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Watsco, Inc. (WSO - Analyst Report), the distributor of air conditioning, heating, and refrigeration equipment, is slated to report its second-quarter fiscal 2014 results on Jul 17. In the last quarter, it posted a positive surprise of 2.13%. Let’s see how things are shaping up for this announcement.

Factors Influencing this Quarter

Watsco’s adjusted earnings improved 23% year over year to a record 48 cents per share in the first quarter aided by higher sales, stronger selling margins and improved operating efficiencies. The company’s revenue growth will be driven by organic growth initiatives, including new product offerings, geographic expansion, and logistical, productivity improvements, in addition to continued consolidation of the North American HVAC industry.

Moreover, Watsco will continue to benefit from strong demand in the replacement market as old units get replaced by more energy-efficient units in the coming years. There are approximately 89 million central air conditioning and heating systems installed in the U.S. that have been in service for more than 10 years. Moreover, higher efficiency units mean higher pricing and in turn higher margins for the company.

Earnings Whispers?

Our proven model does not conclusively show that Watsco is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here, as you will see below.

Zacks ESP: Watsco has an earnings ESP (Expected Surprise Prediction) of -1.77%. This is because the Most Accurate estimate stands at $1.67 per share while the Zacks Consensus Estimate is higher at $1.70, resulting in -1.77% ESP.

Zacks Rank #2 (Buy): Watsco has a Zacks Rank #2. The Zacks Rank #2 together with -1.77% earnings ESP makes surprise prediction difficult.

Stocks that Warrant a Look

Here are some other companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

United Rentals, Inc. (URI - Snapshot Report) has an earnings ESP of +2.80% and a Zacks Rank #3 (Hold).

Ply Gem Holdings, Inc (PGEM - Snapshot Report) has an earnings ESP of +35.29% and a Zacks Rank #3.

Lincoln Electric Holdings Inc. (LECO - Analyst Report) has an earnings ESP of +1.10% and a Zacks Rank #3.

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