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In the last reported quarter, earnings and revenues missed the Zacks Consensus Estimate by 9.2% and 7%, respectively. Earnings and net sales decreased 10% and 6% from the year-ago figures, respectively. Watsco’s earnings topped the consensus mark in two of the last four quarters and missed on other two occasions, with the average being 3.5%.
Trend in Estimate Revision
For the quarter to be reported, the Zacks Consensus Estimate for earnings per share has increased to $4.24 from $4.23 over the past seven days. The estimated figure indicates 5.2% growth from the year-ago level. The consensus mark for revenues is pegged at $2.05 billion, suggesting a 0.7% increase from the year-ago reported figure of $2.04 billion.
The company's upcoming quarterly performance is anticipated to showcase strong results in both the heating, ventilation, and air conditioning (“HVAC”) equipment and commercial refrigeration product segments. Additionally, an uptick in repair over replacement is expected to have provided a favorable tailwind. However, the slower pace of new residential construction may partially offset these positive factors.
During July and August, when much of the country experienced extreme heat and humidity, there was an increase in demand for the company's products. Furthermore, equipment pricing is expected to have remained stable, with only slight price pressure affecting certain components and supplies.
The company's solid performance can also be attributed to its ongoing investments in cutting-edge technologies, value-enhancing acquisitions, and a steadfast commitment to customer satisfaction. These factors are likely to have contributed positively to the company's quarterly results.
Our model predicts HVAC Equipment sales (which accounted for 69% of total sales in second-quarter 2023) to register 1.1% year-over-year growth to $1.42 billion in the quarter. HVAC Products (27%) is expected to grow 1.1% to $555.6 million in the quarter. Meanwhile, Commercial Refrigeration Products sales (4%) are expected to rise 1.1% to $82.3 million in the quarter.
From the margin perspective, better price/mix will positively impact gross margin in the quarter. We expect the gross margin to improve 30 basis points year over year to 27.4%. Also, SG&A expenses, as a percentage of net sales, are expected to decrease 15.5% in the quarter from 15.8% a year ago.
Overall, hot weather, higher prices, solid commercial demand, acquisitions and investment in technologies and e-commerce and SG&A leverage will offset lower residential equipment units in the quarter.
What the Zacks Model Unveils
Our proven model predicts an earnings beat for Watsco this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. This is exactly the case here, as you will see below.
Earnings ESP: The company has an Earnings ESP of +5.49%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Currently, Watsco carries a Zacks Rank #3.
Other Stocks With the Favorable Combination
Here are some constriction companies which, according to our model, have the right combination of elements to post an earnings beat on their respective quarters to be reported.
KBR, Inc. (KBR - Free Report) has an Earnings ESP of +6.36% and a Zacks Rank #2.
KBR’s earnings topped the consensus mark in all the last four quarters, with the average being 10.8%. Earnings for the to-be-reported quarter are expected to increase 12.3% year over year.
ROAD’s earnings topped the consensus mark in three of the last four quarters, with the average being 10.6%. Earnings for the to-be-reported quarter are expected to rise 108% year over year.
Dycom Industries, Inc. (DY - Free Report) has an Earnings ESP of +1.24% and a Zacks Rank #2.
DY’s earnings topped the consensus mark in all the last four quarters, with the average being 147.4%. Earnings for the to-be-reported quarter are expected to grow 4.7% year over year.
Image: Bigstock
What's in the Cards for Watsco (WSO) in Q3 Earnings?
Watsco, Inc. (WSO - Free Report) is scheduled to report third-quarter 2023 results on Oct 19, before the opening bell.
In the last reported quarter, earnings and revenues missed the Zacks Consensus Estimate by 9.2% and 7%, respectively. Earnings and net sales decreased 10% and 6% from the year-ago figures, respectively. Watsco’s earnings topped the consensus mark in two of the last four quarters and missed on other two occasions, with the average being 3.5%.
Trend in Estimate Revision
For the quarter to be reported, the Zacks Consensus Estimate for earnings per share has increased to $4.24 from $4.23 over the past seven days. The estimated figure indicates 5.2% growth from the year-ago level. The consensus mark for revenues is pegged at $2.05 billion, suggesting a 0.7% increase from the year-ago reported figure of $2.04 billion.
Watsco, Inc. Price and EPS Surprise
Watsco, Inc. price-eps-surprise | Watsco, Inc. Quote
Key Factors to Note
The company's upcoming quarterly performance is anticipated to showcase strong results in both the heating, ventilation, and air conditioning (“HVAC”) equipment and commercial refrigeration product segments. Additionally, an uptick in repair over replacement is expected to have provided a favorable tailwind. However, the slower pace of new residential construction may partially offset these positive factors.
During July and August, when much of the country experienced extreme heat and humidity, there was an increase in demand for the company's products. Furthermore, equipment pricing is expected to have remained stable, with only slight price pressure affecting certain components and supplies.
The company's solid performance can also be attributed to its ongoing investments in cutting-edge technologies, value-enhancing acquisitions, and a steadfast commitment to customer satisfaction. These factors are likely to have contributed positively to the company's quarterly results.
Our model predicts HVAC Equipment sales (which accounted for 69% of total sales in second-quarter 2023) to register 1.1% year-over-year growth to $1.42 billion in the quarter. HVAC Products (27%) is expected to grow 1.1% to $555.6 million in the quarter. Meanwhile, Commercial Refrigeration Products sales (4%) are expected to rise 1.1% to $82.3 million in the quarter.
From the margin perspective, better price/mix will positively impact gross margin in the quarter. We expect the gross margin to improve 30 basis points year over year to 27.4%. Also, SG&A expenses, as a percentage of net sales, are expected to decrease 15.5% in the quarter from 15.8% a year ago.
Overall, hot weather, higher prices, solid commercial demand, acquisitions and investment in technologies and e-commerce and SG&A leverage will offset lower residential equipment units in the quarter.
What the Zacks Model Unveils
Our proven model predicts an earnings beat for Watsco this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. This is exactly the case here, as you will see below.
Earnings ESP: The company has an Earnings ESP of +5.49%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Currently, Watsco carries a Zacks Rank #3.
Other Stocks With the Favorable Combination
Here are some constriction companies which, according to our model, have the right combination of elements to post an earnings beat on their respective quarters to be reported.
KBR, Inc. (KBR - Free Report) has an Earnings ESP of +6.36% and a Zacks Rank #2.
KBR’s earnings topped the consensus mark in all the last four quarters, with the average being 10.8%. Earnings for the to-be-reported quarter are expected to increase 12.3% year over year.
Construction Partners, Inc. (ROAD - Free Report) has an Earnings ESP of +2.91% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
ROAD’s earnings topped the consensus mark in three of the last four quarters, with the average being 10.6%. Earnings for the to-be-reported quarter are expected to rise 108% year over year.
Dycom Industries, Inc. (DY - Free Report) has an Earnings ESP of +1.24% and a Zacks Rank #2.
DY’s earnings topped the consensus mark in all the last four quarters, with the average being 147.4%. Earnings for the to-be-reported quarter are expected to grow 4.7% year over year.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.