What: Shares of distributor Watsco Inc (WSO -0.18%) dropped more than 14% today after it reported earnings that fell short of expectations.
So what: Revenue rose 4% to a record $1.18 billion and was up 5% on a same-store sales basis. Net income increased 6.4% to $58.0 million, or $1.64 per share.
Analysts had set a target of $1.20 billion in revenue and $1.77 per share in earnings, so that's the bar against which traders are judging shares today.
Now what: This is a classic case of expectations getting ahead of reality. Before today, Watsco's shares were up over 20% on the year, and clearly investors were looking for more growth than the company could provide. But steady improvements on both the top and bottom lines are what we should really be looking at today, not just the stock price.
Management also gave a vote of confidence for continued growth in the future by increasing the annual dividend by 21% to $3.40 per share. At today's price, that's a dividend yield of 3%, which is more than you can get from 10-year Treasuries.
I wouldn't be too alarmed by the move today, and would look at the steady improvements made during the quarter. Long-term, that's what will drive the stock price, not whether results miss or beat analyst expectations.
