Watsco's (WSO) Q1 Earnings Meet Estimates, Revenues Miss

Watsco, Inc. (NYSE:WSO) reported first-quarter 2019 results, wherein earnings met the Zacks Consensus Estimate, while revenues missed the same.

The company reported quarterly earnings of 88 cents per share, in line with the consensus estimate. However, total revenues of $931.3 million lagged the consensus mark of $944 million by 1.4%.

On a year-over-year basis, the company’s top line grew 1% but bottom line declined 1.1%. Watsco has been experiencing unfavorable weather in certain markets served. The company’s first quarter, which has one less selling-day than the corresponding period of 2018, is the weakest period of the year on a seasonal basis.

Watsco, Inc. Price, Consensus and EPS Surprise

Product Line Sales Discussion

Sales of HVAC equipment (heating, ventilating and air conditioning; accounting for 67% of sales) increased 2% from a year ago. However, sales of other HVAC products (29% of sales) and commercial refrigeration products (4% of sales) declined 2% and 4%, respectively, from the prior-year quarter.

Operating Highlights

Cost of sales grew 0.3% to $697.5 million from the year-ago quarter. Gross margin improved 20 basis points (bps) to 25.1%.

Selling, general & administrative expenses (SG&A) increased 1% from the year-ago quarter to $180.1 million. On a same-store basis, the metric remained flat year over year. However, SG&A expenses, as a percentage of sales, improved 10 bps to 19.2%.

Operating income increased 2% from the prior-year period to $55.1 million during the quarter. Operating margin also improved 10 bps year over year to 5.9%. On a same-store basis, operating income rose 4%, while operating margin expanded 30 bps to a record of 6.1%.

Financial Operations

As of Mar 31, 2019, cash and cash equivalents were $77.3 million compared with $82.9 million at 2018-end. Cash from operations was $52.9 million in the first quarter compared with $41.6 million a year ago.

At the end of the first quarter, Watsco’s debt-to-total capitalization ratio was 8%.

Strategic Highlights

On Apr 4, 2019, the company announced the completion of the acquisition of a distributor of air conditioning and heating products, DASCO Supply. Based in Whippany, NJ, DASCO will provide its resources and technology in order to aid Watsco in accomplishing growth plans.

Zacks Rank & Key Picks

Watsco currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Peer Releases

Acuity Brands, Inc.’s (NYSE:AYI) second-quarter fiscal 2019 adjusted earnings of $1.99 per share topped the Zacks Consensus Estimate of $1.79 by 11.2% and increased 5.3% on a year-over-year basis. Net sales during the quarter came in at $854.4 million, missing the consensus mark of $876.9 million by 2.6%. However, the reported figure increased 2.7% year over year.

United Rentals’ (NYSE:URI) first-quarter 2019 adjusted earnings of $3.31 per share topped the consensus mark of $3.06 by 8.3% and increased 15.3% from the prior-year period. Total revenues of $2.12 billion also surpassed the consensus mark of $2.07 billion by 2.5%. Moreover, the said figure rose 22.1% year over year.

Fastenal Company’s (NASDAQ:FAST) earnings came in at 68 cents per share in first-quarter 2019, beating the Zacks Consensus Estimate by 1.5% and increasing 11.9% from 61 cents reported a year ago. Also, net sales of $1.31 billion topped the consensus mark of $1.3 billion and grew 10.4% year over year.

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