Watsco (WSO 1.86%), a leading distributor of heating, ventilation, air conditioning, and refrigeration (HVAC/R) products in North America, announced its first-quarter 2024 earnings on Wednesday. The company missed analyst estimates for both earnings per share (EPS) and revenue. Watsco reported a Q1 EPS of $2.17, below the estimated $2.26, and revenue of $1.56 billion, missing the mark of a $1.59 analyst billion forecast.
CEO Albert Nahmad was quoted in the company press release as saying:
While softer market conditions persisted during what is essentially the low-season for product sales, we are currently experiencing growth in end-market demand as we enter the summer selling season. We believe market share gains are continuing, and we are proud to have added three new companies to our family since the beginning of last year. Finally, and most gratifying, we further strengthened our balance sheet and generated record cash flow during a period that typically requires working capital investment ahead of the selling season.
| Metric | Q1 2024 Result | Analyst Estimate | Q1 2023 Result | Change (YOY) |
|---|---|---|---|---|
| Earnings per share | $2.17 | $2.26 | $2.83 | (23%) |
| Revenue | $1.56 billion | $1.59 billion | $1.55 billion | 1% |
| Gross profit margin | 27.5% | N/A | 28.9% | (1.4 pp) |
| Operating margin | 8.1% | N/A | 10.6% | (2.5 pp) |
pp = percentage point.
Company overview
Watsco's strategy revolves around acquiring market leaders, enhancing product offerings, and leveraging technology for growth and efficiency. These efforts have propelled Watsco from a regional player to a dominant force with a revenue of $7.3 billion in 2023. Recent focus areas include adopting scalable technologies and enhancing relationships with major manufacturers. These are seen as key to maintaining its competitive edge and fueling future growth.
Quarter highlights
Despite slow revenue growth and margin contraction this quarter, Watsco continued to make strides. Its Product Information Management (PIM) system experienced growth from the year-ago quarter and now has more than 1.5 million stock keeping units accessible to more than 375,000 contractors and technicians. Its HVAC Pro+ mobile apps saw 6% user growth. Nahmad said, "Gross margins performed well and are consistent with our near-term target of 27%, though we believe higher margins are achievable over time."
Market leadership is further evidenced by Watsco's robust balance sheet, with $479 million in cash and no debt. This financial health supports strategic initiatives like increasing the annual dividend by 10%, which signals the company's confidence in growth and financial stability. The stock yields about 2.4%.
