Watsco First Quarter EPS Jumps 70% to 39 Cents: Record Revenues, Expanded
Margins & Improved Operating Efficiency
MIAMI -- April 18, 2013
Watsco, Inc. (NYSE:WSO)(Paris:WSO) today reported results for the first
quarter ended March 31, 2013.
Earnings per share increased 70% to 39 cents per diluted share and net income
increased 58% to a record $13 million.
Operating income improved 53% to a record $31 million with a 110 basis-point
improvement in operating margin to 4.3%. On a same-store basis, operating
income increased 40% to $28 million with a 120 basis-point improvement in
operating margin to 4.4%.
Revenues grew 13% to a record $714 million and increased 3% on a same-store
basis. Gross profit increased 16% to a record $175 million with an 80
basis-point improvement in gross profit margin to 24.6%. On a same-store
basis, gross profit increased 5% with gross profit margin improving 50
basis-points to 24.3%.
Selling, general and administrative (SG&A) expenses increased 11% to $145
million and as a percentage of sales declined 30 basis-points to 20.3%.
Excluding new locations, SG&A decreased 1% to $130 million and as a percentage
of sales declined 70 basis-points to 19.9%.
Albert Nahmad, Watsco’s President & Chief Executive Officer stated: “Watsco
delivered strong earnings growth and margin expansion from a combination of
increased sales, better selling margins and operating efficiencies. As we head
into the summer selling season, we are focused on our basic fundamentals –
gaining share for our supplier partners, improving operating efficiency and
having the products and people in place to best serve our contractor
customers. We expect 2013 to be a record year for our company.”
Results include 35 new locations from a joint venture formed on April 27, 2012
with Carrier Corporation in Canada, which Watsco owns 60% and Carrier owns
40%. The results also reflect a 10% greater ownership interest in Carrier
Enterprise LLC, a U.S. joint venture formed with Carrier in 2009. On July 2,
2012, the Company exercised an option to purchase an additional 10% ownership
interest in Carrier Enterprise for cash consideration of $52 million.
It is important to note that the first quarter of each calendar year is the
seasonal low point for sales and profits due to the magnitude of the
replacement market for air conditioning, heating and refrigeration systems
during the second and third quarters of each calendar year. Accordingly, the
Company's first quarter financial results are disproportionately affected by
this seasonality and the overall general economic conditions.
The Company used operating cash flow of $17.5 million during the quarter,
reflecting the typical, seasonal build-up of inventories prior to the selling
season. The Company expects to meet or exceed its annual target of generating
cash flow greater than net income in 2013. Since 2000, operating cash flow was
approximately $1.1 billion compared to net income of approximately $900
million, far surpassing the Company’s stated goal.
Dividends paid during the quarter were $9 million. In January 2013, the
Company established a regular quarterly dividend rate of 25 cents per share.
Watsco has paid a dividend to shareholders for 39 consecutive years.
At March 31, 2013, cash and cash equivalents were $22 million and borrowings
were $322 million for a ‘net-debt’ position of $300 million. The Company’s
debt-to-total-capitalization ratio is 24%.
Outlook for 2013
Watsco’s outlook for 2013 diluted earnings per share is within the range of
$3.60 to $3.75 per diluted share, representing a prospective growth rate of
19% to 24% over 2012’s results (adjusted to exclude a 33 cent reduction in
diluted EPS related to a $5.00 special dividend paid in October 2012).
As for dividend policy, it is the Company’s philosophy to share increasing
amounts of cash flow through higher dividends while maintaining a conservative
financial position with continued capacity to build its distribution network.
The Company intends to reduce debt and evaluate the payment of an increased
dividend before the end of 2013.
Watsco is hosting a conference call at 10:00 a.m. (EDT) on April 18, 2013 to
discuss its first quarter results. The conference call will be web-cast by
CCBN's StreetEvents at http://www.watsco.com. A replay of the conference call
will be available on the Company's website. For those unable to connect to the
webcast, you may listen via telephone. The dial-in number for callers in the
United States is (877) 270-2148; the dial-in number for international callers
is (412) 902-6510.
Use of Non-GAAP Financial Information
In this release, the Company discloses non-GAAP measures of same-store sales.
Information referring to “same-store basis” excludes the effects of locations
acquired or locations opened or closed during the immediately preceding 12
months unless they are within close geographical proximity to existing
locations. The Company believes that this information provides greater
comparability regarding its ongoing operating performance. These measures
should not be considered an alternative to measurements required by accounting
principles generally accepted in the United States (GAAP).
About Watsco, Inc.
Watsco improves indoor living and working environments with air conditioning
and heating solutions that provide comfort regardless of the outdoor climate.
Our solutions also promote healthier indoor spaces by removing pollutants from
the indoor air that can lead to asthma, allergies and reductions in
productivity. Furthermore, since heating and cooling accounts for
approximately 56% of the energy consumed in a typical United States home, we
offer consumers the greatest opportunity to save money on energy by replacing
existing air conditioning and heating systems with more energy efficient and
environmentally friendly solutions.
There are approximately 89 million central air conditioning and heating
systems installed in the United States that have been in service for more than
10 years. Older systems often operate below today’s government mandated energy
efficiency and environmental standards. Watsco has an opportunity to
accelerate the replacement of these systems at a scale greater than our
competitors as the movement toward reducing energy consumption and its
environmental impact continues. We operate from more than 570 locations in the
United States, Canada, Mexico and Puerto Rico, with additional market coverage
on an export basis to Latin America and the Caribbean. As the industry leader,
significant growth potential remains given that our current revenue run-rate
is approximately 10% of the estimated $35 billion marketplace in the Americas
for HVAC/R products. Additional information about Watsco may be found at
This document includes certain “forward-looking statements” within the meaning
of the Private Securities Litigation Reform Act of 1995. These statements are
based on management's current expectations and are subject to uncertainty and
changes in circumstances. Actual results may differ materially from these
expectations due to changes in economic, business, competitive market, new
housing starts and completions, capital spending in commercial construction,
consumer spending and debt levels, regulatory and other factors, including,
without limitation, the effects of supplier concentration, competitive
conditions within Watsco’s industry, seasonal nature of sales of Watsco’s
products, the ability of the Company to expand its business, insurance
coverage risks and final GAAP adjustments. Forward-looking statements speak
only as of the date the statement was made. Watsco assumes no obligation to
update forward-looking information to reflect actual results, changes in
assumptions or changes in other factors affecting forward-looking information.
Detailed information about these factors and additional important factors can
be found in the documents that Watsco files with the Securities and Exchange
Commission, such as Form 10-K, Form 10-Q and Form 8-K.
Condensed Consolidated Results of Operations
(In thousands, except per share data)
Quarter Ended March 31,
Revenues $ 713,633 $ 633,512
Cost of sales 538,187 482,890
Gross profit 175,446 150,622
Gross profit margin 24.6 % 23.8 %
SG&A expenses 144,892 130,713
Operating income 30,554 19,909
Operating margin 4.3 % 3.2 %
Interest expense, net 1,182 888
Income before income taxes 29,372 19,021
Income taxes 8,283 5,529
Net income 21,089 13,492
Less: net income attributable to 7,704 5,026
Net income attributable to Watsco, Inc. $ 13,385 $ 8,466
Diluted earnings per share:
Net income attributable to Watsco, Inc. $ 13,385 $ 8,466
Less: distributed and undistributed earnings
allocated to non-vested (restricted) common 937 1,408
Earnings allocated to Watsco, Inc. $ 12,448 $ 7,058
Weighted-average Common and Class B common
shares and equivalent shares used to 32,213,440 30,834,468
calculate diluted earnings per share
Diluted earnings per share for Common and $ 0.39 $ 0.23
Class B common stock
Condensed Consolidated Balance Sheets
March 31, December 31,
Cash and cash equivalents $ 22,033 $ 73,770
Accounts receivable, net 380,917 377,655
Inventories 647,078 546,083
Other 16,872 17,943
Total current assets 1,066,900 1,015,451
Property and equipment, net 42,997 42,842
Goodwill, intangibles, net and other 617,386 623,762
Total assets $ 1,727,283 $ 1,682,055
Accounts payable and accrued expenses $ 309,636 $ 282,354
Current portion of long-term 4 4
Total current liabilities 309,640 282,358
Borrowings under revolving credit 322,004 316,182
Deferred income taxes and other 61,478 61,475
Total liabilities 693,122 660,015
Watsco's shareholders’ equity 754,809 748,214
Noncontrolling interest 279,352 273,826
Shareholders’ equity 1,034,161 1,022,040
Total liabilities and shareholders’ $ 1,727,283 $ 1,682,055
Barry S. Logan, 305-714-4102
Senior Vice President
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