Watsco Sets New Records for Earnings and Earnings Per Share on Record Sales During Third Quarter
Strong U.S. Growth for High-Efficiency Residential HVAC Systems, Market Share Gains and Operating Efficiencies Drive Performance
Third Quarter Results
Key performance metrics:
-
Revenues increased 5% to a record
$1.135 billion - Gross profit margin increased 30 basis-points
- SG&A decreased 20 basis-points as a percentage of sales to a record low
-
Operating profit increased 10% to a record
$105 million - Operating margins expanded 50 basis-points to 9.3%
-
Earnings per diluted share increased 18% to a record
$1.56
Revenue trends:
- HVAC equipment (65% of sales) increased 7%
- 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) were flat
- Commercial refrigeration products (5% of sales) increased 14%
Nine-Month Results
Key performance metrics:
-
Revenues increased 5% to a record
$3.068 billion - Gross profit margin increased 20 basis-points
- SG&A decreased 20 basis-points as a percentage of sales to a record low
-
Operating profit increased 10% to a record
$254 million - Operating margins expanded 40 basis-points to 8.3%, matching the record
-
Earnings per diluted share increased 14% to a record
$3.64
Revenue trends:
- HVAC equipment (64% of sales) increased 7%
- U.S. residential equipment increased 9% with gains in market share
- Other HVAC products (31% of sales) increased 2%
- Commercial refrigeration products (5% of sales) increased 7%
These results reflect investments in additional locations, more than 200 new employees and technology initiatives to generate long-term growth and market share. New locations bring density and convenience to contractor customers. New employees, including more outside salespeople, counter-sales personnel, commercial HVAC experts and product line champions, intensify sales and customer-service efforts. Investments in technology, both in talent and capital spending, provide pioneering capabilities to sell products and serve customers as well as greater insight into the business.
Results also reflect a 10% greater ownership interest in
Dividends
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 September 30, | Nine Months Ended September 30, | |||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||
Revenues | $1,134,999 | $1,081,893 | $3,067,753 | $2,915,978 | ||||||||
Cost of sales | 860,234 | 823,296 | 2,325,646 | 2,215,255 | ||||||||
Gross profit | 274,765 | 258,597 | 742,107 | 700,723 | ||||||||
Gross profit margin | 24.2 | % | 23.9 | % | 24.2 | % | 24.0 | % | ||||
SG&A expenses | 169,527 | 163,142 | 488,336 | 469,629 | ||||||||
Operating income | 105,238 | 95,455 | 253,771 | 231,094 | ||||||||
Operating margin | 9.3 | % | 8.8 | % | 8.3 | % | 7.9 | % | ||||
Interest expense, net | 1,534 | 1,781 | 3,790 | 4,651 | ||||||||
Income before income taxes | 103,704 | 93,674 | 249,981 | 226,443 | ||||||||
Income taxes | 32,573 | 27,556 | 76,062 | 66,654 | ||||||||
Net income | 71,131 | 66,118 | 173,919 | 159,789 | ||||||||
Less: net income attributable to noncontrolling interest | 16,670 | 20,419 | 46,604 | 49,387 | ||||||||
Net income attributable to Watsco, Inc. | $54,461 | $45,699 | $127,315 | $110,402 | ||||||||
Diluted earnings per share: | ||||||||||||
Net income attributable to Watsco, Inc. shareholders | $54,461 | $45,699 | $127,315 | $110,402 | ||||||||
Less: earnings allocated to non-vested (restricted) common stock | 4,103 | 3,246 | 9,635 | 7,801 | ||||||||
Earnings allocated to all other Watsco, Inc. shareholders |
$50,358 | $42,453 | $117,680 | $102,601 | ||||||||
Weighted-average Common and Class B common shares and equivalent shares used to calculate diluted earnings per share | 32,375,939 | 32,276,113 | 32,345,068 | 32,246,366 | ||||||||
Diluted earnings per share for Common and Class B common stock | $1.56 | $1.32 | $3.64 | $3.18 | ||||||||
WATSCO, INC. Condensed Consolidated Balance Sheets (Unaudited, in thousands) |
||||
September 30, | December 31, | |||
2014 | 2013 | |||
Cash and cash equivalents | $16,691 | $19,478 | ||
Accounts receivable, net | 502,522 | 399,565 | ||
Inventories | 729,865 | 583,154 | ||
Other | 22,258 | 18,905 | ||
Total current assets | 1,271,336 | 1,021,102 | ||
Property and equipment, net | 45,355 | 45,418 | ||
Goodwill, intangibles, net and other | 588,297 | 603,011 | ||
Total assets | $1,904,988 | $1,669,531 | ||
Accounts payable and accrued expenses | $340,584 | $243,399 | ||
Current portion of long-term obligations | 167 | 107 | ||
Total current liabilities | 340,751 | 243,506 | ||
Borrowings under revolving credit agreement | 352,003 | 230,044 | ||
Deferred income taxes and other liabilities | 72,673 | 68,589 | ||
Total liabilities | 765,427 | 542,139 | ||
Watsco's shareholders’ equity | 881,443 | 840,396 | ||
Noncontrolling interest | 258,118 | 286,996 | ||
Shareholders’ equity | 1,139,561 | 1,127,392 | ||
Total liabilities and shareholders’ equity | $1,904,988 | $1,669,531 | ||
WATSCO, INC. Condensed Consolidated Statements of Cash Flows (Unaudited, in thousands) |
||||||
Nine Months Ended September 30, | ||||||
2014 | 2013 | |||||
Cash flow from operating activities: | ||||||
Net income | $173,919 | $159,789 | ||||
Non-cash items | 27,596 | 24,804 | ||||
Changes in working capital | (159,796 | ) | (133,410 | ) | ||
Net cash provided by operating activities | 41,719 | 51,183 | ||||
Cash flow from investing activities: | ||||||
Capital expenditures, net | (8,902 | ) | (10,693 | ) | ||
Cash flow from financing activities: | ||||||
Purchase of additional ownership from noncontrolling interest | (87,735 | ) | - | |||
Dividends on Common and Class B Common stock | (48,884 | ) | (25,958 | ) | ||
Distributions to noncontrolling interest | (25,817 | ) | (31,487 | ) | ||
Other | 4,075 | 2,760 | ||||
Net proceeds under revolving credit agreement | 122,943 | (30,010 | ) | |||
Net cash used in financing activities | (35,418 | ) | (84,695 | ) | ||
Effect of foreign exchange rate changes on cash and cash equivalents | (186 | ) | (336 | ) | ||
Net decrease in cash and cash equivalents | (2,787 | ) | (44,541 | ) | ||
Cash and cash equivalents at beginning of period | 19,478 | 73,770 | ||||
Cash and cash equivalents at end of period | $16,691 | $29,229 | ||||
Source:
Watsco, Inc.
Barry S. Logan, 305-714-4102
Senior Vice President
blogan@watsco.com