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Watsco's EPS Meets, Sales Top - Analyst Blog
Watsco Inc.'s (WSO) first-quarter 2012 adjusted earnings were 24 cents per share, in line with the Zacks Consensus Estimate and above the year-ago quarter earnings of 21 cents.
As reported by the company, earnings were 23 cents per share compared with the year-ago quarter's earnings of 21 cents.
Total revenue increased 19% to $634 million, comfortably surpassing the Zacks Consensus Estimate of $581 million. Same store sales increased 7%, including a hike of 12% in air conditioning and heating (HVAC) equipment and an 11% rise in commercial refrigeration products, while sales of other HVAC products dropped 1%.
Cost and Margins
Cost of sales increased 21% to $483 million in the quarter. Gross profit was up 12% to $151 million. However, gross profit margin dropped 150 basis-points (bps) to 23.8%.
On a same store basis, gross profit inflated 1% while gross margin decreased 140 bps to 23.9%. Gross margin plummeted due to higher sales mix of HVAC products generating lower margins than non-equipment products and timing of inventory purchases.
Selling, general and administrative expenses rose 11% to $131 million in the quarter. Income from operations increased 19.1% to $19.9 million. Operating margin remained flat year over year at 3.2%.
Financial Operations
Cash and cash equivalents were $18.1 million as of March 31, 2012, compared with $15.7 million as of December 31, 2011. Operating cash flow was $9 million in the quarter.
Borrowings of the company were $42.5 million as of March 31, 2012, compared with $20 million as of December 31, 2011. Board of Directors of Watsco approved a 9% increase in the quarterly dividend to 62 cents per share. It marked the 11th consecutive year of steady dividend increase.
Outlook
The company expects earnings in the band of $3.25-$3.40 per share for 2012. This represents a growth rate of between 19% and 24% over 2011. The current Zacks Consensus Estimate is pegged at $3.33 per share which is within the guidance range of the company.
Our Take
Watsco has acquired about 60% shares of Carrier's HVAC network in Canada to form a joint venture. The company expects the acquisition, which was closed recently, to be accretive in 2012. With the deal closure, the company's sales run-rate is roughly $3.4 billion. However, the very basis of expansion remains exposed to the new home market. Slow recovery in housing starts may affect overall unit demand.
Currently, we have a long-term Neutral recommendation on Watsco. The company, which competes with Johnson Controls Inc. (JCI) and privately held Gensco Inc., retains a short-term Zacks #2 Rank ("Buy").
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WATSCO INC (WSO): Free Stock Analysis Report
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As reported by the company, earnings were 23 cents per share compared with the year-ago quarter's earnings of 21 cents.
Total revenue increased 19% to $634 million, comfortably surpassing the Zacks Consensus Estimate of $581 million. Same store sales increased 7%, including a hike of 12% in air conditioning and heating (HVAC) equipment and an 11% rise in commercial refrigeration products, while sales of other HVAC products dropped 1%.
Cost and Margins
Cost of sales increased 21% to $483 million in the quarter. Gross profit was up 12% to $151 million. However, gross profit margin dropped 150 basis-points (bps) to 23.8%.
On a same store basis, gross profit inflated 1% while gross margin decreased 140 bps to 23.9%. Gross margin plummeted due to higher sales mix of HVAC products generating lower margins than non-equipment products and timing of inventory purchases.
Selling, general and administrative expenses rose 11% to $131 million in the quarter. Income from operations increased 19.1% to $19.9 million. Operating margin remained flat year over year at 3.2%.
Cash and cash equivalents were $18.1 million as of March 31, 2012, compared with $15.7 million as of December 31, 2011. Operating cash flow was $9 million in the quarter.
Borrowings of the company were $42.5 million as of March 31, 2012, compared with $20 million as of December 31, 2011. Board of Directors of Watsco approved a 9% increase in the quarterly dividend to 62 cents per share. It marked the 11th consecutive year of steady dividend increase.
Outlook
The company expects earnings in the band of $3.25-$3.40 per share for 2012. This represents a growth rate of between 19% and 24% over 2011. The current Zacks Consensus Estimate is pegged at $3.33 per share which is within the guidance range of the company.
Our Take
Watsco has acquired about 60% shares of Carrier's HVAC network in Canada to form a joint venture. The company expects the acquisition, which was closed recently, to be accretive in 2012. With the deal closure, the company's sales run-rate is roughly $3.4 billion. However, the very basis of expansion remains exposed to the new home market. Slow recovery in housing starts may affect overall unit demand.
Currently, we have a long-term Neutral recommendation on Watsco. The company, which competes with Johnson Controls Inc. (JCI) and privately held Gensco Inc., retains a short-term Zacks #2 Rank ("Buy").
JOHNSON CONTROL (JCI): Free Stock Analysis Report
WATSCO INC (WSO): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
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