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Core Points - The company expresses pride in its team and ongoing investments, highlighting the importance of engaging with its audience [1][2] - The interactive nature of the meeting is encouraged, aiming to foster a lively discussion [2] - A cautionary statement regarding forward-looking statements is mentioned, referencing the potential for actual results to differ from projections [3] Group 1 - The company is excited about its current initiatives and the team involved [1] - The meeting is designed to be interactive, inviting questions and comments from participants [2] - A legal disclaimer is provided regarding forward-looking statements, emphasizing the need for caution in interpreting future projections [3]

Watsco (NYSE:WSO) 2025 Investor Day December 11, 2025 09:00 AM ET Company ParticipantsBrian O'Mahoney - President of North AmericaNone - Video NarratorBarry Logan - EVP and SecretaryAJ Nahmad - PresidentPatrick Ruland - Head of SalesSteve Rupp - SVP and CTONone - Unknown Speaker 4Stephanie Nussbickel - Sales EngineerAlbert Nahmad - CEOEd Gaffney - SVP of Digital Transformation and MarketingRick Gomez - VP of Corporate DevelopmentJim Brady - VP of Supply Chain and LogisticsRob Rusniaczek - Vice President of ...

It has been about a month since the last earnings report for Watsco (WSO) . Shares have lost about 3.6% in that time frame, underperforming the S&P 500.But investors have to be wondering, will the recent negative trend continue leading up to its next earnings release, or is Watsco due for a breakout? Well, first let's take a quick look at its latest earnings report in order to get a better handle on the recent drivers for Watsco, Inc. before we dive into how investors and analysts have reacted as of late.Wa ...

Core Insights - Watsco's international operations are crucial for assessing its financial strength and growth potential, especially given its global presence [1][2][3] Revenue Performance - The total revenue for Watsco in the quarter was $2.07 billion, reflecting a year-over-year decline of 4.3% [4] - Revenue from Canada was $87.81 million, accounting for 4.3% of total revenue, which was a 13% miss compared to the consensus estimate of $100.93 million [5] - Latin America and the Caribbean generated $90.83 million, representing 4.4% of total revenue, also missing projections by 14.42% compared to the expected $106.13 million [6] Future Projections - Analysts project Watsco's revenues for the ongoing fiscal quarter to be $1.65 billion, a decline of 6.1% from the previous year, with expected contributions from Canada and Latin America at $83.48 million and $86.39 million, respectively [7] - For the full year, total annual revenue is expected to be $7.33 billion, down 3.8% from last year, with Canada and Latin America projected to contribute $360.5 million and $386.91 million, respectively [8] Market Context - The reliance on international markets presents both opportunities and challenges for Watsco, making it essential to monitor international revenue trends for future projections [9][10] - The company's stock has seen a decline of 4.2% over the past four weeks, contrasting with a 0.3% increase in the S&P 500, and a 15.3% decline over the past three months compared to a 6.4% increase in the S&P 500 [13]

Financial Performance - Revenues for the third quarter of 2025 were $2,067.0 million, a decrease of 4% compared to $2,160.0 million in the third quarter of 2024, with a decline of $106.9 million in same-store sales [87]. - Gross profit margin increased to 27.5% in the third quarter of 2025 from 26.2% in the same quarter of 2024, while operating income was 11.4% compared to 11.6% in the prior year [83]. - The company reported net income attributable to Watsco, Inc. of 7.8% for Q3 2025, slightly down from 7.9% in Q3 2024 [83]. - Net income attributable to Watsco, Inc. decreased by $9.5 million or 6% in Q3 2025 compared to Q3 2024, primarily due to higher expenses and lower interest income [96]. - Revenues for the nine months ended September 30, 2025, were $5,660.5 million, a decrease of $203.9 million or 3% from $5,864.4 million in the same period of 2024 [97]. - Gross profit for the nine months ended September 30, 2025, was $1,602.0 million, an increase of $25.4 million or 2% compared to $1,576.6 million in 2024, with a gross margin of 28.3% [99]. - Selling, general and administrative expenses for the nine months ended September 30, 2025, were $1,005.2 million, a 5% increase from $955.0 million in 2024, representing 17.8% of revenues [101]. Expenses and Costs - Selling, general and administrative expenses as a percentage of revenues increased to 16.6% in Q3 2025 from 15.1% in Q3 2024 [83]. - Selling, general and administrative expenses rose to $343.7 million in Q3 2025, a 5% increase from $326.4 million in Q3 2024, representing 16.6% of revenues [91]. - Cash flows provided by operating activities decreased by $224.4 million to $169.8 million for the nine months ended September 30, 2025, compared to $394.2 million in 2024 [113]. - Interest income, net for Q3 2025 decreased by $3.0 million or 45% compared to the same period in 2024, primarily due to lower cash balances [93]. Operational Metrics - The company operated 698 locations as of September 30, 2025, an increase from 689 locations a year earlier, with 10 locations acquired and 9 closed during the year [86]. - HVAC equipment sales accounted for 67% of total sales in Q3 2025, down from 70% in Q3 2024, reflecting a 7% decrease [89]. - Gross profit for Q3 2025 was $568.9 million, a slight increase of $2.7 million or 0% compared to Q3 2024, with a gross margin improvement of 130 basis points to 27.5% [90]. Strategic Initiatives - The company continues to monitor macroeconomic conditions and trade policies that may impact its supply chain and pricing strategies [71]. - The company has taken pricing actions to mitigate the effects of tariffs and inflationary pressures on its product costs [71]. - The company expects regulatory mandates to periodically increase the required minimum Seasonal Energy Efficiency Ratio (SEER) rating, which could drive sales of higher-efficiency systems [74]. - The U.S. Inflation Reduction Act of 2022 aimed to promote high-efficiency heat pump systems, but tax credits for HVAC systems will be unavailable after December 31, 2025 [78]. Shareholder Actions - The company paid cash dividends of $8.70 per share for the nine months ended September 30, 2025, compared to $7.85 per share for the same period in 2024 [132]. - The Dividend Reinvestment Plan (DRIP) was implemented on March 29, 2024, allowing shareholders to acquire up to 300,000 shares through reinvested dividends [133]. - A total of 47,751 shares were issued under the DRIP during the nine months ended September 30, 2025 [134]. - The company has repurchased 6,370,913 shares at a cost of $114.4 million since the inception of the share repurchase program, with 1,129,087 shares remaining authorized for repurchase [135]. Financing Activities - The company maintains a $600.0 million unsecured revolving credit agreement, which can be reduced to $500.0 million seasonally from October 1 to March 31 [117]. - As of September 30, 2025, there was no outstanding balance under the revolving credit agreement, and the company was in compliance with all covenants [119]. - During Q1 2024, the company issued 712,000 shares under the 2021 ATM Program for net proceeds of $281.8 million, totaling $298.5 million issued under the program [121]. - The company entered into a new ATM Program on May 3, 2024, allowing for an additional $400.0 million in common stock sales [122]. Acquisitions - The company acquired Southern Ice Equipment Distributors, Inc. for $14.3 million in cash and 7,400 shares of common stock, recognizing $7.8 million in goodwill [127]. - The acquisition of Hawkins HVAC Distributors, Inc. was completed for $2.5 million in cash, resulting in $0.3 million in goodwill [128].

Financial Performance - Revenues for the third quarter of 2025 were $2,067.0 million, a decrease of 4% compared to $2,160.0 million in the third quarter of 2024[87]. - Same-store sales for the third quarter of 2025 were $2,048.0 million, down 5% from $2,154.9 million in the same quarter of 2024[88]. - Gross profit for Q3 2025 was $568.9 million, a slight increase of $2.7 million or 0% compared to Q3 2024, with a gross margin improvement of 130 basis points to 27.5%[90]. - Revenues for the nine months ended September 30, 2025, were $5,660.5 million, a decrease of $203.9 million or 3% from $5,864.4 million in the same period of 2024[97]. - Same-store sales for the nine months ended September 30, 2025, were $5,615.3 million, down $231.5 million or 4% from $5,846.8 million in 2024[98]. - Gross profit for the nine months ended September 30, 2025, was $1,602.0 million, an increase of $25.4 million or 2% from $1,576.6 million in 2024, with a gross margin of 28.3%[99]. - Net income attributable to Watsco, Inc. was 7.8% of revenues in the third quarter of 2025, slightly down from 7.9% in the same quarter of 2024[83]. - Net income attributable to Watsco, Inc. decreased by $9.5 million or 6% in Q3 2025 compared to Q3 2024, primarily due to higher expenses and lower interest income[96]. Expenses and Costs - Cost of sales decreased to 72.5% of revenues in the third quarter of 2025, compared to 73.8% in the same quarter of 2024[83]. - Selling, general and administrative expenses rose to 16.6% of revenues in the third quarter of 2025, up from 15.1% in the same quarter of 2024[83]. - Selling, general and administrative expenses rose to $343.7 million in Q3 2025, a 5% increase from $326.4 million in Q3 2024, representing 16.6% of revenues[91]. - Interest income, net for Q3 2025 decreased by $3.0 million or 45% compared to Q3 2024, primarily due to lower cash and short-term investment balances[93]. Company Operations - The company operated 698 locations as of September 30, 2025, an increase from 689 locations a year earlier[86]. - The company acquired four businesses in 2025, including Southern Ice Equipment Distributors, Inc. and Hawkins HVAC Distributors, Inc.[84]. - HVAC equipment sales accounted for 67% of total sales in Q3 2025, down from 70% in Q3 2024, reflecting a 7% decrease[89]. Cash Flow and Working Capital - Net cash provided by operating activities decreased by $224.4 million to $169.8 million for the nine months ended September 30, 2025, compared to $394.2 million in 2024[113]. - Working capital increased to $2,303.8 million as of September 30, 2025, from $2,096.1 million at December 31, 2024, driven by higher inventory and accounts receivable[112]. Financing and Stock Activity - The company maintains an unsecured, five-year $600.0 million revolving credit agreement, with a seasonal borrowing capacity reduced to $500.0 million from October 1 to March 31[117][118]. - As of September 30, 2025, there was no outstanding balance under the revolving credit agreement, and the company was in compliance with all covenants[119]. - During Q1 2024, the company issued and sold 712,000 shares of Common stock under the 2021 ATM Program for net proceeds of $281.8 million, totaling $298.5 million issued under the program[121]. - The company entered into a new ATM Program on May 3, 2024, allowing for an additional $400.0 million in Common stock sales, with the full amount available as of September 30, 2025[122]. - Cash dividends paid per share increased from $7.85 in 2024 to $8.70 in 2025, with a quarterly dividend of $3.00 declared on October 1, 2025[132]. - The company has repurchased a total of 6,370,913 shares of common stock at a cost of $114.4 million since the inception of the repurchase program, with 1,129,087 shares remaining authorized for repurchase[135]. Acquisitions - The company acquired Southern Ice Equipment Distributors, Inc. for $14.3 million in cash and 7,400 shares of Common stock, recognizing $7.8 million in goodwill[127]. - The acquisition of Hawkins HVAC Distributors, Inc. was completed for $2.5 million in cash, resulting in $0.3 million in goodwill[128]. - The company acquired W.L. Lashley & Associates, Inc. for $3.7 million in cash and 1,036 shares of Common stock, recognizing $3.1 million in goodwill[129]. Strategic Focus - The company has a focus on high-efficiency HVAC systems, which are expected to reduce CO2e emissions significantly[77]. - The U.S. Inflation Reduction Act of 2022 aimed to promote high-efficiency heat pump systems, but tax credits for HVAC systems will be unavailable after December 31, 2025[78]. - The company continues to evaluate potential acquisitions and joint ventures, indicating a strong financial position to pursue additional financing if needed[131].

Group 1 - Watsco is recognized as the largest player in a fragmented industry, showcasing strong industry positioning [1] - The company benefits from exceptional leadership and a unique incentive structure that fosters entrepreneurialism at the management level [1] - The investment focus is on value-oriented stocks that are available at low prices and have near-term catalysts for growth [1] Group 2 - The investment horizon for potential opportunities ranges from one quarter to two years, indicating a medium-term investment strategy [1] - The analyst has over three years of active investing experience, including roles as a buy-side analyst at boutique research firms and family offices [1]

Group 1 - Watsco is recognized as the largest player in a fragmented industry, showcasing strong industry positioning [1] - The company benefits from phenomenal leadership and a unique incentive structure that fosters entrepreneurialism at the grassroots management level [1] - The investment focus is on value-oriented stocks that are available at a low price and have near-term catalysts, with an investment horizon ranging from a quarter to two years [1] Group 2 - The analysis is based on fundamental research across various sectors, including chemicals, homebuilders, building materials, industrials, and metals & mining [1] - The analyst has over 3 years of active investing experience and has served as a buy-side analyst at a boutique research firm and family offices [1]

Core Insights - Watsco, Inc. is a leading player in the North American HVAC market, with a strong financial foundation of over $640 million in cash and investments and no debt [1] - The company reported earnings per share (EPS) of $3.98 for Q3 2025, missing the estimated $4.44, which represents a 5.46% negative surprise [2] - Watsco's revenue for the same quarter was $2.07 billion, falling short of the estimated $2.17 billion, marking a 2.21% miss [3] Financial Performance - The EPS decreased from $4.22 in the same quarter last year, indicating a challenging period for the company [2] - Revenue declined from $2.16 billion reported in the same period last year [3] - Watsco has only surpassed consensus revenue estimates once in the last four quarters [3] Market Position and Valuation - Despite the earnings and revenue shortfalls, Watsco maintains a strong market position with a price-to-earnings (P/E) ratio of 26.52 and a price-to-sales ratio of 2.01 [4][6] - The company's enterprise value to sales ratio is also 2.01, indicating stable valuation relative to its sales [4] - Watsco's low debt-to-equity ratio of 0.10 and a robust current ratio of 3.84 further underscore its financial health [4][6] Cash Flow and Returns - Watsco's ability to generate cash flow is reflected in its enterprise value to operating cash flow ratio of 27.23 [5] - The company's earnings yield stands at 3.77%, providing insight into the return on investment [5] - Watsco has achieved an 18% compounded annual total-shareholder return since 1989, driven by strategic acquisitions and organic growth [5]