WATSCO INC false 0000105016 0000105016 2021-10-20 2021-10-20 0000105016 us-gaap:CommonStockMember 2021-10-20 2021-10-20 0000105016 us-gaap:CommonClassBMember 2021-10-20 2021-10-20





Washington, D.C. 20549







Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported) October 20, 2021






(Exact name of registrant as specified in its charter)




(State or other jurisdiction of incorporation)


1-5581   59-0778222


File Number)


(IRS Employer

Identification No.)

2665 South Bayshore Drive, Suite 901

Miami, Florida 33133

(Address of principal executive offices, including zip code)

(305) 714-4100

(Registrant’s telephone number, including area code)


(Former name or former address, if changed since last report)



Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):


Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)


Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)


Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d- 2(b))


Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:


Title of each class





Name of each exchange

on which registered

Common stock, $0.50 par value    WSO    New York Stock Exchange
Class B common stock, $0.50 par value    WSOB    New York Stock Exchange

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐




Item 2.02. Results of Operations and Financial Condition

On October 20, 2021, Watsco, Inc., a Florida corporation (the “Company”), issued a press release reporting its financial results for the quarter and nine months ended September 30, 2021. A copy of the Company’s press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K and is hereby incorporated by reference in this Item 2.02.

Item 7.01. Regulation FD Disclosure

The information set forth in Item 2.02 of this Current Report on Form 8-K is incorporated by reference in this Item 7.01.

The information contained in this Current Report on Form 8-K, including Exhibit 99.1 attached hereto, shall be deemed “furnished” and not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any Company filing under the Securities Act of 1933, as amended.

Item 9.01. Financial Statements and Exhibits

(d) Exhibits





99.1    Press release dated October 20, 2021 issued by Watsco, Inc.
104    Cover Page Interactive Date File (embedded within the Inline XBRL document)


Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


Dated: October 20, 2021   By:  

/s/ Ana M. Menendez

  Ana M. Menendez,
  Chief Financial Officer

Exhibit 99.1

Watsco Generates Record Third Quarter Performance

EPS Jumps 31% to a Record $3.62 on Record Sales of $1.78 Billion

Sales, Operating Profit, Operating Margin and Net Income all at Record Levels



Investments in Customer-Focused Technologies Continue;

Branch Network Expanded and Employees Added to Support Growth;

Strong Balance Sheet Well-Positioned for Investment    

MIAMI, FLORIDA – (GLOBENEWSWIRE), October 20, 2021 – Watsco, Inc. (NYSE: WSO) reported record third quarter and nine-month operating results for the periods ended September 30, 2021.

Watsco’s entrepreneurial culture, which empowers leaders to think and act locally, continues to drive record performance with nearly all operating metrics reaching record levels. The Company achieved new performance records for sales, gross profit, gross margin, operating income, operating margin, net income and earnings per share (EPS) for both periods.

This performance includes stepped-up investments to grow customer adoption of Watsco’s various technology platforms, which collectively revolutionize the customer experience, enhance operational efficiency and help contractors grow and better serve homeowners and businesses. The Company believes the pace of innovation and change is accelerating, and its customer focused solutions, scale and leadership position provide significant long-term value. As examples, sales growth rates of contractors that are active users far outpace growth rates among non-users, and annual attrition rates are meaningfully lower among active technology users as compared to traditional customers.

Watsco has also made substantial incremental investments in its network during 2021. The Company completed three acquisitions so far this year, investing $114 million of capital in strong, market-leading businesses and has opened 20 new stores to drive future growth and support local customers.

Looking ahead, Watsco believes it can meaningfully contribute to sustainability and greenhouse gas emissions reduction through the sale of new HVAC equipment that replaces older systems operating at lower efficiencies. Based on estimates validated by independent sources, since January 1, 2020 through September 30, 2021, Watsco facilitated the reduction of an estimated 19.4 billion pounds of CO2e emissions from the sale of replacement residential air conditioners, heat pumps and furnaces.

Albert H. Nahmad, Watsco’s Chairman & CEO commented: “We believe that Watsco can play a role at scale in addressing climate change given that many of the estimated 110 million HVAC systems, installed in the U.S., operate under older energy efficiency standards and historically use high-global warming potential refrigerants and natural gas. We are investing resources and leveraging our technology to increase awareness among contractors, business owners and consumers, and we will collaborate with our OEM partners to impact climate change.”

Third Quarter Results

Key Performance Metrics



31% increase in EPS to a record $3.62



16% sales growth to a record $1.78 billion (8% growth on a same-store basis)



32% increase in operating income to a record $207 million (25% increase on a same-store basis)



140 basis-point operating margin expansion to a record 11.6% (same-store operating margin of 11.8%)



29% gross profit increase to a record $483 million (20% increase on a same-store basis)



280 basis-point gross margin increase to a record 27.1%



28% increase in SG&A expenses (17% increase on a same-store basis)



113% increase in operating cash flow to a record $238 million



Sales trends (excluding acquisitions):



7% growth in HVAC equipment (69% of sales)



12% increase in other HVAC products (27% of sales)



27% increase in commercial refrigeration products (4% of sales)

Nine-Month Period Results

Key Performance Metrics



50% increase in EPS to a record $8.75



22% sales growth to a record $4.77 billion (17% growth on a same-store basis)



53% increase in operating income to a record $505 million (46% increase on a same-store basis)



210 basis-point operating margin expansion to a record 10.6% (same-store operating margin was 10.6%)



33% gross profit increase to a record $1.26 billion (27% growth on a same-store basis)



220 basis-point gross margin increase to a record 26.3%



24% increase in SG&A expenses (17% increase on a same-store basis)

Sales trends (excluding acquisitions):



16% growth in HVAC equipment (69% of sales)



16% increase in other HVAC products (27% of sales)



28% increase in commercial refrigeration products (4% of sales)

Watsco Fundamentals

Watsco operates in diverse, highly localized markets. As the scaled distributor in a highly fragmented $50 billion industry, Watsco possesses certain fundamentals that we believe offer both long-term stability and future growth opportunities:

Geographic Markets. Watsco operates the largest network in the industry with no single location accounting for more than 3% of sales. On average, a location has $8 million of sales with approximately seven employees operating from 20,000 square feet of warehouse space. In most markets, we have several business units operating multiple locations, offering a diverse assortment of products to meet our customers’ needs.

Customers. Watsco serves approximately 350,000 contractors and technicians, increasingly through the use of digital tools, including e-commerce and mobile apps. Products are generally purchased ‘when-needed,’ which is usually within minutes or hours of a contractor’s visit to a home or business. The Company estimates replacement and repair of HVAC systems accounts for approximately 70% of Watsco’s sales. We believe this customer diversity and the immediacy for replacement HVAC products prioritizes the value of our services and mitigates risk of inflationary pressures on profitability.

Products. Watsco offers the industry’s largest inventory of products sourced from more than 1,300 vendors, available in-store or on-line. The Company sources HVAC equipment (69% of sales thus far in 2021) from 20 domestic and international OEMs and sells over 25 brand-names with a wide variety of price points, efficiencies and capacities to meet the needs of contractors. To enable e-commerce and other digital solutions, Watsco has mastered the industry’s largest product information database with rich data for over 900,000 SKUs, offering customers product solutions nearly anywhere, anytime on any device. The Company believes its scale and diversity provides a long-term advantage in its markets.

Technology & Innovation. Watsco’s technologies continue to transform how we serve and support HVAC/R contractors. Speed, productivity and scale are critical factors to serve customers in a digital world and Watsco has invested heavily to ensure an unparalleled customer experience. Our technology strategy was defined several years ago and is intended to transform a complete manual process into a complete digital process. In addition to evolving our customer’s experience, we have launched and are scaling technologies to transform the homeowner experience, which, in turn, will help our customers grow. We further believe our innovative tools and culture provide a significant long-term advantage.

Factors Impacting 2021 Performance

A number of unique factors are influencing the HVAC/R industry during 2021. Collectively these factors present opportunities for Watsco to better serve customers and develop additional market share in a complex operating environment. The following summarizes the factors that have impacted 2021’s performance:



Pricing. Throughout 2021, HVAC/R manufacturers have experienced significant inflationary pressures and have raised prices accordingly. In turn, we have raised our selling prices, resulting in higher year-to-date sales and enhanced profitability. The Company actively monitors market conditions through a variety of processes and technologies and communicates with suppliers to sustain competitiveness and profitability. During the first nine months of 2021, sales of residential HVAC equipment in U.S. markets (excluding acquisitions) increased 16%, including a 6% increase in average selling price.

Product Availability. All OEMs and manufacturers have experienced some level of supply chain disruptions caused by component availability, labor shortages, transportation delays and other supply chain challenges, all of which have impacted typical lead times and overall availability of HVAC products. While supply chain disruptions impacted third quarter residential sales, Watsco nonetheless experienced growth in residential units during the quarter. This is all the more positive considering the strong third quarter comparative performance experienced last year. More recently, product availability has improved and we are encouraged by current volume trends and the OEMs ability to meet strong end-market demand.                

Operating Expenses. As a result of the supply chain disruptions, Watsco’s field leadership and front-line associates have done extraordinary things to service customers, which has resulted in higher personnel costs and other SG&A expense increases. For example, Watsco’s logistics costs increased 20% or $19 million (33 cents per share) during the nine-month period, reflecting higher-than-normal inventory movement across our network to meet customer demand. We expect this incremental cost to be temporary headwind and moderate in 2022 as the supply chain normalizes.

Technology Investments. Watsco continues to invest in its transformative technologies, especially as it relates to increasing customer adoption and gaining market share. Headcount dedicated to technology increased by 20% compared to a year ago and overall spending has increased $5 million in 2021 (10 cents per share). Technology spending was $41 million over the last 12 months ended September 30, 2021.

People Investments. In response to strong demand and consistent with our long-term focus, Watsco added over 450 employees since a year ago in support of defined growth initiatives, including staffing 20 new locations. In addition, Watsco’s culture to reward performance through a number of pay-for-performance programs has resulted in a $36 million increase in performance-based compensation (65 cent EPS impact for the nine-month period ended September 30, 2021).

Mr. Nahmad added: “We believe we have delivered extraordinary performance under extraordinary circumstances thus far in 2021. Despite the unprecedented operating environment, our teams continue to focus on their first priority, serving customers, and we will continue to make investments to enable growth, competitiveness and to build the industry’s most innovative technologies.”

Cash Flow & Dividends

Watsco’s operating cash flow for the quarter increased 113% to a record $238 million. For the nine-month period ended September 30, 2021, operating cash flow was $320 million versus $373 million last year, reflecting investments in working capital consistent with sales growth. The Company has targeted operating cash flow to exceed net income in 2021. Since 2016, operating cash flow was approximately $1.9 billion versus net income of $1.8 billion, surpassing the Company’s goal.

Watsco has paid cash dividends to shareholders for 47 consecutive years. The Company’s philosophy is to share increasing amounts of cash flow through higher dividends while maintaining a conservative financial position with continued capacity to build its distribution network. Effective April 2021, Watsco increased its annual dividend rate by 10% to $7.80 per share.

Third Quarter Earnings Conference Call Information

Date: October 20, 2021

Time: 10:00 a.m. (EDT)

Webcast: http://investors.watsco.com

Dial-in number: United States (844) 883-3908 / International (412) 317-9254



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 measures on a “same-store basis”, which exclude the effects of locations closed, acquired, or locations opened, in each case during the immediately preceding 12 months, unless such locations 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 U.S. GAAP.

About Watsco

Watsco is the largest distribution network for heating, air conditioning and refrigeration (HVAC/R) products with locations in the United States, Canada, Mexico and Puerto Rico, and on an export basis to Latin America and the Caribbean. Watsco estimates that over 350,000 contractors and technicians visit or call one of its 673 locations each year to get information, obtain technical support and buy products.

The Company believes there is long-term opportunity to be a significant participant and contributor in efforts to address climate change. HVAC/R products provide comfort to homes and businesses regardless of the outdoor climate. Older systems often operate below current government-mandated energy efficiency and environmental standards, resulting in higher energy use and costs to homeowners. Sales of higher-efficiency replacement systems have long been a fundamental opportunity in Watsco’s marketplace. Watsco plans to actively collaborate with its OEM partners and key stakeholders to lead these ongoing efforts in its marketplace. Additional information about Watsco may be found at www.watsco.com.

This document includes certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may address, among other things, our expected financial and operational results and the related assumptions underlying our expected results. These forward-looking statements are distinguished by use of words such as “will,” “would,” “anticipate,” “expect,” “believe,” “designed,” “plan,” 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, the seasonality of product sales, the ability of the Company to expand its business, insurance coverage risks and final GAAP adjustments. Detailed information about these factors and additional important factors can be found in the documents that Watsco files with the Securities and Exchange Commission, such as Form 10-K, Form 10-Q and Form 8-K. Forward-looking statements speak only as of the date the statements were made. Watsco assumes no obligation to update forward-looking information to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information, except as required by applicable law.




Condensed Consolidated Results of Operations

(In thousands, except per share data)



     Quarter Ended September 30,     Nine Months Ended September 30,  
     2021     2020     2021     2020  


   $ 1,782,569     $ 1,536,671     $ 4,768,327     $ 3,900,212  

Cost of sales

     1,299,905       1,162,908       3,512,901       2,959,635  













Gross profit

     482,664       373,763       1,255,426       940,577  

Gross profit margin

     27.1     24.3     26.3     24.1













SG&A expenses

     281,922       221,037       766,231       618,476  













Other income

     6,057       4,055       16,267       9,172  

Operating income

     206,799       156,781       505,462       331,273  

Operating margin

     11.6     10.2     10.6     8.5













Interest expense, net

     221       108       757       1,181  













Income before income taxes

     206,578       156,673       504,705       330,092  

Income taxes

     41,734       30,467       101,601       63,397  













Net income

     164,844       126,206       403,104       266,695  

Less: net income attributable to non-controlling interest

     23,979       19,717       63,045       43,126  













Net income attributable to Watsco

   $ 140,865     $ 106,489     $ 340,059     $ 223,569  













Diluted earnings per share:


Net income attributable to Watsco shareholders

   $ 140,865     $ 106,489     $ 340,059     $ 223,569  

Less: distributed and undistributed earnings allocated to non-vested restricted common stock

     12,563       9,135       30,132       19,175  













Earnings allocated to Watsco shareholders

   $ 128,302     $ 97,354     $ 309,927     $ 204,394  













Weighted-average Common and Class B common shares and equivalent shares used to calculate diluted earnings per share

     35,441,978       35,237,022       35,400,254       35,109,043  

Diluted earnings per share for Common and Class B common stock

   $ 3.62     $ 2.76     $ 8.75     $ 5.82  
















Condensed Consolidated Balance Sheets

(Unaudited, in thousands)


     September 30,      December 31,  
     2021      2020  

Cash and cash equivalents

   $ 137,201      $ 146,067  

Accounts receivable, net

     771,042        535,288  

Inventories, net

     1,042,144        781,299  


     30,474        21,791  







Total current assets

     1,980,861        1,484,445  

Property and equipment, net

     105,842        98,225  

Operating lease right-of-use assets

     262,965        209,169  

Goodwill, intangibles, net and other

     741,253        692,508  







Total assets

   $ 3,090,921      $ 2,484,347  







Accounts payable and accrued expenses

   $ 713,981      $ 415,341  

Current portion of long-term obligations

     82,712        71,804  







Total current liabilities

     796,693        487,145  

Borrowings under revolving credit agreement

     1,724        —    

Operating lease liabilities, net of current portion

     182,772        139,527  

Deferred income taxes and other liabilities

     88,207        77,914  







Total liabilities

     1,069,396        704,586  







Watsco’s shareholders’ equity

     1,644,581        1,486,678  

Non-controlling interest

     376,944        293,083  







Shareholders’ equity

     2,021,525        1,779,761  







Total liabilities and shareholders’ equity

   $ 3,090,921      $ 2,484,347  










Condensed Consolidated Statements of Cash Flows

(Unaudited, in thousands)


     Nine Months Ended September 30,  
     2021     2020  

Cash flows from operating activities:


Net income

   $ 403,104     $ 266,695  

Non-cash items

     34,355       35,476  

Changes in working capital, net of acquisitions


Accounts receivable, net

     (198,011     (113,017

Inventories, net

     (170,662     34,448  

Accounts payable and other liabilities

     263,752       158,094  

Other, net

     (12,866     (8,918







Net cash provided by operating activities

     319,672       372,778  







Cash flows from investing activities:


Business acquisitions, net of cash acquired

     (129,462     —    

Capital expenditures, net

     (16,662     (11,547

Proceeds from sale of equity securities

     5,993       —    







Net cash used in investing activities

     (140,131     (11,547







Cash flows from financing activities:


Dividends on Common and Class B Common stock

     (219,440     (197,454

Net proceeds (repayments) under revolving credit agreement

     1,724       (155,032


     8,775       9,716  

Proceeds from NCI for investment in TEC Distribution LLC

     21,040       —    







Net cash used in financing activities

     (187,901     (342,770







Effect of foreign exchange rate changes on cash and cash equivalents

     (506     (315







Net (decrease) increase in cash and cash equivalents

     (8,866     18,146  

Cash and cash equivalents at beginning of period

     146,067       74,454  







Cash and cash equivalents at end of period

   $ 137,201     $ 92,600