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Watsco (WSO) Q4 Earnings & Sales Miss Estimates, Stock Down

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Watsco, Inc. (WSO - Free Report) posted adjusted earnings per share of 90 cents in fourth-quarter 2017, up 11% year over year. Earnings, however, missed the Zacks Consensus Estimate of $1.00. Evidently, shares of Watsco dropped around 3.6% at the close of the market yesterday.

Including the benefit from the tax reform, the company’s earnings increased to $1.19 per share from 81 cents reported in the prior-year quarter. The year-ago quarter did not have such adjustment.

Total revenues in the quarter increased 5.6% year over year to $964 million. The figure missed the Zacks Consensus Estimate of $965 million. Sales of HVAC (heating, ventilating and air conditioning) went up 7%, other HVAC products sales also increased 4%, while commercial refrigeration products sales dropped 4%.

Watsco, Inc. Price, Consensus and EPS Surprise

 

Watsco, Inc. Price, Consensus and EPS Surprise | Watsco, Inc. Quote

Cost and Margins

Cost of sales went up 5.5% to $723 million from $685.5 million recorded in the year-ago quarter. Gross profit improved 5.6% year over year to $240.9 million. Gross profit margin remained flat year over year at 25%.

Selling, general and administrative expenses increased 6.6% year over year to $181.2 million. Operating income grew 5.6% year over year to $61.4 million. Operating margin remained flat year over year at 6.4%.

2017 Performance

Watsco reported adjusted earnings per share of $5.54 in 2017, up 7.6% year over year. Earnings lagged the Zacks Consensus Estimate of $5.58. On a reported basis, the company’s earnings increased to $5.81 per share from $5.51 recorded in 2016.

Revenues grew 2.9% year over year to $4,342 million from $4,220 million recorded in 2016. Revenues, however, missed the Zacks Consensus Estimate of $4,343 million.

Financial Operations

Watsco had cash and cash equivalents of $80.5 million as of Dec 31, 2017, compared with $56 million recorded at the end of 2016. Cash flow from operations came in at $301.8 million in 2017 compared to $277.8 million recorded last year.

During 2017, Watsco sold its shares under the previously-announced “at-the-market” (ATM) stock offering program and raised $248 million. This has helped the company reduce debt and will drive long-term growth opportunities.

Watsco also approved a 16% hike in its annual dividend to $5.80 per share for each outstanding share of its Common and Class B common stock. This will be reflected in the company’s next regular dividend payment beginning in April 2018.

Share Price Performance

In the last year, Watsco has underperformed its industry with respect to price performance. The stock has gained around 5.9%, while the industry recorded growth of 11.7% during the same time frame.



Zacks Rank & Key Picks

Watsco currently carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the same sector include Boise Cascade Company (BCC - Free Report) , Potlatch Corporation (PCH - Free Report) and MasTec, Inc. (MTZ - Free Report) . While Boise Cascade Company and Potlatch Corporation sport a Zacks Rank #1 (Strong Buy), MasTec carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Boise Cascade Company has a long-term earnings growth rate of 18.5%. Its shares have appreciated 38.3%, over the past six months.

Potlatch Corporation has a long-term earnings growth rate of 5%. The company’s shares have rallied 5% during the same time frame.

MasTec has a long-term earnings growth rate of 14%. The stock has gained 20% in six months’ time.

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