Watsco, Inc.’s WSO shares plunged 3.8% on Wednesday after it reported unimpressive third-quarter 2024 results. Both the earnings and revenues missed the Zacks Consensus Estimate.

On a year-over-year basis, the top line increased, driven by better commercial HVAC systems and stable residential HVAC equipment. However, bottom lines declined due to higher costs.

Watsco is steadily advancing toward its goal of expanding customer-focused technologies to a growing number of contractors. Its e-commerce sales have surged at nearly twice the pace of its overall sales, highlighting success in scaling industry-leading tools and platforms. Additionally, mobile platforms are engaging a record number of contractors and technicians, which is expected to enhance operating efficiencies over time.

Inside the Numbers

Watsco reported quarterly earnings per share (EPS) of $4.22, which lagged the Zacks Consensus Estimate of $4.84 by 12.8% and declined 3% from the year-ago figure of $4.35.

Watsco, Inc. Price, Consensus and EPS Surprise

Watsco, Inc. price-consensus-eps-surprise-chart | Watsco, Inc. Quote

Revenues of $2.16 billion missed the consensus mark of $2.13 billion by 3.9% but grew 2% year over year.

Sales of HVAC equipment (heating, ventilating and air conditioning, comprising 71% of sales) were up 1% year over year. Sales of other HVAC products (25% of sales) dropped 2% from the year-ago quarter. Sales from commercial refrigeration products (4% of sales) fell 4% year over year.

Watsco’s unit sales within residential HVAC equipment stabilized during the 2024 selling season (i.e., second and third quarters on a combined basis). It also witnessed solid growth in sales of commercial HVAC systems.

E-commerce sales increased 5% during the first nine months of 2024 and accounted for 35% of total sales, including revenues from recently acquired businesses. In some regions, e-commerce sales comprise more than 60% of total sales.

In the first nine months of 2024, OnCallAir presented quotes to around 258,000 households, marking a 17% increase compared to the same period last year. Additionally, it generated $1.2 billion in gross merchandise value, a 22% increase year over year.

Operating Highlights

The gross margin contracted 50 basis points (bps) in the reported quarter to 26.2%. Our model predicted the gross margin to increase 30 bps year over year. SG&A expenses, as a percentage of sales, rose 10 bps year over year to 15.1% in the quarter versus our expectation of a decrease of 10 bps year over year.

The operating margin declined 50 bps year over year in the third quarter to 11.6%. Our estimate for the metric was 12.4%.