Watsco(US:WSO)2025-07-30 15:02Financial Data and Key Metrics Changes - Sales declined by 4% despite double-digit pricing gains for new equipment, offset by lower volumes [6][7] - Gross profit margins reached record levels, leading to an increase in EBIT and expanded EBIT margins [7][8] - SG&A expenses increased by 6% due to transition costs and the addition of 10 new locations from recent acquisitions [8][9] - The company maintains a strong cash position with no debt [9] Business Line Data and Key Metrics Changes - Residential new construction and international markets remain subdued, with residential new construction down by 15% to 20% [19] - E-commerce sales grew to $2.5 billion, representing 34% of total sales, with mobile app users increasing by 17% year-over-year [9][10] - The annual volume of products sold through OnCallAir increased by 19% to $1.6 billion [10] Market Data and Key Metrics Changes - International sales, particularly in Mexico, were volatile and negatively impacted earnings by approximately $0.10 per share in the quarter [22] - The company expects improvements in July and August, indicating a better market outlook [23] Company Strategy and Development Direction - The company is focused on transitioning to next-generation equipment with A2L refrigerants, affecting about 55% of historical product sales [5][6] - A new technology-driven sales platform is being developed to capture larger national customers, expected to launch in 2026 [10][11] - The company aims to grow the parts and supply segment, which currently represents about 30% of sales [11] Management's Comments on Operating Environment and Future Outlook - Management acknowledges a soft market but remains optimistic about future growth and market share development [25][26] - The company is focused on improving gross margins and inventory turns, with a goal of reaching 30% gross profit margin [11][84] - Management emphasizes the importance of innovation and technology in maintaining competitive advantage [12][93] Other Important Information - The company is actively pursuing M&A opportunities, leveraging its strong balance sheet [55][56] - Management is committed to improving inventory management and reducing excess inventory levels [50][53] Q&A Session Summary Question: What happened to volumes in the quarter? - Management noted that volumes were weaker than expected due to weather patterns and a decline in residential new construction, but saw improvements in July [19][20] Question: How sustainable are the gross margins? - Management indicated that while the current gross margin of 29% is strong, it may not be sustainable in the second half of the year due to the absence of pricing benefits seen in the first half [27][28] Question: What is the impact of the canister shortage? - Management stated that the canister shortage was less of a concern now and that they expect to be off allocation by August [40][41] Question: How is the inventory investment trending? - The company reported a significant inventory investment due to the transition, but is focused on improving inventory turns moving forward [50][52] Question: What are the thoughts on consumer preferences during the product transition? - Management observed that the market remains focused on minimum efficiency products, with no significant shift towards high-efficiency systems [61][62] Question: Are there any incentives being requested by contractors? - Management indicated that contractors are not pushing for lower prices, as there is no elasticity in the market [146]