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Watsco (WSO) Q3 Earnings and Revenues Miss Estimates, Up Y/Y
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Watsco, Inc. (WSO - Free Report) reported third-quarter 2018 results, wherein earnings and revenues missed the Zacks Consensus Estimate. Quarterly earnings of $2.11 per share missed the consensus mark of $2.25 by 6.2%. Also, total revenues of $1.296 billion in the quarter missed the consensus mark of $1.312 billion by 1.2%. Consequently, shares of Watsco dropped 3.1% at the end of yesterday’s trading session.
Nonetheless, on a year-over-year basis, earnings increased 16% from the year-ago level of $1.82 per share. Also, revenues rose 5% from the year-ago figure from $1.23 billion. The upside stemmed from higher unit demand in HVAC equipment, as well as improved pricing and sales mix. Continued investment in the technologies designed to revolutionize Watsco’s customer experience also added to the positives. Notably, the third quarter registered the highest sales and profits in the company’s history.
Sales of HVAC (heating, ventilating and air conditioning, comprising 68% of sales) went up 7% and that of other HVAC products (28% of sales) increased 4%. However, commercial refrigeration (4% of sales) products sales remained flat in the quarter on an annualized basis.
Cost of sales went up 4.6% to $977 million from $933.7 million a year ago. Gross profit improved 7.8% year over year to $319 million. Also, gross profit margin grew 50 basis points (bps) from the prior-year quarter to 24.6%.
Selling, general and administrative expenses rose 9.1% year over year to $200.4 million. As a percentage of sales, SG&A expenses notably improved 520 bps year over year.
Operating income increased 6.8% year over year to $122.3 million. Operating margin expanded 10 bps year over year to 9.4%.
However, the positives were partially offset by a decline of $3 million operating profit in the Florida-based business and $2 million in Mexico due to reduced sales. Excluding these markets, sales increased 8% and operating profit grew 18% year over year, driving $6 million growth in performance-based compensation during the quarter.
Financial Operations
As of Sep 30, 2018, cash and cash equivalents were $67.6 million compared with $80.5 million at the end of 2017. Cash from operations came in at $70.1 million in the first nine months of 2018 compared with $189.4 million a year ago.
Watsco approved a 10% hike in annual dividend to $6.40 per share, effective January 2019.
Guidance
Watsco anticipates 2018 adjusted earnings in the range of $6.40-$6.50 per share (versus $5.54 reported in 2017), representing growth of 16-17%.
Armstrong World, Armstrong Flooring and NCI Building’s 2018 earnings are expected to grow 23.5%, 104.8% and 81.3%, respectively.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
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Watsco (WSO) Q3 Earnings and Revenues Miss Estimates, Up Y/Y
Watsco, Inc. (WSO - Free Report) reported third-quarter 2018 results, wherein earnings and revenues missed the Zacks Consensus Estimate. Quarterly earnings of $2.11 per share missed the consensus mark of $2.25 by 6.2%. Also, total revenues of $1.296 billion in the quarter missed the consensus mark of $1.312 billion by 1.2%. Consequently, shares of Watsco dropped 3.1% at the end of yesterday’s trading session.
Nonetheless, on a year-over-year basis, earnings increased 16% from the year-ago level of $1.82 per share. Also, revenues rose 5% from the year-ago figure from $1.23 billion. The upside stemmed from higher unit demand in HVAC equipment, as well as improved pricing and sales mix. Continued investment in the technologies designed to revolutionize Watsco’s customer experience also added to the positives. Notably, the third quarter registered the highest sales and profits in the company’s history.
Sales of HVAC (heating, ventilating and air conditioning, comprising 68% of sales) went up 7% and that of other HVAC products (28% of sales) increased 4%. However, commercial refrigeration (4% of sales) products sales remained flat in the quarter on an annualized basis.
Watsco, Inc. Price, Consensus and EPS Surprise
Watsco, Inc. Price, Consensus and EPS Surprise | Watsco, Inc. Quote
Operating Highlights
Cost of sales went up 4.6% to $977 million from $933.7 million a year ago. Gross profit improved 7.8% year over year to $319 million. Also, gross profit margin grew 50 basis points (bps) from the prior-year quarter to 24.6%.
Selling, general and administrative expenses rose 9.1% year over year to $200.4 million. As a percentage of sales, SG&A expenses notably improved 520 bps year over year.
Operating income increased 6.8% year over year to $122.3 million. Operating margin expanded 10 bps year over year to 9.4%.
However, the positives were partially offset by a decline of $3 million operating profit in the Florida-based business and $2 million in Mexico due to reduced sales. Excluding these markets, sales increased 8% and operating profit grew 18% year over year, driving $6 million growth in performance-based compensation during the quarter.
Financial Operations
As of Sep 30, 2018, cash and cash equivalents were $67.6 million compared with $80.5 million at the end of 2017. Cash from operations came in at $70.1 million in the first nine months of 2018 compared with $189.4 million a year ago.
Watsco approved a 10% hike in annual dividend to $6.40 per share, effective January 2019.
Guidance
Watsco anticipates 2018 adjusted earnings in the range of $6.40-$6.50 per share (versus $5.54 reported in 2017), representing growth of 16-17%.
Zacks Rank & Other Key Picks
Watsco currently carries a Zacks Rank #2 (Buy).
Other top-ranked stocks in the Zacks Construction sector are Armstrong World Industries, Inc. (AWI - Free Report) , Armstrong Flooring, Inc. and NCI Building Systems, Inc. , each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Armstrong World, Armstrong Flooring and NCI Building’s 2018 earnings are expected to grow 23.5%, 104.8% and 81.3%, respectively.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>