Annual Dividend Boosted 19% to $5.00 Per
Share From Strong Cash Flow
Watsco, Inc. (NYSE: WSO) today reported results for the first
quarter ended March 31, 2017.
Watsco also announced today that its Board of Directors approved
a 19% increase in its annual dividend to $5.00 per share on each
outstanding share of its Common and Class B common stock. The
increase will be reflected in the Company’s next regular dividend
payment beginning in July 2017.
Sales trends:
- Sales increased 2% to a record $872
million (3% on a same-store basis)
- HVAC equipment increased 3% (65% of
sales)
- Other HVAC products increased 1% (30%
of sales)
- Commercial refrigeration products
increased 5% (5% of sales)
Key performance metrics:
- Gross profit improved 3% to a record
$219 million (gross margin improved 10 basis-points)
- SG&A increased 5%, reflecting sales
and service-related headcount additions (4 cents per share impact)
and higher technology spending (2 cents per share impact)
- Operating income decreased 4% to $49
million
- Net income increased 3% to a record $26
million
- Earnings per share was flat at 71
cents
- Operating cash flow of $34 million
($1.05 per diluted share)
Albert H. Nahmad, Watsco’s Chairman and CEO, stated: “Sales
trends during the quarter proved highly seasonal, especially in the
face of last year’s double-digit U.S. equipment growth rate
comparison. Sales momentum improved as the quarter closed and
current trends in April have accelerated to double-digit growth. We
believe profit growth should follow as we expect the improved
selling margins and richer sales mix of higher-efficiency systems
achieved in the first quarter to continue. Results also reflect
further investments in technology and additional headcount of
approximately 150 customer-facing employees intended to enhance
long-term sales growth and market share. Although it is early, we
are optimistic that 2017 will be a record year for our
company.”
Mr. Nahmad added: “We are pleased to boost our dividend to an
annual rate of $5.00 per share beginning in July. As evidenced by
our long-term track record, we have confidence in our business to
produce meaningful earnings growth and cash flow that exceeds net
income. It is our intention to share cash flow through increasing
dividends, while retaining the ability to invest in our network and
evaluate any-sized opportunities that come our way.”
It is important to note that the first quarter of each calendar
year is highly seasonal due to the nature and timing of the
replacement market for air conditioning systems, which is strongest
in the second and third quarters. Accordingly, the Company’s first
quarter financial results are disproportionately affected by this
seasonality.
Technology Strategy
Watsco is actively transforming its business into the digital
age by investing in scalable platforms for mobile apps, e-commerce,
business intelligence and supply chain optimization. Strategic
goals are to further strengthen Watsco’s leadership position,
accelerate sales and profit growth, increase the speed and
convenience of serving customers and extend the Company’s reach
into new geographies and sales channels. Technology-related
spending over the last twelve months was $23 million.
Acquisition of Joint Venture Interests
In February 2017, Watsco raised its ownership stake in Carrier
Enterprise Northeast LLC, a joint venture with Carrier, to 80% for
approximately $43 million in cash. The incremental investment
builds on a transaction completed in November 2016, which increased
Watsco’s controlling interest from 60% to 70%. Carrier Enterprise
Northeast had sales in 2016 of approximately $500 million from 41
locations in the northeastern United States and 12 locations in
Mexico.
Cash Flow & Dividends
The Company has targeted cash flow from operations to exceed net
income in 2017. From 2000 to 2016, Watsco’s operating cash flow was
approximately $1.9 billion compared to net income of approximately
$1.8 billion, surpassing the Company’s stated goal of generating
cash flow in excess of net income.
Watsco has paid dividends for over 40 consecutive years with the
philosophy of sharing increasing amounts of cash flow through
higher dividends while maintaining a conservative financial
position. Future increases in dividends, if any, will be considered
in light of investment opportunities, cash flow, general economic
conditions and the Company’s overall financial condition.
Other
Results include income tax benefits of $1.3 million or 4 cents
per diluted share relating to the Company’s adoption of Accounting
Standards Update 2016-09, Improvements to Employee Share-Based
Payment Accounting, issued by the Financial Accounting Standards
Board.
Conference Call Information
Date & time: April 25, 2017 at 10:00 a.m. (EDT)Webcast:
http://investors.watsco.comDial-in number: United States (844)
883-3908 / International (412) 317-9254
A replay of the conference call will be available on the
Company's website.
Use of Non-GAAP Financial Information
In this release, the Company discloses non-GAAP measure of
“operating cash flow per share”, which is determined by dividing
“net cash provided by operating activities” as shown in the
attached Condensed Consolidated Statements of Cash Flows by the
“weighted–average Common and Class B common shares and equivalent
shares used to calculate diluted earnings per share” as shown in
the attached Condensed Consolidated Results of Operations. The
Company believes that this information provides a meaningful
comparison and important correlation of the Company’s financial
performance and cash flow generation on a per share basis in order
to further assess overall performance.
The Company also discloses non-GAAP measures of same-store
basis. Information referring to “same-store basis” excludes the
effects of locations acquired or locations opened or closed during
the immediately preceding 12 months unless they are within close
geographical proximity to existing locations. The Company believes
that this information provides greater comparability regarding its
ongoing operating performance. These measures should not be
considered an alternative to measurements required by accounting
principles generally accepted in the United States (GAAP).
About Watsco
Watsco improves indoor living and working environments with air
conditioning and heating solutions that provide comfort regardless
of the outdoor climate. There are approximately 92 million central
air conditioning and heating systems installed in the United States
that have been in service for more than 10 years. Older systems
often operate below today’s government mandated energy efficiency
and environmental standards. Watsco has an opportunity to
accelerate the replacement of these systems at a scale greater than
our competitors as the movement toward reducing energy consumption
and its environmental impact continues. This is especially
important since heating and cooling accounts for approximately half
of the energy consumed in a typical U.S. home.
Watsco’s traditional sales channel is through one of its 561
locations in the United States, Canada, Mexico and Puerto Rico, and
on an export basis to Latin America and the Caribbean. This network
has been built over the last 25 years and serves 88,000 active
customers. Watsco is developing and investing in technologies to
enable sales via e-commerce, on-line marketplaces and through the
retail sales channel. As the industry leader, we believe that
significant growth potential remains given that the marketplace for
HVAC/R products at the consumer level is estimated to be $88
billion annually. Additional information about Watsco may be found
at http://www.watsco.com.
This document includes certain “forward-looking statements”
within the meaning of the Private Securities Litigation Reform Act
of 1995. Forward-looking statements may be identified by the use of
words such as “will,” “would,” “anticipate,” “expect,” “believe,”
“plan,” “optimistic,” “goal” or “intend,” the negative of these
terms and similar references to future periods. These statements
are based on management's current expectations and are subject to
uncertainty and changes in circumstances. Actual results may differ
materially from these expectations due to changes in economic,
business, competitive market, new housing starts and completions,
capital spending in commercial construction, consumer spending and
debt levels, regulatory and other factors, including, without
limitation, the effects of supplier concentration, competitive
conditions within Watsco’s industry, seasonal nature of sales of
Watsco’s products, the ability of the Company to expand its
business, insurance coverage risks and final GAAP adjustments.
Forward-looking statements speak only as of the date the statement
was made. Watsco assumes no obligation to update forward-looking
information to reflect actual results, changes in assumptions or
changes in other factors affecting forward-looking information,
except as required by applicable law. Detailed information about
these factors and additional important factors can be found in the
documents that Watsco files with the Securities and Exchange
Commission, such as Form 10-K, Form 10-Q and Form 8-K.
WATSCO, INC. Condensed Consolidated Results of
Operations (In thousands, except per share data)
(Unaudited)
Quarter Ended March 31,
2017 2016 Revenues $ 872,095 $ 851,424 Cost of sales
653,539 638,977 Gross profit 218,556 212,447
Gross margin 25.1 % 25.0 % SG&A expenses
169,857 161,779 Operating income 48,699 50,668
Operating margin 5.6 % 6.0 % Interest expense, net
1,255 986 Income before income taxes
47,444 49,682 Income taxes 13,676 15,508
Net income 33,768 34,174 Less: net income attributable to
non-controlling interest 7,587 8,637
Net income attributable to Watsco shareholders $ 26,181 $
25,537 Diluted earnings per share: Net income
attributable to Watsco shareholders $ 26,181 $ 25,537 Less:
distributed and undistributed earnings allocated to non-vested
restricted common stock 3,120 2,413
Earnings allocated to Watsco shareholders $ 23,061 $ 23,124
Weighted-average Common and Class B common shares and
equivalent shares used to calculate diluted earnings per share
32,679,806 32,537,225 Diluted earnings per share for Common
and Class B common stock $ 0.71 $ 0.71
WATSCO, INC. Condensed Consolidated Balance
Sheets (Unaudited, in thousands) March 31, 2017
December 31, 2016 Cash and cash equivalents $ 47,421 $ 56,010
Accounts receivable, net 481,600 475,974 Inventories 751,505
685,011 Other 19,975 23,161 Total current assets
1,300,501 1,240,156 Property and equipment, net 90,532
90,502 Goodwill, intangibles, net and other 544,246
543,991 Total assets $ 1,935,279 $ 1,874,649 Accounts
payable and accrued expenses $ 377,100 $ 314,688 Current portion of
long-term obligations 1,798 200 Total current
liabilities 378,898 314,888 Borrowings under revolving
credit agreement 280,300 235,294 Deferred income taxes and other
liabilities 67,863 72,719 Total liabilities
727,061 622,901 Watsco's shareholders’ equity 978,336
1,005,828 Non-controlling interest 229,882 245,920
Shareholders’ equity 1,208,218 1,251,748 Total
liabilities and shareholders’ equity $ 1,935,279 $ 1,874,649
WATSCO, INC. Condensed Consolidated Statements of
Cash Flows (Unaudited, in thousands) Quarter
Ended March 31, 2017 2016 Cash flow from operating
activities: Net income $ 33,768 $ 34,174 Non-cash items 11,882
10,893 Changes in working capital (11,333 ) (3,215 )
Net cash provided by operating activities 34,317
41,852 Cash flow from investing activities:
Capital expenditures, net (4,127 )
(2,674 ) Cash flow from financing activities: Dividends on
Common and Class B Common stock (37,383 ) (30,033 ) Net proceeds
(repayments) under revolving credit agreement 45,006 (7,400 )
Purchase of additional ownership from non-controlling interest
(42,688 ) - Distributions to non-controlling interest (6,798 )
(7,115 ) Other 2,934 2,910 Net cash
used in financing activities (38,929 ) (41,638 )
Effect of foreign exchange rate changes on cash and cash
equivalents 150 87 Net decrease in cash
and cash equivalents (8,589 ) (2,373 ) Cash and cash equivalents at
beginning of period 56,010 35,229 Cash
and cash equivalents at end of period $ 47,421 $ 32,856
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version on businesswire.com: http://www.businesswire.com/news/home/20170425005415/en/
Watsco, Inc.Barry S. Logan, 305-714-4102Senior Vice
Presidentblogan@watsco.comFax: 305-858-4492www.watsco.com
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