) reported first-quarter 2013 adjusted EPS of 39 cents, up 70%
from 23 cents earned in the year-ago quarter and ahead of the
Zacks Consensus Estimate of 33 cents, on the back of
increased sales, better selling margins and operating
Total revenue increased 13% to a record $714 billion but
marginally short of the Zacks Consensus Estimate of $715 million
with same-store sales increasing 3%. Residential air conditioning
and heating (HVAC) equipment sales increased 6% while commercial
HVAC equipment dipped 5%. Other HVAC products were up 1% and
commercial refrigeration products grew 7%.
Cost and Margins
Cost of sales increased 11% to $538.2 million in the quarter.
Gross profit was up 16% to $175.4 million. Gross profit margin
expanded 80 basis points (bps) to 24.6%. Selling, general and
administrative expenses rose 11% to $144.9 million in the
quarter. Income from operations increased 53% to record $30.5
million. Operating margin increased 110 basis points to 4.3%.
Cash and cash equivalents were $22 million as of Mar 31, 2013,
compared with $73.8 million as of Dec 31, 2012. For the quarter,
cash flow from operating activities was usage of $17.5 million,
mainly due to the typical, seasonal building up of inventories
prior to gear up for the selling season. Debt-to-capitalization
ratio remained flat at 24% as of Mar 31, 2013 compared with Dec
Watsco paid $9 million in dividends during the quarter. In Jan
2013, Watsco announced it established a regular quarterly
dividend rate of 25 cents per share.
Guidance for 2013
Watsco expects to generate earnings per share in the range of
$3.60 to $3.75. This projects an annual growth rate of 19% to
24%, reflecting organic growth, accretion from Canada and the
benefit of increasing Watsco's ownership in the first Carrier
joint venture by 10% last July. Watsco expects to meet or exceed
its annual target of generating cash flow greater than net income
in 2013. Watsco plans to reduce its debt and evaluate the option
of an increased dividend before the end of 2013.
Watsco continues to increase its presence in the international
markets, which currently contributes 16% of its total sales.
Domestically, the company continues to witness growth in the
residential product segment and the momentum is expected to
continue in 2013 as well, aided by the recovery in the housing
Watsco has immense potential in the replacement market of air
conditioners and heating systems in the U.S, as nearly 89 million
of them are more than 10 years old. Furthermore, backed by its
solid balance sheet, Watsco expects to increase its dividend and
make additional investments going forward.
Watsco currently retains a Zacks Rank #3 (Hold). Watsco's peer
Lennox International, Inc.
) is expected to report its first-quarter results on Apr 22,
) will report its results on May 7 followed by
Comfort Systems USA Inc.
) on May 8.
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WATSCO INC (WSO): Free Stock Analysis Report
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