Watsco Inc.
's (
WSO
) first-quarter 2012 adjusted earnings were 24 cents per share, in
line with the Zacks Consensus Estimate and above the year-ago
quarter earnings of 21 cents.
As reported by the company, earnings were 23 cents per share
compared with the year-ago quarter's earnings of 21 cents.
Total revenue increased 19% to $634 million, comfortably
surpassing the Zacks Consensus Estimate of $581 million. Same store
sales increased 7%, including a hike of 12% in air conditioning and
heating (HVAC) equipment and an 11% rise in commercial
refrigeration products, while sales of other HVAC products dropped
1%.
Cost and Margins
Cost of sales increased 21% to $483 million in the quarter.
Gross profit was up 12% to $151 million. However, gross profit
margin dropped 150 basis-points (bps) to 23.8%.
On a same store basis, gross profit inflated 1% while gross
margin decreased 140 bps to 23.9%. Gross margin plummeted due to
higher sales mix of HVAC products generating lower margins than
non-equipment products and timing of inventory purchases.
Selling, general and administrative expenses rose 11% to $131
million in the quarter. Income from operations increased 19.1% to
$19.9 million. Operating margin remained flat year over year at
3.2%.
Financial Operations
Cash and cash equivalents were $18.1 million as of March 31,
2012, compared with $15.7 million as of December 31, 2011.
Operating cash flow was $9 million in the quarter.
Borrowings of the company were $42.5 million as of March 31,
2012, compared with $20 million as of December 31, 2011. Board of
Directors of Watsco approved a 9% increase in the quarterly
dividend to 62 cents per share. It marked the 11
th
consecutive year of steady dividend increase.
Outlook
The company expects earnings in the band of $3.25-$3.40 per
share for 2012. This represents a growth rate of between 19% and
24% over 2011. The current Zacks Consensus Estimate is pegged at
$3.33 per share which is within the guidance range of the
company.
Our Take
Watsco has acquired about 60% shares of Carrier's HVAC network
in Canada to form a joint venture. The company expects the
acquisition, which was closed recently, to be accretive in 2012.
With the deal closure, the company's sales run-rate is roughly $3.4
billion. However, the very basis of expansion remains exposed to
the new home market. Slow recovery in housing starts may affect
overall unit demand.
Currently, we have a long-term Neutral recommendation on Watsco.
The company, which competes with
Johnson Controls Inc.
(
JCI
) and privately held Gensco Inc., retains a short-term Zacks #2
Rank ("Buy").
JOHNSON CONTROL (
JCI
): Free Stock Analysis Report
WATSCO INC (
WSO
): Free Stock Analysis Report
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