Watsco Sets Records for Earnings Per Share, Net Income and Sales During Fourth Quarter and Full-Year
Record Annual Cash Flow; Dividend Raised 16% to
Adoption of Customer-Centric Technology Grows as Business Transformation Continues
The record operating results reflect continued investment in technologies designed to revolutionize Watsco’s customer-experience, making it easier to do business and helping customers grow their businesses more profitably. Most notably, the digitization of Watsco’s marketplace via e-commerce through iOS/Android-enabled apps and websites with the industry’s most in-depth database of product information made significant progress in 2017. Customer adoption increased enabling more contractors to interact with us 24 hours a day to find products, place orders and obtain technical support. Employees are also empowered with better data, processes and capabilities to serve their customers’ needs.
In addition to record operating performance,
Fourth Quarter Results
Key performance metrics:
- 47% increase in earnings per share to a record
$1.19 (includes29 cent benefit from tax reform) - 46% increase in net income to a record
$43 million (includes$10 million benefit from tax reform) - 6% increase in operating income to
$61 million (6.4% operating margin) - Operating cash flow of
$117 million $243 million of proceeds from ATM share offering- 91% reduction in debt to
$22 million atDecember 31, 2017
Sales trends:
- 6% increase in sales to
$964 million - 7% increase in HVAC equipment (67% of sales)
- 4% increase in other HVAC products (29% of sales)
- 4% decrease in commercial refrigeration products (4% of sales)
Mr. Nahmad added: “We are pleased to reward shareholders by raising our annual dividend to
It is important to note that the fourth quarter of each calendar year is highly seasonal due to the nature and timing of the replacement of HVAC systems, which is strongest in the second and third quarters. Accordingly, the Company’s fourth quarter financial results are disproportionately affected by seasonality.
Full Year Results
Key performance metrics:
- 13% increase in earnings per share to a record
$5.81 (includes27 cent benefit from tax reform) - 14% increase in net income to a record
$208 million (includes$10 million benefit from tax reform) - 2% increase in operating income to a record
$354 million (8.2% operating margin) - 9% increase in operating cash flow to a record
$302 million
Sales trends:
- 3% increase in sales to a record
$4.34 billion - 4% increase in HVAC equipment (67% of sales)
- 1% increase in other HVAC products (28% of sales)
- Flat sales for commercial refrigeration products (5% of sales)
Cash Flow & Dividends
Operating cash flow for the full year increased 9% to a record
Dividends paid in 2017 increased 29% to
Technology Strategy
- Mobile apps, websites and e-commerce platforms that employ the industry’s leading, data-rich repository of product information.
- Business intelligence and data analytics expertise to enable insightful assistance and decision-making by 600+ managers.
- Proprietary order fulfillment software to improve speed, accuracy and convenience of the pick, pack and ship process.
- Predictive analytics-driven demand planning and inventory optimization software to improve order fill-rates, increase inventory turns, reduce real estate requirements and improve long-term productivity.
Key performance indicators relative to these technology platforms include:
E-Commerce and App Usage | Progress in 2017 | ||
E-commerce sales | 50% growth in online sales to over $900 million | ||
E-commerce transactions | 57% increase in transactions | ||
E-commerce run-rate at end of year | 25% of sales versus 15% at the end of 2016 | ||
Unique iOS or Android app users | 34% increase in users | ||
Products (SKUs) digitized and available on-line | 30% increase to over 650,000 SKUs | ||
Line items per order on-line versus in-store | 33% more line items per order | ||
Sales attrition rate for users versus non-users | Attrition rate is 2.5X less for active users | ||
Business Intelligence (BI) Platform | |||
Increase in internal BI users | 11% increase to over 1,500 weekly-users | ||
Average number of BI queries per week per user | 30% increase in queries | ||
Number of total user inquiries during the year | 46% increase to 17.9 million queries | ||
Warehouse Efficiency | |||
Number of wireless locations | 461 locations Wi-Fi enabled versus 359 last year | ||
Locations with Order Fulfillment (OF) software | 329 locations versus 150 locations last year | ||
Number of orders filled with OF | 2.1 million versus 750,000 last year | ||
Delivery truck miles tracked and analyzed | 4.2 million miles versus 880,000 miles last year | ||
Locations with express pickup | 134 locations versus 68 locations last year | ||
Supply Chain Optimization | |||
Inventory turns for fully-adopted locations | 80 basis-point improvement over last 2 years | ||
Fill-rates for fully-adopted locations | Fill-rates of 97% (up 300 basis-points from inception) | ||
Reduction of real estate requirements | 487,000 square feet (1 million square feet over 2 years) | ||
Tax Cuts and Jobs Act of 2017
Income tax expense in 2017 reflects net tax benefits of
Investor Day
Conference Call Information
Date:
Time:
Webcast: http://investors.watsco.com
Dial-in number:
A replay of the conference call will be available on the Company's website.
About
Watsco’s traditional sales channel is the industry’s largest and currently serves 88,000 contractor businesses through 560 locations in
This document includes certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of words such as “will,” “would,” “anticipate,” “expect,” “believe,” “plan,” “optimistic,” “goal” or “intend,” the negative of these terms and similar references to future periods. 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.
Condensed Consolidated Results of Operations
(In thousands, except per share data)
(Unaudited)
Quarter Ended December 31, | Year Ended December 31, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Revenues | $ | 964,345 | $ | 913,611 | $ | 4,341,955 | $ | 4,220,702 | |||||||
Cost of sales | 723,415 | 685,539 | 3,276,296 | 3,186,118 | |||||||||||
Gross profit | 240,930 | 228,072 | 1,065,659 | 1,034,584 | |||||||||||
Gross profit margin | 25.0 | % | 25.0 | % | 24.5 | % | 24.5 | % | |||||||
SG&A expenses | 181,156 | 169,998 | 715,671 | 688,952 | |||||||||||
Other Income | 1,592 | - | 3,886 | - | |||||||||||
Operating income | 61,366 | 58,074 | 353,874 | 345,632 | |||||||||||
Operating margin | 6.4 | % | 6.4 | % | 8.2 | % | 8.2 | % | |||||||
Interest expense, net | 1,344 | 677 | 6,363 | 3,713 | |||||||||||
Income before income taxes | 60,022 | 57,397 | 347,511 | 341,919 | |||||||||||
Income taxes | 7,366 | 17,530 | 90,221 | 105,936 | |||||||||||
Net income | 52,656 | 39,867 | 257,290 | 235,983 | |||||||||||
Less: net income attributable to non-controlling interest |
9,401 | 10,314 | 49,069 | 53,173 | |||||||||||
Net income attributable to Watsco |
$ | 43,255 | $ | 29,553 | $ | 208,221 | $ | 182,810 | |||||||
Diluted earnings per share: | |||||||||||||||
Net income attributable to Watsco shareholders |
$ | 43,255 | $ | 29,553 | $ | 208,221 | $ | 182,810 | |||||||
Less: distributed and undistributed earnings allocated to non-vested restricted common stock |
3,724 | 3,050 | 17,427 | 14,801 | |||||||||||
Earnings allocated to Watsco shareholders |
$ | 39,531 | $ | 26,503 | $ | 190,794 | $ | 168,009 | |||||||
Weighted-average Common and Class B common shares and equivalent shares used to calculate diluted earnings per share |
33,310,064 | 32,662,341 | 32,862,633 | 32,616,505 | |||||||||||
Diluted earnings per share for Common and Class B common stock |
$ | 1.19 | $ | 0.81 | $ | 5.81 | $ | 5.15 | |||||||
Condensed Consolidated Balance Sheets
(Unaudited, in thousands)
December 31, | December 31, | ||||
2017 | 2016 | ||||
Cash and cash equivalents | $ | 80,496 | $ | 56,010 | |
Accounts receivable, net | 478,133 | 475,974 | |||
Inventories | 761,314 | 685,011 | |||
Other | 17,454 | 23,161 | |||
Total current assets | 1,337,397 | 1,240,156 | |||
Property and equipment, net | 91,198 | 90,502 | |||
Goodwill, intangibles, net and other | 618,282 | 543,991 | |||
Total assets | $ | 2,046,877 | $ | 1,874,649 | |
Accounts payable and accrued expenses | $ | 416,233 | $ | 314,688 | |
Current portion of long-term obligations | 244 | 200 | |||
Total current liabilities | 416,477 | 314,888 | |||
Borrowings under revolving credit agreement | 21,800 | 235,294 | |||
Deferred income taxes and other liabilities | 57,623 | 72,719 | |||
Total liabilities | 495,900 | 622,901 | |||
Watsco's shareholders’ equity | 1,297,953 | 1,005,828 | |||
Non-controlling interest | 253,024 | 245,920 | |||
Shareholders’ equity | 1,550,977 | 1,251,748 | |||
Total liabilities and shareholders’ equity | $ | 2,046,877 | $ | 1,874,649 | |
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
Year Ended December 31, | |||||||
2017 | 2016 | ||||||
Cash flow from operating activities: | |||||||
Net income | $ | 257,290 | $ | 235,983 | |||
Non-cash items | 25,239 | 40,751 | |||||
Changes in working capital | 19,317 | 1,022 | |||||
Net cash provided by operating activities | 301,846 | 277,756 | |||||
Cash flow from investing activities: | |||||||
Investment in unconsolidated entity | (63,600 | ) | - | ||||
Capital expenditures, net | (17,708 | ) | (42,833 | ) | |||
Net cash used in investing activities | (81,308 | ) | (42,833 | ) | |||
Cash flow from financing activities: | |||||||
Net repayments under revolving credit agreement | (213,494 | ) | (10,006 | ) | |||
Dividends on Common and Class B Common stock | (164,147 | ) | (127,604 | ) | |||
Distributions to non-controlling interest | (42,831 | ) | (38,900 | ) | |||
Purchase of additional ownership from non-controlling interest | (42,688 | ) | (42,909 | ) | |||
Other | 5,225 | 5,503 | |||||
Proceeds from non-controlling interest for investment in unconsolidated entity | 12,720 | - | |||||
Net proceeds from sale of Common stock | 247,744 | - | |||||
Net cash used in financing activities | (197,471 | ) | (213,916 | ) | |||
Effect of foreign exchange rate changes on cash and cash equivalents | 1,419 | (226 | ) | ||||
Net increase in cash and cash equivalents | 24,486 | 20,781 | |||||
Cash and cash equivalents at beginning of period | 56,010 | 35,229 | |||||
Cash and cash equivalents at end of period | $ | 80,496 | $ | 56,010 |
Barry S. Logan | Watsco, Inc. | ||
Senior Vice President | 2665 S. Bayshore Drive, Suite 901 | ||
(305) 714-4102 | Miami, Florida 33133, USA | ||
e-mail: blogan@watsco.com | (305) 714-4100 | ||
Fax: (305) 858-4492 | |||
www.watsco.com | |||
Source: Watsco, Inc.