Watsco Reports Record Third Quarter Operating Results; Diluted EPS Climbs 16% to a Record 59 Cents Per Share
MIAMI--(BUSINESS WIRE)--Oct. 21, 2004--Watsco, Inc. (NYSE: WSO) today announced record operating results for the third quarter and nine months ended September 30, 2004.
For the quarter, diluted earnings per share grew 16% to a record 59 cents on net income of $15.9 million. Operating income increased 20% to $26.7 million for the quarter, with operating margins advancing 110 basis-points to a record 7.5%. Gross profit increased 8% to $92.5 million with gross profit margins rising 130 basis points to 25.9%. Interest expense, net declined 9% to $1.2 million from a 16% decrease in average borrowings.
Sales during the third quarter increased to $357 million, or 3% year over year. Same store sales of residential and light-commercial HVAC products increased 3% despite an estimated $8 million of lost sales (a 2% impact on a same store basis) at locations affected by the four hurricanes that passed through Florida, Alabama, Georgia and the Carolinas.
For the nine months, diluted earnings per share grew 32% to a record $1.56 on net income of $41.9 million. Operating income grew 34% to $70.7 million for the nine months, with operating margins increasing 140 basis-points to 7.0% from 5.6%. Gross profit increased 11% to $260.1 million with gross profit margins improving 110 basis points to 25.8%. Interest expense, net decreased 20% to $3.5 million from $4.4 million a year ago as a result of a 24% decrease in average borrowings.
Sales for the nine months increased 7% to $1.0 billion, including a 5% increase in same-store sales of residential and light-commercial HVAC products. Selling, general and administrative expenses for the nine months increased 4% (3% on a same-store basis) and, as a percentage of revenues, decreased by 30 basis-points to 18.8%.
Cash flow provided by operations was $18.6 million for the quarter and $5.3 million for the nine-months. Cash flow is expected to grow substantially by the end of 2004 as the fourth quarter is typically a strong seasonal period for cash flow. The Company's debt-to-total capitalization ratio improved to 13% at September 30, 2004 versus 15% a year ago.
Albert H. Nahmad, President & Chief Executive Officer commented, "Sales growth and higher selling margins have once again combined to produce record operating profit and expanded operating margins. The outstanding results represent a continuation of a record-breaking year for the Company as all major operational and financial metrics remain at record levels and have produced a terrific growth rate in earnings per share. We reiterate our earlier guidance of a 25% to 30% growth rate in diluted earnings per share for 2004. These results also reflect the value associated with our ability to provide our customers the products and services they desire."
Watsco will be holding its investor conference call today, October 21, 2004 at 10:00 a.m. Eastern Time. Shareholders interested in participating may call (877) 391-0532. Internet users can listen to a live webcast of the conference call on the Investor Relations section of Watsco's website at http://www.watsco.com.
Watsco is the nation's largest independent distributor of air conditioning, heating and refrigeration equipment and related products in the distribution segment of the HVAC/R industry, currently operating 317 locations serving customers in 31 states. Additional information about Watsco may be found on the Internet at http://www.watsco.com.
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, 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 and insurance coverage risks. Forward-looking statements speak only as of the date the statement was 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. Detailed information about these factors and additional important factors can be found in the documents that Watsco files from time to time with the Securities and Exchange Commission, such as Form 10-K, Form 10-Q and Form 8-K.
WATSCO, INC.
Consolidated Results of Operations
(In thousands, except per share data)
(Unaudited)
Quarter Ended Perce- Nine-Months Ended Perce-
September 30, ntage September 30, ntage
2004 2003 Change 2004 2003 Change
------- ------- ----- -------- ------- -----
Revenue $357,366 $348,597 3% $1,008,717 $946,511 7%
Cost of sales 264,835 262,765 748,641 712,549
-------- -------- ---------- --------
Gross profit 92,531 85,832 8% 260,076 233,962 11%
-------- -------- ---------- --------
Gross profit
margin(1) 25.9% 24.6% 25.8% 24.7%
-------- -------- ---------- --------
SG&A expenses 65,845 63,550 4% 189,344 181,250 4%
-------- -------- ---------- --------
Operating income 26,686 22,282 20% 70,732 52,712 34%
-------- -------- ---------- --------
Operating margin(2) 7.5% 6.4% 7.0% 5.6%
-------- -------- ---------- --------
Interest expense,
net 1,184 1,301 (9%) 3,498 4,378 (20%)
-------- -------- ---------- --------
Income before
income taxes 25,502 20,981 22% 67,234 48,334 39%
Income tax expense 9,604 7,763 25,320 17,884
-------- -------- ---------- --------
Net income $15,898 $13,218 20% $41,914 $30,450 38%
======== ======== ========== ========
Basic earnings
per share $0.62 $0.53 17% $1.65 $1.21 36%
Diluted earnings
per share $0.59 $0.51 16% $1.56 $1.18 32%
Weighted average
shares and
equivalent shares
used to calculate:
Basic earnings
per share 25,560 25,059 25,443 25,065
Diluted earnings
per share 26,974 26,077 26,848 25,889
(1) Gross profit margin represents gross profit divided by revenue.
(2) Operating margin represents operating income divided by revenue.
Segment Information
(Unaudited)
Quarter Ended Nine-Months Ended
September 30, September 30,
-------------------- --------------------
2004 2003 2004 2003
--------- --------- --------- ---------
Revenue:
Distribution $351,886 $341,770 $994,065 $926,601
Staffing 5,700 6,994 15,318 20,620
Elimination of
intersegment
Staffing revenue (220) (167) (666) (710)
--------- --------- --------- ---------
Total $357,366 $348,597 $ 1,008,717 $946,511
========= ========= ============= =========
Operating income (loss):
Distribution $31,154 $25,955 $83,751 $63,135
Staffing 211 (342) 75 (709)
Corporate (4,679) (3,331) (13,094) (9,714)
--------- --------- ------------- ----------
Total $26,686 $22,282 $70,732 $52,712
========= ========= ============= ==========
WATSCO, INC.
Condensed Consolidated Balance Sheets
(In thousands)
Sept. 30,
2004 Dec. 31,
(Unaudited) 2003
---------- ----------
Cash and cash equivalents $ 37,256 $ 36,339
Accounts receivable, net 161,179 137,678
Inventories 255,802 194,267
Other 10,420 9,244
---------- ----------
Total current assets 464,657 377,528
Property and equipment, net 15,224 22,066
Goodwill and other assets 136,238 135,501
---------- ----------
Total assets $616,119 $535,095
========== ==========
Accounts payable and accrued liabilities $147,300 $107,831
Current portion of long-term obligations 10,059 172
---------- ----------
Total current liabilities 157,359 108,003
Borrowings under revolving
credit agreement 30,000 30,000
Long-term notes, net of current portion 20,000 30,000
Deferred income taxes and other liabilities 5,592 6,223
---------- ----------
Total liabilities 212,951 174,226
Shareholders' equity 403,168 360,869
---------- ----------
Total liabilities and shareholders' equity $616,119 $535,095
========== ==========
CONTACT: Watsco, Inc., Coconut Grove, Fla.
Barry S. Logan, 305-714-4102
blogan@watsco.com
SOURCE: Watsco, Inc.
