2024 results also reflect ongoing efforts to regain sales and market share related to one of the Company’s primary OEMs after product and supply chain disruptions impacted customer relationships in 2023. Watsco and its OEM partner have made co-investments that are yielding positive results to both regain lost customers and attract new customers. The Company estimates these investments have been dilutive to gross margins by approximately 30 basis-points for the nine-month period ended September 30, 2024. Watsco is actively collaborating and investing alongside the OEM to reestablish market share and drive long-term growth.

Watsco has further strengthened its financial position in 2024 and is well-positioned to invest in growth. Operating cash flow increased 50% to a record $394 million for the nine-months ended September 30, 2024. At September 30, 2024, the Company had $550 million in cash and short-term investments, no borrowings under its $600 million revolving credit facility and $400 million of equity capacity under its ATM program.

Third Quarter Results

• Sales increased 2% to a record $2.16 billion (flat on a same-store basis)

• Gross profit of $566 million with gross margin of 26.2%

• SG&A expenses increased 2% (flat on a same-store basis)

• Operating income decreased 2% to $250 million (11.6% operating margin)

• Net income attributable to Watsco of $171 million, flat versus last year

• Earnings per share declined 3% to $4.22

Sales trends (excludes acquisitions)

• 1% increase in HVAC equipment (71% of sales)

• 2% decline in other HVAC products (25% of sales)

• 4% decline in commercial refrigeration products (4% of sales)
  

Albert H. Nahmad, Chairman and CEO commented: “During the third quarter, Watsco achieved record sales and net income, produced strong cash flow and made further strides to improve operating efficiency across its network. We believe the market environment for HVAC products stabilized this year, and we look forward to helping our customers navigate next year’s regulatory transition toward the new A2L systems. This regulatory change will ultimately impact approximately 60% of our sales and offers our contractor customers the opportunity to upgrade older HVAC systems with new products that are both more energy-efficient and environmentally-friendly.”

Nine-Month Results

• Sales increased 3% to a record $5.9 billion (1% increase on a same-store basis)

• Gross profit of $1.58 billion, flat versus the last year (gross margin of 26.9%)

• SG&A expenses increased 5% to $955 million (2% increase on a same-store basis)

• Operating income decreased 6% to $646 million (11.0% operating margin)

• EPS of $10.92 compared to $11.60 in the same period last year

• Operating cash flow improved 50% to a record $394 million versus the same period last year

Sales trends (excludes acquisitions)

• 3% increase in HVAC equipment (70% of sales)

• 3% decrease in other HVAC products (26% of sales)

• Flat sales of commercial refrigeration products (4% of sales)
  

Mr. Nahmad added: “Overall, we believe that our 2024 performance reflects market share gains and represents solid performance relative to trends in the market and the economy. We see the potential for further improving productivity and are gratified that our focus on the balance sheet has produced record cash flow. Our teams continue to lead and innovate, and I am optimistic that our industry-leading scale, entrepreneurial culture, technology advantage and strong balance sheet position us to capture growth and share.”

Culture of Innovation
Watsco remains committed to scaling the industry’s most robust, user-friendly technology platforms for HVAC/R contractors, which make it easier for customers to interact with the Company and, as a further step, modernize how contractors engage with consumers and businesses. Active technology users continue to grow sales at faster rates than non-users and, overall, we experience 57% less attrition among users of our technology platforms. The Company believes that scaling its technology platform through increased adoption by customers will lead to higher organic growth rates, lower attrition and lower costs to serve.

Specific technology-related updates include:

• Product Information Management (PIM), Watsco’s repository of rich product information, is delivered seamlessly through its mobile apps and e-commerce platform. Watsco’s PIM database provides contractors digital access to more than 900,000 SKUs.

• HVAC Pro+ Mobile Apps provide contractors real-time access to critical information that improves speed to market and enhances efficiency for the customer. This includes real-time technical support, product specifications, inventory availability, warranty look-up and processing, system matchups, e-commerce, and much more. The community of authenticated users (those linked to an e-commerce account) over the 12-month period ended September 30, 2024 expanded 14% to approximately 61,000 users.

• E-commerce sales continue to outpace overall sales growth rates, growing 5% during the nine-month period ended September 30, 2024 and accounting for 35% of total sales (inclusive of revenues from recently acquired businesses), and in some regions, exceed 60% of total sales.

• OnCallAir?, Watsco’s digital sales platform, has increased penetration among HVAC contractors as digital engagement with homeowners expands. The annualized gross merchandise value (GMV) of products sold by customers through OnCallAir? was approximately $1.4 billion for the 12-month period ended September 30, 2024. From January 1 to September 30, 2024, OnCallAir? presented quotes to approximately 258,000 households, a 17% increase, and generated $1.2 billion GMV, a 22% increase, versus the same period last year.

A.J. Nahmad, Watsco’s President, added: “Our contractor customers are the backbone of our business, and we are committed to empowering them with the best technology platforms available. Our ongoing investments in advanced digital tools and innovative solutions are designed to streamline their operations, enhance efficiency, and drive their success. We are proud to support our customers and their ambitions with the technology resources they need to thrive in a competitive landscape, and we expect to invest more over time to provide a distinct, long-term competitive advantage.”

Dividend Policy
Watsco’s philosophy is to share increasing amounts of cash flow through higher dividends while maintaining a conservative financial position with continued capacity to build its network. Watsco’s annual dividend rate was increased 10% to $10.80 per share effective in April 2024. Future dividend increases are considered in light of investment opportunities, general economic conditions and the Company’s overall financial position.

Third Quarter Earnings Conference Call Information
Date and time: October 23, 2024 at 10:00 a.m. (EDT)
Webcast: https://investors.watsco.com (a replay will be available on the Company’s website)
Dial-in number: United States (844) 883-3908 / International (412) 317-9254

Use of Non-GAAP Financial Information
This release discloses certain performance measures on a “same-store basis”, which are non-GAAP and exclude the effects of locations closed, acquired or locations opened, in each case during the immediately preceding 12 months, unless such locations are within close geographical proximity to existing locations. The Company believes this information provides greater comparability regarding its ongoing operating performance. These measures should not be considered an alternative to measurements presented in accordance with U.S. GAAP.

About Watsco
Watsco is the largest distributor of 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.

We focus on the replacement market, which has increased in size and importance as a result of the aging of installed systems, the introduction of higher energy efficient models and the necessity of HVAC products in homes and businesses. According to data published in March 2023 by the Energy Information Administration, there are approximately 102 million HVAC systems installed in the United States that have been in service for more than 10 years, most of which operate well below current minimum efficiency standards.

Accordingly, Watsco has the opportunity to be a significant and important contributor toward climate change as it plays an important role to lower CO2e emissions. According to the Department of Energy, HVAC systems account for roughly half of U.S. household energy consumption. As such, replacing older systems at higher efficiency levels is a critical means for homeowners to reduce electricity consumption and their carbon footprint.

Based on estimates validated by independent sources, Watsco averted an estimated 21.8 million metric tons of CO2e emissions from January 1, 2020 to September 30, 2024 through the sale of replacement HVAC systems at higher-efficiency standards, an equivalent of eliminating 5.2 million gas powered vehicles off the road annually. More information, including sources and assumptions used to support the Company’s estimates, can be found at www.watsco.com.

This document includes certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may address, among other things, our expected financial and operational results and the related assumptions underlying our expected results. These forward-looking statements are distinguished by use of words such as “will,” “would,” “anticipate,” “expect,” “believe,” “designed,” “plan,” 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, the seasonal nature of sales of Watsco’s products, the ability of the Company to expand its business, insurance coverage risks and final GAAP adjustments.

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. Forward-looking statements speak only as of the date the statements were 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.

Barry S. Logan
Executive Vice President
(305) 714-4102
e-mail: [email protected]