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Why Is Watsco (WSO) Down 0.5% Since Last Earnings Report?

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It has been about a month since the last earnings report for Watsco (WSO - Free Report) . Shares have lost about 0.5% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Watsco due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Watsco (WSO - Free Report) Q4 Earnings & Revenues Beat Estimates, Rise Y/Y

Watsco, Inc. reported impressive fourth-quarter 2020 results, wherein earnings and revenues beat the Zacks Consensus Estimate.

Albert H. Nahmad, the company’s chairman and CEO, said, “We are excited to deliver another record year, especially given the unique business challenges faced in 2020. Our core U.S. residential business remained solid, generating 17% growth during the quarter and reflecting the continued trend towards higher-efficiency systems.”

Inside the Numbers

Watsco’s quarterly earnings of $1.14 per share topped the consensus estimate of $1.01 by 12.9% and increased 23.9% year over year.

Total revenues of $1,154.7 million surpassed the consensus mark of $1,134 million by 1.8% and increased 7.7% from the year-ago period. Sales were also up 7% on a same-store basis.

Sales of HVAC equipment (heating, ventilating and air conditioning; comprising 67% of sales) were up 9% year over year, including 13% sales growth in U.S. residential markets. Sales of other HVAC products (30% of sales) also increased 7% from the prior-year quarter. Sales from commercial refrigeration products (3% of sales) rose 2% year over year.

Operating Highlights

Gross margin expanded 10 basis points (bps) for the quarter. SG&A expenses increased 2% year over year, contracting 110 basis points as a percentage of sales, given operating efficiencies achieved throughout its network. Operating margin expanded 110 bps year over year to 6%.

Financial Operations

As of Dec 31, 2020, cash and cash equivalents were $146 million compared with $74.5 million at 2019-end. Cash from operations came in at $534.3 million for the 12 months of 2020 compared with $335.7 million a year ago.

Watsco has paid cash dividends for 47 consecutive years. Moreover, the board of directors has raised annual dividend by 10% to $7.80 per share, to be reflected from April 2021.

2020 Highlights

Net revenues in 2020 came in at $5,054.9 million compared with $4,770.3 million in 2019, showing a 2% increase on a same-store basis.

Operating profit increased to $401 million from $366.8 million in 2019, highlighting a 7% increase on a same-store basis.

SG&A in same store decreased 1% and improved 50 basis points, as a percentage of sales.

Earnings per share grew 8% year over year to $7.01.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review.

VGM Scores

Currently, Watsco has a great Growth Score of A, a grade with the same score on the momentum front. However, 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 A. If you aren't focused on one strategy, this score is the one you should be interested in.


Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, 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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