Watsco(US:WSO) ZACKS·2024-08-29 16:37Core Viewpoint - Watsco's recent earnings report showed mixed results, with earnings missing estimates while revenues exceeded expectations, indicating a potential for growth despite some challenges in margins [2][5]. Financial Performance - Watsco reported Q2 2024 earnings per share (EPS) of $4.49, which was 4.5% below the Zacks Consensus Estimate of $4.70, but showed a year-over-year increase from $4.42 [5]. - Revenues reached $2.14 billion, surpassing the consensus estimate of $2.13 billion by 0.3% and reflecting a 6.8% year-over-year growth [5]. - The gross margin contracted by 100 basis points to 27.1%, while the operating margin declined by 70 basis points to 12.6% [9]. Sales Breakdown - Sales of HVAC equipment, which constitutes 71% of total sales, increased by 8% year-over-year, while sales of other HVAC products (25% of sales) decreased by 1% [6]. - The residential market showed strength with a 6% growth in ducted residential units and a 3% rise in average selling prices [7]. - E-commerce sales grew by 13% during the quarter, accounting for 36% of total sales, with some regions reporting over 60% [8]. Operational Highlights - Watsco's cash and cash equivalents totaled $424.9 million as of June 30, 2024, significantly up from $210.1 million at the end of 2023, with no borrowings under its $600 million credit facility [10]. - The company generated $161.4 million in net cash from operating activities in the first half of 2024, compared to a net cash outflow of $89.2 million in the same period last year [10]. Dividend Policy - Watsco has maintained a consistent dividend payment for 50 consecutive years, increasing its annual dividend rate by 10% to $10.80 per share effective April 2024 [11]. Market Outlook - There has been a downward trend in earnings estimates for Watsco, indicating a potential shift in market sentiment [12][14]. - The stock currently holds a Zacks Rank 3 (Hold), suggesting an expectation of an in-line return in the coming months [14].