. AI still reminds many of us of Skynet in the Terminator movies. This is a variation of that. I am sharing because this economic fiction is creative, and scary! That is why it was shared so many times and launched so many conversations. The finance jargon is difficult to follow at times, but it is worth blasting through for so many great lines about what could happen. “Each company’s individual response was rational. The collective result was catastrophic.” That’s why so many people have been talking about this provocative piece based on negative feedback loops driven by AI displacement.
How accurate is that outlook?
While the first piece is fiction, the Anthropic Economic Futures program could help you track the accuracy of that depressing outlook. This site is probably worth tagging and monitoring.
Depression ahead
Last month we reminded you that we are headed for an economic depression. Our frequent annual conference keynote speaker Dr. Alan Beaulieu started warning us about this ten years ago. The longer we wait to fix the problem, the more painful the remedy will be. This editorial from the Wall Street Journal updates the challenges that Dr. Beaulieu warned us about.
AI is so 2025
If reading about your AI paved road to insignificance is too depressing, then check out this brief article about the lab grown brain organoid. Anyone with a couple extra dollars can clone their pet. What’s so special about a pet that looks like the one you had before? You would definitely be the coolest kid on the block if you were the first one to get an organoid.
