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Watsco (WSO) Up 4.6% Since Last Earnings Report: Can It Continue?
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A month has gone by since the last earnings report for Watsco (WSO - Free Report) . Shares have added about 4.6% in that time frame, outperforming the S&P 500 and the DJIA.
Will the recent positive trend continue leading up to its next earnings release, or is Watsco due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Watsco's Q2 Earnings & Revenues Miss, Shares Fall
Watsco reported second-quarter 2018 results, wherein both the top and bottom lines missed the Zacks Consensus Estimate.
Quarterly earnings of 2.40 per share in the second quarter missed the consensus mark of $2.47. However, the reported figure increased 16% year over year. The upside stemmed from higher unit demand, as well as improved pricing and sales mix. Continued investment in the technologies designed to revolutionize Watsco’s customer experience also add to the positives. Notably, the second quarter registered the highest sales and profits in the company’s history.
Total revenues of $1.33 billion in the quarter missed the consensus mark of $1.34 billion by 0.2% but grew 5% year over year. The increase was primarily driven by strong unit demand, higher equipment pricing and an improved sales mix of high-efficiency systems.
Sales of HVAC (heating, ventilating and air conditioning, comprising 68% of sales) went up 6%; other HVAC products sales increased 5%, and commercial refrigeration products sales increased 1% in the quarter on an annualized basis.
Cost and Margins
Cost of sales went up 4.8% to $1,102 million from $965.6 million a year ago. Gross profit improved 3.3% year over year to $320.8 million. Gross profit margin, however, declined 20 basis points (bps) from the prior-year quarter to 24.1%.
Selling, general and administrative expenses rose 3.1% year over year to $186.6 million. As a percentage of sales, SG&A expenses improved 20 bps year over year.
Operating income increased 6.2% year over year to $137.3 million. Operating margin expanded 20 bps year over year to 10.3%.
Financial Operations
As of Jun 30, 2018, cash and cash equivalents were $72 million compared with $80.5 million at the end of 2017. Cash used in operations came in at $19.3 million in the first six months of 2018 against cash flow from operations of $35 million a year ago.
Watsco approved a 16% hike in annual dividend to $5.80 per share, effective April 2018.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimate flatlined during the past month.
VGM Scores
At this time, Watsco has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is more suitable for growth investors than those looking for value and momentum.
Outlook
Watsco has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Watsco (WSO) Up 4.6% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Watsco (WSO - Free Report) . Shares have added about 4.6% in that time frame, outperforming the S&P 500 and the DJIA.
Will the recent positive trend continue leading up to its next earnings release, or is Watsco due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Watsco's Q2 Earnings & Revenues Miss, Shares Fall
Watsco reported second-quarter 2018 results, wherein both the top and bottom lines missed the Zacks Consensus Estimate.
Quarterly earnings of 2.40 per share in the second quarter missed the consensus mark of $2.47. However, the reported figure increased 16% year over year. The upside stemmed from higher unit demand, as well as improved pricing and sales mix. Continued investment in the technologies designed to revolutionize Watsco’s customer experience also add to the positives. Notably, the second quarter registered the highest sales and profits in the company’s history.
Total revenues of $1.33 billion in the quarter missed the consensus mark of $1.34 billion by 0.2% but grew 5% year over year. The increase was primarily driven by strong unit demand, higher equipment pricing and an improved sales mix of high-efficiency systems.
Sales of HVAC (heating, ventilating and air conditioning, comprising 68% of sales) went up 6%; other HVAC products sales increased 5%, and commercial refrigeration products sales increased 1% in the quarter on an annualized basis.
Cost and Margins
Cost of sales went up 4.8% to $1,102 million from $965.6 million a year ago. Gross profit improved 3.3% year over year to $320.8 million. Gross profit margin, however, declined 20 basis points (bps) from the prior-year quarter to 24.1%.
Selling, general and administrative expenses rose 3.1% year over year to $186.6 million. As a percentage of sales, SG&A expenses improved 20 bps year over year.
Operating income increased 6.2% year over year to $137.3 million. Operating margin expanded 20 bps year over year to 10.3%.
Financial Operations
As of Jun 30, 2018, cash and cash equivalents were $72 million compared with $80.5 million at the end of 2017. Cash used in operations came in at $19.3 million in the first six months of 2018 against cash flow from operations of $35 million a year ago.
Watsco approved a 16% hike in annual dividend to $5.80 per share, effective April 2018.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimate flatlined during the past month.
VGM Scores
At this time, Watsco has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is more suitable for growth investors than those looking for value and momentum.
Outlook
Watsco has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.