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Watsco (WSO) Up 1.2% 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 1.2% in that time frame, outperforming the S&P 500.
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 its most recent earnings report in order to get a better handle on the important drivers.
Watsco's Q2 Earnings & Revenues Miss Estimates, Down Y/Y
Watsco reported dismal second-quarter 2023 results, wherein earnings and revenues missed the Zacks Consensus Estimate. Also, the bottom and the top lines declined year over year. The downtrend was caused by delayed product availability, with the company estimating about $75 to $80 million of sales being impacted by delays. Furthermore, moderate pricing as well as low volumes add to the tepid performance.
Inside the Numbers
Watsco reported quarterly earnings of $4.42 per share, which missed the Zacks Consensus Estimate of $4.87 per share by 9.2% and decreased 10% year over year on increased interest expenses and lower operating profit.
Total sales of $2 billion missed the consensus mark of $2.15 billion by 7% and decreased 6% from the year-ago period. The downtrend was driven by lower sales trend in HVAC (heating, ventilating and air conditioning) equipment and products as well as product availability delays due to product transition in the Watsco’s OEM community for aligning with regulatory transitions in the quarter. Also, temperate weather conditions caused the delayed commencement of the summer selling season, which in turn affected the sales. This was partially offset by the company’s continued investment in technologies, product diversity and technology leadership.
Sales of HVAC equipment (comprising 69% of sales) were down 8% year over year. Sales of other HVAC products (27% of sales) decreased 7% from the prior-year quarter. Sales of commercial refrigeration products (4% of sales) gained 1% year over year.
Operating Highlights
The gross margin improved 20 basis points (bps) in the second quarter to 28.1%. SG&A expenses (15.2% of sales) decreased by 3% year over year in the quarter.
The operating margin declined 20 bps year over year in the second quarter to 13.3%. Our model predicted operating margin for the quarter to be 12.2%.
Financial Operations
As of Jun 30, 2023, cash and cash equivalents were $162.5 million, up from $147.5 million at 2022 end. For the first six months of 2023, the net cash used in operating activities was $89.2 million against the net cash provided by operating activities of $73.1 million in the prior year period.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates flatlined during the past month.
VGM Scores
Currently, Watsco has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
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 1.2% 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 1.2% in that time frame, outperforming the S&P 500.
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 its most recent earnings report in order to get a better handle on the important drivers.
Watsco's Q2 Earnings & Revenues Miss Estimates, Down Y/Y
Watsco reported dismal second-quarter 2023 results, wherein earnings and revenues missed the Zacks Consensus Estimate. Also, the bottom and the top lines declined year over year. The downtrend was caused by delayed product availability, with the company estimating about $75 to $80 million of sales being impacted by delays. Furthermore, moderate pricing as well as low volumes add to the tepid performance.
Inside the Numbers
Watsco reported quarterly earnings of $4.42 per share, which missed the Zacks Consensus Estimate of $4.87 per share by 9.2% and decreased 10% year over year on increased interest expenses and lower operating profit.
Total sales of $2 billion missed the consensus mark of $2.15 billion by 7% and decreased 6% from the year-ago period. The downtrend was driven by lower sales trend in HVAC (heating, ventilating and air conditioning) equipment and products as well as product availability delays due to product transition in the Watsco’s OEM community for aligning with regulatory transitions in the quarter. Also, temperate weather conditions caused the delayed commencement of the summer selling season, which in turn affected the sales. This was partially offset by the company’s continued investment in technologies, product diversity and technology leadership.
Sales of HVAC equipment (comprising 69% of sales) were down 8% year over year. Sales of other HVAC products (27% of sales) decreased 7% from the prior-year quarter. Sales of commercial refrigeration products (4% of sales) gained 1% year over year.
Operating Highlights
The gross margin improved 20 basis points (bps) in the second quarter to 28.1%. SG&A expenses (15.2% of sales) decreased by 3% year over year in the quarter.
The operating margin declined 20 bps year over year in the second quarter to 13.3%. Our model predicted operating margin for the quarter to be 12.2%.
Financial Operations
As of Jun 30, 2023, cash and cash equivalents were $162.5 million, up from $147.5 million at 2022 end. For the first six months of 2023, the net cash used in operating activities was $89.2 million against the net cash provided by operating activities of $73.1 million in the prior year period.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates flatlined during the past month.
VGM Scores
Currently, Watsco has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Watsco has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.