Exhibit 99.1

Watsco Sets New Records for Sales, Operating Income, Net Income

and EPS During First Quarter

 

 

25% EPS Growth and 20 Basis-Point Operating Margin Expansion

Adoption of Customer-Focused Technologies Grows as Business Transformation Continues

MIAMI, FLORIDA – (GLOBENEWSWIRE), April 24, 2018 – Watsco, Inc. (NYSE: WSO) reported record results for the quarter ended March 31, 2018.

The record results reflect continued investment in technologies designed to revolutionize Watsco’s customer-experience and help customers grow their businesses. Most notably, the digitization of Watsco’s marketplace via e-commerce and iOS/Android-enabled apps, supported by the industry’s most complete database of product information, made further progress. Ecommerce sales run-rate is approaching 30% of revenues.

Key performance metrics:

 

    25% earnings per share growth to a record 89 cents

 

    31% increase in net income to $34 million

 

    11% operating income increase to a record $54 million

 

    20 basis-point expansion in operating margins to 5.8%

 

    6% sales growth to a record $927 million (7% increase in U.S. markets)

 

    6% increase in gross profit to a record $231 million (20 basis-point lower gross margin)

 

    20 basis-point decline in SG&A as a percentage of sales to 19.3%

 

    $191 million debt reduction versus a year ago

Sales trends:

 

    8% growth in HVAC equipment (66% of sales)

 

    5% growth for other HVAC products (29% of sales)

 

    Flat sales for commercial refrigeration products (5% of sales)

Albert H. Nahmad, Watsco’s Chairman and CEO stated: “Watsco delivered another record quarter with strong growth rates for residential and commercial HVAC systems from increasing unit demand and an improved mix of high-efficiency systems. The results also reflect investments in 140 new customer-facing employees positioned to drive long-term growth, enhance customer service and build market share. Although it is early, we are optimistic that 2018 will be a record year for our company.”

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 has launched a variety of technologies and process enhancements to transform how HVAC contractor customers are served in the marketplace. Watsco believes that speed, productivity and efficiency will be ever more critical as the digital era progresses and is investing to ensure an unparalleled customer-experience among HVAC wholesale distributors. Since 2012, Watsco’s technology team has grown from approximately 60 employees to 180 employees and the present annual run-rate for technology-related spending is approximately $24 million.

 

1


Customer adoption of Watsco’s technology platforms increased during the first quarter, enabling more contractor interaction 24 hours a day to find products, place orders and obtain technical support. The customer-obsessed innovations introduced by Watsco include:

 

    Mobile apps, websites and e-commerce platforms that employ the industry’s leading, data-rich repository of product information.

 

    Business intelligence and data analytics expertise to enable insightful assistance and decision-making by 600+ managers.

 

    Proprietary order fulfillment software to improve speed, accuracy and convenience of the pick, pack and ship process.

 

    Predictive analytics-driven demand planning and inventory optimization software to improve order fill-rates, increase inventory turns, reduce real estate requirements and improve long-term productivity.

A.J. Nahmad, Watsco’s President said, “We are inspired by the initial progress and we look forward to seeing adoption at scale, which will take time. In terms of scale, we service approximately 250,000 contractors and technicians across our 563 locations and complete over 7 million sale transactions a year. We have only scratched the surface of what is possible in terms of value creation and realization. What’s important is that these investments are helping our customers win, and when our customers win, we win.”

Dividends & Cash Flow

Watsco has paid cash dividends for over 40 consecutive years. The Company’s philosophy is to share increasing amounts of cash flow with shareholders through higher dividends while maintaining a conservative financial position. We announced a 16% increase in our annual dividend rate to $5.80 per share effective April 2018. Future increases in dividends will be considered in light of investment opportunities, cash flow, general economic conditions and the Company’s overall financial condition.

The Company has targeted cash flow from operations to exceed net income in 2018. Since 2000, Watsco’s operating cash flow was approximately $2.2 billion compared to net income of approximately $2.0 billion, surpassing the Company’s stated goal of generating cash flow in excess of net income.

Tax Cuts and Jobs Act of 2017

First quarter 2018 results reflect lower income tax expense as a result of the passage of the Tax Cuts and Jobs Act of 2017. The Company’s effective income tax rate (net of taxes attributable to non-controlling interest) was 21% for the first quarter of 2018 versus 29% last year.

Technology Summit for Institutional Investors

Watsco and Baird LLC are hosting a technology-focused meeting for institutional investors on Friday, May 18, 2018 in Miami, Florida from 10:00 a.m. to 1:00 p.m. by invitation only. Leadership will provide a strategic overview of the Company, including an update of the various technology initiatives currently underway. A concurrent webcast will be provided on the Company’s website.

First Quarter Earnings Conference Call Information

Date: April 24, 2018

Time: 10:00 a.m. (EDT)

Webcast: http://investors.watsco.com

Dial-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.

 

2


About Watsco

Watsco operates the largest distribution network for heating, air conditioning and refrigeration (HVAC/R) products with locations in the United States, Canada, Mexico and Puerto Rico, and on an export basis to Latin America and the Caribbean. Watsco estimates that over 250,000 contractors and technicians visit or call one of its 563 locations each year to get information, obtain technical support and buy products.

HVAC/R products provide comfort to homes and businesses 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 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 its 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. 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. 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. 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.

 

3


WATSCO, INC.

Condensed Consolidated Results of Operations

(In thousands, except per share data)

(Unaudited)

 

     Quarters Ended March 31,  
     2018     2017  

Revenues

   $ 926,577     $ 872,095  

Cost of sales

     695,744       653,539  
  

 

 

   

 

 

 

Gross profit

     230,833       218,556  

Gross profit margin

     24.9     25.1
  

 

 

   

 

 

 

SG&A expenses

     178,534       169,857  
  

 

 

   

 

 

 

Other Income

     1,638       0  

Operating income

     53,937       48,699  

Operating margin

     5.8     5.6
  

 

 

   

 

 

 

Interest expense, net

     565       1,255  
  

 

 

   

 

 

 

Income before income taxes

     53,372       47,444  

Income taxes

     10,995       13,676  
  

 

 

   

 

 

 

Net income

     42,377       33,768  

Less: net income attributable to non-controlling interest

     8,158       7,587  
  

 

 

   

 

 

 

Net income attributable to Watsco

   $ 34,219     $ 26,181  
  

 

 

   

 

 

 

Diluted earnings per share:

    

Net income attributable to Watsco shareholders

   $ 34,219     $ 26,181  

Less: distributed and undistributed earnings allocated to non-vested restricted common stock

     3,775       3,120  
  

 

 

   

 

 

 

Earnings allocated to Watsco shareholders

   $ 30,444     $ 23,061  
  

 

 

   

 

 

 

Weighted-average Common and Class B common shares and equivalent shares used to calculate diluted earnings per share

     34,320,110       32,679,806  

Diluted earnings per share for Common and Class B common stock

   $ 0.89     $ 0.71  
  

 

 

   

 

 

 

 

4


WATSCO, INC.

Condensed Consolidated Balance Sheets

(Unaudited, in thousands)

 

     March 31,      December 31,  
     2018      2017  

Cash and cash equivalents

   $ 58,073      $ 80,496  

Accounts receivable, net

     486,651        478,133  

Inventories

     810,021        761,314  

Other

     16,979        17,454  
  

 

 

    

 

 

 

Total current assets

     1,371,724        1,337,397  

Property and equipment, net

     90,238        91,198  

Goodwill, intangibles, net and other

     614,316        618,282  
  

 

 

    

 

 

 

Total assets

   $ 2,076,278      $ 2,046,877  
  

 

 

    

 

 

 

Accounts payable and accrued expenses

   $ 377,495      $ 416,233  

Current portion of long-term obligations

     236        244  
  

 

 

    

 

 

 

Total current liabilities

     377,731        416,477  

Borrowings under revolving credit agreement

     91,000        21,800  

Deferred income taxes and other liabilities

     57,921        57,623  
  

 

 

    

 

 

 

Total liabilities

     526,652        495,900  
  

 

 

    

 

 

 

Watsco’s shareholders’ equity

     1,292,714        1,297,953  

Non-controlling interest

     256,912        253,024  
  

 

 

    

 

 

 

Shareholders’ equity

     1,549,626        1,550,977  
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 2,076,278      $ 2,046,877  
  

 

 

    

 

 

 

Condensed Consolidated Statements of Cash Flows

(Unaudited, in thousands)

 

     Quarters Ended March 31,  
     2018     2017  

Cash flow from operating activities:

    

Net income

   $ 42,377     $ 33,768  

Non-cash items

     11,764       11,882  

Changes in working capital

     (95,755     (11,333
  

 

 

   

 

 

 

Net cash (used in) provided by operating activities

     (41,614     34,317  
  

 

 

   

 

 

 

Cash flow from investing activities:

    
  

 

 

   

 

 

 

Capital expenditures, net

     (3,432     (4,127
  

 

 

   

 

 

 

Cash flow from financing activities:

    

Dividends on Common and Class B Common stock

     (46,581     (37,383

Net proceeds under revolving credit agreement

     69,200       45,006  

Purchase of additional ownership from non-controlling interest

     —         (42,688

Distributions to non-controlling interest

     (2,178     (6,798

Other

     2,898       2,934  
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     23,339       (38,929
  

 

 

   

 

 

 

Effect of foreign exchange rate changes on cash and cash equivalents

     (716     150  
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents

     (22,423     (8,589

Cash and cash equivalents at beginning of period

     80,496       56,010  
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 58,073     $ 47,421  
  

 

 

   

 

 

 

 

5

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