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Watsco (WSO) Q4 Earnings Beat, Revenues Miss, Shares Rise

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Watsco, Inc. (WSO - Free Report) reported fourth-quarter 2022 results, wherein earnings topped the Zacks Consensus Estimate but sales missed the same. However, both the top and the bottom lines grew steadily on a year-over-year basis. The upside was backed by solid demand for heat pumps at higher unit prices along with operating efficiencies and strategic technological development. Yet, the slowdown in the U.S housing market affected the same to some extent.

This largest distributor of HVAC/R hiked its annual dividend by 11% to $9.80 per share, effective January 2023.

Shares of Watsco gained 5.4% during the trading session on Feb 16.

Inside the Numbers

Watsco reported quarterly earnings of $2.35 per share, which topped the consensus estimate of $2.12 by 10.8% and increased 16.3% year over year on record quarterly sales.

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 $1.58 billion, on the other hand, missed the consensus mark of $1.6 billion by 1.4% but increased 4.6% from the year-ago period. The upside reflects sustainable market share gains, solid heat pumps sales, product diversity and technology leadership. Also, continued investment in technologies, designed to revolutionize customer experience, added to the positives.

Sales of HVAC equipment (heating, ventilating and air conditioning; comprising 67% of sales) were up 2% year over year. Sales of other HVAC products (29% of sales) also increased 6% from the prior-year quarter. Sales from commercial refrigeration products (4% of sales) rose 19% year over year.

Operating Highlights

Gross margin expanded 10 basis points (bps) in the fourth quarter to a record level of 27.4%. SG&A expenses increased 3% compared from the past year period.

Adjusted operating margin expanded 80 bps in the fourth quarter to 8.9%.

Financial Operations

As of Dec 31, 2022, cash and cash equivalents were $147.5 million compared with $118.3 million at 2021-end. Cash from operations came in at $572 million for 2022, up from $349.6 million a year ago.

2022 Highlights

Net sales totaled $7.27 billion, reflecting an increase of 15.8% year over year and 14% on a same-store basis. Adjusted earnings per share grew 32% year over year to $14.20. Sales of HVAC equipment, other HVAC products, and commercial refrigeration products were up 13%, 15%, and 24% year over year, respectively.

Gross margin expanded 130 bps for 2022 to a record level of 27.9%. SG&A expenses increased 15% year over year.

Adjusted operating margin expanded 150 bps year over year to a record level of 11.5%.

Zacks Rank & Key Picks

WSO currently carries a Zacks Rank #4 (Sell).

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

Some better-ranked stocks in the Zacks Construction sector are Skyline Champion Corporation (SKY - Free Report) , United Rentals, Inc. (URI - Free Report) and Sterling Infrastructure, Inc. (STRL - Free Report) .

Skyline currently flaunts a Zacks Rank #1. SKY has a trailing four-quarter earnings surprise of 43.2%, on average. Its shares have rallied 46.6% in the past three months.

The Zacks Consensus Estimate for SKY’s fiscal 2023 sales and EPS suggests growth of 19% and 55.7%, respectively, from the year-ago levels.

United Rentals currently carries a Zacks Rank #2. Shares of URI have gained 48.1% in the past year. The long-term earnings growth rate of the company is 16.3%.

The Zacks Consensus Estimate for URI’s 2023 sales and EPS suggests growth of 20.3% and 28.3%, respectively, from the year-ago period’s reported levels.

Sterling currently carries a Zacks Rank #2. STRL has a trailing four-quarter earnings surprise of 20%, on average. Shares of the company have gained 42.3% in the past six months.

The Zacks Consensus Estimate for STRL’s fiscal 2023 sales and EPS suggests growth of 0.6% and 9.9%, respectively.

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