Watsco Sets Records for Net Income, EPS and Delivers Strong Cash Flow During Third Quarter; Sales Momentum Building Following Hurricane Disruptions
In addition to record operating results,
The results reflect disruptions from Hurricanes Harvey, Irma and Maria, which impacted certain of the Company’s largest markets during August and September. More than 300 locations experienced some impact with 190 location closures, including key markets in
The results also reflect continued investment in a variety of technologies to revolutionize Watsco’s customer-experience, to create a data-driven culture, to empower more insightful decision-making and to enhance productivity and operational efficiency. The Company has also made additional investments in products and people to grow and develop market share for our supplier partners.
Third Quarter Results
Key performance metrics:
- 2% increase in earnings per share to a record
$1.82 - 3% increase in net income to a record
$65 million - Flat SG&A expenses
- 4% decrease in operating income to
$114 million (9.3% operating margin) - 46% increase in operating cash flow to
$152 million
Sales trends:
- 1% decrease in sales to
$1.23 billion (flat on a same-store basis) - Flat sales for HVAC equipment (68% of sales), including 2% increase in residential products
- 4% decrease in other HVAC products (27% of sales)
- 4% decrease in commercial refrigeration products (5% of sales)
Mr. Nahmad added: “We appreciate the efforts of our more than 1,800 employees that were impacted by the storms for their dedication and commitment in serving the 30,000-plus customers that operate in the impacted areas.”
Nine-Month Results
Key performance metrics:
- 7% increase in earnings per share to a record
$4.62 - 8% increase in net income to a record
$165 million - 2% increase in operating income to a record
$293 million (8.7% operating margin) - 26% increase in operating cash flow to a record
$185 million
Sales trends:
- 2% increase in sales to a record
$3.38 billion (3% increase on same-store basis) - 3% increase in HVAC equipment (67% of sales)
- Flat sales for other HVAC products (28% of sales)
- 1% growth in commercial refrigeration products (5% of sales)
Technology Strategy
Mr. Nahmad added: “We continue to make progress with our industry-leading technologies and estimate e-commerce sales can reach
Cash Flow & Dividends
Operating cash flow for the quarter increased 46% to
Dividends paid in 2017 increased 32% to $119 million. In
Outlook for 2017
Acquisition of 35% of
In
Acquisition of Joint Venture Interests
In February 2017, Watsco raised its ownership of Carrier Enterprise Northeast LLC, a joint venture with Carrier, to 80% from 70% for approximately $43 million in cash. Carrier Enterprise Northeast had sales of approximately $500 million in 2016 from 41 locations in the northeastern United States and 12 locations in Mexico. Nine-month results include a contribution of 12 cents per share from the increased ownership interest.
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 same-store basis. Information referring to same-store basis excludes the effects of locations acquired or locations opened or closed during the immediately preceding 12 months unless they are within close geographical proximity to existing locations. The Company believes that this information provides greater comparability regarding its ongoing operating performance. These measures should not be considered an alternative to measurements required by accounting principles generally accepted in
About
Watsco’s traditional sales channel is the industry’s largest and currently serves 88,000 contractor businesses through 562 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.
WATSCO, INC. Condensed Consolidated Results of Operations (In thousands, except per share data) (Unaudited) |
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Quarter Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Revenues | $1,229,591 | $1,241,232 | $3,377,610 | $3,307,091 | |||||||||||
Cost of sales | 933,696 | 939,028 | 2,552,881 | 2,500,579 | |||||||||||
Gross profit | 295,895 | 302,204 | 824,729 | 806,512 | |||||||||||
Gross profit margin | 24.1 | % | 24.3 | % | 24.4 | % | 24.4 | % | |||||||
SG&A expenses (1) | 183,728 | 182,904 | 534,515 | 518,954 | |||||||||||
Other income | 2,294 | - | 2,294 | - | |||||||||||
Operating income | 114,461 | 119,300 | 292,508 | 287,558 | |||||||||||
Operating margin | 9.3 | % | 9.6 | % | 8.7 | % | 8.7 | % | |||||||
Interest expense, net | 2,117 | 996 | 5,019 | 3,036 | |||||||||||
Income before income taxes | 112,344 | 118,304 | 287,489 | 284,522 | |||||||||||
Income taxes | 32,325 | 37,786 | 82,855 | 88,406 | |||||||||||
Net income | 80,019 | 80,518 | 204,634 | 196,116 | |||||||||||
Less: net income attributable to non-controlling interest | 14,990 | 17,419 | 39,668 | 42,859 | |||||||||||
Net income attributable to Watsco | $65,029 | $63,099 | $164,966 | $153,257 | |||||||||||
Diluted earnings per share: | |||||||||||||||
Net income attributable to Watsco shareholders | $65,029 | $63,099 | $164,966 | $153,257 | |||||||||||
Less: distributed and undistributed earnings allocated to non-vested restricted common stock | 5,468 | 5,078 | 13,840 | 12,383 | |||||||||||
Earnings allocated to Watsco shareholders | $59,561 | $58,021 | $151,126 | $140,874 | |||||||||||
Weighted-average Common and Class B common shares and equivalent shares used to calculate diluted earnings per share | 32,746,366 | 32,650,153 | 32,711,850 | 32,601,115 | |||||||||||
Diluted earnings per share for Common and Class B common stock | $1.82 | $1.78 | $4.62 | $4.32 |
(1) Selling, general and administrative expenses.
WATSCO, INC. Condensed Consolidated Balance Sheets (Unaudited, in thousands) |
|||||
September 30, 2017 | December 31, 2016 | ||||
Cash and cash equivalents | $66,667 | $56,010 | |||
Accounts receivable, net | 568,457 | 475,974 | |||
Inventories | 786,056 | 685,011 | |||
Other | 17,761 | 23,161 | |||
Total current assets | 1,438,941 | 1,240,156 | |||
Property and equipment, net | 91,483 | 90,502 | |||
Goodwill, intangibles, net and other | 617,795 | 543,991 | |||
Total assets | $2,148,219 | $1,874,649 | |||
Accounts payable and accrued expenses | $460,155 | $314,688 | |||
Current portion of long-term obligations | 244 | 200 | |||
Total current liabilities | 460,399 | 314,888 | |||
Borrowings under revolving credit agreement | 284,700 | 235,294 | |||
Deferred income taxes and other liabilities | 71,085 | 72,719 | |||
Total liabilities | 816,184 | 622,901 | |||
Watsco's shareholders’ equity | 1,052,139 | 1,005,828 | |||
Non-controlling interest | 279,896 | 245,920 | |||
Shareholders’ equity | 1,332,035 | 1,251,748 | |||
Total liabilities and shareholders’ equity | $2,148,219 | $1,874,649 |
Condensed Consolidated Statements of Cash Flows (Unaudited, in thousands) |
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Nine Months Ended September 30, | |||||||
2017 | 2016 | ||||||
Cash flow from operating activities: | |||||||
Net income | $204,634 | $196,116 | |||||
Non-cash items | 30,446 | 31,670 | |||||
Changes in working capital | (50,375 | ) | (81,486 | ) | |||
Net cash provided by operating activities | 184,705 | 146,300 | |||||
Cash flow from investing activities: | |||||||
Investment in unconsolidated entity | (63,600 | ) | - | ||||
Capital expenditures, net | (13,690 | ) | (8,314 | ) | |||
Net cash used in investing activities | (77,290 | ) | (8,314 | ) | |||
Cash flow from financing activities: | |||||||
Dividends on Common and Class B common stock | (119,468 | ) | (90,298 | ) | |||
Purchase of additional ownership from non-controlling interest | (42,688 | ) | - | ||||
Distributions to non-controlling interest | (6,799 | ) | (26,027 | ) | |||
Net proceeds (repayments) under revolving credit agreement | 49,406 | (25,900 | ) | ||||
Proceeds from non-controlling interest for investment in unconsolidated entity | 12,720 | | - | ||||
Net proceeds from sale of Common stock | 5,391 | - | |||||
Other | 3,156 | 4,852 | |||||
Net cash used in financing activities | (98,282 | ) | (137,373 | ) | |||
Effect of foreign exchange rate changes on cash and cash equivalents | 1,524 | 68 | |||||
Net increase in cash and cash equivalents | 10,657 | 681 | |||||
Cash and cash equivalents at beginning of period | 56,010 | 35,229 | |||||
Cash and cash equivalents at end of period | $66,667 | $35,910 |
Barry S. Logan
Senior Vice President
(305) 714-4102
e-mail: blogan@watsco.com
(305) 714-4100
Fax: (305) 858-4492
www.watsco.com