Ensuring that homes and businesses have adequate heating and cooling is a big business, and HVAC-system distributor Watsco (WSO 1.36%) has made it its business to work to get the latest state-of-the-art equipment to where it's needed most. Offering systems from United Technologies (RTX 1.25%) Carrier division and others, Watsco has an extensive network, and coming into Thursday's fourth-quarter financial report, Watsco investors were looking for continued steady growth. Watsco's results were solid enough to satisfy shareholders, and the company was pleased with its performance. Let's take a closer look at the latest from Watsco and what lies ahead for the HVAC distributor in 2016.
Watsco climbs higher to finish 2015
Watsco fourth-quarter results gave investors what they had hoped to see. Sales climbed 3% to $904 million, setting a record and inching just above the consensus forecast among investors following the stock. Net income attributable to Watsco climbed 10% to $26.5 million, and that produced earnings of $0.75 per share, $0.03 above what investors had expected.
Watsco's string of record performance continues. Levels for sales, operating income, and earnings per share all hit new highs, and operating margins also climbed to a record 6%. Watsco managed to improve its gross margins slightly as well, and ongoing cost-containment efforts paid off in bottom-line growth.
Looking at Watsco's three main businesses, the HVAC equipment division was the strongest from a sales perspective, posting a 7% advance worldwide and an 8% rise in the U.S. market. Sales of other HVAC products climbed 2%, matching the growth rate for the commercial refrigeration unit. The pace of growth for each of those businesses has remained stable throughout 2015.
CEO Albert Nahmad was pleased with Watsco's performance. "2015 was an outstanding year for Watsco," Nahmad said, "which we believe highlights the stability and consistency of our company." The CEO also pointed to the investments that the company has made in putting Watsco where it is today.
Will Watsco heat up in 2016?
Unfortunately, Watsco wasn't able to give definitive guidance on its expected financial performance for 2016. Nahmad said that Watsco prefers to wait until there's some insight into the high season for sales before offering any input, and so investors weren't able to get a gut check about whether their expectations for a roughly 5% rise in sales and a 12.5% gain in earnings per share seem realistic to the company.
Nevertheless, Watsco is moving forward with growth initiatives. In technology, the HVAC specialist has invested in platforms for mobile apps, e-commerce, business intelligence, and supply chain optimization in an effort to utilize available technological resources more effectively. Those efforts cost the company about $0.03 per share in earnings in the fourth quarter, but Watsco expects that the moves will enhance the company's leadership position in the industry and help it boost its sales and efficiency in serving customers.
Watsco's future depends on the health of the industry going forward. United Technologies has seen its UTC Climate division, which includes Carrier, post somewhat lackluster results lately, with sales down 1% to 2% both in the fourth quarter and for the full 2015 year. Operating profits were also down slightly in the fourth quarter. Weakness from equipment manufacturers could spell trouble for Watsco and other distributors as well.
Investors were happy with the report, though, sending the stock up more than 7% in morning trading following the announcement. As long as economic conditions stay relatively strong, Watsco has generally been able to sustain solid performance and keep growing steadily, and for many investors, that would be enough to expect from the HVAC specialist in 2016.