Watsco’s First Quarter Earnings Surge on Record Sales and Margins
Key performance metrics:
-
35% jump in earnings per share to a record
65 cents -
32% growth in operating income to a record
$47 million - 110 basis-point expansion in operating margins to a record 5.8%
- 50 basis-point improvement in gross profit margin
- 60 basis-point reduction in SG&A as a percentage of sales to a record low
-
6% sales increase to a record
$809 million
Sales trends:
- 8% growth in HVAC equipment (64% of sales)
- 2% increase in other HVAC products (31% of sales)
- 5% increase in commercial refrigeration products (5% of sales)
Results for the quarter include a
Mr. Nahmad added: “It is an important caution that the first quarter is the seasonal low point for sales and profits due to the magnitude of the replacement market for air conditioning and heating products, which are highest during the second and third quarter of each calendar year. Accordingly, these first quarter results are disproportionately affected by this seasonality as well as general economic conditions.”
Outlook for Full-Year 2015
Watsco’s outlook for 2015 diluted earnings per share is within the range
of
Cash Flow & Dividends
For the quarter,
Conference Call Information
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About
There are approximately 89 million central air conditioning and heating
systems installed in
Forward-Looking Statements
This document contains or incorporates by reference statements that are not historical in nature and that are intended to be, and are hereby identified as, “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Statements which are not historical in nature, including the words “anticipate,” “estimate,” “could,” “should,” “may,” “plan,” “seek,” “expect,” “believe,” “intend,” “target,” “will,” “project,” “focused,” “outlook” and variations of these words and negatives thereof and similar expressions are intended to identify forward-looking statements, including statements regarding, among others, (i) economic conditions, (ii) business and acquisition strategies, (iii) potential acquisitions and/or joint ventures, (iv) financing plans and (v) industry, demographic and other trends affecting our financial condition or results of operations. These forward-looking statements are based on management’s current expectations, are not guarantees of future performance and are subject to a number of risks, uncertainties and changes in circumstances, certain of which are beyond our control. Actual results could differ materially from these forward-looking statements as a result of several factors, including, but not limited to general economic conditions, competitive factors within the HVAC/R industry, effects of supplier concentration, fluctuations in certain commodity costs, consumer spending, consumer debt levels, new housing starts and completions, capital spending in the commercial construction market, access to liquidity needed for operations, seasonal nature of product sales, weather conditions, insurance coverage risks, federal, state and local regulations impacting our industry and products, prevailing interest rates, foreign currency exchange rate fluctuations, international political risk, cybersecurity risk and the continued viability of our business strategy.
We believe these forward-looking statements are reasonable; however, you
should not place undue reliance on any forward-looking statements, which
are based on current expectations. For additional information regarding
other important factors that may affect our operations and could cause
actual results to vary materially from those anticipated in the
forward-looking statements see the discussion included in Item 1A “Risk
Factors” of our most recent Annual Report on Form 10-K, as well as the
other documents and reports that we file with the
WATSCO, INC. |
|||||||||||
Condensed Consolidated Results of Operations | |||||||||||
(In thousands, except per share data) | |||||||||||
(Unaudited) |
|||||||||||
Quarter Ended March 31, | |||||||||||
2015 | 2014 | ||||||||||
Revenues | $ | 808,972 | $ | 762,568 | |||||||
Cost of sales | 604,747 | 574,499 | |||||||||
Gross profit | 204,225 | 188,069 | |||||||||
Gross profit margin | 25.2 | % | 24.7 | % | |||||||
SG&A expenses | 157,217 | 152,516 | |||||||||
Operating income | 47,008 | 35,553 | |||||||||
Operating margin | 5.8 | % | 4.7 | % | |||||||
Interest expense, net | 1,377 | 1,009 | |||||||||
Income before income taxes | 45,631 | 34,544 | |||||||||
Income taxes | 14,331 | 10,141 | |||||||||
Net income | 31,300 | 24,403 | |||||||||
Less: net income attributable to noncontrolling interest | 8,252 | 7,650 | |||||||||
Net income attributable to Watsco, Inc. | $ | 23,048 | $ | 16,753 | |||||||
Diluted earnings per share: | |||||||||||
Net income attributable to Watsco, Inc. shareholders | $ | 23,048 | $ | 16,753 | |||||||
Less: distributed and undistributed earnings allocated to non-vested (restricted) common stock | 1,868 | 1,242 | |||||||||
Earnings allocated to Watsco, Inc. shareholders | $ | 21,180 | $ | 15,511 | |||||||
Weighted-average Common and Class B common shares and equivalent shares used to calculate diluted earnings per share | 32,431,077 | 32,305,445 | |||||||||
Diluted earnings per share for Common and Class B common stock | $ | 0.65 | $ | 0.48 | |||||||
WATSCO, INC. |
|||||||||
Condensed Consolidated Balance Sheets | |||||||||
(Unaudited, in thousands) |
|||||||||
March 31, | December 31, | ||||||||
2015 | 2014 | ||||||||
Cash and cash equivalents | $ | 16,251 | $ | 24,447 | |||||
Accounts receivable, net | 436,456 | 434,234 | |||||||
Inventories | 800,856 | 677,990 | |||||||
Other | 19,773 | 20,664 | |||||||
Total current assets | 1,273,336 | 1,157,335 | |||||||
Property and equipment, net | 53,115 | 53,480 | |||||||
Goodwill, intangibles, net and other | 563,054 | 580,252 | |||||||
Total assets | $ | 1,889,505 | $ | 1,791,067 | |||||
Accounts payable and accrued expenses | $ | 355,969 | $ | 286,853 | |||||
Current portion of long-term obligations | 172 | 169 | |||||||
Total current liabilities | 356,141 | 287,022 | |||||||
Borrowings under revolving credit agreement | 340,653 | 303,199 | |||||||
Deferred income taxes and other liabilities | 68,304 | 68,807 | |||||||
Total liabilities | 765,098 | 659,028 | |||||||
Watsco's shareholders’ equity | 879,166 | 883,960 | |||||||
Noncontrolling interest | 245,241 | 248,079 | |||||||
Shareholders’ equity | 1,124,407 | 1,132,039 | |||||||
Total liabilities and shareholders’ equity | $ | 1,889,505 | $ | 1,791,067 | |||||
Condensed Consolidated Statements of Cash Flows | |||||||||||
(Unaudited, in thousands) | |||||||||||
Quarter Ended March 31, | |||||||||||
2015 | 2014 | ||||||||||
Cash flow from operating activities: | |||||||||||
Net income | $ | 31,300 | $ | 24,403 | |||||||
Non-cash items | 11,103 | 10,438 | |||||||||
Changes in working capital | (59,186 | ) | (9,940 | ) | |||||||
Net cash (used in) provided by operating activities | (16,783 | ) | 24,901 | ||||||||
Cash flow from investing activities: | |||||||||||
Capital expenditures, net | (3,043 | ) | (1,666 | ) | |||||||
Cash flow from financing activities: | |||||||||||
Dividends on Common and Class B Common stock | (24,524 | ) | (13,923 | ) | |||||||
Net proceeds (repayments) under revolving credit agreement | 38,497 | (2,553 | ) | ||||||||
Distributions to noncontrolling interest | (3,654 | ) | (7,614 | ) | |||||||
Other | 1,698 | 978 | |||||||||
Net cash provided by (used in) financing activities | 12,017 | (23,112 | ) | ||||||||
Effect of foreign exchange rate changes on cash and cash equivalents | (387 | ) | (144 | ) | |||||||
Net decrease in cash and cash equivalents | (8,196 | ) | (21 | ) | |||||||
Cash and cash equivalents at beginning of period | 24,447 | 19,478 | |||||||||
Cash and cash equivalents at end of period | $ | 16,251 | $ | 19,457 | |||||||
Source:
Watsco, Inc.
Barry S. Logan, 305-714-4102
Senior Vice President
blogan@watsco.com