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Watsco (WSO) Up 9.4% 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 9.4% 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 the most recent earnings report in order to get a better handle on the important catalysts.
Watsco Q1 Earnings Lag Estimates, On-Line Sales Up Y/Y
Watsco, Inc. reported disappointing results in first-quarter 2020. Earnings and revenues missed the respective Zacks Consensus Estimate. Also, its bottom line declined on a year-over-year basis due to softness in international markets.
Given the current market conditions, the company noted that sales trends have decelerated in April and will vary according to geography in the summer selling season. It has been adjusting business per the needs of customers, reducing costs in affected markets and improving efficiency.
The company believes that financial strength, backed by its highly-conservative leverage ratios, access to low-cost capital and ability to generate cash flow, allows it to take advantage of almost any size investment opportunity.
Inside the Numbers
Watsco’s quarterly earnings of 72 cents per share missed the consensus estimate of 88 cents. The reported earnings also declined 18.2% year over year. Lower margins due to higher costs and expenses affected the results.
Total revenues of $1.01 billion lagged the consensus mark of $1.02 billion by 0.6% but increased 8.3% from the year-ago period. Sales grew 2% on a same-store basis. The upside stemmed from strong HVAC equipment business, partially offset by soft demand in a few international markets served. Continued investment in technologies designed to revolutionize customer experience added to the positives. Notably, on-line sales in quarter grew 12% year over year on 13% increased e-commerce transactions.
Sales of HVAC equipment (heating, ventilating and air conditioning; comprising 67% of sales) were up 2% year over year, including 5% growth in U.S. residential markets. Sales of other HVAC products (29% of sales) increased 2% from the prior-year quarter. Sales from commercial refrigeration products (4% of sales) were flat year over year.
Operating Highlights
Gross margin contracted 50 basis points (bps) to 24.6%. SG&A expenses increased 13% year over year due to the addition of 35 new or acquired locations. In fact, SG&A expenses — as a percentage of sales — surged 90 bps year over year. Operating margin contracted 140 bps year over year to 4.5%.
Financial Operations
As of Mar 31, 2020, cash and cash equivalents were $51.2 million compared with $74.5 million at 2018-end. Cash from operations came in at $41.9 million in the first three months of 2020 compared with $52.9 million in the comparable year-ago period.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates flatlined during the past month. The consensus estimate has shifted -6.14% due to these changes.
VGM Scores
At this time, Watsco has a great Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. 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 9.4% 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 9.4% 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 the most recent earnings report in order to get a better handle on the important catalysts.
Watsco Q1 Earnings Lag Estimates, On-Line Sales Up Y/Y
Watsco, Inc. reported disappointing results in first-quarter 2020. Earnings and revenues missed the respective Zacks Consensus Estimate. Also, its bottom line declined on a year-over-year basis due to softness in international markets.
Given the current market conditions, the company noted that sales trends have decelerated in April and will vary according to geography in the summer selling season. It has been adjusting business per the needs of customers, reducing costs in affected markets and improving efficiency.
The company believes that financial strength, backed by its highly-conservative leverage ratios, access to low-cost capital and ability to generate cash flow, allows it to take advantage of almost any size investment opportunity.
Inside the Numbers
Watsco’s quarterly earnings of 72 cents per share missed the consensus estimate of 88 cents. The reported earnings also declined 18.2% year over year. Lower margins due to higher costs and expenses affected the results.
Total revenues of $1.01 billion lagged the consensus mark of $1.02 billion by 0.6% but increased 8.3% from the year-ago period. Sales grew 2% on a same-store basis. The upside stemmed from strong HVAC equipment business, partially offset by soft demand in a few international markets served. Continued investment in technologies designed to revolutionize customer experience added to the positives. Notably, on-line sales in quarter grew 12% year over year on 13% increased e-commerce transactions.
Sales of HVAC equipment (heating, ventilating and air conditioning; comprising 67% of sales) were up 2% year over year, including 5% growth in U.S. residential markets. Sales of other HVAC products (29% of sales) increased 2% from the prior-year quarter. Sales from commercial refrigeration products (4% of sales) were flat year over year.
Operating Highlights
Gross margin contracted 50 basis points (bps) to 24.6%. SG&A expenses increased 13% year over year due to the addition of 35 new or acquired locations. In fact, SG&A expenses — as a percentage of sales — surged 90 bps year over year. Operating margin contracted 140 bps year over year to 4.5%.
Financial Operations
As of Mar 31, 2020, cash and cash equivalents were $51.2 million compared with $74.5 million at 2018-end. Cash from operations came in at $41.9 million in the first three months of 2020 compared with $52.9 million in the comparable year-ago period.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates flatlined during the past month. The consensus estimate has shifted -6.14% due to these changes.
VGM Scores
At this time, Watsco has a great Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. 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.