HVAC/R equipment distributor specialist Watsco (WSO -0.13%) reported robust fourth-quarter and full-year 2024 earnings on Tuesday, Feb. 18, that topped analysts' consensus estimates. Key highlights included earnings per share (EPS) of $2.37, rising from $2.06 the previous year and outperforming the $2.19 estimate. Revenue was $1.75 billion, surpassing the $1.67 billion forecast.
For the quarter, Watsco maintained strong growth, driven by increased HVAC demand and effective cost management.
| Metric | Q4 2024 | Analysts' Estimate | Q4 2023 | Change (YOY) |
|---|---|---|---|---|
| EPS | $2.37 | $2.19 | $2.06 | 15% |
| Revenue | $1.75 billion | $1.67 billion | $1.6 billion | 9% |
| Operating income | $136 million | N/A | $108 million | 26% |
| Net income | $97 million | N/A | $83 million | 17% |
| Operating cash flow | $379 million | N/A | $299 million | 27% |
Source: Watsco. Note: Analyst consensus estimates for the quarter provided by FactSet. YOY = year over year.
Watsco's Business Overview
Watsco is a major force in North America's HVAC/R (heating, ventilation, air conditioning, and refrigeration) distribution sector, boasting market leadership and an expansive footprint. It operates 690 locations throughout the U.S., Canada, Mexico, and Puerto Rico. A key component of its strategy involves maintaining robust supplier relationships and a diverse customer base of over 125,000 contractors.
The company’s recent focus incorporates strategic partnerships, notably with Carrier (CARR -2.39%), to expand products and market reach. Its structured acquisition strategy further supports growth, exemplified by 69 acquisitions since 1989. These acquisitions provide operational enhancements and synergies, ensuring sustained competitive advantage.
Quarterly Highlights
Watsco's Q4 2024 delivered stronger-than-expected results, with sales reaching $1.75 billion, a 9% annual boost. This growth was primarily propelled by a 14% rise in HVAC equipment sales, which now comprise two-thirds of total sales. The results were further bolstered by a 13% increase in gross profits and a 90 basis point bump in gross margins, ultimately achieving 26.7%.
Technological investment stands out for Watsco. Its e-commerce sales rose 16% year over year in the quarter. This growth reflects a broader 15% increase in its online contractor community, now 64,000 strong. The company's OnCallAir platform amplified its digital efforts, enjoying a 25% increase in gross merchandise value.
Operating income jumped 26% year over year, equating to $136 million. This follows an 8% rise in selling, general, and administrative expenses, which highlights effective cost management. The dividend was raised 11% to $12 per share, emphasizing shareholder value commitment.
Watsco did, however, face some margin pressures due to strategic investments. Additionally, regulatory changes pose ongoing adaptation challenges. It maintains its drive to mitigate potential long-term impacts from U.S. market saturation through strategic innovation and expansion.
Outlook and Future Prospects
Watsco’s management shows confidence moving forward. The transition to eco-friendly refrigerants, driven by regulations, presents both challenges and opportunities for replacing older systems to achieve gains. Its strategic partnership with Carrier and acquisition strategy further positions it to benefit from market trends and tech integration.
Future guidance was not explicitly provided, but continued investment in digital and operational enhancements suggests a keen focus on profitability and market expansion. Investors may want to monitor innovation trajectories, regulatory impacts on product offerings, and ongoing dividend trends to gauge strategic success.
