Core Insights - The article discusses the performance of dividend stocks compared to growth stocks, highlighting a trend where dividend stocks have lagged behind the broader market, with the Dividend Aristocrat Index rising nearly 4% since the start of 2025, while the broader market gained approximately 15% [2] - There is a growing preference among investors for US companies that invest in AI innovation over traditional shareholder returns, leading to a reduction in share buyback growth forecasts by Goldman Sachs from 12% to 9% [3] - Capital expenditure plans for S&P 500 companies have reached a record $1.2 trillion in 2025, with the nine largest companies accounting for nearly 30% of this total [4] Dividend Performance - A report indicated that there were 421 dividend increases in Q3 2025, down from 480 in Q3 2024, marking a 12.3% year-over-year decline. Total dividend increases over the past 12 months amounted to $57.5 billion, a decrease from $74.7 billion in the previous period [5] - In Q3 2025, 43 companies cut their dividends, representing a 59.3% increase compared to 27 companies in Q3 2024 [5][6] Company-Specific Insights - **Ethan Allen Interiors Inc. (NYSE:ETD)**: Reported a 52-week share price decline of 22.12%. For Q1 2026, the company had consolidated net sales of $147 million and a gross margin of 61.4%. Operating cash flow was $16.8 million, with $193.7 million in cash and investments [10][12][13] - **Motorola Solutions, Inc. (NYSE:MSI)**: Experienced a 52-week share price decline of 22.5%. In Q3 2025, the company reported revenue of $3 billion, an 8% increase year-over-year, with operating cash flow reaching $799 million [15][17][18] - **Carrier Global Corporation (NYSE:CARR)**: Noted a 52-week share price decline of 26.9%. The company reported Q3 2025 sales of $5.6 billion, a 7% decline from the previous year, and expects full-year revenue to be close to $22 billion [20][21][22]

Core Insights - Watsco reported revenue of $2.07 billion for the quarter ended September 2025, a decrease of 4.3% year-over-year, and EPS of $3.98, down from $4.22 in the same quarter last year [1] - The reported revenue fell short of the Zacks Consensus Estimate of $2.11 billion, resulting in a surprise of -2.21%, while the EPS also missed the consensus estimate of $4.21 by -5.46% [1] Revenue Breakdown - HVAC Equipment revenue was $1.35 billion, below the three-analyst average estimate of $1.51 billion [4] - Commercial Refrigeration Products revenue was $82.68 million, compared to the three-analyst average estimate of $87.97 million [4] - HVAC Products revenue reached $599.43 million, exceeding the average estimate of $556.6 million based on three analysts [4] Stock Performance - Watsco's shares have returned -11.4% over the past month, contrasting with the Zacks S&P 500 composite's +3.8% change [3] - The stock currently holds a Zacks Rank 4 (Sell), indicating potential underperformance relative to the broader market in the near term [3]

Financial Data and Key Metrics Changes - The company reported a 7% increase in sales for the fourth quarter, driven primarily by growth in the Climate Solutions segment [22] - Adjusted EBITDA increased by 32% or $25 million, with an adjusted EBITDA margin of 16.1%, representing a 300 basis point improvement from the prior year [23] - Full year adjusted EBITDA margin ended at 15.2%, which is 210 basis points above fiscal 2024 [24] Business Line Data and Key Metrics Changes - Climate Solutions segment reported a 30% increase in revenues and a 45% increase in adjusted EBITDA, resulting in a 220 basis point improvement in adjusted EBITDA margins to 21% [7][16] - Performance Technologies segment achieved a 15% adjusted EBITDA margin in the fourth quarter, with a 200 basis point year-over-year improvement [12][19] - Data center sales grew by $69 million or 80% from the prior year, driven by higher North American sales and the Scott Springfield acquisition [16] Market Data and Key Metrics Changes - North America showed strong demand for chillers, with data center sales primarily driving growth [8][10] - The European market is experiencing a downturn, with some projects being delayed due to changing technologies and economic conditions [52][54] - The company anticipates total sales growth of 2% to 10% for fiscal 2026, with Climate Solutions expected to grow 12% to 20% [29][30] Company Strategy and Development Direction - The company is focusing on expanding its Climate Solutions segment and has made significant investments to drive growth [5][6] - A reorganization of the Performance Technologies segment into two product groups aims to streamline operations and improve margins [13][31] - The company is actively pursuing bolt-on acquisitions to enhance its product offerings and market presence [11][57] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the data center market, with visibility into customer plans extending up to five years [39][40] - The company is navigating challenges related to tariffs and supply chain issues but believes its local for local strategy mitigates risks [42][28] - Despite uncertainties in the market, management remains optimistic about achieving fiscal 2026 targets, including adjusted EBITDA in the range of $420 million to $450 million [32] Other Important Information - The company generated $27 million of free cash flow in the fourth quarter, with full-year free cash flow at $129 million [25] - A $100 million stock buyback program was announced, with $18 million of share repurchases completed [26] - The company is on track to launch production in India in Q2, aiming to service Southeast Asia and the Middle East [10] Q&A Session Summary Question: Data center visibility and build schedules - Management indicated strong confidence in data center opportunities, with visibility extending up to five years for some customers [39][40] Question: Tariff impacts and sourcing from China - The company has significantly reduced dependency on Chinese supply chains and feels comfortable with its local for local strategy [42] Question: Demand uncertainties in Performance Technologies - The largest uncertainty is the rate of market recovery, particularly in agricultural and construction sectors [43] Question: Data center demand in North America vs Europe - North America is experiencing strong demand, while Europe is seeing some downturn due to technology adjustments [52][54] Question: M&A activity and strategic exits - The company is confident in executing at least one acquisition in the near term and is focused on divesting non-strategic automotive businesses [57][58]

Financial Data and Key Metrics Changes - The company reported a 7% increase in sales for the fourth quarter, driven primarily by growth in the Climate Solutions segment [21] - Adjusted EBITDA increased by 32% or $25 million, with an adjusted EBITDA margin of 16.1%, representing a 300 basis point improvement from the prior year [22] - Full year adjusted EBITDA margin ended at 15.2%, which is 210 basis points above fiscal 2024 [23] Business Line Data and Key Metrics Changes - Climate Solutions segment reported a 30% increase in revenues and a 45% increase in adjusted EBITDA, resulting in a 220 basis point improvement in adjusted EBITDA margins to 21% [7][15] - Performance Technologies segment achieved a 15% adjusted EBITDA margin in the fourth quarter, with a 200 basis point year-over-year improvement [11][20] - Data center sales grew by $69 million or 80% from the prior year, driven by higher North American sales and the Scott Springfield acquisition [15] Market Data and Key Metrics Changes - North America showed strong demand for chillers, with data center sales significantly contributing to revenue growth [8][15] - The European market is experiencing some downturn, with customers adjusting their spending plans [52] Company Strategy and Development Direction - The company is focusing on expanding its Climate Solutions segment and has made significant investments to drive growth [5][10] - A new modular data center cooling solution is being launched to meet market demands for high-density compute infrastructure [9] - The Performance Technologies segment is being reorganized into two product groups to better focus on key end markets and customers [29] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the data center market, with visibility of customer plans extending up to five years [38] - The company anticipates total sales growth of 2% to 10% for fiscal 2026, with Climate Solutions expected to grow by 12% to 20% [27] - Performance Technologies is expected to see sales decline by 2% to 12% due to depressed end markets [28] Other Important Information - The company generated $27 million of free cash flow in the fourth quarter, with full year free cash flow at $129 million [24] - A $100 million stock buyback program was announced, with $18 million of share repurchases completed [25] Q&A Session Summary Question: Can you discuss data center visibility and customer build schedules? - Management indicated strong confidence in data center opportunities, with visibility extending up to five years for some customers [36][38] Question: Is there anything sourced from China that is hard to find elsewhere? - The company has significantly reduced dependency on China and feels comfortable with its local supply chain strategy [40] Question: What is the outlook for Performance Technologies? - The largest uncertainty is the rate of market recovery, particularly in Performance Technologies, while Climate Solutions is expected to grow steadily [41] Question: Can you clarify the split in data center revenue between the US and Europe? - The split is approximately 75% North America and 25% Europe [64] Question: How will data center revenue ramp up in fiscal 2026? - The first quarter is expected to be the softest, with ramp-up occurring throughout the year as capacity increases [66] Question: What is the growth outlook for Climate Solutions? - Data center revenue is expected to grow by at least 30%, while other areas may see flat or low double-digit growth [70] Question: What are the plans for divestitures in the Performance Technologies segment? - Currently, no divestitures are built into the guidance, but the company is focused on exiting non-strategic businesses [78]