Interview Transcript

Disclaimer: This interview is for informational purposes only and should not be relied upon as a basis for investment decisions. In Practise is an independent publisher and all opinions expressed by guests are solely their own opinions and do not reflect the opinion of In Practise.

Can you share your background in the HVAC industry?

I have been in HVAC for 22 years. I come from a family-owned distributorship, that we owned from 1954 to 2006 and our product lines were Bryant, Carrier and Payne. I got my start in the industry at 13 years old. I have been in equipment sales, service, director of facilities and am now an estimation and sales manager. I worked at Watsco for four years, Carrier for 16 years, Star Service in New Orleans for three years, and Comfort Systems and Spring Hill College for several years.

You mentioned your father owned a Carrier distributor; can you share a bit of context to how that came about?

My father was the largest distributor of Carrier products in Southern Alabama for 30 years. Most Carrier shops we dealt with were worth $12 million annual sales, slightly greater depending on the metropolitan area. We held 54% of the market in Alabama, Mississippi, and Florida and did $30 to $50 million annual sales for Carrier.

How did Carrier set up their distribution back in the fifties and sixties?

They sold licensing rights to individuals within certain geographical areas. My father owned the licensing rights in Southern Mississippi, the Panhandle of Florida, and Southern Alabama all the way to Montgomery. Mingledorff's in Birmingham owned the licensing rights for the Northern half of Alabama, but currently runs the entire state because we sold them our licensing rights.

What is the commercial agreement?

We pay licensing rights annually and buy the equipment from Carrier, as we are a Carrier branded store. In Denver, we have Lohmiller Carrier owned by the Lohmiller family, very similar to Mingledorff's in the South.

You mentioned you used to hold Bryant and other brands; how does that work between the different Carrier brands?

Much like Carrier does with International Comfort Products, Carrier has the Blue Oval Carrier line, which they market as best. Their Bryant line is light commercial and residential, which they market as better. Payne and Day & Night is marketed as your builder grade or value line. Before ICP came about, it was just those four lines, then Carrier diversified further and bought lines such as Heil, Arcoaire and Tempstar. These were all smaller companies Carrier ingested, and they put out Carrier clones through another company called International Comfort Products. They are all made in the same factory.

Why do they have so many brands?

United Technologies and the Carrier Corporation are so large, they wanted more market share with less monopoly risk, so they created different companies under the Carrier umbrella to sell different lines in different markets. ICP and Carrier don't “share information”, however I can cross parts from Carrier to ICP and vice versa, because I've been working on these machines my whole life. Totaline is Carriers’ parts line; International Comfort Products uses service bench like Carrier, but a different branded line of parts.

There are synergies on the cost and servicing side between the products, but they're branded on the front end differently when selling them?

You can take a Carrier brand off a Carrier unit and attach it to an ICP package unit, and nobody can tell the difference. They do different model and serial numbers, and they try to protect the cross-referencing of the equipment, but if you know your way around Carrier equipment, it's very easy to cross-reference.

In the fifties and sixties, Carrier licensed their core lines to people like your dad to distribute, as they acquired more companies; how did they think about distributing Tempstar, Comfort and their other brands?

Watsco sells ICP products across the country, and your geography determines the tag you get. Johnstone Supply also distributes ICP products. Tempstar is Watsco's line in in Mobile, Alabama, whereas Johnstone Supply sells Arcoaire, which is the same equipment, but one is blue and the other red.

As an outsider looking in, that is a weird setup.

The reason Carrier has 51% of the market is not because everybody is buying blue ovals.

Carrier own ICP and the brands underneath them, and distribute them to Watsco or Baker to sell Tempstar or Comfort Maker, and another distributor has a different brand under the Carrier umbrella, and no one can tell?

I can look at the guts of a unit and tell you who made it. If I was a Carrier employee today, I would be fired for saying I could cross-reference ICP to Carrier and vice versa. Neuco is a parts supplier in the States and they'll give you a parts breakdown for a Carrier and an ICP unit, and if you're good at what you do, you can see the similarities and substitute parts. Carrier will never supply you with that but I have guys that have been working on the stuff for 20 years. They know the difference between a Carrier and a Tempstar TXV, which is usually cheaper, so it's a no-brainer.

Do they cross use the parts on the machines?

I did it all the time at Baker. If I couldn't get a Tempstar part, I'd go down to the Carrier shop and buy it from Carrier to get my customer going.

Do Watsco have to buy parts from the OEM or are there third-party or private-label parts?

When I was at Watsco, I could buy parts from anybody who would sell them to me. I was one of the largest providers of OEM parts to contractors because I knew where to buy them. I would buy parts from distributors like Neuco or Parts Town, then I would put a mark up on them and sell them to my customer. Customers would rather have the ease of going to one guy than getting upset about the extra expense for me to bring in a part they're looking for. That's relationship selling; however, at Watsco, anybody that will sell us something, we can resell.

Does Carrier not care if you're buying parts from a third-party reseller?

I don't know or care; I was paid to sell, not worry about Carrier. Carrier never slapped my hand for it and those guys came through all the time.

What's the difference in the gross margin on parts versus equipment?

The margin on parts is higher than equipment, especially in the residential and light commercial world, where we had everybody's parts in the equipment list. I knew what Carrier and Lennox sold their equipment for, and if you're market savvy, you can figure out what your customers are buying different brands at. The markup on equipment was relatively small, whereas on parts it was relatively large. Some parts had a 50% markup and others were only 20%. It depends on the customer and how much business they did with us.

Your dad was a licensed Carrier distributor; how does Carrier work with their core oval brands today? Is that still owned internally and do they still license that out and manage it closer than they do with Comfort Maker and Tempstar?

It depends on the market. Carrier's largest HVAC distributor in the South is owned by Bud Mingledorff and managed by Rick Sinner. The Lohmillers own the Carrier branch in Denver, which is called Carrier West DBA Lohmiller Carrier.

Are these all family-run licensed distributors?

100%. Carrier did make a push in the early 2000s to conglomerate these family-owned locations, which is why my father had three locations. Rather than be able to pass the license down to me, he was forced by Carrier Corporation to sell to Bud Mingledorff.

Does that family distribute top brands instead of Comfort Maker and Tempstar, or they do all the brands?

Absolutely not. You cannot have core brands in the same building as ICP.

If I'm a contractor servicing the customer and I went into my branch, I want to see all the products, whereas in the HVAC industry for some weird reason, which you're explaining now, it seems like the OEM limits how many brands or what brands the distributor can hold?


Which is kind of weird.

You can lose your license if you cross Carrier lines.

It seems to be because of Carrier's dominance in the market?

Imagine owning a business for 60 years and having your supplier tell you who you can sell to. I was supposed to inherit this line and Carrier would not allow it.

Why did they not allow it?

They were trying to conglomerate smaller branches into large corporations. At the time, Mingledorff's had 14 locations across the Southeast and we had three, so rather than pass our line down to me, Carrier allowed us to sell to a larger corporation as they were trying to eliminate the smaller guys.

Why did they want to eliminate the smaller guys?

They wanted to eliminate all family-owned distribution, but they lost because families pushed back. My father sold our company for close to $300 million, so we're not broke and have the means to fight Carrier.

More control and power and similar pricing across the board. They can dictate price if they deal with larger groups. Bud can sell his packaged units for $2,500, whereas I might sell mine for $2,000.

The deeper their hooks are in you, the more they can control. I believe they wanted to deal with fewer people to make pricing and distribution more uniform. Originally, their end goal was to take out all family businesses, but most families who distribute for Carrier are extremely wealthy, because we're very good at what we do.

Which brands can Baker carry?

Each Baker store has a different brand depending on their market. I sold Comfort Maker in Denver because Tempstar and Arcoaire are present in the market. Tempstar is provided by Sid Harvey's and Arcoaire by Johnstone Supply.

No, there's not one brand across all branches. Some Baker stores sell Goodman or Rheem, which are separate manufacturers to Carrier. Some Baker stores in Tennessee sell Rheem, whereas others in California sell Goodman, so they're not only beholden to Carrier.

If I own a Baker branch in Denver, how do I choose which lines I own?

Corporate Baker negotiates with Carrier on what we can sell. Corporate Baker tells Denver they can sell Comfort Maker because four other players in town have different ICP products. In Mobile, we had Tempstar because Arcoaire was sold by Johnstone Supply and Comfort Maker was sold by Hughes Supply. Because those two lines were there, Baker got to sell a separate line. That works for Carrier because all the money ends up in the same funnel.

Carrier distribute all their products to different suppliers in one market.

After this meeting, I'll send you a picture of ICP and Carrier units rolling off the Carrier manufacturing line.

How much does the product matter per branch?

Nobody cares, as long as it's shaped like and runs like a Carrier unit. Everybody knows what Carrier is doing but nobody cares.

If you were running a Baker branch and were allowed to carry Comfort Maker, do contractors care?

It doesn't matter and there's no such thing as a rubbish brand. They put the same parts and pieces in the same equipment with different labels on. The model numbers are all the same. If I buy an Arcoaire and Tempstar unit, it will be a PB4. The model and serial numbers don't differ; it's simply the sticker. The compressor in a Carrier five-ton package unit is identical to that in a Tempstar five-ton package unit.

How does Baker compete against Johnstone Supply if all products are similar?

Price and service. If I can beat Carrier with my delivery truck, I won that week. I can always beat Carrier on price because the branded stuff is expensive. I can sell 30 Tempstar five-ton units for the same price as 20 Carrier units.

Will Carrier be angry if you sell other branded stuff for cheaper?

I'm not paid to worry about Carrier. This isn't anybody screwing Carrier. Carrier tells the distributors what they can do.

How did the Carrier Watsco joint venture come about?

Watsco wanted a bigger piece of Carrier for control. Watsco is the largest HVAC distributor in the United States and Carrier is the largest manufacturer, so it seemed like a no-brainer to partner to ensure they have the best service at the cheapest price to increase shareholders revenue for both Watsco and Carrier. I interviewed a man in Colorado who used to work for Carrier as a national sales rep, and he knows my father. Everybody in HVAC in the United States knows everybody else, unless you're a $20 an hour technician. Any executive knows all the players. I've been going to Carrier corporate in Indianapolis since I was 18 and know everybody.

How does everyone feel about Carrier's empire they all work within?

It's a necessary evil. Most buyers only care about what they get at the local branch. Right now, you're talking to a guy who represents a $700 million a year company, and I won't buy a thing from Carrier out here because they're horrible.

Why not?

It's not worth my time to do business with Lohmiller Carrier.

Because of the service, delivery, products?

Their TMs have inferior product knowledge. Manufacturer representatives are supposed to know more about the equipment than me, but they don't. They also play dirty and try to control pricing in a way they can't. They tried to force me into a pricing level I wasn't comfortable with, so I simply bought elsewhere. Carrier sets invisible lines where they say you can't do business here if you live here, but I just shipped four Carrier units to New Mexico without the Carrier guys here knowing. I go to people with Carrier who know what they are doing.

You work for a construction business doing new buildings; do you buy direct from Carrier?

We do new construction and service retrofits.

Watsco own 80% of Carrier Enterprises and Carrier own 20%; is that relationship balanced, given Carrier's power in the market?

There are no balanced agreements with Carrier. United Technologies or the Carrier Corporation is largest equipment manufacturer on the planet. Watsco may own 80% of Carrier Enterprises, but I guarantee you Carrier is in control.

So it’s as simple as Watsco sells only blue oval lines via Carrier Enterprise, and the rest go to Baker, East Coast and the other Watsco businesses?

That would be correct.

How does the pricing work?

Carrier issue pricing sheets quarterly. If you're good at math, you can beat Carrier's price. Carrier issues a ‘this is as low as you can go price’, but if you know how low Carrier will actually go, which I do, you can discount further and get special pricing from the factory. They're trying to make everything more competitive between ICP and Carrier, but I was able to get a higher percentage off the sales price by knowing how Carrier works.

Will they give you a wholesale price sheet per unit or the retail price you have to sell to the contractor?

We have tiered pricing. An A customer buys over $1 million, a B customer half a million and a C customer doesn't really buy, so there are price points for each.

How much cheaper does Watsco pay versus smaller independent players?

A typical Johnstone franchise market is nine or 10 stores, and they can sell units at the same price or cheaper than Watsco. Watsco is not getting an advantage for their investment into Carrier. Johnstone Supply gets the same price sheets we do. I've seen them because they tried to hire me as a TM from Baker.

Why don’t Watsco get better prices?

Carrier is the largest manufacturer of air conditioning on the planet.

They don't care about Carrier Enterprise even that it owns a piece?

Carrier doesn't care about anybody but themselves’ they don't have to.

And Carrier Enterprise pricing versus Carrier franchise family-owned?

A value line like Arcoaire or Tempstar runs through Carrier Enterprise so it doesn't matter whose sticker is on the side of the building. You buy and sell equipment from the same price sheet. They don't make up price sheets for each distributor.

Obviously, Watsco buy more volume than some of the smaller players, but they don't get much better pricing on products?

No, they get rebates and discounts on the back side, but that's never matriculated down to the customer.

What if Carrier says, we want another percentage margin?

Then Watsco will sell Goodman instead of Carrier.

There is no short supply. If Carrier decided you violated a rule and can no longer sell their product, do you know how many millions of dollars a geographical carrier would pay to get control of that?

How much influence does Carrier have on Comfort Maker or Baker? Do they say you can't have Comfort Maker next to X brand in a location if you hold it there?


And every Baker location have a best, better and good offering?

Yes, most of the time. They have distribution centers in Jacksonville, Texas and California. When we transfer equipment around the company, it often arrives with the wrong brand. It will come into us as Arcoaire or Comfort Maker and we have to keep a box of labels under the counters and in the warehouse so we can change those as soon as we get them, so we don't get pain for having misbranded equipment in our inventory.

You don't hold all eight manufacturers of HVAC in one branch?


Does Carrier limit you?

Everybody does that. I can't sell Lennox and Carrier in the same building. You're either a Lennox, Carrier, Bryant or Arcoaire store, but you can still sell inferior lines. A Carrier shop can sell First Company air handlers because they're nobody to the big players. I can sell Bard units because that's a specialty piece of equipment. I can sell different lines of mini splits because mini split technology is different than conventional air conditioners. Watsco could have Tempstar, LG and Mitsubishi in one building, LG and Mitsubishi being mini split lines.

New regulation is coming next year; have you seen pricing change much?

We just had a 30% increase from Carrier alone.

How will Watsco change prices in your opinion?

There's nothing you can do. You call your customers and notify them we have a 3% coming next month, buy now.

If Carrier increases prices by 10% on new energy efficient technology, how much can Watsco put through to the customer?

10%. If we get a price increase, they get a price increase. We sell at the same margin; consumers eat price increases, not us.

Watsco currently have record margins. They've seen 16% same store growth in HVAC and their gross margin has gone from 24% to 28%

If you don't grow in Baker, you get fired. I had six stores when I started at Baker, and if I came in less than 12% growth, I was gone.

Was it that strict?

100%. They have a program called Baker Business Intelligence, which drills down to your store's daily activity and margin. If your stores aren't green, you're fired.

Given we've seen inflation, price increases and record margins, how sustainable are these high margins for Watsco?

There's always another guy willing to get run down. Baker has very high turnover, poor quality of life and poor store presentations. I no longer work for Baker but for my region, I was one of their top guys and they moved me to Denver to introduce their commercial line there, then changed their mind. Regional managers at Baker have 20 to 30 stores under their belt. Baker doesn't care, either you grow or you leave, period.

They have senior guys like Barry who have been there for a while though?

Barry makes $1.2 million or more a year. Once you get above regional manager, you're a made man at Watsco. For the regional managers, sales guys and TMs, if you're not growing, you're gone.

How does compensation work for regional managers with five branches?

Baker makes it very hard to earn compensation in a meaningful way. Baker loses TMs because the compensation is hard to attain. I worked there for four years and was a leader, and every store I touched went from red to at least 23% growth, and I never received a commission check.

So who gets paid the commission?

I couldn't tell you but my regional manager drove a brand-new Ford F350.

Barry is the SVP and seems to run operations; how is Baker organized below?

Our president of sales was Mike Langford and his second in command was Mike Hall, under whom there were regionals for each of the four divisions: Eastern, Central, Central West and Western. All the regionals in a district answered to Mike Hall, who answered to Mike Langford, who answered to Barry.

Are the regional managers on this RSU long term incentive scheme?

Yes, I was too as a TM, and I currently own stock in Baker. We had stock options when we worked there. It's one of the benefits, which is why I didn't worry so much about the commission, and Watsco stock is doing very well.

What is the biggest risk to Baker and Watsco's culture of incentivizing share schemes, they give you RSU and shares, but you cannot vest until you're 62 years old?

Turnover. Below regional managers, it's very difficult to work at Baker for an extended amount of time. I enjoyed all the people I worked with, but after four years, I realized it was never going to change. I couldn't get the resources I needed in the stores I was managing, so I left.

What do HVAC contractors care about most?

The cost they have in the job versus what they sold it at.

When fitting a residential air conditioning unit, they need to ensure they price it correctly, then buy the unit from Baker?

Yes, they try to buy the most units for the cheapest price.

Do they buy them in bulk or is it per job?

When I gave someone 10% off for a hundred units, they would take them. There's no growth selling a split system here and there. I would say I could send them a 53-foot trailer of three-ton units for this amount, which breaks down to this price per unit, which means you're $400 per unit ahead of the guy next to you.

Can they then sell that cheaper to the end homeowner?

He can sell to the end user cheaper or at the same price and make more money. I was successful with dealers because I learned dealer development from Carrier Corp. I taught guys how to sell residential split systems with 10-year labor warranties and guaranteed agreements which made them profitable. I taught them how to go to AIG and get a 10-year labor warranty, or visit customers twice a year to find things to fix. When it's cold and he doesn't have any service calls, he can do a PM on one of his labor contracts, change a capacitor and bill AIG $600 and he made half his day. These guys have to make $1,200 per truck per day to justify the man driving it.

That's a couple of parts a day, roughly?

Yes, and during winter in the South, it gets very slow. If you sell a split system with a 10-year labor warranty, the customer will call you every time because he doesn't have to pay for the service call. If you find something broken, you bill the warranty company and make three times what the part change out was worth. When you're ready to sell out, you have all these accounts and contracts, tangible sales points you can sell to another contractor.

What do you mean by sell out?

If you're 65 and no longer want to install air conditioners, you can sell your accounts because you have 10-year agreements with existing customers.

For a contractor, what's the mix in revenue between installation and repairs?

It depends on the contractor. Some do new construction where they install a split system for $500 per house. Others only do retrofits and repairs where the margins are 30% to 40%. There is one man in a truck doing it for $500 cash. With dealer development, we teach guys to stop doing cash jobs and start doing margin math to figure out what your costs are and what your sell price is.

It's common for small companies to do change outs for $1,000 over cost, and they think they've made a check because they have $1,000 cash in their pocket.

Then they have to keep finding the next one to keep installing?

Yes, but that's not how you do this long term. If you do margin math, you set your price margin, and a typical commercial retrofit gets 42% margin, which is why commercial firms are in business longer than residential firms.

For a typical ductless unit in a residential home, how much does a contractor charge the homeowner for the installation, how much does the unit cost, and what is their margin?

I put 38% on top of the equipment and my labor rate is $65 an hour. I will mark that up 42%, which is what the customer pays.

Baker is buying the unit from Carrier and putting a 30% markup on it, then the contractor is buying it from Baker and putting a 38% markup on the equipment?

Smart contractors are, but unfortunately there are not a lot of smart ones, which is why dealer development is so important.

How do you see the average life of a unit changing?

It's getting shorter with more government regulation, and more dangerous. A technician can die if they put their hand in an 18 SEERS system with energizing caps. Refrigerants are getting harder to use, efficiencies are rising and quality is decreasing. The average useful life of a unit built in 1985 was 25 years; today it is only 15 years.

What is the average replacement cycle?

15 years is the recommendation from ASHRAE.

How does a homeowner getting their HVAC unit replaced choose a brand?

Homeowners do what they're told.

They have no clue about the brand?

Today we get savvy millennials and Gen Zs who can use the internet, but they have no idea what they're reading. No homeowner in the United States knows what SEER means or how it works. It's too technical and they can't tell you how the system works in basic concepts.

What will the SEER trend do to the industry?

It will push many of the guys who have been doing this for a long time out. Someone who has been doing this for 20 years, doesn't want to change, and has also made enough money to retire.

What do you have to learn new?

If you go from 14 to 18 SEER, you better de-energize the unit before you put your hands in it, because there's stored energy in higher SEER units. You have to learn things like sub cool and super heat, which many guys don't understand. They're used to beer-can-cold with R22. As new technologies come out, many don't get trained. I'm lucky because this is my industry and I stay on the forefront of technology for the profitability of my business.

Surely the contractors will earn more money if the OEMs are increasing prices by 10% to 15% next year.


Don't you believe it?

Not at all.

Why not?

Many contractors don't have high school education; they know how to build stuff. At the end of the day, the contractor might be scared to give a 15% jack, so they might keep their price low. Competition in the United States is unlike anything you've seen. There are more HVAC installers in South Alabama than Colorado.

SEER ratings are only good in the laboratory. Once you install it, it goes out the window. SEER is tested at 85 degrees ambient outside temperature. I can tell you it's 85 degrees in Alabama five days of the year. Anything above 85 degrees, the unit is less efficient. The average temperature in Alabama is 100 degrees, therefore you're buying an 18 SEER unit and getting 14 to 15 SEERS out of it when it's actually in the field. So what difference does it make?

Does it only work in certain regions?

No, if you put them up North and it's cold, SEER ratings go out the window.

What's the point of the SEER rating?

It makes government officials happy because they believe they're more energy efficient. It is a made-up measurement tested in a lab on 15-foot line sets at 85 degrees on the condenser and 70 degrees on the air handler. I've been to the labs where they test it, but QL Labs also publish how they test it. You didn't know that when you put them in a different outside air temperature, it changes the physics?

Temperature, pressure and heat transfer are relative to the environment.

How could this change Watsco margins if all products are priced higher? The average unit price increased by 9% in 2021 and by 15% so far this year.

It's getting harder to sell many units. Any time we get into a recession with higher prices, we do more repairs than retrofits. It's human nature to fix it until we can afford it.

How do you compare Baker to competitors?


You said that size doesn't lead to a cheaper price?

No, they have the resources to move equipment around the country. Everybody can't pull a unit from San Francisco and run it to Mobile, Alabama on a Baker truck, so that's an advantage. There's an old adage in distribution, you can't sell bananas off a cart without bananas. If you don't have it, you can't sell it. Availability is the most important thing to the contractor. They will 100% walk out the building if they can't get what they need to fix a unit.

Because it's their time and that's how they get paid.

Yes, time is money. They need it now and they need it in stock.

Is it the number of branches and the amount of equipment they own?

It's the logistics side of what they do.

Can they move it around more effectively than smaller suppliers?

Not only that, they make it very easy. They have a program called Pro which if you know how to use, you can transfer your own equipment without Baker knowing. I've taken stuff from other DCs; you just have to know how to manipulate the system to get what you need. It's their internal inventory management system.

Baker can move equipment closer to customers to drive availability?

Exactly, and as a TM, you have to maintain that constantly. You can't leave it to your store managers because they're typically not forward thinking.

How do you compare the systems that Baker has to competitors?

It's archaic, Carrier uses SAP. There's been talk to turn Pro into SAP, or at least there was when I was there, but Pro is the same management system Costco uses. It's not user friendly because it's DOS-based, but if you can run it, you can make that company do anything.If you can use it, you can literally control every aspect of your business.

What about the smaller local mom-and-pop distributors they compete with?

We used Great Plains for inventory management when we owned the company, and before that we were paper-based.

What is the biggest competitive risk to Watsco?



Watsco has a product line. Everybody else has a product line. At the end of the day, if you're savvy, if Watsco pisses me off, I can buy the same piece of equipment at Johnstone for the same price. I don't have a dog in the fight and I'm more educated than the average contractor. I would not buy a Carrier product if I was a contractor. When they flip the script, they change things too much. I can't sell the same products at the same price for a year. Carrier would say everybody does that. York now makes a unit which matches everything about Carrier, and I can buy it 15% cheaper than Carrier.

How could Carrier harm Watsco?

If Watsco starts to get a market share that Carrier is uncomfortable with, Carrier will manipulate Watsco in a way to drive that back down.

How could they do that?

They control the price. Carrier could reduce the price and jack up ICP’s price.

Carrier Enterprise is owned by Watsco, so if ICP changes, they can manipulate the market share between the two?

That's right.

In five years, Carrier might reduce the margin on a Carrier Enterprise unit and try to drive more market share elsewhere?

They've done it before.

Would that impact Watsco because 60% of their revenue is from Carrier Enterprise and the remainder is from ICP, Baker and others? That's where it's more competitive because you have Johnstone Supply and other distributors that run Tempstar and Comfort Maker, so Carrier rules the roost?

There's a reason they're the biggest on the planet.

Why don't they simply buy Watsco?

They would get in trouble for having a monopoly owned distribution. This model is on purpose. People at Carrier designed this model to survive free trade and monopoly. They diversify and get different brands out there.

Everybody is beholden to the factory. If you sell Lennox products where they make them, they tell you how much they can sell them for. If you buy Goodman units which are made in Texas, they tell you how much you can sell them for. When we say the factory, it doesn't matter what brand, it's who makes it. Nobody cares about the box. Watsco cares about how many boxes you can move out the door.

Watsco have better logistics, which gives them better service and availability and more branch density that they can move more effectively than the smaller players?

They're the biggest little guy. They do that through acquisition, and then what the TMs do.

As a stockholder, I will continue to buy stock, so that should explain how I feel about Watsco.

Would you still buy stock even though there's a big Carrier risk there?

Yes, I don't work there any more so I don't care how bad they treat their people. They grow and their stock grows.

What if Carrier reduces the price of its Blue Oval lines sold through Carrier Enterprise?

In my opinion, it's like playing roulette, I have a chip on black and red. I own Carrier and Watsco stock so I earn money either way. I absolutely love Carrier; they pay for my life. I have been around long enough to know that even a company like Watsco doesn't control the negotiation, even if they own 80% of Carrier Enterprises. Carrier still owns that other 20% and decides who gets what and when they get it.

They are the boss.

Me being the smart investor, I have Carrier and Watsco stock.

What would make you change your mind on Watsco?

Watsco would have to trend down over time, because their upward trend for the last 20 years has been good. I don't see them changing their business model. I have a bad taste in my mouth about Watsco because it's a meat market for the guys who aren't regional or better; but every corporate job is, as they are publicly traded. I no longer work for a publicly traded company because I didn't like the way it felt. I don't like being a number. The guy that owns this place, knows me.

What do you think about the management of Watsco, the father and son?

I only met A.J. once and he was personable and shook my hand, but A.J. definitely doesn't know who I am today and couldn't care less. They're good leaders but I don't believe they're aware of what it's like on the front lines versus their office. They don't know how the employees at the branch level get treated. I wouldn't know that either if I was the CEO of Watsco because they don't visit branches.

Why don't Carrier own a distributor like they own the license, why don't they simply take back Carrier Enterprise and take more ownership over it?

They could run their business like Trane, who has their own distribution, service and controls, all owned by Ingersoll Rand, but Trane does not have a third of the market share Carrier does. Carrier has their own service and construction shops. I compete against Carrier every day putting in equipment. There's a Carrier service industry here as well as Carrier Control, CCS. That goes back to monopolization.

Could they own the Carrier Enterprise unit like Trane does?

They could, but there are people smarter than me who decided to diversify the way they have. Carrier has a massive market share whereas Trane does not. Maybe Trane's business model doesn't produce the amount of profits that Carrier's does.

I would have to believe that Carrier benefits from Watsco's growth. The more Watsco grows, the more Carrier benefits, therefore it's a symbiotic relationship where Carrier is happy when Watsco does well. Eventually Watsco could outperform Carrier's wishes and Carrier could decide they cannot take the hit.