WSO Watsco’s First Quarter Earnings Surge on Record Sales and Margins
BY Business Wire — 7:30 AM ET 04/15/2015
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MIAMI--(BUSINESS WIRE)-- Regulatory News:
Watsco, Inc. (WSO) reported record results for the first quarter ended March 31, 2015.
Key performance metrics:
35% jump in earnings per share to a record 65 cents
32% growth in operating income to a record $47 million
110 basis-point expansion in operating margins to a record 5.8%
50 basis-point improvement in gross profit margin
60 basis-point reduction in SG&A as a percentage of sales to a record low
6% sales increase to a record $809 million
Sales trends:
8% growth in HVAC equipment (64% of sales)
2% increase in other HVAC products (31% of sales)
5% increase in commercial refrigeration products (5% of sales)
Albert Nahmad, Watsco’s President & Chief Executive Officer stated: “Watsco delivered another solid quarter with strong earnings growth and margin expansion from a combination of increased sales, better selling margins and improved operating efficiencies. The results also reflect continued investment in products, technology and people to drive sales and innovation in our business. As we head into the selling season, we are focused on the same proven fundamentals – gain share for our supplier partners, anticipate and react quickly to the needs of our contractor customers and empower and reward our team of local leaders to grow sales and profits with greater efficiency.”
Results for the quarter include a four-cent EPS contribution from a 10% additional ownership interest in Carrier Enterprise LLC, a U.S. joint venture formed with Carrier in 2009. Watsco (WSO) increased its ownership in Carrier Enterprise to 80% for cash consideration of $88 million on July 1, 2014.
Mr. Nahmad added: “It is an important caution that the first quarter is the seasonal low point for sales and profits due to the magnitude of the replacement market for air conditioning and heating products, which are highest during the second and third quarter of each calendar year. Accordingly, these first quarter results are disproportionately affected by this seasonality as well as general economic conditions.”
Outlook for Full-Year 2015
Watsco’s outlook for 2015 diluted earnings per share is within the range of $5.00 to $5.20, representing a prospective growth rate of 16% to 20% over 2014’s results.
Cash Flow & Dividends
For the quarter, Watsco (WSO) used operating cash flow of $17 million, reflecting the typical, seasonal build-up of inventories prior to the selling season. The Company has targeted cash flow from operations to exceed net income in 2015. Since 2000, operating cash flow was approximately $1.4 billion versus net income of $1.3 billion, surpassing the Company’s stated goal.
Watsco (WSO) has paid dividends to shareholders for 40 consecutive years. The Company’s philosophy is to share increasing amounts of cash flow through higher dividends while maintaining a conservative financial position with continued capacity to build its distribution network. In January 2015, Watsco (WSO) announced a 17% increase in its dividend to an annual rate of $2.80 per share.