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Watsco Inc (NYSE:WSO)
Q2 2019 Earnings Call
Jul 18, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to the Watsco Second Quarter 2019 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Albert Nahmad, CEO and Chairman of the Board. Please go ahead, sir.

Albert H. Nahmad -- Chief Executive Officer and Chairman

Thank you, Marco. This is Al Nahmad, Chairman and CEO, and with me is A.J. Nahmad, President; Paul Johnston, Executive Vice President; and Barry Logan, our Senior Vice President.

As always before we start, our cautionary statement. This conference call has forward-looking statements as defined by SEC laws and regulations that are made pursuant to the safe harbor provisions of these various laws. Ultimate results may differ materially from the forward-looking statements.

Let's get onto the quarter. Watsco produced another record quarter. Today, we also announced our agreement to purchase Peirce-Phelps, a long-standing HVAC distributor based in Philadelphia. The company was founded in 1926 and has been Carrier's sole distributor in Pennsylvania, New Jersey and Delaware for 75 years. This acquisition will expand our network into these markets. Peirce-Phelps's current annual sales are approximately $206 million, serving more than 9,000 customers from 19 locations and a wide product offerings of equipment, parts and supplies. As important -- more important, this business is led by four Peirce brothers, who are third-generation owners. We look forward to working with them as they continue to operate the business and we apply our "buy and build" approach. Here's what that means. We start with buying or joint venturing a great business. We keep the name, the team. We honor the culture and empower the leadership. We ask the leadership for an aggressive growth plan and we help them achieve it. We motivate the team with long-term equity and build an ownership culture. And we collaborate with big ideas, technology, capital and M&A opportunities and provide support in any way needed.

In addition to the Peirce transaction, we also completed a number of transactions during the quarter as summarized in a press release. These are all positive incremental steps to grow our business and put our capital to work. Looking at the long term, we believe it is an opportune time for M&A, as the technology wave in our industry builds momentum. We offer successful owner like the Peirce brothers the most complete spectrum of technology tools to modernize their business.

Now, in terms of results for the quarter, sales and earnings strength during the first two months of the quarter were disrupted in June by cooler, wetter weather and then something wetter weather in certain markets. July growth trends have improved and we believe growth rates in the second half of the year will improve and produce another record year for our Company. Operational efficiencies continue in the quarter as evidenced by our moderate SG&A growth rate in existing locations. We also continue to make investments. We opened eight locations during this last year to add density to the existing markets. And we have continued to develop, launch and drive adoption of a variety of customer-focused technology to better serve our contractor customers. Over the long-term, we believe these innovations will transform the way business is done in our industry.

Now, moving onto our balance sheet and cash flow, our financial position remains conservative and strong, with a ratio of 12% debt to total capitalization, that's again a 12% debt to total cap. We've generated record cash flow during the first half and we again target cash flow to exceed net income in 2019. In terms of analysis of our financial results, our press release provides important detail about our performance. I will not recite those details in my prepared remarks. We'll be happy to provide more color during Q&A.

One last thing is our renewed invitation to visit us in Miami and learn more about our technology journey. You will gain insight into our culture and many innovations that are under way. We hope you will come and visit and learn more. With that, A.J., Paul, Barry and I are now happy to answer questions.

Questions and Answers:

Operator

[Operator Instructions] Today's first question comes from Brett Linzey of Vertical Research Partners. Please go ahead.

Albert H. Nahmad -- Chief Executive Officer and Chairman

Good morning, Brett.

Brett Linzey -- Vertical Research Partners -- Analyst

Hey, good morning. Hey, I just wanted to come back to some of the key Sunbelt states, obviously a barometer [Phonetic] for the growth of the total business. How did some of the key states perform, particularly Florida, in the quarter? And then, any big outliers within that mix?

Albert H. Nahmad -- Chief Executive Officer and Chairman

Well, we don't want to alert the competition too much, but Barry, go ahead and give it a shot.

Barry S. Logan -- Senior Vice President and Secretary

Sure. Well, first, as we said in the press release, there was cooler, wetter weather in certain markets. And what that really means is between the Mississippi and Rockies, we have a big presence in Texas North and just call it that region of the country is where we saw that particular weakness. If I go to our largest market, we mentioned in the first quarter, we had growth, that growth accelerated in the second quarter and we're seeing stronger growth sense. So just to have some fun, the sling to the Flamingo is still very much alive and well and growing. So that really is the story in the quarter is that geography between the Mississippi and Rockies and it is what it is. And again, it has an impact on short-term performance, certainly not long-term performance.

Brett Linzey -- Vertical Research Partners -- Analyst

Okay. And then maybe just shifting gears to the Peirce deal, just really about the strategic rationale. I mean, is this an asset that Watsco believes has a similar margin profiles some of the Carrier JVs did? And then, maybe just separately, how has the Peirce locations been growing organically for the past three to five years? Thanks.

Albert H. Nahmad -- Chief Executive Officer and Chairman

Barry, do you want to take that?

Barry S. Logan -- Senior Vice President and Secretary

Sure. Well, first, I would say a better than average margin versus what we had experienced 10 years ago when we acquired Carrier Enterprise. And that's part of it being an independent distributor and simply thinking that way as entrepreneurs. So better than average than the past. Certainly, opportunity to improve margin to the Watsco levels that we have achieved since then. So somewhere in between, let's put it that way.

From a growth point of view, we have -- we were given a 20-year chart of organic growth and very strong growth rates over the years. And again, highly entrepreneur, group of four brothers and so, it's only -- as we say, buy a great company, the evidence is in the long-term growth rates that they've had.

Brett Linzey -- Vertical Research Partners -- Analyst

Okay, great. Thank you.

Operator

And the next question today comes from Ryan Merkel of William Blair. Please go ahead.

Albert H. Nahmad -- Chief Executive Officer and Chairman

Good morning, Ryan.

Ryan Merkel -- William Blair & Company -- Analyst

Hey, good morning, everyone. So first, let's dig into the other HVAC products from the commercial refrigeration, you know, down again, it has been weak, I think, for a couple of quarters. Just what's going on there and more importantly, any signs that that could start to improve and grow again in the second half?

Albert H. Nahmad -- Chief Executive Officer and Chairman

Let's go to Paul Johnston.

Paul Johnston -- Executive Vice President

Yes, OK. Hey, Ryan. Yes, it was -- when you look at the individual components of the non-HVAC equipment categories that we sell in, a lot of softness in some of the commodities more related to demand, as some of the slowdown that Barry indicated they were happening between west of the Mississippi and the Rockies, impacted some of the install products that we would normally sell.

And then there is a softness that we experienced in the first quarter, continued in the second quarter, but it's leveled out on some of the refrigerant. Lot of different reasons why that -- the price is soft right now, but at least it stabilized at this point. So longer term, I don't see this as being a continuous trend when you look at beyond the commodities, but when you look at the parts sales, part sales were strong in the second quarter and we were heartened by that.

Ryan Merkel -- William Blair & Company -- Analyst

Okay. And just a quick follow-up on the commercial refrigeration. So are you saying that refrigeration prices that are primarily the issue, you know, the equipment and the parts that you sell in that business, is that actually growing?

Paul Johnston -- Executive Vice President

The equipment pricing is stable and has grown. The commodity side of it is the weakness, yes.

Ryan Merkel -- William Blair & Company -- Analyst

Okay. And then just a follow-up on gross margins, down year-over-year; I'm guessing that the function of lower equipment selling margins and possibly mix, but maybe provide some color there if you would.

Albert H. Nahmad -- Chief Executive Officer and Chairman

Okay. And then just a follow-up on gross margins, down year-over-year; I'm guessing that the function of lower equipment selling margins and possibly mix, but maybe provide some color there if you would. Barry, you cover that and [Indecipherable] go ahead.

Barry S. Logan -- Senior Vice President and Secretary

Sure. Selling margin, which is simply our markup on all products, is flat year-over-year and equipment up slightly. And so that speaks to the pricing and margins on equipment, you know, still ticking up. So that's a good sign. Some of the weakness is in the non-equipment, which Paul described. And you can hear a little bit of the angst in the voice short term about pricing of refrigerants and things like that. And overall, if equipment is growing at a faster rate than non-equipment, there's a little bit of mix to simply and how that algebra works out. When you said mix of equipment, and again, mix of equipment has been up all year long, fractionally, not materially and that trend continue in the second quarter. But it's really the mix of equipment versus non-equipment that's in the algebra.

Ryan Merkel -- William Blair & Company -- Analyst

Got it. All right. Thanks. I will pass it on.

Operator

And our next question today comes from Stephen Volkmann of Jefferies LLC. Please go ahead.

Albert H. Nahmad -- Chief Executive Officer and Chairman

Good morning, Stephen.

Stephen Volkmann -- Jefferies LLC -- Analyst

Good morning, guys. Thanks for taking my question. Maybe just back to the M&A, I'm curious about -- you've obviously stepped it up a little bit. I'm curious if the pipeline is more full, if there is some reason you think more deals can get done in this type of environment?

Albert H. Nahmad -- Chief Executive Officer and Chairman

We have expressed such an attitude in the prepared remarks. We do have more interest from sellers -- potential sellers from great companies.

Stephen Volkmann -- Jefferies LLC -- Analyst

And that's driven by sort of a desire for getting onboard with the technology or is there something else in their businesses that's feeling more challenging to them?

Albert H. Nahmad -- Chief Executive Officer and Chairman

Hard to answer the last part of that question, but I can tell you that, from our perspective, there are two things that should attract a great company, that is, first, our culture. We don't disrupt great companies, quite the opposite. We're not cost cutters, we're not going to flip anything in five years. None of that exists in our culture. And we're very respectful of people that sell us through or joint venture with us. That's also unusual in the M&A world.

Now, with respect to technology, well, there's not a secret in the industry anymore. We lead it. The innovation, the adoption we've expressed over and over again will take a long time, but we're in it for the long term. But if a distributor or successful distributor wants to take advantage of what we have, we certainly are important [Phonetic] to them. And I think that will be a continuing attraction. Culture and technology should be a continuing attraction and stepping up.

Barry S. Logan -- Senior Vice President and Secretary

I will just add -- just to add to that Al, I think, with Peirce, [Indecipherable] with us this morning, Brian Peirce, being the leader of the company, but 94-year-old company decided to sell to us and, I think a big motivator was technology and is technology moving forward. And again, at a point in time, where we can't open things up, I think it'd be good to get some perspective of someone like Brian Peirce, who, by the way, is the current Chairman of HARDI. So from a leadership point of view, we have an industry leader making that decision. So it's something that is certainly part of the ingredients; family still have to decide, it's a good time for the family, but...

Albert H. Nahmad -- Chief Executive Officer and Chairman

[Speech Overlap] Barry, since you're on our M&A, you better get more done.

A.J. Nahmad -- President

This is A.J. Other than that, we've been talking about technology for a long time. You guys ask good questions about it, but I really encourage you to come see us in Miami, spend time with us, let us take you through the fundamentals, because when you do that, when you meet the team, you understand how big of a deal this is and how impactful it is being and how much it ensures our viability going forward. And those are the conversations that we're having with some of these targets like the Peirce brothers, who understand that technology is a real thing, that it's something that they need for their business, that they going to have to be very challenged to do on their own, but a nice landing place to do with Watsco and not only because the technology but because of the culture. So, again, I encourage you to come down and see it firsthand to anybody on the call.

Albert H. Nahmad -- Chief Executive Officer and Chairman

I wish you'd [Phonetic] come in August.

A.J. Nahmad -- President

No, that's not a good time to go. [Speech Overlap] humidity, yes.

Stephen Volkmann -- Jefferies LLC -- Analyst

Thanks, guys. With that, I guess I'll pass it on. Thanks.

Operator

And our next question today comes from David Manthey of Baird. Please go ahead.

Albert H. Nahmad -- Chief Executive Officer and Chairman

Hi, David.

David Manthey -- Baird -- Analyst

Good morning, guys. First off, you provided the same-store sales figure of plus 1% versus a 3% reported revenue number. I was wondering if you can give us that same-store figure by each of the three product segments.

Albert H. Nahmad -- Chief Executive Officer and Chairman

Barry, do you want to do that?

Barry S. Logan -- Senior Vice President and Secretary

Yes. Dave, I think it's a very similar relationship in terms of the overall to the pieces, you know -- the same math.

David Manthey -- Baird -- Analyst

Okay. And second, should we assume that price mix is a low-single digit type contributor to the overall growth?

Barry S. Logan -- Senior Vice President and Secretary

Yes, there is price in the market still. And if you look at the residential pricing, which is the primary driver, it was up 3%; a moderate amount of priced and a moderate amount of unit growth.

David Manthey -- Baird -- Analyst

Got it. Okay and then when you say the momentum rebounded in July, I'm wondering if you can be a little more specific on what things looked like in the month of June for you and then sort of month-to-date July growth rate?

Barry S. Logan -- Senior Vice President and Secretary

We're not going to disclose that. We're just giving you a sense of things. We're not going to put any numbers on it or rates or anything. We're just giving you a sense.

David Manthey -- Baird -- Analyst

Right. I had to ask, though.

Albert H. Nahmad -- Chief Executive Officer and Chairman

I like that.

David Manthey -- Baird -- Analyst

Finally, it seems like I've been getting more questions from investors on SG&A leverage; can you just broadly talk about the major actions you've taken on opex? And then, as you look at the $196 million of SG&A, is there any way you can talk to us about how much of that is kind of same-store vs the contribution from acquisitions, greenfield, etc., just to give us an idea of where that number is shaking out year-over-year?

Albert H. Nahmad -- Chief Executive Officer and Chairman

Well, we've reported previously that we're getting more efficient with the employees, that continues, the cost of employment. But don't get too stuck on growth of SG&A, especially the investment in technology, because we are who we are, the industry leader, not only in size but in technology technology, a lot of people are coming and knocking on our door with fascinating innovations. And as the guy who runs that technology, A.J. Nahmad, as said, we have no desire to limit our investment in technology. Things are going to change and that could change dramatically in terms of spending for technology. But I also believe that we're getting more efficient with the non-technology costs, and I hope we reflected that in the numbers or if you need more color on that, Barry can add to that.

Barry S. Logan -- Senior Vice President and Secretary

I would say, looking at the year-to-date, Dave, so we're looking at a longer period just to evaluate your question and up 1% on a same-store basis for year-to-date, technology spending accounts for much of that. You can certainly imagine there's still inflationary risk going on with facilities and rent and some of the other line items offset largely by the productivity stuff that we've talked about. So that's how I would talk about three variables with a 1% year-to-date increase in SG&A and it is a sea change over the last three or four years if we put it in context.

So there's definite progress; all at once or doing something silly, we're not going to do. But we want to make progress and we obviously have. If you do the, again, the math between same -- the SG&A growth rate without new stores versus new stores, you can compute the cost of the new stores and DASCO being part of that equation to.

David Manthey -- Baird -- Analyst

No, it makes sense. Thanks very much, guys.

Operator

[Operator Instructions] Today's next question comes from Jeffrey Hammond of KeyBanc Capital Markets. Please go ahead.

Albert H. Nahmad -- Chief Executive Officer and Chairman

Good morning, Jeff.

Jeffrey Hammond -- KeyBanc Capital Markets -- Analyst

Good morning, gentleman. So just that the new store openings, did all -- I didn't see a mention like last quarter, are those kind of all new kind of running through this quarter and, it seems like a step up and so how should we think about that prospectively and where are you adding stores?

Albert H. Nahmad -- Chief Executive Officer and Chairman

Well, we won't answer the last part of the question because of competition, but we will tell you that's the last 12 months, the eight stores that we have Greenfielded, but we've added quite a few through acquisition of DASCO and now with Peirce-Phelps.

Barry S. Logan -- Senior Vice President and Secretary

And Jeff, we did certainly talk about same-store SG&A in the last -- in the first quarter. There was a discussion of that in the quarter.

Jeffrey Hammond -- KeyBanc Capital Markets -- Analyst

Okay. So just to be clear, the 17 new stores, nine are acquired and eight are Greenfield?

Barry S. Logan -- Senior Vice President and Secretary

That's correct.

Jeffrey Hammond -- KeyBanc Capital Markets -- Analyst

Okay. And then just -- I noticed, at least in my model, that the minority interest number was materially lower than how I was thinking about it. And I just didn't know if there's anything going on within the Carrier Enterprise business that they might have been seeing a little more margin pressure dropping through?

Barry S. Logan -- Senior Vice President and Secretary

Jeff, the answer is no. If you look -- in the quarter, the actual reported results, minority interest is down about $600,000. And that is where the benefit of owning Homans 100% shows up. So as we purchased the 20% in Homans that we didn't know and that was early in June, and there's a benefit to -- that's where the benefit of that transaction shows up.

Jeffrey Hammond -- KeyBanc Capital Markets -- Analyst

Okay. And when did Homans close?

Barry S. Logan -- Senior Vice President and Secretary

Beginning of June.

Jeffrey Hammond -- KeyBanc Capital Markets -- Analyst

Okay, great. And then just last question. Certainly, you've done DASCO and now Peirce and a couple of these other maybe smaller ones. Is there a way to think about the accretion opportunity as you look over the next 12 months and roll these in; clearly you're bringing good businesses in and your financing costs are low, that would be helpful. Thanks.

Albert H. Nahmad -- Chief Executive Officer and Chairman

Barry, you want to look into future?

Barry S. Logan -- Senior Vice President and Secretary

Sure. Well, we certainly --they certainly are accretive on their face in terms of just historical EBIT. And you mentioned a word, smaller. Brian Peirce will take offense to that because they are number 15 out of 1,300 in the industry, so just to put in perspective for that transaction. The real accretion, if you will, is not just the math at the day of transaction; it's what we talked about in the Watsco [Phonetic], how can we help the Peirce brothers double the size of their business and help the DASCO team double the size of their business. And that's where we've seen the benefit of really the acquisition itself. Yes, the math works today, but it's really the next step and over the next few years, that's very critical to what's going on.

Jeffrey Hammond -- KeyBanc Capital Markets -- Analyst

Okay. Yes, I was actually referencing the Sigler and the Homans as the smaller ones, but I would appreciate it. I appreciate it, guys. Thanks.

Barry S. Logan -- Senior Vice President and Secretary

Thanks, Jeff.

Operator

And our next question today comes from Robert Barry with Buckingham Research. Please go ahead.

Albert H. Nahmad -- Chief Executive Officer and Chairman

Good morning.

Robert Barry -- Buckingham Research -- Analyst

Hey, guys. Good morning. I guess I wanted to just circle back to an earlier question about SG&A and really just broaden that to ask you about op margin. I mean, I think you've acknowledged in the last few quarters that given some growth investment, there hasn't really been much op margin expansion in the last few years, but it seemed like there was going to be a more concerted effort to get some this year. I mean, what's the latest thought there? I know you want to still grow the business or invest to grow the business, but do you think that you can expand the operating margin this year?

Albert H. Nahmad -- Chief Executive Officer and Chairman

Mr. Logan?

Barry S. Logan -- Senior Vice President and Secretary

Well, again, every distribution model of every kind forevermore is going to be dependent on a measure of sales growth to produce long-term margin expansion. Otherwise, they're probably cutting their business up short term for short-term reason. So the sales growth year-to-date, obviously, same-store sales growth of 1% didn't achieve that result of higher EBIT margin.

But again, for the rest of the year, we certainly see improved growth. We see improved -- we only have visibility to really the month of July, but we have some confidence about the rest of the year in terms of expanding margin. Longer term, it will still take reasonable sales growth to drive the longer-term margin expansion that everyone looks for. And the rate of investment and technology is still going to increase, but not at the same rate that it did the last three or four years. And so that opportunity is still there. And short term, we can wring our hands over a longer term, we're not.

Robert Barry -- Buckingham Research -- Analyst

Got it. This growth and adding stores just organically outside of acquisitions, is that something that you'd see picking up or moderating?

Albert H. Nahmad -- Chief Executive Officer and Chairman

Well, it gives me an opportunity to discuss how we deal with that. Watsco is a very decentralized model and meaning that opening locations is not considered or even decided. At headquarters, people in the field, decide what they need and they implement it. So wherever they see a need, they just do it. Can we forecast what they might be doing? We can't because we're not making those decisions for them. They're just doing it on their own and they are very optimistic orientated. And we do like our methodology of being very decentralized because that gives them an opportunity in the field that we as headquarters cannot see.

Robert Barry -- Buckingham Research -- Analyst

Got it. Got it. I just had one last one kind of a minor item on the SG&A front. I think last year in third quarter, you actually had a spike in SG&A growth because there was a variable comp true-up and I think that was worth about $6 million. Is if fair to assume that would not reoccur this year and maybe we could even see same-store SG&A down in 3Q?

Albert H. Nahmad -- Chief Executive Officer and Chairman

I would forecast the future, but Barry, go ahead and answer the past.

Barry S. Logan -- Senior Vice President and Secretary

Sure. Yeah. Well, there were some second half hits and you know, that are the SG&A that were disclosed, and again, time will tell in terms of performance -- performance-driven comp. We wanted to go up in the third quarter, because it will be driven by performance. In fact, I wouldn't get to surgical about whether SG&A is up or down. I think it's an opportunity to have a better third quarter, but I think predicting some type of decline is probably not the right thing.

Robert Barry -- Buckingham Research -- Analyst

Got it. Fair enough. All right. Thank you.

Barry S. Logan -- Senior Vice President and Secretary

You bet.

Operator

And our next question today comes from Chris Dankert of Longbow Research. Please go ahead.

Albert H. Nahmad -- Chief Executive Officer and Chairman

Good morning, Chris.

Christopher Dankert -- Longbow Research -- Analyst

Hey, morning, guys. And thanks for taking my question. I guess back to start off the year, Paul had kind of somewhat previewed that you were working with suppliers on some growth initiatives internally. I guess, and you'd kind of mentioned, once you got into the selling season, you were already on the beaches [Phonetic] you could talk about that a bit more. Is that part of the DMI you announced or just any other color there would be really appreciated.

Albert H. Nahmad -- Chief Executive Officer and Chairman

Mr. Johnston?

Paul Johnston -- Executive Vice President

Yeah. I guess, rephrase your question for me again, if you would, so I can clearly understand, what you're asking.

Christopher Dankert -- Longbow Research -- Analyst

Sure. Just at the start of the year, you guys were talking about doing more with suppliers to try and help take share. But just as any kind of color on those initiatives would be great?

Paul Johnston -- Executive Vice President

Oh, yeah. That's just our DNA, working with our suppliers to try to increase share. We had a number of programs in the first quarter. We continue it in the second quarter. Unfortunately, the weather in the -- didn't cooperate with us quite the way we wanted to. And hopefully in the third quarter, we'll start seeing some fruits of those efforts.

Christopher Dankert -- Longbow Research -- Analyst

And we are talking about more like advertising, marketing things along those nature or we -- is it more again on the tech side of things? Just any...

Paul Johnston -- Executive Vice President

It's on all of the above. It's on whatever the customers is getting very customer focused, looking at market segments, looking at specific customers, national accounts, builders, looking at the advertising is pretty much across the board depending on what the product category is.

Christopher Dankert -- Longbow Research -- Analyst

Got it. And then just secondly here, any update on Latin America? I know there's was a bit of a struggle in the first quarter. Any update there would be helpful.

Albert H. Nahmad -- Chief Executive Officer and Chairman

Yeah, I think we can do that. Barry come about the second quarter performance.

Barry S. Logan -- Senior Vice President and Secretary

Sure, again, we got into mid-single digit growth in Latin America for the [Speech Overlap]

Albert H. Nahmad -- Chief Executive Officer and Chairman

Mid-single digit growth.

Barry S. Logan -- Senior Vice President and Secretary

Mid-single digit growth in the second quarter. And again, progress as the year has gone on for sure. And second half of the year, there is an opportunity probably for some profit growth where last year was rather severe in terms of results.

Christopher Dankert -- Longbow Research -- Analyst

Got it. Glad to hear we've turned the corner there, guys. Thanks so much again.

Barry S. Logan -- Senior Vice President and Secretary

You bet.

Operator

And the next question comes from Blake Hirschman with Stephens Inc. Please go ahead.

Blake Hirschman -- Stephens Inc -- Analyst

Yeah, good morning, guys. Just a quick one from me. There's been more and more distributors pointing to incremental price cost issues kind of looking forward. It doesn't seem like it's been much of a factor for you guys, but just wanted to get a quick update there. Thanks.

Albert H. Nahmad -- Chief Executive Officer and Chairman

Barry, can you feel that?

Barry S. Logan -- Senior Vice President and Secretary

Sure, again, selling margin, as I mentioned earlier, is the purest determination of that question. And are we marking at products in an efficient way year-over-year with a lot of price actions and a lot of moving pieces that have gone on? And again, in the quarter and year-to-date, we've seen a slight tick up in selling margin. So that's a good feeling given all the price actions that have gone on.

Blake Hirschman -- Stephens Inc -- Analyst

Thanks for that. I'll turn it over.

Operator

And our next question comes from Patrick Baumann of J.P. Morgan. Please go ahead.

Albert H. Nahmad -- Chief Executive Officer and Chairman

Good morning.

Patrick Baumann -- J.P. Morgan -- Analyst

Hi. Good morning, guys. Thanks for taking my call. Just had a few questions and I apologize if some of these had been asked; I dialed in just a little bit late. Did you comment on your regional sales trends, if certain regions were stronger than others?

Albert H. Nahmad -- Chief Executive Officer and Chairman

Well, we commented where we thought it, the wet and cool markets. Barry, you want to advise him about that?

Barry S. Logan -- Senior Vice President and Secretary

Yeah, we did comment earlier and the commentary was that, again, this is kind of strife between the Mississippi and Rockies is where we had the big weather impact in June. If I look Florida and East Coast, again, positive growth unencumbered by any kind of wet weather. It's really that central part of the country that was impacted. And with Texas, for example, as it is a big market for us, that's where the short term impact probably affected us the largest.

Patrick Baumann -- J.P. Morgan -- Analyst

Understood. That makes all the sense. And then, did you comment on price mix contribution as part of that 3% HVAC equipment growth?

Barry S. Logan -- Senior Vice President and Secretary

And we said earlier, there's a little bit of both.

Patrick Baumann -- J.P. Morgan -- Analyst

Okay, that's helpful. And then on Peirce-Phelps, it sounds like it hasn't closed yet, is that right? And then also, did you disclose how much you paid and anything on margins? Just trying to nail down expected accretion to net earnings and little bit of the timing of that.

Barry S. Logan -- Senior Vice President and Secretary

Well, there are consents and approvals that are required in order to close. We expect that to happen in the third quarter. We commented that the margin profile is better than, let's say, the historical joint venture margins that we started with 10 years ago with Carrier, but still less than Watsco's, somewhere in between, so opportunity to grow.

Patrick Baumann -- J.P. Morgan -- Analyst

And just remind me, what were those historical JV margins, I don't recall. That was before my time, sorry.

Barry S. Logan -- Senior Vice President and Secretary

You'll find it in 8-K [Speech Overlap] You'll find it in 8-K in 2009 that says 3% margin was what we acquired when we acquired Carrier Enterprise.

Albert H. Nahmad -- Chief Executive Officer and Chairman

That was good. I like that.

Patrick Baumann -- J.P. Morgan -- Analyst

I'm sorry with that. And then, on the inventories in the balance sheet looked like up in the second quarter. Anything unusual with regard to -- I mean, I guess they're always up in the second quarter, but it seemed like they were up a little bit more, anything unusual there?

Albert H. Nahmad -- Chief Executive Officer and Chairman

We just want to be ready. There were some freight -- there were some delivery issues. And we've got the strength with our balance sheet to take it in earlier in order to be ready for the season.

Patrick Baumann -- J.P. Morgan -- Analyst

Also, delivery issues this year or are you talking about last year?

Albert H. Nahmad -- Chief Executive Officer and Chairman

There were earlier this year.

Patrick Baumann -- J.P. Morgan -- Analyst

Understood. And then last one for me. Sorry, I had a bunch of questions, I apologize.

Albert H. Nahmad -- Chief Executive Officer and Chairman

It's all right, take your time. We are in no hurry, take your time.

Patrick Baumann -- J.P. Morgan -- Analyst

So the SG&A growth for the year, do you still expect it to be slower than the rate of sales growth, I guess, little maybe in the second half maybe or for the year, however, you want to comment. I mean, I believe last quarter you talked about it growing, maybe half the rate of sales, but obviously, this quarter was -- you had some issues in June with the top line, which were not your fault, but just curious if you've an update on that.

Albert H. Nahmad -- Chief Executive Officer and Chairman

Mr. Logan?

Barry S. Logan -- Senior Vice President and Secretary

I'm sorry, I really lost -- I lost you at some point, so go ahead and repeat it.

Albert H. Nahmad -- Chief Executive Officer and Chairman

You don't have to be in a hurry, just relax and we'll give you all the time you want.

Patrick Baumann -- J.P. Morgan -- Analyst

Thanks so much. Thanks. The main question is SG&A growth for this year. Do you expect the growth rate in SG&A to be slower than the rate of growth in sales still? And about how much would you kind of target?

Barry S. Logan -- Senior Vice President and Secretary

Well, again, one we are in control of, one is how much money are we spending, the first half of the year SG&A on a same-store basis is up 1%. Any level of sales growth in the second half beyond that will derive that equation that you're asking about. But sales growth has to occur for that to happen. So I think there's some confidence there, but it's still dependent on the sales growth as I said earlier.

Patrick Baumann -- J.P. Morgan -- Analyst

Okay. And I'm sorry, I do have one last one. Just in terms of the competitive situation from other distributors, there -- Lennox had some issues with their plant in Marshalltown early last year. And just curious if you're seeing any change in like competitive behavior with regard to them trying to recapture market share that may be lost because of the production is down.

Barry S. Logan -- Senior Vice President and Secretary

Let's see if I can give you my thoughts on -- Lennox is a great company and the leadership has done outstanding since they joined the business. Are they taking share back? I couldn't tell you, but I can tell you fundamentally, they're a great company.

Patrick Baumann -- J.P. Morgan -- Analyst

Okay. Makes sense. Thanks lot. Congratulations on the acquisition, guys. Good luck.

Albert H. Nahmad -- Chief Executive Officer and Chairman

[Indecipherable]

Patrick Baumann -- J.P. Morgan -- Analyst

Will do.

Operator

And ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Albert Nahmad, CEO and Chairman of the Board, for any closing remarks.

Albert H. Nahmad -- Chief Executive Officer and Chairman

Marco, thanks for monitoring this. Are you going to be back the next quarter too?

Operator

Let's hope so.

Albert H. Nahmad -- Chief Executive Officer and Chairman

All right. Thanks everybody for listening and look forward to talking to you in the next quarter. Bye-bye now.

Operator

[Operator Closing Remarks]

Duration: 36 minutes

Call participants:

Albert H. Nahmad -- Chief Executive Officer and Chairman

Barry S. Logan -- Senior Vice President and Secretary

Paul Johnston -- Executive Vice President

A.J. Nahmad -- President

Brett Linzey -- Vertical Research Partners -- Analyst

Ryan Merkel -- William Blair & Company -- Analyst

Stephen Volkmann -- Jefferies LLC -- Analyst

David Manthey -- Baird -- Analyst

Jeffrey Hammond -- KeyBanc Capital Markets -- Analyst

Robert Barry -- Buckingham Research -- Analyst

Christopher Dankert -- Longbow Research -- Analyst

Blake Hirschman -- Stephens Inc -- Analyst

Patrick Baumann -- J.P. Morgan -- Analyst

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