It has been about a month since the last earnings report for Watsco, Inc. (NYSE:WSO) . Shares have added about 5.3% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is WSO due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Watsco Q1 Earnings In line, Revenues Beat Estimates
Watsco posted earnings per share of 89 cents in first-quarter 2018, up 25% year over year. Earnings came in line with the Zacks Consensus Estimate.
Total revenues in the quarter increased 6% year over year to $927 million. The figure beat the Zacks Consensus Estimate of $914 million. Sales of HVAC (heating, ventilating and air conditioning) went up 8%, other HVAC products sales also increased 5%, while commercial refrigeration products sales remained flat.
Cost and Margins
Cost of sales flared up 6.5% to $695.7 million from $653.5 million recorded in the year-ago quarter. Gross profit improved 5.6% year over year to $230.8 million. Gross profit margin contracted 20 basis points (bps) year over year to 24.9%.
Selling, general and administrative expenses increased 5% year over year to $178.5 million. The company reported operating income of $1.6 million compared to breakeven results recorded in the year-ago quarter. Operating margin expanded 20 basis points (bps) year over year to 5.8%.
Financial Operations
Watsco had cash and cash equivalents of $58 million at the end of the first quarter compared with $81 million recorded at the end of 2017. The company used $41.6 million of cash in operating activities during the quarter compared with cash usage of $34.3 million recorded in the prior-year quarter.
Watsco's also approved a 16% hike in its annual dividend to $5.80 per share effective April 2018.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. There have been five revisions lower for the current quarter.
Watsco, Inc. Price and Consensus
VGM Scores
At this time, WSO has a poor Growth Score of F, however its Momentum is doing a lot better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for momentum investors than value investors.
Outlook
Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. It's no surprise WSO has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
Watsco, Inc. (WSO): Free Stock Analysis Report
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