Watsco Inc. Q1 Cash Flow Surges 758%

By Chris Stiles • Tuesday, April 28 11:28 • Permanent Link

Watsco’s first quarter showed a business that was largely steady on the top line but improved sharply on cash use as markets stabilized and the company worked through the A2L refrigerant transition.

Revenue was flat at $1.53 billion. Gross profit was also flat at $428 million, while gross margin narrowed slightly to 27.9% from 28.1% a year ago. Operating income fell 2% to $110 million, and earnings per share declined 3% to $1.87.

The biggest swing came in cash flow. Watsco used $19 million in operations in the quarter, compared with $178 million used in the same period last year, a $159 million improvement.

Sales in the U.S. rose 2%, offset by an 11% decline internationally. By product category, HVAC equipment sales slipped 1% and represented 65% of revenue. Other HVAC products increased 4% and made up 30% of sales, while commercial refrigeration products rose 11% and accounted for 5%.

The company said HVAC equipment pricing increased 9% on a higher mix of A2L products and higher-efficiency equipment, even as unit volumes fell.

Operating expenses were flat, reflecting improved operating efficiency. Watsco also said it had approximately 74,000 contractors, installers and technicians engaging digitally with its platforms, up from prior periods, and first-quarter e-commerce sales grew 16% to about $2.6 billion on a trailing 12-month basis, equal to 36% of sales.

OnCallAir generated about $394 million of gross merchandise value in the quarter, up 20%, while trailing 12-month GMV reached $1.9 billion, also up 20%.

Watsco ended the quarter with $593 million in cash and short-term investments and no debt. In April, it raised its annual dividend 10% to $13.20 per share, marking 52 consecutive years of dividend payments.

The company also announced an agreement to acquire Jackson Supply Company, a Sunbelt HVAC distributor with annual sales of $230 million. Once closed, the deal will be Watsco’s 73rd independent distributor acquisition. Since 2019, Watsco has acquired 12 companies representing about $1.6 billion in annualized sales and 120 locations. Today the company's shares have moved 0.72% to a price of $440.64. Check out the company's full 8-K submission here.

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