Watsco Sets Full-Year and Fourth Quarter Records for Sales, Earnings, EPS and Cash Flow
Technology Investments and Culture of Innovation Continue to Transform the HVAC Distribution Channel
2016 Full-Year Results
Key performance metrics:
-
Earnings per share increased 5% to a record
$5.15 -
Net income increased 6% to a record
$183 million -
Operating income increased 3% to a record
$346 million - Operating income for U.S. locations (87% of sales) increased 6% (operating margins expanded 20 basis-points)
- Operating income for international locations (13% of sales) declined 14% (operating margins declined 120 basis-points)
-
Operating cash flow of
$8.52 per share, a 25% increase to a record$278 million
Sales trends:
-
Sales increased 3% to a record
$4.2 billion - HVAC equipment increased 3% (66% of sales), including 4% growth in the U.S.
- Other HVAC products increased 1% (29% of sales)
- Commercial refrigeration products increased 6% (5% of sales)
Mr. Nahmad added: “Watsco generated record cash flow of
Fourth Quarter Results
Key performance metrics:
-
Earnings per share increased 8% to a record
81 cents -
Net income increased 12% to a record
$30 million -
Operating income increased 7% to a record
$58 million (operating margins expanded 40 basis-points to record level) - Operating income in U.S. locations increased 11% (operating margins expanded 50 basis-points)
- Operating income international locations decreased 4% (operating margins declined 30 basis-points)
-
Operating cash flow increased 8% to a record
$131 million
Sales trends:
-
Sales increased 1% to a record
$914 million - HVAC equipment increased 2% (66% of sales), including 3% growth in the U.S.
- Other HVAC products declined 1% (29% of sales)
- Commercial refrigeration products increased 3% (5% of sales)
Mr. Nahmad added: “Watsco delivered record performance during the fourth quarter, reflecting mid-single-digit growth in most markets, offset by unfavorable seasonal conditions in certain regions and a decline in international locations. We are focused on achieving another record year in 2017 while driving the adoption and advancement of our technologies with our customers and within our organization.”
It is important to note that the first and fourth quarters of each calendar year are highly seasonal due to the nature and timing of the replacement market for air conditioning systems, which is strongest in the second and third quarters. Accordingly, the Company’s fourth quarter financial results are disproportionately affected by this seasonality.
Technology Strategy
Watsco has established itself as the leader in the HVAC distribution industry and produced a 21% compounded annual total-shareholder-return over the last 25 years. A variety of scalable technologies have been launched to transform Watsco into a modern, data-based company to continue its outperformance in the digital era. Watsco’s goals with these technology programs are to further strengthen its leadership position, accelerate sales and profit growth, increase the speed, convenience and efficiency in serving customers and to extend Watsco’s reach into new geographies and sales channels.
Since 2012, Watsco’s technology team has grown from approximately 60 employees to 175 employees. Financial performance in 2016 reflects an increase of $3.3 million in technology-related costs (6 cents diluted per share). The present annual run-rate for technology related costs is approximately $23 million.
Examples of innovations that Watsco has launched to enhance the buying experience for its 88,000 customers and the service capabilities of personnel at its 565 locations include:
- Mobile apps, e-commerce and other on-line tools using the industry’s most data-rich catalog of product information.
- Business intelligence and data analytics to enable more insightful decision-making by more than 600+ P&L managers across the company.
- Supply chain optimization to improve fill-rates, increase inventory turns and reduce real estate requirements and other operational costs over the long-term.
- Comprehensive order fulfillment software and implementation of wireless warehouses to improve operational efficiency for 7+ million annual customer transactions.
A summary of key performance indicators for the company’s primary technology platforms is as follows:
E-Commerce / App Usage |
Progress in 2016 |
|
iOS or Android app users | 220% increase in weekly active users | |
Products (SKUs) mastered | 71% increase to over 500,000 SKUs | |
E-commerce transactions | 127% increase in on-line transactions | |
Line items per order on-line versus in-store | 28% more line items per order | |
Business Intelligence (BI) Platform |
||
Increase in internal BI users | 12% increase to over 1,500 users | |
Average number of BI queries per day per user | 31% increase in queries per user | |
Total user inquiries during the year | Over 225,000 queries processed | |
Salesman BI-user performance versus non-user | 7-times better sales performance | |
Store manager BI-user performance versus non-user | 5-times better sales performance | |
Supply Chain / Warehouse Optimization |
||
Total company inventory turns | 32 basis-point improvement in turns | |
Inventory turns for fully-adopted locations | 80 basis-point improvement in turns | |
Service levels for fully-adopted locations | 300 basis-point improvement to 97% | |
Number of wireless locations | 359 locations now functioning | |
Locations with digitized order fulfillment software | 150 locations versus 25 locations last year | |
Locations with express pickup | 68 locations (began in late 2016) | |
Reduction of real estate requirements | 500,000 square foot reduction | |
Cash Flow & Dividends
Operating cash flow for the full year was a record
Other
2016 full-year results include income tax benefits 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.
Use of Non-GAAP Financial Information
In this release, the Company discloses non-GAAP measure of “operating
cash flow per share”, which is determined by dividing “net cash provided
by operating activities” as shown in the attached Condensed Consolidated
Statements of Cash Flows by the “weighted–average Common and Class B
common shares and equivalent shares used to calculated earnings per
share” as shown in the attached Condensed Consolidated Results of
Operations. The Company believes that this information provides a
meaningful comparison and important correlation of the Company’s
financial performance and cash flow generation on a per share basis in
order to further assess overall performance. This measure should not be
considered an alternative to measurements required by accounting
principles generally accepted in
About
Watsco’s traditional sales channel is through one of its 565 locations
in
Cautionary Statement Regarding Forward-Looking Statements
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 December 31, | Year Ended December 31, | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Revenues | $ | 913,611 | $903,816 | $4,220,702 | $ | 4,113,239 | ||||||||||
Cost of sales | 685,539 | 681,775 | 3,186,118 | 3,105,882 | ||||||||||||
Gross profit | 228,072 | 222,041 | 1,034,584 | 1,007,357 | ||||||||||||
Gross profit margin | 25.0 | % | 24.6 | % | 24.5 | % | 24.5 | % | ||||||||
SG&A expenses | 169,998 | 167,840 | 688,952 | 670,609 | ||||||||||||
Operating income | 58,074 | 54,201 | 345,632 | 336,748 | ||||||||||||
Operating margin | 6.4 | % | 6.0 | % | 8.2 | % | 8.2 | % | ||||||||
Interest expense, net | 677 | 1,021 | 3,713 | 5,547 | ||||||||||||
Income before income taxes | 57,397 | 53,180 | 341,919 | 331,201 | ||||||||||||
Income taxes | 17,530 | 16,841 | 105,936 | 104,677 | ||||||||||||
Net income | 39,867 | 36,339 | 235,983 | 226,524 | ||||||||||||
Less: net income attributable to non-controlling interest | 10,314 | 9,849 | 53,173 | 53,595 | ||||||||||||
Net income attributable to Watsco | $ | 29,553 | $ | 26,490 | $ | 182,810 | $ | 172,929 | ||||||||
Diluted earnings per share: | ||||||||||||||||
Net income attributable to Watsco shareholders | $ | 29,553 | $ | 26,490 | $ | 182,810 | $ | 172,929 | ||||||||
Less: distributed and undistributed earnings allocated to non-vested restricted common stock |
3,050 | 2,107 | 14,801 | 13,626 | ||||||||||||
Earnings allocated to Watsco shareholders | $ | 26,503 | $ | 24,383 | $ | 168,009 | $ | 159,303 | ||||||||
Weighted-average Common and Class B common shares and equivalent shares used to calculate diluted earnings per share | 32,662,341 | 32,513,121 | 32,616,504 | 32,480,356 | ||||||||||||
Diluted earnings per share for Common and Class B common stock | $ | 0.81 | $ | 0.75 | $ | 5.15 | $ | 4.90 | ||||||||
WATSCO, INC. | |||||||||
Condensed Consolidated Balance Sheets | |||||||||
(Unaudited, in thousands) | |||||||||
December 31, | December 31, | ||||||||
2016 | 2015 | ||||||||
Cash and cash equivalents | $56,010 | $ | 35,229 | ||||||
Accounts receivable, net | 475,974 | 451,079 | |||||||
Inventories | 685,011 | 673,967 | |||||||
Other | 23,161 | 20,990 | |||||||
Total current assets | 1,240,156 | 1,181,265 | |||||||
Property and equipment, net | 90,502 | 62,715 | |||||||
Goodwill, intangibles, net and other | 543,991 | 544,462 | |||||||
Total assets | $1,874,649 | $ | 1,788,442 | ||||||
Accounts payable and accrued expenses | $314,688 | $ | 270,117 | ||||||
Current portion of long-term obligations | 200 | 184 | |||||||
Total current liabilities | 314,888 | 270,301 | |||||||
Borrowings under revolving credit agreement | 235,294 | 245,300 | |||||||
Deferred income taxes and other liabilities | 72,719 | 69,120 | |||||||
Total liabilities | 622,901 | 584,721 | |||||||
Watsco's shareholders’ equity | 1,005,828 | 957,310 | |||||||
Non-controlling interest | 245,920 | 246,411 | |||||||
Shareholders’ equity | 1,251,748 | 1,203,721 | |||||||
Total liabilities and shareholders’ equity | $1,874,649 | $ | 1,788,442 | ||||||
WATSCO, INC. |
|||||||||
Condensed Consolidated Statements of Cash Flows |
|||||||||
(Unaudited, in thousands) |
|||||||||
Year Ended December 31, |
|||||||||
2016 | 2015 | ||||||||
Cash flow from operating activities: | |||||||||
Net income | $ | 235,983 | $ | 226,524 | |||||
Non-cash items | 40,751 | 38,142 | |||||||
Changes in working capital | 1,022 | (43,283 | ) | ||||||
Net cash provided by operating activities | 277,756 | 221,383 | |||||||
Cash flow from investing activities: | |||||||||
Capital expenditures, net | (42,833 | ) | (22,938 | ) | |||||
Cash flow from financing activities: | |||||||||
Dividends on Common and Class B Common stock | (127,604 | ) | (98,532 | ) | |||||
Net repayments under revolving credit agreement | (10,006 | ) | (56,256 | ) | |||||
Distributions to non-controlling interest | (38,900 | ) | (39,754 | ) | |||||
Purchase of additional ownership from non-controlling interest | (42,909 | ) | - | ||||||
Other | 5,503 | 8,222 | |||||||
Net cash used in financing activities | (213,916 | ) | (186,320 | ) | |||||
Effect of foreign exchange rate changes on cash and cash equivalents | (226 | ) | (1,343 | ) | |||||
Net increase in cash and cash equivalents | 20,781 | 10,782 | |||||||
Cash and cash equivalents at beginning of year | 35,229 | 24,447 | |||||||
Cash and cash equivalents at end of year | $ | 56,010 | $ | 35,229 | |||||
View source version on businesswire.com: http://www.businesswire.com/news/home/20170214005490/en/
Source:
Watsco, Inc.
Barry S. Logan, 305-714-4102
Senior Vice President
blogan@watsco.com