) reported third-quarter 2013 adjusted earnings of $1.32 per
share, up 11% from $1.19 per share earned in the year-ago
quarter. The growth was aided by higher sales, stronger selling
margins and continued operating cost management. However, the
results missed the Zacks Consensus Estimate of $1.43.
Total revenue increased 6% year over year to a record $1.1
billion and was in line with the Zacks Consensus Estimate.
Residential air conditioning and heating (HVAC) equipment
increased 8%. Other HVAC products were up 3% and commercial
refrigeration products grew 1%.
Cost and Margins
Cost of sales increased 5.8% year over year to $823.3 million.
Gross profit grew 6.6% year over year to a record $258.6 million.
Gross profit margin increased 10 basis points (bps) to 23.9% from
23.8% in the year-ago quarter. Selling, general and
administrative expenses crept up 4% year over year to $163
million. Income from operations increased 11.4% year over year to
a record $95.5 million. Operating margin increased 40 bps to
Cash and cash equivalents were $29 million as of Sep 30, 2013,
compared with $73.8 million as of Dec 31, 2012. Cash flow from
operating activities for the period of nine months ended Sep 30,
2013 was $51 million, down from $64 million in the year ago
comparable period. Debt-to-capitalization ratio was 20% as of Sep
30, 2013, compared with 24% as of Dec 31, 2012.
Watsco paid $26 million in dividends during the first nine months
of 2013. On Oct 2, 2013, Watsco raised its quarterly dividend
rate by 60% to 40 cents per share payable on Oct 31 to
shareholders of record as of Oct 15.
Guidance for 2013
Watsco revised its earnings per share guidance to $3.65-$3.70
from $3.60-$3.75. This implies an annual growth rate of 20% to
22% over 2012.
Watsco expects strong residential HVAC systems sales in the U.S.,
which grew double digits, and an improved sales trend for
commercial products. Watsco's strong cash flow and healthy
balance sheet will aid business growth.
Watsco continues to increase its presence in the international
markets. On the domestic front, the company continues to witness
growth in the residential product segment and the momentum is
expected to continue in the balance of 2013, aided by the
recovery in the housing market.
Watsco has immense potential in the replacement market of air
conditioners and heating systems in the U.S. Furthermore,
increased investment opportunities, a solid balance sheet and
favorable general economic conditions will drive growth.
Watsco currently retains a Zacks Rank #3 (Hold). Watsco's peer
Lennox International, Inc.
) is expected to report its third-quarter results on Oct 21,
Comfort Systems USA Inc.
) will report on Oct 30 followed by
) on Nov 4.
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