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Watsco (WSO) Q2 Earnings & Sales Lag Estimates, Rise Y/Y
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Watsco, Inc.’s (WSO - Free Report) shares slipped 3.4% on Jul 26, after it reported second-quarter 2022 results, wherein the company’s earnings and sales missed their respective Zacks Consensus Estimate. Nonetheless, the company achieved higher sales and earnings on a year-over-year basis, reflecting effective price realization, a continued shift toward higher-efficiency HVAC equipment and expansion in sales of other higher-margin HVAC products.
Looking ahead, Watsco’s Chairman and CEO, Albert H. Nahmad, said, “our strong balance sheet and entrepreneurial culture allow us to make aggressive investments to grow our business, scale the industry’s most innovative digital tools and customer experience, enhance awareness of climate-friendly, high-efficiency HVAC systems and drive operating efficiencies throughout our network.”
Owing to the Fed’s actions to curb inflation and the consequential slowdown in the economy, the North American HVAC/R demand trends are expected to moderate toward more historical levels. However, the key characteristics of HVAC/R products, Watsco’s scale, leading technology platforms, financial strength, entrepreneurial culture and OEM relationships are competitive advantages that should drive Watsco’s growth.
Watsco reported quarterly earnings of $4.93 per share, which lagged the consensus mark of $5.02 by 1.8% but increased 33% year over year on solid quarterly sales and higher margins.
Total sales of $2.13 billion missed the consensus mark of $2.17 million by 1.7% but increased 15% from the year-ago quarter’s levels. Sales rose 14% on a same-store basis. The upside was primarily driven by strong performance across geographies and product categories backed by solid unit growth, higher selling prices, a richer mix of high-efficiency systems and technology-driven gains in market share.
Sales of HVAC equipment (heating, ventilating and air conditioning; comprising 70% of sales) were up 13% year over year. Sales of other HVAC products (26% of sales) also increased 15% from the prior-year quarter’s levels. Sales from commercial refrigeration products (4% of sales) rose 26% year over year.
Operating Highlights
Gross margin expanded 210 basis points (bps) in the quarter to 27.9%. SG&A expenses, as a percentage of sales, grew to 14.8% from 14.2% a year ago.
The operating margin expanded 180 bps year over year to a record level of 13.5%.
Financial Operations
As of Jun 30, 2022, cash and cash equivalents were $129 million compared with $118.3 million at 2021-end. Cash provided by operations came in at $73.1 million for the first six months of 2022 compared with $81.9 million a year ago.
PulteGroup Inc. (PHM - Free Report) reported mixed results for second-quarter 2022, with earnings surpassing the Zacks Consensus Estimate but revenues missing the same.
Earnings for PHM grew 58.7%, from $1.72 per share a year ago. Revenues increased 16.9% from the year-ago figure of $3.36 billion.
RPM International Inc. (RPM - Free Report) reported tepid fourth-quarter fiscal 2022 (ended May 31, 2022) results, with earnings missing the Zacks Consensus Estimate and sales beating the same.
Pertaining to the quarterly results, Frank C. Sullivan, RPM International chairman and CEO, stated, “Our nimble businesses quickly adapted to dynamically shifting supply chain constraints, inflationary challenges and foreign exchange headwinds to steadily generate momentum in the second half of fiscal 2022.”
Image: Bigstock
Watsco (WSO) Q2 Earnings & Sales Lag Estimates, Rise Y/Y
Watsco, Inc.’s (WSO - Free Report) shares slipped 3.4% on Jul 26, after it reported second-quarter 2022 results, wherein the company’s earnings and sales missed their respective Zacks Consensus Estimate. Nonetheless, the company achieved higher sales and earnings on a year-over-year basis, reflecting effective price realization, a continued shift toward higher-efficiency HVAC equipment and expansion in sales of other higher-margin HVAC products.
Looking ahead, Watsco’s Chairman and CEO, Albert H. Nahmad, said, “our strong balance sheet and entrepreneurial culture allow us to make aggressive investments to grow our business, scale the industry’s most innovative digital tools and customer experience, enhance awareness of climate-friendly, high-efficiency HVAC systems and drive operating efficiencies throughout our network.”
Owing to the Fed’s actions to curb inflation and the consequential slowdown in the economy, the North American HVAC/R demand trends are expected to moderate toward more historical levels. However, the key characteristics of HVAC/R products, Watsco’s scale, leading technology platforms, financial strength, entrepreneurial culture and OEM relationships are competitive advantages that should drive Watsco’s growth.
Watsco, Inc. Price, Consensus and EPS Surprise
Watsco, Inc. price-consensus-eps-surprise-chart | Watsco, Inc. Quote
Inside the Numbers
Watsco reported quarterly earnings of $4.93 per share, which lagged the consensus mark of $5.02 by 1.8% but increased 33% year over year on solid quarterly sales and higher margins.
Total sales of $2.13 billion missed the consensus mark of $2.17 million by 1.7% but increased 15% from the year-ago quarter’s levels. Sales rose 14% on a same-store basis. The upside was primarily driven by strong performance across geographies and product categories backed by solid unit growth, higher selling prices, a richer mix of high-efficiency systems and technology-driven gains in market share.
Sales of HVAC equipment (heating, ventilating and air conditioning; comprising 70% of sales) were up 13% year over year. Sales of other HVAC products (26% of sales) also increased 15% from the prior-year quarter’s levels. Sales from commercial refrigeration products (4% of sales) rose 26% year over year.
Operating Highlights
Gross margin expanded 210 basis points (bps) in the quarter to 27.9%. SG&A expenses, as a percentage of sales, grew to 14.8% from 14.2% a year ago.
The operating margin expanded 180 bps year over year to a record level of 13.5%.
Financial Operations
As of Jun 30, 2022, cash and cash equivalents were $129 million compared with $118.3 million at 2021-end. Cash provided by operations came in at $73.1 million for the first six months of 2022 compared with $81.9 million a year ago.
Zacks Rank
Currently, Watsco carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some Recent Construction Releases
PulteGroup Inc. (PHM - Free Report) reported mixed results for second-quarter 2022, with earnings surpassing the Zacks Consensus Estimate but revenues missing the same.
Earnings for PHM grew 58.7%, from $1.72 per share a year ago. Revenues increased 16.9% from the year-ago figure of $3.36 billion.
RPM International Inc. (RPM - Free Report) reported tepid fourth-quarter fiscal 2022 (ended May 31, 2022) results, with earnings missing the Zacks Consensus Estimate and sales beating the same.
Pertaining to the quarterly results, Frank C. Sullivan, RPM International chairman and CEO, stated, “Our nimble businesses quickly adapted to dynamically shifting supply chain constraints, inflationary challenges and foreign exchange headwinds to steadily generate momentum in the second half of fiscal 2022.”
D.R. Horton, Inc.’s (DHI - Free Report) third-quarter fiscal 2022 earnings beat the Zacks Consensus Estimate but revenues missed the same.
DHI also lowered its revenue guidance for the full year, given expected completion dates of homes under construction and current market conditions.