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Watsco (WSO) Q1 Earnings Beat Estimates, Margins Up Y/Y

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Watsco, Inc. (WSO - Free Report) came up with stellar performance for first-quarter 2021. Both earnings and sales topped the respective Zacks Consensus Estimate as well as grew impressively on a year-over-year basis. The solid results were mainly backed by strong sales growth, a richer sales mix of high-efficiency systems, improved selling margins and operating efficiencies. Shares of the company jumped more than 2% on Apr 22, post the earnings release.

Solid first-quarter results also reflect continued investments in products, technology, and people to drive sales as well as innovation throughout the business.

Inside the Numbers

Watsco’s quarterly earnings of $1.39 per share surpassed the consensus estimate of 91 cents. The reported earnings also improved 93% year over year.

Watsco, Inc. Price, Consensus and EPS Surprise

Watsco, Inc. Price, Consensus and EPS Surprise

Watsco, Inc. price-consensus-eps-surprise-chart | Watsco, Inc. Quote

Total sales of $1.14 billion topped the consensus mark of $1.08 billion by 5.6% and increased 14% from the year-ago period. The upside stemmed from strong HVAC equipment business. Persistent investment in technologies designed to revolutionize customer experience added to the positives. Notably, e-commerce sales for the quarter grew 18% year over year on 30% increased e-commerce transactions.

Sales of HVAC equipment (heating, ventilating and air conditioning; comprising 67% of sales) were up 14% year over year, including 18% growth in U.S. residential markets. Sales of other HVAC products (29% of sales) increased 11% from the prior-year quarter. Sales from commercial refrigeration products (4% of sales) rose 10% year over year.

Operating Highlights

Gross margin expanded 130 basis points (bps) to 25.9%. SG&A expenses, however, increased 7% year over year. Nonetheless, SG&A expenses — as a percentage of sales — reduced 100 bps year over year. Operating margin expanded 270 bps year over year to 7.2%.

Financial Operations

As of Mar 31, 2021, cash and cash equivalents were $93.9 million compared with $146.1 million at 2020-end. Cash used in operations were $37.7 million for the first three months of 2021 versus $41.9 million cash provided from operations in the comparable year-ago period.

Zacks Rank

Watsco — which shares space with AAON, Inc. (AAON - Free Report) , Comfort Systems USA, Inc. (FIX - Free Report) and Lennox International Inc. (LII - Free Report) in the Zacks Building Products - Air Conditioner and Heating industry — currently carries a Zacks Rank #3 (Hold).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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