Watsco Achieves Record Sales, Operating Margins, Net Income and EPS During Second Quarter
Strong U.S. Unit Growth for High-Efficiency Residential HVAC Systems, Market Share Gains & Operating Efficiencies Drive Performance
Second Quarter Results
Key performance metrics:
-
Revenues increased 4% to a record
$1.17 billion - Gross profit margin increased 10 basis-points
- SG&A decreased 20 basis-points as a percentage of sales
- Operating margins expanded 30 basis-points to a record 9.7%
-
Earnings per diluted share increased 8% to a record
$1.60
Revenue trends:
- HVAC equipment (66% of sales) increased 6%
- U.S. residential equipment increased 8% with gains in market share
- Double-digit growth in high-efficiency residential systems
- Other HVAC products (30% of sales) increased 2%
- Commercial refrigeration products (4% of sales) increased 5%
- Domestic (88% of sales) increased 6% and international decreased 4%
Mr. Nahmad added: “These results also reflect investments in new locations, the addition of more than 200 employees and the development and launch of technologies to generate long-term growth and market share. New locations bring density and convenience to our customers. New employees, including more outside salespeople, counter-sales personnel, commercial HVAC experts and product line champions, intensify our sales and customer-service efforts. Our on-going investments in technology, both in talent and in capital spending, will provide innovative capabilities to sell products and serve our customers as well as provide greater insight into our business. We expect these investments to generate growth, develop share for our vendor partners and further distance ourselves from the competition.”
First Half 2014 Results
Key performance metrics:
-
Revenues increased 5% to a record
$1.93 billion - Gross profit margin increased 10 basis-points
- SG&A decreased 20 basis-points as a percentage of sales
- Operating margins expanded 30 basis-points to 7.7%, matching the record
-
Earnings per diluted share climbed 11% to a record
$2.08
Revenue trends:
- HVAC equipment (64% of sales) increased 7%
- U.S. residential HVAC equipment increased 10% with gains in market share
- Other HVAC products (31% of sales) increased 3%
- Commercial refrigeration products (5% of sales) increased 4%
- Domestic (87% of revenues) increased 7% and international decreased 4%
Dividends
Dividends increased 61% during the first six months of 2014. In April,
the Company raised its quarterly cash dividend rate 50% to
Purchase of Additional 10% Interest of Carrier Enterprise
On
Outlook for 2014
Watsco’s outlook for full-year 2014 diluted earnings per share is within
the range of
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
There are approximately 89 million central air conditioning and heating
systems installed in
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, INC. | ||||||||||||||||
Condensed Consolidated Results of Operations | ||||||||||||||||
(In thousands, except per share data) | ||||||||||||||||
(Unaudited) | ||||||||||||||||
Quarter Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Revenues | $ | 1,170,186 | $ | 1,120,452 | $ | 1,932,754 | $ | 1,834,085 | ||||||||
Cost of sales | 890,913 | 853,772 | 1,465,412 | 1,391,959 | ||||||||||||
Gross profit | 279,273 | 266,680 | 467,342 | 442,126 | ||||||||||||
Gross profit margin | 23.9 | % | 23.8 | % | 24.2 | % | 24.1 | % | ||||||||
SG&A expenses | 166,293 | 161,595 | 318,809 | 306,487 | ||||||||||||
Operating income | 112,980 | 105,085 | 148,533 | 135,639 | ||||||||||||
Operating margin | 9.7 | % | 9.4 | % | 7.7 | % | 7.4 | % | ||||||||
Interest expense, net | 1,247 | 1,688 | 2,256 | 2,870 | ||||||||||||
Income before income taxes | 111,733 | 103,397 | 146,277 | 132,769 | ||||||||||||
Income taxes | 33,348 | 30,815 | 43,489 | 39,098 | ||||||||||||
Net income | 78,385 | 72,582 | 102,788 | 93,671 | ||||||||||||
Less: net income attributable to noncontrolling interest | 22,284 | 21,264 | 29,934 | 28,968 | ||||||||||||
Net income attributable to Watsco, Inc. | $ | 56,101 | $ | 51,318 | $ | 72,854 | $ | 64,703 | ||||||||
Diluted earnings per share: | ||||||||||||||||
Net income attributable to Watsco, Inc. shareholders | $ | 56,101 | $ | 51,318 | $ | 72,854 | $ | 64,703 | ||||||||
Less: distributed and undistributed earnings allocated to non-vested (restricted) common stock | 4,281 | 3,623 | 5,526 | 4,560 | ||||||||||||
Earnings allocated to Watsco, Inc. shareholders | $ | 51,820 | $ | 47,695 | $ | 67,328 | $ | 60,143 | ||||||||
Weighted-average Common and Class B common shares and equivalent shares used to calculate diluted earnings per share | 32,353,045 | 32,248,855 | 32,329,376 | 32,231,246 | ||||||||||||
Diluted earnings per share for Common and Class B common stock | $ | 1.60 | $ | 1.48 | $ | 2.08 | $ | 1.87 | ||||||||
WATSCO, INC. | ||||||
Condensed Consolidated Balance Sheets | ||||||
(Unaudited, in thousands) | ||||||
June 30, | December 31, | |||||
2014 | 2013 | |||||
Cash and cash equivalents | $ | 16,865 | $ | 19,478 | ||
Accounts receivable, net | 549,901 | 399,565 | ||||
Inventories | 759,973 | 583,154 | ||||
Other | 19,479 | 18,905 | ||||
Total current assets | 1,346,218 | 1,021,102 | ||||
Property and equipment, net | 45,139 | 45,418 | ||||
Goodwill, intangibles, net and other | 599,482 | 603,011 | ||||
Total assets | $ | 1,990,839 | $ | 1,669,531 | ||
Accounts payable and accrued expenses | $ | 385,487 | $ | 243,399 | ||
Current portion of long-term obligations | 165 | 107 | ||||
Total current liabilities | 385,652 | 243,506 | ||||
Borrowings under revolving credit agreement | 348,787 | 230,044 | ||||
Deferred income taxes and other liabilities | 70,866 | 68,589 | ||||
Total liabilities | 805,305 | 542,139 | ||||
Watsco's shareholders’ equity | 894,728 | 840,396 | ||||
Noncontrolling interest | 290,806 | 286,996 | ||||
Shareholders’ equity | 1,185,534 | 1,127,392 | ||||
Total liabilities and shareholders’ equity | $ | 1,990,839 | $ | 1,669,531 | ||
WATSCO, INC. | ||||||||
Condensed Consolidated Statements of Cash Flows | ||||||||
(Unaudited, in thousands) | ||||||||
Six Months Ended June 30, | ||||||||
2014 | 2013 | |||||||
Cash flow from operating activities: | ||||||||
Net income | $ | 102,788 | $ | 93,671 | ||||
Non-cash items | 17,152 | 17,617 | ||||||
Changes in working capital | (185,098 | ) | (188,195 | ) | ||||
Net cash used in operating activities | (65,158 | ) | (76,907 | ) | ||||
Cash flow from investing activities: | ||||||||
Capital expenditures, net | (5,570 | ) | (6,803 | ) | ||||
Cash flow from financing activities: | ||||||||
Dividends on Common and Class B Common stock | (27,909 | ) | (17,298 | ) | ||||
Net proceeds under revolving credit agreement | 118,767 | 84,254 | ||||||
Distributions to noncontrolling interest | (25,817 | ) | (31,489 | ) | ||||
Other | 3,148 | 790 | ||||||
Net cash provided by financing activities | 68,189 | 36,257 | ||||||
Effect of foreign exchange rate changes on cash and cash equivalents | (74 | ) | (786 | ) | ||||
Net decrease in cash and cash equivalents | (2,613 | ) | (48,239 | ) | ||||
Cash and cash equivalents at beginning of period | 19,478 | 73,770 | ||||||
Cash and cash equivalents at end of period | $ | 16,865 | $ | 25,531 | ||||
Source:
Watsco, Inc.
Barry S. Logan, 305-714-4102
Senior Vice President
blogan@watsco.com